Imagine having to buy your phone from a particular shop because that’s the only one in your locality. Imagine there’s only one dealer of cars in your locality. Scary thoughts, right? Not having any options to choose from and having to pay whatever is demanded is a situation we all dread in today’s times. That’s exactly why competition laws were introduced! These laws make sure competition is encouraged in the market and that you as a consumer, have access to quality goods at fair prices.
What is Competition Law?
Competition law, as the name suggests aims at promoting competition in the market. These laws are important in India which unlike most developed countries had a planned economy in the beginning. The Competition Act, 2002 (hereinafter referred to as the ‘CL Act’) has established a commission which has to ensure that there’s free trade in the economy and tackle all anti-competitive practices in the market.
Who has the power to enforce Competition Law in India?
The Competition Commission of India (CCI) is always on the lookout for any company or business trying to enter into an anti-competitive agreement with another, to manipulate the market to it’s advantage. It has the power to inquire and investigate into matters relating to anti-competitive agreements, mergers and acquisitions, and abuse of dominance. It can impose large sums of money as a fine on these faulting companies.
What are the violations CCI investigates?
The CCI deals mainly with 3 kinds of violations of competition law and has the power to investigate and penalize accordingly. They are:
- Anti-competitive agreements (Section 3 of the CL Act): Let’s say you are a tyre manufacturer and have agreed with the tyre manufacturer across the road that the two of you will sell your product at a fixed price, to gain a huge profit. In the end, the consumer is the loser and the manufacturer is the winner. This is one of the examples of anti-competitive agreements. You as a trader would also be guilty of this violation if you agree with another competitive trader that the two of you will divide territories, customers or products amongst yourselves. Basically, the two of you decide to share the market which leaves customers with very little option. Another way in which the violation occurs is when competing traders agree to control the supply in the market by limiting supplies to create scarcity leading to a hike in prices of the good. So, competition law prohibits any agreement between businesses with respect to production, supply, distribution, storage, acquisition and control of goods which has the potential to cause a negative impact on competition in the market. The CCI in case has found 11 cement manufacturers, guilty of cartelization and engaging in anti-competitive practices (parallel and coordinated behavior on price, dispatch and supplies in the market), and has imposed huge penalties.
- Abuse of dominance (Section 4): It is not wrong to be a dominant business but using the dominance to control the market is a violation of Competition Law. “Big industries” cannot use their dominance to drive out independent businesses and dictate prices of products. The dominant business may adopt predatory pricing which means that because it has the largest market share, it’ll reduce the price of the commodity drastically to eliminate its competitors and then gradually increase the prices, in the long term. This is a tactic where it suffers short-term loss to remove competitors. The dominant business could also use other tactics to restrict competition, i.e., by restricting other producer’s entry into the market with the help of patents and other IPR tools, by forming cartels of suppliers. Let’s take the example of Microsoft, the most popular name when it comes to computer operating systems. So, Microsoft is the dominant business in this market and in 2004, it abused its dominance by restricting other businesses’ software working on their operating system. This forced computer users to use only Microsoft’s software. The European Commission rightfully found the business guilty of abusing their dominance to end competition. The CCI in case has found DLF guilty for abusing its dominance in the real estate market. It was found that not only the market share, size, resources and economic power of DLF, but also its practices, had given DLF superlative market power over its competitors. Such market power had assisted DLF in exploitation of consumers’ biases, asymmetry of information, costly exit option, one-sided agreement(s) and unfair conditions being imposed on the consumers – all of which, affected the consumers as well as competition in the market. The CCI not only imposed hefty fine on the DLF but also directed to cease and desist from formulating and imposing unfair conditions in its agreements with buyers, and modifying the unfair conditions imposed on the buyers.
- Combination regulation (Section 5 and 6): Combination of companies means when 2 companies come together because of a merger, acquisition or amalgamation. Now, the CCI isn’t very fond of combinations that come into existence to restrict competition. So, CCI has made it mandatory for combinations to notify them before the union, for their approval. Not all combinations have to do this, and only those whose assets and turnover exceed the monetary threshold specified in the act have to do it. CCI will investigate the combination and then may or may not approve it.
How can CCI initiate a case?
Anybody can approach the CCI with a complaint against a business. If you are an aggrieved consumer who is fed up of lack of variety in your market or any individual, company, firm, local authority, etc. who is aware of trades strategizing to make the market less competitive, you can easily approach the CCI with a complaint. In fact, the commission can initiate the inquiry on its own will as well.
How does CCI carry out the investigation process?
The CCI is not alone in handling the tough task of investigating complaints that come before it. A Director General (DG), appointed by the Central Government helps the commission at every step of investigation and inquiry. In fact, the enquiry of the case begins with CCI referring the investigation to the DG. The DG, however, cannot commence the investigation on its own and is handed the responsibility when CCI is convinced that there exists a prima facie case.
As part of the investigation, the DG has the authority to issue notice to any party concerned, conduct search and seizures, etc. The DG will then proceed to the CCI with his investigation, after which the parties are asked for their comments and objections, if any. CCI passes its orders based on a proper hearing of both parties.
Appeal against CCI’s order
Any aggrieved party may file an appeal against the CCI’s order to the National Company Law Appellate Tribunal (NCLAT) within 30 days from the date of the order.
What are the challenges Competition Law faces in India?
Any new law is bound to face several challenges and competition law is no different. A lot of work needs to be done in the department of creating awareness about the law. A lot of businesses and companies aren’t aware of the law and the consequences of violating it. Companies need to have regular discussions and programs on competition law to make sure that there’s no chance of any contravention in the future. But again, the CCI is an active body that is striving hard every day to reach its goal of free markets, healthy competition, and customer satisfaction. It cannot be denied that India has one of the most progressive competition laws in the world.
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