The Competition Act, 2002

23/07/2020 0 By indiafreenotes

Competition is the act of the sellers individually seeking to acquire the patronage of buyers in order to achieve profits or market share. The Competition Act, 2002 was enacted by the Parliament of India and replaced The Monopolies and Restrictive Trade Practices Act, 1969. It is in effect to govern Indian competition law. After its enactment The Competition Act, 2002 has been amended twice, The Competition (Amendment) Act, 2007 and The Competition (Amendment) Act, 2009. Two of the main features of the Competition Act, 2002 is the framework it provides for the establishment of the Competition Commission, and the tools it provides to prevent anti-competitive practices and to promote positive competition in the Indian market.

Objectives of the Act

The Act seeks to provide the legal framework and tools to ensure competition policies are met and to prevent anti-competition practices and provide for the penalisation of such acts. The Act protects the free and fair competition which protects the freedom of trade, which in turn protects the interest of the consumer. The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the government. 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

Anti-Competitive agreements

In simple words, Anti-Competitive agreements are agreements that are made by two or more companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate the market favourably for them. This has the effect of the companies reducing the competition in the market which adversely affects the end consumer. The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states, “No enterprise or association of enterprises or individuals or association of individuals may enter into an agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”.     

Such agreements are termed as AAEC agreement, which means the appreciable adverse effect on competition agreementsthe Act expressly states that such an agreement shall be void.

An AAEC agreement is classified as any agreements that result in:-

  • Directly affects purchase or sale prices
  • Indirectly affects purchase or sale prices
  • Limits production
  • Limits supply
  • Limits technical development
  • Limits service provision in the market
  • Leads to the rigging of bids
  • Leads to collusive bidding 

Abuse of dominant position

The abuse of dominant position is prohibited by Section 4 of the Competition Act. Abuse of dominant position is defined under the second part of the same Section.  According to the act dominant position means any enterprise that enjoys the position and power in the Indian market which enables it to:

  • Operate independently of competitive forces in the relevant market
  • Affect its competition, consumer or the relevant market in its favour.

 For example, predatory pricing is a practice that is seen to be an abuse of dominant position. In simple words when a dominant enterprise engages in AAEC acts, it is considered an abuse of dominant position. The difference between the definition of anti-competitive agreements and abuse of dominant position is that in anti-competitive agreements there have to be two or more parties and it can be between any enterprise or firm and doesn’t require there to be a dominant firm involved. In abuse of dominant position, it can be done by a single party but the party has to be in a dominant position in the relevant market.

Remedies

Remedies against AAEC agreements and abuse of dominant position are provided by the Competition Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may pass the following orders:

  • Direct the discontinuance of such practices
  • Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a cartel the penalty shall be 10% or three times the turnover of every financial year and shall continue for the period of continuance of such practices
  • Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition of the market
  • Pass any order that it may so deem fit.

The Act mainly covers these aspects;

  • Prohibition of anti competitive agreements
  • Prohibition of abuse of dominance
  • Regulation of combination (acquisition, mergers, and amalgamation of certain size)
  • Establishment of the competition commission of India
  • Power and functions of the competition commission of India

The Act identifies three ways which can have adverse effect on the competition

  • Anti competitive agreement (vertical agreement, horizontal agreement)
  • Abuse of dominant position; enjoying a dominant position will not be crime but its abuse will be a crime
  • Elimination/reduction of competitors in the market achieved through  acquisition, mergers, and amalgamation

In the recent years we have observed the CCI has imposed huge penalties on many companies for mis- using their dominant position in the market. Some years back CII imposed penalty on a big cement company for making cartel in deciding the price of the cement in India.

CCI has imposed penalties on some airlines in India for forming cartel to decide the fare charge of the air travel.

In the conclusion it is worth to say that the CCI is doing great job in protecting the rights of the consumers by increasing healthy competition in the Indian market which is the need of the hour.