Competition Commission faces multiple tasks

By Ravi Singhania and Sunil Kumar,Singhania & Partners
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From curbing monopolies to promoting competition, India has evolved from a gendarme policing big businesses into a dynamic regulator of competition. The object of the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP), was to prevent the concentration of economic power, restrict the formation of monopolies and prohibit unfair trade practices.

Ravi Singhania Partner Singhania & Partners
Ravi Singhania
Managing partner
Singhania & Partners

The Competition Act, 2002, was introduced to supersede the rigidly structured MRTP and reform the legal system; it aims to sustain competition, encourage free markets and prevent anticompetitive practices. This is in line with the current World Trade Organization philosophy that competition spurs efficiency, lowers prices, improves quality of goods and services and leads to both greater product differentiation and an enhanced spirit of innovation.

The act is easily distinguishable from the MRTP; its scope is wider and it is empowered to address abuse more specifically and effectively. For example, under the act consumer protection forums are assigned to actively counter unfair trade practices which affect end users. Under the MRTP, monopolies per se were prohibited, whereas under the act it is the abuse of a dominant position which is prohibited. Overall, the act seeks to prevent and redress appreciable adverse effect, rather than economic dominance itself.

Similarly, the act does not focus on all anti-competitive agreements which could potentially restrict competition, but rather those which actually have an appreciable anti-competitive effect. Broadly, the act seeks to check abuse of dominance and agreements of combinations which limit or restrict competition. A unique feature of the act is the role of the new Competition Commission of India (CCI) in competition advocacy, which involves advising government on the implementation and likely effects of competition policy. The CCI became functional on 1 April.

The MRTP commission (MRTPC) was empowered to undertake enquiries and follow them up with enforcement actions, such as passing cease and desist orders, awarding compensation to aggrieved persons and directing the modification of impugned clauses of trade agreements.

During the course of an enquiry, it could temporarily restrain a delinquent enterprise in order to put an immediate stop to prohibited trade practices. However, penalties could only be imposed by a sessions court in cases where parties failed to comply with MRTPC orders, or to submit information sought by the MRTPC or by the director general (investigation and registration). The MRTPC was inherently weak as it had powers merely to censure a defaulter, or direct it to offset losses it had caused.

By comparison, the CCI has jurisdiction to oversee and regulate anti-competitive agreements (such as cartels and bid rigging), rectify abuses of dominant positions, regulate combinations and undertake competition advocacy.

Sunil Kumar Partner Singhania & Partners
Sunil Kumar
Partner
Singhania & Partners

Unlike the MRTPC, the CCI is vested with powers to inquire directly into cartels of foreign origin. The act further empowers the CCI to review and rectify its own orders, make a reference to statutory authority and execute orders imposing monetary penalties; it also excludes jurisdiction of civil courts in matters which the CCI is empowered to determine. MRTPC has no further power after it passes a final order, and the law does not confer any jurisdiction on it to take cognizance of offences, which only sessions courts are competent to try.

The regulatory role of the CCI is comparatively strong because it has been granted powers that the MRTPC lacks.

During the course of enquiry into cases of anti-competitive agreements and abuse of dominance, the CCI has the power to grant interim relief restraining a party from continuing with such abuse. The CCI may direct an enterprise to discontinue and not to re-enter an anti-competitive agreement or abuse dominant position; impose a penalty of not more than 10% of average turnover during three preceding years; modify agreements, direct division of an enterprise or pass such orders as it may deem fit.

The CCI has the power to approve, disapprove or modify combinations depending upon its findings as to any appreciable adverse effect on competition. Unlike the MRTPC, the CCI has the power to direct the division of an enterprise that enjoys a dominant position, to ensure that it does not abuse that dominance.

The CCI will hopefully blaze a new trail in balancing the interests of business and the tenets of competition, thereby serving the need to encourage economic growth while protecting consumer interests. As a regulator, the challenge it faces is to detect and curb abuse by marauding behemoths while not undermining growth, given that strategic alliances and consolidation are key features of a dynamic market.

Ravi Singhania is the managing partner and Sunil Kumar is a partner in the tax practice at Singhania & Partners. The firm is headquartered in Noida and has offices in New Delhi, Mumbai, Bangalore and Hyderabad.

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