On 20 May 2009, the Indian Government formally notified provisions in the Competition Act of India (Act) relating to anti-competitive agreements and abuse of dominance. The provisions relating to mergers (combinations) have yet to be brought into operation, but are likely to be in force later this year. In addition to this, the Indian Government has now made the Competition Commission of India (CCI), a body set up to oversee the operation of the Act, fully functional.

These steps are part of a broader initiative to bring India's competition regulatory framework into line with international best practices. Domestic Indian or foreign entities conducting business in India will now need to be mindful of the impact of the new provisions and ensure their conduct does not result in a breach of the Act. As a result, India is now another jurisdiction that must be considered, from a competition law perspective, in conducting international business operations and transactions.

Outline of the changes

Following the recent notifications, sections 3 (anti-competitive agreements) and 4 (abuse of dominance) of the Act are now in force.

Anti competitive agreements

Section 3 of the Act prohibits agreements which restrict the production, supply, distribution, acquisition or control of goods or provision of services, which cause or are likely to cause an appreciable adverse effect on competition within India. A party that breaches these provisions may be liable for penalties of up to 10 per cent of the average turnover for the last three years with sanctions relating to cartels potentially even higher.

Abuse of dominance

Section 4 of the Act prohibits the abuse of a dominant position by an enterprise. An entity that contravenes this section may be liable for financial penalties (10 per cent of the dominant firm's average turnover for the three proceeding years) or structural remedies such as undertakings ordering the division of the dominant firm.

Competition Commission of India

The CCI is responsible for the enforcement of the Act's prohibitions on restrictive agreements and abuses of dominant positions. The CCI has a wide range of powers of investigation to assist the commission in determining whether an infringement has occurred. In particular, the CCI has extra-territorial jurisdiction to undertake an inquiry into an agreement or an abuse of dominance that has taken place outside of India so long as there is an appreciable adverse effect on competition within India. The Indian Government has appointed five members to the CCI including Mr Dhanendra Kumar, a former executive of the World Bank, as Chairman.

Impact of the new provisions on domestic Indian and foreign enterprises

Indian and foreign enterprises will now need to ensure existing agreements entered into are compliant with the new provisions. Such entities will also need to ensure their conduct both in and outside of India, does not result in or is not likely to result in, an appreciable adverse effect on competition within India.

What's next?

Businesses should also note that the section of the Act concerning the regulation of mergers is currently under consideration and is likely to be brought into force later this year.

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