Competition Act,2002


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Competition Act,2002

  1. 1. An Overview of “Competition Act, 2002” By, Sharath Alva K
  2. 2. Competition <ul><li>“ Competition” is an evasive term. </li></ul><ul><li>It is not defined in the Act. </li></ul><ul><li>It refers to economic rivalry amongst economic enterprises to control greater market power. Economic enterprises compete to outsmart their competitors and in the process sometimes eliminate rivals. </li></ul><ul><li>Level of Competition does not depend upon number of players in an industry but degree of contestability. </li></ul>
  3. 3. Benefits of COMPETITION <ul><li> Promotes efficiency; </li></ul><ul><li> Encourages innovation; </li></ul><ul><li> Punishes the laggards; </li></ul><ul><li> Facilitates better governance; </li></ul><ul><li> Boosts choice improves quality, reduce costs; </li></ul><ul><li> Ensures availability of goods in abundance of acceptable quality at affordable price. </li></ul>
  4. 4. UNIQUE FEATURES OF COMPETITION <ul><li>We teach and preach competition but invariably do not practice. </li></ul><ul><li>Competition does not have a human face. </li></ul><ul><li>Competition kills competition. </li></ul><ul><li>Competition is unstable. </li></ul><ul><li>Nature has created monopolies. </li></ul>
  5. 5. History of Competition Law <ul><li>In 1980, less than 40 countries had Competition Law. </li></ul><ul><li>Currently over hundred countries have Competition Law. </li></ul><ul><li>Over 30 countries are in the process of enacting Competition Law. </li></ul>
  6. 6. <ul><li>An Expert Group set up by the Union Ministry of Commerce to study inter action between the trade and competition. The said Expert Group in its Report submitted in January,1999 suggested enactment of Competition Law. </li></ul>
  7. 7. <ul><li>The High Level Committee on Competition Law & Policy in its Report submitted to Government in May, 2000 observed that the Monopolies and Restrictive Trade Practices Act[M.R.T.P. Act], 1969 is limited in its sweep and in the present competitive milieu it fails to fulfill the need of Competition Law. </li></ul>
  8. 8. <ul><li>The “Department Related Parliamentary Standing Committee on Home Affairs” to which Competition Bill, 2001 was referred for examination and report, the Government submitted that in view of the policy shift from curbing monopolies to promoting competition, there is a need to repeal the M.R.T.P. Act, 1969. </li></ul><ul><li>The rigidly structured M.R.T.P.Act, 1969 also necessitated its repeal in view of Government’s policy of being facilitator rather than regulator. </li></ul>
  9. 9. COMPETITION ACT, 2002 <ul><li>OBJECTIVES- </li></ul><ul><li>To prevent practices having appreciable adverse effect on competition; </li></ul><ul><li>To promote and sustain competition in trade and industry; </li></ul><ul><li>To protect the interest of consumers; </li></ul><ul><li>To ensure freedom of trade carried on by the participants in market in India; </li></ul><ul><li>Establishment of the Competition Commission of India. </li></ul>
  10. 10. <ul><li>The trade practice concepts “Monopolistic, Restrictive and Unfair Trade Practices” has been given good bye. </li></ul><ul><li>The four important Concepts incorporated in the Act are: </li></ul><ul><li>Prohibition of Anti Competitive Agreements </li></ul><ul><li>Prohibition of Abuse of Dominant Position </li></ul><ul><li>Regulation of Combinations </li></ul><ul><li>Competition Advocacy </li></ul>
  11. 11. Law to Be Implemented in the Phases <ul><li>In the first phase, the Competition Commission of India to undertake competition advocacy; </li></ul><ul><li>In the second phase, the Competition Commission will commence enquiries relating to anti-competitive agreements and abuse of dominant position. </li></ul><ul><li>In the third phase, the Commission will commence regulation of combinations. </li></ul><ul><li>Law also stipulates that different dates may be appointed for different provisions. </li></ul>
  12. 12. Present Status <ul><li>The Central Government has since established the Competition Commission of India with head office at New Delhi with effect from 14.10.2003. </li></ul><ul><li>The Central Government has also appointed a Member with effect from 17.10.2003 and he has been designated as Member Administration with effect from 21.10.2003. </li></ul><ul><li>The Commission is presently seized of preparatory work such as formulation of regulation, setting up of infrastructure, advocacy material, capacity building etc. </li></ul><ul><li>The Government is contemplating to make certain amendments in the Act. </li></ul>
  13. 13. Under the Competition Act… <ul><li>In case of cartel, the Commission shall impose a penalty equivalent to three times of the amount of profits made out or 10% of average turn over whichever is more. </li></ul><ul><li>Cartel is generally a secret understanding. It can be burst conveniently with the assistant of a member of cartel. </li></ul><ul><li>Law empowers Commission to impose lesser penalty on a member of cartel can be there if a member discloses information before investigation/enquiry is taken up and who makes first disclosure which is full, true and vital. </li></ul>
  14. 14. <ul><li>Cartel has been explicitly defined. It includes an association of producers, sellers, distributors, traders or service providers who by agreement amongst themselves limit, control or attempt to control the production, distribution, sale or price of, trade in goods or services. </li></ul><ul><li>The scope of term “Enterprise” has been amplified and Govt. Departments performing non-sovereign functions has been brought within its ambit. </li></ul>
  15. 15. <ul><li>Competition Act seeks to modernize competition regime. </li></ul><ul><li>The Act provides for repeal of the M.R.T.P. Act, 1969 and the dissolution of the M.R.T.P. Commission. </li></ul>
  16. 16. Under the Competition Act, 2002 appreciable adverse effect on competition is key factor in Anti-Competitive agreements. <ul><li>These are: </li></ul><ul><ul><li>Creation of barrier to new entrants. </li></ul></ul><ul><ul><li>Driving existing competitors; </li></ul></ul><ul><ul><li>Foreclosure of competition; </li></ul></ul><ul><li>Accrual of benefits: </li></ul><ul><ul><li>Improvements in production or distribution; and </li></ul></ul><ul><ul><li>Promotion of technical, scientific or economic development. </li></ul></ul>
  17. 17. The Commission is presently seized of Competition Advocacy which includes – <ul><li>Creating awareness, </li></ul><ul><li>Capacity building of functionaries of Competition Commission of India & stakeholders. The Commission is assisted by the following Advisory Committees:- </li></ul><ul><ul><li>i)Advisory committee on Regulations. </li></ul></ul><ul><ul><li>ii)Advisory committee on Advocacy. </li></ul></ul><ul><ul><li>iii)Advisory committee on Economic Information. </li></ul></ul><ul><ul><li>iv)Advisory committee on Course Curriculum. </li></ul></ul><ul><ul><li>v)Advisory committee on Research Evaluation. </li></ul></ul><ul><ul><li>vi)Advisory committee on Predatory Pricing. </li></ul></ul>
  18. 18. <ul><li>The Competition Commission of India has been empowered to impose penalty which can be up to 10% of the average turnover for the last three preceding financial years upon each such enterprise who are parties to such agreements or abuse. </li></ul><ul><li>It has been explicitly provided that Competition Commission of India shall have jurisdiction in respect of Acts taking place outside India but having an effect on competition in India. </li></ul><ul><li>Competition Commission of India has been empowered to enter into Memorandum of Understanding with any foreign agency with the prior approval of the Central Government. </li></ul>
  19. 19. <ul><li>The Central Govt. on the recommendations of Competition Commission of India continues to be vested with power to give directions of “Division of an Enterprise” enjoying dominant position. </li></ul>
  20. 20. PREAMBLE <ul><li>M.R.T.P ACT, 1969 </li></ul><ul><li>To provide that the operation of the economic system does not result in the concentration of economic power to the common detriment; </li></ul><ul><li>Control of monopolies; </li></ul><ul><li>Prohibition of monopolistic and restrictive trade practices. </li></ul><ul><li>COMPETITION ACT,2002 </li></ul><ul><li>Establishment of a Commission; </li></ul><ul><li>To prevent practices having appreciable adverse effect on competition; </li></ul><ul><li>To promote and sustain competition in markets; </li></ul><ul><li>To protect the interest of consumers and to ensure freedom of trade carried on by other participants in markets, in India. </li></ul>
  21. 21. <ul><li>Under the M.R.T.P.Act there are 12 deemed Restrictive Trade Practices – </li></ul><ul><li>Refusal to deal </li></ul><ul><li>Tie up sale </li></ul><ul><li>Exclusive dealing </li></ul><ul><li>Differential discount </li></ul><ul><li>Resale Price Maintenance </li></ul><ul><li>Allocation of market </li></ul><ul><li>Restriction on mfg. process </li></ul><ul><li>Cartel </li></ul><ul><li>Predatory pricing </li></ul><ul><li>Restraint on bids </li></ul><ul><li>Any agreement notified as such by Central Govt. </li></ul><ul><li>Agreement to enforce restrictive agreement </li></ul><ul><li>In the Competition Act, there are only 9 anti-competitive agreements out of which 4 are deemed only. These are:- </li></ul><ul><li>Fixation of price </li></ul><ul><li>Limiting production </li></ul><ul><li>Allocation of market </li></ul><ul><li>Bid rigging or Collusive tendering. </li></ul><ul><li>The other 5 Anti-competitive agreements which are not deemed but are to be judged by Rule of Reason are – </li></ul><ul><li>Tie in arrangement </li></ul><ul><li>Exclusive supply agreement </li></ul><ul><li>Exclusive distribution agreement </li></ul><ul><li>Refusal to deal </li></ul><ul><li>Resale Price Maintenance </li></ul>
  22. 22. To determine dominance… <ul><li>Market share of enterprise, </li></ul><ul><li>Size and resources of enterprise, </li></ul><ul><li>Size and important of competitors, </li></ul><ul><li>Commercial advantage of competitors, </li></ul><ul><li>Vertical integration, </li></ul><ul><li>Dependence of consumers, </li></ul><ul><li>Dominance because of statute, </li></ul><ul><li>Entry barriers, </li></ul><ul><li>Countervailing buying power, market structure and size of market social obligation and </li></ul><ul><li>Contribution to economic development any other factor. </li></ul>
  23. 23. Abuse of Dominance <ul><li>Dominance means position of strength which enables it to operate independent of competitors, consumers or relevant market in its favor. </li></ul><ul><li>Existence of dominance is not bad. </li></ul><ul><li>Exercise of dominance if it falls amongst ‘Abuses’, is only frowned upon. </li></ul>
  24. 24. Abuse include… <ul><li>Unfair/discriminatory price or conditions. </li></ul><ul><li>Limiting or restricting production. </li></ul><ul><li>Denial of market access. </li></ul><ul><li>Conclusion of agreements subject to supplementary obligations. </li></ul><ul><li>Use of ‘dominance; to enter into another market. </li></ul>
  25. 25. POWERS OF COMPETITION COMMISSION OF INDIA <ul><ul><li>To issue “Cease & Desist” Order. </li></ul></ul><ul><ul><li>To modify the trade agreement. </li></ul></ul><ul><ul><li>To grant such interim relief during the enquiry. </li></ul></ul><ul><ul><li>To award compensation. </li></ul></ul><ul><ul><li>To impose penalty on the guilty. </li></ul></ul><ul><ul><li>To recommend division of enterprise. </li></ul></ul><ul><ul><li>To direct modification of trade agreements. </li></ul></ul>
  26. 26. Competition Advocacy – an Important Compartment of Law <ul><li>Govt. while formulating policy may make a reference to the Competition Commission of India for its opinion on possible effects on competition. </li></ul><ul><li>Statutory Authority may make a reference on a “Competition issue” for opinion which has to be given by Competition Commission of India within 60 days. </li></ul><ul><li>Training and creating awareness about competition and its issues. </li></ul>
  27. 27. Competition Fund <ul><li>The Act provides for establishment of “Competition Fund” to meet expenses of Competition Commission of India. </li></ul><ul><li>The fund would have two sources: </li></ul><ul><ul><ul><li>(i)Grant of money from consolidated funds of India </li></ul></ul></ul><ul><ul><ul><li>(ii)Costs/fees received from parties </li></ul></ul></ul><ul><li>Competition fund is to ensure financial autonomy to Competition Commission of India. </li></ul>
  28. 28. <ul><li>The trial of offences of the Commission’s Order shall be by the Commission itself. </li></ul><ul><li>The DG’s power of investigation have been substantially enhanced. </li></ul><ul><li>There is a provision to set up additional benches in different cities besides Principal Bench and Merger Bench. </li></ul><ul><li>Wider pool of talent in the composition of Commission. </li></ul><ul><li>Key factor is “Adverse” appreciable effect on Competition. </li></ul><ul><li>Factors have been prescribed to determine dominance, relevant market, relevant product & geographical market. </li></ul>
  29. 29. Reasons which necessitated enactment of new law The key factor in the Competition Act is “appreciable adverse effect on competition” for which the factors, which need to consider, have also been prescribed. The M.R.T.P. Commission has to pass ‘cease & desist’ order on being convinced that the restrictive trade practice, which has been subject to enquiry, is “prejudicial to public interest”. The concept “prejudicial to public interest” is unclear, bald, vague and ambiguous. 1. The Competition Act, 2002 The M.R.T.P.Act, 1969
  30. 30. Under the Competition Act, the whole agreement is void in case it is found to have anti-competitive covenant having appreciable adverse effect on competition in the market . Under the M.R.T.P. Act only “restrictive clause” of the trade agreement can be declared void and not the whole agreement 3. In the regime of liberalization, the requirement to file registrable anti-competitive agreement with the office of the DG has been omitted. This is in line with the international trend. Under the M.R.T.P.Act, it is mandatory for a party to file a trade agreement within 60 days with the office of the DGI&R if such trade agreement contains restrictive clauses. 2.
  31. 31. The Competition Act focus only on “competition issues” and does not contain provisions, which directly relate to consumer protection. The M.R.T.P. Act contains provisions both relating to anti-competitive practices and consumer protection. 5. Under the Competition Act, the DG is vested with all the powers as are vested in a Civil Court. Under the M.R.T.P. Act, the powers of the DG have been found to be deficient and limited in carrying out investigation. 4.
  32. 32. No requirement of registration of agreements. Registration of agreements compulsory. 6. Frowns upon abuse of dominance. Frowns upon dominance. 5. Simple in arrangement and language and easily comprehensible. Complex in arrangement and language. 4. Competition offences explicit and defined. Competition offences implicit or not defined. 3. Based on structure as a factor. Based on size as a factor. 2. Based on the post-reforms scenario. Based on the pre-reforms scenario. 1 Other differences between M.R.T.P. Act & Competition Act:
  33. 33. Advocacy provision exist. No provision for advocacy. 15 Time is the essence. No time framework. 14 Unfair trade practices omitted consumer for a will deal with them. Unfair trade practices covered. 13 Proactive and flexible. Reactive and rigid. 12 Penalties for offences. No penalties for offences. 11 CCI has competition advocacy role. No competition advocacy role for the M.R.T.P.C. 10 Relatively more autonomy for the CCI. Very little administrative and financial autonomy for the MRTPC. 9 CCI selected by a Collegiums. MRTPC appointed by the Government. 8 Combinations regulated beyond a high threshold. No regulation on combination after 1991. 7
  34. 34. <ul><li>The Competition Act, 2002 with many innovative concepts coupled with power to impose penalties is likely to let in harsh glare of sun light to disinfect pernicious Anti Competitive Practices. </li></ul>
  35. 35. THANK YOU