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Economic & Political Weekly EPW august 28, 2010 vol xlv no 35 31

Of Omissions and Commissions: India’s Competition Laws

Aditya Bhattacharjea

Aditya Bhattacharjea (aditya@econdse.org) is with the Delhi School of Economics, University of Delhi.

In 2009, India repealed its 40-year-old Monopolies and Restrictive Trade Practices Act, and brought into force most sections of the 2002 Competition Act. After a brief introduction to the basic economic principles underlying modern competition law, this article reviews the country’s experience with the MRTP Act. It argues that the way it was structured, amended, interpreted and enforced ensured that it could not really serve as a competition law. Consequently, it did not bequeath a body of expertise that could help in the implementation of its successor, the Competition Act, which is very demanding in terms of economic analysis. The strengths and weaknesses of the new law, the reasons for its delayed implementation, and the first few decisions of the Competition Commission of India are discussed.

1 Introduction

On 1 September 2009, almost un-noticed by the media, an era came to an end with the repeal of

the 40-year-old Monopolies and Restric-tive Trade Practices (MRTP) Act. Drawing upon several high-quality studies by vari-ous authors in this journal over the past four decades, as well as my own research, Section 2 of this article provides an unsen-timental obituary of the Act, ending with its prolonged and messy demise. I argue that, despite being one of the oldest com-petition laws in the developing world, the way in which the Act was originally drafted and subsequently amended, interpreted and enforced, ensured that it could not really function as a competition law. Consequent-ly, it did not bequeath a body of expertise that could help in the implementation of its successor, the Competition Act, which is very demanding in terms of economic analysis. Section 3 offers a critical assess-ment of the latter Act, whose enforcement began in 2009, nearly seven years after its enactment. This section summarises and updates my earlier writings, some of which, as I point out below, seem to have had a modest impact on the final shape of the Competition Act. This time, however, the focus will be as much on law and (mis)governance as on economics, and so this article should appeal to a wider readership.

With that wider readership in mind, I begin with a brief introduction to the rele-vant economic principles. Modern compe-tition law (also known as anti-trust law) is primarily concerned with the prohibition or regulation of certain kinds of behaviour by market participants that might have an adverse effect on competition. These in-clude agreements or mergers between firms as well as activities of individual firms. The agreements that may need to be scrutinised are in turn subdivided into two categories. “Horizontal” agreements

between competitors selling the same or similar products may result in a cartel that collusively fixes prices, restricts output, divides up markets, or makes collusive bids in an auction or procurement process. “Vertical” agreements between firms at different stages in the production and dis-tribution chain may also limit competi-tion, for example by requiring distributors not to sell a competitor’s product, not to sell outside a particular territory, or to maintain resale prices imposed by the producer. The behaviour of a dominant single firm may also be regarded as anti-competitive if its primary motivation is to drive out rivals or deter potential competitors from entering the market. This “abuse of domi-nance” may involve temporarily charging “predatory” prices below costs so as to drive out competitors who are unable to sustain losses. Or it could take the form of tying the sale of a product in which the firm has a dominant share of the market (for exam-ple, computer hardware, printers or cars), to another product or service provided by the same firm for which there are many competing suppliers (the corresponding examples would be software, printer car-tridges, and spare parts and servicing).

Cartels harm consumers while seldom yielding any efficiency gains, and therefore in most countries evidence of a cartel agree-ment is sufficient to condemn it, without further investigation of its effects. The other actions described above may, however, be approved on a case-by-case basis under a “rule of reason” if they provide offsetting benefits. For example, a merger reduces the number of competitors, but may result in synergies or economies of scale that reduce costs. Vertical restrictions may be necessary to encourage distributors to invest in proper display facilities and customer support, and may thus enhance competition with other brands. Tying the sale of complementary products may be required to ensure per-formance or safety. These cases require careful analysis of the efficiency gains and the degree of competition in the relevant market, which must be defined taking into account potential competition from new suppliers and substitutable products. In cases where the efficiency gains do not outweigh the injury to competition, the competition

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authority may block the merger or issue an injunction to terminate the impugned agree-ment or behaviour, together with a deter-rent fine. But it may also order a modifica-tion of the merger, agreement or behav-iour, so as to preserve its benefits while minimising adverse effects on competi-tion. All this requires subtle analysis of the firms’ conduct and the market in question.

In light of the preceding discussion, it should be clear that the objective of mod-ern anti-trust is to prevent market players from restricting competition in ways that are on balance harmful to efficiency and consumer welfare. It targets abuse of a dominant position in the market, not firm size or dominance as such, and it does not seek directly to control prices or profits: it only strives to preserve conditions which would allow market forces to keep them in check.1 It does not attempt to fulfil social objectives such as protecting employment. In fact, attempting to promote competi-tion and efficiency may actually result in job losses. There is therefore a case for ex-empting small firms from some provisions of the law. But this should be done as a matter of policy rather than selectively dispensing social justice through individ-ual decisions of the competition authority. Furthermore, it should be kept in mind that condoning anti-competitive behav-iour does imply that higher prices and poorer quality will be inflicted on buyers, who may also be small producers or poor consumers. Conversely, competition law can protect these vulnerable sections of society from anti-competitive conduct by powerful firms – provided that it is vigor-ously and impartially enforced.2 Let us now evaluate India’s old and new competi-tion laws against these standards.

2 The MRTP Act, 1969-2009

The MRTP Act was a product of another era. It covered three categories of compe-tition matters, superficially correspond-ing to those described above, but dealt with them in ways that departed from standard anti-trust treatment. Chapter III, on c oncentration of economic power, orig-inally applied to firms that were either large (those whose assets together with those of their “interconnected undertakings” ex-ceeded Rs 20 crore), or “dominant” (whose assets exceeded Rs one crore and whose

share of the market exceeded one-third, later reduced to one-fourth in 1982). All such “MRTP companies” were required to register themselves and there after obtain govern-ment permission for mergers, amalgama-tions and takeovers – but also for establish-ment of new undertakings and substantial expansion of old ones, thus reinforcing the then prevailing system of industrial licen-sing. Chapter IV, on monopolistic trade practices (MTPs), originally applied to “monopolistic” undertakings that were either dominant (as defined above) or com-manded half or more of the market along with not more than two other independent undertakings. An inquiry could be ordered if it a ppeared that a monopolistic under-taking was “unreasonably” limiting com-petition or technical development, which would today be called abuse of dominance – but also if it appeared to be “unreasona-bly” maintaining or increasing prices and limiting investment, which are usually not anti-trust concerns. The government was armed with the authority to prohibit MTPs, if necessary by regulating prices, produc-tion, distribution, and quality. It could refer Chapter III applications or com-plaints about MTPs to the MRTP Commis-sion, but did not have to accept its opinion.

Chapters V and VI of the Act, based on the British Restrictive Practices Act of 1956, targeted restrictive trade practices (RTPs). Certain specific types of inter-firm hori-zontal and vertical agreements, including those described in the first section of this article, had to be registered with the com-mission, which would review them to en-sure that they did not restrict competition. However, as in the United Kingdom, the firms could defend agreements on specified grounds, known as “gateways”. These in-cluded benefits to consumers – but also maintenance of employment or exports. Unlike Chapters III and IV matters, the com-mission was a uthorised to entertain com-plaints on RTPs and give decisions, a lthough it could only issue “cease and d esist” orders.

Promoting competition was thus only one of many objectives of the MRTP Act, and the corrective measures that were prescribed were similar to those of the then prevailing licence-permit-control raj. But even in the heyday of so-called socia lism, most of the firms that should have been covered by Chapter III did not register. A

firm could have a market share exceeding one-third for a particular product, but still not be classified as dominant because product categories were defined broadly for purposes of the Act. Similarly, a com-pany could be connected with o thers in a business group such that their combined assets exceeded Rs 20 crore, but might not register because complex patterns of inter-corporate shareholdings made it almost impossible for the government and MRTP Commission to establish interconnection (Oza 1971; Chandra 1977). In any case, es-pecially after the first few years, applica-tions under Chapter III were seldom re-ferred to the MRTP Commission. In a few merger cases that were reviewed in the 1970s, reduction of foreign-owned equity, rather than competition and efficiency, was a major consideration for reco-mmending approval (Chandra 1977).

By the mid-1980s, policymakers came to realise that, like industrial licensing, the Act’s restraints on concentration of eco-nomic power were preventing the growth of firms to optimal scales and their entry into new activities. In 1985, the asset threshold of Rs 20 crore was quintupled to Rs 100 crore, taking hundreds of firms out of the purview of Chapter III approval. The requirement for approval was deleted a ltogether as part of the liberalising re-forms of 1991, so for nearly two decades there has been no merger review in India. Agarwal and Bhattacharjea (2006) have shown that both the 1985 and 1991 reforms were followed by significant i ncreases in the number of mergers, but firms that re-mained under the purview of Chapter III after 1985 were actively involved only a fter merger review was completely aboli shed in 1991. Most mergers involving these erst-while MRTP companies were between firms belonging to the same business group, indicating that the restrictions im-posed by the MRTP Act had allowed (or perhaps encouraged) business houses to set up nominally i ndependent firms but had prevented them from merging.

The chapter on MTPs can be dismissed briefly. With MTPs being defined in such general terms, competition analysis was rare. Amendments in 1984 made the chap-ter essentially unworkable by deleting the concept of a monopolistic undertaking and dictating that any MTP would henceforth

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Economic & Political Weekly EPW august 28, 2010 vol xlv no 35 33

be “deemed to be prejudicial to the public interest” unless it was authorised by the government. Thus, almost any firm could in principle be hauled up for normal busi-ness decisions having no bearing on com-petition. Fortunately, there were very few inquiries, and they were either dropped or stayed by the courts (Singh 2000). As Table 1 shows, the number of MTP inqui-ries has dwindled further in the last decade (although the sudden upsurge in the last year of the commission’s life is surpris-ing). However, I shall show that inquiries into “unreasonable” pricing were initiated under a different section of the Act.

As regards RTPs, the commission in its earlier cases ruled that many of the types of agreement listed in the Act, such as tying, exclusive dealerships, resale price mainte-nance, and of course price-fixing, were illegal per se (Chandra 1977). This was consistent with international practice at the time. However, a rule of reason gradu-ally began to take shape after a remarkable 1977 Supreme Court judgment which drew upon very recent economic thinking while discussing the efficiency benefits of verti-cal restraints, and argued that in certain circumstances they could actually pro-mote competition.3 But, as with MTPs, an ill-advised 1984 amendment dictated that all agreements of the kind that were specifically listed in the Act would hence-forth be deemed to be r estrictive, thus ab-solving the commission from having to analyse their anti- competitive effects.

Despite this apparent strengthening of the commission’s hands, there was a sharp fall

in the proportion of RTP inquiries r esulting in cease and desist orders in 1982-91 as com-pared to the preceding decade (Sandesara 1994). One reason for this could have been that the 1984 amendment Act inserted a new chapter (V-B) to protect consumers from “unfair” trade practices (UTPs), including misrepresentation about the nature of goods or services and m isleading prize and promotional schemes. It also inserted new sections a llowing the commission to award compensation for losses arising out of RTPs, MTPs, or UTPs. Together, these new provisions attracted a large number of complaints about defective products and deficiency in service. As Table 1 shows, such cases came to dominate the commis-sion’s workload. The UTP chapter was re-tained even after the enactment of the Consumer Protection Act (COPRA) in 1986 with very s imilar c overage.

The reforms of the 1990s further atten-uated what little genuine anti-trust e nforce-ment was being undertaken in I ndia. Chapter III review was formally a ban doned, and the commission struggled to enforce the remaining sections of the Act. It was understaffed, underfunded, without a chairman for long periods of time, and usually functioned with far fewer than the eight members provided for in the Act. According to one study, in 2000 its budget as a proportion of total government ex-penditure was much less than those of the competition agencies of Pakistan, Sri Lanka, Brazil, Kenya or South A frica.4 To complete this picture of official neglect, Table 1 shows that inquiries were seldom

initiated by references from the central or state governments.

With its limited resources being increas-ingly diverted to cases involving UTPs, the number of RTP inquiries declined sharply in the 1990s, and many of these did not involve the potentially anti-competitive agreements listed in Chapter V. Instead, an increasing proportion invoked a general definition in the Act, according to which an RTP included any practice that “tends to bring about manipulation of prices or conditions of delivery… in such manner as to impose on the consumers unjustified cost or restrictions”. This was taken out of context and used to condemn “unfair” pricing, underutilisation of capacity, de-layed delivery, changes in payment terms or discriminatory treatment of dealers. Thus, by the late 1990s, the majority of cases before the commission were not competition matters at all, but involved extraneous issues, consumer complaints that should have been taken up under C OPRA, or contractual disputes that should have been resolved in civil courts.

Fortunately, this tendency of the com-mission to stray into areas it should have avoided was curbed in the early years of the new century by a series of Supreme Court judgments insisting that an RTP must involve a restriction of competition. This forced the commission to terminate many long-pending inquiries that did not fit this description.5 But overburdened with UTP compensation cases, it did not take up more competition-related matters. In the entire period 1991-2007, only seven cases

Table 1: Inquiries under Various Sections of the MRTP Act, 1972-2009 InquiriesInstitutedandApplicationsReceived Pendingin2009 1972-91(AnnualAverage) 2001 2004 2005 2006 2007 2008-09 March August

RTP inquiries resulting from: Complaint from any trade association, consumer, or consumer association 8.6 44 21 26 39 19 45 211

Reference from central or state governments 0.1 1 0 0 1 1 0 1

Application from director general of the MRTP Commission 109.3 37 0 2 11 5 4 47

Commission's own knowledge or information 55.8 11 2 3 8 6 16 32

Total RTP inquiries 173.7 93 23 31 59 31 65 291 291

Total MTP inquiries 0.8 0 0 0 0 0 4 7 5

UTP inquiries resulting from: Complaint from any trade association, consumer, or consumer association 90 80 81 54 56 128 435

Reference from central or state governments 5 0 0 0 0 0 0

Application from director general of the MRTP Commission 5 0 0 6 2 15 19

Commission's own knowledge or information 14 6 7 46 93 115 292

Total UTP inquiries 259.2 114 86 88 106 151 258 746 801

Applications for compensation from loss or damage caused by an MTP/ RTP/UTP 229 71 77 114 79 353 1,155 1,186For RTP inquiries, annual averages in the first column are computed by dividing by 20 the total number of inquiries under various sections of the MRTP Act during 1972-91 given in Sandesara (1994: Table 3). For UTP inquiries, Sandesara (1994: 2084) gives a figure of “nearly 1900”, which I divide by 7.33 as the UTP chapter was inserted into the MRTP Act only with effect from August 1984, and I assume that inquiries were initiated a month later. Figures in the last column are from the statement of the Minister of Corporate Affairs in the Rajya Sabha on 16 December 2009 (see fn 8 for citation). Figures in the remaining columns are taken from the annual reports of the Department of Company Affairs (later renamed the Ministry of Corporate Affairs) for the respective years. Where the report gives no figure for inquiries initiated, it is computed by subtracting the number of inquiries brought forward from the preceding year from the number reported to be under consideration during the year under review.

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involving seller cartels were decided, three of which were dismissed for lack of evi-dence.6 In one case, an inquiry into price fixing by cement manufacturers began in 1990 – and a cease and desist order was handed down in 2007! In another case, in which evidence of cartelisation by foreign suppliers was found, the commission pro-hibited the imports, which from a competi-tion perspective was a remedy worse than the disease. This judgment was overturned by the Supreme Court, which unfortu-nately went to the other extreme by hold-ing that the Act could not be applied to firms outside India even if their conduct had an effect in India, unless the agree-ment involved an Indian party.7 This meant that India could not take action against inter national cartels, whose activities have been brought to light by h undreds of cases in the United States, Canada and Europe in the past two decades, r esulting in multi-million dollar/euro fines being imposed on some giant corporations.

With the passing of the Competition Act in 2002, it seemed that the end of the MRTP era was imminent. Section 66 of the new Act provided for the repeal of the MRTP Act, the dissolution of the MRTP Commission, and the disposal of pending cases. UTP cases and investigations (other than those involving “false or misleading facts disparaging the goods, services or trade of another person”) were to be trans-ferred to the National Commission consti-tuted under the COPRA, to be decided in accordance with the latter Act. The re-mainder were to be transferred to the Competition Commission of India (CCI), a new body to be set up under the Competi-tion Act, but would be decided under the MRTP Act. I discuss the Competition Act separately below, but the MRTP story did not end as scripted. Section 66 and the substantive sections of the new legislation could not be brought into force because a writ petition in the Supreme Court raised issues about the separation of powers be-tween the judiciary and the executive in the selection and composition of the CCI. Only administrative sections of the Act were notified, under which a single mem-ber and a small staff began functioning in 2003, without being able to take up any cases or investigations. In disposing of the writ petition in early 2005, the Supreme

Court took note of the government’s prom-ise to make suitable amendments to the Act. But it was not until September 2007 that Parliament passed an amendment Act, allowing for the creation of a new Competition Appellate Tribunal (Compat), to be headed by a judge. The amendment Act also made far-reaching, changes throughout the Competition Act, includ-ing a proviso to Section 66, extending the life of the MRTP Commission by two years so as to dispose of pending cases. UTP cas-es (other than those relating to false dis-paragement) remaining undecided after two years would go to the National Com-mission, as originally provided in the 2002 Act, but the other cases would now go to the Compat rather than the CCI. As provi ded for in the original Act, pending investigations relating to UTPs would im-mediately be transferred to the National Commission, with the rest going to the CCI.

There were, however, more twists in the tale. The government got around to making appointments to the CCI only in early 2009, and notified most of the re-maining provisions of the Competition Act in May that year. Section 66, repealing the MRTP Act, was notified in September, and the MRTP Commission’s two-year exten-sion was to commence at that point. But by then, natural attrition had resulted in the commission having no chairman and only two members – both of whom came to the end of their terms of office within a month. More than 2,000 cases remained pending, some dating back to the 1980s. The government claimed that it was u nable to find suitable persons to fill the vacan cies, and so in October it promul-gated an ordinance, doing away with the two-year extension and transferring cases immediately to the Compat and the N ational Commission. But the National Commission expressed its inability to accept the UTP cases because unlike the MRTP Commission it had no staff to handle in-vestigations, and the Consumer Protection Act under which it functioned had a dif-ferent definition of “consumer” as compared to the MRTP Act. In the final act of this sorry tale, the government got Parliament to pass another amendment Act in Decem-ber 2009. Apart from replacing the ordi-nance with legislation as required by the Constitution, it transferred the orpha ned

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UTP cases, investigations and all compen-sation applications to the Compat, which would now adjudicate all the cases left pending by the MRTP Commission.8

Thus ended the four decade-old MRTP era. No tears need be shed, except for the opportunity that was missed in building up a body of expertise after India enacted one of the earliest competition laws in the developing world. Despite a promising start in the 1970s, at least in respect of RTPs, the 1984 and 1991 amendments closed the door to competition analysis and thrust an expanding workload of UTP cases on the commission, which diverted it from what remained of its anti-trust mandate. Consequently, it could not bequeath a body of expertise in competition analysis that could help in the enforcement of the much more economically-informed Com-petition Act, to which I now turn.

3 The Competition Act, 2002

The new Act, whose enforcement belated-ly began in May 2009, appears on the sur-face to conform more closely to the princi-ples of modern anti-trust economics. It covers the usual three areas discussed in the first section of this article: anti-com-petitive agreements between firms, abuse of dominance by a single firm, and “com-binations” (i e, mergers, amalgamations, or acquisitions of control). Wisely, it does not deal with “unfair” trade practices, which distracted the MRTP Commission. It defines terms that were left open-ended in the MRTP Act, and lays down several eco-nomic criteria that the CCI should apply in deciding cases, as well as detailed time bound steps for reviewing combinations. Unlike in the MRTP Act, the CCI, rather than the government, will decide on c ombi-nations and also abuse of dominance (the counterpart of MTPs in the earlier Act). The CCI can block or undo a combination, but it can also require that it be modified so as to allow it to proceed while taking care of competition concerns. The Competition Act explicitly asserts jurisdiction over foreign combinations and the conduct of firms based abroad having a nti-competitive effects in India. This restores India’s ability to act against foreign cartels, and to follow the European Commission in taking action against Microsoft for bundling applica-tions software with its Windows operating

system. Unlike the MRTP Act, the Competi-tion Act provides for substantial monetary penalties on firms which infringe it or fail to comply with CCI orders, and a leniency programme that allows for reduced penal-ties to induce cartel members to provide evidence that can be used against others. The CCI, unlike its predecessor, can call on outside experts and also undertake advo-cacy to spread awareness of competition principles. Apart from these positive fea-tures of the Act itself, the CCI has been con-stituted with its full complement of mem-bers, a much larger staff, and a web site, which the MRTP Commission never had.9

I should also acknowledge that the gov-ernment has responded favourably to con-structive criticism. Commenting on the draft amendment bill in my 2006 article in this journal, I had noted tongue-in-cheek that officials in the Ministry of Company Affairs who were responsible for drafting the law seem to read EPW, for one of the proposed amendments deleted the provi-sion in the original Act which allo wed the CCI to impose an injunction prohibiting the import of goods – an absurd measure from a competition perspective, as I had pointed out in Bhattacharjea (2003). That paper also suggested some modifications to make the cartel leniency programme e ffective. Changes to this effect were incor-porated into the amending bill, but as I pointed out in Bhattacharjea (2006), the scheme was still too permissive and un-predictable to be of much use. I was grati-fied when these arguments appeared in the report of the Parliamentary Standing Committee on Finance that reviewed the bill,10 and thereafter suitable changes were made and passed in the 2007 amend-ment Act. The CCI, subsequently, published “Lesser Penalty Regulations” c ontaining well-structured guidelines for implement-ing the leniency programme that are con-sistent with inter national best practice.

Despite these improvements, the Act re-mains riddled with loopholes and ambi-guities, creating unnecessary legal uncer-tainty and thus favouring lawyers and the large firms that can hire them. As I have discussed most of these problems in detail in my earlier articles, I shall only summa-rise and update some key objections. First, the Act allows the CCI to take into account the “relative advantage, by way of the

contribution to the economic development” of a combination or an enterprise abusing its dominant position. This is meaningless and potentially dangerous. The relationship between competition and development, and even the meaning of development itself, are controversial. This clause may enable large firms to justify blatantly anti-competitive practices in the name of “development”.

Second, in its treatment of anti- competitive agreements, the Act requires more analysis and gives greater discretion-ary power to the CCI than is available to far more experienced agencies in developed countries. In most anti-trust regimes, cartel agreements are treated as illegal per se, without any inquiry into their e ffects. In Section 3(3) of the Competition Act, how-ever, such agreements are only presumed to have an “appreciable adverse effect on competition” (AAEC). It is well established under Indian law that a presum ption can be rebutted, and Section 19(3) of the Act allows the CCI, while deter mining whether an agreement has an AAEC, to consider its possible benefits to consumers, improve-ment of production of goods and provision of services, and promotion of technical, sci-entific and economic development. Cartels may thus be dealt with under a rule of rea-son, in which positive as well as negative effects can be taken into account.

The guidance provided by the Act for determining whether an agreement has an AAEC is unsatisfactory. Section 19(3) is similar to Article 101(3) (formerly num-bered 81(3)) of the Treaty of the European Union (EU), but in order to be condoned under the latter, an agreement must share the benefits with consumers, must not in-volve restrictions that are unnecessary to attaining the efficiency objective, and must not substantially eliminate competi-tion. None of these conditions is required under the Indian Competition Act. Unlike the MRTP Act, it does not even require that the benefits be balanced against the losses inflicted on other parties. Besides, unlike in the EU, the Act does not contain any provision for “block exemption” for small firms or for certain categories of agree-ments that are likely to have positive ef-fects. All this means that the CCI will have to evaluate each agreement individually. And while the Act provides numerous loopholes for business agreements, it does

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not exempt trade unions or cooperatives, which on a literal reading could be regard-ed as price-fixing agreements by associa-tions of persons.11 Anti-trust laws of most countries explicitly exempt trade unions and cooperatives, as did the MRTP Act.

Third, several of the Competition Act’s provisions on abuse of dominance, which also selectively adapt several phrases from the EU Treaty, leave much to be desired. These could work either in favour or against big business. On the one hand, the Act favours cash-rich firms by allowing them to charge below-cost prices to “meet the competition” without attracting pen-alties for predatory pricing. This defence is not permitted in the EU. On the other hand, the Act authorises the CCI to break up a firm to ensure that it does not abuse its dominant position, without requiring evidence that it has done so. Moreover, evidence of an AAEC is not required to prove abuse. This will invite allegations of unfair or discriminatory pricing or condi-tions in a contract, of the kind that were entertained under the MRTP Act but which are not competition concerns. The five de-cisions so far reported on the CCI web site relate to cases of this nature, and it is en-couraging that the commission has dis-missed them on the grounds that domi-nance was not established and/or compe-tition was not affected. Such clear prece-dents will have to be set in other areas where the law is ambiguous.

Fourth, the Act’s revival of merger re-view remains controversial. The original Act provided for voluntary notification of combinations in which the assets or t urn-over of the combined entity would exceed certain threshold levels, specified s epa rately for assets or turnover within India and worldwide. But on the recommendations of a parliamentary committee, the amend-ing Act of 2007 made notification of such combinations mandatory. It also sensibly inserted a sub-threshold, in terms of the combined assets or turn over of the parties within India, so that foreign combinations exceeding the thresholds for global assets or turnover but having little or no “local nexus” with the Indian market would not have to be notified to the CCI. However, powerful inte rests were still not satisfied. After protests by Indian industry as well as memoranda from the American Bar

Association and International Bar A ssoci-ation, the CCI published draft regulations in 2008, specifying further sub-thresholds for assets and turnover in India for each party individually. This would save firms from the paper work of filing a pplications for mergers that are unlikely to have an AAEC, and the CCI from having to devote resources to investigate them. But it would also mean turning a blind eye to mergers in which foreign firms with no current Indian business enter the Indian market by taking over local firms, instead of competing through exports or foreign direct investment. The draft regulations thus ignored potential competition, which is taken into account in merger cases in the US and Canada.12 This issue has b ecome salient recently with several large Indian pharmaceutical companies being acquired by multi nationals. But as of e arly July 2010, the sections of the Act dealing with regulation of combinations had not yet been brought into force, and the r elated draft regulations had disappeared from the CCI web site.

Fifth, some institutional issues give rise to disquiet. There is likely to be conflict with sectoral regulators (such as the Tele-communications Regulatory Authority of India), some of whom also have mandates to regulate competition. The Act also com-promises the autonomy of the CCI by giv-ing the government powers to supersede and reconstitute it if it fails to discharge its functions, to comply with policy direc-tives, or even “in the public interest”. In order to divest the CCI of powers that are judicial in nature, the 2007 amendment created multiple points at which its deci-sions can be held up or reversed: not just the Compat, but also tax authorities for levying monetary penalties and a magis-terial court for awarding jail terms for fail-ure to comply with CCI orders.

Finally, there is the issue of expertise to implement the Act, which is replete with technical concepts requiring fairly advanced knowledge of modern industrial economics. As pointed out above, on anti-competitive agreements the Act leaves much more to the commission’s analysis and discretion than competition regimes in countries with far greater experience. As I argued in the preceding section, four decades of enforcement of the MRTP Act yielded very

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Economic & Political Weekly EPW august 28, 2010 vol xlv no 35 37

little relevant experience. To make matters worse, all the personnel appointed to the CCI between 2003 and 2008, who im-mersed themselves in learning the rele-vant concepts even though they could not take up any cases, are no longer with the agency. Some were transferred to other government departments; others resigned and joined law firms, where their skills will now be deployed on behalf of private parties against the CCI, which is staffed entirely with recent appointees. No regu-lar appointment was made for more than a year to the key post of director general, responsible for overseeing investigations. And of the 185 professionals who were to be appointed in the first year, only 35 posi-tions had been filled, mainly on deputation from other government departments, as of May 2010. This personnel deficit in the com-mission is believed to be responsible for its inability to decide more than a handful of cases in its first year of functioning.13

To conclude, the government’s handling of its competition laws can be faulted on several counts. It took 20 months to enact the relevant amendments after the S upreme Court cleared the way for appoint ments to the CCI in January 2005, and another 20 to make appointments and notify the en-forceable provisions of the Act, ensuring that the CCI would lose all the expertise built up since 2003. A further year elapsed without a regular director general at the helm. With the CCI unable to decide cases, the government failed to make fresh ap-pointments to the MRTP Commission, al-lowing its ranks to be d epleted, further weakening whatever anti-trust enforce-ment was being undertaken, and allowing cases to pile up. After the MRTP Commis-sion was finally wound up, the govern-ment tossed pending UTP cases and inves-tigations into the lap of the N ational Com-mission, whose inability to handle them was known well in advance.14 After un-necessarily delaying the disposal of the remaining cases with these missteps, it steered them to the Compat, which was never envisaged as a body that would su-pervise investigations or hear the UTP cases that constitute the majority of the huge MRTP backlog.

Was all this simply the result of inept-ness, or was the government really not keen on having a well-staffed anti-trust

agency that would make life difficult for powerful corporate interests, especially in the run-up to the 2009 Lok Sabha elec-tions? Whatever be the reason, the two new bodies have made a good beginning despite their unfortunate inheritance. The Compat has made steady progress in clearing the backlog of MRTP cases. And according to media reports, the CCI has recently made out a prima facie case of predatory pricing against the National Stock Exchange, and another of tying faulty meters with electricity connections against Delhi’s power distribution compa-nies, which are owned by two of the big-gest business houses in the country. It re-mains to be seen, however, whether these allegations can be sustained in the regular hearings that will now take place, and what kind of analysis these two bodies will undertake in deciding the more com-plex cases that are before them.

Notes

1 In sectors where technology and heavy capital costs make competition infeasible (for example, in local electricity distribution, landline tele-phone networks, oil pipelines, or ports and air-ports), monopoly may be allowed, with a sectoral regulator to award licences and regulate prices, quantities and quality of service. Anti-trust issues may still arise if the monopolist owns or merges with a firm that is a buyer of its services in a mar-ket in which there are actual or potential competi-tors. (The corresponding examples would be power generation, mobile telephony, oil refining, shipping and air transport.) The monopolist may overcharge or denying access to competitors in the “downstream” activity, thus abusing its up-stream monopoly power in favour of its down-stream subsidiary.

2 In Section III of Bhattacharjea (2003), I discuss the importance of broader social objectives and the relatively recent application of the efficiency standard in the competition regimes of the US and UK, and the possibility of balancing efficiency with distributional concerns.

3 TELCO vs Registrar of Restrictive Trade Agree-ments, 2 SCC 55 (1977). This judgment actually preceded by a few months a judgment of the US Supreme Court (Continental TV vs GTE Sylvania) which is regarded as a landmark in the anti-trust treatment of vertical restraints.

4 Approaches to Competition Policy in South Asian Countries (Jaipur: CUTS-CIER 2003).

5 The preceding analysis is based on my reading of 52 Commission orders on RTPs between 2001 and 2007, as well as several Supreme Court judg-ments. More details and citations for the major cases are provided in Bhattacharjea (2008).

6 This is based on my updating of the meticulous study by De (2005), who examined all cartel cases reported in journals or law textbooks since 1970. The contrast with the commission’s early years is stark: the first RTP inquiries were initiated in 1972, and just five years later Chandra (1977) was able to identify seven price-fixing cases, most of them resulting in cease and desist orders.

7 Haridas Exports vs All India Float Glass Manufac-turers’ Association, 6 SCC 600 (2002). This judg-ment and its background are extensively analysed in Bhattacharjea (2003, 2008).

8 This paragraph is based on the Statement of O bjects and Reasons appended to the Competi-tion (Amendment) Bill, 2009, and the record of the debate in the Rajya Sabha on the Bill on 16 December 2009, from http://164.100.47.5/newdebate/218/16122009/16.00pmTo17.00pm.pdf (last viewed 1 June 2010).

9 See Ghosh and Ross (2008) for a broader overview of the Act, and a discussion of its strengths and weaknesses that partially overlaps with this paper.

10 Lok Sabha Secretariat (2006), pp 38-39. The gov-ernment also implemented some (but not all) of the other recommendations of the committee.

11 The absence of a trade union exemption was pointed out by Ghosh and Ross (2008).

12 The argument is spelt out in detail, with exam-ples, in Agarwal and Bhattacharjea (2008).

13 See http://www.financialexpress.com/news/Com-p etition-panel-to-increase-headcount-for-quick-er-redressal/613534/, and http://www.livemint.com/2010/05/19232645/One-year-on-CCI-still-doesn.html, viewed 12 June 2010. As pointed out above, the CCI has posted orders on five cases on its web site, although according to a more recent news report, it has decided 19 out of the 94 cases that it has taken up, including 50 transferred from the MRTP Commission: see http://www.business-standard.com/india/news/corporate-houses-keep-cci-busy/399770/, viewed 29 June 2010.

14 The parliamentary committee that reviewed the 2006 amendment bill was well aware of this problem, and directed the government to make suitable amendments in the Consumer Protection Act (Lok Sabha Secretariat, 2006: 54-56). The g overnment’s assurances to this effect were not fulfilled.

References

Agarwal, M and A Bhattacharjea (2006): “Mergers in India: A Response to Regulatory Shocks”, Emerg-ing Markets Finance and Trade, 42(3): 46-65.

– (2008): “Are Merger Regulations Diluting Parlia-mentary Intent?”, Economic & Political Weekly, 43(26/27), pp 10-13.

Bhattacharjea, A (2003): “India’s Competition Policy: An Assessment”, Economic & Political Weekly, 38(34), pp 3561-74.

– (2006): “Amending India’s Competition Act”, Economic & Political Weekly, 41(41), pp 4314-17.

– (2008): “India’s New Competition Law: A Com-parative Assessment”, Journal of Competition Law and Economics, 4(3): 1-30. To be reprinted in Eleanor Fox and Abel Mateus (ed.), Economic De-velopment: The Critical Role of Competition Law and Politics, Edward Elgar, forthcoming.

Chandra, N K (1977): “Monopoly Legislation and P olicy in India”, Economic & Political Weekly, 12(33/34), pp 1405-18, reprinted in The Retarded Economies, N K Chandra (ed.) (Bombay: OUP), 1988.

De, O (2005): “Identifying Cartels in India”, MPhil dis-sertation, University of Delhi.

Ghosh, S and T W Ross (2008): “The Competition (Amendment) Bill 2007: A Review and Critique”, Economic & Political Weekly, 43(51): 35-40.

Lok Sabha Secretariat (2006): “Standing Committee on Finance (2006-07), Fourteenth Lok Sabha, Ministry of Company Affairs, Competition (Amendment) Bill, 2006”, Forty-Fourth Report, December.

Oza, A N (1971): “Putting Teeth into the Monopolies Act”, Economic & Political Weekly, 6(31-32), pp 1703-08.

Sandesara, J C (1994): “Restrictive Trade Practices in India, 1961-91: Experience of Control and Agenda for Further Work”, Economic & Political Weekly, 29(32), pp 2081-94.

Singh, J (2000): “Monopolistic Trade Practices and Concentration of Economic Power: Some Concep-tual Problems in MRTP Act”, Economic & Political Weekly, 35(50), pp 4437-44.

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