COMPETITION ACT 2002 AND ITS ROLE IN CORPORATE SECTOR

After Independence the government started focusing on boosting up the economy and its developmental areas. To improve the conditions of the industries the government introduced Industrial policies that gave the power to the manufactures and industrialists to run their practices in the market. But it has caused to the misuse of the powers given to them and leads to the exploitation of consumers through unfair trade practices. As a result monopoly, restrictive and unfair trade practice has ruined the market. To protect and put a control over such activities MRTP Act (Monopoly Restrictive Trade Practice) 1969 was enacted. This act has imposed huge restrictions on the manufactures; however in 1991 the government introduced LPG (Liberalization, Privatization and Globalization) that has reduced the restrictions imposed under MRTP.

India in the pursuit of globalization started opening up its economy with the motive to remove control and resorting to liberalization. It leads to the improvement in the market with the help of innovative techniques and encouraged the enterprises to set up their units and also provided a wider choice to the consumers with higher quality of products at lower price. This resulted in greater transparency and accountability. As a consequence, the competition has been observed in the Indian market from within the country or outside. This leads to the enactment of Competition Act 2002 which replaced the MRTP Act 1969 on the recommendation of Raghavan Committee.

Competition Act 2002 came into force on 1st September 2009. This act was introduced to provide a commission (Competition Commission of India) to look into the matters and prevent anti-competitive practices, protect consumer’s interest, promote and ensure freedom of trade practices in the market. The act covers three main aspects

  • Anti-competitive Agreements

  • Abuse of dominant position

  • Combinations and their regulation

After the abolition of Art. 370, the act applies to whole India including J&K. The competition commission of India (CCI) is a statutory body that aims to create a robust competitive environment through imposing Competition Act 2002. The Act was amended in 2007 and it based on modern competition laws. It has established the competition Appellate tribunal (COMPAT) and competition commission of India. Later on, COMPAT was replaced with the National Company Law Appellate Tribunal (NCLAT) by the government in 2017. The competition act is concerned with prohibition of anti-competitive agreements, abuse of dominance and regulates combinations that can cause an appreciable adverse effect on competition.

Anti-Competitive Agreement 

Under sec 3(1) of the competition act the enterprises or associates are prevented to enter into any agreement which is likely to cause an appreciable adverse effect on competition (AAEC). Further sec 3(2) clearly explains that any agreement formed in contravention of sec 3(1) shall be void. The anti-competitive agreement is divided into 2 categories – horizontal agreements and vertical agreements.

  • Horizontal Agreements Sec. 3(3): are the agreements between two or more enterprises that stand at par with each other in terms of production or supply distribution in the same market. Under competition act 2002, the following horizontal agreements are prohibited – agreements regarding fixing of purchase and sale price of a product either directly or indirectly; agreement relating to limit, controls the production or supply; agreement regarding sharing market, big rigging agreement; agreement in form of cartels.

  • Vertical Agreements Sec. 3(4): are the agreements that takes place among the enterprises or people at different levels of production in respect of production, sale, storage, supply etc. vertical agreements include – Tie-in-arrangements; exclusive distribution agreements; resale price maintenance; exclusive supply agreement & refusal to deal

Abuse of Dominance:

Under sec 4 of the competition Act 2002 prevents any group or enterprises from abusing its power. Abuse of dominant position is a position of strength enjoyed by the enterprise in the relevant market and enables it to operate independently of competitive forces and affect competitors, consumers or relevant market in its favour. The acts which amount to ‘abuse of dominance’ are mentioned below:

  • Impose unfair or discriminatory condition or price in sale or purchase of goods or services

  • Production of goods or services

  • Limit or restrict

  • Scientific or technical development in goods or services to the prejudice consumers

Regulations of Combinations:  

Section 5 of the act defines the combination by providing certain threshold limits below that combinations would not be covered under the scanner of competition Act. There are three types of combinations – Acquisition; merger or amalgamation and acquiring.

  • Acquisition

  • The parties to the Acquisition of shares, voting rights or assets acquired or being acquired jointly- (A) In India, the value of the asset is more than 1000 Crores or turnover more than 3000 Crores. (B) In India or outside India, in aggregate the value of the asset is more than 500 million US dollars including 500 Crores in India or turnover of more than 1500 million US dollars including at least 1500 Crores in India.

  • The group of enterprises acquiring assets, shares or voting rights have been acquired or being acquired would belong after the acquisition, jointly have or would jointly have- (A) in India, the assets value is more than 4000 Crores or turnover more 12000 Crores. (B) in India or outside India, in aggregate the value of asset is more than 2 billion US dollars including at least 500 Crores in India or turnover of more than 6 billion US dollars including at least 1500 Crores in India

  • Merger and amalgamation

  • The enterprise after merger or the enterprise so created after amalgamation should have (A) in India the value of asset is more than 1000 Crores and turnover more than 3000 Crores; (B) in aggregate assets outside India is 500 million dollars including at least 500 Crores and turnover more than 1500 million dollars including at least 1500 hundred Crores in India

  • If the enterprise so created after amalgamation or reminded after merger belong to a group, then the group must have (A) In India the value of asset is more than 4000 Crores and the turnover is more than 12000 Crores; (B) in India or outside India, in aggregate the value of asset is 2 billion US dollars and turnover more than 6 billion US dollars, including at least 1500 Crores in India.

Further, Sec 6 of the Act deals with the provisions of regulations of combinations like no enterprise can enter into any combination that is likely to cause an AAEC; the enterprise has to give notice to the commission by disclosing the details of proposed combination within 30 days from the date on which the proposed combination had been approved. The commission has the power to refuse any combinations. 

Composition of CCI

Under competition act 2002, the central government appoints CCI members consist of one chairperson and six members in the commission. The commission is a quasi judicial body that gives the opinions to the statutory bodies and deals with other cases.

Role of CCI

  • Eliminate practices having adverse effect on competition and ensure freedom of trade in the market of India.

  • Provide opinion on competition issues, create public awareness, undertake competition advocacy and impart training on the competition issues.

Objective of CCI

  • Ensure fair competition for the growth and development of the economy

  • Ensure consumer welfare

  • Foreign company seeking entry through an acquisition or merger shall be abide by the competition Laws

  • Effectively carry out competition advocacy and create awareness

  • Implement competition policies for efficient utilization of economic resources.

  • Helps in familiarizing with the legal remedies available in competition law

  • Protect the small enterprises, micro retailers or self employed against abuse and Guarantees that no enterprise abuses their dominant position in the market.

     Role in corporate sector

Any economy develops or thrives when there is no restriction on trade and fair competition prevails in the market. To protect the market from all kinds of unfair trade practices, monopolies, cartels etc., the competition Act 2002 was introduced. The act was enforced by the CCI to protect businesses and small firms from unfair competition and its adverse effect. The CCI promote the fair competition, restrain anti-competitive behavior and discourage the market player from adopting unfair trade practices in the market. The act has imposed penalty against the companies who are at fault and discourage the enterprise from practicing it. Competition law is beneficial in following ways

  • Promote freedom and free enterprise system

  • Promotes domestic industries

  • Protection against market distortions

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