A Report on

THE COMPETITION BILL

Subject: Legal Aspects of Business (LAB)
MBA SEM: 3
Date of Submission: 28th August, 2013

Report By:
Romil Shah (Roll No. 46)
AliAbbas Marchawala (Roll No. 21)
Abhyuday Singh Chauhan (Roll No. 07)
Bhuvaneshwari Mudlior (Roll No. 23)
Mokshit Gandhi (Roll No. 12)
Anusha Mishra (Roll No. 22)
Agnya Patel (Roll No. 27)
Hiral Thakkar (Roll No. 49)
Abdul Raheem Khan (Roll No. 20)
Sonal Patel (Roll No. 32)
Aesha Shah (Roll No. 40)
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Table of Contents
1

Introduction to the Case .......................................................................................................... 3

The Competition Act ............................................................................................................................ 3
Competition Commission of India ........................................................................................................ 3
Objective of the Competition Act ......................................................................................................... 3

Competition bill 2001 ............................................................................................................... 7

The Bill ................................................................................................................................................ 7

Competition bill, 2007 ............................................................................................................ 11

Competition bill, 2012 ............................................................................................................ 13

Certain Cases where CCI imposed penalties .................................................................... 17

Case 1................................................................................................................................................ 17
Case 2................................................................................................................................................ 18

1 Introduction to the Case

The Competition Act
The Competition Act was enacted by the Parliament of India and governs Indian
competition law. It replaced the archaic Monopoly and Restrictive Trade Practices Act, 1969.
Under this legislation, the Competition Commission of India was established to prevent
activities that have an adverse effect on competition in India.

Competition Commission of India

The objectives of the Act are sought to be achieved through the Competition
Commission of India (CCI), which has been established by the Central Government with effect
from 14 October 2003. CCI consists of a Chairperson and 6 Members appointed by the Central
Government. It is the duty of the Commission to eliminate practices having adverse effect on
competition, promote and sustain competition, protect the interests of consumers and ensure
freedom of trade in the markets of India. The Commission is also required to give opinion on
competition issues on a reference received from a statutory authority established under any
law and to undertake competition advocacy, create public awareness and impart training on
competition issues.

Objective of the Competition Act

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.
To achieve its objectives, the Competition Commission of India endeavours to do the
following:
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Make the markets work for the benefit and welfare of consumers.

Ensure fair and healthy competition in economic activities in the country for faster and
inclusive growth and development of economy.

Implement competition policies with an aim to effectuate the most efficient utilization of
economic resources.

Develop and nurture effective relations and interactions with sectoral regulators to ensure
smooth alignment of sectoral regulatory laws in tandem with the competition law.

Effectively carry out competition advocacy and spread the information on benefits of
competition among all stakeholders to establish and nurture competition culture in Indian
economy.

WHY DID COMPETITION BILL COME INTO EXISTENCE?

During the administration of the MRTP Act over three decades since its inception in
1969, many difficulties were encountered, particularly in regard to interpretations of
expressions and provisions therein. There has been a large number of binding rulings of the
Supreme Court of India and also Bench decisions of the MRTP Commission. These decisions
have interpreted the various provisions of the MRTP Act from time to time and have
constituted precedents for the future. Thus, where the wording of the existing law has been
considered inadequate by judicial pronouncements, it became necessary to redraft the law to
inhere the spirit of the law and the intention of the lawmakers.
A perusal of the MRTP Act will show that there is neither definition nor even a mention
of certain offending trade practices which are restrictive in character. Some illustrations of
these are:

Abuse of Dominance
Cartels, Collusion and Price Fixing
Bid Rigging
Boycotts and Refusal to Deal
Predatory pricing
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Often an argument has been advanced that one particular general provision [Section
2(o)] of the MRTP Act may cover all anti-competition practices, as it defines an RTP as a trade
practice which prevents, distorts or restricts competition and that therefore there is no need
for a new law. While complaints relating to anti-competition practices could be tried under the
generic definition of restrictive trade practice (which prevents, distorts or restricts
competition), the absence of specification of identifiable anti-competition practices gave room
to different interpretations by different Courts of Law, with the result that the spirit of the law
often escaped being captured and enforced. While a generic definition might be necessary and
might form the substantive foundation of the law, it was considered necessary to identify
specific anti-competition practices and define them so that the scope for a valve or opening on
technical grounds for the offending parties to escape indictment would not obtain. Hence, the
need for a new and better law was recognised, which gave birth to the Competition Act, 2002.
Furthermore, some of the anti-competition practices like cartels, predatory pricing, bid
rigging etc. are not specifically mentioned in the MRTP Act but the MRTP Commission, over the
years, had attempted to fit such offences under one or more of its sections by way of
interpretation of the language used therein.
Another dimension that marked the thinking of the Government particularly after the
1991 economic reforms was the dynamic context of International trade and market as well as
the domestic trade and market. When the MRTP Act was drafted in 1969, the economic and
trade milieu prevalent at that time constituted the premise for its various provisions. There has
been subsequently a sea change in the milieu with considerable movement towards
liberalisation, privatisation and globalisation. The law needed to yield to the changed and
changing scenario on the economic and trade front. This was one important reason why a new
competition law had to be framed. Many countries like the U.K., Canada, Australia and the
European Community have, in line with this thinking, enacted new competition laws and
repealed their earlier laws governing fair-trading, etc.

The experience in administering the MRTP Act, for about three decades since 1969, the
deficiencies noted in the said Act, the difficulties that arose out of different interpretations and
judgments of the MRTP Commission and the superior Courts of Law and the new and changing
economic milieu spurred by the LPG paradigm and the economic reforms of 1991 (and
thereafter) impelled the need for a new competition law.

The need for a new law has its origin in Finance Ministers budget speech in Feb, 1999:

The MRTP Act has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing
monopolies to promoting competition. The Government has decided to appoint a committee
to examine this range of issues and propose a modern competition law suitable for our
conditions.

HIGH LEVEL COMMITTEE ON COMPETITION POLICY AND LAW

In October 1999, the Government of India appointed a High Level Committee on
Competition Policy and Competition Law to advise a modern competition law for the country in
line with international developments and to suggest a legislative framework which may entail a
new law or appropriate amendments to the MRTP Act. The Committee presented its
Competition Policy report to the Government in May 2000. The draft competition law was
drafted and presented to the Government in November 2000. After some refinements,
following extensive consultations and discussions with all interested parties, the Parliament
passed in December 2002 the new law, namely, the Competition Act, 2002.

2 Competition bill 2001

The Competition Bill 2001 ("Bill") has been introduced into Parliament in August and
represents the latest piece in the country's economic reform jigsaw. The Bill will replace the
current Monopolies and Restrictive Trade Practices Act 1969 ("MRTP Act").Whilst the MRTP Act
was designed to govern restrictive trade practices in the context of a closed and centrally
planned economy, the new Bill draws upon concepts of competition law found in more
liberalized economies such as the US and EU. Of particular relevance to multinational
companies ("MNCs") operating in India is that the proposed new regulatory body, the
Competition Commission of India ("CCI"), will be empowered to scrutinize all mergers,
acquisitions and joint venture activity in India where the asset value of the parties involved is
more than Rs. 1,000 crore within India or $500 million globally, or turnover is greater than Rs.
3,000 crore within India or $1,500 million globally.

The Bill
The Bill has four main components:
a. Prohibition of Anti-Competitive Agreements.
b. Prevention of Abuse of Dominance.
c. Regulation of Mergers and Acquisitions.
d. Establishment of the 10 member CCI.

PROHIBITION OF ANTI-COMPETITIVE AGREEMENTS (SECTION 3)

Prohibits and voids any agreement which causes or is likely to cause an appreciable
adverse effect on competition in India.

Contains presumption against agreements which indirectly or directly determine prices;

control production, supply, markets, technical development, investment or provision of
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services; share markets or sources of production either by geographical allocation or

types of goods or services or market shares; or which either directly or indirectly result
in bid rigging or collusive bidding.

Any agreement amongst enterprises or persons at different stages or levels of the

production chain in different markets, in respect of production, supply, distribution,
storage, sale or price of, or trade in goods or provision of services, including:

(a) "Tie-in arrangement" - any agreement requiring a purchaser of goods, as a condition

of such purchase, to purchase some other goods.
(b) "Exclusive supply agreement" -any agreement restricting in any manner the
purchaser in the course of his trade from acquiring or otherwise dealing in any goods
other than those of the seller or any other person.
(c) "Exclusive distribution agreement" - any agreement to limit, restrict or withhold the
output or supply of any goods or allocate any area or market for the disposal or sale of
the goods.
(d) "Refusal to deal" - any agreement which restricts, or is likely to restrict, by any
method the persons or classes of persons to whom goods are sold or from whom goods
are bought.
(e) "Resale price maintenance" - any agreement to sell goods on condition that the
prices to be charged on the resale by the purchaser shall be the prices stipulated by the
seller unless it is clearly stated that prices lower than those prices may be charged.

It shall be an agreement in contravention of sub-section (1) if such agreement

causes or is likely to cause an appreciable adverse effect on competition in India.
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PREVENTION OF ABUSE OF DOMINANCE (SECTION 4)

An abuse of dominant position may consist of:

Directly or indirectly imposing unfair or discriminatory conditions in the purchase or sale

of goods or services, or setting prices in the purchase or sale (including predatory
pricing) of goods or services;

Limiting or restricting the production of goods or provision of services or market

therefore; or limiting technical or scientific development relating to goods or services to
the prejudice of consumers;

Indulging in practice or practices resulting in the denial of market access;

Making conclusion of contracts subject to acceptance by other parties of supplementary

obligations which have no connection with the subject of such contracts;

Utilisation of a dominant position in one market to enter into, or protect, another

market.

REGULATION OF MERGERS AND ACQUISITIONS (SECTION 5)

Prohibits and voids any "combination" which causes or is likely to cause an appreciable
adverse effect on competition within the relevant market in India.

The following thresholds apply for determining whether a merger or acquisition

becomes a "combination" subject to scrutiny:

Enterprises with operations in India: Rs. 1,000 crore asset value or Rs. 3,000 crore
turnover;

Enterprises with global operations: $500 million asset value or $1,500 million turnover;

Groups of companies with operations in India: Rs. 4,000 crore or Rs. 12,000 crore
turnover;

Groups of companies with global operations: $2 billion asset value or $6 billion

turnover.
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An M&A deal which does not meet these thresholds but which may, however, result in
an adverse effect within the relevant market may still be voidable pursuant to section 3.
Parties to a transaction have an option to seek an advance clearance from the CCI.
However, there is no mandatory requirement to obtain an advance ruling.

The section contains an exemption for share subscriptions, financing facilities and
acquisitions by public financial institutions, banks and venture capital funds. However,
these entities will be required to submit to the CCI details of such acquisitions along
with information on details of controls, circumstances for exercise of such control and
consequences of default arising out of any financing facility.

COMPETITION COMMISSION OF INDIA (SECTION 7)

Provides an establishment of a 10 member CCI with investigative and judicial powers.

The CCI has replaced the MRTP Commission.

CCI authorised to inquire into whether a "combination" under section 5 has caused or is
likely to cause an appreciable adverse effect on competition in India. Any such inquiry
must be initiated within one year of the combination taking effect.

CCI may also inquire into any action which is alleged to be in contravention of section 3
or section 4 on receipt of a complaint.

CCI is empowered to pass a range of orders including: directing an enterprise to

discontinue any agreement or practice (e.g. demerging); the imposition of fines from 310 percent of turnover for the last three years; the modification of agreements; and an
award of compensation to an affected party.

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3 Competition bill, 2007

On September 10, 2007, Indias parliament passed the Competition (Amendment) Bill (2007)
amending the Competition Act it had passed in 2002.
The Competition (Amendment) Bill (2007) improves on the original Competition Act (2002) in
many ways, a number of which we discuss below.
Extra-territorial jurisdiction: The Competition Act (2002) allowed the CCI only to
inquire into acts by firms outside India that adversely affect competition in India.
Section 32 of the Amendment Bill (2007) allows the CCI pass such orders as it may
deem fit against such acts.

Power to deal with dominant undertakings directly: In the Competition Act (2002), the
Central Government was given the power to order the division of any firm enjoying
dominant position, on recommendation of the Commission. Fortunately, the
Competition (Amendment) Bill (2007) confers the power to divide any dominant
undertaking upon the CCI directly. This is a significant change, since it finally makes the
Competition Commission the final decision-making authority in this area, and makes it
much more likely that significant actions can be taken against dominant firms.

Merger notification mandatory: The Competition Act (2002) had made notification of
combinations by the participating firms voluntary. The CCI could inquire into such
combinations, but not later than one year after they had been completed. The possible
delay in detection of non-notified combinations with the potential to produce an
Appreciable Adverse Effect on Competition (AAEC) in India, combined with the one-year
limitation on action by the CCI could have allowed some anticompetitive transactions to
slip by. The Competition (Amendment) Bill (2007), by making merger notifications
mandatory has addressed this potential problem.

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The Bill had imposed an obligation on entities to mandatorily notify the CCI of
combinations i.e. mergers and acquisitions etc. above certain threshold limits viz. if the
combination is between entities having operations in India or abroad, and the
operations of the combined entity have assets of Rs. 500 crore or a turnover of Rs.
1,500 crore in India. The CCI would be bound to render its ruling within a stipulated
period of 210 days from the date of the intimation
Competition advocacy: The Competition (Amendment) Bill (2007) allows not only the
central government (as in Competition Act (2002)) but also state governments to seek
the opinion of the CCI on policy matters that may affect competition. This may help
state governments improve the competition-friendliness of their policies, and help to
spread a culture of effective competition to the farthest corners of India. Importantly,
for example, agriculture and labour markets are regulated at the state level and it
would indeed be useful for the CCI to work to help make these sectors more
competitive through appropriate advocacy.
Cooling-off period: A smaller, but welcome change provided in Section 12 of the
Competition Amendment Bill increases from one year to two years the cooling-off
period for which the chairman and members of the CCI are restricted from accepting
employment with any (private)enterprise that has been party to any proceedings
before it. This is commendable as a device to address concerns related to regulatory
capture.
Ability to act on information: Amendments to Sections 19 and 26 allow the CCI to act
on information received, not only upon receipt of a formal complaint. This is also
praiseworthy, since informants willing to simply provide information may not be willing
to come forward with a public, formal complaint. This is particularly the case when the
informant has a commercial relationship (e.g. is a customer) with the parties against
which the information applies.
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4 Competition bill, 2012

In 2011, the government constituted an expert Committee to examine the Competition
Act and recommend modifications. Based on these recommendations, the government
introduced the Competition (Amendment) Bill, 2012.
The Competition Act prohibits any agreement that adversely affects competition in
India. However, the Act cannot restrict rights conferred by certain laws like the Copyright Act,
Patent Act and the Designs Act. The Bill extends the protection of rights to include any other
intellectual property rights.
Currently, the Act prevents any enterprise or group to abuse its dominant position. The
Bill extends this by preventing any enterprise or group, jointly or singly, to abuse its dominant
Regulation of Combinations

REGULATION OF COMBINATIONS
Combinations - the acquisition, merger or amalgamation of enterprises - are defined
and regulated by the Act. A group is defined as two or more enterprises where either
enterprise can exercise 26% or more voting rights in the other enterprise. The Bill raises the
voting rights level to 50% or more.
The Bill empowers the central government to specify different value of assets and
turnover for any class of enterprises to further examine and regulate combinations.
Any enterprise proposing to enter a combination has to notify the CCI. If the CCI does
not pass an order or issue a direction, within 210 days of the notification, then the combination
is considered to be approved. The Bill reduces this time period to 180 days.

The competition bill has various changes than what was proposed in competition act
2002. They are as follows:
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- COLLECTIVE DOMINANCE
Present position under the Act

Proposed Position under the Bill

No enterprise or group shall abuse its

dominant position.

No enterprise or group "jointly or singly" shall

abuse its dominant position.

Analysis
Section 4 of the Act provides that no enterprise or group shall abuse its dominant
position. The definition of group is restricted to entities under the same management or
control. Therefore under the existing wording of Section 4, the collection of enterprises that do
not form part of the 'group' may not be considered to come within the scope of Section 4. The
Bill by inserting the wording 'jointly or singly' seeks to bring the group of independent and
unrelated enterprises holding a dominant position within the scope of Section 4. Consequently
even if enterprises are not dominant in their own individual capacity, if acting together brings
about the effect of dominance, such enterprises may be subject to provisions and obligation of
Section 4. The insertion of the words 'jointly or singly' may amount to recognizing the concept
of collective dominance in the Indian context as existing in other jurisdictions.

- DEFINITION OF TURNOVER
Present position under the Act

Proposed Position under the Bill

"Turnover" includes value of sale of

goods or services;

"Turnover" includes value of sale of goods or

services "excluding the taxes, if any, levied on sale of
such goods or provisions of services."

Analysis
The Bill proposes to amend definition of term Turnover to expressly exclude from its
computation the taxes levied on sale of goods and services. The term 'Turnover' has been used
in the Act for two main purposes -- (i) to determine financial thresholds for the purpose of
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notification of a 'combination' (ii) as a benchmark against which financial penalties may be

imposed. Turnover may also be a determinate in analyzing whether an entity holds a position of
dominance for the purposes of the Act. The proposed change in the definition appears to apply
uniformly across all uses of the term "turnover under the Act. It may be noted that the CCI
(Procedure in regard to the transaction of business relating to combinations) Regulations, 2011
("Combination Regulations") already contained a provisions to aid in the calculation of
turnover which stated that 'indirect taxes' must be excluded in the computation of turnover.
The Bill does not define the term 'taxes'. However given that the proposed exclusion relates to
taxes levy able on the sale of goods and services it may be presumed that these would be
limited to specific indirect taxes such as excise duty, sales tax, entry tax, vat, service tax etc.
This amendment is also in line with international norms which specifically exclude indirect taxes
in the computation of turnover. However such exclusions are typically seen in merger control
legislations to arrive at financial thresholds for determination of notify able transaction and not
in determining penalty amounts.

- DEFINITION OF TERM GROUP

Present position under the Act

Proposed Position under the Bill

"Group" means two or more enterprises

which, directly or indirectly, are in a position
to

"Group" means two or more enterprises

which, directly or indirectly, are in a position
to

i.

ii.

iii.

Exercise twenty-six per cent. or more

of the voting rights in the other
enterprise; or
Appoint more than fifty per cent. of
the members of the board of directors
in the other enterprise; or
Control the management or affairs of
the other enterprise.

i.
ii.

iii.

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Exercise fifty per cent. or more of the

voting rights in the other enterprise; or
Appoint more than fifty per cent. of
the members of the board of directors
in the other enterprise; or
Control the management or affairs of
the other enterprise.

Analysis
The definition of the term 'group' under the Act is a three prong test, namely (i) voting
right test (ii) appointment of director test and/or (iii) control of management test. The concept
of "group" is pivotal to Section 5 and 6 of the Act (relating to combinations) as well as Section 4
(relating to abuse of dominance). The Central Government vide a notification dated March 4,
2011 increased the voting right test threshold under the definition of 'group' from 26% to 50%.
One of the direct outcomes of the said notification was that even a 50:50 JV was deemed to fall
within the definition of control. It is important to note that a 50:50 JV will continue to be within
the scope of the definition of Control under the proposed amendment. The demand of industry
bodies was to make the voting right threshold as 'more than 50%' following the criteria
required under the other prongs of the definition. However the proposed provision has kept
this threshold at '50% or more', which means that if the Bill is passed, a 50:50 JV will continue
to be within the scope of "group" definition under the Act.

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5 Certain Cases where CCI imposed penalties

Case 1

The Competition Commission of India (CCI) on June 2012 imposed a whopping Rs 6,307crore penalty on 11 leading cement firms for forming a cartel and colluding to charge
higher prices from consumers.

The maximum fine was imposed on Jaiprakash Associates at Rs 1,323.6 crore followed
by Aditya Birla Group's Ultratech Cements (Rs 1,175.49 crore), Ambuja Cements (Rs
1163.91 crore) and ACC (Rs 1,147.59 crore).

Other companies found guilty are Grasim Cements (now merged with Ultratech),
Lafarge India, JK Cement, India Cements, Madras Cements, Century Textiles and Binani
Cements.

The fine was fixed at 50 per cent of their profit during 2009-10 and 2010-11. The
industry body Cement Manufacturers Association (CMA) has also been fined Rs 73 lakh.
They have been directed to deposit the penalty within 90 days.

CCI found cement makers had violated the provisions of the Competition Act, which
deals with anti-competitive contracts, including cartels.

"The act and conduct of the cement companies establish that they are a cartel. The
Commission holds the cement firms acting together have limited, controlled and also
attempted to control the production and price in the market in India," CCI said in its
258-page order.

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Case 2

On 8 February 2013, CCI imposed a penalty of 52.24 crore (US$8.3 million) on

the Board of Control for Cricket in India (BCCI) for misusing its dominant position. The
CCI found that IPL team ownership agreements were unfair and discriminatory, and that
the terms of the IPL franchise agreements were loaded in favour of BCCI and franchises
had no say in the terms of the contract. The CCI ordered BCCI to "cease and desist" from
any practice in future denying market access to potential competitors and not use its
regulatory powers in deciding matters relating to its commercial activities.

Among others, the complainant had alleged irregularities in the grant of franchise rights
for team ownership, media rights for coverage of the league and award of sponsorship
rights.

Noting that BCCI's economic power is enormous "as a regulator that enables it to pick
winners", the regulator said the cricket board has gained tremendously in financial
terms from the Indian Premier League (IPL) cricket format.

"Virtually, there is no other competitor in the market nor was anyone allowed to
emerge due to BCCI's strategy of monopolising the entire market," the order said.

The policy of BCCI to keep out other competitors and to use their position as a defacto
regulatory body has prevented many players who could have opted for the competitive
league, it added.

*****X*****
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