All about Competition Act, 2002 – Part II

In my earlier article we have understood the basics of the Competition Act, 2002. In this article we are going to understand provisions of Section 4 of the Competition Act, 2002, which deals with the “Dominant Enterprises”, Dominance and abuse of dominant position under the act.

Section 4 of the act prohibits the abuse of “Dominant Position” by any enterprise in the free market, Section 4 provides that;

(1) No enterprise or a group of enterprises shall abuse its dominant position.

Section 4(2) provides us the situations in which the abuse of “Dominant Position” is considered these are;

(a) Directly or indirectly , imposes unfair or discrematory-

(i) condition in purchase or sale of goods or provision of services or

(ii) Price in purchase or sale of goods or services.

(b) Limits or restricts-

(i) Production of goods or provision of services or market therefore; or

(ii) Technical or scientific development relating to goods or services to the prejudice of consumers; or

(c) Indulge in practice or practices resulting in denial of market access or

(d) Make conclusion of a contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage , have no connection with the subject of such contracts; or

(e) Use its dominant position in one relevant market to enter into or protect other relevant market.

The Section 4 prohibits the abuse of Dominate Position and not Dominant Position. The any type of abuse of Dominant Position to restrict, prohibit or distort free competition will be prohibited.

The provision of the act does define what “Dominance” is but defines “Dominance Position” and it is the ability of an enterprise to act independently of the competitive forces that determines the dominant position and by its act affects its competitors or consumers or the relevant market in its favour.

The abuse of “Dominant Position” includes;

(i) imposing unfair condition or price on sale or purchase of goods or provision of any services; or

(ii) Predatory Pricing

Note: in which the sale or goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition and restrict or eliminate new players in the market by using dominant position.

(iii) Limiting production/market or technical developments of goods or services;

(iv) Certain barrier to entry in the market;

(v) Applying dissimilar conditions to similar transactions;

(vi) Denying market access and

(vii) Using dominant position in one market to gain advantage in another market.

Note: The provisions of Section 4 before The Competition (Amendment) Act, 2007 were applicable to an enterprise only not on a group or combination of enterprises. Now after amendment it is applicable to the group of enterprises also.

“Definition of a Group”

Group means two or more than two enterprises which, directly or indirectly, are in a position to-

(i) Exercise 26 % or more of the voting rights in the other enterprise; or

(ii) Have right to appoint more that 50% of directors on the Board of directors or other enterprise;

(iii) Controls the management or affairs of the other enterprise.

Note: Dominance will be determined in the context of the relevant market, in India. The Commission determined relevant market on the basis of relevant product market, or relevant geographic market or with reference to both. Thus the relevant market is the market where competition takes place with respect to any goods or services. A large market share in favour of an enterprise will determined its dominance position. The main issue of Competition law is to promote competition and provide an environment in which every player, whether new or old has right to participate in the market and compete with each others for their goods or services. Any act of an enterprise or a group of enterprises, which adversely affect free play of completion in the relevant market will be prohibited by the provisions of this act.

There are many criteria’s to determine “ Dominance Position” of an enterprise or group of enterprises such as size, market share, size and importance of competitors, economic power of enterprise, the market structure , size of the market, nature of goods or services etc.

What is abuse?

In general, actions that are considered anti-competitive and illegal in the context of agreements are also illegal, if undertaken by the dominant firm. These would include charging any types of higher prices, restriction of production, market and technical developments. The discretionary behaviour or any act of enterprise or group of enterprise to distort or limit or adversely affect the completion in the market due to its dominant position is strictly prohibited.

Note: The act does not prohibit any enterprise or group of enterprise to aggressively protect their market position or market share by legitimate means without abusing their dominant position or adversely affecting the competition.

Note: There are various ways in which “Dominant Position” can be said to be abused, we shall discuss the same in my next article on the Competition Act, 2002