legal aspects

Need for Competition Act when world at large is a single platform for carrying out

trade and commerce

Legal Aspects

By:Zain ShaikhZeel ShahZubin DaverDipesh SansparaRaj JainKhushboo JainSagar ShahAkshay MehtaDipesh Thakkar

Index

Introduction•Monopolistic and Restrictive Trade Practice under MRTP Act, 1969•Restricted practices•Difficulties arisen out of MRTP Act Competition•Meaning•Benefits of Competition Competition Act•Stated objectives•To achieve its objectives•Parameters of Competition Law

MRTP Act Vs Competition Act 

Competition Act covers the following aspects:•Anti - Competitive Agreements•Abuse of Dominant Position by enterprises•Regulation of Mergers and Acquisitions (M&As)

Statistical Data Case Studies (1 & 2) Comparison between India’s Competition Act, US Anti-Trust Laws and European Union Competition Act Conclusion

Introduction

Monopolistic and Restrictive Trade Practice under MRTP Act, 1969

Under this act, following are restricted practices•Price fixing•Bid ragging•Re-sale price fixation•Exclusive dealing

Difficulties arisen out of MRTP Act:•Lack of clarity on various definitions and interpretations•Discrimination between Public and Private Sector •The LPG Paradigm

Caselet # 1 (Price Parallelism and Price Fixing, Under MRTP Act)

Competition

MeaningCompetition is “a situation in a market in which firms or sellers independently strives for the buyers’ patronage in order to achieve a particular business objective for example, profits, sales or market share” (World Bank, 1999).

Benefits of Competition•Companies: Efficiency, cost-saving operations, better utilization of resources, etc.•The Consumer: Wider choice of goods at competitive prices •The Government: Generates revenue

Competition Act

Preambles stated objectives are:•Eliminate practices having adverse effect on competition.•Promote and sustain competition.•Protect consumers’ interests.•Ensure freedom of trade carried on by other participants in markets.

To achieve its objectives, the Competition Commission of India should do the following

Parameters of Competition Law

MRTP Act Vs Competition Act based on:

•Time Period

•Objective

•Offences

•Formation of Funds

•Interest

•Unfair Trade Practices Dealt by

•Role of Commission

Competition Act covers the following aspects:

•Anti - Competitive Agreements. Example, cartels.

•Abuse of Dominant Position by enterprises. Example, Predatory pricing, barriers to entry.

•Regulation of Mergers and Acquisitions (M&As).

Anti-Competitive Agreements

Agreement= Offer + AcceptanceOffer and acceptance may be express or implied.

Agreement includes any arrangement or understanding or action in concert:Arrangement suggests some sorts of communication or exchange of views.Understanding focus on behavioral communication or adoption of a particular conduct by parties.Action in concert means focus on coordination between parties.

Horizontal Agreements

Few types of horizontal agreement prohibited:

•CartelsCaselet # 2(Cement companies)Caselet # 3 (International) (Tansportation from Phnom Penh to Siem Reap via Boat)

•Bid-RiggingCsselet # 3 (International) (Transportation from Phnom Penh to Siem Reap)Caselet # 4

Vertical Agreements

•Tie-in arrangementCaselet # 5 (International)(Napier Brown v/s British Sugar)

•Exclusive supply agreementCaselet # 6(Jindal Steel & Power Ltd.)

•Exclusive distribution agreementCaselet # 7 (International)(Standard Fashion Co. v. Magrane-Houston Co)

(Contd.)

•Resale price maintenanceCaselet # 9(E. Merck (India) Ltd.)Caselet # 10 (International)(Korea Fair Trade Commission (KFTC) v/s Philips Korea)

•Refusal to dealCaselet # 8(Taraorimandi Goods Transport Union)

PENALTIES

Abuse of Dominance

Meaning

Criteria to be considered for being in Dominant Position•Market share,•The size and resources of the enterprise,•Size and importance of competitors,•Economic power of the enterprise,•Vertical integration,•Dependence of consumers on the enterprise,•Extent of entry and exit barriers in the market,•Countervailing buying power,•Market structure and size of the market

If companies indulge in the following acts, they are considered to be abusing the power of their dominance:•Unfair or discriminatory condition or price•Limiting or restricting production of goods or provision of services•Limiting or restricting technical or scientific development to the prejudice of consumers•Denying market access in any manner

Caselet # 11(Competition Commission of India v DLF)

Caselet # 12(AMD vs Intel)

Combinations

MeaningSection 5: CombinationSection 6: Regulation of combinations

Motives behind Mergers of the Company(i) Economies of Scale(ii)Increased revenue /Increased Market Share(iii) Cross selling(iv) Corporate Synergy(v) Taxes(vi) Geographical or other diversification

Types of Mergers:

(1)Horizontal merger

(2) Vertical merger

(3) Conglomerate merger

Waiting Period in MergerInternational experience shows that 80-85% of mergers and acquisitions do not raise competitive concerns and are generally approved between 30-60 days.

Top 5 Indian Mergers & Acquisitions in recent years

1) Tata Chemicals buys British salt

2) Reliance Power and Reliance Natural Resources merger

3) Airtel’s acquisition of Zain in Africa

4) Abbott’s acquisition of Piramal healthcare solutions

5) GTL Infrastructure acquisition of Aircel towers

Caselet # 13 (File mandatory notice prior to entering into combination) Caselet # 14 (Combination of Saint-Gobain Produits Pour la Construction SAS (SGPPC) and Shri Ram Electro Cast Limited (SREL) allowed)

Caselet # 15 (Acquisition of control over Network18 Group companies by Reliance Industries cleared)

Statistical Data

Case Study # 1 Mr. V. Senthilnathan, Chartered Accountant Informant Opposing Party 1: M/s. United India Insurance Co. Ltd. Opposing Party 2: M/s. E-Meditak (TPA) Services Ltd.

Case Study # 2 Shri Ratanshi A. Ashar vs Kotak Mahindra AMC and ING AMC (opposite Party)

Comparison between India’s Competition Act, US Anti-Trust Laws and European Union

Competition Act

•Price fixing and related behavior

•Legislation

•Cartels

•Penalty

CONCLUSION

This era of globalization the emergence of multinational corporations, interdependence of economies and the role of private enterprises in economic development is emerging as a watershed in the “regulatory and reform” thinking. The Indian Competition Act, 2002 is one such form of regulatory mechanism.

Some Suggestions for Competition Act

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