Portion for the box The Competition Act, 2002 (the Act), which on June 1, 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.

1. The Long Arm of the Law: The Doctrine of ‘Extraterritoriality’
-Kaushal Kumar Sharma1
Portion for the box
The Competition Act, 2002 (the Act), which on June 1, 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.
Main Article
1. As is well known, keeping with the trend of other nations and being guided by
certain expert groups-culminating in Raghvan Committee report- set up for the
purpose, India also enacted the Competition Act, 2002(the Act) in January, 2003. This
was substantially amended by Competition (Amendment) Act 2007. The law ,as it
obtains today, has been commended widely. WTO says that this “Law is broadly
comparable to those of other jurisdictions with effective laws in this area and, for the
most part, embodies a modern economics - based approach” (Trade Policy Review of
India 2007).Similarly,OECD termed it to be “close to state-of-the-art” (Economic
Survey India Report 2007)
2. We all understand that the competition law seeks to enhance consumer welfare,
optimize resources, leads to improved and better products and services through
better methods and techniques (also referred to as the enhancement of allocative,
static and dynamic efficiencies in competition law parlance), brings down prices and
makes more choices of goods and services available to the consumer at affordable
prices. In totality, it aims at enhancing overall societal welfare and is believed to be
good for the economy. There is no dispute as far as the basic objectives of this law
are concerned. To achieve them, the basic framework of different competition laws
in various jurisdictions, irrespective of their origins and journeys in reaching the
present day form, also reflect a considerable unanimity of approach despite overtly
different appearances, if any. In view of this, these structures of competition law
also display, generally speaking, a convergence of approach across different
jurisdictions as far as the end objectives of the competition law are concerned. Not
that the competition laws across the countries are exact clones of each other but
there are considerable similarities in the basic fundamentals. Wherever there are
too many divergences, these are sought to be pointed out for appropriate action by
the persuasive convergence efforts of the International Competition Network (ICN)
and other such multi lateral institutional frameworks.
1 Commissioner of Income Tax and former Director General & Head of Merger Control, Competition
Commission of India. The views expressed are personal. He can be reached at kksharmairs@gmail.com

2. 3. Any competition agency has the mandate to enforce the competition law of a
country within the territorial boundaries of that country. This law , like any other law
has its necessary ingradients. In any discussion on the competition law and its
implementation, the terms and phrases like ‘consumer welfare’, ‘producers’
welfare’, ‘economy’ etc are the commonly discussed elements. The issue arises as to
which country these consumers or producers belong to? There is no doubt that the
consumers refers to consumer belonging to the country of the competition
regulator. In the present globalised trade, where the cross border trade amounts to
a huge chunk of the economy of nearly every country, no such claim can be made,
with certainty, about the producer. In that event, the welfare of the producer would
be an important consideration in the decision matrix of the regulator. The producer
may be in the same country where the regulator is located. The producer may also
be located in a country beyond the territorial boundaries of that nation. If that be
the case, whether the competition regulator would be concerned about both –
consumer welfare and the producer welfare? The chances are that while there is no
doubt that the regulator would certainly be concerned about the domestic
consumer, it may not that much be concerned about the producer in a foreign land.
Same applies to the term ‘economy’; it is the economy of the country of the
regulator and not that of any other country or world economy at large. If the entire
world were to be a single nation, there would be no distinction between the
treatment given to domestic producer and the producer in a foreign country
exporting the goods and services into the country of the regulator. Unfortunately,
the globe is not a single country but is divided into political boundaries. The global
economy, although considerably intertwined, is not a single economy but consists of
separate national economies with appropriate ring fencing in various ways-including
the regional blocks for economic cooperation as well as by the internal regulatory
framework of the respective economies. These economic groupings and the national
economies may not have the same economic objectives and priorities. Or to put it
differently, these economic groupings and the economies may not necessarily
benefit in the same way from the interplay of various causative factors as many
other economies. This difference is on account of differing availability of natural
resources in the country, demographic variations, varying stages of development of
the economy or geo-political compulsions. This is the real dilemma for true
competition law enforcement.
4. The effective implementation of competition law improves which economy: it is
certainly the economy of the country of the regulator- not any other economy. We
Indians have not become any richer or more satisfied than we were in 1890 just
because the implementation of Sherman Act began in USA at that time. The same
applies to the enforcement of the competition law in other jurisdictions. After the
competition law became fully functional in India, from June 1, 2011, the coming
times may tell another story. However, that is yet to come.
5. That being so, there has to be a certain conflict between the desire of a country to
book all the agents which adversely affect the consumers, producers and the
economy of the country of the regulator and a similar desire of the other nation for
whose exporters may be the consumers in the first country. Now, it is ‘producer
surplus’ of producers in one country versus ‘consumer surplus’ of another country. It
is not the same as it would have been if both ‘producer surplus’ and ‘consumer

3. surplus’ were from the same country which would have been easier to resolve and
enforce. This natural conflict also puts a limit on the possible cooperation amongst
different countries in the enforcement of the competition law.
6. Unfortunately in different academic conferences , workshops, and seminars, this
aspect is not often spoken and the terms ‘consumer’, ‘producer’ and ‘economy’ are
used as if they are nationality neutral which they are not. In a situation where
precedence has to be given from among the domestic and the non- domestic
consumers, it would be the domestic consumer which would get precedence and not
the non domestic consumer. Still, the fact remains that all these terms relate to the
domestic ‘economy’, domestic ‘consumer’ and domestic ‘producer’. The interface of
these terms across borders and the consequent treatment is still a not fully explored
territory.
7. No country can work against its self interests including commercial interests.
Otherwise how do we explain the exception in the statutes of different countries, or
by the jurisprudence developed, granted to export cartels? How do we explain the
considerable differential treatment given to Microsoft across the Atlantic for more or
less the same infringement? How do we explain the differing perceptions in USA and
EU in case of the GE vs. Honeywell. How do we explain the merger clearance for
McDonnel Douglas and Boeing despite widespread criticism? Headlines screamed
that the capitalist countries were behaving more like communists when the bailout
packages were given to many biggies, ‘considered too big to be allowed to fail’
including Citibank in USA , mega bank mergers were cleared at an electric speed,
despite anti-competitive concerns, in United Kingdom and other European countries
in the wake of the last phase of economic slowdown a little over a couple of years
ago?
8. A look at all these contradictions would make us understand that the principles of
the competition are not a plain vanilla stuff as they are being made out to be by the
developed world but have a different flavor and taste according to the local
compulsions. This appreciation is a must for the new converts to the competition
law, like India, who are likely to display ‘more loyal than the king’ attitude in
comparison to the experienced players in the field.
9. It is this natural conflict which has been at the root of the very interesting history of
the development of the principle of extra territoriality. When we look at the
historical progress of extra territorial jurisdiction in competition law, two important
competition law jurisdictions in the world are that of European Union and United
States of America. ‘Effects Doctrine’ in USA in competition law was laid down by
Judge Learned Hand in the Alcoa case in 1945. The case concerned a cartel of
Aluminums Producers in Switzerland. The second circuit court of appeals held that
the Sherman Act 1890 applied to a Canadian company that had participated in the
cartel that effected USA’s domestic market. Judge Learned Hand held that Sherman
Act 1890 applied to agreements outside U.S.A which were intended to affect United
States imports and did actually affect them. This philosophy was further taken to its
logical conclusion when in 1993, the Supreme Court of U.S.A reaffirmed the
application of ‘Effect Doctrine’ in Hart ford Fire Insurance case.

4. 10. The Alcoa2 case was a big step in this direction. In this case, the Court of Appeal for
the Second Circuit in USA held ‘that any State may impose liabilities, even upon
persons not within its allegiance, for conduct outside its borders that has
consequences within its borders’.This led to a considerable hue and cry. Diplomatic
protests followed. This was a provocation to the passage of some ‘blocking statutes’
aimed at opposing this excessive assumption of jurisdiction by USA. This may be a
reason for the passage of Shipping Contracts and Commercial Documents Act, 1964
and Protection of Trading Interests Act 1980 by UK Government.
11. In E.U article 81 and 82 are silent on the question of ‘extraterritoriality’. Initially, the
European Commission applied a ‘Single Entity Doctrine’ and not the ‘Effects
Doctrine’ to bring foreign firms within its jurisdiction. In the Dyestuff’s case, in 1969,
the question whether E.U law had an ‘Effects Doctrine’ was raised for the first time.
The European Commission found that ICI, a company incorporated in the United
Kingdom, and with head quarters in the United Kingdom (at that time United
Kingdom was not a part of the E.U.), engaged in concerted practice contrary to
Article81 (1) of EC treaty by virtue of giving instruction to its Belgian subsidiary. The
European Commission imposed a fine on ICI.
12. The decision of the European Commission was that in terms of Article 81 (1),
all agreements between undertakings, all decisions by associations and concerted
practices which may affect trade between Member States and the object or effect of
which is to prevent, restrict or to distort competition within the Common Market are
not in terms of the law. Therefore, the Commission concluded that the competition
rules of the Treaty are applicable to all restrictions of competition which produce
within the Common Market, effects set out in article 81 (1) of EC treaty.
13. ICI appealed against the Commission’s decision on the jurisdiction point. It
claimed that the Commission had no power to apply the competition rules to an
undertaking established outside the Community. European Court of Justice upheld
the decision on grounds of a ‘single economic entity doctrine’ and not the ‘Effects
Doctrine’. According to it, parent and subsidiaries are considered to be one
undertaking for the purpose of the application of competition rules. The ECJ relied
on the concept of ‘single entity doctrine’ to impute the conduct of the subsidiary to
the parent and there-by held that the commission did have jurisdiction over the
United Kingdom company. However, grounds being different, the ECJ in this
dyestuff case neither approved nor disapproved the ‘Effects Doctrine’. However, the
silence, on this point, encouraged the European Commission to believe that
community law did recognize ‘Effects Doctrine’.
14. Although the EC Merger Regulation 2004 (ECMR) does not expressly address
the extra territoriality but contains a jurisdiction threshold which may have
jurisdictions over concentrations between undertakings outside EC so long as the EC
turnover thresholds set out in the regulations are satisfied. According to ECMR
2004, it has sole jurisdiction over concentrations with a ‘Community Dimension’.
2 US vs.Aluminium Company of America et al, 148 F. 2d. 416 (1944).

5. This ‘Community Dimension’ is further defined as a concentration having a
worldwide turnover of Euros 500 million and community-wide turnover of Euros 250
million. These regulations don’t expressly states where the undertakings are
incorporated, carry on business and own assets in the community.
15. In Gencor/Lonrho case the EC prohibited a merger in the South African
platinum and rhodium industry on the ground that it would create a position of
oligopolistic dominance. One of the parties appealed that the Commission had no
jurisdiction over the transaction. All production of both the companies was in South
Africa and the competition authorities there in South Africa had cleared the
transaction. The ground taken by South African authorities was that two equally
matched competition-Anglo American and Gencor/Lonrho were preferable to the
prevailing situation of one dominant firm Anglo-American.
16. The merger had a ‘community dimension’ because of the worldwide and
community-wide turnover of Gencor and Lonrho. The Commission held that it was
incompatible with the common market due to the effect which the creation of the
dominant duopoly position would have on the sales of platinum and rhodium in the
Community. Gencor contested the Commission’s assumption of jurisdiction before
the Court of First Instance (CFI). It argued upon three main points, first, the ECMR is
applicable only if the activities forming the subject matter of the concentration are
located within the community. The location of the concentration was South Africa,
not the community. Second, if the Wood Pulp test was applied, the concentration
was implemented in South Africa, not in the Community. Third, South Africa had
approved the merger.
17. However, the CFI upheld the Commission’s decision on the grounds that it did not
matter where the production took place and that Article 1 of the ECMR does not
require that the production should take place in the Community, but it accords
greater importance to sale. It also relied on Wood Pulp judgment to reach the
conclusion. Gencor is a striking demonstration of the implications of the effects/
extraterritorial doctrine as the Commission forbade a merger involving producer
undertakings in a n non-member country because of the sales of the product.
18. The above discussed evolutionary journey of the law on this issue, across the
borders, would indicate that, either way you look at it, the final determinant of any
national policy are and should be the national interest as perceived by the policy
framers of the day. Everything else is secondary. This much has been openly
recognized in different fora such as ICN which has “sovereignty” as its first guiding
principle. This being the first principle, everything else follows from it.
19. Coming to the Indian scenario, the Act is the appropriate piece of legislation on the
subject. The Act deals specifically with ‘extraterritoriality’ or the ‘Effects Doctrine’.
Two sections of the Competition Act 2002 are relevant in the present context. These
are section 18 and section 32 of Competition Act 2002. Both the sections are being
quoted below for a ready reference:
Section 18
“Subject to the provisions ofthis Act, it shall be the duty ofthe Commission to eliminate practices having adverse effect on
competition, promote andsustaincompetition,protect the interests ofconsumers and ensure freedom oftrade carried on by
other participants, in markets in India:

6. Provided thatthe Commission may,for the purpose ofdischarging its duties orperformingits functions under this Act, enterinto
any memorandum orarrangement withthe prior approval ofthe CentralGovernment, withany agency ofany foreign country.
Section 32
“ The Commission shall, notwithstandingthat,—
an agreement referredto insection3 has been entered intooutside India;or
(b) any party to such agreement is outside India; or
(c) any enterprise abusing the dominant position is outside India; or
(d) a combination has taken place outside India; or
(e) any party to combinationis outside India; or
(f) any other matter or practice oraction arisingoutofsuchagreementor dominant positionor combinationis outside India,
have power to inquire [in accordance with the provisions contained in sections 19, 20, 26, 29 and 30 ofthe Act]into such
agreement or abuse ofdominant position or combination ifsuch agreement ordominant positionor combination has, oris likely
to have, an appreciable adverse effect on competitionin the relevantmarket inIndia[andpass suchorders as itmay deem fit in
accordance with the provisions ofthis Act.
20. From the above quoted section 32, we see that legislation has given
extraterritorial powers to the Competition Commission of India for events taking
place outside India but having an effect on competition in India. Even if an
agreement has not been entered in India and has been entered outside India or the
enterprise abusing the dominated position is outside India or a combination has
taken place outside India or any other matter or practice or action arising out of such
agreement or dominant position or combinations is outside India, it does not, in any
way, adversely affect the powers of the Commission to take action against those
parties, agreements or combinations.
21. To ensure that such an intention of the legislature in Section 32 is actually put
into practice, proviso to section 18 has been enables the Commission to enter into
any memorandum of understating or any agreement, with the prior approval of the
Central Government, with any agency of any foreign country. This means that the
Commission can enter into agreements with the Competition Authorities of different
countries.
22. Thus , the benefits of the enforcement of competition law in one country may have
their impact ( sometimes adversely) on another country. To be equitable, a balance
of trade off has to be seen. A similar situation exists in tax regimes. Whereas it
makes sense that the same income should not be taxed twice but leaving some
income untaxed deprives a country of the much needed resources for development.
If each country is so overzealous in taxing any income both on the basis of source as
well as residence, it will not only create confusion but also discourage the business
without whose initiatives income itself would not be generated- not to talk of tax. To
sort out this issue depending on the nature of trade and commerce between the two
countries Double Tax Avoidance Agreements (DTAAs) have been entered into after
considerable and , at times, protracted negotiations. These DTAAs represent a
mutually agreed amicable framework for tax sharing.
23. As the impact of the enforcement of competition law also likely to
have both beneficial as well as adverse effects (by equally vigorous enforcement of
the law from the regulator of another country with whom we have a considerable
trade), there are more and more likelihood of conflicting situations. The conflicts are
likely to grow as more and more countries have joined the band wagon of

7. competition law enforcement. Therefore, there is a strong need for agreements/
MOUs on the line of DTAAs as to what extent of enforcement of competition law is
appropriate keeping the economic sensitivities of our trading partners. This will
reduce conflicting situations. Just to keep on trumpeting that the principles of the
competition law are the same everywhere and the competition agencies be watchful
to ensure that they don’t fall into the trap of promoting ‘ national champions’ would
not do. There is need to actually spot the limitations of the present day competition
law enforcement and address them. If this is not done, the empty slogans are not
going to yield any result.
24. To the extent, the competition law in India has imported modern concepts and taken
note of the judicial precedents, it is really a very progressive law. It is a leap forward
so that the country need not invent the wheel again and go through the grind of
judicial precedents as in the foreign jurisdictions. However, having the concept in law
is not good enough. The challenge lies in implementation. Having the concept in a
statute book of India is not good enough. It has to give concrete results on the
ground. If after implementation, we are able to develop tools for an enforceable
mechanism that would be the true benefit of section 32 of the Act.