Competition Law in India: An Overview

Competition Law in India | Overview

• Introduction: Competition Law in India
• MRTP Act, 1969
• The Road from MRTP Act to Competition Act, 2002
• Competition Act, 2002

The article gives an overview of the competition law in India and draws a complete picture of the competition law that governs the domestic and international market of Indian economy. It brings out the necessity of regulating the market and how the MRTP Act came into existence. Further, the article brings out the loopholes of the MRTP Act as recommended by the Raghavan Committee, which led to the introduction of the new competition law in the country.

Introduction: Competition Law in India

When there exists an economic rivalry amongst the companies or entities for drawing the maximum number of customers and make most of the profit, such a situation is known as competition. The law drafted by the legislature to regulate such competition is known as competition law. It is also known as antitrust law in some countries around the world. A free, fair, healthy and reasonable competition prevailing in the market is a sine qua non for the creation and maintenance of a conducive environment for business do that the country can prosper.

The motto of all the competition laws operational in various parts of the world is to make sure that there exists such an environment where all the companies can deal with fair competition.

The Competition Law in India has just bloomed from the bud and is still going through various improvements. A lot of time has not elapsed since the new competition law has been adopted. MRTP Act was used to operate the competition in market before the Competition Act, 2002 came to the forefront. The structure of the competition law has been kept in such a way that not only promotes but also provides a fair and reasonable chance to all the enterprises in the market to have a healthy competition so that the interests of the consumers can be protected.

I. MRTP Act, 1969

The MRTP Act had laid down various provisions to regulate the market until it got repealed by some other act in the year of 2009. It is important to have a discussion about the MRTP Act at this point to fulfil the following three objectives:

1. To have an idea about the jurisprudence of the competition law that got developed during the past few years by the Hon’ble Supreme Court;
2. To have an idea about the nature of cases that came under the MRTP Act; and
3. To have an idea about the context which developed a need for the Indian legislature to come out with new competition legislation.

The Constitution of India was drafted with an objective to build a humane and just society and thus, it has mandated for the state to form its policies with an eye on the objective stated hereinabove. In order to secure that end, the Constituent Assembly of India has come up with Articles 38 and 39 of the Constitution forming a part of the Directive Principles of State Policy, whereby a State is required to work in a direction that promotes the welfare of the people. The MRTP Act was enacted in 1969 to fulfil the above-mentioned mandate stated in Part IV of the Constitution of India.

After independence, India has taken the road to adopt the strategy of developing a planned economy. Industrial Policy Resolution that was announced in 1948 marked the beginning of industrial policies in India.[1] Then, the 1956 Resolution marked the second Industrial policy. This policy was drafted with a focus on self- reliance, social justice and growth.

The intervention and control by Government became a cause of pervading the economic activities of all the areas of the country and pursuant to which, there was a lack of competitive and contestable market. Everything was in control of Government, for instance, where scarce financial resources are to be located, the location of plants and sizes of plants and so on had to be decided by the government. The government used to favour the big business houses for granting licenses as they could easily elevate the capital amount and were in possession of the required skill set for running the industry.

On the other hand, the Government was fully aware of the principles laid out in the Constitution and thus, the MRTP bill was drafted and it became an act in 1969 and got implemented from June 1, 1970. The Act had borrowed a lot of legal principles that are enshrined in the American laws such as Sherman Act and Clayton Act and British laws such as the Monopolies and Restrictive Trade Practices (Inquiry and Control) Act, 1948, the Resale Prices Act, 1964 and the Restrictive Trade Practices Act, 1964. Along with these acts, the Combines Investigation Act, 1910 of Canada and US Federal Trade Commission Act, 1938 also became the source of influence during the drafting of MRTP Act.

The MRTP Act has given thrust on the following areas[2]:

1. Having control on monopolies
2. Prohibiting unfair trade practices completely
3. Preventing economic power to get concentrated for the common detriment
4. Putting a halt on Monopolistic and Restrictive trade practices

The focus of the MRTP Act is to prohibit all the Unfair, Restrictive and Monopolistic Trade practices.[3] Such practices not only create an adverse impact on the competition in the industry and trade but also tend to impair the interests of the general public. Hence, the Act focuses a lot on all those mechanisms which help in encouraging fair deal and fair play in the market along with the promotion of the healthy competition.

The Act covered almost all the areas of business such as promotion, sales, advertising, packaging, purchasing, investment, pricing, distribution, production, take- over or merger amalgamation with any undertaking.

Similar to the other competition laws of the world, the MRTP Act also takes three basic trade practices into its ambit viz., monopolistic, unfair and restrictive.

Though the restrictive Trade Practices were considered as a violation of the MRTP Act by the MRTP Commission, it was held by the Supreme Court in the matter of TELCO v. Registrar of RT Agreement[4] that in all the cases involving agreements comprising of the RTP, there should be an application of the rule of reason. The TELCO judgment was pronounced by the Supreme Court on behest of the similar judgments pronounced by the US Supreme Court which made the rule of reason test applicable in Continental TV v. GTE Sylvania.[5]

The Indian Supreme Court had affirmed to the opinion of the TELCO case once again and adopted the test of the rule of reason formally in another case of Mahindra & Mahindra Ltd. v Union of India.[6] Then, the legislature introduced MRTP Amendment Act, 1984 that enshrined all the principles laid down by the Supreme Court so that there can be a restriction on all those agreements that got listed under Section 33(1) of the MRTP Act such as exclusive dealing, area restriction, maintenance of resale price and so on.

Later on, it was held by the Supreme Court in the matter of Voltas Ltd v. Union of India[7] that when it comes to the general definition of the restrictive trade practices under sec 2(o) of the Act, all those practices that are not listed under Sec 33(1) can be made subject to the analysis of Rule of Reason.

II. The Road from MRTP Act to Competition Act, 2002

As discussed above, a major part of the MRTP Act revolved around the concentration of economy and monopolistic behaviour. Post-1991, a change in the economic situation and the commencement of the economic reforms in the country and pursuant to which it was realized that the need of an hour is to bring a change in the approach to foster competition in the markets of the country.

Accordingly, the Raghavan Committee[8] was formed to get suitable recommendation on the legislative framework with respect to the competition law prevailing in the country. It was realized that though the MRTP Act was comprising of the of various provisions that regulate anti-competitive activities when compared to other countries the Act fell short to promote competition in the market and to reduce any type of anti-competitive activities in the domestic and international trade market of the country.

The MRTP Act lacked in providing ample remedy to the complainants turned out to be the biggest drawbacks of the MRTP Act. The Act empowered the Authorities only to pass the orders of ‘cease and desist’ from all the alleged unfair, restrictive or monopolistic trade practices to the respondent and no other fine or penalty could be imposed by the Authorities for any kind of violation of the Act.[9] Thus, the Committee came out with the recommendation of making some amendments in the existing law of MRTP Act and drafting a new competition law.

III. Competition Act, 2002

Following the recommendations of Raghavan Committee, the Union Legislature had worked on enacting a new competition law and came out with the Competition Act in 2002 for the whole of the country. The Competition Act was drafted by keeping all the general terms in mind and did not restrict itself just to regulating the private parties in their commercial nature.

The Competition Act of 2002 regulates or prohibits:

1. Anti-competitive agreements by virtue of sec 3 of the Act;
2. Abuse of dominant position by virtue of sec 4 of the Act; and
3. Combinations by virtue of sec 5 and 6 of the Act.

The CCI is a quasi-judicial body formed under the Competition Act of 2002 and is bound to follow the principles of Rule of Law while pronouncing the decisions and the doctrine of stare decisis. The Competition Act had empowered the Commission to get on record all the required testimonial and documents by the way of evidence and pursuant to which it is in a condition where it can adjudicate upon the disputed that are brought before it. It was important to confer this power on the Authority because unlike America, a party cannot bring a suit in the civil court for any anti-competitive practice.

The ambit of Department of Justice and Federal Trade Commission are different in nature;[10] however, in the Indian legal regime, CCI has been empowered to investigate all the cases in reference to the anti-competitive practices.

The violation of Section 3 and 4 of the Act has been taken care of by Section 27 of the Act. The Competition Commission of India has been empowered to issue an order of ‘cease and desist’ or to impose a penalty that does not exceed 10% of the average turnover for the past three years from the date on which the order was pronounced.

Further in the matters relating to the cartel agreements, the CCI can impose a penalty that is three times the amount of profit that is to be derived from the cartel agreement or 10% of the turnover, whichever is higher. The Competition Act had given a lot of power to the CCI which empowered it to bridge the gap left by the MRTP Act and to regulate the market so that it can experience healthy competition.

---

[1] The Industrial Policy Resolution defined the broad contours of the Industrial Policy and delineated the role of the State in industrial development:, both as an entrepreneur and as an authority.

[2] Jaivir Singh, Monopolistic Trade Practices and Concentration of Wealth: Some conceptual problems in MRTP Act, Economic and Political Weekly, Vol. 35, No. 50 (Dec. 9-15, 2000), pp. 4437-4444

[3] The MRTP (Amendment) ACT, 1984 had introduced the concept of ‘unfair trade practice’ into the Act by inserting S.36A, in pursuance of the recommendation of the High Powered Expert Committee, more popularly described as the Sachar Committee

[4] (1977) 2 SCC 55

[5] (1977) 433 US 36

[6] 1979). 2 SCC 529 It may be noted that the Supreme Court observed that “the language of the definition of “restrictive trade practice” in our Act suggests, that in enacting the definition, our legislature drew upon the concept and rationale underlying the ‘rule of reason’. That is why this Court pointed out in the Telco case in words almost bodily lifted from the judgment of Mr Justice Brandeis [in the case of Board of Trade v. the United States 62 L. Ed. 683]”

[7] AIR 1995 SCC 1881

[8]h Raghavan Committee Report, Committee on Competition Policy, Available Here

[9] Dr S Chakravarthy, Why India Adopted a new Competition Law, Pg 19-31, Available Here

[10] Theoretical and Practical Observations on Cartel and Merger Enforcement at the Federal Trade Commission, Remarks of J. Thomas Rosch, Commissioner, FTC at the George Mason Law Review’s 14th Annual Symposium on Antitrust Law, February 2011.

---

1. Competition Law
2. Click here to view the Act
3. Attested credentials on my internship at Legal Bites: Shreya