Competition is a catalyst for efficiency and innovation within markets. When businesses vie for consumer attention, they are compelled to enhance their products, services, and operational processes. This continuous drive for improvement not only benefits businesses by making them more efficient but also leads to the development of cutting-edge technologies and novel solutions, ultimately raising the overall standards of goods and services.
Through this blog, let us dig into Competition Law Basics and the Competition Act best practices that can be adopted by companies.
Introduction to Competition Act, 2002
The Competition Act, 2002, enacted by the Parliament of India, marks a pivotal shift in competition law, replacing the outdated Monopolies and Restrictive Trade Practices Act, 1969. This legislative framework, establishes the foundation for the Competition Commission, equipping it with tools to prevent anti-competitive practices and develop a climate of positive competition in the Indian market. The Act aims to ensure fair business practices, protect consumers, and promote a competitive landscape that benefits both businesses and the broader economy.
Objectives of Competition Act
The Competition Act aims to establish a legal framework for enforcing competition policies, preventing anti-competitive practices, and penalizing such actions. It safeguards the principles of free and fair competition, preserving the freedom of trade.
The main objectives of the Competition Act, 2002 are:
- to provide the framework for the establishment of the Competition Commission.
- to prevent monopolies and to promote competition in the market.
- to protect the freedom of trade for the participating individuals and entities in the market.
- to protect the interest of the consumer.
Important Definitions under Competition act 2002
I. Cartel:
A cartel, as per the Competition Act, 2002, refers to an association of service providers, traders, distributors, sellers, or producers. It involves an agreement to control, limit, or attempt to control trade, price, sale, distribution, or production of goods or services. Cartels aim to manipulate market conditions for maximum profits and market control, falling under the category of anti-competitive agreements.
II. Enterprise:
Section 2(h) of the Act defines an enterprise as a person or department of the government engaged in activities such as service provision, control, acquisition, distribution, supply, storage, production of goods, or dealing in shares.
III. Person:
According to Section 2(l), a person includes artificial juridical entities, local authorities, cooperative societies, corporate bodies, associations, firms, companies, and individuals.
IV. Relevant Market:
Section 2(r) outlines the concept of a relevant market, encompassing both relevant product market and relevant geographic market. It helps determine market conditions for competition law analysis.
V. Anti-Competitive Agreements:
Anti-competitive agreements involve business transactions that negatively impact competition or provide undue benefits, causing harm to others. These agreements, falling under the Act’s purview, can be oral or written and cover various aspects like acquisition, storage, distribution, and production of goods and services.
VI. Abuse of Dominant Position:
Abuse of dominant position occurs when an enterprise or person operates independently of competitive forces, affecting consumers, competitors, or the market. The Act considers an entity to hold a dominant position if it can function independently in the relevant market.
VII. Regulation of Combinations:
Section 6 deals with the regulation of combinations, requiring entities to submit a notice to the Competition Commission within 30 days of Board approval for mergers, amalgamations, or acquisitions. The Act sets a time limit of 210 days for the process, with exceptions for certain entities like banks and financial institutions.
Important Provisions of the Competition Act
Anti-Competitive Agreements:
Section 3 of the Act prohibits agreements that adversely impact competition in the Indian market. These agreements, termed Appreciable Adverse Effect on Competition (AAEC) agreements, include those affecting prices, production, supply, and technical development. The Act declares such agreements void, ensuring a level playing field.
Abuse of Dominant Position:
Section 4 prohibits entities from abusing their dominant market position. Dominant enterprises must not operate independently of competitive forces to the detriment of competition, consumers, or the market. Practices like predatory pricing, seen as an abuse of dominance, are strictly curtailed.
Remedies:
The Competition Commission of India (CCI), established under the Act, plays a pivotal role in enforcing its provisions. The CCI holds the power to review alleged anti-competitive practices and can issue various orders, including directing discontinuance of practices, imposing penalties, modifying agreements, or passing any order deemed fit to restore fair competition.
Regulation of Combinations:
Section 6 regulates combinations involving acquisitions, mergers, or control of assets. Any combination likely to adversely affect competition is deemed void. Enterprises must intimate the CCI within 30 days of Board approval, allowing the Commission to assess and prevent combinations detrimental to fair competition.
Role of Competition Commission of India
The Competition Commission of India (CCI) plays a pivotal role in promoting fair and competitive markets. Established under the Competition Act, 2002, its primary objective is to prevent anti-competitive practices and ensure a level playing field for businesses in India. The CCI is empowered to investigate and take corrective measures against anti-competitive agreements, abuse of dominant positions, and regulate combinations that could adversely impact competition. With a mandate to enforce competition laws, the CCI conducts inquiries, imposes penalties, and issues orders to promote fair competition. By promoting market dynamics that benefit consumers and businesses alike, the Competition Commission of India serves as a guardian of economic competition, contributing to the overall growth and vibrancy of the Indian market.
Case Studies
The Competition Commission of India (CCI) fined MakeMyTrip (MMT), Goibibo, and OYO a total of over ₹392 crore for alleged unfair business practices. CCI accused MMT-Goibibo of imposing price parity on hotel partners, limiting them from offering lower prices elsewhere. The investigation, initiated in 2019, followed claims that MMT favored OYO. CCI found an agreement between OYO and MMT-Goibibo, deeming it anti-competitive, denying access to a crucial distribution channel. Alongside monetary penalties, CCI prescribed behavioral remedies, directing MMT-Go to modify agreements, abandon parity obligations, and provide fair, transparent access to hotels on its platform. MMT-Go must also disclose non-available properties transparently.
Specialized consultants such as Master Brains India, focusing on Competition Act consultancy, play a vital role in ensuring legal compliance for businesses. They conduct preventive analyses of significant business transactions like mergers, acquisitions, new product launches, and business agreements to proactively identify any potential conflicts with the Competition Act. In case the company receives a show cause notice from the Competition Commission of India (CCI), these consultants also serve as representatives before the authorities, offering valuable expertise to handle legal processes and challenges.
Conclusion
The Competition Act of 2002 reflects India’s shift from a planned to a free-market economy, aligning with global economic shifts. It aims to ensure a healthy market rivalry, crucial for innovation and economic growth, by curbing harmful trade practices like cartels and monopolies. The Act includes “Competition Advocacy” to promote awareness. The Competition Commission imposes penalties on anti-competitive actions, benefiting consumers through increased choices. This ensures economic fairness, preventing the exploitation of the less affluent by major market players. The Competition Commission plays a vital role in monitoring such practices and promoting economic equity.
