MRTP ACT METAMORPHOSES INTO COMPETITION ACT

Dr. S CHAKRAVARTHY*
PREFATORY
Since attaining Independence in 1947, India, for the better part of half a century thereafter,
adopted and followed policies comprising what are known as Command-and-Control laws,
rules, regulations and executive orders. The competition law of India, namely, the
Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such. It
was in 1991 that widespread economic reforms were undertaken and consequently the march
from Command-and-Control economy to an economy based more on free market principles
commenced its stride. As is true of many countries, economic liberalisation has taken root in
India and the need for an effective competition regime has also been recognised. (For a
history of evolution of competition policy in several countries, see Ewing, 2003).
In the context of the new economic policy paradigm, India has chosen to enact a new
competition law called the Competition Act, 2002 (Act, for brief). The MRTP Act has
metamorphosed into the new law, Competition Act, 2002. The new law is designed to repeal
the extant MRTP Act. As of now, only a few provisions of the new law have been brought
into force and the process of constituting the regulatory authority, namely, the Competition
Commission of India under the new Act, is on. The remaining provisions of the new law will
be brought into force in a phased manner. For the present, the outgoing law, MRTP Act, 1969
and the new law, Competition Act, 2002 are concurrently in force, though as mentioned
above, only some provisions of the new law have been brought into force.
This paper, therefore, addresses both the enactments and also outlines the logic behind
the metamorphosis.
TRIGGER CAUSE
Competition Law for India was triggered by Articles 38 and 39 of the Constitution of India.
These Articles are a part of the Directive Principles of State Policy. Pegging on the Directive
Principles, the first Indian competition law was enacted in 1969 and was christened the
MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT, 1969 (MRTP Act).
Articles 38 and 39 of the Constitution of India mandate, inter alia, that the State shall strive
to promote the welfare of the people by securing and protecting as effectively, as it may, a
social order in which justice social, economic and political shall inform all the institutions
of the national life, and the State shall, in particular, direct its policy towards securing
___________________________________________________________________________
* Dr.S.Chakravarthy is a civil servant by profession and a Member of the Indian Bar. He was Member,
Monopolies and Restrictive Trade Practices Commission and Member, High Level Committee on Competition
Policy and Law, Dept. of Company Affairs, Govt. of India and also on the Committee to draft a new
Competition Law for India. Till recently, he was Advisor/Consultant to Govt of India on Competition Policy and
Law. The views expressed are his own and not those of the Commission, Committee or the Govt. He is presently
Consultant on Competition Policy and Law.
Contact Email address: [email protected]: [email protected].

1. that the ownership and control of material resources of the community are so
distributed as best to subserve the common good; and
2. that the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment.
In line with the Antitrust legislation being an integral part of the economic life in many
countries, Indias outgoing law, namely, the MRTP Act is regarded as the competition law of
India, because it defines a restrictive trade practice to mean a trade practice, which has, or
may have the effect of preventing, distorting or restricting competition in any manner. But
the MRTP Act, in comparison with competition laws of many countries, is inadequate for
fostering competition in the market and trade and for reducing, if not eliminating, anticompetitive practices in the countrys domestic and international trade.
The MRTP Act drew heavily upon the laws embodied in the Sherman Act and the Clayton
Act of the United States of America, the Monopolies and Restrictive Trade Practices (Inquiry
and Control) Act, 1948, the Resale Prices Act, 1964 and the Restrictive Trade Practices Act,
1964 of the United Kingdom and also those enacted in Japan, Canada and Germany. The
U.S. Federal Trade Commission Act, 1914 as amended in 1938 and the Combines
Investigation Act, 1910 of Canada also influenced the drafting of the MRTP Act.
Premises on which the MRTP Act rests are unrestrained interaction of competitive forces,
maximum material progress through rational allocation of economic resources, availability of
goods and services of quality at reasonable prices and finally a just and fair deal to the
consumers. An interesting feature of the statute is that it envelops within its ambit, fields of
production and distribution of both goods and services.
THRUST AREAS
Three areas informed till 1991 (when the MRTP Act was amended) the regulatory provisions
of the MRTP Act, namely, concentration of economic power, competition law and consumer
protection. A criticism is often voiced that the statute was designed to prohibit growth. This
is fallacious and erroneous. The statute, till 1991 regulated growth but did not prohibit it.
Even in its regulatory capacity, it controlled the growth only if it was detrimental to the
common good. In terms of competition law and consumer protection, the objective of the
MRTP Act is to curb Monopolistic, Restrictive and Unfair Trade Practices which disturb
competition in the trade and industry and which adversely affect the consumer interest
(Monopolistic, Restrictive and Unfair Trade Practices are described later in this paper). A
parallel legislation known as the Consumer Protection Act, 1986 has also come into being,
which prevails essentially in the realm of Unfair Trade Practices.
One could argue that the consumers need no special protection as they can be left to the
market forces. But a perfectly competitive market is just an utopia and the consumer
sovereignty a myth. Products are of great variety, many of them are complex and the
consumer has imperfect product knowledge. The supplier often has a dominant position vis-vis the buyer who has little or no bargaining power in the market. There has been a
growing realisation for not depending on the old doctrine of Caveat Emptor let the buyer
beware. The consumer, therefore, needs and deserves legal protection against certain trade
practices, business methods and unscrupulous forces.

In many countries and in particular developing countries like India, a large number of
consumers are illiterate and ill-informed and possess limited purchasing power in an
environment, where there is shortage of goods. Very often, one witnesses the spectacle of a
large number of non-essential, sub-standard, adulterated, unsafe and less useful products
being pushed through by unscrupulous traders by means of Unfair Trade Practices and
deceptive methods. Subtle deception, half truths and misleading omissions inundate the
advertisement media and instead of the consumer being provided with correct, meaningful
and useful information on the products, they often get exposed to fictitious information which
tends to their making wrong buying decisions. Transparent information is missing and needs
to be a goal to be chased.
The regulatory provisions in the MRTP Act apply to almost every area of business
production, distribution, pricing, investment, purchasing, packaging, advertising, sales
promotion, mergers, amalgamations and take over of undertakings (provisions relating to
mergers, amalgamations and take-overs were deleted in the MRTP Act by the 1991
amendments to it). They seek to afford protection and support to consuming public by
reducing if not eliminating from the market Monopolistic, Restrictive and Unfair Trade
Practices. One of the main goals of the MRTP Act is to encourage fair play and fair deal in
the market besides promoting healthy competition. Under the MRTP Act, a Regulatory
Authority called the MRTP Commission (briefly, Commission) has been set up to deal with
offences falling under the statute.
OBJECTIVES
The principal objectives sought to be achieved through the MRTP Act are:
i)
ii)
iii)
iv)
v)

prevention of concentration of economic power to the common detriment;

control of monopolies;
prohibition of Monopolistic Trade Practices (MTP);
prohibition of Restrictive Trade Practices (RTP);
prohibition of Unfair Trade Practices (UTP).

AMENDMENTS IN 1991 AND SHIFT IN EMPHASIS

The MRTP Act, 1969 was amended in 1991 as a part of the new economic reforms set in
motion by the Government of that day. The amendments reset the objectives enshrined in the
original statute of 1969. Out of the five objectives aforesaid in the previous paragraph, the
first two have been de-emphasized, after the 1991 amendments to the MRTP Act. The
emphasis has not only shifted to the three last mentioned objectives but they have been reemphasised. In the context of the objective (ii) above, to the extent monopolies tend to bring
about Monopolistic Trade Practices, the MRTP Act continues to exercise surveillance which
existed prior to the 1991 amendments. This is because a Monopolistic Trade Practice is
understood to be synonymous with anti-competitive practice. Anything, which distorts
competition, can lead to a monopoly situation. Anything, which is likely to prevent or distort
competition, is regulated by the statute. Tersely, the MRTP Act is designed against different
aspects of market imperfections. For instance, before the 1991 amendments to the MRTP
Act, a merger which increased the dominance of the combine or resulted in a large share in
the market could be looked at in terms of the provisions thereof and the objectives governing
them.

Monopoly is a concept of power which manifests itself in ones power to:i)

ii)
iii)
iv)
v)
vi)

control production, supply, etc

control prices
prevent, reduce or eliminate competition
limit technical development
retard capital investment
impair the quality of goods.

The MRTP Act, before the 1991 amendments sought to curb such power arising out of a
monopoly.
Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms of
regulating the growth of big size companies called the monopoly companies. In other words,
there were pre-entry restrictions therein requiring undertakings and companies with assets of
more than Rs.100 crores (about US $22 million) to seek approval of Government for setting
up new undertakings, for expansion of existing undertakings, etc.
Major amendments were effected to the MRTP Act in 1991. Provisions relating to
concentration of economic power and pre-entry restrictions with regard to prior approval of
the Central Government for establishing a new undertaking, expanding an existing
undertaking, amalgamations, mergers and take-overs of undertakings were all deleted from
the statute through the amendments. The causal thinking in support of the 1991 amendments
is contained in the Statement of Objects and Reasons appended to the 1991 Amendment Bill
in the Parliament, extract in part of which, runs as follows:
With the growing complexity of industrial structure and the need for achieving economies of
scale for ensuring higher productivity and competitive advantage in the international market,
the thrust of the industrial policy has shifted to controlling and regulating the monopolistic,
restrictive and unfair trade practices rather than making it necessary for certain undertakings
to obtain prior approval of the Central Government for expansion, establishment of new
undertakings, merger, amalgamation, take over and appointment of Directors. It has been the
experience of the Government that pre-entry restriction under the MRTP Act on the
investment decision of the corporate sector has outlived its utility and has become a
hindrance to the speedy implementation of industrial projects. By eliminating the requirement
of time-consuming procedures and prior approval of the Government, it would be possible for
all productive sections of the society to participate in efforts for maximisation of production.
..
The criteria for determining dominance, is proposed to be determined only on the
basis of market share of 25% of the total goods produced, supplied, distributed or services
rendered in India or substantial part thereof.
With the restructuring of the MRTP Act through the 1991 amendments, the thrust thereof is
on curbing Monopolistic, Restrictive and Unfair Trade Practices with a view to preserving
competition in the economy and safeguarding the interest of consumers by providing them
protection against false or misleading advertisements and/or deceptive trade practices. Size as
a factor, to discourage concentration of economic power, has been, in a manner of speaking,
given up.

DOCTRINE GUIDING THE ACT

Behavioural and reformist doctrines inform the MRTP Act. In terms of the behavioural
doctrine, the conduct of the entities, undertakings and bodies which indulge in trade practices
in such a manner as to be detrimental to public interest is examined with reference to whether
the said practices constitute any Monopolistic, Restrictive or Unfair Trade Practice. In terms
of the reformist doctrine, the provisions of the MRTP Act provide that if the MRTP
Commission, on enquiry comes to a conclusion that an errant undertaking has indulged either
in Restrictive or Unfair Trade Practice, it can direct such undertakings to discontinue or not to
repeat the undesirable trade practice. The MRTP Act also provides for the acceptance of an
assurance from an errant undertaking that it has taken steps to ensure that prejudicial effect of
trade practice no more exists. The veneer of the MRTP Act is essentially based on an
advisory or reformist approach. There is no deterrence by punishment.
With this backdrop, some of the important provisions of the MRTP Act are listed in the
narrative that follows, wherein the dimensions relating to Restrictive Trade Practices, Unfair
Trade Practices, Monopolistic Trade Practices, Goods and Dominance are covered.
A Restrictive Trade Practice (RTP) is generally one which has the effect of
preventing, distorting or restricting competition. In particular, a practice, which tends to
obstruct the flow of capital or resources into the stream of production, is a RTP. Likewise,
manipulation of prices, conditions of delivery or flow of supply in the market which may
have the effect of imposing on the consumer unjustified costs or restrictions is regarded as
Restrictive Trade Practice. Certain common types of Restrictive Trade Practices enumerated
in the MRTP Act are:

vii)
viii)

i)
ii)
iii)
iv)
v)
vi)
Area restriction
Third line forcing

Refusal to deal
Tie-up sales
Full line forcing
Exclusive dealings
Price discrimination
Re-sale price maintenance

All Restrictive Trade Practices under the MRTP Act are deemed legally to be prejudicial to
public interest. The onus is, therefore, on the entity, body or undertaking charged with the
perpetration of the Restrictive Trace Practice to plead for gateways provided in the MRTP Act
itself to avoid being indicted.
If the gateways are satisfactory to the Commission and if it is further satisfied that the
restriction is not unreasonable having regard to the balance between those circumstances and
any detriment to the public interest or consumers likely to result from the operation of the
restriction, the Commission may arrive at the conclusion that the RTP is not prejudicial to
public interest and discharge the enquiry against the charged party. Furthermore, if a trade
practice is expressly authorised by any law for the time being in force, the Commission is
barred from passing any order against the charged party.
Prior to 1984, the MRTP Act contained no provisions for protection of consumers
against false or misleading advertisements or other similar unfair trade practices and a need

was felt to protect them from practices, resorted to by the trade and industry, to mislead or
dupe them (Sachar Committee, 1978). To quote the Sachar Committee: Advertisement and
sales promotion have become well established modes of modern business techniques. That
advertisement and representation to the consumers should not become deceptive has always
been one of the points of conflicts between business and consumer. The Sachar Committee
therefore recommended that a separate Chapter should be added to the MRTP Act defining
various Unfair Trade Practices so that the consumer, the manufacturer, the supplier, the trader
and other persons in the market can conveniently identify the practices, which are prohibited.
Essentially Unfair Trade Practices (UTP) falling under the following categories were
introduced in 1984 in the MRTP Act :(i).
(ii).
(iii).
(iv)
(v)

Misleading advertisement and false representation.

Bargain sale, bait and switch selling.
Offering of gifts or prizes with the intention of not providing
them and conducting promotional contests.
Product safety standards.
Hoarding or destruction of goods.

Making false or misleading representation of facts disparaging the goods, services or trade of
another person is also a prohibited trade practice under the Indian law.
The Monopolistic Trade Practice (MTP) came into the statute by an amendment to the
Act in 1984. An MTP is a trade practice which has or is likely to have the effect of:
i)

ii)
iii)

iv)

v)

maintaining the prices of goods or charges for

the services at an unreasonable level by limiting,
reducing or otherwise controlling the production,
supply or distribution of goods or the supply of
any services or in any other manner;
unreasonably
preventing
or
lessening
competition in the supply or distribution of any
goods or in the supply of any services;
limiting technical development or capital
investment to the detriment or allowing the
quality of any goods produced, supplied or any
services rendered, in India, to deteriorate;
increasing unreasonably:a) the cost of production of any goods; or
b) charges for the provision, or
maintenance, of any services;
increasing unreasonably:a)
the prices at which goods are, or may be,
sold or re-sold, or the charges at which
the services are, or may be, provided; or
b)
the profits which are, or may be, derived
by the production, supply or distribution
(including the sale or purchase of any
goods) or in the provision or maintenance
of any goods or by the provision of any
services;

vi)

preventing or lessening competition in the

production, supply or distribution of any goods
or in the provision or maintenance
of
any
services by the adoption of unfair
methods or
unfair or deceptive practices.

In the MRTP Act, the basis of determining dominance is whether an undertaking has
a share of 25% or more in the production, supply distribution or control of goods or services.
Goods include products manufactured, processed or mined in India, shares and stocks and
goods imported into India. Prior to the 1991 amendments to the MRTP Act, dominance had
relevance in that, a dominant undertaking could not expand or commence a new undertaking
without the approval of the Government under the said Act. After 1991, with the deletion of
the provisions relating to dominant undertakings, the concept of dominance has lost its
significance.
During the year 1991, a notification was issued by the Government that the MRTP Act
shall apply to public sector undertakings whether owned by the Government or by
Government companies, statutory corporations, undertakings under the Management of
various controllers appointed under any law, cooperative societies and financial institutions.
Thus, there is no distinction now between the public sector undertakings and private sector
companies in the matter of Monopolistic, Restrictive and Unfair Trade Practices. Indian
Airlines, Nationalised Banks, Indian Railways, Post and Telegraphs and TeleCommunications Undertakings, Housing and Urban Development Authorities are all
accountable if they indulge in MTP, RTP or UTP. There are of course a few entities like
Defence undertakings which are still outside the ambit of the MRTP Act. It may also be
mentioned here that after the amendment to the definition of service, it includes the
business of builders and real estate operators. This has brought a large number of buildings
activity operators under the mischief of the MRTP Act.
The MRTP Act is administered by the MRTP Commission, which is assisted by the
Director General of Investigation and Registration for carrying out investigations, for
maintaining register of agreements and for undertaking carriage of proceedings during the
enquiry before the MRTP Commission. The powers of the Commission include the power
vested in a Civil Court and include further power: i)
ii)
iii)
iv)
v)
vi)
vii)

to direct an errant undertaking to discontinue a trade practice

and not to repeat the same;
to pass a cease and desist order;
to grant temporary injunction, restraining an errant undertaking
from continuing an alleged trade practice;
to award compensation for loss suffered or injury sustained on
account of RTP, UTP or MTP;
to direct parties to agreements containing restrictive clauses to
modify the same;
to direct parties to issue corrective advertisement;
to recommend to the Central Government, division of
undertakings or severance of inter-connection between
undertakings, if their working is prejudicial to public interest or
has led or is leading to MTP or RTP.

The MRTP Commission can be approached with a complaint on Restrictive or Unfair

Trade Practices by: a) an individual consumer, b) a registered association of consumers, or
c) a trade association. The Commission can be moved by an application from the Director
General of Investigation and Registration (DG) or by a reference by the Central or State
Governments. The law provides for self-initiated action on the part of the Commission, if it
receives information from any source or on its own knowledge. The procedure followed by
the Commission is that on receipt of a complaint, the matter is, in many cases referred to the
DG for investigation and report. More often than not, the complainee is called upon to give
his/her comments on the complaints received. Experience shows that in a large number of
cases, the mere letter of investigation or letter of enquiry issued by the DG or the
Commission results in the complainee providing the needed relief to the complainant. This
has been noticed in cases relating to refunds in respect of bookings of scooters, repair or
replacement of refrigerators, TV sets, replacement of defective parts during the warranty
period and the like. Similarly, there have been cases of successful interventions relating to
bookings of flats and plots and disputes relating to property.
The law provides for a temporary injunction against the continuance of alleged
Monopolistic, Restrictive or Unfair Trade Practices pending enquiry by the Commission. A
salutary provision in the MRTP Act is the power of the Commission to award compensation
for loss or damage suffered by a consumer, trader, class of traders or Government as a result
of any Monopolistic/ Restrictive/Unfair Trade Practice indulged in by any undertaking or
person. It is logical and equitable to provide that any person who is affected by any
prohibited practice should have a remedy to recover damages and compensation from the
guilty party.
Concentration of economic power may result from merger, amalgamation or takeover. The MRTP Act does not prohibit mergers, amalgamations or take-overs but seeks to
ensure that the arrangements serve public interest. Before the 1991 amendments, the MRTP
Act frowned upon expansion of giant undertakings so as not to permit them to acquire power
to put a stranglehold both on the market as well as on consumers and further industrial
expansion of the country. After the 1991 amendments, the MRTP Act has been restructured
and pre-entry restrictions with regard to prior approval of the Government for amalgamation,
merger or take-over have been removed.
REFORMS OF 1991 AND METAMORPHOSIS
In this new millennium born about three years ago, the present decade bids fair to be one of
significant changes. The changes are nothing but a continuum from the last decade or two,
when changes in the political and economic fields had taken place on a tempestuous note.
Political metamorphoses, unthinkable till a few years ago, have taken place alongside
economic reforms at a breath-taking pace. For nearly half a century till the early 1990s,
there was a political and economic divide in the world into two powerful blocks. Over the
last ten years after the early 1990s, the world is turning somewhat unipolar, with central
planning yielding to transition to market economy.
All over the world, one of the dominant economic themes in the last decade and a half has
been the process of globalisation and a progressive international economic integration of the
world economy. The movement is towards the widening of international flows of trade,
finance and information in a single integrated global market. Globalisation has the
fundamental attributes of relying significantly on market forces, ensuring competition and

keeping market functioning efficiently. Measures adopted by many countries are essentially
designed to open competition in strategic sectors such as telecommunications, air lines,
electricity generation and distribution etc. Such measures are a part of a tripod architecture
with the three vertices, one may christen as Liberalisation, Privatisation, and Globalisation
(LPG). A veneer running common to the LPG measures is the element of competition. The
LPG syndrome seeks to make competition a driving force in the economic and commercial
activities of the world. As observed by Professor Wolfgang Kartte, the Chairman of the
German Federal Cartel Office, Competition is the engine of market economy (quoted in
Brusick, 1992). The thinking of policy makers in many countries, particularly the developing
ones and the hitherto centrally planned economies, is towards factoring competition into the
economic and market policies. Some of the countries have embarked on structural
adjustment programmes involving competition driven reforms and competition oriented
policies.
India is undergoing the process of transition into a market economy through measures set by
the broad frame work of LPG. While planned economic development had been the strategy
adopted by India, since 1950s, it is in the last more than a decade since 1991, that the
strategy has undergone significant metamorphoses. The economic reforms since 1991 and
the evolution of the new strategy have been well documented (Bhagwati and Desai, 1970,
Bhagwati and Srinivasan, 1975 and Ahluwalia, 1991).
In the pre-1991 reforms period, Indias planned strategy and economic development stressed
the broad policy objectives of (i) the development of an industrial base with a view to
achieving self-reliance and (ii) the promotion of social justice. The specific policy measures
towards these objectives were across-the-board substitution of Indian goods and services for
imports, controlling the pattern of investment and controlling the utilisation of foreign
exchange. The thrust of the policy instruments were the industrial licensing that affected the
private sector and creating of a large public sector. The entire exercise was, as described
earlier, the Command-and-Control economy.
The Command-and-Control triggered policies meant that Government intervention
pervaded almost all areas of economic activity in the country. For instance, there was no
contestable market. This meant that there was neither an easy entry nor an easy exit for
enterprises. Government determined the plant sizes, location of the plants, prices in a number
of important sectors, and allocation of scarce financial resources. Their further interventions
were characterised by high tariff walls, restrictions on foreign investments and quantitative
restrictions. It may thus be seen that free competition in the market was under severe fetters,
mainly because of Governmental policies and strategies, specifically, (1) industrial policy, (2)
trade and commercial policy, (3) foreign investment policy, and (4) financial sector policy.
In this paper, the reforms since 1991 are not listed for want of space and as they may not be
directly relevant to the title of this paper. Suffice it to say that the industrial policy, trade and
commercial policy, foreign and investment policy and financial sector policy were all de
regulated and liberalised to embrace the LPG process. For instance, licensing has been
abolished in all but six industries. Major industries including iron and steel, heavy electrical
equipment, aircraft, air transport, shipbuilding, telecommunication equipment and electric
power are now open for private sector investments. The monopoly of the public sector
industries was abolished in 1991 except for those, where security and strategic concerns still
dominated. The system of price preference for public sector has been discontinued.
Reservation of certain goods for production in the small scale sector is gradually being

phased out. Tariffs are being reduced in a phased manner. As a result of liberalisation of
regulatory controls, rationalisation and mergers, there is more effective competition in the
banking sector.
The MRTP Act conceived and legislated more than 30 years ago, was a consequence of
Command-and-Control policy approach of the Government. The so call MRTP firms with
assets more than Rs. 100 crores (about US $ 22 million) were prohibited from entering and
expanding in any sector except those listed in Appendix I of the Industrial (Development and
Regulation) Act, 1951. Even, in respect of such listed sectors, the MRTP firms were required
to obtain MRTP clearances in addition to the usual industrial licenses. In other words, the
MRTP firms, generally considered big in size, were allowed to grow only under Government
supervision. Size, therefore, was a pejorative factor in the thinking of the Government, the
premise being big becoming bigger is ugly.
It is after 1991 reforms that the said premise big becoming bigger is ugly yielded to a
metamorphosed approach, namely, big becoming bigger may not be handsome but certainly
is not ugly. In other words, size is not a pejorative factor.
EXPERIENCE

IN THE LAST THREE DECADES

During the administration of the MRTP Act over three decades since its inception in 1969,
many difficulties were encountered, particularly in regard to interpretations of expressions
and provisions therein. There has been a large number of binding rulings of the Supreme
Court of India and also Bench decisions of the MRTP Commission. These decisions have
interpreted the various provisions of the MRTP Act from time to time and have constituted
precedents for the future. Thus, where the wording of the existing law has been considered
inadequate by judicial pronouncements, it became necessary to redraft the law to inhere the
spirit of the law and the intention of the lawmakers.
A perusal of the MRTP Act will show that there is neither definition nor even a mention of
certain offending trade practices which are restrictive in character. Some illustrations of these
are:

Abuse of Dominance
Cartels, Collusion and Price Fixing
Bid Rigging
Boycotts and Refusal to Deal
Predatory pricing

Often an argument has been advanced that one particular general provision [Section 2(o)] of
the MRTP Act may cover all anti-competition practices, as it defines an RTP as a trade
practice which prevents, distorts or restricts competition and that therefore there is no need
for a new law. While complaints relating to anti-competition practices could be tried under
the generic definition of restrictive trade practice (which prevents, distorts or restricts
competition), the absence of specification of identifiable anti-competition practices gave
room to different interpretations by different Courts of Law, with the result that the spirit of
the law often escaped being captured and enforced. While a generic definition might be
necessary and might form the substantive foundation of the law, it was considered necessary
to identify specific anti-competition practices and define them so that the scope for a valve or

10

opening on technical grounds for the offending parties to escape indictment would not obtain.
Hence, the need for a new and better law was recognised, which gave birth to the
Competition Act, 2002.
Furthermore, some of the anti-competition practices like cartels, predatory pricing, bid
rigging etc. are not specifically mentioned in the MRTP Act but the MRTP Commission, over
the years, had attempted to fit such offences under one or more of its sections by way of
interpretation of the language used therein.
Another dimension that marked the thinking of the Government particularly after the 1991
economic reforms was the dynamic context of International trade and market as well as the
domestic trade and market. When the MRTP Act was drafted in 1969, the economic and trade
milieu prevalent at that time constituted the premise for its various provisions. There has been
subsequently a sea change in the milieu with considerable movement towards liberalisation,
privatisation and globalisation. The law needed to yield to the changed and changing scenario
on the economic and trade front. This was one important reason why a new competition law
had to be framed. Many countries like the U.K., Canada, Australia and the European
Community have, in line with this thinking, enacted new competition laws and repealed their
earlier laws governing fair-trading, etc.
The experience in administering the MRTP Act, for about three decades since 1969, the
deficiencies noted in the said Act, the difficulties that arose out of different interpretations
and judgments of the MRTP Commission and the superior Courts of Law and the new and
changing economic milieu spurred by the LPG paradigm and the economic reforms of 1991
(and thereafter) impelled the need for a new competition law.
The need for a new law has its origin in Finance Ministers budget speech in February, 1999:
The MRTP Act has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing
monopolies to promoting competition. The Government has decided to appoint a committee
to examine this range of issues and propose a modern competition law suitable for our
conditions.
HIGH LEVEL COMMITTEE ON COMPETITION POLICY AND LAW
In October, 1999, the Government of India appointed a High Level Committee on
Competition Policy and Competition Law1 to advise a modern competition law for the
country in line with international developments and to suggest a legislative framework which
may entail a new law or appropriate amendments to the MRTP Act. The Committee
presented its Competition Policy report to the Government in May 2000 [the report will be
referred to hereinafter as High Level Committee (2000)]. The draft competition law was
drafted and presented to the Government in November 2000. After some refinements,
following extensive consultations and discussions with all interested parties, the Parliament
passed in December 2002 the new law, namely, the Competition Act, 2002.

The author was a Member of the Committee.

11

RUBRIC OF THE

NEW LAW,

COMPETITION ACT, 2002 (ACT)

There are three areas of enforcement that provide the focus for most competition laws in the
world today. 2

Agreements among enterprises

Abuse of dominance
Mergers or, more generally, combinations among enterprises

There are, however, differences in emphasis and interpretations across countries and over
time within countries. The above mentioned three areas are not mutually exclusive and there
is considerable overlap between them. A number of actions that constitute abuse of
dominance could infringe the law regarding agreements among enterprises. The actions are
similar though the causes might be different. In one case, it may be the joint action of one or
more undertakings that is in question, whereas in another, it may be the action of one
dominant undertaking that is the driving force. The concern with mergers is ultimately a
concern with market power and the possible abuse of that market power by the merged entity.
In spite of this, most laws deal with this separately. One reason for this is that it might be
difficult to deal with the situation after the fact. In spite of the inevitable duplication that
follows from this classification, it provides a useful taxonomy for organising the thinking
about competition law.
The rubric of the new law, Competition Act, 2002 (Act, for brief) has essentially four
compartments:
Anti - Competition Agreements
Abuse of Dominance
Combinations Regulation
Competition Advocacy
These four compartments are described in the narrative that follows:
ANTI COMPETITION AGREEMENTS

Although it does not directly form a part of competition law, legislation regarding various
Regulatory Authorities falls under the larger ambit of competition policy.
2

12

Firms enter into agreements, which may have the potential of restricting competition. A scan
of the competition laws in the world will show that they make a distinction between
horizontal and vertical agreements between firms. The former, namely the
horizontal agreements are those among competitors and the latter, namely the vertical
agreements are those relating to an actual or potential relationship of purchasing or
selling to each other. A particularly pernicious type of horizontal agreements is the
cartel. Vertical agreements are pernicious, if they are between firms in a position of
dominance. Most competition laws view vertical agreements generally more leniently
than horizontal agreements, as, prima facie, horizontal agreements are more likely to
reduce competition than agreements between firms in a purchaser seller
relationship.

HORIZONTAL AGREEMENTS
Agreements between two or more enterprises that are at the same stage of the production
chain and in the same market constitute the horizontal variety. An obvious example that
comes to mind is an agreement between enterprises dealing in the same product or products.
But the market for the product(s) is critical to the question, if the agreement trenches the law.
The Act has taken care to define the relevant market. 3 To attract the provision of law, the
products must be substitutes. If parties to the agreement are both producers or retailers (or
wholesalers), they will be deemed to be at the same stage of the production chain.
A specific goal of competition policy/law is and needs to be the prevention of economic
agents from distorting the competitive process either through agreements with other
companies or through unilateral actions designed to exclude actual or potential competitors.
It needs to control agreements among competing enterprises (horizontal agreements) on
prices or other important aspects of their competitive interaction. Likewise, agreements
between firms at different levels of the manufacturing or distribution processes (vertical
agreements, for example between a manufacturer and wholesaler) which are likely to harm
competition (albeit less harmful than horizontal agreements) need to be addressed in the
competition policy/law. The foremost constituent of any competition policy/law is obviously
the objective to foster competition and its obverse is the need to deal effectively against
practices and conduct that subvert competition. The Act reckons these propositions.
In general the rule of reason test is required for establishing that an agreement is illegal.
However, for certain kinds of agreements, the presumption is generally that they cannot serve
any useful or procompetitive purpose. Because of this presumption, the law makers do not
subject such agreements to the rule of reason test. They place such agreements in the per se
illegal category (please see next section). The Act presumes that the following four types of
agreements between enterprises, involved in the same or similar manufacturing or trading of
goods or provision of services have an appreciable adverse effect on competition :

Agreements regarding prices. These include all agreements that directly or indirectly fix
the purchase or sale price.

Relevant market is discussed in the section on abuse of dominance under the heading
Product Market and Geographical Market, infra.
3

13

Agreements regarding quantities. These include agreements aimed at limiting or

controlling production, supply, markets, technical development, investment or provision
of services.
Agreements regarding bids (collusive bidding or bid rigging). These include tenders
submitted as a result of any joint activity or agreement.
Agreements regarding market sharing. These include agreements for sharing of markets
or sources of production or provision of services by way of allocation of geographical
area of market or type of goods or services or number of customers in the market or any
other similar way.

PER SE ILLEGALITY
Such horizontal agreements, which include membership of cartels, are presumed to lead to
unreasonable restrictions of competition and are therefore presumed to have an appreciable
adverse effect on competition. In other words, they are per se illegal. This provision of per se
illegality is rooted in the provisions of the US law and has a parallel in most legislations on
the subject. The Australian law prohibits price fixing arrangements, boycotts and some forms
of exclusive dealing. The new UK competition law, namely, Competition Act, 2000,
endorses certain agreements to have an appreciable effect on competition (presumption is
however rebuttable). A per se illegality would mean that there would be very limited scope
for discretion and interpretation on the part of the prosecuting and adjudicating authorities.
The underlying principle in such presumption of illegality is that the agreements in question
have an appreciable anti-competitive effect. Barring the aforesaid four types of agreements,
all the others will be subject to the rule of reason" test in the Act.
VERTICAL AGREEMENTS
By and large, as noted earlier, vertical agreements will not be subjected to the rigours of
competition law. However, where a vertical agreement has the character of distorting or
preventing competition, it will be placed under the surveillance of the law.
For instance, the following types of agreements, inter alia, will be subjected to the rule of
reason test.

Tie in arrangement;
Exclusive supply agreement
Exclusive distribution agreement;
Refusal to deal;
Resale price maintenance.

The Act lists the following factors to be taken into account for adjudicatory purposes to
determine whether an agreement or a practice has an appreciable adverse effect on
competition, namely,
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, and

14

f) promotion of technical, scientific and economic development by means of production or

distribution of goods or provision of services.
EXCEPTIONS
The provisions relating to anti-competition agreements will not restrict the right of any
person to restrain any infringement of intellectual property rights or to impose such
reasonable conditions as may be necessary for the purposes of protecting any of his rights
which have been or may be conferred upon him under the following intellectual property
right statutes;
the Copyright Act, 1957;
the Patents Act, 1970;
the Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999;
the Geographical Indications of Goods (Registration and Protection) Act, 1999;
the Designs Act, 2000;
the Semi-conductor Integrated Circuits Layout-Design Act, 2000.
The rationale for this exception is that the bundle of rights that are subsumed in intellectual
property rights should not be disturbed in the interests of creativity and intellectual/innovative
power of the human mind. No doubt, this bundle of rights essays an anti-competition
character, even bordering on monopoly power. But without protecting such rights, there will
be no incentive for innovation, new technology and enhancement in the quality of products
and services. However, it may be noted, that the Act does not permit any unreasonable
condition forming a part of protection or exploitation of intellectual property rights. In other
words, licensing arrangements likely to affect adversely the prices, quantities, quality or
varieties of goods and services will fall within the contours of competition law as long as they
are not in reasonable juxtaposition with the bundle of rights that go with intellectual property
rights.
Yet another exception to the applicability of the provisions relating to anti-competition
agreements is the right of any person to export goods from India, to the extent to which, an
agreement relates exclusively to the production, supply, distribution or control of goods or
provision of services for such export. In a manner of speaking, export cartels are outside the
purview of competition law. In most jurisdictions, export cartels are exempted from the
application of competition law. A justification for this exemption is that most countries do not
desire any shackles on their export effort in the interest of balance of trade and/or balance of
payments. Holistically, however, exemption of export cartels is against the concept of free
competition.
The Central Government has power under the Act to exempt from the application of the Act,
or any provision thereof, a class of enterprises, a practice, an agreement etc. This has been
given a treatment later in this paper (see section titled Exemptions).
ABUSE OF DOMINANCE
"Dominant Position has been appropriately defined in the Act in terms of the position of
strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i)
operate independently of competitive forces prevailing in the relevant market; or (ii) affect its
competitors or consumers or the relevant market, in its favour. This definition may perhaps
appear to be somewhat ambiguous and to be capable of different interpretations by different

15

judicial authorities. But then, this ambiguity has a justification having regard to the fact that
even a firm with a low market share of just 20% with the remaining 80% diffusedly held by a
large number of competitors may be in a position to abuse its dominance, while a firm with
say 60% market share with the remaining 40% held by a competitor may not be in a position
to abuse its dominance because of the key rivalry in the market. Specifying a threshold or an
arithmetical figure for defining dominance may either allow real offenders to escape (like in
the first example above) or result in unnecessary litigation (like in the second example
above). Hence, in a dynamic changing economic environment, a static arithmetical figure to
define dominance may, perhaps, be an aberration. With this suggested broad definition, the
Regulatory Authority will have the freedom to fix errant undertakings and encourage
competitive market practices, even if there is a large player around. Abuse of dominance is
key for the Act, in so far as dominant enterprises are concerned.
It is important to note that the Act has been designed in such a way that its provisions on this
count only take effect, if dominance is clearly established. As already stated, there is no
single objective market share criterion that can be blindly used as a test of dominance. The
Act seeks to ensure that only when dominance is clearly established, can abuse of dominance
be alleged. Any ambiguity on this count could endanger large efficient firms.
PRODUCT MARKET AND GEOGRAPHICAL MARKET
Before assessing whether an undertaking is dominant, it is important, as in the case of
horizontal agreements, to determine what the relevant market is. There are two dimensions to
this the product market and the geographical market. On the demand side, the relevant
product market includes all such substitutes that the consumer would switch to, if the price of
the product relevant to the investigation were to increase. From the supply side, this would
include all producers who could, with their existing facilities, switch to the production of
such substitute goods. The geographical boundaries of the relevant market can be similarly
defined. Geographic dimension involves identification of the geographical area within which
competition takes place. Relevant geographic markets could be local, national, international
or occasionally even global, depending upon the facts in each case. Some factors relevant to
geographic dimension are consumption and shipment patterns, transportation costs,
perishability and existence of barriers to the shipment of products between adjoining
geographic areas. For example, in view of the high transportation costs in cement, the
relevant geographical market may be the region close to the manufacturing facility.
The Act posits the factors that would have to be considered by the adjudicating Authority in
determining the Relevant Product Market and the Relevant Geographic Market,
reproduced herein below:
RELEVANT PRODUCT MARKET

physical characteristics or end-use of goods;

price of goods or service;
consumer preferences;
exclusion of in-house production;
existence of specialised producers;
classification of industrial products.

16

RELEVANT GEOGRAPHIC MARKET

regulatory trade barriers;

local specification requirements;
national procurement policies;
adequate distribution facilities;
transport costs;
language;
consumer preferences;
need for secure or regular supplies or rapid after-sales services.

The determination of relevant market by the adjudicating Authority has to be done, having
due regard to the relevant product market and the relevant geographic market.
PREDATORY PRICING
One of the most pernicious forms of abuse of dominance is the practice of predatory pricing.
Predatory pricing occurs, where a dominant enterprise charges low prices over a long enough
period of time so as to drive a competitor from the market or deter others from entering the
market and then raises prices to recoup its losses. The greater the diversification of the
activities of the enterprise in terms of products and markets and the greater its financial
resources, the greater is its ability to engage in predatory behaviour.
Predatory price is defined in the Act to mean the sale of goods or provision of services, at a
price which is below the cost, as may be determined by regulations, of production of the
goods or provision of services, with a view to reduce competition or eliminate the
competitors (the expression regulations means the regulations made by the Commission
under the Act). Predatory pricing, therefore is a situation where a firm with market power
prices below cost so as to drive competitors out of the market and, in this way, acquire or
maintain a position of dominance. But there is a danger of confusing pro-competitive pricing
with predatory behaviour. In reality, predation is only established after the fact i.e. once the
rival has left the market and the predator has acquired a monopoly position in the market.
However, any law to prevent is meaningful, only if it takes effect before the fact i.e. before
the competitor has left the market.
Predatory pricing is a kind of Antitrust violation. The Monopolies and Restrictive Trade
Practices Commission in India in the Modern Food Industries Ltd. (MRTP Commission,
1996) case observed that the essence of predatory pricing is pricing below cost with a view to
eliminating a rival. Further, the Commission made it clear that the mere offer of a price
lower than the cost of production cannot automatically lead to an indictment of predatory
pricing and that evidence of malafide intent to drive competitors out of business or to
eliminate competition is required. The logic underlying the caution of the Commission is
that price-cutting may be for genuine reasons, for example in the case of inventory surplus.
Price-cutting has therefore to be coupled with the mens rea of eliminating a competitor or
competition to become an offence under competition law (Act).
The Act outlaws predatory pricing as an abuse of dominance.
17

Distinguishing predatory behaviour from legitimate competition is difficult. The distinction

between low prices, which result from predatory behaviour and low prices, which result
from legitimate competitive behaviour is often very thin and not easily ascertainable.
Indeed, it is sometimes argued that predatory behaviour is a necessary concomitant of
competition. To quote Professor Jagdish Bhagwati from his book A stream of Windows:
The notion that .. companies.. compete in a benign fashion is faintly romantic and fully
foolish. What the Cambridge economist Joan Robinson used to call the animal spirits of
capitalist entrepreneurs surely are manifest.. The successful always appear more predatory.
With success, one gets ones share of envy and resentment (Bhagwati, Jagdish, 1999).

WHEN DOES ABUSE OF DOMINANCE ATTRACT THE LAW?

To attract the provision of the Act, it needs to be established whether the restraints create a
barrier to new entry or force existing competitors out of the market. The key issue is the
extent to which these arrangements foreclose the market to manufacturers (inter-brand
rivalry) or retailers (intra-brand rivalry) and the extent to which these raise rivals costs
and/or dampen existing competition. The costs of such arrangements need to be weighed
against the benefits. For example, some of these restraints help to overcome the free-rider
problem and allow for the exploitation of scale economies in retailing.
Before proceeding to the next compartment, a listing of factors from the Act constituting
dominance" and constituting "abuse of dominance" has been reproduced herein below.
Dominance is determined by taking into account one or more of the following factors:

market share of the enterprise;

size and resources of the enterprise;
size and importance of the competitors;
economic power of the enterprise including commercial advantages over competitors;
vertical integration of the enterprise, or sale or service network of such enterprise;
dependence of consumers on the enterprise;
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;
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;
countervailing buying power;
market structure and size of market;
social obligations and social costs;
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;
18

any other factor which the Commission may consider relevant for the inquiry.

Abuse of dominance having an appreciable adverse effect on competition occurs if an

enterprise,
a) directly or indirectly, imposes unfair or discriminatory(i)
condition in purchase or sale of goods or service; or
(ii)
price in purchase or sale (including predatory price) of goods or service,
b) limits or restricts(i)
production of goods or provision of services or market therefor; or
(ii)
technical or scientific development relating to goods or services to the prejudice of
consumers; or
c) indulges in practice or practices resulting in denial of market access; or
d) makes conclusion of contracts subject to acceptance by other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection
with the subject of such contracts; or
e) uses its dominant position in one relevant market to enter into, or protect, other relevant
market.
It may therefore be seen that the Act does not frown upon dominance as such but frowns
upon abuse of dominance.
COMBINATIONS REGULATION
Combinations, in terms of the meaning given to them in the Act, include mergers,
amalgamations, acquisitions and acquisitions of control, but for the purposes of the
discussion that follows, mergers regulation has been reckoned. As in the case of agreements,
mergers are typically classified into horizontal and vertical mergers. In addition, mergers
between enterprises operating in different markets are called conglomerate mergers. Mergers
are a legitimate means by which firms can grow and are generally as much part of the natural
process of industrial evolution and restructuring as new entry, growth and exit. From the
point of view of competition policy, it is horizontal mergers that are generally the focus of
attention. As in the case of horizontal agreements, such mergers have a potential for reducing
competition. In rare cases, where an enterprise in a dominant position makes a vertical
merger with another firm in an adjacent market to further entrench its position of dominance,
the merger may provide cause for concern. Conglomerate mergers should generally be
beyond the purview of any law on mergers.
A merger leads to a bad outcome only if it creates a dominant enterprise that subsequently
abuses its dominance. To some extent, the issue is analogous to that of agreements among
enterprises and also overlaps with the issue of dominance and its abuse, discussed earlier.
Viewed in this way, there is probably no need to have a separate law on mergers. The reason
that such a provision exists in most laws is to pre-empt the potential abuse of dominance
where it is probable, as subsequent unbundling can be both difficult and socially costly.
Thus, the general principle, in keeping with the overall goal, is that mergers should be
challenged only if they reduce or harm competition and adversely affect welfare.
THE ACT ON COMBINATIONS REGULATION

19

The Act makes it voluntary for the parties to notify their proposed agreement or combinations
to the Mergers Commission, if the aggregate assets of the combining parties have a value in
excess of Rs. 1000 crores (about US $ 220 million) or turnover in excess of Rs. 3000 crores
(about US $ 660 million). The combination as defined by the Act includes mergers,
amalgamations, acquisitions of shares, voting rights or assets and acquisitions of control. In
the event either of the combining parties is outside India or both are outside, the threshold
limits are $500 million for assets and $1500 million for turnover.
If one of the merging parties belongs to a group, which controls it, the threshold limits are
Rs. 4000 crores (about US $ 880 million) in terms of assets and Rs. 12000 crores (about US $
2640 million) in terms of turnover. If the group has assets or turnover outside India also, the
threshold limits are $2 billion for assets and $6 billion for turnover. For this purpose a group
means two or more enterprises which directly or indirectly have:
The ability to exercise 26% or more of the voting rights in the other enterprise; or
The ability to appoint more than half the members of the Board of Directors in the other
enterprise; or
The ability to control the affairs of the other enterprise.
Control (which expression occurs in the third bullet defining group above), has also been
defined in the Act. Control includes controlling the affairs or management by
(i)
(ii)

one or more enterprises, either jointly or singly, over another enterprise or group;
one or more groups, either jointly or singly, over another group or enterprise.

The threshold limits of assets and of turnover would be revised every two years on the basis
of the Wholesale Price Index or fluctuations in exchange rate of rupee or foreign currencies.
The Act has listed the following factors to be taken into account for the purpose of
determining whether the combination would have the effect of or be likely to have an
appreciable adverse effect on competition.
The actual and potential level of competition through imports in the market;
The extent of barriers to entry to the market;
The level of combination in the market;
The degree of countervailing power in the market;
The likelihood that the combination would result in the parties to the combination being
able to significantly and sustainably increase prices or profit margins;
The extent of effective competition likely to sustain in a market;
The extent to which substitutes are available or are likely to be available in the market;
The market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;
20

 The likelihood that the combination would result in the removal of a vigorous and
effective competitor or competitors in the market;
The nature and extent of vertical integration in the market;
The possibility of a failing business;
The nature and extent of innovation;
Relative advantage, by way of the contribution to the economic development, by any
combination having or likely to have appreciable adverse effect on competition;
Whether the benefits of the combination outweigh the adverse impact of the combination,
if any.
Before the Act was passed by the Parliament, the draft law was placed on the website and a
number of suggestions were received particularly, on the provisions relating to combinations
regulation. Many economists, experts and officials in the Government were of the view that
at the present level of India's economic development, combinations control should not lead to
the shying away of foreign direct investment and participation by major international
companies in economic activities through the route of mergers and acquisitions. They
suggested that combination approvals (above the specified threshold limits) may not be made
mandatory. Notification of combinations may on the other hand be made voluntary, albeit
with the risk of the discovery of anti-competitive mergers at a later date with the concomitant
cost of demergers etc. Another suggestion was to increase the threshold limit by doubling the
limits in the draft law. All these suggestions were given due consideration by the Government
and the draft law refined before it was placed before the Parliament. The trigger cause in the
aforesaid suggestions was the felt need for companies in India to grow in size in order to
become globally competitive.
The Act has made the pre-notification of combinations voluntary for the parties concerned.
However, if the parties to the combination choose not to notify the CCI, as it is not mandatory
to notify, they run the risk of a post-combination action by the CCI, if it is discovered
subsequently, that the combination has an appreciable adverse effect on competition. There is
a rider that the CCI shall not initiate an inquiry into a combination after the expiry of one year
from the date on which the combination has taken effect.
The Regulatory Authority, namely, the Mergers Bench of the Competition Commission of
India is mandated by the Act to adjudicate on mergers by weighing potential efficiency losses
against potential gains.
In order that the Competition Commission of India (Mergers Bench) should not delay its
adjudication on whether a merger may pass through or may be stopped because of its anticompetitive nature, the Act admonishes the Regulatory Authority to hand in its adjudicatory
decision within 90 working days, lest the merger will be deemed to have been approved. The
Act also provides for limiting the Regulatory Authority's power to ask for information from
the merging parties within a time frame of 15 working days with a corresponding obligation
on the merging parties to furnish the information within a further 15 days. Thus by law, the
sequencing of the adjudicatory exercise has been set within specific time frames, so that
21

possible delays are avoided. Furthermore, mergers have to be approved by the State High
Courts under the Companies Act, 1956. Such approvals take about 6 months to one year or
even more and the 90 working days time limit for the Mergers Bench will be subsumed in
that period.
COMPETITION ADVOCACY
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 (High Level Committee,
2000). Competition advocacy creates a culture of competition. There are many possible
valuable roles for competition advocacy, depending on a country's legal and economic
circumstances. A recent OECD Report noted as follows:
"In virtually every member country where significant reform efforts have been undertaken,
the competition agencies have been active participants in the reform process. This advocacy
can include persuasion offered behind the scenes, as well as publicity outside of formal
proceedings. Some competition agencies have the power, at least in theory, to bring formal
challenges against anti-competitive actions by other agencies or official or quasi-official
bodies. More indirect, but still visible, is formal participation in another agency's public
hearings and deliberations. What is appropriate depends on the particular institutional setting"
(OECD, 1997).
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. The Central Government can make a reference to
the CCI for its opinion on the possible effect of a policy under formulation or of an existing
law related to competition. The Commission is mandated to proffer its opinion to the Central
Government within 60 days of receiving the reference. The Commission will therefore be
assuming the role of competition advocate, acting pro-actively to bring about Government
policies that lower barriers to entry, that promote deregulation and trade liberalisation and
that promote competition in the market place. The Act seeks to bring about a direct
relationship between competition advocacy and enforcement of competition law. One of the
main objectives of competition advocacy is to foster conditions that lead to a more
competitive market structure and business behaviour without the direct penalty loaded
intervention of the CCI. Under the scheme of the Act, the CCIs opinion will constitute an
important input for the Government to finalise its law or policy, in so far as it impacts on
competition.
In order to promote competition advocacy and create awareness about competition issues and
also to accord training to all concerned (including the Chairperson and Members of the CCI
and its officials), the Act enjoins the establishment of a fund christened the Competition
Fund. The Fund will be credited with the fees received for filing complaints and applications
under the law, costs levied on the parties, grants and donations from the Government, and the
interest accrued thereon.
The four main compartments having been discussed above, a description of how the CCI is
designed, follows, which is an important part of the Act.
COMPETITION COMMISSION OF INDIA (CCI)

22

Administration and enforcement of the competition law requires an administrative set up.
This administrative set up should be more proactive than reactive for the administration of the
competition policy. This is not a mere law enforcement agency. This administrative set up
should take a proactive stand to be specified and adopted to promote competition by not only
proceeding against those who violate the provisions of the competition law, but also by
proceeding against institutional arrangements and public policies that interfere with the fair
and free functioning of the markets. It is in this context that the CCI in the Act has been
entrusted with the following two basic functions:
a) Administration and enforcement of competition law and competition policy to foster
economic efficiency and consumer welfare.
b) Involvement proactively in Governmental policy formulation to ensure that markets
remain fair, free, open, flexible and adaptable.
INVESTIGATION, PROSECUTION,
COMPETITION COMMISSION

ADJUDICATION,

MERGERS

COMMISSION

AND

INVESTIGATION AND PROSECUTION

Adjudicative wing is distinct and separate from the investigative wing in the Act. At the apex
level of the investigative wing, there is an official who has been designated as Director
General (DG). The Director General will not have suo motu powers of investigation. He will
only look into the complaints received from the CCI and submit his findings to it.
Investigators will be solely responsible for making enquiries, for examining documents, for
making investigations into complaints and for effecting interface with other investigative
agencies of the Government including Ministries and Departments. The DG has been vested
under the Act with powers, which are conferred on the CCI, namely, summoning of
witnesses, examining them on oath, requiring the discovery and production of documents,
receiving evidence on affidavits, issuing commissions for the examination of witnesses etc.
The Act mandates that the investigation staff would need to be chosen from among those,
who have experience in investigation and who are known for their integrity and outstanding
ability. They should have knowledge of accountancy, management, business, public
administration, international trade, law or economics. Hitherto, in terms of the dispensation
under the MRTP Act, they were drawn routinely from those working in the Department of
Company Affairs. The Act thus induces professionalism in the investigative wing, a step in
the right direction. .
Depending on the load, the Government would create Deputy Directors General in all the
cities where Benches of CCI are situated. They will investigate the cases referred to them
from the Additional (regional) Benches and submit their findings to them direct without
necessarily routing it through Director General at Headquarters. The Act envisages one
Principal Bench and Additional Benches, besides Merger Bench (es). The schema of
placement of the investigating staff and the procedure and drill for submission of their reports
to the CCI and its Benches will be laid down, it is expected, by the CCI and the Government,
under Statutory Rules, Statutory Regulations or otherwise.

23

It is desirable to prepare guidance manuals spelling out the nature, scope and manner of
investigation. By and large, the investigation staff should follow these manuals and any
departure therefrom must have the prior approval of the Director General. This is to ensure
that there are no fishing and rowing enquiries designed to threaten and harass corporates.
ADJUDICATION
Central to effective implementation and enforcement of competition policy and competition
law is an appropriate competent and effective adjudicative body, in the instant case, the
Competition Commission of India. CCI will be the adjudicating body under the Act with
autonomy and administrative powers.
CCI will be a multi-member body with its Chairperson and Members chosen for their
expertise, knowledge and experience in Economics, Law, International Trade, Business,
Commerce, Industry, Finance, Accountancy, Management, Public Affairs or Administration.
The Act stipulates that the Chairperson and Members shall be selected from those, who have
been, or are qualified to be Judges of the High Courts or from those who have special
knowledge of any of the disciplines listed above. They should not only have special
knowledge in one or more of the aforesaid areas, but also have experience of not less than 15
years therein. Besides, they need to be persons of ability, integrity and standing.
Each Bench will have a judicial member, as it will have the power of imposing sentences of
imprisonment, in addition to levying fines.
MERGERS BENCH
For the cases of mergers, amalgamations etc. which need to be examined on the touchstone of
competition, the Act proposes to have a separate Mergers Bench, which will be a part of the
Competition Commission of India. This is to ensure that there is no avoidable delay in
dealing with such scrutiny, as delays can prevent bodies corporate from being competitive
globally. An important rider in the merger provisions, as noted earlier, is that if the Mergers
Bench does not finally decide against a merger within a stipulated period of ninety working
days, it would be deemed that approval has been accorded.
COMPETITION COMMISSION OF INDIA AND SELECTION OF CHAIRPERSON AND MEMBERS
In order to ensure competent and effective implementation of competition policy and
competition law, it is important and imperative to select suitable persons, suitability having
been described in the earlier paragraphs. It cannot be over-emphasised that Government
ought to ensure that the CCI is free of political control. While, it is practically difficult to
eliminate political favouritism, it can be minimised to a great extent by resorting to what may
be described as a Collegium Selection Process. The Act, as passed by the Parliament, has
left the selection procedure to the Government, which will therefore frame Rules in this
regard. It is believed that the Government has opted for a search committee procedure for the
selection of Chairperson and Members.
STATUS OF THE CHAIRPERSON & MEMBERS OF CCI
The status of the Chairperson and Members of the CCI has been left to the Government for
specification by Statutory Rules. It is understood that the Government has prescribed the

24

status of the Chairperson to be equal to that of a Judge of the High Court and that of the
Members to be equal to that of a Secretary to the Central Government. Futhermore, according
to the Act, the age cap for the Chairperson is 67 years and that for the Members is 65 years.
The Act has created a bar for the Chairperson and Members for a period of one year from the
date on which they cease to hold office, to accept any employment in, or connected with the
management or administration of any enterprise which has been a party to a proceeding
before the Commission under the Act.
EXEMPTIONS
The Act provides for the Government to bring into force its different provisions on different
dates by a notification. Furthermore, it empowers the Central Government by notification to
exempt from the application of the law or any part thereof for such period, as it deems fit,
(a) any class of enterprises if such exemption necessary in the interest of security of the State
or public interest;
(b) any practice or agreement arising out of and in accordance with any obligation assumed
by India under any treaty, agreement or convention with any other country or countries ;
(c) any enterprise which performs a sovereign function on behalf of the Central Government
or a State Government.
The aforesaid provisions in the Act relating to exemptions should enable the Government to
take care of the country's goals, objectives and needs. The Act provides flexibility to the
Government to use this provision appropriate to the needs of the country.
APPEAL AND REVIEW PROVISIONS
Appeals against decisions and orders of the CCI lie to the Supreme Court within the
limitation period of 60 days. Appeals can be on one or more of the grounds specified in Sec.
100 of the Code of Civil Procedure. Thus, the status given to the CCI is very high with only
the Supreme Court having the power to overturn its orders.
The CCI has power under the Act to review its own order on an application made by the party
aggrieved by its order.
EXTRATERRITORIAL REACH
The Act has extra-territorial reach. Its arm extends beyond the geographical contours
of India to deal with practices and actions outside India which have an appreciable adverse
affect on competition in the relevant market in India. The Competition Commission of India
has the power to enquire into an agreement, abuse of dominant position or combination, if it
has or is likely to have an appreciable adverse affect on competition in the relevant market in
India, notwithstanding that,
an agreement has been entered into outside India;
any party to such agreement is outside India;
any enterprise abusing the dominant position is outside India;
a combination has taken place outside India;
any party to combination is outside India; or
any other matter or practice or action arising out of such

25

agreement or dominant position or combination is outside

India.
The above provisions are based on what is known as the effects doctrine. This doctrine
implies that even if an action or practice is outside the shores of India but has an impact or
effect on competition in the relevant market in India, it can be brought within the ambit of the
Act, provided the effect is appreciably adverse on competition.
NEW WINE IN A NEW BOTTLE
After the Act was placed on the web-site and came into the public domain, a question
often asked is whether it is not still the old law in substance although not in form. A clear
answer to this question is in the title of this section. The Act is a new wine in a new bottle.
The differences between the old law (namely the MRTP Act, 1969) and the new law (the
Competition Act, 2002) may perhaps be best captured in the form of a table displayed below:

MRTP ACT, 1969

COMPETITION ACT, 2002

1
2
3
4

Based on the pre-reforms scenario

Based on size as a factor
Competition offences implicit or not defined
Complex in arrangement and language

14 per se offences negating the principles of

natural justice
Frowns upon dominance
Registration of agreements compulsory
No combinations regulation

6
7
8
9
10
11
12
13
14

Competition Commission appointed by the

Government
Very little administrative and financial
autonomy for the Competition Commission
No competition advocacy role for the
Competition Commission
No penalties for offences
Reactive and rigid
Unfair trade practices covered

Based on the post-reforms scenario

Based on structure as a factor
Competition offences explicit and defined
Simple in arrangement and language and
easily comprehensible
4 per se offences and all the rest subjected to
rule of reason.
Frowns upon abuse of dominance
No requirement of registration of agreements
Combinations regulated beyond a high
threshold limit.
Competition Commission selected by a
Collegium (search committee)
Relatively more
autonomy for the
Competition Commission
Competition Commission has competition
advocacy role
Penalties for offences
Proactive and flexible
Unfair trade practices omitted (consumer fora
will deal with them)

The Act is therefore a new wine in a new bottle. Wine gets better as it ages. The extant MRTP
Act 1969 has aged for more than three decades and has given birth to the new law (the Act) in
line with the changed and changing economic scenario in India and rest of the world and in
line with the current economic thinking comprising liberalisation, privatisation and
globalisation.
PHASE-IN OF THE VARIOUS SUBSTANTIVE PORTIONS OF THE ACT
26

The Act covers all of the 29 States (and 6 Union Territories) of India, except for the
State of Jammu and Kashmir. Thus far (as of February 23, 2004), the Central Government
has made effective only the competition advocacy functions of the CCI. The Central
Government has filled certain staff positions. The substantive provisions of the Act dealing
with Anti-Competitive Agreements, Abuse of Dominance, and Combinations (Merger)
Regulation have not been made operative. In the meantime, the Monopolies and Restrictive
Trade Practices Act (and MRTP Commission) continues to be applicable.
EFFECTIVE ENFORCEMENT
The gains sought through competition law can only be realised with effective
enforcement. Weak enforcement of competition law is perhaps worse than the absence of
competition law. Weak enforcement often reflects a number of factors such as inadequate
funding of the enforcement authority. The Government should provide the required
infrastructure and funds to make the Competition Commission an effective Tribunal to
prevent, if not eliminate anti-competition practices and also to play its role of competition
advocacy.

REFERENCES AND READINGS

1. Ahluwalia, I.J (1991):

Productivity and Growth in

Indian Manufacturing, Oxford
University, Press, Delhi, 1991.

2. Bhagwati, J.N and Desai, P (1970):

Planning for Industrialisation

and Trade Policies since 1951,
Oxford University Press, Delhi,
1970.

3. Bhagwati, J.N and

Srinivasan, T.N. (1975):

Foreign Trade Regimes and

Economic 1975 Development:
India, - A Special Conference
Series on Foreign Trade Regimes
and Economic Development
NBER, New York, 1975.

4. Bhagwati Jagdish (1999):

A Stream of Windows
Unsettling Reflections on Trade,
Immigration and Democracy,
Oxford University Press, New
Delhi, 1999.

5. Brusick, Philippe (1992):

The 1990s: The decade of

Global Competition, Without
Restrictive Business Practices?,
Occasional Paper, International
Condition
for
Development
27

Action,
1992.

Brussels,

November

6. Ewing Ky, (2003):

Competition Rules for the 21st

Century:
Principles
from
Americas experience, Kluwer
Law International, The Hague,
2003.

7. High Level Committee (2000):

Report of The High Level

Committee
on
Competition
Policy and Law Dept. of
Company Affairs, Govt. of India,
New Delhi, 2000.

8. MRTP Commission (1994):

Director General Vs. Deepak

Fertilizers and Petro Chemicals
Corporation Ltd 1994 2
CTJ 253 MRTPC, New Delhi,
1994.

9. MRTP Commission (1996):

Decision of the Monopolies and

Restrictive Trade
Practices
Commission in Modern Food
Industries Ltd. case - 1996 3
Comp LJ 154, New Delhi, 1996.

10. OECD (1997):

2 OECD Report on Regulatory

Reform 265, 1997.

11. Sachar Committee (1978):

Report of the High-Powered

Expert Committee on Companies
and MRTP Acts, Ministry of
Law, Justice and Company
Affairs, Government of India,
New Delhi, August, 1978.

12. Supreme Court (1994):

Hindustan Lever Ltd Vs. Tata Oil

Mills Co., Ltd., SLP 11006/94
dated 24 October 1994.

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