This article deals with an in-depth analysis of the doctrine of extraterritoriality contained in the competition law of India which gives CC I jurisdiction require into anti-competitive agreements ,abuses of dominant position and combinations if such agreement or dominant position or combinations have or are likely to have an appreciable adverse effect on competition in the relevant market in India.

1. 2012] B-7
The Long Arm of the Law: The Doctrine of
“Extra-territoriality”
Kaushal Kumar Sharma*
The Competition Act, 2002 (the Act), which on 1st June, 2011, became fully
functional, has been hailed as “close to state-of-art” and “embodying an economics
based approach” by OECD and WTO, respectively. It is an interesting mix of
the best components of law and judicial precedents from the jurisdictions which
have been practicing this law for decades and even longer. It contains many
concepts which took long years of judicial evolutionary journey in different
jurisdictions and are considered nearly integral part of the law today. One such
concept is the concept of “effects doctrine” or “the principle of extraterritoriality”
contained in Section 32 of the Act. The author discusses the background of this
concept and its future in Indian context.
As is well known, keeping with the trend We all understand that the competition
of other nations and being guided by law seeks to enhance consumer welfare,
certain expert groups culminating in optimise resources, leads to improved
Raghvan Committee report set up for the and better products and services through
purpose, India also enacted the better methods and techniques (also
Competition Act, 2002(the Act) in referred to as the enhancement of
January, 2003. This was substantially allocative, static and dynamic efficiencies
amended by Competition (Amendment) in competition law parlance), brings
Act, 2007. The law, as it obtains today, down prices and makes more choices of
has been commended widely. WTO says goods and services available to the
that this “Law is broadly comparable to consumer at affordable prices. In totality,
those of other jurisdictions with effective it aims at enhancing overall societal
laws in this area and, for the most part, welfare and is believed to be good for the
embodies a modern economics-based economy. There is no dispute as far as
approach” (Trade Policy Review of India the basic objectives of this law are
2007). Similarly, OECD termed it to be concerned. To achieve them, the basic
“close to state-of-the-art” (Economic framework of different competition laws
Survey India Report 2007) in various jurisdictions, irrespective of
* Commissioner of Income Tax, Former Director General & Head of Merger Control,
Competition Commission of India. The views expressed are personal. E-mail:
kksharmairs@gmail.com
COMPETITION LAW REPORTS JANUARY 2012 00

2. B-8 Competition Law Reports [Vol. 1
their origins and journeys in reaching the same country where the regulator is
the present day form, also reflect a located. The producer may also be located
considerable unanimity of approach in a country beyond the territorial
despite overtly different appearances, if boundaries of that nation. If that be the
any. In view of this, these structures of case, whether the competition regulator
competition law also display, generally would be concerned about both –
speaking, a convergence of approach consumer welfare and the producer
across different jurisdictions as far as the welfare? The chances are that while there
end objectives of the competition law are is no doubt that the regulator would
concerned. Not that the competition laws certainly be concerned about the
across the countries are exact clones of domestic consumer, it may not that much
each other but there are considerable be concerned about the producer in a
similarities in the basic fundamentals. foreign land. Same applies to the term
Wherever there are too many “economy”; it is the economy of the
divergences, these are sought to be country of the regulator and not that of
pointed out for appropriate action by the any other country or world economy at
persuasive convergence efforts of the large. If the entire world were to be a
International Competition Network single nation, there would be no
(ICN) and other such multi-lateral distinction between the treatment given
institutional frameworks. to domestic producer and the producer
in a foreign country exporting the goods
and services into the country of the
The effective implementation regulator. Unfortunately, the globe is not
a single country but is divided into
of competition law improves political boundaries. The global
which economy economy, although considerably
intertwined, is not a single economy but
Any competition agency has the mandate consists of separate national economies
to enforce the competition law of a with appropriate ring fencing in various
country within the territorial boundaries ways, including the regional blocks for
of that country. This law, like any other economic co-operation as well as by the
law has its necessary ingredients. In any internal regulatory framework of the
discussion on the competition law and respective economies. These economic
its implementation, the terms and groupings and the national economies
phrases like “consumer welfare,” may not have the same economic
“producers’ welfare,” “economy”, etc are objectives and priorities. Or to put it
the commonly discussed elements. The differently, these economic groupings
issue arises as to which country these and the economies may not necessarily
consumers or producers belong to. There benefit in the same way from the
is no doubt that the consumers refers to interplay of various causative factors as
consumer belonging to the country of the many other economies. This difference
competition regulator. In the present is on account of differing availability of
globalised trade, where the cross-border natural resources in the country,
trade amounts to a huge chunk of the demographic variations, varying stages
economy of nearly every country, no such of development of the economy or geo-
claim can be made, with certainty, about political compulsions. This is the real
the producer. In that event, the welfare of dilemma for true competition law
the producer would be an important enforcement.
consideration in the decision matrix of The effective implementation of
the regulator. The producer may be in competition law improves which
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3. 2012] The Long Arm of the Law: The Doctrine of “Extra-territoriality” B-9
economy: it is certainly the economy of
the country of the regulator - not any other
economy. We Indians have not become
How do we explain the
any richer or more satisfied than we were considerable differential
in 1890 just because the implementation treatment given to Microsoft
of Sherman Act began in USA at that time.
The same applies to the enforcement of across the Atlantic for more or
the competition law in other less the same infringement?
jurisdictions. After the competition law
became fully functional in India, from
1st June, 2011, the coming times may tell
another story. However, that is yet to these terms across borders and the
come. consequent treatment is still a not fully
That being so, there has to be a certain explored territory.
conflict between the desire of a country No country can work against its self
to book all the agents which adversely interests including commercial interests.
affect the consumers, producers and the Otherwise how do we explain the
economy of the country of the regulator exception in the statutes of different
and a similar desire of the other nation countries, or by the jurisprudence
for whose exporters may be the developed, granted to export cartels?
consumers in the first country. Now, it is How do we explain the considerable
“producer surplus” of producers in one differential treatment given to Microsoft
country versus “consumer surplus” of across the Atlantic for more or less the
another country. It is not the same as it same infringement? How do we explain
would have been if both “producer the differing perceptions in USA and EU
surplus” and “consumer surplus” were in case of the GE v. Honeywell1? How do
from the same country which would have we explain the merger clearance for
been easier to resolve and enforce. This McDonnel Douglas and Boeing despite
natural conflict also puts a limit on the widespread criticism? Headlines
possible co-operation amongst different screamed that the capitalist countries
countries in the enforcement of the were behaving more like communists
competition law. when the bailout packages were given to
Unfortunately, in different academic many biggies, “considered too big to be
conferences, workshops, and seminars, allowed to fail” including Citibank in
this aspect is not often spoken and the USA, mega bank mergers were cleared at
terms “consumer”, “producer” and an electric speed, despite anti-
“economy” are used as if they are competitive concerns, in United Kingdom
nationality neutral which they are not. and other European countries in the
In a situation where precedence has to wake of the last phase of economic
be given from among the domestic and slowdown a little over a couple of years ago.
the non-domestic consumers, it would A look at all these contradictions would
be the domestic consumer which would make us understand that the principles
get precedence and not the non-domestic of the competition are not a plain vanilla
consumer. Still, the fact remains that all stuff as they are being made out to be by
these terms relate to the domestic the developed world but have a different
“economy”, domestic “consumer” and flavor and taste according to the local
domestic “producer”. The interface of compulsions. This appreciation is a must
1 Ed.: Case No. COMP/M.2220
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4. B-10 Competition Law Reports [Vol. 1
for the new converts to the competition passage of Shipping Contracts and
law, like India, who are likely to display Commercial Documents Act, 1964 and
“more loyal than the king” attitude in Protection of Trading Interests Act, 1980
comparison to the experienced players by UK Government.
in the field. In EU Articles 81 and 82 are silent on the
It is this natural conflict which has been question of “extra-territoriality”.
at the root of the very interesting history Initially, the European Commission
of the development of the principle of applied a “Single Entity Doctrine” and
extra-territoriality. When we look at the not the “Effects Doctrine” to bring
historical progress of extra territorial foreign firms within its jurisdiction. In
jurisdiction in competition law, two the Dyestuff’s4 case, in 1969, the question
important competition law jurisdictions whether EU law had an “Effects
in the world are that of European Union Doctrine” was raised for the first time.
and United States of America. “Effects The European Commission found that
Doctrine” in USA in competition law ICI, a company incorporated in the
was laid down by Learned Judge Hand United Kingdom, and with head quarters
in the Alcoa 2 case in 1945. The case in the United Kingdom (at that time
concerned a cartel of aluminums United Kingdom was not a part of the
producers in Switzerland. The Second EU), engaged in concerted practice
Circuit Court of Appeals held that the contrary to Article 81(1) of EC Treaty by
Sherman Act, 1890 applied to a Canadian virtue of giving instruction to its Belgian
company that had participated in the subsidiary. The European Commission
cartel that effected USA’s domestic imposed a fine on ICI.
market. Learned Judge Hand held that The decision of the European Commission
Sherman Act, 1890 applied to agreements was that in terms of Article 81(1), all
outside USA which were intended to agreements between undertakings, all
affect United States imports and did decisions by associations and concerted
actually affect them. This philosophy practices which may affect trade between
was further taken to its logical conclusion Member States and the object or effect of
when in 1993, the Supreme Court of USA which is to prevent, restrict or to distort
re-affirmed the application of “Effect competition within the common market
Doctrine” in Hart ford Fire Insurance3 case. are not in terms of the law. Therefore, the
The Alcoa case was a big step in this Commission concluded that the
direction. In this case, the Court of Appeal competition rules of the Treaty are
for the Second Circuit in USA held that applicable to all restrictions of
“any State may impose liabilities, even competition which produce within the
upon persons not within its allegiance, common market, effects set out in
for conduct outside its borders that has Article 81(1) of EC Treaty.
consequences within its borders.” ICI appealed against the Commission’s
This led to a considerable hue and cry. decision on the jurisdiction point. It
Diplomatic protests followed. This was claimed that the Commission had no
a provocation to the passage of some power to apply the competition rules to
“blocking statutes” aimed at opposing an undertaking established outside the
this excessive assumption of jurisdiction Community. European Court of Justice
by USA. This may be a reason for the upheld the decision on grounds of a
2 US v. Aluminium Company of America et al, 148 F. 2d. 416 (1944).
3 Hartford Fire Insurance Co. et al.v. California et al (91-1111), 509 U.S. 764 (1993).
4 ICI v. Commission (Dyestuff), [1972] E.C.R. 619
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5. 2012] The Long Arm of the Law: The Doctrine of “Extra-territoriality” B-11
“single economic entity doctrine” and cleared the transaction. The ground taken
not the “Effects Doctrine”. According to by South African authorities was that
it, parent and subsidiaries are considered two equally matched competition-Anglo
to be one undertaking for the purpose of American and Gencor/Lonrho were
the application of competition rules. The preferable to the prevailing situation of
ECJ relied on the concept of “single entity one dominant firm Anglo-American.
doctrine” to impute the conduct of the The merger had a “community
subsidiary to the parent and thereby held dimension” because of the worldwide and
that the Commission did have community-wide turnover of Gencor and
jurisdiction over the United Kingdom Lonrho. The Commission held that it was
company. However, grounds being incompatible with the common market
different, the ECJ in this Dyestuff case due to the effect which the creation of the
neither approved nor disapproved the dominant duopoly position would have
“Effects Doctrine”. However, the silence, on the sales of platinum and rhodium in
on this point, encouraged the European the Community. Gencor contested the
Commission to believe that community Commission’s assumption of jurisdiction
law did recognise “Effects Doctrine”. before the Court of First Instance (CFI). It
Although the EC Merger Regulation, argued upon three main points:
2004 (ECMR) does not expressly address First, the ECMR is applicable only if
the extra-territoriality but contains a the activities forming the subject
jurisdiction threshold which may have matter of the concentration are located
jurisdictions over concentrations within the community. The location
between undertakings outside EC so long of the concentration was South Africa,
as the EC turnover thresholds set out in not the community.
the regulations are satisfied. According Second, if the Wood Pulp test was
to ECMR, 2004, it has sole jurisdiction applied, the concentration was
over concentrations with a “Community implemented in South Africa, not in
Dimension”. This “Community the Community.
Dimension” is further defined as a
Third, South Africa had approved the
concentration having a worldwide
merger.
turnover of Euros 500 million and
community-wide turnover of Euros 250 However, the CFI upheld the
million. These regulations don’t Commission’s decision on the grounds
expressly state where the undertakings that it did not matter where the
are incorporated carry on business and production took place and that Article 1
own assets in the community. of the ECMR does not require that the
production should take place in the
In Gencor/Lonrho5 case, the EC prohibited
Community, but it accords greater
a merger in the South African platinum
importance to sale. It also relied on Wood
and rhodium industry on the ground
Pulp6 judgment to reach the conclusion.
that it would create a position of
Gencor is a striking demonstration of the
oligopolistic dominance. One of the
implications of the effects/extra-
parties appealed that the Commission
territorial doctrine as the Commission
had no jurisdiction over the transaction.
forbade a merger involving producer
All production of both the companies
undertakings in a n non-member country
was in South Africa and the competition
because of the sales of the product.
authorities there in South Africa had
5 Case No IV/M.619 Gencor/Lonrho, OJ [1997] L 11/30, [1999] 4 CMLR 1076
6 Ahlström Osakeyhtiö and Others v. Commission [1993] ECR I-1307
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6. B-12 Competition Law Reports [Vol. 1
(a) an agreement referred to in
The Act deals specifically Section 3 has been entered into
outside India; or
with "extra-territoriality" or (b) any party to such agreement
the "Effects Doctrine" is outside India; or
(c) any enterprise abusing the
dominant position is outside
The above discussed evolutionary India; or
journey of the law on this issue, across
(d) a combination has taken
the borders, would indicate that, either
place outside India; or
way you look at it, the final determinant
of any national policy are and should be (e) any party to combination is
the national interest as perceived by the outside India; or
policy framers of the day. Everything else (f) any other matter or practice
is secondary. This much has been openly or action arising out of such
recognised in different fora such as ICN agreement or dominant
which has “sovereignty” as its first position or combination is
guiding principle. This being the first outside India, have power to
principle, everything else follows from it. inquire in accordance with
the provisions contained in
Coming to the Indian scenario, the Act is
Sections 19, 20, 26, 29 and 30
the appropriate piece of legislation on
of the Act into such agreement
the subject. The Act deals specifically
or abuse of dominant position
with “extra-territoriality” or the “Effects
or combination if such
Doctrine”. Two sections of the
agreement or dominant
Competition Act, 2002 are relevant in the
position or combination has,
present context. These are Section 18 and
or is likely to have, an
Section 32 of Competition Act, 2002. Both
appreciable adverse effect on
the sections are being quoted below for a
competition in the relevant
ready reference:
market in India and pass
Section 18 such orders as it may deem fit
Subject to the provisions of this Act, it in accordance with the
shall be the duty of the Commission provisions of this Act.
to eliminate practices having adverse
From the above quoted Section 32, we see
effect on competition, promote and
that legislation has given extra-territorial
sustain competition, protect the
powers to the Competition Commission
interests of consumers and ensure
of India for events taking place outside
freedom of trade carried on by other
India but having an effect on competition
participants, in markets in India:
in India. Even if an agreement has not been
Provided that the Commission may, entered in India and has been entered
for the purpose of discharging its outside India or the enterprise abusing
duties or performing its functions the dominated position is outside India
under this Act, enter into any or a combination has taken place outside
memorandum or arrangement with India or any other matter or practice or
the prior approval of the Central action arising out of such agreement or
Government, with any agency of dominant position or combinations is
any foreign country. outside India, it does not, in any way,
Section 32 adversely affect the powers of the
The Commission shall, Commission to take action against those
notwithstanding that: parties, agreements or combinations.
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7. 2012] The Long Arm of the Law: The Doctrine of “Extra-territoriality” B-13
To ensure that such an intention of the
Legislature in Section 32 is actually put The benefits of the enforcement
into practice, proviso to Section 18
enables the Commission to enter into any of competition law in one
memorandum of understating or any country may have their impact
agreement, with the prior approval of the
Central Government, with any agency of on another country
any foreign country. This means that the
Commission can enter into agreements
with the Competition Authorities of have joined the bandwagon of
different countries. competition law enforcement. Therefore,
there is a strong need for agreements/
Thus , the benefits of the enforcement of MOUs on the line of DTAAs as to what
competition law in one country may have extent of enforcement of competition law
their impact (sometimes adversely) on is appropriate keeping the economic
another country. To be equitable, a sensitivities of our trading partners. This
balance of trade off has to be seen. A will reduce conflicting situations. Just to
similar situation exists in tax regimes. keep on trumpeting that the principles
Whereas, it makes sense that the same of the competition law are the same
income should not be taxed twice but everywhere and the competition agencies
leaving some income untaxed deprives be watchful to ensure that they don’t fall
a country of the much needed resources into the trap of promoting “national
for development. If each country is so champions” would not do. There is need
overzealous in taxing any income both to actually spot the limitations of the
on the basis of source as well as residence, present day competition law
it will not only create confusion but also enforcement and address them. If this is
discourage the business without whose not done, the empty slogans are not
initiatives income itself would not be going to yield any result.
generated- not to talk of tax. To sort out
this issue depending on the nature of To the extent, the competition law in India
trade and commerce between the two has imported modern concepts and
countries Double Tax Avoidance taken note of the judicial precedents, it is
Agreements (DTAAs) have been entered really a very progressive law. It is a leap
into after considerable and, at times, forward so that the country need not
protracted negotiations. These DTAAs invent the wheel again and go through
represent a mutually agreed amicable the grind of judicial precedents as in the
framework for tax sharing. foreign jurisdictions. However, having
the concept in law is not good enough.
As the impact of the enforcement of The challenge lies in implementation.
competition law also likely to have both Having the concept in a statute book of
beneficial as well as adverse effects (by India is not good enough. It has to give
equally vigorous enforcement of the law concrete results on the ground. If after
from the regulator of another country implementation, we are able to develop
with whom we have a considerable tools for an enforceable mechanism that
trade), there are more and more likelihood would be the true benefit of Section 32 of
of conflicting situations. The conflicts are the Act.
likely to grow as more and more countries
Copyright © K.K. Sharma
COMPETITION LAW REPORTS JANUARY 2012 00