Competition law

1. Competition Act, 2002

2. Table of Contents
 Introduction - Competition Act, 2002
 Prohibition of Anti Competitive Agreement
 Prohibition of Abuse Dominant Position
 Combination and Regulation of Combination
 Proposed Amendments - Competition Act

3. Terminologies – Competition Act
 MRTP Act – Monopolies Restrictive Trade Practices Act, 1969
 Appreciable adverse effect on competition (AAE) - The term ‘AAE’ has not been
defined under the Act.
 Cartels - A consortium of independent organizations formed to limit competition by
controlling the production and distribution of a product or service.
 Enterprise – means a person or a department who or which is, or has been, engaged
in any activity, relating to the production, storage, supply, distribution, acquisition or
control of articles or goods, or the provision of services or in the business of acquiring,
holding, underwriting or dealing with shares, debentures or other securities.
 Agreement – is any arrangement, understanding or concerted action entered into
between parties.
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4. Evolution of Competition Act
(MRTP Act) legislated
The Competition Act legislated
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5. Need of Competition Act
MRTP Act, 1969 Competition Act, 2002
Frowns upon dominance Frowns upon abuse of dominance
No combinations regulation Combinations regulated beyond a high threshold limit.
Competition Commission appointed by the
Government
Competition Commission selected by a search
committee
Very little administrative and financial autonomy for
the Competition Commission
Relatively more autonomy for the Competition
Commission
No penalties for offences Penalties for offences
Reactive and rigid Proactive and flexible
Unfair trade practices covered
Unfair trade practices omitted (consumer for a will deal
with them)
Does not vest MRTP Commission to inquire into
cartels of foreign origin in a direct manner.
Competition Law seeks to regulate them.

6. Objective of Competition Act
 The Preamble of the Competition Act states that this is “an Act to establish a
 Commission to prevent anti- competitive practices,
 promote and sustain competition,
 protect the interests of the consumers and
 ensure freedom of trade in markets in India.”
 The main components of Competition Act are:
prohibits anti-competitive agreements
including cartels (sec 3)
prohibits abuse of
dominant position (sec 4)
Provides for regulation of
combinations (sec 5,6)
Includes (M & A)
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7. Provisions of Competition Act
 All provisions of the Competition Act are not notified.
 The substantive provisions of the Competition Act of the entities viz prohibition of
(i) anti competitive agreements and
(ii) abuse of dominance have been notified as on 21st
May, 2009.
 However, other substantive provisions relating to regulation of combinations have not yet
been notified.
 Finally with effect from June 1, 2011 (“Effective Date”) the Government of India and
Ministry of Corporate Affairs notified the much debated and dreaded provisions of the
Competition Act, 2002 (“Act”) relating to “combinations” namely Sections 5 and 6.
 The provisions of the MRTP Act are still in force and would be repealed only when all the
provisions of the Competition Act have been notified.
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8. Competition Commission of India
 Competition Act provides for the establishment of a Competition
Commission of India “CCI”. It takes suo moto action against any alleged
violations under the Act.
 It prevents practice having adverse effect on competition, to promote and sustain
competition in markets, to protect interests of consumers and to ensure freedom of
trade carried on by other participants in markets.
 CCI prohibits enterprises to enter into anti-competitive agreements, abusing their
dominant position and forming combinations.
 No civil court has the jurisdiction to entertain any suit or proceeding which CCI is
empowered under the Act or no injunction can be granted by any court or authority.
 Any person aggrieved by any decision or order of CCI may file an appeal to the
Supreme Court within 60 days.
 Any anticompetitive activity taking place outside India but having an “AAE” within
India shall be subjected to the application of the Competition Act. (EXTRA-TERRITORIAL
REACH of CCI)
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9. Prohibition of Anti-Competitive Agreements
(Section 3)
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10. Prohibition of Anti-Competitive Agreements
 Section 3(1) of the Competition Act provides that no enterprise or a person
shall enter into an agreement, which causes or is likely to cause an AAE within India.
 It is further clear from the provision that if an agreement does not have any AAE then it
will remain out of the purview of this provision.
 However, Section 19(3) of the Competition Act states that while determining whether
an agreement has an AAE, CCI shall have due regard to all or any of the following
factors:
 creation of barriers to new entrants in the market;
 driving existing competitors out of the market;
 foreclosure of competition by hindering entry into the market;
 accrual of benefits to consumers;
 improvements in production or distribution of goods or provision of services;
 promotion of technical, scientific and economic development by means of production or
distribution.
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11. Agreements as per se illegal
Horizontal Agreements (amongst competitors) - sec. 3 (3)
Persons engaged in identical or similar goods or services enter into an agreement :
 to determine purchase or sales prices – price fixation
 to limit / control production, supply, technological developments, etc.
 to share the market, allocate geographical markets or number of customers
 for * bid rigging or collusive tendering
All the above 4 Agreements “shall be presumed to have an appreciable
adverse effect on competition”
* Bid rigging – which has effect of eliminating or reducing competition for bids or adversely affecting or manipulating
the process for bidding.
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12. Case Study
 Columbia
 AVIANCA, Columbia’s largest airline planned a merger with the
country’s second largest airline, ACE.
 Justifications given for the merger were :
 AVIANCA had huge accumulated losses, and the merger would be
a potential answer to its financial problems.
 The merged airline could effectively compete with foreign carriers
in the international market
 HELD : Merger would be anti-competitive : The merged airline
would be FOUR times the size of its nearest domestic rival.

13. Agreements as per se illegal
Vertical Agreements (manufacturer & distributor) sec. 3 (4)
 “Tie-in” Arrangements
includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods.
 Exclusive Supply Agreements
includes any agreement restricting the purchaser in the course of his trade from acquiring or otherwise dealing in any goods
other than those of the seller or any other person.
 Exclusive Distribution Agreements
includes any agreement to limit, restrict or withhold the output or supply of goods or allocate any area or market for the
disposal or sale of the goods.
 Refusal to deal
includes any agreement which restricts the persons or classes of persons to whom goods are sold or from whom goods are
bought.
 Resale price maintenance
includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the
prices stipulated by the seller.
Such an Agreement will be contravention of the Act IF the Agreement causes – or
is likely to cause – an appreciable adverse effect on competition.
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14. Modus Operandi Test– Anti Competitive Agreement ??
Are you an enterprise or a person as
defined under section 2?
Does your agreement fall under any one
of the categories (exclusive supply,
resale price maintenance, etc.)
specifically enlisted under section 3(4)?
Does your trade practice fall under
any of the presumptive provisions of
section 3(3) i.e. market sharing,
price fixation agreements, etc?
Yes
Have you entered into an
agreement with any person or
enterprise engaged in identical or
similar trade?
Yes Yes
YesNo
Does this agreement cause or is likely to
cause an appreciable adverse effect on
competition within India?
Not an anti-
competitive
agreement
ANTI COMPETITIVE
AGREEMENT
UNDER SECTION 3
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Does this trade practice fall under
proviso to section 3(3) i.e. increases
efficiency in production, supply, etc.?
Yes
Yes

15. Exceptions to Provisions of Anti Competitive Agreement
 The prohibition on horizontal and vertical agreements do not restrict the
right of any person to restrain any infringement of IPRs or to impose
reasonable restrictions as it may be necessary to protect his rights under the statutes:
 the Copyright Act,
 the Patents Act,
 the Trade and
 Merchandise Marks Act,
 Designs Act.
 Another exception to the applicability of the provisions relating to anti competitive
agreements is the right of any person to export goods from India (Export Cartel).
 It is excluded only, if an agreement relates exclusively to the production, supply,
distribution or control of goods or provision of services for such export.
 A cartel is regarded as the most pernicious form of violation of competition law and is
subject to the most severe penalties under the law.
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16. Prohibition of Abuse of Dominant Position
(Section 4)
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17. Prohibition of Abuse of Dominant Position
 Dominance refers to a position of strength that enables an enterprise
 to operate independently of competitive forces or
 to affect its competitors or consumers or the market in its favor.
 Mere dominance is not an offence, abuse of dominance is prohibited.
 An abuse of dominant position includes situations (sec 4):
 Unfair or discriminatory pricing (including *predatory pricing)
 Limiting production or technical development
 Creating barriers to entry or denying market access,
 Using dominant position in one market to enter another market, etc.
 No mathematical or statistical formula is adopted to “measure” dominance – as under
the repealed provisions of the MRTP Act it was calculated as (25% of market share) but
on several factors listed in the Act.
* predatory price means the sale of goods or provision of services, at a price which is below the cost.
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18. Case Study – Abuse of Dominant Position
 Microsoft, the world’s largest software company, guilty of abusing its dominant position
in the market for the personal computer operating system, and violating, the EU
Treaty’s Competition Rules.
 The case had arisen out of a complaint filed by Sun Micro Systems, a U.S. company
and a competitor to Microsoft.
 Sun Micro- Systems alleged that Microsoft had refused to provide interface information
which is necessary for Sun to develop products that could “talk” properly with the
ubiquitous Windows PCs.
 The European Competition Commissioner investigated the matter and concluded that it
was a market strategy designed by Microsoft to shut competitors out of the market.
 Thus European Commission imposed on Microsoft fine of Euro 497 million (US $ 612
million equivalent to approximately Rs. 2630 crores).

19. Regulation of Combinations
(Section 5, 6)
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20. Combinations
In terms of Section 5 of the Act, a ‘combination’ includes:
(1) the acquisition of control, shares or voting rights or assets by a person;
(2) the acquisition of control of an enterprise where the acquirer already has direct or indirect control
of another engaged in identical business; and
(3) a merger or amalgamation between or among enterprises, that cross the financial thresholds limits
in terms of assets or turnover.
 The triggers of the Act relating to combinations are linked to the combined value of the
turnover/asset of the acquirer and the target and not the transaction value.
 The Competition Act seeks to regulate any “acquisition”, “acquiring of control”, “mergers or
amalgamations” if it results in assets or turnover exceeding specified monetary limits.
 However Government of India has exempted the acquisitions of small enterprises whose
turnover is less than INR 750 crs. or whose assets value is less than INR 250 crs. from the
definition of combination.
 Section 6 makes void any combination which causes or is likely to cause an appreciable
adverse effect (“AAE”) on competition within India . In furtherance mandatory pre
notification require before Combination from CCI .
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21. Threshold Limits - Combination
Combinations that exceeds these threshold limits applicable on Indian and foreign
entities in terms of joint assets/turnover are assumed to have AAE which triggers the
Act or makes the combination void.
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Assets Turnover
India
No Group
INR 15 billion INR 45 billion
*Group INR 60 billion INR 180 billion
In India
&
Outside
Assets Turnover
Total India Total India
No Group USD 750 million INR 7.5 billion USD 2,250 million INR 22.5 billion
Group USD 3 billion INR 7.5 billion USD 9 billion INR 22.5 billion
* Group means two or more enterprises which, directly or indirectly, are in a position to —
(i) exercise fifty per cent. or more of the voting rights in the other enterprise; or
(ii) appoint more than fifty per cent. of the members of the board of directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise.

22. Statistical Information - 2013
Notices filed
u/s 6(2) of the
Act
(Pertaining to
sectons 5 & 6
of the Act)
Suo-Moto
Cases initiated
by the
Commission
(Pertaining to
Sections 3 & 4
of the Act)
Cases
registered u/s
19 (1)(a) of the
Act.
(Pertaining to
Sections 3 & 4
of the Act)
Reference
received u/s
19(1)(b) of the
Act
(Pertaining to
Sections 3 & 4
of the Act)
Total No of
cases
(Pertaining to
Sections 3 , 4,
5 & 6 of the
Act)
45 06 107 08 166
As per information received under RTI Act, 2005.

23. Procedure for investigation of Combination
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CCI takes a prima facie view that the
combination has an AAE in India
Issue a show cause notice to the parties
to respond within 30 days as to why
investigations should not be commenced
against them with respect to the
combination
On receipt of the response from the
combining parties, the CCI shall direct the
parties to publish information pertaining
to the combination to inform the
general public.
The CCI may direct the parties to furnish
additional information regarding
the combination within 15 days from the
date of such direction.
On receipt of such additional information
CCI will have to make its
determination as to whether the
combination is to be allowed, disallowed or
modified within a period of 45 days
If CCI is not convince it will suggests some
modifications to the scheme of combination
and the parties to the combination have to
accept the same
.
If parties disagrees with the suggested
modifications the combination shall be
declared as void.

24. Proposed Amendments
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• The Commission now provides for a post-filing review period of
210 days, during which the merger cannot be consummated
and within which the Competition Commission is required to
pass its order with respect to the notice received.
• An entity proposing to enter into a combination, shall disclose
the details of the proposed combination in the specified form
within 30 days of the approval of such proposal by the Board of
Directors or by execution of any agreement .
• The filing fee to be paid along with the forms, ranging between
INR 1 million to INR 4 million.

25. Proposed Amendments
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• CCI is of the prima facie opinion that the combination has
caused or is likely to cause AAE on competition within India, it
shall direct the parties to publish the details of the combination
within 10 working days in all India editions of 4 leading daily
newspapers including at least 2 business newspapers.
(Form I) have been prescribed for those transactions that
were in 2008 Regulations.
• For other transactions, Form II has been prescribed.
• If the CCI is of the opinion that certain modifications need to
be carried out then parties to combination may have to report
to a third party independent agency who may delay the
execution of the combination transaction.

26. Impact on M & A
 The structuring of a merger or an acquisition involving Indian companies would now have to be
done more meticulously.
 The waiting period of 210 days being a long time for the deemed approval, by the time approval is
granted, it is possible that the whole dynamics of the transaction, be it pricing, or commercials may
change, affecting the viability of the transaction.
 The proposed amendments such as pre merger consultation is a welcome change for the investor
community.
 The reporting of a combination was optional however, the act now mandates notification within 30
days of the decision of the parties' boards of directors or of execution of any agreement or
document.
 Execution of such a document shall trigger merger filings and which will increase compliance costs
at a premature stage when it is uncertain whether the transaction will close.
 The reporting and notification will improve the Corporate governance by bringing more
transparency in the process.
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27. Unfavorable – M &
A
Favourable - M & A
Proposed Amendments – Competition Act, 2002

28. Bibliography
 www.cci.gov.in
 www.nishithdesai.com
 www.indiajuris.com
 www.legalserviceindia.com

29. Disclaimer
This presentation provides only an introduction to Competition law, and
should not be relied on as substitute for the law itself.
Further this presentation is subject to any amendments which may be
made in the competition law at any time in future
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