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Table of Contents

Introduction

Following economic liberalisation and widespread economic reforms introduced in 1991, India decided to replace its then-existing competition law – the Monopolies and Restrictive Trade Practices Act 1969, which was primarily designed to limit the growth of monopolies in the market – with a new competition law based on free-market principles. The Competition Act of 2002, which gained presidential assent on January 13, 2003, was the initial step toward this change. The following goals are aimed at by the Competition Act:

  1. To prevent anticompetitive practices.
  2. To promote and sustain market competition.
  3. To protect consumers’ interests.
  4. And to ensure the freedom of trade carried on by other market participants in India.

These goals are being pursued through the creation of the Competition Commission of India, which was formed by the federal government on October 14, 2003. As a result, the commission is charged with prohibiting anti-competitive agreements and enterprise misuse of dominant positions, as well as regulating combinations (mergers and acquisitions) through an inquiry and investigation procedure. However, before the commission could be completely established, a public interest lawsuit challenging its constitution was brought in the Supreme Court. After the government promised to alter the Competition Act and create a separate adjudicatory appellate authority, the court eventually decided the case in January 2005, leaving the expert regulatory space to the commission.

As a result, in September 2007, the Competition Act was modified to include, among other things, the creation of a Competition Appellate Tribunal, which would hear appeals against commission orders and assess compensation claims stemming from commission judgments. Since then, an appellate tribunal has been established, led by a retired Supreme Court justice. The commission was also reconstituted on February 28, 2009, and six additional members were appointed since then, in addition to the chairman. With effect from May 20, 2009, the government has notified certain sections of the Competition Act for enforcement, including anti-competitive agreements (Section 3) and abuse of dominant positions (Section 4). The act’s rules governing combination regulation (Section 6) have yet to be notified. Furthermore, the General Regulations of the Competition Commission, which contain the procedure for filing information relating to anti-competitive agreements or allegations of abuse of dominance by enterprises or groups thereof, as well as matters related thereto, are available on the commission’s website.

What are Anti-Competitive agreements (section 3)?

competition act

An ‘anti-competitive arrangement’ is one in which the production, supply, distribution, storage, acquisition, or control of products or the provision of services causes or is likely to create an “appreciable detrimental effect on competition” inside India. Anti-competitive agreements are prohibited by the Competition Act, and such agreements are declared void. The ban in Section 3 is not total, and joint venture agreements are permitted if certain conditions are satisfied. (3) Anti-competitive agreements can be made on a “horizontal” basis (agreements between direct competitors), Vertical agreements (agreements between companies at various stages of the production chain in different markets, such as agreements between a manufacturer and a distributor or a distributor and a retailer) or both.

What do horizontal agreements include?

  1. Agreements to allocate markets or the source of production or service provision through the allocation of, for example, geographical area, type of good or service, or number of customers.
  2. Bid rigging or collusive bidding.
  3. Agreements to fix prices.
  4. Agreements to limit production, supply, markets, technical development, investments, or service provision.

Similar to the per se rule, these horizontal arrangements are presumed to have a significant detrimental effect on competition. The ‘cartel’ is the most dangerous type of horizontal agreement, and it has been defined as an association of producers, sellers, distributors, traders, or service providers who, through an agreement among themselves, limit, control, or attempt to control the production, distribution, sale, or price of or trade in goods or the provision of services.

What do verticle agreements include?

  1. refusal to deal.
  2. resale price maintenance are all examples of tie-in arrangements.
  3. Tie-in arrangements.
  4. exclusive supply agreements.
  5.  exclusive distribution agreements.

Such partnerships, however, are typical commercial procedures that only violate the law if they limit competition. The five types of vertical agreements described above have the potential to stifle competition by impeding the entry of new competitors into the market, and so may be deemed anti-competitive. Other horizontal agreements and vertical agreements, including those described above, are handled on a case-by-case basis.

Agreements entered into to safeguard the rights of holders of patents, copyrights, and other intellectual property rights under their respective legislation are not deemed anti-competitive, as long as they contain “reasonable restrictions” to allow the exercise of such rights. Similarly, export agreements that are only linked to the manufacture, supply, distribution, or control of products or the provision of services are not regarded as anti-competitive since they do not influence competition in India.

What are the consequences of enforcing the section 3 of Competition Act?

Any arrangement that may have a negative impact on competition in the relevant Indian market is likely to be challenged before the Competition Commission and, if found to breach Section 3, would be declared null and invalid and therefore legally unenforceable. Because such agreements are secret, they are unlikely to be known to the outer world unless one of the parties to the agreement files a complaint or a third party likely to be impacted by such arrangement (e.g., customers or consumers) chooses to challenge the agreement before the commission. As a result, it is prudent to have these agreements reviewed to decrease the likelihood of a challenge.

What is Position of dominance according to Competition Act?

The Competition Act specifies what a “dominant position” is. The possession of a dominating position by a business or a group, on the other hand, is not banned in and of itself. The Competition Act forbids a company or a group from abusing such a dominating position. The commission has the authority to investigate whether a company or group has a dominating position and if it has misused that position on the grounds of:

  1. Its own initiative
  2. information obtained from any individual
  3. consumer, or trade organization
  4. a referral received from the federal government, state government, or statutory body.

How can a dominating position be misused (section 4) of Competition Act?

The Competition Act specifies the following business activities that, if discovered to be carried out by an entity or a group, will lead to the inference of abuse of a dominating position, provided that the firm or group is determined to be dominant in the relevant market:

  1. imposition of an unfair or discriminating condition on the purchase or sale of goods or services, or on the price of goods or services in the purchase or sale of goods or services, including predatory pricing.
  2. the limiting or restriction of the production of products, the supply of services, or the market for such items, services, or markets.
  3. the restriction or limiting of technological or scientific progress in relation to goods or services to the detriment of customers.
  4. denial of market access in any way
  5. making the conclusion of contracts conditional on the acceptance by other parties of supplementary obligations that, by their nature or commercial usage, have no connection with the subject of such contracts
  6. or using its dominant position in one relevant market to enter or protect another relevant market.

What are the consequences of enforcing the section 4 of Competition Act?

Section 4 enforcement encompasses all companies that hold a dominating position in the relevant market, including public sector enterprises or government agencies participating in any trade or commercial activity that is not protected by the state’s sovereign responsibilities. In contrast to Section 3, an appreciable detrimental effect on competition in the relevant market does not need to be proven in an investigation under Section 4. However, any of the six illegal business practices specified in Section 4 is enough to put the dominating firm under the commission’s attention, and examples of such prohibited actions in India abound.

The Competition Act requires the commission to maintain “competitive neutrality,” and the public sector no longer enjoys any special advantages or exemptions in the event of a breach of the Competition Act. For example, if a public sector company seeks to limit market access to a private enterprise that may be a rival in any product market, the commission will file a complaint alleging abuse of a dominant position against such public sector enterprise. Even international businesses with substantial market shares in the relevant market that operate in India are subject to the commission’s examination if they are discovered to be engaging in any illegal business activities. The consequences of the commission’s investigation into any such allegation of abuse of dominance by a large enterprise are too serious to ignore, as it has the authority to order the division of such enterprise into smaller groups, which could have serious consequences for the business and investors. As a result, in the event of significant market share businesses, professional assistance may be considered.

What are the regulations for combination (Section 6) of Competition Act?

The term ‘combinations’ in the Competition Act means:

  1. control, shares, voting rights, or assets are acquired.
  2. acquisition of control over an enterprise by a person who also controls another enterprise engaged in rival businesses.
  3. mergers and amalgamations between or among businesses where the merging parties surpass the act’s thresholds.

The assets or turnover thresholds in India and overseas are clearly defined. Entering into a combination that has or is likely to have a significant detrimental effect on competition in the relevant market in India is banned, and such combinations are invalid.

However, there is currently no merger control because the necessary sections have not yet been notified. The relevant sections of the Competition Act will allow for an obligatory notification system once notified. The act’s established threshold limits are listed below.

What are the Thresholds for companies?

The following are the threshold limits:

  1. In India, the total assets exceed Rs10 billion.
  2. In India, the aggregate domestic turnover exceeds Rs30 billion.
  3. total global assets of more than $500 million (including at least Rs5 billion in Indian assets).
  4. combined global revenue of more than $1.5 billion (including at least Rs15 billion turnover in India).

If the merged entity is a member of a group, the following threshold limits apply

  1. In India, the group’s assets are more than Rs40 billion.
  2. In India, the total group turnover exceeds Rs120 billion.
  3. total global assets of more than $2 billion (including at least Rs5 billion in Indian assets).
  4. More than $6 billion in total global group turnover (including at least Rs15 billion group turnover in India).

The thresholds are for the previous fiscal year, and the following rules apply

  1. There are no industry-specific guidelines for measuring turnover and setting thresholds. The value of products or services sold is included in turnover. It is the total turnover that is considered, not the turnover confined to the relevant product market.
  2. The Reserve Bank of India (RBI) publishes the official exchange rate of the Indian rupee against the US dollar and the euro on its website every day as the RBI Reference Rate. To determine thresholds, it is best to use the reference rate.
  3. The threshold test does not take into consideration market shares.

Steps and Stages

In India, unlike other jurisdictions, there are no well-defined Phase I and Phase II inquiries. The relevant sections of the Competition Act specify a maximum waiting period of 210 calendar days for the commission to scrutinize the proposed combination, after which the combination is assumed to have been authorized. However, the legislation requires the following identified procedures for merger control.

Notice Filling

The notice disclosing the details of the proposed combination (including acquisitions, acquisition of control, mergers, and amalgamations) must be given to the Competition Commission within 30 days of I approval of the proposal relating to the merger or amalgamation from the board of directors of the enterprises concerned; or (ii) execution of any agreement or other documentation. There is a statutory waiting time of up to 210 calendar days from the day the notification is filed. The combination will be deemed authorised upon the expiration of the waiting period.

The show cause notice issue

Following the submission of the notice, the commission may either allow the combination or, if it believes that the combination would have an appreciable detrimental effect on competition in the relevant market in India, issue a show-cause notice within 30 days of the filing of such notice. Following the issuance of the show-cause notice, the commission may additionally request a report from the Competition Commission’s director-general.

Publication of combination details

If the commission is still of the prima facie opinion that the combination may result in an appreciable adverse effect on competition within the relevant market in India after receiving the parties’ response to the show cause notice and the director general’s report, it may, within seven working days of receipt, direct the publication of details of the combination within ten working days, in a manner prescribed by the commission.

Public comments and objections are invited

Within 15 working days after the publication of the facts, the commission may seek public objections and comments or request information from the parties as it sees suitable.

Order Passing

After receiving all facts, the commission may either accept the merger unconditionally or with restrictions and changes, or it may reject the combination. In other jurisdictions, the ‘modifications’ are equivalent to the ‘remedies.’ Under the Competition Act, the well-known defences of ‘efficiency enhancement’ and ‘failing company’ are allowed.

The Competition (Amendment) Act, 2009.

The Competition (Amendment) Act 2009, which was approved by Parliament on December 16, 2009, was signed by India’s President on December 22, 2009. The amendment legislation was published in the Indian Gazette on December 23, 2009, as Act 39/2009, and it went into force on October 14, 2009 (the date of the Competition (Amendment) Ordinance 2009). The effect of the amendment act is that the Competition Appellate Tribunal will now have to adjudicate not only on all pending unfair trade practices cases, including those filed under Section 36A(1)(x) of the Monopolies Act, but also on all pending compensation applications filed under Section 12B of the Monopolies Act, and on all pending investigations or proceedings relinquished. As a result, the agency has reopened all existing unfair trade practices complaints and has begun issuing new notifications.

In addition, no changes have been made to Section 66(8) of the Competition Act, which states that all investigations or proceedings relating to unfair trade practices referred to in Section 36A(1)(x) of the Monopolies Act, relating to “giving false or misleading facts disparaging the goods, services, or trade of another person,” is transferred to the commission, which is free to conduct or order investigations or proceedings. Similarly, under Section 66(6) of the Competition Act, any inquiries or procedures, excluding those pertaining to unfair commercial practices, are prohibited. (i.e., monopolistic or restrictive trade practices) are also entrusted to the commission, which is allowed to conduct or compel the conduct of such investigations as it sees proper.

The Monopolies and Restrictive Trade Practices Commission has been disbanded.

The Monopolies and Restrictive Trade Practices Commission have been abolished, and the controlling legislation, the Monopolies Act, has been repealed, with effect from October 14, 2009. The Competition Appellate Tribunal will hear the pending cases, and any investigations or proceedings relating to unfair trade practices referred to in Section 36A(1)(x) of the Monopolies Act, relating to “giving false or misleading facts disparaging the goods, services, or trade of another person,” will be transferred to the Competition Commission as of that date.

Partially enforced without merger control.

The Competition Act has yet to be fully announced. Only provisions concerning anti-competitive agreements (Section 3) and misuse of dominant positions (Section 4) have been disclosed as of May 20, 2009. The requirements governing combination regulation (Section 6) have yet to be announced. This portion of the Competition Act’s enforcement has left out merger control, which is now being considered.

The Competition Commission completely formed.

With the federal government’s domination of the chairperson and the other six full-time members, the Competition Commission is fully operational as of February 28, 2009. The commission has begun to receive a considerable number of complaints alleging abuse of dominance and anti-competitive agreements and has submitted the majority of them to the director-general for investigation.

Cases being investigated

According to reports, the Competition Commission received roughly 30 complaints under Sections 3 and 4 following the announcement of enforcement of the enforcement procedures on May 20, 2009. Only complaints on which the commission has formed an opinion on the existence of a prima facie case are forwarded to the director-general for inquiry. There is no formal information available on the complaints submitted with the commission. However, the press has reported on several incidents after the inquiry has been completed. The following are some chosen passages.

Infringement by makers and wholesalers against multiplex films

In his first report following the conclusion of an investigation into a complaint filed by multiplex cinema owners against Bollywood film producers and distributors, the director-general concluded that producers and distributors colluded and restricted the supply of content to multiplexes during April and May 2009, when the two parties clashed over revenue sharing. According to the study, the producers and distributors “created a nexus and restricted supply of movies to collect more income from multiplexes,” which violated Sections 3 and 4 of the Competition Act, which deal with anti-competitive agreements and abuse of a dominant position, respectively. The producers and distributors will now be required to respond to the commission’s notifications. The commission will select the next steps after hearing the answers.

The first case brought to the commission was that of multiplex theatres vs producers/distributors. The Multiplexes Association of India had applied with the commission, alleging that the United Producers and Distributors Forum, the Association of Motion Pictures and TV Program Producers, and the Film and TV Producers Guild of India had formed a nexus and were limiting the supply of content (films). According to the multiplex organisation, producers were mandating rates and forbidding multiplexes from selling tickets for less than a fixed price. The group said that preventing fresh releases had a negative impact on businesses and customers, which was anti-competitive and cartel-like behaviour.

In India, there are around 850 multiplex theatres, which account for over 60% of total income. The producers were advocating for a 50:50 revenue-sharing arrangement, regardless of stars, budget, or box office receipts, as opposed to the 55:45 model preferred by multiplex theatres. Because the multiplexes did not generate, the producers/distributors ceased supplying them with the material. According to industry insiders, this resulted in monthly losses of Rs1 billion for both parties. According to the director general’s report, the producers and distributors were found guilty of “concert and collusion” that “hurt the customers at large since they were unable to see movies owing to this stand-off.” The standoff also had an impact on the movie industry, since no new films were launched at multiplexes around the country.

The commission is perceived to have given the notification for the beginning of an investigation into all gatherings.

The director general found direct-to-home television operators to be guilty

Following the completion of an investigation into a complaint filed by the Consumer Federation Online against direct to home (DTH) television operators, which contended that the practice of not allowing interoperability of set-top boxes is anti-competitive and in the best interests of consumers, the director-general reportedly found DTH operators guilty of limiting consumer options to choose one network over another.

According to the report

“Because there is no Conditional Access Module (CAM) – a card that allows feeds from one or more service providers to be read by [set top boxes] from another manufacturer – the [set top boxes] are not technically inter-operable.”

According to a top commission official

“DTH operators were found to have violated Sections 3 and 4 of the [Competition Commission of India] Act. We will shortly issue them a notice, which is essentially a show-cause notice, to which they must answer within 15 days. Following that, the Commission will decide what action to take against the operators.”

The commission may issue show cause letters to prominent DTH providers such as Tata Sky, Reliance Big TV, and ZEE’s Dish TV shortly for abusing their dominating market positions and refusing to enable consumers to switch operators while keeping the hardware cost at around Rs4000. Subscribers are discouraged from switching operators since their set-top boxes do not let them use another player’s card, even though the set-top boxes may potentially be made interoperable. The action comes after the director-general found DTH operators guilty of restricting consumers’ options to use one network while using another company’s set-top box by failing to make their set-top boxes technically compatible.

The commission is said to have issued notifications for the start of an investigation against all parties.

The Competition Commission receives its first order against them from the appellate panel

The Competition Appellate Tribunal ruled in favour of the appellant in the first appeal filed under the Competition Act. The Steel Authority of India Limited had filed an appeal against a Competition Commission order dated December 8, 2009, in Case 11/2009, in which the commission, after forming an opinion on the existence of a prima facie case, had referred the information filed by Jindal Steel & Power Limited against the Steel Authority (under Sections 3 and 4 of the Competition Act) to the director for investigation. The appeal tribunal, in a detailed ruling dated February 15, 2010, instructed the commission to make a new decision after examining the Steel Authority’s reply and supplementary reply, if any. The appeal tribunal, however, did not decide on the merits of the case. The commission ruling of December 8, 2009, was overturned, primarily due to a lack of reasons for rejecting the Steel Authority’s request. The appellate tribunal also denied the commission’s request to be impleaded as a required party during the hearing of the appeal on the grounds that:

  1. The commission cannot become a respondent to defend its own order because it has no adversarial function
  2. it cannot justify its own order by an affidavit in support; and an authority’s order must stand on its own. 

The commission has chosen to appeal the appellate tribunal’s February 15, 2010 ruling to the Supreme Court.

Banks were found liable for loan prepayment penalties in a court of law

The director-general has completed an investigation into a complaint filed with the commission against private sector banks, including LIC Housing Finance Ltd, Deutsche Post Bank Home Finance Ltd, Housing Development Finance Corp Ltd, and HDFC Bank Ltd, for charging customers between 2% and 5% of the principal sum or lump sum on loan foreclosure. According to the research, the practice of banks and finance firms charging pre-payment penalties inhibits competition in the home loan market by limiting customers’ ability to switch loans to another lender. The commission had issued show-cause notifications to at least 15 banks, the Indian Banks Association, and the Reserve Bank of India, challenging the logic of punishing customers who choose to foreclose on their loans. Customers are usually penalised by banks to deter them from transferring their long-maturity loans to other banks through prepayment. Some banks are allegedly charging clients fines ranging from 3% to 4%, which drew the commission’s attention to the issue.

While the RBI’s perspectives are not yet unequivocally known, in light of a right to data application, the national bank has said that:

“Banks, including public sector banks, generally levy pre-payment charges on loans as pre-payment on loans affect their asset-liability management. There is no uniformity in the practice followed by various banks as the banks have been given the freedom to fix service charges for various types of services rendered by them.”

While reacting to sees from the Competition Commission, monetary foundations have called attention to that expulsion of the prepayment punishment would bring about higher loaning hazard and may cause resource responsibility to confound in banks. As indicated by the Indian Banks Association:

“Our legal department has looked into the issue and we do not think pre-payment charges violate competition laws… The banks will have to increase lending rates by at least 0.25 basis points to cover the cost of risk of prepayment.”

The commission may before long find ways to lead an investigation into those saw as blameworthy under Section 27 of the Competition Act. The commission is perceived to have given the notification for the beginning of an investigation into all gatherings.

Kingfisher Airlines’ appeal against the Competition Commission is dismissed by the Bombay High Court

On March 31, 2010, the Bombay High Court dismissed a petition filed by Kingfisher Airlines challenging a Competition Commission notice to investigate Kingfisher’s reported alliance with another domestic carrier, Jet Airways, stating that the commission’s notice did not warrant interference by the High Court.

The commission is said to have issued notifications for the start of an investigation against all parties.

Delhi circulation organizations cheat clients by 90%

According to the director-general of the Competition Commission’s investigation, the majority of the electricity meters installed by BSES and NDPL are “fast running.” The distribution companies have been served with notices from the commission. According to the investigation, the companies do not allow their customers to install the meters of their choice, thereby abusing their dominant market position. The case was investigated by the commission after a complaint was filed in September 2009. After reviewing the director general’s report, it issued show-cause notices to the distribution companies, finding evidence against them for abusing their dominant position and entering into anti-competitive agreements. In Delhi, BSES serves over 2.3 million customers, while NDPL serves approximately 1 million customers. The commission will decide what action to take against the distribution companies based on their responses.

Diminished levies in telecommunications area

Tata Teleservices Ltd sparked a tariff war among mobile service providers by introducing per-second billing plans in June 2009, forcing several players, including Vodafone-Essar, Reliance, and MTNL, to follow suit. In order to attract customers, low per-second billing plans, per-minute billing plans, and a variety of other plans have been offered. Furthermore, many new entrants are equally enthusiastic about taking part in such tariff wars. This has sparked a competitive war among telecommunications behemoths in their quest for the largest consumer base. The Telecommunications Regulatory Authority of India is attempting to create a competitive environment for mobile operators while also protecting the interests of consumers.

Sectors came together demanding block exception

Even preceding the notification of the merger-related provisions in the Competition Act, there appeared to be widespread dissatisfaction among regulators with the alleged overarching powers granted to the commission in the area of mergers and acquisitions (M&A). The press has widely reported that the RBI has advised the commission to stay out of the banking sector because, due to its unique nature, it does not require High Court approval for M&A transactions and thus should not be subject to the commission’s jurisdiction. The Telecommunications Regulatory Authority and the Ship Liners Association have both expressed similar concerns. The commission, according to the press, has objected to these suggestions. Section 54 of the Competition Act empowers the central government to exempt any class of enterprise from the application of the Competition Act if certain conditions are met.

Although it is the duty of the commission to investigate the macro picture of competition-related issues in all major sectors of the economy, the existence of competition-related provisions in statutes governing specific regulators, such as the Telecommunications Regulatory Authority and the Central Electricity Regulatory Commission, is bound to raise concerns about overlapping jurisdiction. The commission faces a more difficult challenge in India than in advanced capitalist economies because of many policy-induced restrictions on competition, which differs from abuse of market power by individual firms, whether in the public or private sectors. This is the crux of the approach difference between, say, the RBI and the Competition Commission. Sector regulators, such as the RBI, are accustomed to operating within a given policy domain that may or may not be conducive to competition, but the commission has no mandate to compel sector regulators or the government to change policies to accommodate competition. This may jeopardise the goal of a healthy competitive market, but it does not imply that public sector banks are abusing their dominant position.

Similarly, the Telecommunications Regulatory Authority has merger guidelines that define a “merger” as the acquisition of equity and the merging of licenses, as opposed to the Competition Commission’s broader definition, which includes the acquisition of control, shares, voting rights, or assets. The structural mismatch between the capacity of the former state electrical boards and the few commercial companies, whether in generation or transmission of energy, persists, despite the fact that the Electricity Act of 2003 actually opened the electricity industry to private involvement. As a result, the grey areas in the banking, telecommunications, power, and shipping sectors require substantial discussion among all stakeholders, including the government, before requests for exemption from competition legislation from these industries are granted.

Penalization

The Competition Commission has broad authority against anti-competitive agreements and the exploitation of dominant positions. If the commission determines that an anti-competitive arrangement has had or is likely to have a significant detrimental effect on competition inside India, or that any company has misused its dominant position in the market, it may issue all or any of the following orders:

  1. a cease-and-desist order, which orders the relevant parties in such agreement or misuse of a dominant position to stop acting on such agreement and not re-enter such agreement, or to stop such abuse of a dominating position, as applicable.
  2. an order imposing a financial penalty on each party to the contract or abuse that is considered appropriate but does not exceed 10% of the average turnover for the three preceding fiscal years Provided, however, that if a cartel enters into any of the agreements referred to in Section 3, the commission may impose a penalty of up to three times its profit for each year of the continuation of such agreement, or ten percent of its turnover for each year of the continuation of such agreement, whichever is greater.
  3. an order directing that the agreement be modified to the extent and manner specified in the order.
  4.  an order directing compliance with its orders and directions, including payment of costs.
  5. an order directing the division of an enterprise abusing its dominant position to ensure that it can no longer abuse its dominance; and any other order or direction.

Furthermore, any person may apply to the appellate tribunal for compensation from any enterprise for any loss or damage suffered as a result of the enterprise:

  1. violating directions issued by the commission.
  2. contravening, with no reasonable ground, any decision or order of the commission issued under Sections 27, 28, 31, 32, and 33, or any condition imposed by the commission.
  3. Delay in complying with the orders and directions given.

The Competition Commission has broad authority against anti-competitive agreements and the exploitation of dominant positions. If the commission determines that an anti-competitive arrangement has had or is likely to have a significant detrimental effect on competition inside India, or that any company has misused its dominant position in the market, it may issue all or any of the following orders:

  1. a cease-and-desist order, which orders the relevant parties in such agreement or misuse of a dominant position to stop acting on such agreement and not re-enter such agreement, or to stop such abuse of a dominating position, as applicable.
  2. an order imposing a financial penalty on each party to the contract or abuse that is considered appropriate but does not exceed 10% of the average turnover for the three preceding fiscal years Provided, however, that if a cartel enters into any of the agreements referred to in Section 3, the commission may impose a penalty of up to three times its profit for each year of the continuation of such agreement, or ten percent of its turnover for each year of the continuation of such agreement, whichever is greater.
  3. an order directing that the agreement be modified to the extent and manner specified in the order.
  4.  an order directing compliance with its orders and directions, including payment of costs.
  5. an order directing the division of an enterprise abusing its dominant position to ensure that it can no longer abuse its dominance; and any other order or direction.

Furthermore, any person may apply to the appellate tribunal for compensation from any enterprise for any loss or damage suffered as a result of the enterprise:

  1. violating directions issued by the commission.
  2. contravening, with no reasonable ground, any decision or order of the commission issued under Sections 27, 28, 31, 32, and 33, or any condition imposed by the commission.
  3. Delay in complying with the orders and directions given.

Execution of commission orders imposing monetary penalties

The commission has the authority to create regulations for the recovery of monetary penalties imposed under the Competition Act, which may include referring the penalty to the Income Tax Authority for recovery as tax due under the Income Tax Act.

What are the consequences for violating commission orders?

The commission has broad authorities to guarantee compliance with its orders and instructions, including those pertaining to ‘modifications’ for combinations. The first incident of noncompliance results in a fine of up to Rs100,000 for each day of noncompliance, up to a maximum of Rs10 million. The second occurrence of noncompliance would be tried before the Delhi chief metropolitan magistrate on a case brought solely by the commission and may result in imprisonment for up to three years or a fine of up to Rs250 million, or both.

What is the punishment for inability to follow commission orders?

In the event that an individual neglects to consent, without sensible reason, with a commission order given under Section 36(2) or (4) or director general’s measure given under Section 41(2), such individual will be culpable with a fine of up to Rs100,000 for every day during which such disappointment proceeds, subject to a limit of Rs10 million.

Power to levy penalties for failure to provide information on combinations

If any person or organisation fails to provide notification to the commission under Section 6(2), the commission may levy a penalty of up to 1% of the combination’s total turnover or assets, whichever is greater.

What is the penalty for making false statements or failing to provide material information?

If any party to a combination makes a statement that is false or is known to be false in any particular material or fails to state any material that is known to be material, such party will be liable to a penalty of no less than Rs5 million, which may be increased to Rs100 million at the discretion of the commission.

What is the penalty for information-related offences?

Without prejudice to Section 44, a person who knowingly furnishes false information or suppresses any material fact, or willfully alters or destroys any document required to be furnished with the information, will be punished with a fine of up to Rs100 million, as determined by the commission.

Power to impose a less harsh penalty

If the commission is satisfied that any producer, seller, distributor, trader, or service provider involved in a cartel that is alleged to have violated Section 3 has made full and true disclosure in respect of the alleged violations and that such disclosure is vital, it may impose a lesser penalty on such producer, seller, distributor, trader, or service provider.

Such a lesser penalty must not be imposed where the investigation report has already been received from the director-general and the member of the cartel refuses to cooperate with the commission until the completion of the proceedings before it.

Furthermore, the commission has made regulations to facilitate such disclosure by members of cartels, wherein up to a 100 per cent waiver of the penalty may be granted.

Conclusion

The passage of the Competition Act in May 2009 marked the commencement of India’s contemporary competition law framework. Although the legislation was enacted in 2002, it was delayed owing to high-level court involvement over the prior planned composition of the Competition Commission, which had a judicial role but did not include a judge as its chairwoman. The Competition Act was amended in 2007 to eliminate this issue by establishing an appeal tribunal chaired by a serving or retired Supreme Court judge or chief justice of a high court, but retaining the regulatory space for the Competition Commission as an expert body.

Despite Supreme Court litigation against the Competition Commission’s constitution, the commission continued to focus on competition advocacy and writing the majority of its implementing rules under the Competition Act during the interregnum period from 2003 to 2007. It held a series of seminars and workshops to raise awareness about the new law among various stakeholders, including India’s top business chambers. It also developed a modest pool of talent through its internship programs and commissioned several research studies and projects as part of its advocacy mandate, including some through World Bank aid initiatives.

Following the restoration of the entire Competition Commission under the revised act, as well as the enforcement of important sections about anti-competitive agreements and abuse of dominant positions, the speed of resolution of complaints received by the commission has been somewhat sluggish. This might be due to a lack of an effective organisational structure. The commission is now launching a huge recruiting drive to hire a significant number of workers and specialists in the three key functional areas of legal, economic, and financial research. It is intended that by the middle of 2010, the commission would have absorbed a sufficient number of employees and panel specialists to accelerate the resolution of pending issues.

The current pattern of scrutinizing reports presented by the Competition Commission’s director-general may suggest a proclivity to inculpate. Another example is the recently reported Supreme Court appeal filed by the commission against an appellate tribunal order dated February 15, 2010, in the appeal filed by the Steel Authority of India Limited against the making of an opinion on a prima facie case and referring Jindal Steel & Power Limited’s complaint to the director-general for investigation under Section 26(1) of the Competition Act. The decision of the appeal will establish a significant judicial precedent. Likewise, the earlier Bombay High Court judgement dismissing Kingfisher Airlines’ appeal against the commission’s notice to examine Kingfisher Airlines’ purported alliance with Jet Airways announced in 2009 is a positive step.

Thus, the formation of competition law jurisprudence in India has now commenced, and the first order issued by the Competition Commission in an ongoing dispute is eagerly anticipated. However, given the nascent phase of development and the severe penalties pondered by the Competition Act, international businesses with existing operations in or with India, as well as those considering investing in a business in India, should have their contracts and business practices reviewed to ensure that they reflect the changes provided by the new law and that they will act in accordance with it.

References

  1. https://legaluplaw.com/priyam/competition-law-entrepreneur-must-know/
  2. https://legaluplaw.com/priyam/who-can-approach-the-competition-commission-of-india-cci/
  3. https://legaluplaw.com/priyam/critical-analysis-competition-law-from-ipr/
  4. https://legaluplaw.com/priyam/competition-law-review-committee-report/
  5. https://legaluplaw.com/priyam/the-competition-amendment-bill-2012/
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