CCI Ex-Parte Orders Critiqued

B-1072013]
COMPETITION LAW REPORTS AUGUST, 2013
Section B
Articles
Ex-Parte Prima Facie order by the Competition
Commission of India – A Critique
G.R. Bhatia*
Prima facie view or opinion as to existence or absence of a case by the Competition
Commission of India is an extremely crucial decision. Affirmative decision as to
existence of an anti competitive/abusive practice triggers a full fledged Inquiry.
Likewise, a prima facie view that there is no case of infringement of provisions of
Competition Act results in dropping of further proceedings. It is significant for
parties involved.
As prima facie decision as to existence or absence of infringement is quite critical
in competition law enforcement, it would be advisable for CCI to hear the parties
and pass a reasoned order.
75
If all men were angels, no Government
would be necessary. If angels were to
govern men, neither external nor internal
controls on government would be
necessary.1
Likewise, had all economic actors
followed fair and ethical business
practices in markets, neither competition
law much less the competition law
* Partner & Head of Competition Law Practice Group, Luthra & Luthra Law Offices, New
Delhi. He is former Additional Director General, Competition Commission of India (CCI)/
Monopolies and Restrictive Trade Practices Commission (MRTPC), New Delhi. Member,
Corporate Affairs Committee, PHD Chamber of Commerce and Industry. The views
expressed are personal and the author can be reached at gbhatia@luthra.com
1 James Madison, 4th President of US and also hailed as Father of Constitution being
instrumental in the drafting of US Constitution.

Competition Law ReportsB-108 [Vol. 2
to a Parliament Question, the Hon’ble
Minister of Corporate Affairs,
Government of India reportedly informed
the House that as on 31st
March, 2013,
the Commission had received 347 cases
of violations of anti competitive practices
of which the CCI had closed 262 cases
and in 28 cases it had passed a “Cease &
Desist” Order, while in 19 cases, it had
imposed Rs. 8013 crores as
penalties.2
.Thus, the CCI is focussing on
aggressive enforcement of Act and
sending strong signals to economic
actors to follow the mandate of law.
Before passing, however, any adverse
sanction including a direction to “cease
and desist” from the anti-competitive
conduct besides imposition of penalty on
the delinquent, there is a mandate on the
CCI to
(a) institute an “Inquiry” in relation
to alleged infringement of Sections 3
and 4; and
(b) after “Inquiry”, arrive at a finding
that the parties have in fact
contravened the provisions of the Act.
Thus, simply stated, “institution of an
Inquiry” and “after inquiry findings of
contravention”, are mandatory
conditions precedent to passing of an
adverse order.
The CCI may institute an Inquiry on its
own motion also known as “suo motu”
cognizance of a matter and it may also
institute an Inquiry on:
(a) receipt of any information from any
person, consumer or their association
or trade association; or
(b) a reference made to it by the Central
Government or a statutory authority.
The details of sources on the basis of
which enquiries emanated upto
March, 2013 are as under:
2 Business Line of 22nd
April, 2013.
umpire was needed. Global reality is that
markets are by and large infected with
the anti competitive virus and therefore,
competition laws are everywhere in over
120 countries across all the continents.
In line with the global trend, India also
welcomed the developed competition
regime by bidding good bye to the
erstwhile “Monopolies & Restrictive
Trade Practices Act, 1969” and put in its
place the Competition Act, 2002. The Act
mandates the Competition Commission
of India (Commission or CCI) inter-alia to
eliminate anti competitive business
practices/conducts in India. The trident
enforcement/regulatory dimensions of
the Competition regime are (a)
prohibition of anti competitive
agreement, (b) prohibition of abuse of
dominance and (c) regulation of
combination (covering acquisition by
one or another, merger/amalgamation
between or amongst enterprises).
Sections 3 & 4 of Act contain provisions
in relation to anti competitive agreements
and abuse of dominance respectively.
While the first two dimensions of law
are enforced ex post, however, merger and
acquisitions falling within the purview
of the Act are regulated ex ante.
The twin enforcement provisions namely
prohibition of anti competitive
agreements and abuse of dominance are
in force from 20th
May, 2009. In response
The twin enforcement
provisions namely prohibition
of anti competitive agreements
and abuse of dominance are in
force from 20th
May, 2009

B-1092013]
COMPETITION LAW REPORTS AUGUST, 2013 77
Interestingly, most of the Inquiries have
been initiated in the wake of information
from aggrieved persons or association of
consumers or trade association. While
there has been an upward trend in the
number of informations that have been
filed until March, 2012, however, from
the newsletter published by the CCI, it
appears that of late the number of
information filed before CCI have
decreased3
. Information based Inquiries
has been the major source of Initiation of
Inquiries before the Commission.
An Enquiry has three compartments
namely (i) formation of a prima facie
opinion by the CCI that there exists a case
of infringement of the Act; (ii) the carrying
out of investigation by the Director
General and filing of investigation report
recommending either to proceed with the
enquiry or suggesting quashing of the
enquiry as no infringement of Section 3
or 4 has been made out; and (iii) inviting
comments/objections of parties by the
CCI and later hearing parties before
taking a final decision in the Inquiry.
A prima facie opinion or view as to
existence or absence of a case by the CCI
(either on its own motion or on an
information/reference as to existence or
absence of a case under section 3 and/or
4 of the Act) is an extremely crucial
decision by the CCI. It is equally
significant for the parties involved. The
formation of a prima facie opinion as to
existence of a case of infringement
The table provided above clearly
indicates that until the end of
March, 2013, the CCI had initiated only
11 enquiries suo motu. This could
possibly be due to the fact that the CCI in
the beginning intended to focus on the
cases where there is a formal grievance
by someone. Of late, few more enquiries
have been initiated suo motu.
Ex-Parte Prima Facie order by the Competition Commission of India – A Critique
3 Fairplay, Volume – IV – January to March 2013, p.8-Newsletter of the Competition
Commission of India.
Information based Inquiries
has been the major source of
Initiation of Inquiries before
the Commission
In a spate of over 46 months, hardly 7
references for initiation of Inquiries were
received from the Government/Public
Authorities. This lackadaisical attitude
on the part of Government is unfortunate.
This gives an impression, of course
erroneous, that the Government
Department and its arms are not facing
serious anti competitive or abusive
practices from its suppliers in its
procurement. Incidentally, in the MRTP
regime of over 39 years, hardly 12 to 15
references were received from
Government Departments. Government
is a big economic actor both as buyer as
well seller in markets of Indian economy.
Extensive and intensive advocacy seems
to be the only answer to correct this lack
of interest on the part of State
functionaries in making use of the
platform of the CCI.
Years Suo motu References received from Information
enquiries Central/State Government/Statutory received under
Authorities section 19(1)
2009-10 0 0 32
2010-11 5 1 77
2011-12 0 4 93
2012-13 6 2 76

number of cases considered, number of
cases in which prima facie opinion is
formed under Sub-section (2), number of
Inquiries instituted and referred to DG
for investigation, number of cases where
DG gave adverse findings, number of
cases where the DG did not find any
contravention and number of cases where
adverse orders/penalties are imposed on
delinquent enterprises/persons:
triggers an institution of Inquiry. On the
contrary, the CCI taking a prima facie
opinion as to absence of case of
infringement gives a clean chit to alleged
contravening party. In the premises, it is
imperative to analyse the trend in regard
to prima facie opinion and the learning
therefrom.
The following table (containing data
until 31st
March, 2013) describes the
78
As per the information available in public
domain by the CCI, it is gathered that out
of the 223 cases considered, in 146 cases
it formed a prima facie opinion that there
is no case of infringement and no case
has been made out to institute an Inquiry
and accordingly it closed the cases in
terms of Section 26 (2) of the Act. Thus, it
is clear about 66 per cent cases have been
rejected. Disheartened with the rejection,
only a few of the aggrieved informants
knock at the door of Competition
Appellate Tribunal in appeal and till
date, there is hardly an example to cite
where the Appellate Tribunal has
directed the CCI to reconsider its
dismissal of the case. While agreeing that
most of the Information that have been
filed have failed to make out a case under
the Act but there have been several cases
where the CCI in its dismissal orders
have observed that the Informant has
failed to supply data to establish the case.
It would be relevant to state that
Informant does not have statutory right
to requisition an information/document.
It is CCI or the DG which are empowered
to summon and enforce the attendance
of any person and to require the discovery
and production of documents. In few
cases, information is rejected without
giving an opportunity of being heard to
the Informant or there are instances
where reasons for rejection are
conspicuously absent.
All these seem to have dissuaded filing of
information and the impact is
demonstrable as the number of
information filed has already dwindled.
An informant is not expected to
understand the nuances of market and
intricate competition concepts. The
Informant is already under the obligation
to furnish/file the information in a form
prescribed and that the information has
to be accompanied by a requisite fee as
laid down in the Competition
Commission of India (General)
Regulations, 2009. The need is to nurture
and encourage the Informant who is a
critical source of information for
eliminating anti competitive practices.
This manner of functioning of the
Commission would lead to the decay of
Total Number of Number of Number of Number of Number of
number of cases in cases in cases in cases in cases in
cases which an which an which the which the DG which
considered opinion opinion DG gave did not find orders
is formed is formed an any were
under under adverse contravention passed
Section 26(2) Section 26(1) finding under
and the Section 27
matter is
referred
to the DG
223 147 76 57 19 19

B-1112013]
the Informant race in the event the
Commission continues to only rely on the
information supplied and discourages the
Informant and makes itself
unapproachable. Further, the essence of
the Act of only having the system of
providing information as opposed to a
complaint would be diluted completely if
the Informant has to have in place
concrete evidence at the prima facie stage
and is treated as a complainant instead
of an assisting body to eliminate anti-
competitive conduct and practices.
Ex-Parte Prima Facie order by the Competition Commission of India – A Critique
79
Further, out of 76 Inquiries, post receipt
of detailed investigation report, the CCI
directed the parties to “cease and desist”
from the anti-competitive practices only
in 28 cases and out of these, it is only in
19 cases it had imposed a monetary
penalty on delinquent enterprises/
persons. The statistics reveal that only
in 40 per cent of Inquiries, the CCI has
passed remedial directions and in 25 per
cent cases, it imposed penalties. This
clearly sends a message that in 60 per
cent enquiries, the alleged charged
parties/noticees have either during the
course of investigation by the DG and
later, i.e., before the CCI established that
there is a jurisdictional lack or that the
evidence is absent or insufficient to
conclude that there is a violation of law.
It is vital that these parties (both
informants and defendants) are given an
opportunity of being heard at the stage
of formation of a prima facie opinion.
While there is no mandate upon the CCI
in terms of the law as it stands today and
the jurisprudence that has developed, it
will be inadvisable to proceed with a
matter and institute an Inquiry without
hearing the defendant or dismiss a matter
without giving an opportunity of being
heard to the Informant. Keeping in view
the principles of natural justice and
fairplay and the fact that Section 26 (1)
orders are neither appealable nor subject
to review4
, it is advisable that the parties
are heard prior to the formation of a prima
facie view by the CCI to institute an
Inquiry and referring the case for
investigation to the Director General
under Section 26 (1) of the Act.
Section 26 (1) orders are
neither appealable nor subject
to review
Out of the 223 cases considered by the
CCI, in 76 cases, it formed a prima facie
opinion that there exists a suitable case
for referring the matter to the DG for
investigation and instituted an Inquiry
for the furnishing of a detailed report.
Generally, the CCI in the order of
investigation makes it clear that
“nothing stated in this order shall
tentamount to a final expression of opinion
on merit of the case and the DG shall
conduct investigation without being
swayed in any manner whatsoever by the
observation made herein”.
It is noticed that out of 76 investigations
referred, in 57 reports, the DG has given
its adverse findings and in 19 cases it
has found no violation of law. This
clearly reflects that the DG in giving its
report is not swayed by the prima facie
opinion of the CCI which triggered the
initiation of Inquiry.
4 Competition Commission of India v. Steel Authority of India Limited MANU/SC/0690/2010:
(2010) 10 SCC 744.

State of Merger Control in India*
K K Sharma**
“ India recently completed a little over two years of regulation of combinations.
In contrast to the exaggerated fears associated with the likely bringing into force
of the provisions relating to regulation of combinations before the provisions
were actually notified w.e.f. June 1, 2011, the two years have passed rather
peacefully. The author , Mr. K K Sharma, former Head of Merger Control and
Director General, CCI, who laid the foundations of regulation of combinations
in India by way of devising the Merger Review Format as well as making it
successfully functional , reviews the performance of Competition Commission of
India in regulation of combinations and discusses the associated issues. He also
throws light on merger filing Form 1 which is almost the simplest in the world
for a jurisdiction having almost the highest thresholds in the world. He places on
record the deft handling of the regulation of combinations by CCI.”
1st
June, 2011 was the day India entered
into the club of the countries having fully
functional competition law1
. After
considerable speculation, doubts,
oppositions and persuasions, carrying
all the stakeholders together, India
finally set in place a mechanism for
reviewing the acquisitions, mergers and
amalgamations (called “combinations”
under Indian law) from the perspective
of competition law. Even after having
been enacted in January 2003, on account
of certain legal challenges, the
enforcement provisions of the
Competition Act, 2002 (Act) could not be
brought into force in India till as late as
May 20, 2009. Even after the
commencement of enforcement of
provisions relating to the prohibition of
anticompetitive agreements and abuse of
dominant position, the opposition to the
complete implementation of competition
law in India did not die down. The
opposition was more from domestic
* This article was first published in Competition Policy International, Inc. For more details
please visit Competition Policy International .com
** KK Sharma Law Offices & ex-Director General, CCI. For further details, visit
www.kkslawoffices.com and the author can be reached on kksharma@kkslawoffices.com
or kksharmairs@gmail.com
1 Notification dated March 4, 2011; http://www.cci.gov.in/images/media/notifications/
SO479%28E%29,480%28E%29,481%28E%29,482%28E%292406 11.pdf

B-1132013]
State of Merger Control in India
81
constituents as they saw in it another
layer of Government regulation which,
to the extent possible, was better kept in
abeyance.
The reasons for opposing merger review
regime were varied. Starting from the
speculation that the CCI would be sitting
over merger clearances for a long time
and thus delaying business transactions,
to the claims that the CCI did not have a
capacity to review complex mergers
being a new competition agency, all
types of conjectures and surmises were
being thrown around with the sole
objective that a fully functional
competition agency does not come to
existence in India. In any case, history
shows that in any jurisdiction - be it the
US, Canada or EU - competition law
enforcement has not been welcomed with
open arms by businesses to begin with.
These oppositions had their impact.
Despite the competition law becoming
functional as early as May 2009, it took a
little more than two years for merger
control to come into existence. It was of
no little help that the draft merger control
regulations were already prepared, in-
house by the CCI, and were ready to be
tested on the ground. However, the fact
that the Act had certain areas in need of
improvement, harmonization and, in
some cases, plain typographical error
removal, efforts to stall the introduction
of merger review into the country
succeeded. There was even talk of first
amending the Act before the provisions
could be brought into force.
In early 2011, good sense prevailed and
the proposal of bringing in amendments
before the merger control provisions
could be brought into force was shelved.
Instead, the logical argument that
amendments only be considered if faults
were found with the Act as it existed. It
was the result of this changed thinking
within the Government of India that a
beginning towards a fully-functional
competition law regime in India could
be made.
2 http://www.ibanet.org/Article/Detail.aspx?ArticleUid=73c4fdd7-9776-41cd-8fbb-
3a7dd96c8c7c
The CCI finally unveiled its
final draft merger regulations
to the world on May 11,
2011 after consulting a wide
body of stakeholders
including business houses,
law firms, professional
associations, business and
industry chambers,
consumer organizations and
government departments
The CCI finally unveiled its final draft
merger regulations to the world on May
11, 2011 after consulting a wide body of
stakeholders including business houses,
law firms, professional associations,
business and industry chambers,
consumer organizations and
government departments. Despite grim
warnings to the contrary, 1st
June, 2011
came and went without any earth-
shattering obstructions to the normal
peaceful existence to the business
enterprises; It was business as usual. On
the contrary, the international antitrust
community welcomed2
the performance
of an Indian merger control regime.
Very soon, the CCI realized that some
areas of the regime needed
improvements. For example, the review
machinery of CCI was avoidably clogged
by a large number of intra-group merger
filings, many of which did not change
the control dynamics of enterprises. To

ease the burden on businesses in these
cases, the CCI relaxed the merger review
format by amending the merger
regulations so as to ensure that those
merger filings that did not result in a
change of control did not have to seek
approval of the CCI. Similarly, the
regulator noticed that harmony between
the security regulator (SEBI)
requirements and merger review by CCI
could be further enhanced. This was
done by suitably amending merger
regulations. The highlights of the first
amendments to the combination
regulations, of February, 2012, by the CCI
are as follows:
• No requirement to file for merger
review if the cumulative share
purchase is below 25 percent
(compared to the earlier 15 percent).
• No filing requirement for intra-
group mergers or amalgamations
involving enterprises wholly
owned by the group companies.
• Acquisitions of shares or voting
rights pursuant to buy backs and
acquisition of shares or voting
rights pursuant to subscription of
rights issue (without the restriction
of their “entitled proportion”), not
leading to acquisition of control,
included in the list of transactions
in Schedule I which lists
transactions where a merger filing
need not be made.
• The Company Secretary of the
company, duly authorized by the
Board, was authorized to sign Form
1 or Form 2, in addition to those
persons specified under the general
regulations.
• The distinction for filling up Part I
for certain types of transactions and
Part II for the remaining
transactions was removed, leading
to clarity and uniformity.
On gaining further experience, the
combination regulations were
amended once again by the CCI in
April, 2013. The main changes
were as follows:
• No notice need be filed for
acquisition of shares or voting
rights of companies if the
acquisition is less than five percent
of the shares or voting rights of the
company in a financial year, where
the acquirer already holds more
than 25 percent but less than 50
percent of the shares or voting rights
of the company.
• Where one of the enterprises had
more than 50 percent shares or
voting rights of the other enterprise,
filing of notice with CCI for
mergers/amalgamations involving
these two enterprises was not
needed. Similarly, if more than 50
percent shares or voting rights in
each of such enterprises are held
by enterprise(s) within the same
group, no notice was needed.
• Some rationalization in the
categories of exemption for
acquisition of certain current assets
like stock-in-trade, raw materials
etc.
On completion, more than two years after
the journey into a merger control regime
began, it is the right time to look at the
performance of the CCI in this vital area
of competition law enforcement. When
the final merger regulations were
notified by the CCI, there was great
excitement as well as doubts about the
rules being laid down by the competition
agency of India. There was a great
curiosity about the CCI - especially for
its capacity to deliver. Until that time,
despite the commencement of provisions
relating to anti-competitive agreements
and abuse of dominance, the markets felt
hardly any impact because of the matters
before CCI. Compared to the performance
of neighboring Pakistan where, right in
the first 18 months of its existence, the
CCP had showcased a considerable
amount of work it did in exposing cartels
82

B-1152013]
and issuing government advisories, the
performance of Indian competition
agency was considered quite slow.
Similarly, in another neighborly
comparison, although the Act in India
was enacted much earlier than China’s,
China enacted and brought into force its
Anti Monopoly law much earlier than
India. It also started merger control with
a bang and the Coca-Cola case became a
selling point for antitrust law in China.
Perhaps an open and vibrant democracy
has a price.
India opted for a mandatory filing regime.
As of today, the thresholds for triggering
the filing requirements are as follows:
ASSETS TURNOVER
In India Enterprise INR 1,500 Crores INR 4,500 Crores
(approximately USD 330 million) (approximately USD 1 billion)
Group INR 6,000 Crores (approximately INR18,000 Crores
USD 1,320 million) (approximately USD 4 billion)
In India ASSETS TURNOVER
or outside
Total India Total India
Enterprise USD 750 INR 750 Crores USD 2.25 INR 2,250 Crores
million (approximately billion (approximately
USD 165 million) USD 500 million)
Group USD 3 INR 750 Crores USD 9 INR 2,250 Crores
billion (approximately billion (approximately
USD 165 million) USD 500 million)
As would be obvious to any discerning
eye, the Indian thresholds for merger
filings are extremely high - perhaps the
highest in the world. Interestingly, even
the default merger filing form, Form 1, is
also, perhaps, the simplest in the world.
After having faced the severe criticisms
for having a very burdensome filing form
and low thresholds, prior to the
commencement of enforcement of merger
control in India, these may appear to be
quite stark revelations to many.
Starting from 1st
June, 2011, till the end of
June 2013, following number of merger
cases has been reviewed by the CCI:
S. N. Year Reviews
1. 2013 (till June, 2013) 28
2. 2012 82
3. 2011 13
Total 123
Thus, starting from 1st
June, 2011 - a little
more than two years since the
commencement of merger review having
come into force - a total of 123 cases of
acquisitions, mergers and
amalgamations have been reviewed by
the CCI. There have been studies3
indicating the average time it takes the
CCI to review a merger as just over a
fortnight - which is a relatively quick
merger review clearance by any
standards, especially for a new agency
commencing operations in the midst of
questions about its effectiveness.
As would be obvious to any
discerning eye, the Indian
thresholds for merger filings
are extremely high - perhaps
the highest in the world
3 http://www.slashdocs.com/qispu/combination-review-in-india-a-mid-year-review-by-
kk-sharma-part-1.html
83

So far, nearly all merger filings have been
through the simple form - Form No 1. On
account of the pressure of stakeholders,
the first draft of merger regulations was
made in such a way that the opponents
of merger review did not get an
opportunity to create unnecessary noise.
The first form for merger filing was such
that, effectively, it was almost
discretionary to make a merger filing.
This was due to the fact that even the
most basic information about a
transaction was to follow on the
assertion of the merger-filing party that
the transaction was not falling within
some stated categories given in the
schedule and the regulations. It was
quite a big relief to businesses, but how
helpful it was for competition assessment
can be gauged from the fact that, despite
being under no obligation to do so, nearly
all the merger filings voluntarily
included the details of the transaction,
as well as the reason why it was not to
cause an appreciable adverse effect on
competition (AAEC - the substantive test
for evaluation of mergers in India).
Despite having a mandatory merger
review regime, the first filing
requirements practically gave the merger
filer entire discretion on which form to
choose: Form 1 or Form 2. Form 1 is
minimalistic in the information sought;
a large proportion of merger filings are
through Form 1 only.
For all practical purposes, nearly
everybody was using Form 1. The basic
reason for introducing this was that any
burden on business would have been
used as a handle by the hawks amongst
those opposing merger controls, leading
to a further possible postponement of
enforcement of merger control on
different grounds. The cases filed
through Form 2 could be counted not
only on one’s fingertips, but on a single
finger. These were the only cases in
which some horizontal overlap amongst
products and services was admitted by
the parties. Prior to these cases, in no case
was any horizontal overlap between
products and services either admitted or
claimed by the CCI during the merger
review.
A look at India’s journey and
progression of merger control
enforcement shows a very slow
movement. No doubt, the prompt
clearances by the CCI, a laudable
achievement, have been widely
appreciated.4
However, where do we go
from here? Do we have similar glowing
testimonials for an in-depth analysis and
incisive dissection of the issues? One
possibility may be that all the cases
coming before the CCI really had no
competitive concerns. But if we look at
the Indian thresholds, nearly the highest
in the world, wherein only the big ticket
acquisitions, mergers and
amalgamations come under the CCI
scanner, the possibility of some cases
containing issues that can only be dealt
with through modification cannot be
ruled out, if looked at carefully. The
modification mechanism (called
“remedies” elsewhere) has not yet been
tried and tested in full. However, there is
a silver lining.
Gradually, the CCI is increasing the rigor
of review. Except for giving plain
approvals, there are some notable
exceptions where the CCI examined the
agreements in detail and directed some
agreements to be amended to change
some of the conditions considered
anticompetitive. Two cases stand out:
Orchid Chemicals and Pharmaceuticals
Ltd. (Combination Reg. No. C-2012/09/
79), and Mylan Inc. (Combination Reg.
No. C-2013/04/116). In the case of
4 http://www.ibanet.org/Article/Detail.aspx?ArticleUid=73c4fdd7-9776-41cd-8fbb-
3a7dd96c8c7c
84

B-1172013]
Orchid Chemicals and Pharmaceuticals, the
CCI observed “non compete obligations,
if deemed necessary to be incorporated,
should be reasonable particularly in
respect of (a) the duration over which
such restraint is enforceable; and (b) the
business activities, geographical areas
and person(s) subject to such restraint,
so as to ensure that such obligations do
not result in an appreciable adverse
effect on competition.”5
Similarly, in its order dated June 20, 2013,
in the case of Mylan Inc. (Combination
Registration No. C-2013/04/116), the
CCI has accepted the modifications
offered by the parties under
Regulation 19(2) of the combinations
regulations. In both these cases, the CCI
put into practice the provisions of
Regulation 19(2) of the combination
regulations. Under these regulations, the
parties to the combination can come
forward with modifications to the
combinations on their own which may
be accepted by the CCI. This is something
similar to the undertakings in EU.
Another case stands out for comment: the
notice for acquisition given by GSPC
Distribution Networks Limited
(“GDNL”) to acquire Gujarat Gas
Company Ltd. (GGCL) (Combination
Registration No.: C-2012/11/88). In this
case, an undertaking was taken from
GGCL to modify the agreements of GGCL
with its customers. Object of this exercise
is not known. This kind of action is
fascinating and sometimes questionable.
The question which arises is if one party
is acquiring another enterprise, what is
important: the possible future conduct,
or the past conduct? If an agreement
being routinely entered into with its
clients comes to the knowledge of the CCI
during a merger filing, should the CCI
start examining it in addition to the
5 http://www.cci.gov.in/May2011/OrderOfCommission/CombinationOrders/C-2012-09-
79.pdf
review of merger filing? In merger
control, it is the counterfactual (situation
where the merger has not happened)
which is important for evaluating the
impact of a merger on competition in the
market. If counterfactual does not show
any adverse impact on the competitive
environment for the product under
question, is it alright to get entangled in
side issues? Or ideally speaking, should
such cases be dealt with in a different
manner? Even if some compellingly
anticompetitive practice comes to notice
during merger review, should it be mixed
with the job at hand or dealt separately?
What the CCI did in this case was to
allow the merger, but accept
undertakings to modify the agreements.
However, it is noteworthy that the CCI
has been able to prove all of its critics
wrong by ensuring that even within the
country, amongst various regulatory
approvals, the approval from the CCI is
almost invariably the first to come. This
has certainly gone down well with
businesses and has helped quell negative
noise about the CCI becoming another
government regulator delaying business
transactions and raising the cost of
business. On the whole it can be said that
the CCI has generally had a good start on
merger review. The importance of
economic analysis has been well
recognised and CCI is paying enough
attention to this aspect. At least 40 per cent
of the CCI is made up of economists. This
compares well with even the most mature
antitrust jurisdictions. One thing can
certainly be said: the CCI is not shying
away from learning from experience.
Until now, two significant amendments
have taken place in merger regulations,
both of which aimed at ensuring a more
workable and practical merger control
review in India. Having travelled safely
so far, we wish the CCI bon voyage ahead.
85

Exclusive Supply Agreements under Competition Law
in US, EU and India
Prachi Gupta*
This article studies the concept and scope of exclusive supply agreements in the
jurisdictions of US, EU and India. Vertical restraints can, occur at any stage of
the supply/distribution process for a product or service. However, the attention
by commentators, and competition authorities, has centred on restraints in retail
distribution. These restraints come in a number of guises and are motivated by
the desire for vertical control within a principal-agent relationship, where the
principal i.e. manufacturer imposes contractual obligations on its agent/retailer
when delegating responsibility for selling its goods. Such agreements are generally
governed under “restraint of trade” provisions in the Indian Contract Act, 1872
and specifically prohibited under Section 3(4) of the Competition Act, 2002.
Economists are of the view that if inter brand competition exists, restrictions on
intra brand competition should not be capable of restricting competition and the
efficiency enhancing effects of vertical agreements would outweigh any possible
risks. Yet experience reveals that vertical agreements can have anticompetitive
effects which outweigh their pro-competitive effects, and hence they have to be
brought within the purview of antitrust law. The Indian law is similar to US
law as there is a clear scope for application of the rule of reason to vertical
agreements, but there cannot be a uniform application of the rule of reason, since
different vertical agreements would different regulatory measures.
Introduction
There are about a hundred systems of
competition law in existence today with
some of the laws like the Sherman Act of
the US more than a century old, whereas
some of them are as recent as the Indian
Competition Act of 2002. As more and
more countries are shifting to open
market economies, they are adopting or
modernising their competition laws. In
spite of this recent propagation and
adoption of competition laws across
* Advocate and Legal Expert at Competition Commission of India. She may be reached at
gupta.prachi@hotmail.com
86

B-1192013]
many jurisdictions of the world, the
necessity to protect the free market from
competitive restraints is not a recent
trend. The Roman Constitution of Zeno,
promulgated in 483 A.D. had provisions
to restrain monopolies. Though the
Sherman Act, 1890 is considered to be
the starting point of modern competition
law, it was nothing but an application of
the old and recognised principles of the
common law.1
US vertical restraint law
has been developed through a long
journey. To oversimplify, courts initially
viewed vertical restraints with great
suspicion, and tended to condemn that
which they did not understand. Today,
vertical restraints are generally viewed
with equanimity, and where courts are
uncertain about the effects of a restraint
they tend to uphold it.2
The common law doctrine of “restraint
of trade” has played a critical role in the
development of modern competition law.
What is unreasonable was to be
determined by considering whether the
restraint was so large as to interfere with
the interests of the general public.3
In the
US, the common law doctrine of restraint
of trade and its relationship with the
Sherman Act was explained by Chief
Justice White in the landmark case of
Standard Oil Company v. US.4
It was in
this case that the rule of reason approach
to interpret the Sherman Act finally
triumphed over the literalist approach
followed earlier. In the European
Commission, the close relationship
between the common law doctrine of
restraint of trade and European
Commission competition law have been
closely studied.5
Though the analysis to
be carried out under the two approaches
is somewhat different - in common law,
the courts are more focussed on the effect
of the restraint between the parties
whereas competition law focuses more
on the effect on the market; the
terminology used in relation to the two
approaches is markedly similar, and both
use public interest as a touchstone to
determine reasonableness of the
restraint.
1 Mark R. Joelson, An InternationalAntitrust Primer- A Guide to the Operation of United
States, European Union and other Key Competition Laws in the Global Economy 1-3 (2006).
2 Vinod Dhall, COMPETITION LAW TODAY, 1st
ed. 2007, p.413
3 In Lord Morris of Borth-y-Gest in Esso Petroleum Ltd. v. Harper’s Garage (Stourport) Ltd.,
[1968] AC 269
–“In general the law recognizes that there is freedom to enter into any contract that can be
lawfully made. The law lends its weight to uphold and enforce contracts freely entered into.
The law does not allow a man to derogate from his grant. If someone has sold the goodwill
of his business, some restraint to enable the purchaser to have that which he has bought
may be recognized as reasonable. Some restraints to ensure the protection of confi
-dential information may be similarly regarded…but when all this is fully recognized yet
the law, in some circumstances, reserves a right to say that a contract is in restraint of trade
and that to be enforceable it must pass a test of reasonableness. In the competition between
various possible principles applicable…public policy will give it priority”.
4 221 US 1 (1911)
5 See WWF vs. World Wrestling Federation Entertainment Inc., EWCA Civ 196 [2002],
(Carnworth, LJ at 64-66); Apple Computer Inc. (No Challenge Interlocutory), RPC 70 Ch D
[1992], (Nicholls, LJ at 109-113).
Exclusive Supply Agreements under Competition Law in US, EU and India
87

Restraints in Competition Law:
Horizontal and Vertical
United States and European Union have
different approaches to antitrust
regulation of contractual arrangements
between suppliers, distributors, and
customers reflect significant differences
in competing policy considerations and
in balancing goals of competition policy
against goals of enforcement. In the
United States 20 or 30 years ago,
regulation of a wide range of distribution
arrangements was fairly restrictive of
private firms conduct. Not only were
maximum and minimum resale price
maintenance agreements declared illegal
per se, but stringent rules applied as well
to division of customers and territories
among distributors. These rules reflected
an inclination for the preservation of fair
opportunities for distributors to compete
and act independently of their suppliers.
Distributor’s freedom viewed as freedom
to respond to the market was assumed to
be consistent with consumer’s interests.
In competition law, restraints have been
broadly categorised as horizontal and
vertical. Horizontal agreements are
agreements between firms which operate
at the same level of production and are
of utmost concern to competition
enforcement authorities, as these
agreements tend to increase the chances
of anti-competitive behavior.6
Vertical
agreements are between firms that are in
production supply relationship, between
undertakings operating at different levels
of the production chain. Unlike
horizontal agreements, vertical
agreements do not involve a combination
of market power but affect competition
in the market only when the firm
imposing a vertical restraint already has
market power.7
In case of almost all goods, there is a chain
of production before the product reaches
the final consumer, i.e. from the raw
material to processing and creating the
final product, distributing and selling of
the product etc. Vertical restraints exert
mixed effects on the competitive process
and have to be judged on the basis of the
reasonableness of restraint. Vertical
restraints can occur at any stage of the
supply/distribution process for a
product or service and are largely
motivated by the desire for vertical
control within a principal agent
relationship, where the principal (the
manufacturer) imposes contractual
obligations on its agent (the retailer)
while delegating responsibility for
selling its products. In vertical
agreements, competition from other
firms’ products is limited and it is
desirable that there is enough
competition between distributors and
retailers of the products of the firm which
has market power. If the firm exercising
United States and European
Union have different
approaches to antitrust
regulation of contractual
arrangements between
suppliers, distributors, and
customers reflect significant
differences in competing
policy considerations and in
balancing goals of
competition policy against
goals of enforcement
6 Mark Furse, Competition Law of the EC and UK133-134 (2004).
7 Tilottama Raychaudhuri, Vertical Restraints In Competition Law: The Need To Strike The
Right Balance Between Regulation And Competition, 4 NUJS L. Rev. 609 (2011)
88

B-1212013]
vertical restraint does not have sufficient
market power, or if there is sufficient inter
brand competition, then the restriction
on competition between the distributors
and retailers of the same brand may not
have any effect on the market. Generally
vertical agreements may be of the
following kinds8
:-
a) Exclusive Distribution Agreements
are agreements where a producer
sells his products to a restricted
number of traders, who are granted
exclusive right to sell the products
within a defined territory or to a
specific group of customers.
b) Selective Distribution Agreements are
agreements where traders are
required to meet certain criteria
before becoming part of
distribution network.
c) Exclusive Supply Agreements are an
extreme form of limited distribution
agreement where the trader is
prevented from dealing in products
of any other manufacturer other
then the manufacturer with whom
he is dealing.
d) Tying Agreements are when the
supplier makes the supply of one
product conditional upon the buyer
buying a distinct, separate product.
e) In Resale Price Maintenance
Agreements, the manufacturer
imposes price restraints on the
buyer i.e. the price at which he may
sell the product.
Position in United States
Under the United States’ antitrust law,
“exclusive dealing” is used to describe
vertical arrangements in which a buyer
is effectively obligated to purchase most
or all products or services from one seller,
usually for a set period of time. Such
exclusive dealing arrangements are
widespread and can take many forms
like agreements forbidding a buyer from
purchasing products of a different
manufacturer, and restrictions in
contracts obligating a buyer to purchase
all, or a substantial portion of its total
requirements of specific goods or services
from one supplier. Exclusive dealing
arrangements that intentionally and
potentially foreclose competitors of the
supplier raise competition concerns and
can give rise to liability under various
antitrust and competition theories of
law.9
The exclusive dealing
arrangements are challenged under four
provisions of the US antitrust laws:
(i) Section 1 of the Sherman Act,
(ii) Section 2 of the Sherman Act,
(iii) Section 3 of the Clayton Act, and
(iv) Section 5 of the Federal Trade
Commission Act of 1914.
But, not all exclusive dealing
arrangements are anticompetitive and
many are in fact found to have pro-
competitive effects and/or be motivated
by goals that are not anticompetitive. The
laws regarding exclusive dealing have
been developed through a common law
process in US courts, deriving from the
general terms of Sections 1 and 2 of the
Sherman Act and Section 3 of the Clayton
Act, which make certain anti-competitive
conduct illegal.10
Section 1 of the Sherman Act prohibits
contracts ‘in restraint of trade’. It says
that “every contract, combination in the
form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among
8 See Richard Whish, Competition Law 626-638 (2009). The Act in §3(4) mentions five kinds
of vertical agreements namely tie-in arrangements, exclusive supply agreements, exclusive
distribution agreements, refusal to deal and resale price maintenance.
9 Lauren N. Norris, “Exclusive Dealing: An Antitrust Analysis”, available at http://
w w w . a m e r i c a n b a r . o r g / g r o u p s / y o u n g _ l a w y e r s / p u b l i c a t i o n s /
the_101_201_practice_series/exclusive_dealing_an_antitrust_analysis.html
10 Vinod Dhall, Competition Law Today, 1st
ed. 2007, p.401.
89

the several States, or with foreign nations,
is declared to be illegal”.11
Section 2 of the Sherman Act prohibits
“attempts to monopolize” and
monopolization. The provision makes it
illegal to “monopolize, or attempt to
monopolize, or combine or conspire with
any other person or persons, to
monopolize any part of the trade or
commerce among the several States, or
with foreign nations”.12
Section 5 of the Federal Trade
Commission Act prohibits “unfair
methods of competition”. In the case of
Federal Trade Commission v. Brown Shoe
and Co,14
the Defendant shoe company
had entered into agreements with other
stores that required them to concentrate
on defendant’s sales in return for
Brown’s provision of low-cost insurance,
merchandising records, architectural
plans and other services. Federal Trade
Commission found that the stores parties
to the agreement amounted to 1per cent
of the entire nation’s shoe stores and that
this foreclosure was significant. The
Supreme Court upheld the Commission
on the ground that the Federal Trade
Commission has broad powers to declare
trade practices unfair.15
The US antitrust laws have been
developed through a common law
process and hence take into account a
variety of circumstances in determining
whether exclusive dealing is anti-
competitive or not. In assessing whether
an exclusive dealing arrangement is anti-
competitive a number of factors are
considered: degree or percentage of
market foreclosure, whether the degree
of market foreclosure deprives a
competing firm of the ability to obtain
economies of scale that are sufficient to
enable it to act as an effective competitor
that could erode existing monopoly
power, the ability of competitors to reach
the market despite the exclusive
arrangement through alternative
distribution channels, the level of
distribution chain at which there is
Under the US antitrust
laws, an exclusive dealing
agreement is not illegal in
itself if it does not have
market foreclosure effects
that are harmful for
competition
Section 3 of the Clayton Act prohibits
exclusivity arrangements that may
‘substantially lessen competition’ or tend
to create a monopoly.
Under the US antitrust laws, an exclusive
dealing agreement is not illegal in itself
if it does not have market foreclosure
effects that are harmful for competition.
Harm to competition is said to have been
caused (or is likely to be caused as the
case may be) when the exclusive dealing
agreement deprives a competitor of the
ability to obtain economies of scale and
thereby grow into an effective competitor
that could erode existing monopoly
power.13
11 See Section 1 of Sherman Act, 1890.
12 See Section 2 of Sherman Act, 1890.
13 US Department of Justice and US Federal Trade Commission, “Exclusive Dealing/ Single
Branding”. Available at http://www.internationalcompetitionnetwork.org/uploads/
questionnaires/uc%20pp/us%20response%20exclusive%20dealing.pdf, last visited on
2 June, 2013.
14 384 US 316 (1966).
15 Keith N. Hylton (ed.), Antirtust Law and Economics, Vol. 4, Encyclopedia of Law and
Economics, 2nd
ed., 2010, pp. 190-193.
90

B-1232013]
Non-Price Vertical Restraints
A manufacturer confines a reseller to a
particular geographic territory which
limits intra-brand competition but can
enhance inter-brand competition. After
the landmark opinion, Continental T.V.,
Inc. GTE Sylvania Inc., 433 U.S. 36 (1977),
general non-price vertical restraints have
been judged under the rule of reason.
Exclusive Distributorships and Dealings
In an exclusive distributorship, a
manufacturer promises a reseller that it
will not supply or stock products of rival
resellers and enter into exclusive dealing
arrangement. Though, there are
conflicting views of jurists and experts
that exclusive distributorships are often
pro-competitive and should be judged
under the rule of reason and such
agreements are almost invariably upheld.
Exclusive dealing, in which a reseller
promises not to stock rival brands, has
always been treated more leniently than
other types of seller and reseller
arrangements, perhaps because the
possible pro-competitive benefits have
been more apparent.
If a relevant market has been foreclosed,
a company may offer “efficiency-
enhancing justifications” that show that
the exclusive dealing arrangement is not
anti-competitive. The main justifications
for an exclusive dealing agreement are
to encourage dealers to promote a
manufacturer’s products more
vigorously and to provide retailers with
assured supplies and protection from
price increases, both of which allow for
longer term planning and efficiency-
enhancing investments by retailers; to
encourage manufacturers to help dealers
by providing services or information
benefiting consumers; to ensure a steady,
reliable outlet of supply for a
manufacturer so that it can make
investments that increase efficiency or
permit scale economies.
European Union Competition Law on
‘Exclusive Supply Agreements’
The EC competition law provisions
relevant to ‘exclusive supply
agreements’ use the term ‘vertical
restraints’ to describe agreements
wherein a buyer is to purchase from one
supplier only. Specifically, European
Union competition law may use the
terms exclusive purchase agreements or
single branding to refer to these
agreements. Article 101(1) of the Treaty
on the Functioning of European Union
(TFEU), formerly Article 81(1) of the
Treaty establishing the European
Community (TEC) prohibits agreements
that may affect trade between EU
countries and which prevent, restrict or
distort competition. Agreements which
create sufficient benefits to outweigh the
anti-competitive effects are exempt from
this prohibition under Article 101(3)
TFEU (that is, formerly, Article 81(3)
TEC).
As per the EU competition law, vertical
agreements are agreements for sale and
purchase of goods or services which are
entered into between companies
operating at different levels of the
exclusivity, the duration of the agreement
or whether it may be terminated on short
notice, the relationship between the
parties that deal exclusively including
whether the purchaser desires
exclusivity, whether the product is the
type for which the consumer is likely to
comparison shop.
In an exclusive
distributorship, a
manufacturer promises a
reseller that it will not supply
or stock products of rival
resellers and enter into
exclusive dealing
arrangement
91

production or distribution chain.16
All
vertical agreements are not restrictive of
competition, like vertical agreements that
determine the price and quantity for a
specific sale and purchase transaction
do not normally restrict competition.
However, when a vertical agreement says
that a buyer is obligated not to purchase
competing brands, the agreement has the
nature of restraining competition.
However, vertical restraints may not only
have negative effects but also positive
effects. Vertical restraints may help a
manufacturer enter a new market, or
avoid a situation whereby one distributor
free-rides on the promotional efforts of
another distributor, or allow a supplier
to depreciate an investment made for a
particular client.
For vertical agreements, to fall under the
exemption provided by the Block
Exemption Regulation (BER), the
following requirements are to be
satisfied; the agreement does not have
any restrictions set out in the BER; the
supplier and buyer have a market share
cap of 30 per cent; the BER contains three
specific restrictions which the vertical
agreements should not contain if they are
to avail of the block exemption.17
The first
restriction concerns resale price
maintenance. Suppliers are not allowed
to fix the minimum price at which
distributors can resell their products.
The second restriction concerns
restrictions concerning the territory into
which or the customers to whom the
buyer may sell. This restriction relates to
market delineation by territory or by
customer. Distributors must remain free
to decide where and to whom they sell.
The third and fourth restrictions concern
selective distribution. Firstly, selected
distributors, while being prohibited to
sell to unauthorized distributors, cannot
be restricted as to the end-users to whom
they may sell. Secondly, the appointed
distributors must remain free to sell or
purchase the contract goods to or from
other appointed distributors within the
network. A vertical agreement is covered
by this BER if both the supplier and the
buyer of the goods or services do not have
a market share exceeding 30 per cent. For
the supplier, it is its market share on the
relevant supply market, i.e. the market
on which it sells the goods or services
that is decisive for the application of the
block exemption. For the buyer, it is its
market share on the relevant purchase
market, i.e. the market on which it
purchases the goods or services, which
is decisive for the application of the BER.
To qualify for block exemption, vertical
agreements should not contain the
following elements i.e. non-compete
obligations18
during the contract and after
termination of contract and the exclusion
of specific brands in a selective
distribution system. When the
conditions are not present, vertical
restraints are covered under the BER. The
BER continues to apply to the remaining
part of the vertical agreement if that part
is severable from the non-exempted
vertical restraints.19
16 See “Exemption for Vertical Supply and Distribution Agreements” http://europa.eu/
legislation_summaries/competition/firms/cc0006_en.html.
17 See Commission Regulation (EU) No. 330/2010.
18 Article 1 of the Commission Regulation (EU) No. 330/2010 defines ‘non-compete obligation “
as“ any direct or indirect obligation causing the buyer not to manufacture, purchase, sell or
resell goods or services which compete with the contract goods or services, or any indirect
obligation on the buyer to purchase from the supplier or from another undertaking designated
by the supplier more than 80% of the buyer’s total purchases of the contract goods or services
and their substitutes on the relevant market, calculated on the basis of the value or, where such
is standard industry practice, the volume of its purchases in the preceding calendar year.
19 Richard Whish, COMPETITION LAW, 6th
ed. 2009, p. 636.
92

B-1252013]
‘Single branding’ is one such obligation
which makes the buyer purchase
practically all his requirements in a
particular market from only one supplier,
i.e. the buyer will not buy and resell or
incorporate competing goods or services.
The possible risks are foreclosure of the
market to competing and potential
suppliers, facilitation of collusion
between suppliers in cases of cumulative
use and, where the buyer is a retailer
catering to end-use consumers, a loss of
in-store inter-brand competition. All the
three restrictive effects of single branding
have a direct impact on inter-brand
competition. The market position of the
supplier is of primary importance to
assess the possible anti-competitive
effects of single branding. Also, the
duration of such agreements is of
significance because longer the duration
of the agreement the more significant
foreclosure is likely to be. However, such
agreements for a period of less than one
year and by non-dominant companies
are not considered to give rise to
appreciable anti-competitive effects.
Appreciable anticompetitive effects are
likely to occur in such cases when the
supplier has some degree of market
power and the agreement leads to the
creation, maintenance or strengthening
of that market power or allows the parties
to exploit such market power.
Indian Competition Law on ‘Exclusive
Supply Agreements’
An exclusive supply agreement, as under
the Indian Competition Act, 2002 is an
agreement between a manufacturer and
distributor wherein it is agreed that the
distributor will deal exclusively with
manufacturer’s product(s). Such an
agreement will have the effect of cutting
off from the manufacturer’s competitors
a part of the market that would have
otherwise been available to the
competitor(s) of the supplier.20
Such kind
of an agreement falls under the broader
category of “vertical agreements/
restraints” because the two parties to the
agreement are not competitors
themselves but belong to different levels
in a production - distribution chain. An
exclusive supply agreement is
essentially anti-competitive as it restricts
the purchaser from acquiring any goods
or services from anyone other than the
seller or any other person. The purchaser
is required to procure all his trade
purchases from one seller.
Before the coming into force of
Competition Act, 2002, such vertical
agreements were prohibited under
“restraint of trade” and were void under
Section 27 of the Indian Contract
Act, 1872.21
Restraint of trade means any
An exclusive supply
agreement is essentially anti-
competitive as it restricts the
purchaser from acquiring
any goods or services from
anyone other than the seller
or any other person
20 Avtar Singh, Competition Law, 1st
ed. 2012, p. 20.
21 Section 27, Indian Contract Act, 1872. Agreement in restraint of trade void. - Every
agreement by which any one is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void. Saving of agreement not to carry on business of
which goodwill is sold. Exception 1.
One who sells the goodwill of a business may agree with the buyer to refrain from carrying
on a similar business, within specified local limits, so long as the buyer, or any person
deriving title to the goodwill from him, carries on a like business therein, provided that
such limits appear to the Court reasonable, regard being had to the nature of the business.
93

sort of stipulation in the contract that
restricts the other party from enjoying fair
trade negotiation and is in contravention
of right to freedom of trade of the other
players in the market. One of the ways to
exercise such restraint is by way of
entering into a sole dealing agreements
whereby the manufacturer or the
wholesaler requires a distributor to deal
with his goods exclusively for certain
period of time in return of some
remuneration. Such stipulations have
the effect of closing channel of
distribution for other players in the
market and a better chance of promoting
goods in comparison to other players
and that is not a fair game or a fair means
of competition. Such agreements were
also condemned under Section 33(1)(c)
of the Monopolies and Restrictive Trade
Practices Act, 1969. Section 3(4) of the
Competition Act, 2002, specifically
prohibits exclusive supply agreements.
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; (b)
exclusive supply agreement; (c)
exclusive distribution agreement; (d)
refusal to deal.22
This category of agreements includes any
agreement restricting in any manner, the
purchase from acquiring or otherwise
dealing in any good other than those of
the seller or any other person23
.
Agreements covered under Section 3(3)
are presumed to have an appreciable adverse
effect on competition and cannot be
criticized, whereas agreements set out
under Section 3(4) should be proved to have
appreciable adverse effect on competition in
India. In order to determine whether any
agreement is in contravention of
Section 3(4) of the Competition Act, the
following essentials have to be satisfied:
a) Existence of an agreement amongst
enterprises or persons,
b) Parties to agreement must be at
different stages or levels of
production chain, in respect of
production, supply, distribution,
storage, sale or price of, or trade in
goods or provision of services, and
parties must be in different markets,
c) The agreement should be of the
nature as illustrated in clauses (a)
to (e) of sub-section 4 of Section 3 of
the Act,
d) The agreement should cause or
likely to cause appreciable adverse
effect on competition.
Vertical restraints are to be examined
under the “rule of reason”, by which the
effect of competition is judged on the facts
of the case, the market, and the existing
competition, the actual or probable
limiting of competition in the relevant
market etc. What determines the issue is,
on the facts, the actual or probable
restraint on competition. This is as
opposed to the per se rule where the acts
or practices specified under the Act are
deemed to be or presumed to have an
appreciable adverse effect on
competition and are by themselves
prohibited.
An exclusive supply agreement is
fundamentally an anti-competitive
agreement under the competition law of
India and restricts the purchaser from
acquiring any goods or services from
anyone other than the seller. The
purchaser is required to affect all his
trade purchases from one seller. It is a
method by which competition in the
supply of a product or service may be
reduced. An exclusive supply agreement
being a vertical restraint is anti-
22 For full text of Section 3 of the Competition Act, 2002, refer to the Bare Act.
23 Explanation (b) to Section 3 (4) of the Competition Act, 2002.
94

B-1272013]
competitive practice by virtue of
Section 3(4) of the Competition Act, 2002.
Such a restraint would be anti-
competitive only if the agreement
providing for this practice causes or is
likely to cause an appreciable adverse
effect on competition in India. An
competition is to be assessed by taking
into account factors enumerated under
Section 19(3) of the Act. Section 19(3) says
that the Commission shall, while
determining whether an agreement has
an appreciable adverse effect on
competition under Section 3, have due
regard to all or any of the following
factors that are enumerated as follows:
(a) Creation of barriers to new entrants
in the market;
(b) Driving existing competitors out of
the market;
(c) Foreclosure of competition by
hindering entry into the market;
(d) Accrual of benefits to consumers;
(e) Improvements in production or
distribution of goods or provision
of services;
(f) Promotion of technical, scientific
and economic development by
means of production or
distribution of goods or provision
of services.
Conclusion & Solutions
The Indian Competition law is heavily
borrowed from the US and EC law but
without some of the safeguards and the
stringency present in those laws which
identify and eliminate some agreements
from being examined by competition law
In India, there are no separate rules
governing any specific category of
vertical agreements and all such
agreements are required to be tested for
adverse effects under Section 19(3) only.
Vertical agreements like resale price
maintenance and exclusive supply
agreements are different in many aspects.
It is essential that there are certain
standards to deal with specific type of
vertical agreements. Indian law does not
provide any exemptions like the Block
exemption under EU law to exclude
agreements which do not foreclose
markets of affect competition. All
agreements are tested on the pedestal of
appreciable adverse affect on
competition and the concept of relevant
market is also absent in the anti-
competitive agreements.
India being a developing country has its
own problems like high entry barriers
and high concentration ratios and
greater instances of dominance by
erstwhile public sector companies.
These characteristics often call for a
modified approach to the enforcement of
competition law, e.g. more protection and
benefits to domestic industries and
stronger control over multinationals.
There is ample scope for strengthening
the existing regime governing vertical
agreements. Since vertical agreements
may or may not be benign, the key lies in
striking the right balance between
competition and regulation. Wherever
possible enterprises should be able to
enter into such agreements without being
unnecessarily hauled up by the
authorities and at the same time, there is
also a need that Competition Authority
of India should be freed from the task of
probing into each and every vertical
agreement and concentrate specifically
on adverse agreements.
95

Regulation of Anti-Competitive Practices and Trade
Secret Laws under Competition Legislation of India:
A Paradigmatic Analysis
By Zafar Mahfooz Nomani*
and Faizanur Rahman**
Indian industrialists, fearful of the power of multinational corporations, which
have become active in India’s economy in very significant numbers since the
beginning of the process of liberalization, had also demanded legislative action to
ensure a level playing field. It is generally opined that the Competition will bite
you if you keep running, and if you stand still, they will swallow you’. The
competition attracts as magneting factor for economic rivalry between market and
customers besides increasing economic efficiency and equally prone to volatility
and collusive behaviour. This has underlined the need for competition law to control
anti - competitive behaviour. The paper locates anti-competitive practices prevalent
under trade secret regime and logically connects to innovation laws and competition
legislation of India. This seems germane in the context of globalized, liberalized
and competitive oriented Indian economy. The regulation of anti-competitive
practices necessitated institutional support and adjudicatory mechanism. Since
India responded to globalization, the Monopolies and Restrictive Trade Practices
Act, 1969 has become obsolete. In the backdrop of international trade and intellectual
property laws shifted focus from curbing monopolies to promoting competition.
As a natural corollary of this, the Government decided to enact a renovate
innovation and competition law by dealing with unfair competition or antitrust
issues The Competition Act, 2002 fulfill the World Trade Organization mandate.
The paper locates anti-competitive practices prevalent under trade secret regime
and logically connects to innovation laws and competition legislation of India.
Thus the paper provides a holistic picture of the evolution and developments of
competition law and examines anti-competitive agreements, abuse of dominance,
acquisitions, and mergers to have a successful competition regime in India.
* Associate Professor, Department of Law, Aligarh Muslim University, Aligarh-202002 (U.P.)
E-mail:<zafarnomani@rediffmail.com>
** Assistant Professor, Department of Law, Aligarh Muslim University Centre, Murshidabad-
742229 (WB) E-mail:<faizan.faizylaw@gmail.com>
96

B-1292013]
I.RegulationofAnti-CompetitivePractices
The business thrives on intense
competition and dynamic of market
environment. The Liberalization
Privatization Globalization (LPG)
reduced governmental control and
witnessing aggressive competition and
economic efficiency.1
This necessitated
rehabilitation of monopolies and
restrictive trade practices laws in India
and fostered the competition law. India’s
Competition Act, 2002, enacted to fulfill
the twin objectives of regulation of anti-
competitive practices and give effect to
the World Trade Organization (WTO)
Agreements. To appreciate evolution and
development of Indian competitive
legislation, it is imperative to look in to
Monopolies and Restrictive Trade Practices
Act, 1969. The MRTP Act was framed to
deter and also dismantle any
concentration of economic power to the
common detriment, for the control of
monopolies, for the prohibition of
monopolistic and restrictive trade
practices. The Act provided for the
formation of a MRTP Commission. This
Commission dealt with the functional
aspects of the Act and implemented its
provisions.2
The MRTP Act was
periodically amended as and how
deemed appropriate. The working of the
MRTP Act found inadequate for fostering
competition in the market and
eliminating anti-competitive practices in
national and international trade. To
provide impetus to liberal trade, the
Government of India in October 1999
appointed a high level committee on
Competition Policy and Law popularly
known as the Raghavan Committee to
advise on the competition law. The
MRTP Act was found inadequate to deal
with anti-competitive practices in an era
of globalization and liberalization. The
Raghavan Committee recommended that
the MRTP Act is short of addressing
competition and anti-competitive
practices. The Committee concluded that
there was a need for new competition
legislation, whereafter the MRTP Act
would be repealed and the MRTP
Commission to be wound up. The new
competition law would not cover unfair
practices since such practices came
under the purview of the Consumer
Protection Act, 1986. This altogether led
to formation of the Competition
Commission of India (CCI) under the
Competition law. All monopolistic trade
practices and restrictive trade practices
cases pending before the MRTP
Commission would be taken up by this
new Commission.
The Competition Act, 2002 was stalled by
public interest litigation relating to
certain issues concerning the
Competition Commission of India3
,
challenging the constitutional validity of
the Act. The Supreme Court has
recommended changes to be
incorporated in the Act, before it can be
enforceable. In the backdrop of Supreme
Court ruling the Government then has
proposed to amend the Competition Act,
2002 which inter alia led to bifurcating
Competition Commission and a
Competition Appellate Tribunal in 2007.
This is supplemented by Ministry of
Corporate Affairs, has issued a
notification in 2009, whereby the most
controversial the Monopolies and
Restrictive Trade Practices Act, 1969 stands
repealed and is replaced by the
1 Poorvi & Madhooja, “Competition Law and Intellectual Property Laws, ” available at
<http://www.legalserviceindia.com/article/l307-Competition-Law-and-Intellectual-
Property-Laws.html>
2 Amitabh Kumar, ‘Evolution of Competition law in India’, in Vinod Dhall (ed.) , ‘Competition
Law Today’ (New Delhi, Oxford University Press, 2007) , pp.479-480
3 Brahm Dutt v. Union of India MANU/SC/0054/2005: AIR 2005 SC 730
Regulation of Anti-Competitive Practices and Trade Secret Laws under
Competition Legislation of India: A Paradigmatic Analysis
97

Competition Act, 2002, with effect from
September 1, 2009.4
The notification
mandated that MRTP Commission will
continue to handle all the old cases filed
prior to September 1, 2009 for a period of
2 years. It will, however, not entertain
any new cases from now onwards. Anti
competitive agreements (Section 3) and
Abuse of dominant power (Section 4) has
already come into force on 20-5-09 vides
notification dated 15-5-09, while merger
control became effective from June 01,
2011. In the recent years, the CCI has
analyzed and ruled on various
provisions of the Act in several orders
and in the process, highlighted the
lacunae where the Act could possibly be
amended. On December 10, 2012, the
Indian government introduced the
Competition (Amendment) Bill, 2012 in
the parliament. This Bill aims to modify
certain provisions of the Act as well as
insert some new provisions to meet the
evolving needs of industry. The Bill still
has to be debated and passed by two
houses of the parliament before it
becomes law.5
II. Competition Law Framework
The legislative history of anticompetitive
practices received impetus in the wake
of the post liberalized economy. The post
WTO resulted in shift from monopolistic
and restrictive trade practices regime to
highly competitive and liberalized
environment. The enactment of
Competition Act, 2002 prevented practices
having adverse effect on competition to
promote and sustain competition in
markets. It also protects the interests of
consumers and to ensure freedom of
trade carried on by other participants in
markets. The Act cast 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 carried on by other
participants, in markets in India’.6
A
combined reading of the preamble and
Section 18 of the Act envisage
Competition Commission of India and
the Enforcing tribunal.7
In the words of
the Supreme Court, the objectives of
Competition Law appear as under:
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.8
The enactment of
Competition Act, 2002
prevented practices having
adverse effect on competition
to promote and sustain
competition in markets
4 Competition (Amendment) Act, 2009 - Amendment in Section 66 and Repeal of Ordinance
6 of 2009 [Act no. 39 of 2009]
5 Dhruv Suri, ‘Proposed amendments in the Competition Act: A positive step forward?’ E-
Newsline January, 2013 available at <http://www.psalegal.com/upload/publication/
assocFile/ENewslineJanuary2013.pdf>
6 Section 18 of Competition Act, 2002
7 Vinod Dhall, ‘The Indian Competition Act, 2002’, in Competition Law Today (New Delhi,
Oxford University Press, 2007) , pp.499-525
8 Judgment in Civil Appeal No. 7999 of 2010 pronounced on 9th September, 2010
98

B-1312013]
The court understanding of three-fold
advantage seems progressive in bringing
changes in behavioural approach and
structural approach followed under
previous legal regime. The regulation of
Merger and Amalgamation (M&A) has
returned to the scope of Indian
competition law, although the new law
sets rather high turnover thresholds for
combinations to fall under its purview.
The new law has extraterritorial reach.
This provision is based on “effects
doctrine” in preference to “conduct
doctrine”. Thus, actions or practices
taking place outside India but having an
competition in the relevant market in
India would come within the ambit of
the Act.9
The new competition law, the Competition
Act, 2002, is arguably a better piece of
legislation as compared to its
predecessor, the MRTP Act. The new law
provides for a modern framework of
competition is typically concerned with
three issues: firstly, anti competitive
agreements that have the object or effect
of preventing, restricting or distorting
competition; secondly, abusive
behaviour by a monopolistic or dominant
firm with significant market power that
could be harmful to consumer welfare;
and thirdly mergers that would reduce
rivalry between firm in the market, again
with detrimental consequences for
consumer welfare.10
The extended feature
of the system of competition law is the
establishment of a “competition
advocacy” role for competition
authorities to create public awareness on
the benefits of competition and the role
of competition law.
III. Anti-Competitive Agreements
The paradigmatic structure of regulation
of anti-competitive practices in India is
ingrained under Section 3 of the Act. It
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.
Further Section 3(2) provides that any
agreement in contravention of this
provision shall be void.
The ambit and need of the provision is to
be examined, it sets out the general
prohibition of any agreement having an
“appreciable adverse effect on
competition” (“AAEC”) within India.
Agreements entered into between
enterprises or associations of enterprises,
or persons or associations of persons or
enterprises (including cartels) that
directly or indirectly determine purchase
or sale prices; limit or control production,
supply, markets or technical
development, investment or provision of
services; directly or indirectly result in
bid rigging or collusive bidding; or share
The paradigmatic structure
of regulation of anti-
competitive practices in
India is ingrained under
Section 3 of the Act
9 Pradeep S Mehta and Manish Agarwal, ‘Time for a Functional Competition Policy and Law
in India : Mainstreaming competition principles into policy and legal framework is pro-
development, ’ CUTS International 2006, available at http://www.cuts-international.org/
pdf/compol.pdf
10 Richard Whish, ‘Control of Cartels and other Anti-Competitive Agreements, ’ in Vinod
Dhall (ed.) , ‘Competition Law Today, ’ (New Delhi, Oxford University Press, 2007) , p.39
99

the market or source of production by
way of allocation of geographical area of
markets or the type of goods or services
or the number of customers in the market
are presumed to have an adverse effect
on competition and are considered to be
per se illegal. There is a presumption that
such agreements would have an
competition:11
However, such
presumption is not applicable in case of
any agreement entered into by way of
joint ventures if such agreement increases
efficiency in production, supply,
distribution, storage, acquisition or
control of goods or provision of services.
Such an agreement is void as a matter of
law.
The framework of analysis for
determining whether an agreement has
an AAEC is different for hard core
“horizontal” agreements (between
competing firms) and “vertical”
agreements (between firms that are active
at different levels of an industry) and
other “horizontal agreements”. The Act
states explicitly that egregious horizontal
agreements – i.e., price-fixing, output
restrictions, market-sharing, bid-rigging
– are presumed to give rise to an AAEC.
This approach is in line with the severe
anti-cartel enforcement policy of antitrust
authorities world-wide. Other categories
of horizontal agreements are analyzed
under a “rule of reason”, balancing the
benefits arising from the agreements
against the restrictions on competition.
This applies also to joint ventures that
can be proven to be efficiency-enhancing;
these will not be presumed to give rise to
an AAEC – even if involving competitors
and “hard-core” restrictions.
Section 3(4) deals with vertical
agreement. It lists, in particulars, five
categories of vertical agreements, namely,
(a) tie-in-agreement; (b) exclusive supply
agreement; (c) exclusive distribution
agreement; (d) refusal to deal; and (e)
resale price maintenance; which would
be in contravention of subsection (1) if
these cause or are likely to cause
competition in India. The approach for
all vertical agreements is uniform: these
are to be analyzed under a “rule of
reason” in order to determine whether
they give rise to an AAEC. This softer
treatment acknowledges that vertical can
have beneficial aspects as well, and these
need to be weighed against the harmful
effects to see if the agreement is on balance
anti-competitive. The harmful effect may
include restrictions on intra-brand
competition, foreclosure of competition,
and compartmentalization of markets,
and the pro-competitive effects can
include efficiency gains, increase in inter-
brand competition, and preventing of
free-riding.
Section 3 (5) provide exemption to the
general rule. The prohibition does not
apply to “reasonable” conditions in
agreements that aim to protect certain
intellectual property rights (for instance
patents, copyrights and trademarks).
Similarly, although agreements relating
to the export of goods are capable of being
prohibited under competition laws
outside India, they are unimpeachable
under the Indian Act. The law will need
to develop on how these rules are to
operate in practice.
The remedies that can be ordered by the
Commission in case of contravention of
Section 3 (relating to anti-competitive
agreements), has been provided in
Section 27 of the Act. The Competition
Commission of India (CCI) can enjoin an
infringing party from continuing or re-
entering an illegal agreement and, in
addition, impose upon such a party fines
not exceeding 10 per cent of the average
11 Section 3 (3) of the Competition Act, 2002
100

B-1332013]
turnover for the last three financial
years.12
For any firm, such a sanction is
considerable. The fact that – in addition
to firms – individuals may also be held
liable for competition law violations is
significant and expected to incentives
compliance. The CCI can impose any
other related order or direction. In respect
of cartels, sanctions are potentially even
more severe: the CCI may impose on each
cartel member a penalty for each year of
the cartel of up to three times its profits
or 10 per cent of its turnover, whichever
is higher.13
Any contravention of the CCI’s orders
can entail imposition of further penalties,
and ultimately, the CCI can file a
complaint against contravention of its
orders in the criminal court, which, in
turn, may order additional fines and
even a prison term up to three years.14
The Act includes a leniency programme,
in the case of a cartel. The CCI will operate
a leniency programme to firms that
disclose evidence and information on
cartels to the CCI under this programme
can obtain reduced fines or avoid fines
altogether15
. It is worth noting that the
leniency provision may save the
cooperating party from a larger penalty,
but it does not protect the party from a
claim for compensation for loss or
damage suffered by a person on account
of the alleged violation by the party, or
from any other direction or order of the
Commission.16
IV. Abuse of Dominance
The provisions of Competition Act (CA),
2002 dealing with abuse of dominance
draws heavily from European
Community (EC) jurisprudence on the
topic and Article 82 of the EC treaty.
Dominant position refers to a position of
strength wherein the enterprise has
gained such a position in the market by
way of big market share or otherwise that
he is able to play independent of market
forces. It refers to the position where the
player can manipulate the markets. The
competition act does not prohibit the
dominant positions as was the case in
MRTP act but it prohibits the abuse of
the same.
The Act under Section 4 (1) prohibits
abuse of dominant position by any
enterprise. The term “dominant position”
has been defined in the Explanation (a)
below Section 4 (e) which states that the
dominant position means a position of
strength, enjoyed by an enterprise, in the
relevant market in India. Such a position
enables a firm to: - (i) operate
independently of competitive forces
prevailing in the relevant market; or (ii)
affect its competitors or consumers or the
The Competition Act does
not prohibit the dominant
positions as was the case in
MRTP act but it prohibits
the abuse of the same
Abuse of dominant position by an
enterprise or a group is also prohibited
under the Act. An enterprise or group
must evaluate whether it has a dominant
position in the market, and whether it
has abused its dominance. The key
questions to be addressed are: (i) what is
“dominant position;” and (ii) what type
of behavior constitutes “abuse of
dominant position.”
12 Section 27 (a) & (b) of the Competition Act, 2002
13 Proviso to Section 27 (b) of the Competition Act, 2002
14 Section 42 (2) & (3) of the Competition Act, 2002
15 Section 46 of the Competition Act, 2002
16 <http://www.linklaters.com/pdfs/publications/competition/IndiaAntitrustGuide.pdf>
101

relevant market in its favour. Dominant
position defined in Explanation (a)
relates to the relevant market and it is
therefore necessary first to determine the
relevant market in which the dominant
position is alleged. The term “relevant
market” itself has been defined in Section
2 (r) “relevant market” means the market
which may be determined by the
Commission with reference to the
relevant product market17
or the relevant
geographic market18
or with reference to
both the markets.
Once the relevant market has been
determined, the next stage would be to
inquire whether the enterprise enjoys a
dominant position. The Act specifies
twelve factors which shall be taken into
account by the Commission either
individually or cumulatively while
determining the question whether an
enterprise enjoys a dominant position19
:
Any compliance program must run a
diagnostic analysis to determine which
of these factors the company may be at
risk of infringing at a given point in time.
Although the definition of “dominance”
does not correspond word by word20
with
the definition given in the jurisprudence
of the European Court of Justice, the CCI
is expected to interpret the concept
according to this jurisprudence.
Dominance is not incriminating on its
own: a firm holding such a position must
have engaged in conduct characterized
as an abuse. In this regard, the Act
contains an exhaustive list of potentially
prohibited practices. According to the
Section 4(2), abuse of dominance by an
enterprise or a group has been defined
in the Competition Act to include directly
or indirectly imposing unfair or
discriminatory conditions or prices in
purchase or sale of goods or services;
restricting or limiting production of
goods and services, or the market, or
limiting technical or scientific
development relating to goods or
services to the prejudice of consumers;
indulging in practices resulting in denial
of market access; or using dominance in
one market to move into or protect other
market.
17 Section 2 (t) of the Competition Act, 2002 defined relevant product market as ‘a market
comprising all those products or services which are regarded as interchangeable or
substitutable by the consumer, by reason of characteristics of the products or services, their
prices and intended use’
18 Section 2 (s) of the Competition Act, 2002 states that the “relevant geographic market”
means a market comprising the area in which the conditions of competition for supply of
goods or provision of services or demand of goods or services are distinctly homogenous
and can be distinguished from the conditions prevailing in the neighbouring areas.
19 Section 19 (4) of the Competition Act, 2002 states factors namely, : (i) market share of the
enterprise, size and resources of the enterprise; (ii) size and importance of the competitors,
(iii) economic power of the enterprise, including commercial advantages over competitors;
(iv) vertical integration of the enterprises or the sale or service network of such enterprises;
(v) dependence of consumers on the enterprise; (vi) 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; (vii) 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; (viii)
countervailing buying power; (ix) market structure, and size of market; (x) social obligations
and social costs; (xi) relative advantage, by way of the contribution to the economic
development, by the enterprise enjoying a dominant position having or likely to have an
appreciable adverse effect on competition; and (xii) any other factor which the Commission
may consider relevant.
20 Within the terms of this prohibition, an enterprise is regarded as dominant when it enjoys a
position of strength enabling it either to operate independently of the competitive pressure
existing on the relevant market, or to affect its competitors or consumers in its favour.
102

B-1352013]
All the sanctions described in the case of
anticompetitive agreements are available
to the CCI against abuse of dominance. If
the CCI is satisfied that there has been
an abuse dominance, it may issue a
“cease and desist’ order i.e. it can direct
the enterprise to desist from practices
which constitute such abuse and impose
a penalty of up to 10 percent of the
average turnover of last three preceding
financial years.21
In addition, the CCI can
impose structural remedies: it can order
division of a dominant firm with a view
to ensure that the undertaking does not
abuse its dominant position. 22
It appears
that such an order can be only corrective,
not pre-emptive, i.e., the CCI must
identify an ongoing abuse before
ordering division of a dominant
enterprise; however, the direction in
which the law will develop has to be
watched.
V. Regulation of Merger and
Amalgamation
One of the biggest threat to competitions
is the mergers and acquisition activities
by which the factors governing the
competition in the market are grabbed
by a few or a single enterprise. But not all
the combinations (mergers &
acquisitions) are within the purview of
the Act, it specifies a limit beyond which
all the desired combinations need to be
approved by the competition commission
to see the light of the day. The Act
regulates the various forms of business
combinations and not prohibits their
formation.
Under the Act, “no person or enterprise
shall enter into a combination, in the
form of an acquisition, merger or
amalgamation, which causes or is likely
to cause an appreciable adverse effect on
competition in the relevant market and
such a combination shall be void”.23
But,
all combinations do not call for scrutiny
unless the resulting combination exceeds
the threshold limits in terms of assets or
turnover as specified by the Competition
Commission of India.
The Commission while regulating a
“combination” shall consider the
following factors24
: (i) actual and
potential import competition, (ii) barriers
to entry, (iii) the degree of market
concentration; (iv) degree of
countervailing power in the market; (v)
the likelihood that the combination
would allow the parties to significantly
and sustainably increase prices or profit
margins, (vi) the extent of likely effective
competition (vii) the extent to which
substitutes are available or likely to be
available in the market; (viii) the market
share, in the relevant market, of the
persons or enterprises in a combination,
individually and as a combination (ix)
the likelihood that the combination
would result in the removal of a vigorous
and effective competitor in the market;
(x) the nature and extent of vertical
Under the Act, "no person or
enterprise shall enter into a
combination, in the form of
an acquisition, merger or
amalgamation, which causes
or is likely to cause an
competition in the relevant
market and such a
combination shall be void
21 Section 27 (a) (b) of the Competition Act, 2002
103

integration in the market; The analysis
also includes consideration of whether
one of the firms in the combination is a
failing business and the nature and
extent of innovation. In addition, the
Commission must consider the possible
benefits that might flow from the
combination that would contribute to
economic development and whether the
benefits outweigh the adverse impact of
the combination, if any. These factors are
an indication of a rule of reason
approach.25
The threshold limits varies according to
whether the combination is by an
enterprise or by a group26
, and also varies
according to whether enterprise or group
has assets or turnover only in India or
has these worldwide. The threshold
limits have been prescribed for the
purpose of combination under the
Competition Act.27
Such threshold limits
contemplates an essential Indian nexus.
The Act sets a threshold below which a
merger, acquisition or acquiring of
control is not regarded as a combination
and is therefore outside the merger
regime of the Act The threshold is fairly
high and is defined in terms of assets or
turnover. The threshold varies according
to whether the combination is by an
enterprise or by a group, and also varies
according to whether enterprise or group
has assets or turnover only in India or
has these worldwide. Assets or Turnover
is displayed in the table given below:
In order to proceed with a combination,
prior approval of the CCI is required. This
is a pre-emptive measure so that
combination does not end up in a
potentially abusive position because
subsequent unbundling can be difficult
and costly. Such pre-emptive measure
avoids any uncertainty pertaining to
validity of a combination. But such
control over merger or acquisition leads
to delays, especially as the approval
process is time consuming. The
procedures and time limits for a
Commission inquiry into a combination
are set forth in detail in the Act under
Section 29 & 31. Thus, the Act does not
25 Vinod Dhall, ‘Essays on Competition Law and Policy’ Available at <http://www.cci.gov.in/
images/media/articles/essay_articles_compilation_text29042008new_20080714135044.pdf>
26 Group means two or more enterprises which, directly or indirectly, are in position to exercise
26% or more of voting rights in other enterprise or appoint more than 50% of members of the
board of directors in the other enterprise control the management or affairs of the other
enterprise (Explanation (b) to S 5)
27 Section 5 of the Competition Act, 2002
Operations No Group Group
India Total value of assets more than Total value of assets of more
Rs.1000/- crores or turnover of than Rs.4000/- crores or
Rs.3000/- crores turnover more than Rs.12000/-
crores.
India or Aggregate value of assets more Aggregate value of assets of
Outside than $500 mn (including at least more than $2 bn (including at
India in India Rs.500 cr.) Or turnover least assets of Rs.500 cr. in
more than $1500mn (including at India) or turnover of $6 bn
least turnover of Rs.1500 cr. in (including Rs.1500 cr. turnover
India.) in India).
104

B-1372013]
seek to eliminate combinations but only
aims to eliminate their harmful effects.
VI. Articulation of Competition
Advocacy
In a country where the competition
culture is relatively weak, competition
advocacy acquires a great significance
in creating general awareness about the
benefits of competition and the role of
competition law, as well as in influencing
government policy in a more pro
competition direction. In line with the
High Level Committee’s
recommendation, the Act extends the
mandate of the Competition Commission
of India beyond merely enforcing the law.
The Regulatory Authority under the Act,
namely, Competition Commission of
India (CCI), in terms of the advocacy
provisions in the Act, is enabled to
participate in the formulation of the
country’s economic policies and to
participate in the reviewing of laws
related to competition at the instance of
the Central Government. Section 49 of the
Act provides that in formulating a policy
on competition (including review of laws
related to competition), the government
may make a reference to the Commission
for its opinion, though the opinion is not
binding on government. Further, the Act
requires that the Commission “shall take
suitable measures, as may be prescribed,
for the promotion of competition
advocacy, creating awareness and
imparting training about the competition
issues.”28
Thus, Competition advocacy has created
a culture of competition. There are many
possible valuable roles for competition
advocacy, depending on a country’s
legal and economic circumstances. The
institutional framework is the key to
successful implementation of any law
and competition law is not an exception
to the general rule.29
In India, the Act has
basically created three enforcement
institutions namely: (1) Competition
Commission, (2) Director General and (3)
Competition Appellate Tribunal. The
details of institutional framework, how
the CCI is inter dependent on a host of
other institutions and what is imperative
of all to do, in order to achieve the intent
and purpose of law, is narrated herein
below:-
VII. Administrative Mechanism &
Structure
The administrative structure for the
promotion of competition is augured
through Competition Commission of
India. The Commission was established
on 14th
October, 2003 and started
accepting cases under the Act after 1st
September, 2009, is an expert body which
functions as a regulator for preventing
anti-competitive practices in the country
and also has advisory and advocacy
functions.30
CCI is a quasi-judicial and
corporate body, having perpetual
succession and a common seal with
power to acquire, hold and dispose of
property, both movable and immovable
and can contract in its own name31
. In
the discharge of its functions, the CCI
shall be guided by the principles of
natural justice, and has the power to
regulate its own procedures. The
29 G.R. Bhatia, ‘Institutional Framework under the Indian Competition Act, 2002, ’ available
at http://www.indialawjournal.com/volume2/issue_4/article_by_bhatia.html
30 Rini Mitra, ‘Enforcement of Competition Law in India: A Comparative Analysis with U.K
& EU, ’ available at <http://legalservicesindia.com/article/article/enforcement-of-
competition-law-in-india-a-comparative-analysis-with-u-k-&-eu-392-1.html>
105

CCI Ex-Parte Orders Critiqued

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