Saibal C. Pal

1. Introduction :-Notification dated 28th August, 2009 issued by the Ministry of Corporate Affairs (`MCA’) repealed the Monopolies and Restrictive Trade Practices Act, 1969(`MRTP ACT’) with effect from 1st September, 2009. The repealed Act was replaced by the Competition Act, 2002 (`COMPETITION ACT’) as amended by the Competition (Amendment) Act,2007.  Chapter III of the repealed MRTP ACT which dealt with concentration of economic powers through mergers, amalgamations and acquisition was deleted with effect from 27th July, 1991. Therefore, restrictions on mergers, amalgamations and acquisitions in the country did not exist post July, 1991 until SEBI imposed restrictions on listing of unlisted companies through mergers and amalgamations. Further SEBI announced the Take over Code in 1994 substituted by the Code of 1997 and amended from time to time to restrict take over of listed companies. Restrictions of merger and amalgamation of banking companies, however, continued to be regulated by the Reserve Bank of India throughout.  On  the Competition Commission of India(`CCI’) coming into force, the MRTP Commission will continue exist for two years con-currently to handle old cases filed prior to 1st September,2009 for a period of two years up to 31st August, 2011. However, no new cases would be taken up by the MRTP Commission. On expiry of two years all pending cases pertaining to monopolistic or restrictive trade practices, including cases having an element of unfair trade practice shall stand transferred to the Competition Appellate Tribunal (CAT) which shall adjudicate such cases in accordance with the provisions of the repealed MRTP Act.

1.2 Competition laws all over the world are primarily concerned with the acquisition and/or exercise of market power and abuse. Market power is variously known in competition jurisdictions as dominant position, monopoly power and substantial market power. The Competition Act, 1992 and amended in 2007 follows the philosophy of modern competition laws and aims at fostering competition, protecting Indian markets against anti-competitive practices by enterprises who always want market leadership to maximize benefits from the market for their progress. The Act prohibits anti-competitive agreements and abuse of dominant position by enterprises and regulates combinations which include mergers, amalgamations and acquisitions thus laying down certain practices from which enterprises shall have to keep away. Enterprises not following the law on competition will have to face penalty which will thwart activities and operation in the market.

2. Transfer of pending cases before MRTP Commission and applicability of repealed MRTP ACT in such cases.

2.1. With the notification date 28th August,2009 all pending cases with the MRTP Commission relating solely to unfair trade practices shall stand transferred to the National Commission as constituted under the Consumer Protection Act,1986(`CPA’) which may in turn transfer such cases to a State Commission constituted under the said Act as deemed appropriate. Such transferred cases will be dealt by the Commission according to the provisions of the CPA.

2.2 Cases of false or misleading facts, disparaging the goods, services or trade of another person pending under the MRTP Act shall be transferred to  CAT however, the transferred cases will be dealt in accordance with the provisions of the repealed MRTP Act.

2.3   Investigations/proceedings undertaken by the Director General under the MRTP Act relating to : (i) Monopolistic/restrictive trade practices will be transferred to the CCI who may conduct such investigations/proceedings in any manner it deems appropriate.(ii) Unfair  trade practices will be transferred to the National Commission under the CPA;(iii) cases giving false or misleading facts disparaging the goods, services or trade of another person will be transferred to the CCI.

2.4 The provisions of the law for the transition from the MRTP regime to CCI regime is clear to avoid ambiguity.

3. Provisions on Combinations (Mergers, Amalgamations and Acquisitions) :-Provisions relating to Mergers and Acquisitions termed as combinations are covered by Section 5 and 6 of the Competition Act. The provisions deal with regulation of combinations. However, the sections have not made operative as yet.  Dates of implementation of the said provisions have so far not been announced by MCA. This being a critical area it is considered prudent to gradually implement the provisions once the other provisions of the Competition Act are observed.

4. The Competition Act, 2002 as amended in 2007

4.1 India enacted its first anti-competitive legislation in 1969 known as the Monopolies and Restrictive Trade Practices Act, 1969 to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected therewith or incidental thereto. The scope of MRTP was found to be inadequate considering the changing world trade scenario. Considering the fact, the Indian Government formed a Committee on Competition Policy and Law (the Raghavan Committee) to advice on competition law.  Based on the recommendations of the Raghavan Committee the Government enacted the Competition Act, 2002 which came into effect from 13th January,2003.The Competition Act was enacted to provide ,keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensue freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. The Act was implemented in stages on 31st March,2003, 19th June,2003, 14th October,2003 and 28th August,2009. The Act was amended by the Competition (Amendment) Act, 2007 with effect from 25th September, 2007.

4.2 The Competition Act defines dominance or dominant position in terms of a position of strength enjoyed by an enterprise, in relevant market in India, which enables it to: (i) operate independently of the competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour. It is the ability of the enterprise to behave/act independently of the market forces that determines dominant position. In a perfectly competitive market no enterprise has control over the market, especially in the determination of price of the product. Each enterprise is a price taker. However, perfect market conditions do not obtain reality. Keeping this in view the Act specifies a number of factors that should be taken into account while determining whether an enterprise is dominant.

4.3  MRTP Act did not address all the abuse of intellectual property rights which are monopoly rights for limited period of time. Competition Act has exempted intellectual property rights(IPRs) from the coverage of the rigors of S 3 related to anti-competitive agreements, no such derogation is available in case of abuse of  IPRs by right holders, in respect of specific abusive acts.(S 4).

S 28 empowers CCI to direct division of an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant position.

6.  Agreements and Anti-Competitive Agreements under the Act.

An agreement for the purpose of the Act includes any arrangement, understanding or concerted action entered into between parties. It need not be in writing or formal or intended to be enforceable in law.

4.4 The Act prohibits anti-competitive agreements including cartels, abuse of dominant position, regulates combinations which includes mergers, amalgamations and acquisitions. An anti-competitive agreement is an agreement having appreciable adverse effect on competition.  Anti-competitive agreements may include, but not limited to:(i) Horizontal Agreements to : (i) fix prices; (ii) limit production and/or supply;(iii) allocate markets; and (iv) bid rigging or collusive bidding.(ii) Vertical Agreements including: (i) conditional purchase/sale (tie-up arrangement);(ii) exclusive supply arrangement ;(iii) exclusive distribution arrangement; (iv) refusal to deal; and (v) re-sale price maintenance.

5. Competition Commission of India (CCI)

Vide notification dated 14th October, 2003 CCI was established with head office at New Delhi. Consequently, CCI could not be made functional as a writ petition was filed before the Supreme Court. The petition was heard and while disposing of the petition on the 20th January, 2005, the Apex Court held that if an expert body is to be created by the Union Government it might be appropriate for the government to consider the creation of two separate bodies, one with expertise for advisory and regulatory functions and the other for adjudicatory functions based on the doctrine of separation of powers recognised by the constitution.  Keeping in view the judgment of the Supreme Court, the Competition (Amendment) Bill, 2006, a Money Bill within the meaning of Article 110 of the Constitution was introduced in the Lok Sabha on the 9th March, 2006. Under Article 117(1) read with (3), the Bill was referred for examination and report to the Parliamentary Standing Committee and taking into account the report of the Parliamentary Standing Committee the Parliament passed the Bill and the President assent was received on 25th September, 2006.

6. Salient features of Competition (Amendment) Act, 2007

Amendments to the Act through the Competition (Amendment) Act, 2007 pertaining to CCI/Commission are as follows:

(i) CCI shall be an expert body with functions of a market regulator for prevention and regulation of anti-competitive practices in the country in accordance with the Act. It would also have advisory and advocacy functions in its role as regulator.

(ii) Mandatory notice is required to be served on the Commission for merger or combination by a person or enterprise within thirty days.  Commission shall have power of imposing penalty of up to one per cent of the total turnover or  assets, whichever is higher, on a person or enterprise which fails to give notice of merger or combination to the Commission as per the provisions of the Act.

(iii) CAT shall be established which shall be a 3 member quasi judicial body headed by a person who is or has been  a judge of Supreme Court or the Chief Justice of a High Court . CAT shall hear and dispose of appeals against direction issued or decision made or order passed by the Commission.

(iv) CAT shall adjudicate claims on compensation and passing of orders for the recovery of compensation from an enterprise for loss or damage suffered as a result of any contravention of the provisions of the Act.

(v) Orders of CAT shall be implemented as a decree of a civil court.

(vi) Filing appeal against orders of the CAT shall be to the Supreme Court.

(vii) Imposition of  penalty by the Commission for contravention of its orders and in certain cases of continued contravention a penalty which may extend to Rs 25 crores or imprisonment which may extend to 3 years or with both as the Chief Metropolitan Magistrate, Delhi may deem fit and  may impose.

(viii) MRTP Commission will continue upto two years after constitution CCI for trying pending cases under the MRTP Act after which it would stand dissolved.  MRTP Commission shall not entertain any new case after the CCI is duly constituted. Cases remaining pending after 2 years period would be transferred to the CAT or the National Commission under the CPA depending on the nature of cases.

The announcement of MCA on 28th August 2009 on the operation of CCI from 1st September, 2009 is in the above lines.

7. Anti-competitive agreements and regulations on combinations Ss 3 to 6 under Chapter II of the Act is the substantive portion of the Act and restricts: (i) anti-competitive agreements,(ii) abusive dominant position, (iii) combination, and (iv) regulation of combinations. Under the provisions,  anti competitive agreements are restricted and no enterprise or association of enterprises or persons shall enter into any agreement in respect of  production supply, distribution, storage, acquisition  or control of goods or provision of services which cause or is likely to cause an appreciable adverse effect on competitive agreement. However, pursuant to section 3(5) of the act the provisions do not cover the following agreements/restrictions/protections:

i) protection of right in respect of the following intellectual property rights :

(a)    the Copyright Act,1957;

(b)    the Patent Act,1970

(c)    the Trade Mark Act,1999

(d)    the Geographical Indication Registration Act,1999

(e)    The Design Act,2000;and

(f)     The Semi- Conductor Integrated Circuits Layout Design Act, 2000.

ii) The right of any person, export of goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.

8. Discussion on the provisions of Competition

8.1. The Competition Act discards the concept of dominant undertaking which was included in the MRTP Act. It provides that an entity having dominant position is not per se bad unless such dominance is declared illegal as per the Act. Dominance is said to be abused when there is an appreciable adverse effect on competition due to an action undertaken.

8.2. The Competition Act regulates the operation and activities of combination, a term which contemplates acquisitions, merger, joint venture, take-over or amalgamation. No person or enterprise shall enter into a combination to cause an appreciable adverse effect on competition within the relevant market in India and a combination of enterprises causing adverse effect on competition shall be void and the enterprise will have to face penalty as per the Act. Combination has a wide meaning and includes acquisition of shares, acquisition of control by an enterprise over another and amalgamation between or amongst enterprises. Combination that exceeds the threshold limits specified in the Act in terms of asset or turnover which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India, can be scrutinized by the Commission.

9. Combination

9.1 In the case of combination, the threshold limits are:

(i)  Joint assets of the enterprises of the value of more than Rs 1000 crore or joint turnover is more than Rs 3000 crore. In case either or both of the enterprises have assets/turnover in and outside India then the joint assets of the enterprises value more than  USD 500 million including at least Rs 500 crore in India or turnover is more than USD 1500 million including at least Rs 1500 crore in India.

(ii)  Joint assets of enterprises of the value of  more than Rs 4000 crore or joint turnover is more than Rs 12,000 crore, if the party being acquired or remaining after merger or created as a result of amalgamation belongs to a group. In case such party has assets/turnover in and outside India, then the joint assets of the group value more than USD 2 billion, including at least Rs 500 crore in India or turnover is more than USD 6 billion including at least Rs 1,500 crore in India.

9.2 Any firm proposing to enter into a combination, may, at its option, notify the Commission in the specified form disclosing the details of the proposed combination within 7 days of such proposal.

10. Procedure of Investigation by CCI.

10.1 If CCI is of the opinion that a combination is likely to cause or has caused adverse effect on competition, it shall issue a notice to show cause the parties as to why investigation in respect of such combination shall not be conducted. On receipt of the response from the party, if CCI is of the prima facie opinion that the combination has or is likely to have appreciable adverse effect on competition, it may direct publication of details inviting objections of public and hear them, if considered appropriate. It may invite any person likely to be affected by the combination to file his objections. CCI may also enquire whether the disclosure made in the notice is correct and the combination is likely to have an adverse effect on competition. The Commission shall approve the combination if no appreciable adverse effect on competition is found. It shall disapprove of combination in case of appreciable adverse effect on competition. CCI may propose suitable modification as accepted by the parties.

10.2 During the course of any proceeding before the CCI, the Central Government may make a reference for opinion if any party raises an issue that the decision of the authority is likely to be contrary to the provision of the Competition Act, 2002 as amended in 2007. The Central Government in formulation of policy relating to competition may seek opinion of the CCI. On reference, CCI is mandatorily required to give its views within 60 days..

11. Government Clarification

Formation of CCI has caused the Government to clarify to the various queries raised on combination as the business circles opine that there is likely to be curbs by the Government on enterprises .The Government was quick in clarifying that 90 per cent of mergers and acquisitions deals for the enterprises falling within the brackets stated would be cleared within two months as against the 210 days period provided in the Act. MCA has said that only in 5 to 10 per cent of the cases, CCI would require additional time in the larger interest of the country, to investigate the anti-competitive practices.

12. Opinions on the restrictions on combinations

12.1 Views expressed during the phase of implementation of the Act include fear that the Competition Act would impede M&As. It is felt that the current provisions of the Act will kill all M&A deals falling in its ambit, hamper FDI inflow and affect the growth of the economy in general. It is expected to result in loss of transactions, delay the opportunities for absorption of advanced technologies and growth.

12.2 MCA have clarified time and again that the objective of the CCI is to check the monopolistic and restrictive trade practices followed by certain industries through illegal tie-ups and M&As.

12.3 Study done by Grant Thornton, a consultancy firm has found that the value of domestic M&A deals declined during the year 2007 although cross border M&A deals hit a new high in the same year.  Value of domestic deals declined from USD 6.9 billion in 2005 to USD 4.99 billion in 2006 and to USD 2.83 in 2007 even though the volume increased form 151 deals in 2005 to 214 deals in 2006 and to 313 deals in 2007 the study said. Deals further declined during 2008 and 2009 due to the world financial crises which hit enterprises resulting in a spate of bankruptcies.

13. Competition Compliance Programme

13.1 The efficacy of the Act will be seen in its implementation and show whether the Act implemented replacing MRTP Act is in the right direction for the economy. When an enterprise takes certain steps to ensure that knowingly or unknowingly it does not infringe the provisions of the Act, it can be stated to maintain a `Competition Compliance Programme’ (`CCP’). A CCP should include the under mentioned three main objectives:

(i) prevent violation of  the Competition Act, rules, regulations and orders made there under ;

(ii) Promote a culture of compliance; and

(iii) Encourage good corporate citizenship.

13.2 As the consequences of non-compliance may be serious, enterprises are expected to have in place their compliance programs so as to avoid violation of the provisions of competition law and promote the culture of compliance down the line. For effective compliance of the enactment a Compliance Officer with appropriate delegation of authority be appointed to ensure CCP. The Compliance Officer should be preferably be an independent professional with expertise and core competency in compliance management.

13.3 With a CCP in place in an enterprise there is limited chance of violating the provisions of competition law. An efficient CCP in place may reduce the severity of punishment that may be inflicted on an enterprise for violation. An enterprise will look forward to the Company Secretary to guide the management in devising and implementing the CCP to meet the challenges to be faced by an enterprise with the CCI coming into operation to foster growth by check unethical practices in business.

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September 2021