Competition Jurisprudence In India

According to the World Bank and Organization for Economic Co-operation and Development (OECD) report "Competition is a situation in a market in which firms or sellers independently strive for the buyers' patronage in order to achieve a particular business objective for example, profits, sales or market share^[2]". The aim of Competition is to ensure that consumers pay the lowest possible price coupled with the highest quality of the goods and services which they consume. In an industry where there is healthy competition, often, there is a tendency, that the industry would become better and efficient. Competition is a situation where the market remains accessible to potential new enterprises and that enterprises operate under the compulsion of competition.

Competition is an important requisite in the efficient functioning of markets. It benefits consumer by encouraging innovation, efficiency and widening of choice, enabling consumers to buy the goods and services at a reasonable price and contributing to our national competitiveness. Law is an instrument to regulate human behaviour, be it social life or business life. With the emergence of string and dominating market players, law was required to regulate their behaviour in the market. Competition cannot be left unfettered in the belief that it will drive out unfair trade practices. Free trade, in the modern and technologically more complex age, does not provide all the safeguards.

The makers of the constitution had realized that in a country like India, political democracy would be useless without economic democracy. Accordingly, they incorporated few provisions in the constitution with a view to achieve amelioration of the socioeconomic condition of the masses. By the Constitution Amendment Act of 1976, we the people of India have accepted a socialistic pattern of society as our goals. One of the principal methods for establishing such a society is preventing concentration of economic power in few hands or institutions. The Directive Principles are designed to usher in a social and economic democracy in the country. These principles obligate the state to take positive action in certain direction in order to promote the welfare of the people and achieve economic democracy. These principles give directions to the legislature and executive in India as regards the manner in which they should exercise their power.

To preserve the laudable ideals of free enterprises and protection of the consumer, the state has to intervene to regulate trade and commerce so that there is no undue concentration of means of production and market dominance, which is inimical to the welfare of the society. The term competition can be correlated with trade. Even Article 19 (1) (g) guarantees to all citizens, the right to practice any profession or to carry on any occupation, trade or business. Further, Article 38 and 39 lay down that 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 national life and the state shall in particular, direct its policy towards securing:

• That the ownership and control of material resources are distributed to sub-serve the common good and
• That the operation of economic system does not result in concentration of wealth and means of production to the common detriment.

It is important to understand the economic milieu which led India to enactment of MRTP Act, 1969. There were many enquiries/studies, which acted as the lodestar/guide for the enactment of the MRTP Act.

The first study was conducted by Mahalanobis Committee^[3] appointed by government in 1960 on distribution of income and levels of living in the country. The committee in its report noted that the planned economy encouraged the process of concentration by facilitating and aiding the growth of big business. It further observed that big government institutions such as IFC (Industrial Finance Corporation), LIC etc., have aided to the monopolistic growth.

Another study was known as Monopolies Inquiry Commission^[4] (MIC) appointed under the Commission of Inquiry Act, 1952 to enquire into the extent and effects of concentration of economic power in private hands and the prevalence of monopolistic and restrictive trade practices in important sectors of economic activity other than agriculture with special reference to:

• the factors responsible to such concentration and monopolistic and restrictive practices,
• their social and economic consequences, and the extent to which they might work to the common detriment; and
• Suggest such legislation and other measures that might be considered necessary in the light of such inquiry including in particular any new legislation to protect essential public interest and the procedure and agency for the enforcement of such legislation.

The MIC submitted its report in 1965 to the government of India, wherein it underscored that there was high concentration of economic power in most of industrial items in India. The committee also noted that dominant positions allowed firms to manipulate prices and output and even non-dominant producers and manufacturers engaged in restrictive practices. Further, the committee observed that big business houses were at an advantage in securing industrial licenses to open and expand undertakings. New entrants were at disadvantage since they had limited access to funds, the requirement of which had gone up considerably due to economies of scale based on contemporary technologies. The government policies were found to be chief cause of economic concentration.

Monopoly power was defined by the MIC as the ability to dictate price and control the market^[5]. Monopolistic practices noticed by the MIC prompted it to state that every monopolistic practice is on the face of it a restrictive practice. The MIC came with a list of Restrictive trade practices that were prevalent– Hoarding, resale price maintenance, exclusive dealings, price fixation, and price discrimination. Instances of cartelization, boycott was also brought to its notice.

Having noted special economic conditions prevailing in India, the MIC set out objectives for the legislative recommendations in terms of achieving highest possible production with least damage to people at large while securing maximum benefits. In order to achieve these objectives an independent body in form of autonomous commission was recommended which would act as watchdog to curb concentration of power.

The Planning Commission of India subsequently appointed Hazari Committee^[6] to review the operation of existing industrial licensing system under Industrial (Development and Regulation) Act, 1951. The report of the committee concluded that the existent licensing system had resulted in disproportionate growth of some of the big houses in India. Following this the government appointed the Industrial Licensing policy Inquiry Committee^[7] to inquire into the working of licensing system in India. The committee submitted its report two years later and stated no specific instructions were given to licensing authorities for preventing concentration and monopolistic tendencies. Accepting the fact Industrial Licensing policy favoring the large industrial houses stated that it was not necessary to grant multiple licenses to the same house in any given industry. The committee also observed that licensing was unable to check concentration and consideration of preventing monopolies doesn't seem to have entered the picture at all. Thus, industrial licensing system specifically meant to implement the industrial policy of government failed miserably to achieve the objective of planned economic development. The committee also recognized the fact that industrial licensing was a negative instrument and as such could only play a limited role in industrial development. It was finally suggested by the committee that Monopolies and Restrictive Trade Practices Bill as proposed by MIC be passed as an effective Legislative regime.

The model of the act was given by Monopolies Inquiry Commission set by the government in 1964. The MIC drafted a bill to provide for operation of economic system so as not to result in concentration of economic power to the common detriment. The Bill, drafted by the MIC and amended by a Committee of the Parliament, became the Monopolies and Restrictive Trade Practices Act, 1969 and was enforced from June 01, 1970. The Act drew its inspiration from the mandate enshrined in the Directive Principles of State Policy in the Constitution, which aims at securing social justice with economic growth.

The MRTP Act exempted governmental companies from its purview and focused only upon private entities. Perhaps the philosophy underlying the MRTP Act was that governmental companies were the champion of the public interest, and that private companies were the only entities for which regulation is necessary in order to promote the public interest. The statement of objects and reason mentioned that the Act was to provide that the operation of the economics system did not result in the concentration of economics power to the common detriment, for the control of monopolies, for the prohibition of Monopolistic and Restrictive Trade Practices and for the matters connected therewith and incidental thereto. The provisions of the Act, i.e. on Restrictive Trade Practices, including the resale maintenance were substantially based on the UK legislation and particularly Restrictive Trade Practices Act, 1956 and the Resale Price Act, 1964. Likewise, the provisions on Unfair Trade Practices were influenced by the UK's Fair Trading Act, 1973, The antitrust legislations in US, notably the Sherman Act, the Clayton Act and Federal Trade Commission Act, and also legislations enacted in Japan, Australia, Canada and Germany legislation have also been a guide in framing the provisions relating to monopolistic, restrictive and Unfair Trade Practices.

Less than a decade had elapsed after the MRTP Act came in force, when the Government appointed a high-powered expert committee on the Companies Act and the MRTP Act, under the Chairmanship of Justice Rajindar Sachar, to review and suggest changes required to be made to the MRTP Act. The Committee observed that it (MRTP Act) contained no provisions for the protection of consumers against false or misleading advertisements or other similar unfair trade practices and that they needed to be protected from practices which are resorted to by the trade and industry to mislead or dupe them. To quote the Sachar Committee: 'Advertisements and sales promotion have become well established modes of modern business techniques. That advertisements and representations to the consumers should not become deceptive has always been one of the points of conflict between business and consumers'.

The Sachar Committee, therefore, recommended that a separate Chapter should be added to the MRTP Act, 1969 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. The 1984 amendments to the Act brought unfair trade practices within its ambit.

It was in 1991, that India took the initiative in favour of economic reforms consisting essentially of liberalisation and de-regulation. In a manner of speaking, India embarked on what may be described as the LPG regime, an acronym for liberalisation, privatisation, and globalisation. The march from a "command and control" regime to a regime based more on free market principles commenced its stride. It is worth noting that the economic reform undertaken since the early 1990s significantly changed the economic environment of the country.

Before 1991, the Government had major stake in the industries rather than the private sectors. The government enacted Industrial Development and Regulatory Act (IRDA) which stated the procedure, rules, guidelines etc. for the private sectors to set up their industries. They did not allow any foreign investment in India as well. The rules and the procedures for setting up the private industries were stricter and expensive that major people backed out.

The biggest issue was the licensing of the industries. It was not a cost effective way to set up an industry in India. Since there was no foreign investment in India this led to balance of payments. The Indian Economy was in a major debt which caused the government to mortgage their gold mines to the World Bank for the loan.

By the year 1991, it was realised that India needs to set up a system for its economic growth. Then finance minister and former Prime Minister Dr. Manmohan Singh brought the LPG policy and foreign investment in India. The complicated procedure for licence was removed except for few industries. The Government took various industries forming PSUs (Public Sector Units) such as SAIL (Steel Authority of India), ONGC (Oil and Natural Gas Corporation) etc.

In October 1999, the Government of India appointed a High Level Committee on Competition Policy and Competition Law under the chairmanship of Mr. S. V. S. Raghavan 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 Raghavan Committee noted that the MRTP Act had outlived its utility and that a new competition law was required for the country, in tune with the post-1991 LPG paradigm and same was reflected in the announcement of the Finance Minister in his budget speech in February 1999. He observed that,

"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 the range of issues, and propose a modern competition law suitable for our conditions" (Parliament, 1999).

Report of High Level Committee on Competition Policy and Law (Raghavan Committee Report)

The Committee submitted its report to the Prime Minister on May 22, 2000 and made some recommendations. The committee recommended the enactment of an Indian Competition Act, setting up of a Competition Commission of India (CCI), the repeal of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, and winding up the MRTP Commission. The pending cases in the MRTP Commission may be transferred to the concerned consumer Courts under the Consumer Protection Act, 1986. The pending MTP and RTP Cases in MRTP Commission may be taken up for adjudication by the CCI from the stages they are in. Further, the Committee suggested that state monopolies, government procurement and foreign companies should be subject to the Competition Law and Competition law should cover all consumers who purchase goods or services, regardless of the purpose for which the purchase is made. The Committee recommended that the unfair trade practice cases may be transferred to the consumer courts concerned under the Consumer Protection Act, 1986 and the pending monopolies and restrictive trade practices cases in the MRTPC may be taken up for adjudication by the CCI.

The Committee also believed that the repeal of the various laws mentioned would constitute the prerequisites for laying the foundation over which the edifice of the Competition Policy and the Competition Law needs to be raised. It was recommended that the Industries (Development and Regulation) Act, 1951 may no longer be necessary except for location (avoidance of urban-centric location), for environmental protection and for monuments and national heritage protection considerations, etc. The Industrial Disputes Act, 1947 and the connected statutes need to be amended to provide for an easy exit to the non-viable, ill-managed and inefficient units subject to legal obligations in respect of their liabilities was also recommended. The Board for Industrial Finance & Restructuring (BIFR) formulated under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 should be abolished. There should be necessary provision to examine and adjudicate upon anti-competitive practices that may accompany or follow developments arising out of the implementation of WTO Agreements. Particularly, agreements relating to foreign investment, intellectual property rights, subsidies, countervailing duties, antidumping measures, sanitary and technical barriers to trade and Government procurement need to be reckoned in the Competition Policy/Law with a view to dealing with anti-competitive practices.

The competition law should be made extra territorial. It is pertinent to note that this High Level Committee only discussed the comparative approach with respect to existing laws in other countries in their recommendations in the report. It however does not mention the subject of imposing criminal sanctions on Individuals as a penalty. The High level Committee mentioned about the existing criminal penalties with reference to other jurisdictions only in passing reference.

On the basis of the recommendations of the Raghavan Committee, a draft competition law was prepared and presented in November 2000, to the Government. A bill on the new competition law was introduced in Parliament, outlining the objects and reasons for its enactment. After considering the recommendations of the Standing Committee new law was passed by the Parliament in December 2002 and received the assent of President on January 13, 2003. The provisions of the Competition Act governing abuse of dominant position and anticompetitive agreements, including cartels, came into force on 20^thMay 2009. The Competition Act became fully operational on 1st June 2011, with the coming into force of the provisions relating to the regulation of combination and merger control provisions.

Soon after the CCI was established under the Act, a writ petition (Brahm Dutt v. Union of India, Writ Petition (Civil) 490 of 2003) was filed before the Supreme Court of India, challenging the Rules prescribed by the Central Government under the Act for the selection of the Chairperson and other Members of the Commission. The Supreme Court observed that it might be appropriate to consider the creation of two separate bodies, one with expertise for advisory and regulatory functions and the other for adjudicatory functions, along with an appellate body based on the doctrine of separation of powers recognised by the Constitution of India. Thus, the Amendment Act of 2007 created two separate bodies, namely, (a) the Commission as a seven-member (one chairperson and 2-6 members) expert Body to function as a market regulator for preventing and regulating anti-competitive practices in the country and to carry on the advisory and advocacy functions in its role as a regulator; and(b) the Competition Appellate Tribunal (COMPAT) as a three-member quasi-judicial body to hear and dispose of appeals against any direction issued or decision made or order passed by the Commission