Competition Act 2002 | Definitions, Terms, Anti-Competitive, Rectification of Orders

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Competition Act 2002

Competition Act, 2002 is applicable in all parts of India except Jammu and Kashmir. The Act came into force through notification by the Central government in an official gazette. The Competition Act, of 2002 was amended in 2007 and 2009. The provisions of competition laws are equally applicable to all the agreements whether these are written or oral between the parties.

The Competition Act 2002 was enacted to:

  • Promote the welfare of consumers
  • Implement competition policies
  • Promote competition advocacy
  • Promote fair and healthy competition

The Act is based on the philosophy of modern competition laws. It prohibits anti-competitive agreements and abuse of the dominant position by enterprises. The Act also regulates combinations (acquisition, acquisition of control, merger, and acquisition), which may lead to appreciable adverse effects on competition in India.

The components of competition laws can be summarised in the following manner:

Any agreement which has a severe impact on the competition but is not limited to:

  • Any agreement which limits or makes an attempt to limit the production

  • Any agreement which limits or makes an attempt to limit the supply

  • Any agreement which fixes the price or makes an attempt to fix the price

  • An agreement that attempts collusive bidding

  • Refusal to deal

  • The exclusive supply agreement

  • Exclusive distribution agreement

To achieve the above objectives, Competition Commission undertook the following tasks:

  • Create a market that works for the benefit and welfare of the customers and consumers

  • Ensure fair and healthy competition for faster growth of the economy.

  • Implemented the competition policies with the aim of effective utilization of resources.

  • Carry the competition advocacy in an efficient manner and help spread the information of competition amongst all concerned persons and entities

The objectives of the Act are to be achieved through the Competition Commission of India (CCI), which was established by the Central Government with effect from 14 October 2003. In this chapter, you will study the Competition Act, of 2002 in detail.


Definition of Terms Used in Competition Act, 2002

The following terms have been defined Under Section 2 of the Competition Act, 2002.

Acquisition

The term acquisition means directly or indirectly acquiring or agreeing to acquire shares, voting rights, or assets of any Company or acquiring control over the assets of the Company, or acquiring control over the management of the Company.

Agreement

An agreement is an arrangement or action in a contract or understanding. It is not necessary that such an understanding should be formally written or enforceable by the law.

Cartel

The term Cartel refers to an association of producers, sellers, distributors, traders, or service providers. This association is called a cartel when these parties amongst themselves either limit, control or attempt to control the production, distribution, sale price, or provision of goods or services.

Chairperson

The term Chairperson refers to a person appointed as a Chairperson of the Commission under sub-section (1) of section 8.

Commission

The term “Commission” means a Commission established under sub-section (1) of section 7.

Consumer

The word “Consumer” means:

  • A person who buys any goods for a consideration that has been paid or partly paid or promised to be paid at a later date under any system including deferred payment. It is not relevant if a such purchase of goods is for resale for any commercial purpose or for personal use.

  • A person who hires or avails any services for a consideration that has been paid or partly paid or promised to be paid at a later date under any system including deferred payment. It is not relevant if such purchase of goods is for resale for any commercial purpose or for personal use.

Director General

Director General is the Director appointed under Sub-section (1) of section 16 and includes the Additional, Deputy, or Assistant Directors appointed under this Act.

Enterprise

The word “Enterprise” means a person or department of the government, who or which is or has been engaged in any activity related to the production, supply, storage, distribution, acquisition, or control of articles or goods.

An enterprise makes provisions for services of any kind or is involved in the business of acquiring, holding, underwriting, or dealing with shares, securities, or debentures but all these activities are not limited to the activity of the government. Here, the word activity means and includes any profession or occupation.

GOODS

The term “Goods” means goods as defined in the sales of the Good Act, of 1930 and includes:

  • Products manufactured, processed, or mined
  • Debentures, stock, and shares after the allotment is over
  • Goods imported to India or distributed and controlled in India

Members

The term “Member” means a member of the Commission who is appointed under sub-section (1) of section 8 and also includes the Chairperson.

Price

In relation to the sale of any goods or to the performance of any services, price includes every valuable consideration, whether direct or indirect or deferred, it includes any consideration which in effect relates to the same of any goods or to the performance of any services although ostensibly relating to any other matter or thing.


Anti-Competitive Agreements

Anti-Competitive agreements are an agreement(s) which, if entered, shall have an appreciable adverse effect on Competition within India. The relative provisions of Anti-Competitive agreements are as follows:

  • No enterprise or association of enterprises is allowed to enter into an agreement related to any production, supply distribution, storage, or control of goods or provisions of services that may have an appreciable adverse effect on competition within India.

  • Any such agreement entered shall stand void.

Any agreement made between enterprises or associations of enterprises or persons may include cartels that:

  • Directly or indirectly determine the purchase or sales price;

  • Limit or make an attempt to control the production, supply, markets, or technical development;

  • Share the market or source of production or provision of services by the way of allocation of the geographical area of the market, type of goods and services, number of customers in the market, or any other similar way.

  • Directly or indirectly result in collusive or bid rigging

All of the above shall have an adverse effect on competition and shall fall under Anti-Competitive agreements.


Prohibition of Abuse of Dominant Position

The prohibition of the dominant position states that no enterprise should use its position in a manner that directly or indirectly imposes restrictions or conditions over the purchase, sale, and supply of goods or services. The relevant provisions can be summed up as under:

A dominant position is a position wherein an enterprise:

  • Directly or indirectly imposes unfair and discriminatory:

    • Conditions in purchase or sale or in services;
    • Prices in the purchase or sale of goods or services.
  • A dominant position is also one in which an enterprise limits or restricts:

    • Production of goods or provisions for any services or market thereof;

    • Any technical or scientific development in relation to the goods or services which may prejudice consumers.
  • It is said to be a dominant position wherein the enterprise indulges in practice or practices which result in the denial of market access.

  • If an enterprise uses its dominant position in one relevant market to enter and protect another relevant market.

The dominant position is used by an undertaking in the market to operate independently of the prevailing competitive environment.


Rectification of Orders

The Competition Act, of 2002 provides the framework for the economic development of the country. The Act prevents those practices that could have an adverse effect on competition in India. The main objectives of the Act can be broadly divided into three parts.

To implement these objectives, the Central Government has created the Competition Commission of India with whom various powers are vested in relation to conducting inquiries, taking evidence, and summoning the parties, which the Commission feels are undertaking any activities that could have an adverse effect over the competition.

The Commission is further empowered to impose the penalty that it feels reasonable. The Commission has a right to inquire into alleged contraventions of the provisions contained in sub-section (1) of section 3 or sub-section (1) of sub-section 4 either on its own motion or on:

  • the receipt of the complaint, accompanied by such fee as may be determined under the regulations.

  • the reference made by the central government, the state government, or any statutory body.

Section 34 of the Competition Act, 2002 empowers the Competition Commission to pass orders as it may think fit. Once the Commission has passed an order and later on finds any apparent mistake from the record, it has a right to amend that order. The rectification of the order can take place because of the reasons shown in Figure:

It should also be taken care that the Commission can only amend the mistake, which is observed apparently but cannot make changes in the substantive part of the order.

Execution of Orders by the Commission

The effect of the order of the Commission is executed in the same manner as a decree of a high court or a decree of the principal civil court pending therein. If the Commission finds it difficult to execute an order, it can refer it to the high court or to the principal court in whose local jurisdiction the Commission order falls.

The jurisdiction is decided on the fact that the person carries its business, and has a registered or a subordinate office. The jurisdiction may also be decided on the fact where the person concerned resides, conducts business, or personally works for the gains.

Compensation in Case of Contravention

The Commission, under Section 34 of the Competition Act, 2002 upon the request of the affected person(s) may make inquiries into any of the matters. The Commission after making an inquiry into the allegation made by the applicant may pass an order directing the enterprise on whom the allegation is made to make a payment to the applicant of the amount determined by the Commission.

If the damage is affecting numerous people, after seeking permission from the Commission, one person acting on the behalf of the affected people may make an application before the Commission.

Competition Appellate Tribunal Procedure and Powers

The Competition Appellate Tribunal is a statutory organization established under the provisions of the Competition Act, 2002 to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India under sub-sections (2) and (6) of section 26, section 27, section 28, section 31, section 32, section 33, section 38, section 39, section 43, section 43A, section 44, section 45 or section 46 of the Competition Act, 2002.

The Appellate Tribunal shall also adjudicate on claim for compensation that may arise from the findings of the Competition Commission of India or the orders of the Appellate Tribunal in an appeal against any findings of the Competition Commission of India or under section 42A or under sub-section (2) of section 53Q of the Act and pass orders for the recovery of compensation under section 53N of the Act.

There is no requirement that the Commission should follow the procedure as laid down by the Code of Civil Procedure Act, 1908 or any other relevant activities. However, the procedure followed should be guided by the principles of natural justice, subject to other provisions of the Act or of any rules made or prescribed by the Central Government from time to time.

The Commission can prescribe its own procedure including the places of sittings, the duration of hearings, etc. Some of the important features of the Competition Tribunal Procedure and laws are as follows:

  • It can prescribe its own procedure.
  • It is not bound by any other laws.
  • It has a right to summon and enforce attendance.
  • It is guided by the principles of natural justice.

The Commission is vested with the following powers, which are in line with the Code of Civil Procedures, 1908:

  • Summoning or enforcing the attendance of any person.
  • Requiring the parties in dispute for the discovery and production of documents.
  • Receiving the evidence on affidavits.

The Commission may also direct any person or the party, to produce such books of accounts, records, or other documents in the custody of the person, which may be deemed necessary while conducting an inquiry under this Act.

If the Commission is of the opinion that any agreement or the combination is likely to have an adverse effect on competition in the relevant market, in that case, in the interest of the consumers, it may conduct any inquiry or adjudicate upon any matter under this Act after giving the reasonable opportunity to the parties.

Liability on Contravention of Orders

If any party or the undertaking is found to be contravening the orders issued by the Competition Commission of India, the Commission may impose two kinds of penalties as shown in Figure 7.3:

Let us discuss these penalties in detail:

  • Financial Penalty: It is imposed for the infringement of the competition laws where the benefits are gained by the enterprise or the cartels by entering into anti-competitive agreements or due to the misuse of dominant undertakings.
  • Criminal Penalty: It is imposed only when the parties against whom the orders are passed have not acted.

Appeal to the Supreme Court

Pursuant to Section 40 of the Competition Commission Act, 2002, any person who is aggrieved by the order of the Commission may file an appeal with the Supreme Court. The appeal shall be filed within 60 days from the date of the receipt of the communication of the order. The grounds of the appeal should be as mentioned in Section 100 of the Code of Civil Procedure, 1908.

The grounds of appeal are as follows:

  • If the Supreme Court is satisfied that the case involves the substantial question of law.
  • An appeal may also arise from an appellate decree ex parte.

It is further provided that no appeal shall lie with the Supreme Court of India if the order is passed with the mutual consent of all the parties in dispute. Further, if the Supreme Court feels that there are sufficient reasons that prevented the party to file an appeal beyond 60 days, it may allow the filing of an appeal even after that period.

Power of the Central Government

The main powers of the Central Government are as follows:

  • The Central Government may provide financial aid to the Commission: The funds provided by the government shall be constituted as a “Competition Fund” and the following amounts shall be credited to it

    • The grants received by the Commission from the Government.
    • The amount received by the various parties towards the cost.
    • The fee received under this Act.
  • The Central Government can provide an exemption to certain classes of undertakings: Further, the Central Government of India by issuing the notification may exempt from the application of this Act, or any provisions thereof, for such period as may be deemed necessary, the exemption can be granted in any of the following manner or in combination:

    • The exemption can be granted to any class of company if it is necessary for the public interest.

    • The exemption can be granted to any enterprise performing a sovereign function as a representative of the Central Government or any state government.

    • The exemption can be granted to any arrangement or any agreement that is entered against any treaty made between two or more countries.
  • The Central Government can issue directions to the Commission: The Central Government has the power to issue directions to the Commission from time to time and the Commission shall in the exercise of powers or the performance of its function be bound by such directions on the question of the policy as given by the Central government in writing to the Commission from time-to-time.

  • The Central Government may supersede the Commission: The decision of the Central Government shall be the final decision. There are certain conditions under which the Central Government may supersede the Commission. These circumstances are as follows:

    • There are circumstances that are beyond the control of the Commission and due to which the Commission is unable to discharge its functions or perform the duties imposed on it.

    • The Commission has continuously made a default in complying with the directions given by the Central Government under this Act, due to which the financial position or the administration position has suffered.

    • There are such circumstances that are necessary for the opinion of the Central Government to supersede the Commission.

The Central Government may supersede the Commission for a maximum period of six months. It can be done after publishing the necessary notification in the official gazette. Before giving the notification of supersession, the Central Government shall give proper notice to the Commission shall hear the representation of the Commission, and shall consider it.

Penalties

With reference to the relevant provisions of the Competition Act, 2002, “if any person is found contravening any of the orders of the Commission or contravenes any of the conditions or restrictions subject to which any approval, sanction direction has been made or awarded by the Commission, fails to pay penalty imposed under this Act, shall be liable to pay penalty imposed under this Act and shall also be liable for civil imprisonment which may extend to the period of 1 year and penalty can also be imposed not exceeding ₹10 lakhs.”

Section 43 of the Competition Commission Act, 2002 provides for the imposition of a penalty of `1 lakh for each day if any of the persons fail to comply with the directions of the Commission.

Section 44 of Competition Commission Act, 2002 states that if any person being a party of the Commission makes a statement, which is false or omits to state any material fact, in such case, the Commission can impose a penalty of up to ₹1 crore and penalty shall not be less than ₹50 Lakhs.

Section 45 further states that a person without prejudice to provisions of Section 44 can:

  • Make any statement that he/she knows to be false
  • Omit to state material facts
  • Willfully destroy or suppress any document

In the above case, the Commission shall impose the penalty which may extend to `10 lakhs. Section 46 empowers the Competition Commission of India that if it is satisfied that any seller, buyer, or cartel who has violated the relevant provisions under this act, the Commission may impose lesser penalty on to those sellers, distributors, and cartels as may be deemed fit by the Commission.

It is further provided that the lesser penalty shall be imposed only to those cartels, buyers, and sellers who made the full and vital disclosures as required under this Act.

Director General to Investigate Contravention

The Commission may direct the Director General to investigate in the matters, in that the Director shall be required to assist the Commission in investigation proceedings. If the Director General is appointed to carry the proceedings, he/she shall have the same rights as the Commission under this Act.

Competition Advocacy

The term competition advocacy provides that while making any law on the Competition, the Central Government may make a reference to the Commission for obtaining its comments. On receipt of the reference, the Commission shall within 60 days of the receipt give its opinion to the Central Government.

The Central Government is not bound to accept the opinion expressed by the Commission, but if the Government deems it fit, it may consider that opinion while formulating the policy. The Commission shall take proper actions and suitable measures as may be prescribed for the promotion of the competition advocacy and create awareness among the public on competition-related issues.


Other Important Provision

Some other important provisions of Competition Act, 2002 can be summed up as under:

Section 27 of Competition Act, 2002

Orders by the Commission after the inquiry into agreements or abuse of the dominant position: If the Commission is satisfied after conducting an inquiry that there is an existence of the dominant position or the scenario is such that the dominant position is abused, or there is a condition wherein the Commission has found some anti-competitive agreement, the Commission may pass the following orders:

Direct such enterprise or association involved in such agreement or responsible for creating the dominant position not to re-enter such agreement or to discontinue such agreement as the case may be.

Impose a penalty not exceeding three times of average turnover of the preceding three financial years.

Section 37 of Competition Act, 2002

Any person aggrieved by the order of the Commission may apply for its review. Such an application should be made within 30 days of the order. The Commission may even accept the review application even after 30 days if the Commission is satisfied that there was the sufficient reason that prevented making an application with the Commission.

Section 52 of Competition Act, 2002

This section deals with the accounts and audit of the Commission. As per section 52 of the Act, the Commission shall prepare the statement of annual accounts as prescribed by the Central Government. Generally, the format for the annual accounts is prepared in consultation with the Comptroller and Auditor-General of India. The accounts of the Commission are subject to audit by the Comptroller and Auditor-General of India. The Central Government can specify the interval of such audit. All the expenditure incurred is paid by the Commission.

Section 53 of Competition Act, 2002

The Commission shall furnish the returns to the Central Government in the format prescribed by the Central Government with respect to the proposed or the existing measures about the Competition advocacy measures. The report furnished by the Commission shall be placed before the parliament.

Section 57 of Competition Act, 2002

Section 57 states that no information relating to any enterprise shall be disclosed with any other enterprise in compliance with or for the purpose of this Act or for the time being in force

Section 59 of Competition Act, 2002

Section 59 of the Act specifies that no legal proceedings shall lie against the Commission or any officer of the Central Government or the Chairperson or any other officer including the Director General, Registrars, or the officers for any act done in good faith under the regulations mentioned under this Act.

Section 61 of Competition Act, 2002

Section 61 specifies that no civil court shall have jurisdiction to entertain the proceedings in regard to any of the matters with which the Commission is empowered under this Act.


Monopolies and Restrictive Trade Practices Act, 1969

The Monopolies and Restrictive Trade Practices Act, of 1969 is repealed with the enactment of the Competition Act, of 2002. On the dissolution of the Monopolies and Restrictive Trade Practices Commission, the person appointed as a Chairman of the MRTP Commission and every other person appointed as member and Director General of the MRTP Commission.

Other employees including Additional, Joint, Deputy, Directors General of Investigation and Registration holding office as such immediately before the dissolution of the Commission vacated their respective offices with the compensation for premature termination.

It was further provided that on the premature termination of the Director General of the Investigation and Registration, Additional, Joint Deputy or Assistant Directors or any other employee appointed on a deputation basis and whose services were being terminated reverted to parent cadre, Ministry or Department, as the case may be.

Also, the Director General of Investigation and Registration, and as many Additional, Joint, Deputy or Assistant Director or any other employee whose services were terminated and the employee appointed by the Central Government, were retained by the Central Government on the same cadre.

All the cases pertaining to the restrictive trade practices under the MRTP Act on commencement of the Competition Act, 2002 were adjudicated by the Competition Commission. The investigation and proceedings that were pending before the Director General of Investigation and Registration at the time of commencement of the Act were transferred to the Competition Commission of India.

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