Judicial Dictionary

Competition Law

The decision of the Government of India to liberalize its economy with the intention of removing controls persuaded the Indian Parliament to enact laws providing for checks and balances in the free economy. The laws were required to be enacted, primarily, for the objective of taking measures to avoid anti-competitive agreements and abuse of dominance as well as to regulate mergers and takeovers which result in distortion of the market. The earlier Monopolies and Restrictive Trade Practices act, 1969 was not only found to be inadequate but also obsolete in certain respects, particularly, in the light of international economic developments relating to competition law. Most countries in the world have enacted competition laws to protect their free market economies- an economic system in which the allocation of resources is determined solely by supply and demand. The rationale of free market economy is that the competitive offers of different suppliers allow the buyers to make the best purchase. The motivation of each participant in a free market economy is to maximize self-interest but the result is favourable to society. As Adam Smith observed: “there is an invisible hand at work to take care of this”.

As far as American law is concerned, it is said that the Sherman act, 1890, is the first codification of recognized common law principles of competition law. With the progress of time, even there the competition law has attained new dimensions with the enactment of subsequent laws, like the Clayton act, 1914, the Federal Trade Commission act, 1914 and the Robinson-Patman act, 1936. The United Kingdom, on the other hand, introduced the considerably less stringent Restrictive Practices act, 1956, but later on more elaborate legislations like the competition act, 1998 and the Enterprise act, 2002 were introduced. Australia introduced its current Trade Practices act in 1974.

 The overall intention of competition law policy has not changed markedly over the past century. Its intent is to limit the role of market power that might result from substantial concentration in a particular industry. The major concern with monopoly and similar kinds of concentration is not that being big is necessarily undesirable. However, because of the control exerted by a monopoly over price, there are economic efficiency losses to society and product quality and diversity may also be affected. Thus, there is a need to protect competition. The primary purpose of competition law is to remedy some of those situations where the activities of one firm or two lead to the breakdown of the free market system, or, to prevent such a breakdown by laying down rules by which rival businesses can compete with each other. The model of perfect competition is the ‘economic model’ that usually comes to an economist’s mind when thinking about the competitive markets.

 As far as the objectives of competition laws are concerned, they vary from country to country and even within a country they seem to change and evolve over the time. However, it will be useful to refer to some of the common objectives of competition law. The main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are three- fold: allocative efficiency, which ensures the effective allocation of resources, productive efficiency, which ensures that costs of production are kept at a minimum and dynamic efficiency, which promotes innovative practices. These factors by and large have been accepted all over the world as the guiding principles for effective implementation of competition law.

 In India, a High Level Committee on competition Policy and Law was constituted to examine its various aspects and make suggestions keeping in view the competition policy of India. This Committee made recommendations and submitted its report on 22nd of May, 2002. After completion of the consultation process, the Competition act, 2002 (for short, the ‘act’) as act 12 of 2003, dated 12th December, 2003, was enacted. As per the statement of objects and reasons, this enactment is India’s response to the opening up of its economy, removing controls and resorting to liberalization. The natural corollary of this is that the Indian market should be geared to face competition from within the country and outside. The Bill sought to ensure fair competition in India by prohibiting trade practices which cause appreciable adverse effect on the competition in market within India and for this purpose establishment of a quasi judicial body was considered essential. The other object was to curb the negative aspects of competition through such a body namely, the ‘competition Commission of India’ (for short, the ‘Commission’) which has the power to perform different kinds of functions, including passing of interim orders and even awarding compensation and imposing penalty. The Director General appointed under Section 16(1) of the act is a specialized investigating wing of the Commission. In short, the establishment of the Commission and enactment of the act was aimed at preventing practices having adverse effect on competition, to protect the interest of the consumer and to ensure fair trade carried out by other participants in the market in India and for matters connected therewith or incidental thereto.

The various provisions of the act deal with the establishment, powers and functions as well as discharge of adjudicatory functions by the Commission. Under the scheme of the act, this Commission is vested with inquisitorial, investigative, regulatory, adjudicatory and to a limited extent even advisory jurisdiction. Vast powers have been given to the Commission to deal with the complaints or information leading to invocation of the provisions of Sections 3 and 4 read with Section 19 of the act. In exercise of the powers vested in it under Section 64, the Commission has framed Regulations called The competition Commission of India (General) Regulations, 2009 (for short, the ‘Regulations’). The act and the Regulations framed thereunder clearly indicate the legislative intent of dealing with the matters related to contravention of the act, expeditiously and even in a time bound programme. Keeping in view the nature of the controversies arising under the provisions of the act and larger public interest, the matters should be dealt with and taken to the logical end of pronouncement of final orders without any undue delay. In the event of delay, the very purpose and object of the act is likely to be frustrated and the possibility of great damage to the open market and resultantly, country’s economy cannot be ruled out. The present act is quite contemporary to the laws presently in force in the United States of America as well as in the United Kingdom. In other words, the provisions of the present act and Clayton act, 1914 of the United States of America, The competition act, 1988 and Enterprise act, 2002 of the United Kingdom have somewhat similar legislative intent and scheme of enforcement. However, the provisions of these acts are not quite pari materia to the Indian legislation. In United Kingdom, the Office of Fair Trading is primarily regulatory and adjudicatory functions are performed by the competition Commission and the competition Appellate Tribunal. The U.S. Department of Justice Antitrust Division in United States, deals with all jurisdictions in this field.

The competition laws and their enforcement in those two countries is progressive, applied rigorously and more effectively. The deterrence objective in these anti-trust legislations is clear from the provisions relating to criminal sanctions for individual violations, high upper limit for imposition of fines on corporate entities as well as extradition of individuals found guilty of formation of cartels. This is so, despite the fact that there are much larger violations of the provisions in India in comparison to the other two countries, where at the very threshold, greater numbers of cases invite the attention of the regulatory/adjudicatory bodies. Primarily, there are three main elements which are intended to be controlled by implementation of the provisions of the act, which have been specifically dealt with under Sections 3, 4 and 6 read with Sections 19 and 26 to 29 of the act. They are anti- competitive agreements, abuse of dominant position and regulation of combinations which are likely to have an appreciable adverse effect on competition. Thus, while dealing with respective contentions raised in the present appeal and determining the impact of the findings recorded by the Tribunal, it is necessary for us to keep these objects and background in mind. [JT 2010 (10) SC 26 : (2010) 10 SCC 744 : (2010) 11 SCR 112 : (2010) 9 SCALE 291]


The Competition Commission

The Commission, being a statutory body exercising, inter alia, regulatory jurisdiction, even at that stage, in its discretion and in appropriate cases may call upon the concerned party(s) to render required assistance or produce requisite information, as per its directive.  The Commission is expected to form such prima facie view without entering upon any adjudicatory or determinative process. The Commission is entitled to form its opinion without any assistance from any quarter or even with assistance of experts or others.

The Commission, in cases where the inquiry has been initiated by the Commission suo moto, shall be a necessary party and in all other cases the Commission shall be a proper party in the proceedings before the competition Tribunal. The presence of the Commission before the Tribunal would help in complete adjudication and effective and expeditious disposal of matters. Being an expert body, its views would be of appropriate assistance to the Tribunal. Thus, the Commission in the proceedings before the Tribunal would be a necessary or a proper party, as the case may be.

 During an inquiry and where the Commission is satisfied that the act is in contravention of the provisions stated in Section 33 of the act, it may issue an order temporarily restraining the party from carrying on such act, until the conclusion of such inquiry or until further orders without giving notice to such party, where it deems it necessary. This power has to be exercised by the Commission sparingly and under compelling and exceptional circumstances. The Commission, while recording a reasoned order inter alia should: (a) record its satisfaction (which has to be of much higher degree than formation of a prima facie view under Section 26(1) of the act) in clear terms that an act in contravention of the stated provisions has been committed and continues to be committed or is about to be committed; (b) It is necessary to issue order of restraint and (c) from the record before the Commission, it is apparent that there is every likelihood of the party to the lis, suffering irreparable and irretrievable damage or there is definite apprehension that it would have adverse effect on competition in the market.

Procedure: In consonance with the settled principles of administrative jurisprudence, the Commission is expected to record at least some reason even while forming a prima facie view. However, while passing directions and orders dealing with the rights of the parties in its adjudicatory and determinative capacity, it is required of the Commission to pass speaking orders, upon due application of mind, responding to all the contentions raised before it by the rival parties.

Who is Informant

The informant, i.e. the person who wishes to complain to the Commission constituted under Section 7 of the act, would make such information available in writing to the Commission. Of course, such information could also be received from the Central Government, State Government, Statutory authority or on its own knowledge as provided under Section 19(1)(a) of the act. When such information is received, the Commission is expected to satisfy itself and express its opinion that a prima facie case exists, from the record produced before it and then to pass a direction to the Director General to cause an investigation to be made into the matter. This direction, normally, could be issued by the Commission with or without assistance from other quarters including experts of eminence. The provisions of Section 19 do not suggest that any notice is required to be given to the informant, affected party or any other person at that stage. Such parties cannot claim the right to notice or hearing but it is always open to the Commission to call any ‘such person’, for rendering assistance or produce such records, as the Commission may consider appropriate.[[JT 2010 (10) SC 26 : (2010) 10 SCC 744 : (2010) 11 SCR 112 : (2010) 9 SCALE 291]

Investigation

In terms of Section 26(3), the Director General is supposed to take up the investigation and submit the report in accordance with law and within the time stated by the Commission in the directive issued under Section 26(1). After the report is submitted, there is a requirement and in fact specific duty on the Commission to issue notice to the affected parties to reply with regard to the details of the information and the report submitted by the Director General and thereafter permit the parties to submit objections and suggestions to such documents. After consideration of objections and suggestions, if the Commission agrees with the recommendations of the Director General that there is no offence disclosed, it shall close the matter forthwith, communicating the said order to the person/authority as specified in terms of Section 26(6) of the act. If there is contravention of any of the provisions of the act and in the opinion of the Commission, further inquiry is needed, then it shall conduct such further inquiry into the matter itself or direct the Director General to do so in accordance with the provisions of the act.

For conducting inquiry and passing orders, as contemplated under the provisions of the act, the Commission is entitled to evolve its own procedure under Section 36(1) of the act. However, the Commission is also vested with the powers of a Civil Court in terms of Section 36(2) of the act, though for a limited purpose. After completing the inquiry in accordance with law, the Commission is required to pass such orders as it may deem appropriate in the facts and circumstances of a given case in terms of Sections 26 to 31 of the act.


Appeal against Commission Order: Competition Appellate Tribunal

53A. Establishment of Tribunal. – (1) The Central Government shall, by notification, establish an Appellate Tribunal to be known as competition Appellate Tribunal, –

(a) to hear and dispose of appeals against any direction issued or decision made or order passed by the Commission under Sub-sections (2) and (6) of Section 26, Section 27, Section 28, Section 31, Section 32, Section 33, Section 38, Section 39, Section 43, Section 43A, Section 44, Section 45 or Section 46 of this act;

(b) to adjudicate on claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any finding of the Commission or under Section 42A or under Sub-section (2) of Section 53Q of this act, and pass orders for the recovery of compensation under Section 53N of this act.

(2) The Headquarter of the Appellate Tribunal shall be at such place as the Central Government may, by notification, specify.

53B. Appeal to Appellate Tribunal. – (1) The Central Government or the State Government or a local authority or enterprise or any person, aggrieved by any direction, decision or order referred to in Clause (a) of Section 53A may prefer an appeal to the Appellate Tribunal.

(2) Every appeal under Sub-section (1) shall be filed within a period of sixty days from the date on which a copy of the direction or decision or order made by the Commission is received by the Central Government or the State Government or a local authority or enterprise or any person referred to in that Sub-section and it shall be in such form and be accompanied by such fee as may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of sixty days if it is satisfied that there was sufficient cause for not filing it within that period.

(3) On receipt of an appeal under Sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the direction, decision or order appealed against.

(4) The Appellate Tribunal shall send a copy of every order made by it to the Commission and the parties to the appeal.

(5) The appeal filed before the Appellate Tribunal under Sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal within six months from the date of receipt of the appeal.


 

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