SCHEME OF COMPETITION ACT, 2002

[Mr. M. GOVINDARAJAN]

On the basis of the recommendations of High Level Committee, Competition Act, 2002 was enacted.  The provisions of Competition Act, 2002 have not been effected immediately.  The said act was amended during the year 2007 and also during the year 2009.  The Act is divided into 9 chapters as detailed below:

• Chapter I – Dealing with preliminaries;
• Chapter II – dealing with Anti competitive agreements, abuse of dominant position and regulation of combinations;
• Chapter III – dealing with the establishment of the Competition Commission;
• Chapter IV – dealing with the duties, power and functions of the Commission;
• Chapter V – dealing with the duties of Director General;
• Chapter VI – dealing with penalties;
• Chapter VII – dealing with Competition Advocacy;
• Chapter VIII – dealing with finance, accounts and audit;
• Chapter VIIIA – dealing with the establishment of Appellate Tribunal, the procedure and powers and the appeal to the Supreme Court;
• Chapter IX – dealing with miscellaneous.

Chapter IV contains 22 sections from Section 18 to Section 39.  Section 18 imposes upon the Competition Commission certain duties which are as below:

• to eliminate practices having adverse effect on completion;
• to promote and sustain competition;
• to protect the interest of the consumers; and
• to ensure freedom of trade carried on by other participants in the markets in India.

Section 19 gives powers to the Commission to make an inquiry into the alleged contravention of the provisions dealing with anti competitive agreements and abuse of dominant position.   Section 19(1) gives the powers and functions of the Commission, while holding an inquiry which are as below:

• to see whether an agreement has an appreciable adverse effect on competition, in the light of certain factors, such as-

• creation of barriers for new entrants in the market;
• driving existing competitors out of the market;
• foreclosure of competition by hindering entry into the market;
• accrual of benefits to consumers;
• improvements in production or distribution of goods or provision of services; or
• promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services;

• to see whether the enterprise enjoys a dominant position, in the light of certain factors, such as-

• market share of the enterprise;
• size and resources of the enterprise;
• size and importance of the competitors;
• economic power of the enterprise including commercial advantages over competitors;
• vertical integration of the enterprises or sale or service network of such enterprises;
• dependence of consumers on the enterprise;
• monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise;
• entry barriers, including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
• countervailing buying power;
• market structure and size of market;
• social obligations and social costs;
• relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have appreciable adverse effect on competition;
• any other factors which the Commission may consider relevant for the inquiry.

Section 20(4) enlists certain actors in the context of which the Competition Commission may hold an inquiry into combinations, which are as follows:

• actual and potential level of competition through imports in the market;
• extent of barriers to entry to the market;
• level of combination in the market;
• degree of countervailing power in the market;
• likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;
• extent of effective competition likely to sustain in a market;
• extent to which substitution are available or are likely to be available in the market;
• market share, in the relevant market, of the person or enterprise in a combination, individually and as a combination;
• likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
• nature and extent of verticals integration in the market;
• possibility of a falling business;
• nature and extent of innovation;
• relative advantage, by way of the contribution to the economic development, by any combination having or likely to have appreciable adverse effect on competition;
• whether the benefits of the combination outweigh the adverse impact of the combination, if any.

Section 26 of the Competition Act, 2002 indicates the procedure for inquiry under Section19.  The Commission is empowered under Section 26(1) and 26(2) either to direct the Director General to cause an investigation or to close the matter, according as the case may be, depending upon whether a prima facie case exists or not.   It is upon the report of the investigation by the Director General, that the Commission is empowered to pass orders as indicated in Section 27.

Section 27 of the Competition Act, 2002 gives powers the Commission to pass all or any of the following orders, namely:-

• to direct an enterprise or association of enterprises or person or association of persons who are involved in Anti-competitive agreements or the abuse of dominant position to discontinue and not to enter any such agreement or discontinue any abuse of dominant position;
• to impose penalty which shall not be more than 10% of the average of the turnover for the last three preceding financial years;
• to direct the Anti competitive agreements to stand modified to the extent and in the manner as specified in the order;
• to direct the concerned enterprise to abide by such other orders as the Commission may pass and comply with the directions including payment of costs;
• to pass such other orders and issue such directions as it may deem fit. 

Section 34 of the Competition Act, 2002 gives powers to the Competition Commission to award compensation.   Section 36 of the Competition Act, 2002 gives powers to the Commission to regulate its own procedure.  The Commission is not bound to follow the procedure prescribed by the Code of Civil Procedure.  But it should be guided by the principles of Natural Justice.