Who’s afraid of competition?

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: Seven years after its enactment, the Competition Act 2002 (as amended by the Competition Amendment Act 2007) is finally operational. The government has notified provisions regulating anti-competitive agreements and abuse of dominance. Competition advocacy was notified in 2007. India now has three of the four essential pillars of modern competition law—the fourth, relating to regulation of mergers, has not been notified. Both the Competition Commission of India (CCI) and a Competition Appellate Tribunal (CAT) are in place. We take a look at the implications of this modern yet potent law on Indian industry and how it needs to reorient the way it does business.

Section 3 of the Act prohibits agreements that have or are likely to have an “appreciable adverse effect on competition” in a relevant market (product or geographic) in India, including cartels. Such agreements are void. Agreements are widely defined. They include an arrangement/understanding/action in concert, oral or in writing—even a wink and nod is included, and they need not be enforceable by law. A limited list of horizontal agreements is presumed to be anti-competitive. These include fixing prices, limiting production or supply, sharing markets or customers and bid-rigging. In such cases, the onus of proving innocence is on the defendant(s). All other agreements—horizontal or vertical—are subject to the rule of reason. In other words, the negative effects on competition have to be balanced against the benefits, if any, of the agreement and the onus of proof is on the CCI.

Section 4 of the Act prohibits a dominant enterprise from abusing its market power. Dominance is defined qualitatively—a position of strength enjoyed by an enterprise in the relevant market in India, which enables it to operate independently of competitive forces and affect its competitors/consumers/relevant market in its favour. Not dominance but its abuse is prohibited. Abuse occurs when an enterprise uses its dominant position in the relevant market in an exclusionary and/or exploitative manner. Examples of abuse include imposing unfair or discriminatory prices or conditions, limiting production or supply, denying market access, leveraging dominance in one market to gain advantages in another market, imposing unrelated conditions, and predatory pricing.