SEM V Competition Law – Unit III Class Notes

Table of Contents

Overview:

The Competition Act, 2002, was enacted to replace the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) and to establish a more comprehensive framework for promoting competition in India.
It aims to prevent practices that have an adverse effect on competition, protect consumer interests, and promote fair market practices.

Short Title, Extent, and Commencement:
- Title: The Act is known as the Competition Act, 2002.
- Extent: It applies throughout India.
- Commencement: The Act came into force on 1st June 2003, with certain provisions being notified subsequently.
Objectives of the Act:
- To prevent practices that restrict or distort competition in the Indian market.
- To promote and sustain competition in the market.
- To protect the interests of consumers and ensure freedom of trade.
Competition Commission of India (CCI):
- Establishment: The Act established the Competition Commission of India as a regulatory authority to enforce the provisions of the Act.
- Functions: The CCI investigates anti-competitive practices, reviews mergers and acquisitions, and promotes competition awareness.

Anti-Competitive Agreements (Section 3):
- Horizontal Agreements: Agreements between competitors that may lead to cartelization, price-fixing, output restriction, or market sharing.
  - Example: Competitors agreeing to fix the prices of their products.
- Vertical Agreements: Agreements between parties at different levels of the supply chain that restrict competition, such as exclusive supply agreements or resale price maintenance.
  - Example: A supplier requiring a retailer to sell its products at a fixed price.
Types of Prohibited Agreements:
- Cartels: Any agreement or concerted practice that aims to fix prices, limit production, or divide markets.
  - Example: An agreement among manufacturers to set a common price for their goods.
- Abuse of Market Power: Practices by firms with significant market power that harm competition or exploit consumers.
  - Example: Imposing unfair prices or limiting production to drive competitors out of the market.
Exemptions:
- Certain Agreements: Agreements that contribute to improving production or distribution, or promoting technical or economic progress while allowing consumers a fair share of the resulting benefit, may be exempt from prohibition.
  - Example: Agreements that foster innovation and enhance market efficiency.

Dominant Position (Section 4):
- Definition: A firm is considered to be in a dominant position if it holds a position of economic strength that enables it to operate independently of competitive forces.
- Indicators of Dominance: Market share, financial resources, and control over essential facilities.
Prohibited Abuses:
- Predatory Pricing: Selling goods at an unreasonably low price to drive competitors out of the market and later raising prices.
  - Example: A dominant company drastically lowering prices to eliminate smaller competitors.
- Exclusive Dealing: Imposing conditions that restrict the freedom of customers or suppliers to deal with other competitors.
  - Example: Requiring retailers to sell only a company’s products.
- Refusal to Deal: Denying access to essential facilities or services to competitors or customers.
  - Example: A dominant firm refusing to supply essential raw materials to competitors.
Investigation and Penalties:
- Investigation: The CCI investigates complaints and conducts inquiries into practices that may abuse market dominance.
- Penalties: Firms found guilty of abusing their dominant position may face penalties, including fines and orders to cease such practices.

Combinations (Section 5 & 6):
- Definition: Combinations refer to mergers, acquisitions, or amalgamations that may have an adverse effect on competition.
- Regulation: Combinations that exceed specified thresholds must be notified to the CCI for approval before they can be completed.
Types of Combinations:
- Mergers: The consolidation of two or more companies into a single entity.
- Acquisitions: The purchase of one company by another.
- Amalgamations: The combination of two or more companies into a new entity.
Review Process:
- Pre-Notification: Companies must notify the CCI of proposed combinations.
- Assessment: The CCI reviews the combination to assess its impact on competition.
- Approval or Prohibition: The CCI can approve the combination, approve it with conditions, or prohibit it if it is found to be anti-competitive.
Thresholds for Notification:
- Turnover and Assets: Combinations involving entities with turnovers or assets exceeding prescribed limits must be notified to the CCI.