Originally published in Blakes Bulletin on Competition Law, September, 2007
The presence of a modern competition law is one indicator of the extent to which an economy has embraced the notion of encouraging effective competition in the marketplace. India introduced a new Competition Act in 2003. However, the legislation hit a number of roadblocks and, so far, none of the substantive provisions of the Competition Act have come into force. It appears that these roadblocks are now finally being cleared with the passage of the Competition (Amendment) Bill (the Amendment Bill) by both houses of the Indian Parliament in September 2007.
The Competition Act, which received Presidential assent on January 13, 2003, established the Competition Commission of India (the CCI) as the new statutory authority to inquire into alleged contraventions of the legislation. The Competition Act is a dramatic shift from the previous competition-related legislation, the Monopolies and Restrictive Trade Practices Act, which had been in place long before India undertook its significant market reforms and, as a result, was increasingly irrelevant, ineffective, and overly bureaucratic.
The Competition Act covers three main areas: (i) merger review, (ii) anti-competitive agreements, and (iii) abuse of dominant position.
Merger review and notification
Since 1991, India has not had a merger review regime to examine the anti-competitive effects of proposed transactions. Approval from domestic courts is required, but courts are only required to examine the proposed transaction from the perspective of shareholders, workers, etc. The Competition Act brings merger review and notification back under the purview of competition-specific legislation. The need for competition legislation that contains effective merger review provisions is demonstrated by the steady increase in mergers and acquisitions in India in recent years, a number of which would have fallen within the merger threshold limits set out in the Competition Act.
Under the Competition Act, mergers involving entities that jointly have assets above a certain monetary threshold which cause, or are likely to cause, an "appreciable adverse effect on competition" within the relevant market in India are void. The monetary threshold set under the Competition Act takes into account the assets of the combining entities in India and abroad, and is set relatively high, with the rationale being that, at least in the early period, Indian companies should be able to merge with each other without encountering additional regulatory hurdles.
The Competition Act lists a number of factors to be taken into consideration in determining whether there has been, or is likely to be, an "appreciable adverse effect on competition" as a result of the proposed merger without defining the operative phrase. These factors include the extent of barriers to entry, the degree of concentration in the market, the extent of effective competition, market shares, the degree of countervailing power, the nature and extent of innovation, and whether the benefits of the merger outweigh any adverse impact.
Pre-merger notification was voluntary under the Competition Act. However, the Amendment Bill proposes to make premerger notification mandatory. Further, the Amendment Bill introduces a long wait time of 210 days after the submission of the notification to the CCI during which period the parties may not close the transaction, unless the CCI grants its approval prior to the expiry of this period. While the move to a mandatory notification regime is laudable, the waiting period of close to seven months could create considerable uncertainty for businesses and adversely affect their operations over this period of time.
The Competition Act provides that any agreement in respect of the production, supply, distribution, storage, acquisition, or control of goods or the provision of services which causes, or is likely to cause, an "appreciable adverse effect on competition in India" is prohibited. Certain agreements are presumed to have an appreciable adverse effect on competition, such as those involving allocation of markets, bid-rigging, or price fixing. Other agreements, such as tied-selling, exclusive dealing, refusal to deal, and resale price maintenance are prohibited only if they are shown to be causing an appreciable adverse effect on competition.
Abuse of dominant position
The Competition Act prohibits abuse of dominant position by an "enterprise", which is defined so as to include any person and any department of the Government, except for any activity of the Government related to sovereign functions. A "dominant position" is defined in terms of market power that gives the enterprise the ability to operate independently of competitive forces. A number of factors, such as market share, barriers to entry, and the extent of effective competition, are to be considered by the CCI in determining whether an enterprise enjoys a dominant position.
A number of situations that amount to abuse of dominant position are set out under the Competition Act, for instance, imposing unfair or discriminatory sale or purchase prices (including predatory pricing), limiting or restricting production of goods or provision of services, denying market access to competitors, and using a dominant position in one market to access or protect another market. If the CCI finds that an enterprise has abused its dominant position, it may take appropriate measures, including directing the entity to discontinue the action and imposing penalties.
Interesting days ahead
The enactment of a new competition law is a major step toward introducing a modern and effective competition regime in India. The government had planned to bring the Competition Act into effect in different phases, however, a challenge before the Supreme Court of India regarding the appointment of the members of the CCI created a roadblock to this plan. Now that the Amendment Bill addressing those concerns has been passed, it is likely that the substantive provisions of the Competition Act will soon be brought into effect. As with the early days of any competition legislation, a number of issues will have to be resolved through administrative practice, formal and informal guidance by the agency, and jurisprudence. Clearly, there are interesting days ahead for competition law in India.
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