1. Competition Act, 2002

2. Table of Contents Introduction - Competition Act, 2002 Prohibition of Anti Competitive Agreement Prohibition of Abuse Dominant Position Combination and Regulation of Combination Proposed Amendments - Competition Act 3. Terminologies Competition Act MRTP Act Monopolies Restrictive Trade Practices Act, 1969 Appreciable adverse effect on competition (AAE) - The term AAE has not been defined under the Act. Cartels - A consortium of independent organizations formed to limit competition by controlling the production and distribution of a product or service. Enterprise means a person or a department who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities. Agreement is any arrangement, understanding or concerted action entered into between parties. 3 4. Evolution of Competition Act (MRTP Act) legislated The Competition Act legislated 4 5. Need of Competition Act MRTP Act, 1969 Competition Act, 2002 Frowns upon dominance Frowns upon abuse of dominance No combinations regulation Combinations regulated beyond a high threshold limit. Competition Commission appointed by the Government Competition Commission selected by a search committee Very little administrative and financial autonomy for the Competition Commission Relatively more autonomy for the Competition Commission No penalties for offences Penalties for offences Reactive and rigid Proactive and flexible Unfair trade practices covered Unfair trade practices omitted (consumer for a will deal with them) Does not vest MRTP Commission to inquire into cartels of foreign origin in a direct manner. Competition Law seeks to regulate them. 6. Objective of Competition Act The Preamble of the Competition Act states that this is an Act to establish a Commission to prevent anti- competitive practices, promote and sustain competition, protect the interests of the consumers and ensure freedom of trade in markets in India. The main components of Competition Act are: prohibits anti-competitive agreements including cartels (sec 3) prohibits abuse of dominant position (sec 4) Provides for regulation of combinations (sec 5,6) Includes (M & A) 6 7. Provisions of Competition Act All provisions of the Competition Act are not notified. The substantive provisions of the Competition Act of the entities viz prohibition of (i) anti competitive agreements and (ii) abuse of dominance have been notified as on 21st May, 2009. However, other substantive provisions relating to regulation of combinations have not yet been notified. Finally with effect from June 1, 2011 (Effective Date) the Government of India and Ministry of Corporate Affairs notified the much debated and dreaded provisions of the Competition Act, 2002 (Act) relating to combinations namely Sections 5 and 6. The provisions of the MRTP Act are still in force and would be repealed only when all the provisions of the Competition Act have been notified. 7 8. Competition Commission of India Competition Act provides for the establishment of a Competition Commission of India CCI. It takes suo moto action against any alleged violations under the Act. It prevents practice having adverse effect on competition, to promote and sustain competition in markets, to protect interests of consumers and to ensure freedom of trade carried on by other participants in markets. CCI prohibits enterprises to enter into anti-competitive agreements, abusing their dominant position and forming combinations. No civil court has the jurisdiction to entertain any suit or proceeding which CCI is empowered under the Act or no injunction can be granted by any court or authority. Any person aggrieved by any decision or order of CCI may file an appeal to the Supreme Court within 60 days. Any anticompetitive activity taking place outside India but having an AAE within India shall be subjected to the application of the Competition Act. (EXTRA-TERRITORIAL REACH of CCI) 8 9. Prohibition of Anti-Competitive Agreements (Section 3) 9 10. Prohibition of Anti-Competitive Agreements Section 3(1) of the Competition Act provides that no enterprise or a person shall enter into an agreement, which causes or is likely to cause an AAE within India. It is further clear from the provision that if an agreement does not have any AAE then it will remain out of the purview of this provision. However, Section 19(3) of the Competition Act states that while determining whether an agreement has an AAE, CCI shall have due regard to all or any of the following factors: creation of barriers to new entrants in the market; driving existing competitors out of the market; foreclosure of competition by hindering entry into the market; accrual of benefits to consumers; improvements in production or distribution of goods or provision of services; promotion of technical, scientific and economic development by means of production or distribution. 10 11. Agreements as per se illegal Horizontal Agreements (amongst competitors) - sec. 3 (3) Persons engaged in identical or similar goods or services enter into an agreement : to determine purchase or sales prices price fixation to limit / control production, supply, technological developments, etc. to share the market, allocate geographical markets or number of customers for * bid rigging or collusive tendering All the above 4 Agreements shall be presumed to have an appreciable adverse effect on competition * Bid rigging which has effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. 11 12. Case Study Columbia AVIANCA, Columbias largest airline planned a merger with the countrys second largest airline, ACE. Justifications given for the merger were : AVIANCA had huge accumulated losses, and the merger would be a potential answer to its financial problems. The merged airline could effectively compete with foreign carriers in the international market HELD : Merger would be anti-competitive : The merged airline would be FOUR times the size of its nearest domestic rival. 13. Agreements as per se illegal Vertical Agreements (manufacturer & distributor) sec. 3 (4) Tie-in Arrangements includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods. Exclusive Supply Agreements includes any agreement restricting the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person. Exclusive Distribution Agreements includes any agreement to limit, restrict or withhold the output or supply of goods or allocate any area or market for the disposal or sale of the goods. Refusal to deal includes any agreement which restricts the persons or classes of persons to whom goods are sold or from whom goods are bought. Resale price maintenance includes any agreement to sell goods on condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller. Such an Agreement will be contravention of the Act IF the Agreement causes or is likely to cause an appreciable adverse effect on competition. 13 14. Modus Operandi Test Anti Competitive Agreement ?? Are you an enterprise or a person as defined under section 2? Does your agreement fall under any one of the categories (exclusive supply, resale price maintenance, etc.) specifically enlisted under section 3(4)? Does your trade practice fall under any of the presumptive provisions of section 3(3) i.e. market sharing, price fixation agreements, etc? Yes Have you entered into an agreement with any person or enterprise engaged in identical or similar trade? Yes Yes YesNo Does this agreement cause or is likely to cause an appreciable adverse effect on competition within India? Not an anti- competitive agreement ANTI COMPETITIVE AGREEMENT UNDER SECTION 3 14 Does this trade practice fall under proviso to section 3(3) i.e. increases efficiency in production, supply, etc.? Yes Yes 15. Exceptions to Provisions of Anti Competitive Agreement The prohibition on horizontal and vertical agreements do not restrict the right of any person to restrain any infringement of IPRs or to impose reasonable restrictions as it may be necessary to protect his rights under the statutes: the Copyright Act, the Patents Act, the Trade and Merchandise Marks Act, Designs Act. Another exception to the applicability of the provisions relating to anti competitive agreements is the right of any person to export goods from India (Export Cartel). It is excluded only, if an agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export. A cartel is regarded as the most pernicious form of violation of competition law and is subject to the most severe penalties under the law. 15 16. Prohibition of Abuse of Dominant Position (Section 4) 16 17. Prohibition of Abuse of Dominant Position Dominance refers to a position of strength that enables an enterprise to operate independently of competitive forces or to affect its competitors or consumers or the market in its favor. Mere dominance is not an offence, abuse of dominance is prohibited. An abuse of dominant position includes situations (sec 4): Unfair or discriminatory pricing (including *predatory pricing) Limiting production or technical development Creating barriers to entry or denying market access, Using dominant position in one market to enter another market, etc. No mathematical or statistical formula is adopted to measure dominance as under the repealed provisions of the MRTP Act it was calculated as (25% of market share) but on several factors listed in the Act. * predatory price means the sale of goods or provision of services, at a price which is below the cost. 17 18. Case Study Abuse of Dominant Position Microsoft, the worlds largest software company, guilty of abusing its dominant position in the market for the personal computer operating system, and violating, the EU Treatys Competition Rules. The case had arisen out of a complaint filed by Sun Micro Systems, a U.S. company and a competitor to Microsoft. Sun Micro- Systems alleged that Microsoft had refused to provide interface information which is necessary for Sun to develop products that could talk properly with the ubiquitous Windows PCs. The European Competition Commissioner investigated the matter and concluded that it was a market strategy designed by Microsoft to shut competitors out of the market. Thus European Commission imposed on Microsoft fine of Euro 497 million (US $ 612 million equivalent to approximately Rs. 2630 crores). 19. Regulation of Combinations (Section 5, 6) 19 20. Combinations In terms of Section 5 of the Act, a combination includes: (1) the acquisition of control, shares or voting rights or assets by a person; (2) the acquisition of control of an enterprise where the acquirer already has direct or indirect control of another engaged in identical business; and (3) a merger or amalgamation between or among enterprises, that cross the financial thresholds limits in terms of assets or turnover. The triggers of the Act relating to combinations are linked to the combined value of the turnover/asset of the acquirer and the target and not the transaction value. The Competition Act seeks to regulate any acquisition, acquiring of control, mergers or amalgamations if it results in assets or turnover exceeding specified monetary limits. However Government of India has exempted the acquisitions of small enterprises whose turnover is less than INR 750 crs. or whose assets value is less than INR 250 crs. from the definition of combination. Section 6 makes void any combination which causes or is likely to cause an appreciable adverse effect (AAE) on competition within India . In furtherance mandatory pre notification require before Combination from CCI . 20 21. Threshold Limits - Combination Combinations that exceeds these threshold limits applicable on Indian and foreign entities in terms of joint assets/turnover are assumed to have AAE which triggers the Act or makes the combination void. 21 Assets Turnover India No Group INR 15 billion INR 45 billion *Group INR 60 billion INR 180 billion In India & Outside Assets Turnover Total India Total India No Group USD 750 million INR 7.5 billion USD 2,250 million INR 22.5 billion Group USD 3 billion INR 7.5 billion USD 9 billion INR 22.5 billion * Group means two or more enterprises which, directly or indirectly, are in a position to (i) exercise fifty per cent. or more of the voting rights in the other enterprise; or (ii) appoint more than fifty per cent. of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise. 22. Statistical Information - 2013 Notices filed u/s 6(2) of the Act (Pertaining to sectons 5 & 6 of the Act) Suo-Moto Cases initiated by the Commission (Pertaining to Sections 3 & 4 of the Act) Cases registered u/s 19 (1)(a) of the Act. (Pertaining to Sections 3 & 4 of the Act) Reference received u/s 19(1)(b) of the Act (Pertaining to Sections 3 & 4 of the Act) Total No of cases (Pertaining to Sections 3 , 4, 5 & 6 of the Act) 45 06 107 08 166 As per information received under RTI Act, 2005. 23. Procedure for investigation of Combination 23 CCI takes a prima facie view that the combination has an AAE in India Issue a show cause notice to the parties to respond within 30 days as to why investigations should not be commenced against them with respect to the combination On receipt of the response from the combining parties, the CCI shall direct the parties to publish information pertaining to the combination to inform the general public. The CCI may direct the parties to furnish additional information regarding the combination within 15 days from the date of such direction. On receipt of such additional information CCI will have to make its determination as to whether the combination is to be allowed, disallowed or modified within a period of 45 days If CCI is not convince it will suggests some modifications to the scheme of combination and the parties to the combination have to accept the same . If parties disagrees with the suggested modifications the combination shall be declared as void. 24. Proposed Amendments 24 The Commission now provides for a post-filing review period of 210 days, during which the merger cannot be consummated and within which the Competition Commission is required to pass its order with respect to the notice received. An entity proposing to enter into a combination, shall disclose the details of the proposed combination in the specified form within 30 days of the approval of such proposal by the Board of Directors or by execution of any agreement . The filing fee to be paid along with the forms, ranging between INR 1 million to INR 4 million. 25. Proposed Amendments 25 CCI is of the prima facie opinion that the combination has caused or is likely to cause AAE on competition within India, it shall direct the parties to publish the details of the combination within 10 working days in all India editions of 4 leading daily newspapers including at least 2 business newspapers. (Form I) have been prescribed for those transactions that were in 2008 Regulations. For other transactions, Form II has been prescribed. If the CCI is of the opinion that certain modifications need to be carried out then parties to combination may have to report to a third party independent agency who may delay the execution of the combination transaction. 26. Impact on M & A The structuring of a merger or an acquisition involving Indian companies would now have to be done more meticulously. The waiting period of 210 days being a long time for the deemed approval, by the time approval is granted, it is possible that the whole dynamics of the transaction, be it pricing, or commercials may change, affecting the viability of the transaction. The proposed amendments such as pre merger consultation is a welcome change for the investor community. The reporting of a combination was optional however, the act now mandates notification within 30 days of the decision of the parties' boards of directors or of execution of any agreement or document. Execution of such a document shall trigger merger filings and which will increase compliance costs at a premature stage when it is uncertain whether the transaction will close. The reporting and notification will improve the Corporate governance by bringing more transparency in the process. 26 27. Unfavorable M & A Favourable - M & A Proposed Amendments Competition Act, 2002 28. Bibliography www.cci.gov.in www.nishithdesai.com www.indiajuris.com www.legalserviceindia.com 29. Disclaimer This presentation provides only an introduction to Competition law, and should not be relied on as substitute for the law itself. Further this presentation is subject to any amendments which may be made in the competition law at any time in future 29