COMPETITION LAWCOMPETITION LAW

Geetika AnandGeetika Anand

26.02.200826.02.2008

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RUNTHROUGH OF CONTENTS

INTRODUCTION

COMPETITION ACT 2002

COMPETITION (AMENDMENT) ACT

2007

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Competition ?????

• An economic rivalry amongst enterprises to control greater market power.

• Offers wider choice to consumers at lower prices.

• Leads to optimal allocation of resources.• Two ways

Where two enterprises Where two enterprises adopt fair means such as adopt fair means such as production of fair production of fair goods/services, invstmt in goods/services, invstmt in R&D etc.R&D etc. Competition is fairCompetition is fair

Where an enterprise adopts Where an enterprise adopts Restrictive Trade Practices Restrictive Trade Practices (RTPs) such as predatory (RTPs) such as predatory pricing, exclusive dealing, pricing, exclusive dealing, resale-price maintenance and resale-price maintenance and forming a cartel, it has forming a cartel, it has appreciable adverse effect.appreciable adverse effect.

Competition is unfairCompetition is unfair

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Legislative Background • Chapter III of MRTP Act scrapped in 1991 along

with all liberalization of other laws.

No restrictions on M&A activities in India for last 17 yrs.

Raghavan Committee, appointed in 2000, recommended a new Competition Law, subject to fulfillment of certain pre-conditions:-

scrap reservation for SSI revise labour and bankruptcy laws repeal SICA, ULCRA and and other laws eliminate price controls

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COMPETITION ACT 2002

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Background

Objectives :• Prevention of practices having adverse

effect on competition• Promotion & sustaining competition in

markets• Protect the interest of the consumers• Ensure freedom of trade carried on by the

other participants in markets, in India.

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IMPORTANT PROVISIONS

• Prohibition on :– Anti-competitive agreements (Section 3)

– Abuse of dominant position (Section 4)

• Regulation of Combinations (Sections 5 & 6)

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Anti Competition Agreements (S. 3)

• Act prohibits all such agreements which cause or are likely to cause an appreciable adverse effect on competition

• Adverse Effect, which :a.Determines purchase or sales pricesb.Limits or controls production, supply,

markets, c.Shares the market or source of production

or provision of services d.Bid rigging or collusive bidding

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ABUSE OF DOMINANCE (S. 4)• Dominance is a position of strength which enables an

enterprise to operate independently of competitive pressure and to appreciably affect the relevant market, competition and consumers in its favour.

• Dominance per se is not bad, but the abuse of dominance is prohibited.

• Abuse of Dominance arises if an enterprise: 1) Imposes unfair/Discriminatory purchase or sale

prices 2) Limits production, mkts or technical dvlpmnt 3) Denies mkt access 4) Concludes contracts, subject to obligations having

no connection 5) Uses dominance to move into or protect other mkts.

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PREDATORY PRICING• Predatory pricing is seen as an aspect of abuse of dominance.

• “Predatory Pricing” means the sale of goods or provision of services, at a price which is below the cost,, with a view to reduce competition or eliminate the competitors.

• This narrow definition may hamper all introductory pricing initiatives.

• The distinction between predatory behavior and competitive pricing is very thin and not easily ascertainable.

• The yardstick for determination of cost is unclear.

• Average variable cost is frequently used as an indicator , which is not conclusive. Whether the cost audit report under Section 209 of the Co’s Act or the industry average or the break even cost of an enterprise or economies of scale is to be taken as the yardstick in determination of ‘cost’ is not clear in the regulations.

• Group synergy and operational efficiency should not get penalized.

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Regulation of combinations (S. 5 & 6)

• Combination prohibited if it

causes or is likely to cause appreciable adverse effect on competition within the relevant market in India

• Mandatory pre-merger scrutiny – introduced vide Amendment Act of 2007

Notify details of proposed combination within 30 days of:

•BOD approval of merger/amalgamation;

•Execution of agreements for acquisition of shares, voting rights, assets or control

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Regulation of combinations (S. 5 & 6)

• Definition: very wide - includes

Direct or indirect acquisition of shares, voting rights or assets

Acquisition of controlMergers or amalgamations

• Size of Acquisition immaterial.• Mandatory notification subject to asset

value/turnover thresholds; prescribed for – Parties (individual enterprise) to the combination

and – ‘Group’ to which acquired entity would belong

after combination

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Threshold Limit

In India Involving foreign enterprise

For the Parties

For the Group

In India Worldwide*

Assets

Rs 1000Cr

or

Turnover

Rs 3000Cr

Assets

Rs 4000Cr

Or

Turnover

Rs12000Cr

Assets

USD 500 m

Or

Turnover

USD1500m

Assets

USD 2 b

or

Turnover

USD 6 b;

Intimation necessary if it is above the following threshold

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TIMELINES

UNDER CURRENT 391-394 SCENARIO :

1. Drafting of merger scheme 1st Jan, 2008

2. Finalization of draft scheme 15th Jan, 2008

3. Approval of the Board 16th Jan, 2008

4. Filing of scheme to stock exchanges 20th Jan 2008

5. Approval of stock exchanges 20th Feb 2008

6. Filing Petition to HC 25th Feb 2008

7. Shareholders/creditors meeting 30th Mar 2008

8. Filing of petition to courts for scheme sanction 5th Apr 2008

9. Court Order 15th May 2008

10. Merger becomes effective 20th May 2008

(4-5 Months)

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UNDER COMPETITION ACT SCENARIO 1. Drafting of merger scheme 1st Jan, 20082. Finalization of draft scheme 15th Jan 20083. Approval of the Board 16th Jan 20084. Mandatory notification to the CCI 20th Jan 2008 5. Review period 210 days6. Possible extensions 60 days7. Approval by CCI 20th Oct 20088. Filing of scheme to stock exchanges 21st Oct 20089. Approval of stock exchanges 20th Nov 200810.Filing Petition to HC 25th Nov 200811.Shareholders/creditors meeting 25th Dec 200812.Filing of petition to courts for scheme sanction 26th Dec 200813.Court Order 25th Jan 200914.Merger becomes effective 30th Jan 2009

(13 Months)

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SR. NO.

COUNTRY NOTIFICATION INITIAL REVIEW DETAILED REVIEW

1. United States Mandatory 30 days 30 days

2. United Kingdom Voluntary 25 days 90 days

3. Australia Voluntary 14 days 90 days

4. China Mandatory 30 days 90 days

5. Germany Voluntary 30 days Max. 4 months (If required)

6. Netherlands Mandatory - 30 days

7. Portugal Mandatory 30 days 90 days

8. Spain Mandatory 30 days 60 days

MERGER NOTIFICATIONS & REVIEW IN OTHER COUNTRIES

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THE COMPETITION (AMENDMENT) ACT 2007

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THE COMPETITION AMENDMENT ACT 07

The Committee presented its report and taking into account their recommendations and the legal challenges and to make the CCI fully operational on a sustainable basis, the Competition (Amendment) Bill, 2007 was introduced and was further passed.

MAJOR HIGHLIGHTS & AMENDMENTS

Provision Earlier NowCompetition Commission of India

• A perception that it may function in the manner of a judicial body

• would act as an expert body• which would function as a market regulator

• for preventing and regulating anti-competitive practices &

• would also play an advisory and advocacy role.

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contd… Highlights of amendments

Provision Earlier Now

MERGER NOTIFICATION MANDATORY

• Intimation was optional & that also after the combination.

The time to be taken was also open-ended

• Prior intimation of any combination amongst co’s, group or persons, to be made

• within 30 days

• Also empower the commission to impose a penalty of 1% of the total turnover or the assets whichever is higher on failure to give such notice.

• However intimation only if it above a particular threshold

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contd… Highlights of amendments

Provision Earlier Now

COMPETITION APPELLATE TIBUNAL

• Any appeal from the order of the Commission was to be heard by the Supreme Court

• CAT set up to hear and dispose of appeals against any order or decision of the Commission

PENATIES • Commission itself had the power to imprison in the event of non-compliance with the orders

• Rationalisation i.e.

• Penalties imposed in the first instance will be monetary

• Only where the person who is in violation or non-compliance of the Act or orders, continues to do so or does not pay the penalties would criminal liability arise.

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ANTI TRUST LAWS

In the U.S., the Hart-Scott-Rodino Act (HSR Act) requires persons wishing to acquire or merge to submit notification and fees to the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) if either the transaction or the person’s assets exceed monetary thresholds. 

• However, the HSR Act has a two-step test, the “size of the transaction” and “size of the person test”.  This two-step test acts as a filtering device, excluding a significant number of lesser transactions from review.

• To compare anti-trust laws prevalent globally, either the notification is optional as is the case in UK and Australia or the review period is short, where notification is mandatory, for example, in USA review period is 30 days.

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THE INDIAN SCENARIO

• The Indian economy is still in its infant stage as compared to global standards & therefore its important that the law not control M&A, but foster an environment of rapid growth and encouragement to the Indian economy.

• Countries with similar economic conditions and imperatives do not have such wide discretionary powers with Competition Authorities. India’s competition law could project India’s economy as being unfavourable to globalization and as one that is unduly restrictive of competition.

• While it is necessary to regulate combinations which may result in abuse of dominance it is imperative to ensure that there is no over-regulation as this could be counter productive and retard the country’s economic growth.

• Competition law in India should be enacted in line with the dynamics of the Indian economy as opposed to merely replicating international principles, particularly so when it results in the law becoming more a hindrance than a tool to promote competition.

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The Possible Remedial Measures

Quantitative definition of ‘Dominance’

Prescribing the acquisition thresholds in - Sec 5

Reduce the time-lines for approval by CCI - Sec 6

Revise the current asset/ turnover threshold levels - make it industry specific

Make the Commission independent of the Government (Sections 55 & 56)

Give power of exemption to CCI and not the Government

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The Possible Remedial Measures

• Notify Sections 5 & 6 only after the law is amended and CCI is well equipped

• Exempt cross-border M&A with no economic impact in the Indian Market

• Provide a ‘negative list’ of industrial sectors for mandatory notification, other industries to be exempted

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