COMPETITION LAW

Geetika Anand
26.02.2008

RUNTHROUGH OF CONTENTS
INTRODUCTION
COMPETITION ACT 2002
COMPETITION
(AMENDMENT) ACT 2007

Competition ?????
An economic rivalry amongst enterprises to control
greater market power.
Offers wider choice to consumers at lower prices.
Leads to optimal allocation of resources.
Two ways
Where two enterprises
adopt fair means such as
production of fair
goods/services, invstmt in
R&D etc.
Competition is fair

Where an enterprise adopts

Restrictive Trade Practices
(RTPs) such as predatory
pricing, exclusive dealing,
resale-price maintenance and
forming a cartel, it has
appreciable adverse effect.
Competition is unfair
3

Legislative Background
Chapter III of MRTP Act scrapped in 1991 along with all
liberalization of other laws.
No restrictions on M&A activities in India for last 17 yrs.
Raghavan Committee, appointed in 2000, recommended a
new Competition Law, subject to fulfillment of certain preconditions: scrap reservation for SSI
revise labour and bankruptcy laws
repeal SICA, ULCRA and and other laws
eliminate price controls
4

COMPETITION ACT 2002

Background
Objectives :
Prevention of practices having adverse effect on
competition
Promotion & sustaining competition in markets
Protect the interest of the consumers
Ensure freedom of trade carried on by the other
participants in markets, in India.

IMPORTANT PROVISIONS

Prohibition on :
Anti-competitive agreements (Section 3)
Abuse of dominant position
Regulation of Combinations

(Section 4)

(Sections 5 & 6)

Anti Competition Agreements (S. 3)

Act prohibits all such agreements which cause or
are likely to cause an appreciable adverse effect on
competition
Adverse Effect, which :
a. Determines purchase or sales prices
b.Limits or controls production, supply, markets,
c. Shares the market or source of production or
provision of services
d.Bid rigging or collusive bidding
8

ABUSE OF DOMINANCE (S. 4)

Dominance is a position of strength which enables an

enterprise to operate independently of competitive pressure
and to appreciably affect the relevant market, competition
and consumers in its favour.

Dominance per se is not bad, but the abuse of dominance is

prohibited.

Abuse of Dominance arises if an enterprise:

1) Imposes unfair/Discriminatory purchase or sale prices
2) Limits production, mkts or technical dvlpmnt
3) Denies mkt access
4) Concludes contracts, subject to obligations having no
connection
5) Uses dominance to move into or protect other mkts.

PREDATORY PRICING

Predatory pricing is seen as an aspect of abuse of dominance.

Predatory Pricing means the sale of goods or provision of services, at a price

which is below the cost,, with a view to reduce competition or eliminate the
competitors.

This narrow definition may hamper all introductory pricing initiatives.

The distinction between predatory behavior and competitive pricing is very thin
and not easily ascertainable.

The yardstick for determination of cost is unclear.

Average variable cost is frequently used as an indicator , which is not conclusive.

Whether the cost audit report under Section 209 of the Cos Act or the industry
average or the break even cost of an enterprise or economies of scale is to be
taken as the yardstick in determination of cost is not clear in the regulations.

Group synergy and operational efficiency should not get penalized.

10

Regulation of combinations (S. 5 & 6)

Combination prohibited if it
causes or is likely to cause appreciable adverse
effect on competition within the relevant market in
India
Mandatory pre-merger scrutiny introduced vide
Amendment Act of 2007
Notify details of proposed combination within 30
days of:
BOD approval of merger/amalgamation;
Execution of agreements for acquisition of
shares, voting rights, assets or control
11

Regulation of combinations (S. 5 & 6)

Definition: very wide - includes

Direct or indirect acquisition of shares, voting rights or

assets
Acquisition of control
Mergers or amalgamations
Size of Acquisition immaterial.
Mandatory notification subject to asset value/turnover
thresholds; prescribed for
Parties (individual enterprise) to the combination and
Group to which acquired entity would belong after
combination
12

Threshold Limit
Intimation necessary if it is above the following threshold

13

TIMELINES

UNDER CURRENT 391-394 SCENARIO :

1. Drafting of merger scheme

1st Jan, 2008

2. Finalization of draft scheme

15th Jan, 2008

3. Approval of the Board

16th Jan, 2008

4. Filing of scheme to stock exchanges 20th Jan 2008

5. Approval of stock exchanges
6. Filing Petition to HC

20th Feb 2008

25th Feb 2008

7. Shareholders/creditors meeting
8. Filing of petition to courts for scheme sanction
9. Court Order

30th Mar 2008

5th Apr 2008

15th May 2008

10. Merger becomes effective

20 th May 2008
(4-5 Months)
14

UNDER COMPETITION ACT SCENARIO

1. Drafting of merger scheme 1st Jan, 2008
2. Finalization of draft scheme 15th Jan 2008
3. Approval of the Board
16th Jan 2008
4. Mandatory notification to the CCI
20th Jan 2008
5. Review period
210 days
6. Possible extensions 60 days
7. Approval by CCI
20th Oct 2008
8. Filing of scheme to stock exchanges 21st Oct 2008
9. Approval of stock exchanges
20th Nov 2008
10.Filing Petition to HC 25th Nov 2008
11.Shareholders/creditors meeting
25th Dec 2008
12.Filing of petition to courts for scheme sanction
13.Court Order 25th Jan 2009
14.Merger becomes effective 30th Jan 2009

26th Dec 2008

(13 Months)
15

MERGER NOTIFICATIONS & REVIEW IN OTHER

COUNTRIES
SR.
NO.

COUNTRY

NOTIFICATION

INITIAL REVIEW

DETAILED
REVIEW

1.

United States

Mandatory

30 days

30 days

2.

United Kingdom Voluntary

25 days

90 days

3.

Australia

Voluntary

14 days

90 days

4.

China

Mandatory

30 days

90 days

5.

Germany

Voluntary

30 days

Max. 4 months
(If required)

6.

Netherlands

Mandatory

7.

Portugal

Mandatory

30 days

90 days

8.

Spain

Mandatory

30 days

60 days

30 days

16

THE COMPETITION (AMENDMENT)

ACT 2007

17

THE COMPETITION AMENDMENT ACT 07

The Committee presented its report and taking into account their
recommendations and the legal challenges and to make the CCI fully
operational on a sustainable basis, the Competition (Amendment) Bill,
2007 was introduced and was further passed.
MAJOR HIGHLIGHTS & AMENDMENTS

Provision

Earlier

Now

Competition A perception that it would act as an expert body

Commissio
may function in
which would function as a
n of India
the manner of a
market regulator
judicial body
for preventing and regulating
anti-competitive practices &
would also play an advisory
and advocacy role.
18

contd Highlights of amendments

Provision
MERGER
NOTIFICATION
MANDATORY

Earlier

Now

Intimation
Prior intimation of any
was optional
combination amongst cos,
& that also
group or persons, to be made
after the
within 30 days
combination. Also empower the commission
The time to
to impose a penalty of 1% of
be taken
the total turnover or the assets
was also
whichever is higher on failure
open-ended
to give such notice.
However intimation only if it
above a particular threshold
19

contd Highlights of amendments

Provision

Earlier
Now
CAT set up to hear and
COMPETITION Any appeal from
the order of the
dispose of appeals against
APPELLATE
Commission was to
any order or decision of the
TIBUNAL
be heard by the
Commission
Supreme Court

PENATIES

Commission itself
Rationalisation i.e.
had the power to
Penalties imposed in the
imprison in the
first instance will be
event of nonmonetary
compliance with the Only where the person who
orders
is in violation or noncompliance of the Act or
orders, continues to do so or
does not pay the penalties
20
would criminal liability arise.

ANTI TRUST LAWS

In the U.S., the Hart-Scott-Rodino Act (HSR Act) requires persons
wishing to acquire or merge to submit notification and fees to the Federal
Trade Commission (FTC) and the Department of Justice Antitrust
Division (DOJ) if either the transaction or the persons assets exceed
monetary thresholds.
However, the HSR Act has a two-step test, the size of the transaction
and size of the person test. This two-step test acts as a filtering device,
excluding a significant number of lesser transactions from review.
To compare anti-trust laws prevalent globally, either the notification is
optional as is the case in UK and Australia or the review period is short,
where notification is mandatory, for example, in USA review period is 30
days.
21

THE INDIAN SCENARIO

The Indian economy is still in its infant stage as compared to global standards &
therefore its important that the law not control M&A, but foster an
environment of rapid growth and encouragement to the Indian economy.
Countries with similar economic conditions and imperatives do not have such
wide discretionary powers with Competition Authorities. Indias competition
law could project Indias economy as being unfavourable to globalization and as
one that is unduly restrictive of competition.
While it is necessary to regulate combinations which may result in abuse of
dominance it is imperative to ensure that there is no over-regulation as this
could be counter productive and retard the countrys economic growth.
Competition law in India should be enacted in line with the dynamics of the
Indian economy as opposed to merely replicating international principles,
particularly so when it results in the law becoming more a hindrance than a tool
to promote competition.
22

The Possible Remedial Measures

Quantitative definition of Dominance
Prescribing the acquisition thresholds in - Sec 5
Reduce the time-lines for approval by CCI - Sec 6
Revise the current asset/ turnover threshold levels make it industry specific
Make the Commission independent of the Government
(Sections 55 & 56)
Give power of exemption to CCI and not the Government
23

The Possible Remedial Measures

Notify Sections 5 & 6 only after the law is amended
and CCI is well equipped
Exempt cross-border M&A with no economic
impact in the Indian Market
Provide a negative list of industrial sectors for
mandatory notification, other industries to be
exempted

24

THANK YOU

25