This research paper focuses on comparing the competition laws of the European Union (EU) and the United Kingdom (UK) with the antitrust laws in the United States (US). As India opened up its economy through liberalization, it aimed to prepare for both domestic and international competition. To support this, India developed competition laws under the Competition Act, 2002, which are designed to promote fair market practices and overall economic growth. These laws are influenced by competition laws from other countries but are adapted to suit India’s market conditions. The paper compares key principles of competition laws such as anti-competitive agreements, abuse of dominant market position, and regulation of mergers and acquisitions.
Competition is important because it motivates businesses to offer the best products or services at the most affordable prices, which benefits consumers. To understand competition law, we need to look at its history and objectives, which tell us how it helps regulate businesses to prevent unfair practices. The paper explores how competition law is applied in real life by considering the authority behind its creation and its impact on society. It also examines whether the law is fair and effective in achieving its goals. The paper highlights the importance of balancing different interests, such as protecting consumers and ensuring fair competition, and discusses how this applies to India’s current competition law. Additionally, various legal philosophies are used to analyze the nature and enforcement of competition law, helping us understand its broader significance.
The Competition Commission of India (CCI) was created under the Competition Act of 2002 to maintain healthy competition in India’s markets. Its main job is to prevent unfair practices that could harm competition, protect consumer interests, and ensure that businesses have the freedom to operate fairly. The CCI works in two main ways: by promoting awareness of competition issues called advocacy and by acting against businesses that break competition rules enforcement. Both of these efforts work together to create a fair and competitive business environment that benefits consumers and supports economic growth. In short, the CCI aims to make sure that businesses compete fairly and consumers are protected from harmful practices.
Introduction
Capitalism is an economic system that has become widespread around the world. It started to grow in the 17th century when mercantilism started fading away. In a capitalist system, the government doesn’t get involved much, and private companies own the resources needed to produce goods and services. The prices of goods and services are set by supply and demand in the market. Capitalism is often seen as good for economic growth and efficiency because it gives businesses and individuals the freedom to make their own economic decisions. However, there are some problems with capitalism. It can lead to a few big companies dominating the market (monopoly), create large gaps between rich and poor income inequality, and prioritize profit over social well-being. To address these issues, some government regulation is needed, but too much regulation can limit the freedom that drives capitalism. Different countries have different ways of balancing competition in the market and government involvement, leading to various models of capitalism around the world.
Philosophy aims to offer a deep and comprehensive understanding of the world around us, and this includes areas like law. Philosophers such as Oakeshott believe that law can be better understood by connecting everyday ideas to broader concepts, helping us see how law fits into human experience. According to Alexy, legal philosophy is about reasoning and thinking deeply about what law is and how it works.
Competition law is a set of rules created to protect and encourage competition in markets. While the specifics of these laws may vary from one country to another, their core purpose remains the same: to ensure that markets remain competitive. These laws help prevent businesses from unfairly limiting competition, which can harm consumers and the economy. The relationship between law and economics is key in competition law, as it tries to balance freedom in the market with fairness.
A famous Canadian Supreme Court case, Weidman v. Shragge, highlights the importance of competition by stating that freedom of thought and action leads to discovery, invention, and competition. It suggests that without competition, human progress would stall. This paper aims to examine the nature of competition law using Alexy’s method. First, it will look at the components of competition law, then it will explore its validity by examining how laws are enforced through coercion and whether they are correct or through correctness.
What is Competition law
In a laissez-faire economy, where the government takes a hands-off approach, market forces usually balance themselves and fix any issues that arise. However, most modern economies aren’t like this. Instead, companies sometimes intentionally create market distortions to gain an unfair advantage. This could happen through strategies that limit competition, such as price-fixing or forming monopolies. Because of this, the government needs to keep an eye on markets to ensure that companies don’t manipulate them in ways that harm consumers or limit competition.
This is where competition law, also known as anti-trust law, comes in. These laws are meant to promote and protect fair competition in the market. Many countries around the world have competition laws and enforcement agencies to ensure businesses follow the rules. While the way competition law is applied may differ from one country to another, the core idea is the same: these laws prevent businesses from engaging in practices that reduce competition or harm consumers. It is important for businesses to understand and follow these rules to avoid penalties and ensure a fair and competitive market for everyone.
History of Competition Law in India
In 1969, India introduced the Monopolies and Restrictive Trade Practices Act (MRTP Act) to prevent the concentration of economic power in the hands of a few businesses. The aim was to control monopolies and avoid practices that would restrict trade, ensuring a fairer market for everyone. However, as India grew and embraced reforms like Liberalization, Privatization, and Globalization, it became clear that the MRTP Act was no longer effective. The government realized that in order to support the aspirations of over a billion people, a new approach was needed one that would promote competition, not just curb monopolies.
In 1999, India’s Finance Minister, Shri Yashwant Sinha, acknowledged that the MRTP Act had become outdated due to global economic changes and competition laws. He proposed the idea of shifting from restricting monopolies to encouraging healthy competition in the market. This led to the formation of a High-Level Committee chaired by Mr. Raghavan, which recommended replacing the MRTP Act with a modern law focused on fostering competition and eliminating anti-competitive practices.
After gathering input from various stakeholders, the Competition Bill, 2001 was introduced and eventually became the Competition Act, 2002. The main goal of this new law is to ensure fair competition in the market, protect consumer interests, and allow businesses to freely trade without unfair restrictions. The Competition Act is designed to promote a competitive environment while supporting the overall economic development of the country, with the belief that a competitive market benefits both consumers and businesses.
Role of Competition law
Competition has been an essential part of human society since the beginning of civilization. In a market economy, businesses compete with each other to win customers. This rivalry pushes companies to improve their products, reduce costs, and become more productive. Although businesses act in their own self-interest, this competition ultimately benefits everyone in society.
For consumers, competition is advantageous because it means they can choose from a wide variety of good quality products at lower prices. Businesses also benefit from competition, as lower prices for materials and services help them reduce costs and remain competitive. On a larger scale, the economy thrives due to competition, as it leads to the efficient use of resources. This helps businesses innovate, which in turn boosts productivity and economic growth.
When markets are competitive, resources are used wisely, and more goods and services are produced. This leads to a higher standard of living for everyone. On the other hand, when there is a lack of competition, such as in cases of price-fixing or when one company controls the market, both consumers and the economy suffer in the long run. Without competition, prices can rise, quality may decrease, and innovation slows down, harming society as a whole.
Competition Act, 2002
The Competition Act of 2002, which was amended by the Competition (Amendment) Act in 2007, aims to create a fair and competitive market environment in India. The main goals of this law are to prevent practices that negatively affect competition, encourage healthy competition in markets, protect consumers’ interests, and ensure that businesses in India have the freedom to trade.
The Act focuses on stopping anti-competitive activities that can harm competition in the country. To enforce these rules, the law established a special body called the Competition Commission of India (CCI), which is responsible for overseeing and managing competition-related matters. The CCI ensures that businesses follow the rules, promoting a level playing field and benefiting consumers and the economy as a whole.
Objectives of Competition law
- Welfare State Principles
It is outlined in the Constitution, focus on promoting the well-being of the people and ensuring that the economy does not lead to a situation where a few people or businesses control all the wealth and resources. This idea is rooted in the Directive Principles of State Policy, which guide the government to create a social order that benefits everyone, not just the rich and powerful.
To put this into practice, the Indian government introduced laws like the Monopolies and Restrictive Trade Practices Act (MRTP) in 1969. This law aimed to prevent businesses from creating monopolies where one company controls a market completely and can dictate prices. A monopoly can harm the public by limiting competition, increasing prices, and reducing choices for consumers.
The Monopolies Inquiry Commission (MIC) explained that a monopoly is when a business has the power to control prices and dominate the market. The MRTP Act was designed to stop such practices to protect public interest and ensure a fair economic system for everyone.
- Democratic Principles
In 1991, India shifted from a ‘command and control’ economy to a more ‘free market’ system due to the liberalization, privatization, and globalization (LPG) reforms. This change aimed to promote more economic freedom and a fair distribution of economic power, aligning with democratic and libertarian values. Although the Monopolies and Restrictive Trade Practices Act (MRTP) had been updated multiple times over the years, it became clear after the 1991 reforms that India needed a new system to better support its growing economy.
By 1999, it was recognized that the MRTP Act was no longer effective in addressing the global changes in competition policy. As a result, India decided to shift focus from just controlling monopolies to actively promoting competition. This led to the introduction of the Competition Act, 2002 (CA), which aimed to prevent practices that harm competition, promote fair competition, protect consumer interests, and ensure that all market participants have the freedom to trade.
The creation of this new law reflected the idea that protecting various values, such as minority rights, is essential in a liberal democracy. By repealing the MRTP Act and replacing it with the Competition Act, India took a step towards creating a legal framework that better suits its modern economic needs, placing current choices on a meaningful path from past actions, as suggested by philosopher Postema.
- Consumer Welfare
Welfare, particularly the well-being of consumers, is a key goal of competition law. The Competition Commission of India (CCI) has highlighted that the main purpose of the Competition Act is to protect consumers’ interests and ensure that businesses in India can freely participate in the market.
This is clearly stated in the preamble of the Act, and Section 18 further strengthens the focus on consumer protection. In the case of Excel Crop Care Ltd. v. Competition Commission of India, the Supreme Court also emphasized the primary objectives of the Competition Act. It reiterated that the law aims to improve consumer welfare by preventing anti-competitive practices. The Court explained that by curbing unfair business practices, the law helps create a more equal and competitive marketplace, where businesses must compete fairly, benefiting consumers.
- Economic Efficiency
Efficiency is another important goal of competition law, which helps improve how businesses operate in the market. It plays a key role in reviewing mergers, vertical agreements, and cases of companies abusing their market power. The idea behind promoting efficiency is to ensure that resources like raw materials, labor, and technology are used in the best possible way to create and distribute goods and services.
This can only happen when businesses are encouraged to use their resources wisely, leading to the maximum benefit for society. To achieve this, resources need to be allocated optimally in a competitive market, where fairness and reasonableness are essential. When competition is fair, businesses are motivated to improve their processes and deliver better products and services at better prices, ultimately benefiting everyone.
- Free and Fair Competition and other Associated Objectives
Competition is at the heart of competition law. In the case of United States v. Topco Associates, it was pointed out that every business, no matter how small, should have the freedom to compete vigorously and creatively in the market. This freedom to compete is crucial because it helps improve society’s well-being, according to mainstream economic theory. The idea of a perfectly competitive market where businesses can freely enter and exit, and consumers have many choices forms the basis of economic theory. This also supports other important goals, such as freedom of trade, access to markets, and ensuring economic freedom for all.
Anti-competitive Agreements
The Competition Act seeks to regulate two kinds of agreements:
- Horizontal Agreements
These are agreements between businesses that are at the same level in the production chain (example: between two companies that make the same product). Some horizontal agreements are presumed to automatically because anti-competitive effects called AAEC – Adverse Effect on Competition.
However, this presumption is not final. If businesses enter into a horizontal agreement, they can prove that their agreement does not harm competition. In such cases, they can rebut the presumption of anti-competition. The Competition Act provides a clear list of horizontalagreements that are presumed to cause AAEC.
If any of these agreements are made, it is presumed that they harm competition. Businesses can still present evidence showing that their agreement does not cause harm to competition.
Vertical Agreements
These are agreements between businesses at different stages or levels of the production chain (example: between a manufacturer and a retailer). Vertical agreements are not presumed to be anti-competitive. They are usually allowed, unless it is shown that they harm competition (cause AAEC). Vertical agreements are not automatically presumed to cause harm. They can be prohibited if it can be shown that they result in anti-competitive effects.
Under India’s Competition Act, vertical agreements, such as tie-ins, resale price maintenance, exclusive supply agreements, and refusal to deal, are not automatically assumed to harm competition (AAEC). Instead, these agreements are examined in detail through what is called the “rule of reason” test. This means that the Competition Commission of India (CCI) will only prohibit such agreements if it can be proven that they are likely to negatively impact competition.
For the CCI to take action, the agreement must meet five essential criteria: it must involve an agreement between two parties, they must operate at different stages of the production or supply chain for example, one is a manufacturer, and the other is a distributor, they must be in separate markets, the agreement must fall under the types listed in the Act, and the agreement must cause or be likely to cause harm to competition in India.
The CCI has emphasized that for an agreement to negatively affect competition, the parties involved must have some market power in their respective sectors. In recent cases, for example, the CCI fined 14 companies for entering into exclusive distribution or refusal to deal agreements related to spare parts, as the companies were dominant in supplying parts for their specific brands.
Additionally, if an agreement does not fit strictly as either horizontal or vertical but still harms competition, it could still be considered anti-competitive. Lastly, in 2013, the Indian government temporarily exempted certain agreements in the shipping industry from these regulations for one year, but it’s unclear if this exemption has been extended.
De Minis Test
In India, filing with the Competition Commission of India (CCI) is not required for mergers and acquisitions if the target company has assets of INR 2.5 billion or less, or if its turnover is INR 7.5 billion or less. However, the CCI can still review mergers or acquisitions that take place outside of India if they meet certain asset or turnover thresholds. When a transaction is subject to CCI review, a notification must be submitted within 30 days of either the board of directors approving the deal or the signing of an agreement.
If there is no formal agreement but the intention to acquire is communicated to the government or an authority, that communication date is treated as the “execution” date for notification purposes. In case of a hostile takeover, the notification must be made within 30 days of the acquirer indicating its intention to take over shares, assets, or voting rights.
Even if a company does not submit a notification within the required time frame, the CCI can still investigate the transaction within one year of its implementation. The responsibility to notify the CCI depends on the type of transaction: in acquisitions, the acquirer must notify the CCI, while in mergers or amalgamations, all parties involved must jointly notify it. Notifications can be made using Form I or Form II.
Form I am typically used unless the merger is horizontal and the combined market share exceeds 15%, or vertical, with a combined or individual market share of over 25%. In those cases, Form II is preferred. The CCI can also ask for additional information and request a switch to Form II even after a Form I notification. Filing fees are INR 1.5 million for Form I and INR 5 million for Form II.
Certain transactions, like those involving share subscriptions or investments made by banks, financial institutions, venture capital funds, or foreign investors, are exempt from prior CCI notification. However, these transactions still require notification to the CCI within seven days of completion. Additionally, combinations involving banking companies that are subject to special government notifications are also exempt from filing requirements for 5 years.
Merger Review
The Competition Act in India aims to prevent business combinations that could harm competition in the market. It uses an “effects test” to assess whether a proposed merger or acquisition would negatively impact the market by reducing competition, increasing prices, or harming consumers. The Competition Commission of India (CCI) evaluates various factors like market entry barriers, the power of buyers, and how competitive the market will remain after the combination. Based on this analysis, the CCI can approve the combination, disapprove it, or approve it with conditions.
Since 2014, the CCI has taken a more thorough approach to review transactions that might have otherwise escaped scrutiny. Now, parties involved in transactions must provide more details, even if those transactions may seem exempt. The CCI must form an initial opinion within 30 days about whether the transaction will harm competition. If it believes there could be an issue, the review time is extended to a maximum of 210 days. During this period, the CCI may ask for more information or hold public consultations.
The review process can be broken into two phases. In Phase I, the CCI makes an initial judgment and can approve the combination if no anti-competitive effects are likely. In Phase II, if the CCI believes there may be competition issues, the process takes longer and includes detailed investigations and public notice of the transaction. If the CCI doesn’t decide within 210 days, the combination is automatically approved.
Over the years, the CCI has reviewed over 200 combinations in various sectors like pharmaceuticals, automobiles, and media. While most have been approved, some have had conditions, such as removing restrictive clauses or ensuring fair access to services. In a few cases, the CCI has required companies to sell off certain assets or product lines to reduce competition concerns. One notable case involved two pharmaceutical companies where the CCI approved the merger, but only if they sold off some key products. This marked the first time the CCI used structural remedies in a merger case.
Penalties and Liabilities
The Competition Act, which replaced the MRTP Act, introduces much stricter penalties for violating its rules. The Competition Commission of India (CCI) can impose fines of up to 10% of a company’s average turnover over the past three years for anti-competitive agreements or abuse of dominance. In cases of cartels, the penalty can be the higher of either three times the total profits made during the cartel period or 10% of turnover for each year the cartel continues.
The CCI also has the power to order companies involved in such practices to stop immediately and even change the terms of anti-competitive agreements. In cases of dominance abuse, the CCI can even order the splitting up of the company involved. Over the years, the CCI has sent a clear message that it will use its powerful penalty powers when needed, imposing fines up to the maximum allowed by law. For example, in a cartel case involving seven regional film bodies and another involving 11 cement companies, the CCI imposed hefty fines. However, one area that remains unclear is how the CCI determines the exact amount of the fine.
While other regions like the European Union take factors like the degree of involvement and any mitigating circumstances into account, the CCI has not provided clear guidelines on this yet, though it may do so in the future.
When it comes to mergers and acquisitions (combinations), if the CCI believes that the combination could harm competition in India, it can block the deal or approve it with modifications. If a company fails to notify the CCI about a combination, it can face a fine of up to 1% of the total turnover or assets of the companies involved. In some cases, such penalties have been as high as INR100 million. If companies go ahead with a deal before getting approval (called “gun-jumping”), they can also face fines, though these fines have been lower than the maximum allowed, like INR10 million or INR30 million in two instances. The CCI has not yet imposed the highest possible fine for these violations.
Additionally, if companies fail to comply with CCI orders or directions from the Director General (DG), they can be fined INR100,000 for each day of non-compliance, with a maximum fine of INR10 million. If they fail to pay the fine, they could face imprisonment for up to three years or a fine up to INR250 million. A notable case where the CCI imposed a fine for non-compliance was on Kingfisher Airlines for not providing required information during an investigation. This fine was later reduced, but it sent a strong message that the CCI could fine companies for not following its orders.