LEGAL ASPECTS OF

BUSINESS –
COMPETITION ACT
2002
CC 30102 -04/09/2024
Course coordinator : Amitava Banerjee
IICA -MCA assessed eligible Independent Director
FCS, LLB, M. Com, B. Com, Dip in Business Laws (NUJS, Kolkata)
Former Consultant, NFCG (PPP by MCA, Govt of India)
WHAT IS COMPETITION LAW ABOUT ?

▪ Competition Law is codification of rules designed to promote and sustain market

competition.

▪ Across the globe, these laws are prevalent

▪ Today, over 100 countries have competition law regimes –Antitrust laws

▪ World over, it prohibits practices that restrict competition between businesses

and prohibits behavior which is most prejudiced to the interest of the consumer

▪ The first legislation to restrain abuse of market power was enacted in 1969,
i.e., Monopolies and Restrictive Trade Practices Act (MRTP Act).

▪ As India moved steadily on the path of reforms comprising of Liberalization, Privatization

and Globalization, it did away with the MRTP Act, 1969.

▪ “An Act to provide, keeping in view of the economic development of the country, for the
establishment of a Commission to prevent practices having adverse effect on competition, to
promote and sustain competition in markets, to protect the interests of consumers and to
ensure freedom of trade carried on by other participants in markets, in India, and for
matters connected therewith or incidental thereto.”
WHY IS IT REQUIRED TO REGULATE ENTERPRISES ?

▪ One, the existing enterprises can enter into agreements among themselves that are aimed at limiting the
competition in the market.

▪ Two, an enterprise that is dominant in a market segment can abuse its dominant position by limiting
competition.

▪ Three, a merger of two or more companies can lead to the formation of monopolies and thus, give rise
to the possibility of an abuse of the monopoly position to reduce competition.
WHAT ARE AGREEMENTS ?

▪ It is an arrangement/understanding or action in concert.

▪ It includes both written and oral agreements.
▪ It need not to be enforceable by law.
▪ Any communication among competitors, either in person or by telephone, letters, e-
mail or through any other means even a wink or a nod can be construed as an
agreement

▪ Agreements can be of two kinds, horizontal and vertical.

▪ The horizontal agreements are between two or more enterprises, in the same market,
which are at the same stage of the production chain.

▪ For example, an agreement between two airlines operating in domestic routes would
be a horizontal agreement. Similarly, an agreement between two travel agencies
selling air tickets for the domestic sector would be a horizontal agreement.

▪ In contrast to the horizontal agreements are Vertical agreements between the

enterprises that are at different stages or levels of the production chain.

▪ An agreement between a manufacturer and a distributor is an example of a vertical

agreement.
WHAT IS AN ENTERPRISE ?

▪ “enterprise” means a person or a ▪ But does not include any

department of the Government, activity of the Government
✓ who or which is, or has been, engaged relatable to
in any activity, relating to the ✓ the sovereign functions of the
production, storage, supply, Government
distribution, acquisition or control of ✓ including all activities carried
articles or goods, on by the departments of the
✓ or the provision of services, of any Central Government dealing
kind, with atomic energy, currency,
✓ or in investment, defence and space.
✓ or in the business of acquiring,
holding, underwriting or dealing with
shares, debentures or other securities of
any other body corporate,

✓ either directly or through one or more

of its units or divisions or subsidiaries,
whether such unit or division or
subsidiary is located at the same place
where the enterprise is located or at a
different place or at different places
PROHIBITION OF ANTI-COMPETITIVE AGREEMENTS (HORIZONTAL)

1.DIRECTLY OR INDIRECTLY DETERMINE PURCHASE OR SALE PRICES:

Businessman 1: Every shop in the mall is slashing their prices.

Businessman 2:Now we have to lower our prices too.
Businessman 1: Look, we'll all end up making less if we go on like this. Why
don’t we talk to other owners and stop the price war? Let's fix the prices
together.
Then we can keep our margin.
Businessman 2: That sounds like a smart plan. Let's talk to other owners

2. LIMIT OR CONTROL OUTPUT, TECHNICAL DEVELOPMENT, SERVICES

ETC: Production control involves competitors agreeing to limit the quantity of
goods or services available in the market.

Producer 1: None of us have really been doing well recently. We must think of
something to boost the profit. I've been thinking to reduce the supply together.
When there's less supply, we can raise the price. Things are only precious when
they are rare.
PROHIBITION OF AGREEMENTS ANTI-COMPETITIVE AGREEMENTS.
3. SHARE OR DIVIDE MARKETS: This could include competitors agreeing to
allocate customers between themselves or agreeing to stay out of each other's
geographic territory or customer base.

Businessman 1: I didn't know that operating bus services for business units was
so lucrative.
Businessman 2: Smartly, We agreed among ourselves to send out quotations to
different business units respectively. Now they don't really have a choice. And
we will virtually monopolize the shuttle bus business. We can charge whatever
we like!
Businessman 1: Even if your clients ask me for quotation, I am not going to
reply.
Businessman 2: So, how are we going to share those estates this year?
Businessman 1: Same as usual, let's split the districts between us. I'll send you
the list when it's done.

4. INDULGE IN BID-RIGGING OR COLLUSIVE BIDDING: Taking turns to

win competitive tender contracts is an example of bid-rigging. This could
include:
• cover bids (high) that are intended not to be successful – where the
unsuccessful bidders may get kick-backs;
• bid suppression where parties agree that only one of them will submit a bid
for the contract;
PROHIBITION ANTI-COMPETITIVE AGREEMENTS (VERTICAL)

a) TIE-IN ARRANGEMENTS - Tying occurs when customers buy a product they want
(the tying product) but are required (forced) to buy a product (the tied product) from
a different market that they may not want.

b) EXCLUSIVE DISTRIBUTION AGREEMENTS - In an exclusive distribution

agreement, the supplier agrees to sell his products only to one distributor for resale in
a particular territory. At the same time, the distributor is usually limited in his active
selling into other exclusively allocated territories.

c) REFUSAL TO DEAL - It means restricting by any method any person/classes of

persons to whom goods are sold. Businesses have the right to use their discretion in
choosing whom to do business with. However, if this choice is made through a
conspiracy with another competitor, business, or individual, they will likely be in
contravention of the law.

d) RESALE PRICE MAINTENANCE - It means selling goods with condition on resale at

stipulated prices. It generally occurs when an upstream seller (Producer) imposes a
fixed or a minimum price that a downstream buyer (Distributor or Retailer) must
resell.
PROHIBITION ANTI-COMPETITIVE AGREEMENTS - PRESUMPTION

There is a presumption in the Act that the four types of horizontal agreements
mentioned above are presumed to have adverse effect on competition.

In other words, they are per se illegal and the burden of proof will be on the
defendant to prove that the agreement in question is not causing an appreciable
adverse effect on competition.

Vertical agreements are subject to the rule of reason analysis i.e. the positive as well
as the negative impact of such agreements on competition will have to be taken into
account before coming to any conclusion.

PROHIBITION ANTI-COMPETITIVE AGREEMENTS - EXEMPTION

▪ Section 3(5) recognizes and protects intellectual property rights, permitting

imposition of reasonable restrictions by their owners.
▪ Also agreements relating to exports to the extent to which they relate exclusively to
the production, supply, distribution or control of goods or services are exempted.
▪ This also applies to agreements entered into by way of joint ventures that increase
efficiency in production, supply, distribution, storage etc
FACTORS CONSIDERED FOR INQUIRING INTO AGREEMENTS

The Commission while determining whether an agreement has an appreciable

adverse effect on competition under section 3, gives due regard to all or any of
the following factors, namely:-

(a) creation of barriers to new entrants in the market;

(b) driving existing competitors out of the market;

(c) foreclosure of competition by hindering entry into the market;

(d) accrual of benefits to consumers;

(e) improvements in production or distribution of goods or provision of services;

(f) promotion of technical, scientific and economic development by means of

production or distribution of goods or provision of services
ADVERSE EFFECT ON COMPETITION IS WITH REFERENCE TO THE RELEVANT
MARKET.
▪ Relevant geographic market is a ▪ Relevant product market is defined in
geographical territory in which terms of substitutability.
competition conditions in a
relevant market of a product are ▪ It comprises of all those products and/or
sufficiently the same for all services which are regarded as
participants in such market and interchangeable or substitutable by the
therefore this territory can be consumer by reason of the products'
separated from other territories. characteristics, their prices and their
intended use.
▪ The relevant geographic market is
affected by factors like ▪ The market for cars, for example, may
consumption and shipment consist of separate 'relevant product
patterns, transportation costs, markets' for small cars, mid-size cars,
perishability and existence of luxury cars etc. as these are not
barriers to the shipment of substitutable for each other on a small
products between adjoining change in price
geographic areas.

▪ For example, in view of the high

perishability of fish, the relevant
geographical market may be the
region close to the breeding
 PROHIBITION OF ABUSE OF DOMINANT POSITION

▪ A firm can acquire a dominant position in a relevant market and act independently of
.
the market

▪ Being a dominant organisation per se is not bad or objectionable. What is objectionable

is the abuse of the position of dominance.

▪ The Act applies only to abuse by the dominant firms because the presumption is that a
small firm will lose its customers to its competitors if it charges excessive prices.

▪ Customers might have nowhere to turn if a dominant firm charges an excessive price

▪ Exploitative Practices leading to abuse of dominant position

a. DIRECTLY OR INDIRECTLY IMPOSING UNFAIR OR DISCRIMINATORY PRICES IN

PURCHASE OR SALE OF GOODS OR SERVICE. Price discrimination occurs when customers in
different market segments are charged different prices for the same good or service, for reasons
unrelated to costs.

Suppose Nagpur is divided into two parts and both the areas are inaccessible to one another.
Suppose firm X is dominant in the market of tyres. Since it can easily segregate the market it
may charge higher prices in one part and lower prices from other consumers for the same tyre
in spite of its cost being same in both the markets
 PROHIBITION OF ABUSE OF DOMINANT POSITION

B.. PREDATORY PRICING: selling a product or service below cost to drive competitors out of the
market or create barriers to expansion for such competitors or to create barriers to entry for
potential new competitors.

Enterprise A, a manufacturer of pens is a dominant enterprise in the pen market. Earlier it used
to charge a price of INR 10 per pen .

However, it has recently started selling its pen at a loss making price of INR 5 knowing that its
competitors will not be able to match its price as their cost of production is higher than Rs. 5.
As a result of this, A's competitors would be forced to exit the market, after which, A, as a
monopolist, would be free to charge any price that it wants.

This is an example of a monopoly abusing its dominance by indulging in predatory pricing.

C. EXCESSIVE PRICING: charging excessive prices due to lack of competition. Since the firm has
no competition, it can charge higher prices.
 PROHIBITION OF ABUSE OF DOMINANT POSITION

▪ . Exclusionary Practices leading to abuse of dominant position

A. LIMITING PRODUCTION OF GOODS OR PROVISION OF SERVICES OR LIMITING

OR RESTRICTING TECHNICAL OR SCIENTIFIC DEVELOPMENT:

▪ The dominant firm can restrict the production of its goods and services in order to
create artificial scarcity in the market.

▪ As a result of which demand will be greater than supply and hence the price of the
product would increase.

▪ Moreover, the dominant firm can also restrict scientific and technical innovations as it
has no incentive to indulge in it.

▪ Other competitive companies innovate to achieve dominance but this is not the case
with dominant firm as it might have no or very less competition.
 PROHIBITION OF ABUSE OF DOMINANT POSITION

▪ . Exclusionary Practices leading to abuse of dominant position

B. INDULGES IN PRACTICE OR PRACTICES RESULTING IN DENIAL OF MARKET

ACCESS:

▪ A dominant firm in order to maintain its dominance may indulge in practices which
results in denial of market access to its competitors.

▪ For instance: it can create entry barriers like by pricing below cost (predatory pricing).

▪ It can also indulge in lobbying with government to create/modify regulations which

may restrict new entry.

▪ Denial of market access by the dominant firm has a negative impact on consumer
welfare as it limits competitive prices and product choices.
 PROHIBITION OF ABUSE OF DOMINANT POSITION

▪ . Exclusionary Practices leading to abuse of dominant position

C. IMPOSING CONDITIONS WHICH ARE IRRELEVANT TO THE CONTRACT

ENTERED INTO:

▪ According to it, a dominant firm imposes conditions which impose an unnecessary onus
on the other party to the contract which may be completely irrelevant.

▪ Suppose Arun purchases a luxury flat from XYZ builders in a high end residential
accommodation.

▪ Also, XYZ has a dominant position in the high end residential accommodation market.

▪ Further, XYZ imposes an unnecessary condition on Arun that he can't rent his flat to
students but he can rent it to families.

▪ This condition is completely irrelevant to the contract entered into and is hence a
violation of section 4 of the Act
 PROHIBITION OF ABUSE OF DOMINANT POSITION

▪ . Exclusionary Practices leading to abuse of dominant position

D. USING ITS DOMINANT POSITION IN ONE RELEVANT MARKET TO ENTER INTO,

OR PROTECT, OTHER RELEVANT MARKET

▪ According to it, a dominant firm would condition the purchase of the product by the
consumer with another product.

▪ The two products would have different relevant markets

▪ A printer manufacturer who is dominant in the printer market would force the
consumer to also buy ink toner from him.

▪ Since, printer and toner are different products; they have a separate relevant market.

▪ Consequently, the competition in the ink market gets affected as ink producers would
lose their customers to the printer manufacturer
REGULATION OF COMBINATION - WHY IS IT REQUIRED (SECTION 5 & 6)

▪ Combinations mean mergers, amalgamations of companies or acquisitions of control,

shares, voting rights or assets of one company by another company or group.

▪ Good combinations lead to a more efficient business which passes on some of those
efficiency savings to its customers.

▪ On the other hand, bad mergers lead to a situation where one or more businesses
have the power to raise their prices to their customers

▪ Combinations should not be permitted to create, enhance, or entrench market power

or to facilitate its exercise

▪ Combinations enhances market power if it is likely to encourage one or more firms

to raise price, reduce output, diminish innovation, or otherwise harm consumers as a
result of diminished competitive constraints or incentives
REGULATION OF COMBINATION - WHY IS IT REQUIRED (SECTION 5 & 6)

▪ Unilateral effects - Firms can enhance market power simply because of elimination
of competition through merger or acquisition.

▪ Coordinated effects - merger can also result in increased risk of joint dominance
through coordinated, accommodating, or concerted behavior among remaining
market players in relevant market

▪ Post-combination, unscrambling a merger may also involve high socioeconomic

costs.

▪ Regulation of combination provides legal certainty to business, had the combining

enterprises taken clearance after filing notification
REGULATION OF COMBINATION - WHY IS IT REQUIRED (SECTION 5 & 6)

▪ The Act provides for mandatory filing of notice with CCI regarding the combination
based on asset/turnover. The failure to notify and obtain required approval attracts
penalties (up to 1% of total turnover or the assets, whichever is higher) under Section
43A of the Act.

▪ Suppose there are four firms in a market having the following market shares
✓ A-50%
✓ B-40%
✓ C-5%
✓ D-5%

▪ If a firm ‘A’ merges with firm 'B' then such post-merger entity A+B will capture
almost the whole market thereby impinging on the competition in the market.

▪ Such market power may incentivize the businesses in exploiting the consumers.

▪ The Competition Commission's role is to screen mergers for potential anti-

competitive effects. The Commission decides whether the combination should be
approved, prohibited or approved with modifications to the combination.
REGULATION OF COMBINATION - FACTORS CONSIDERED FOR INQUIRING
INTO COMBINATION

(a) actual and potential level of competition through imports in the market

(b) extent of barriers to entry into the market;

(c) level of combination in the market;

(d) likelihood that the combination would result in the parties to the combination being
able to significantly and sustainably increase prices or profit margins;

(e) extent of effective competition likely to sustain in a market;

(f) extent to which substitutes are available or arc likely to be available in the market;

(g) market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;
REGULATION OF COMBINATION - FACTORS CONSIDERED FOR INQUIRING
INTO COMBINATION

(h) likelihood that the combination would result in the removal of a vigorous and
effective competitor or competitors in the market;

(i) nature and extent of vertical integration in the market;

(j) possibility of a failing business;

(k) nature and extent of innovation;

(l) relative advantage, by way of the contribution to the economic development, by any
combination having or likely to have

(m) whether the benefits of the combination outweigh the adverse impact of the
combination, if any
CASE STUDY - PVR’S ACQUISITION OF DT CINEMA’S MULTIPLEXES/SINGLE SCREEN
THEATRES IN DELHI NCR AND CHANDIGARH

▪ The proposed combination relates to the acquisition by PVR of DLF's film exhibition
business 'DT Cinemas’, comprising 39 screens (29 existing and 10 upcoming) as a
going concern on a slump-sale basis.

▪ For the purpose of competition assessment of the proposed combination, the

Commission defined the relevant geographic markets as Gurgaon, South Delhi, North,
West and Central Delhi, Noida, and Chandigarh.

▪ The relevant product market was defined as the market for multiplexes and high end
single screen theatres.

▪ The commission observed that the proposed combination is likely to cause AAEC in
the relevant markets of Noida, Gurgaon and South Delhi and hence subjected the deal
to public scrutiny.

▪ The commission approved the proposed combination under section 31(7) with certain
modifications by offering structural remedies, which inter alia include exclusion of DT
Savitri (one screen) and DT Saket (six screens) from the proposed combination to
address anti-competitive concerns
COMPETITION COMMISSION OF INDIA (CCI)

▪ The Competition Act, 2002 was passed by the Parliament in the year 2002, to
which the President accorded assent in January, 2003. It was subsequently
amended by the Competition (Amendment) Act, 2007.

▪ In accordance with the provisions of the Amendment Act, the Competition

Commission of India and the Competition Appellate Tribunal .However after the
Companies Act, 2013 was passed , National Company Law Appellate Tribunal
(NCLAT) constituted under section 410 of the shall be the Appellate Tribunal for
the purpose of this Competition Act 2002.

▪ The Commission is also mandated to give its opinion on competition issues to

government or statutory authority and to undertake competition advocacy for
creating awareness of competition law.

▪ The Secretariat is the Division within the Commission responsible for handling
administrative matters and carrying out the day-to-day affairs of the Commission.
The responsibility of communicating with parties in proceedings before the
Commission or corresponding with other regulatory bodies, inter alia, is
discharged by the Secretariat.
 COMPETITION COMMISSION OF INDIA (CCI)

▪ The Legal Division is the repository of all information and documentation

regarding legal challenges or appellate matters in courts, tribunals and other
judicial forums. It is also responsible for charting out the strategy when it comes to
the resolution of contentious matters before various judicial forums involving the
Commission

▪ The establishment of an International Cooperation Division within the CCI is an

attempt to follow a phased, flexible and planned approach to global antitrust
cooperation. This is usually done via the signing of Memorandums of
Understanding (MoUs) with various competition authorities, in addition to
participating in various multilateral fora like the International Competition
Network (ICN), the Organisation of Economic Cooperation and Development
(OECD) and the BRICS grouping.

▪ Capacity Building Division (CBD), organises training programmes such as

induction training, lectures by external resource persons and training for
employees conducted in collaboration with premier academic institutions.

▪ Service Division is looking after all the general administration matters in CCI and
O/o DG, CCI like Procurement of Goods and Services, maintenance and issue of
stock and assets of CCI, Protocol, Hospitality and Logistic arrangements for the
meetings/seminars etc