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Compt. act


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Compt. act

  2. 2. Introduction <ul><li>“ Monopolistic and Restrictive Trade Practices act, 1969, was an important piece of economic legislation designed to ensure that the operation of the economic system does not result in the concentration of economic power to the common detriment” </li></ul>
  3. 3. ORIGIN <ul><li>The authority for this act was derived by the Government from the Directive Principles of State Policy contained in Article 39 of the Constitution of India which enjoins upon the State to secure that “the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment” </li></ul>
  4. 4. Major Objectives <ul><li>Regulation of Monopolies and prevention of concentration of economic power; and </li></ul><ul><li>Control of monopolistic, Restrictive and Unfair trade practices which are prejudicial to public interest. </li></ul><ul><li>Amendments to Act </li></ul><ul><li>The Act came into force from 1 st June, 1970 and has been amended in 1974, 1980, 1982, 1984 and 1991 before it was replaced by Competition Act, 2002 </li></ul>
  5. 5. Monopolistic Trade Practices (MTP) <ul><li>“ Monopolistic Trade Practice is an act that has or is likely to have, the effect of unreasonably preventing or lessening competition in the production, supply or the distribution of any goods or services; limiting technical development and capital investment to the common detriment; or allowing the quality of goods or services to deteriorate” </li></ul><ul><li>Two relevant tests </li></ul><ul><li>Abuse of market power; and </li></ul><ul><li>Unreasonableness in any practice </li></ul>
  6. 6. Major MTPs <ul><li>Unreasonable prices for goods or services </li></ul><ul><li>Limiting technical development or capital investment to the common detriment </li></ul><ul><li>Unreasonably preventing or lessening competition </li></ul><ul><li>Allowing quality to deteriorate </li></ul><ul><li>Increasing unreasonably cost of production or maintenance of services </li></ul><ul><li>Unreasonable selling price </li></ul><ul><li>Unreasonable profitability </li></ul><ul><li>Preventing or lessening competition by adopting unfair methods </li></ul>
  7. 7. Provisions of Section 31 of MRTP <ul><li>Government may order an enquiry by MRTP Commission; and take any of these actions if needed: </li></ul><ul><li>Regulate the production and fixing the terms of sale (including sale) </li></ul><ul><li>Prohibiting any action that restricts competition; and </li></ul><ul><li>Fixing standards for production of goods </li></ul>
  8. 8. Restrictive Trade Practices (RTPs) <ul><li>According to Section 2(0) of MRTP Act </li></ul><ul><li>“ Restrictive Trade Practice is an act which has the effect, actual or probable of restricting, lessening or destroying competition. Such trade practices may tend to obstruct the flow of production or to bring about manipulation of prices or conditions of delivery etc to the common detriment” </li></ul>
  9. 9. Major RTPs (Sec.33, MRTP Act) <ul><li>Refusal to deal with persons or class of persons </li></ul><ul><li>Tie-in sale or full line forcing </li></ul><ul><li>Exclusive dealing agreement </li></ul><ul><li>Collective price fixation and tendering </li></ul><ul><li>Discriminatory dealings </li></ul><ul><li>Re-sale price maintenance </li></ul><ul><li>Restriction on output or supply of goods </li></ul><ul><li>Control of manufacturing process </li></ul><ul><li>Boycott </li></ul><ul><li>Price control arrangements </li></ul><ul><li>Any other practice recognized as RTP by Govt. </li></ul><ul><li>Residual RTP </li></ul>
  10. 10. Regulation of RTPS <ul><li>Enquiry by MRTP Commission u/s 37 of Act and Commission may issue </li></ul><ul><li>Cease and desist order </li></ul><ul><li>Any agreement allowing RTP shall stand as void </li></ul>
  11. 11. UNFAIR TRADE PRACTICES <ul><li>“ An Unfair Trade Practice is an act which for the purpose of promoting the sale, use or supply of any goods or the provision of any services, adopts one or more unfair trade practices and thereby causes loss or injury to the consumers of such goods or services, whether by eliminating or restricting competition or otherwise” </li></ul><ul><li>Included under the amendment of 1984 (August1, 1984) the major provisions with regard to UTPs are contained in sections 36A,B,C,D,E and 12A,B,C and 14 and 61 of the Act. </li></ul>
  12. 12. Major UTPs (u/s 36A (1to5)of MRTP Act) <ul><li>Misleading advertisement or false representation </li></ul><ul><li>Advertisement of bargain price </li></ul><ul><li>Offering of pseudo gifts or prizes </li></ul><ul><li>Supply of unsafe or hazardous products; and </li></ul><ul><li>Hoarding or destroying of goods, or refusal to sell goods, resulting in or expecting a price increase </li></ul>
  13. 13. Regulation of UTPs <ul><li>The MRTP commission may enquire into any UTP: </li></ul><ul><li>Upon the complaint of any trade or consumer association with a membership of 25 or more </li></ul><ul><li>Upon a reference made by State or Central Govt. </li></ul><ul><li>Upon its own knowledge or Information </li></ul><ul><li>Any member of the public (Amendment of 1991) </li></ul><ul><li>If the UTP is proved Commission may direct: </li></ul><ul><li>Discontinuation of services and non-repetition </li></ul><ul><li>Any agreement relating to such UTP will be void </li></ul>
  14. 14. Competition Policy <ul><li>“ Competition policy refers to the Government policy designed to ensure contestability and fair competition by removing/preventing factors and forces that tend to distort fair competition” </li></ul><ul><li>On a broad note, a well designed competition policy should govern policies relating to globalization, liberalization and de-regulation as may have an impact on competition </li></ul><ul><li>“ Competition policy can be regarded as a genus, of which competition law is a specie” </li></ul>
  15. 15. “ The main objective of competition laws is to preserve and promote competition as a means to ensure the efficient allocation of resources in an economy, resulting in the best possible choice of quality, the lowest prices and adequate supplies for consumers” - UNCTAD Report
  16. 16. Pre-requisites of Competition policy <ul><li>All trade policies should be open, non-discriminatory and rule bound and fall within the contours of competition principles </li></ul><ul><li>All physical and fiscal control on movement of goods throughout the country should be abolished </li></ul><ul><li>The state monopolies, Government procurement and foreign companies should be subject to competition law. </li></ul><ul><li>All the consumers should be covered under the law </li></ul>
  17. 17. Pre-requisites… <ul><li>All decisions of regulatory Authorities can be examined under the touchstone of competition law </li></ul><ul><li>Bodies administering the various professions should use their autonomy and privileges to regulate the professions </li></ul><ul><li>Quality and safety standards should not be designed to prevent market access. </li></ul>
  18. 18. Contours of Competition Policy and Law <ul><li>Agreement among enterprises </li></ul><ul><li>Abuse of dominance </li></ul><ul><li>Mergers or Combinations among enterprises </li></ul>
  19. 19. Selected Restrictive Business Practices addressed by Competition Law <ul><li>Practices undertaken by single firm ( In Dominant position) </li></ul><ul><li>Anticompetitive mergers and acquisitions </li></ul><ul><li>Horizontal Restraints </li></ul><ul><li>Vertical Restraints </li></ul>
  20. 20. Horizontal Restraints <ul><li>Price fixing </li></ul><ul><li>Restraint of output </li></ul><ul><li>Market allocation </li></ul><ul><li>Exclusionary practices </li></ul><ul><li>Collusive tendering </li></ul><ul><li>Conscious parallelism </li></ul><ul><li>Other restraints </li></ul>
  21. 21. Vertical Restraints <ul><li>Exclusive dealing </li></ul><ul><li>Reciprocal exclusivity </li></ul><ul><li>Refusal to deal </li></ul><ul><li>Resale price maintenance </li></ul><ul><li>Territorial restraints </li></ul><ul><li>Discriminatory pricing </li></ul><ul><li>Predatory pricing </li></ul><ul><li>Premium offers or loyalty rebates </li></ul><ul><li>Tied selling </li></ul><ul><li>Full-line forcing </li></ul><ul><li>Transfer pricing </li></ul>
  22. 22. Competition Act, 2002 <ul><li>With coming into effect of the Competition Act, 2002, the MRTP Act 1969 stands repealed and MRTP Commission dissolved. MRTP Commission has been replaced by Competition commission. </li></ul><ul><li>Competition Commission-Functions </li></ul><ul><li>Eliminate practices having adverse impact on competition </li></ul><ul><li>Promote and sustain competition </li></ul><ul><li>Protect interests of consumers </li></ul><ul><li>Ensure freedom of trade carried on by all participants, in markets in India </li></ul>
  23. 23. Why Competition Law? <ul><li>Market economy can suffer from market failures/ distortions, leading to adverse effects on economy and consumers; </li></ul><ul><li>This necessitates a law and an authority to check against such practices; </li></ul><ul><li>Consequently, about 100 countries have enacted modern competition laws; </li></ul><ul><li>India too enacted new Competition Act,2002 as part of second generation economic reforms. </li></ul>
  24. 24. Anti-Competitive Agreement Sec.3(3) <ul><li>Any collusive agreement which: </li></ul><ul><li>Directly or indirectly determines the purchase or sale prices; </li></ul><ul><li>Limits or controls, production, supply, market, technical development, investment or provision of services; </li></ul><ul><li>Shares the market or sources of production; </li></ul><ul><li>(d) Directly or indirectly results in bid rigging; </li></ul>
  25. 25. <ul><li>Any agreement which causes: </li></ul><ul><li>Tie-in agreement </li></ul><ul><li>Exclusive supply agreement </li></ul><ul><li>Exclusive distribution agreement </li></ul><ul><li>Refusal to deal </li></ul><ul><li>Resale price maintenance </li></ul>
  26. 26. Abuse of Dominant Position Sec.4 <ul><li>Dominant position means position of strength enjoyed by an organization in the relevant market in India which enables it to: </li></ul><ul><li>(i) Operate independently of competitive forces prevailing in the relevant market; or </li></ul><ul><li>(ii) Affect its competitors or consumers or the relevant market in its favor </li></ul>
  27. 27. Factors Considered in Determining Adverse effect of an Agreement <ul><li>Creation of entry barrier </li></ul><ul><li>Driving existing competitors out of market </li></ul><ul><li>Foreclosure of competition by hindering entry into market </li></ul><ul><li>Denial of benefits to consumers </li></ul><ul><li>Artificial improvement in production or distribution of goods or provision of services </li></ul><ul><li>Undesirable promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services </li></ul>
  28. 28. Factors Considered in Determining Dominant Position <ul><li>Market share </li></ul><ul><li>Size and resources of enterprise </li></ul><ul><li>Size and importance of competitors </li></ul><ul><li>Economic power of the enterprise </li></ul><ul><li>Vertical integration of an organization </li></ul><ul><li>Dependence of consumers on enterprise </li></ul><ul><li>Monopoly due to any statute? </li></ul><ul><li>Entry barriers </li></ul><ul><li>Countervailing buying power </li></ul><ul><li>Market structure and size of market </li></ul><ul><li>Social obligation and social costs </li></ul><ul><li>Relative advantage </li></ul>
  29. 29. Regulation of Anti-competitive Agreement <ul><li>Competition Commission may : </li></ul><ul><li>Issue directions for discontinuation of abuse of dominant position </li></ul><ul><li>Imposition of penalty (not more than 10% of average turn-over for last three years) </li></ul><ul><li>Award compensation to affected parties </li></ul><ul><li>Direct for the modification of agreement </li></ul><ul><li>Direction for compliance to commission’s orders </li></ul><ul><li>Recommendations for division of organization </li></ul><ul><li>Pass any such order as it may deem fit </li></ul>
  30. 30. Division of organization (Sec. 28) <ul><li>Transfer or vesting of property, rights, liabilities or obligations </li></ul><ul><li>Adjustment of contracts </li></ul><ul><li>Creation, allotment, surrender or cancellation of any shares, stocks or securities </li></ul><ul><li>The payment of compensation to any person or organization who suffered loss </li></ul><ul><li>Formation or binding up of an enterprise </li></ul><ul><li>Amendment of M/A or A/A or any other document of the company </li></ul><ul><li>Any other matter </li></ul><ul><li>Exemption by Centre Government </li></ul>
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  37. 37. Abuse of Dominance <ul><li>Not dominance, but only its abuse is illegal </li></ul><ul><li>Dominance not based on arithmetical figure, but on factors listed in Act </li></ul><ul><li>Acts deemed abuses are: </li></ul><ul><li>Unfair or discriminatory pricing (including predatory pricing) </li></ul><ul><li>Limiting production or technical development </li></ul><ul><li>Denial of market access </li></ul><ul><li>Conclusion of contracts subject to supplementary obligations </li></ul><ul><li>Use of dominant position in one market to enter into or protect the other market </li></ul>
  38. 38. Indian Scenario <ul><li>In India-suspected cases of abuse of dominance; but no known case of effective action; </li></ul><ul><li>In India-cartels suspected in several industries, but no effective action so far. </li></ul>
  39. 39. Competition Commission –Rationale & Role <ul><li>&quot;The Competition Commission is not an in-market regulator but sits off-market, while keeping a watchful eye on the goings-on in case there is any anti-competitive activity&quot;. &quot;The Competition Commission does not intervene ex-ante in business decisions and it has no power to direct enterprises about how they should conduct their business or set prices. Its role is mainly ex-post ; if an enterprise violates any provision of the Competition Act, the Commission has the power to step in and take remedial action.&quot; </li></ul>
  40. 40. CCI -Rationale <ul><li>A catchy and sporty analogy, that is, to emphatically bring out the essence of the Competition Commission's work. For, the Commission's role is different from that of a sector regulator like the SEBI (Securities and Exchange Board of India), the TRAI (Telecom Regulatory Authority of India), or the Electricity Regulatory Commission. </li></ul><ul><li>Mr Vinod Kumar Dhall, </li></ul><ul><li>Mmeber, CCI </li></ul>
  41. 41. CCI -Rationale <ul><li>&quot;This is World Cup season! Think of cricket”. </li></ul><ul><li>&quot;The teams and players are free to compete aggressively and play hard in any manner they please. No umpire can dictate his tactics or strategies. But no team can resort to unfair or prohibited means like say drugs, and if any declared rule of the game is breached, the umpire has the right to intervene, and in fact must do so to maintain fair play and healthy competition, where the winner is the best team, not the roughest or trickiest team!&quot; </li></ul>
  42. 42. CCI -Rationale <ul><li>When the Competition Bill was being first considered in Parliament in 2002, there was mighty opposition from the business community . &quot;It apprehended that this heralded yet another inspectorate with the power to intervene in business processes and decisions.&quot; </li></ul><ul><li>Four years later , attitudes had changed. During 2006, when the Parliamentary Standing Committee was considering the Competition (Amendment) Bill, there was little or no opposition from the business community to the basic premise of having a Competition Commission. </li></ul><ul><li>&quot;A welcome shift in perception”. </li></ul>
  43. 43. CCI -Rationale <ul><li>Though the Competition Commission is mostly driven by complaints from aggrieved parties, there is nothing to prevent the Commission from taking suo-moto notice of violations, one learns. &quot;Only in the case of mergers, the Commission has an ex-ante role and it could stop a merger, if the deal is likely to have an appreciable adverse effect on competition in the relevant market.&quot; </li></ul><ul><li>Therefore, when we have the new Competition law in place, the M&A (merger and acquisition) scenario may perceive the impact. Also, price for violations can be stiff and deterrent in nature, it is anticipated. </li></ul>
  44. 44. CCI -Rationale <ul><li>“ Finally, who would say that the World Cup needs no umpire, and cricket would be better off without one?&quot; Similarly, who would say that the market needs no Competition Commission? </li></ul>
  45. 45. International Cooperation <ul><li>For discharging its duties/functions, CCI can enter into memorandum/arrangement with any agency of any foreign country </li></ul><ul><li>Such arrangements important for inquiries against overseas/cross-border violations </li></ul><ul><li>International cooperation and effects doctrine mutually complementary </li></ul><ul><li>Such agreements exist between several competition authorities </li></ul>
  46. 46. Competition Advocacy <ul><li>Various competition authorities have undertaken sustained advocacy programmes eg. UK, Australia, Canada; </li></ul><ul><li>Awareness amongst stakeholders will promote compliance; less intervention; </li></ul><ul><li>Being complex economic law, structured dissemination necessary; </li></ul><ul><li>Advocacy with Central/State Governments, regulators and statutory authorities to promote pro-competition laws policies, practices; </li></ul>
  47. 47. Some Important Cases (Anti-competitive Agreements) <ul><li>Vitamin Cartel Case </li></ul><ul><li>The US anti - trust authorities have unveiled an international price fixing </li></ul><ul><li>conspiracy involving several leading and sophisticated pharmaceutical manufacturers of the world. These companies lead a global conspiracy to </li></ul><ul><li>- fix prices of Vitamins, </li></ul><ul><li>- allocate markets, </li></ul><ul><li>- supply contracts and sales volume, </li></ul><ul><li>- bid - rigging at various times. </li></ul><ul><li>Majority of the colluding firms admitted their involvement in the cartel </li></ul><ul><li>and agreed to pay US$ 500 mn fine. </li></ul>
  48. 48. Some Important Cases <ul><li>Combinations (Mergers and Acquisitions) </li></ul><ul><li>Proposed combination of Boeing and McDonnel - </li></ul><ul><li>Douglas relating to aircraft industry was allowed by </li></ul><ul><li>US Anti-trust Authorities. </li></ul><ul><li>Combination of General Electric and Honeywell </li></ul><ul><li>relating to Jet Engines was allowed by US Anti-trust </li></ul><ul><li>Authorities. </li></ul>
  49. 49. Mergers and Acquisitions <ul><li>Commission to regulate “Combinations”, i.e., large mergers, acquisitions, etc. likely to have appreciable adverse effect on competition. </li></ul><ul><li>Threshold: </li></ul><ul><li>For single enterprise </li></ul><ul><li>– Assets > Rs.1000 crores </li></ul><ul><li>– Turnover > Rs.3000 crores </li></ul><ul><li>For group of enterprises </li></ul><ul><li>– Assets > Rs.4000 crores </li></ul><ul><li>– Turnover > Rs.12000 crores </li></ul>
  50. 50. Hike in the Steel Prices –Why? <ul><li>Hike in input costs besides increase in demand </li></ul><ul><li>Assocham in its study, 'The Steel Surge’ , found that increase in freight costs by 288 per cent over the last couple of years have significantly contributed to the rise in steel prices. </li></ul><ul><li>3.1 to 3.2 tonnes of raw materials are required to produce a tonne of steel. Domestic prices of hot rolled coils are hovering at Rs 28,500 per tonne, excluding freight, excise and other duties. So the rise in steel prices can be attributed to a hike in input costs </li></ul>
  51. 51. Hike in the Steel Prices <ul><li>In January, this year iron ore prices shot up by 100 per cent over March 2003. NMDC, the country's largest miner and ore supplier hiked ore prices by 50 per cent to Rs 1,430 per tonne from Rs 960 per tonne to realign its prices with the benchmark international prices which too were recently hiked by 71.5 per cent. Besides, 60 per cent of coke is imported owing to the fact that domestic coke is of high ash content. </li></ul><ul><li>It accounted for over 55 per cent of the steel produced through blast furnaces. The average consumption of coking coal is Rs 542 kg per tonne of hot metal. Similarly, price of coke have also shot up by 111 per cent during the past two years, the study said. </li></ul>
  52. 52. Steel Prices………. <ul><li>While such an increase in iron ore prices would lead to corresponding rise in the price of steel by $16 to 24  per tonne of steel, rise in coking coal prices for the same year would result in a hike of $52 to 67 per tonne of steel. </li></ul><ul><li>impacts of both these cases excluded the impact of ocean freight, which is likely to remain strong in a demanding market, the study said. </li></ul><ul><li>The demand for steel was likely to grow by 7 to 8 per cent over the next ten years. Besides demand from China, new European Union nations too are keen to improve their infrastructural facilities leading to a corresponding growth in demand for steel. </li></ul>
  53. 53. Steel Prices………. <ul><li>Asia, particularly the Gulf nations, Thailand and South Korea have also grown remarkably. When the world demand grew by 4 to 4.5 per cent in 2003, Asia had cumulatively grown by more than 7 per cent. Hence the demand for steel is likely to grow by 7 to 8 per cent, it said. </li></ul><ul><li>The demand for steel is also rising in India due to the development of infrastructure and growth in housing and construction sectors. Besides, the automobile sector grew at a rate of 16 per cent during April to February 2005 as compared to the corresponding period the previous year. </li></ul><ul><li>White goods sector was also depicting growth. All these factors have led to an increase in the steel prices, the study pointed out. </li></ul>