Competition act notes

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1 COMPETITION ACT (Most Likely Questions)

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2 In common parlance, competition in the market means sellers striving independently for buyers’ patronage to maximize profit or other business objectives. buyer prefers to buy a product at a price that maximizes his benefits whereas the seller prefers to sell the product at a price that maximizes his profit. What is competition in the market?

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3 Competition makes enterprises more efficient and offers wider choice to consumers at lower prices. ensures optimum utilization of available resources. enhances consumer welfare since consumers can buy more of better quality products at lower prices. beneficial for the consumers, producers / sellers and finally for the whole society since it induces economic growth. Why  do we need competition in the market ?

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4 Unfair competition means adoption of practices such as collusive price fixing, deliberate reduction in output in order to increase prices, creation of barriers to entry, allocation of markets, tie-up sale , predatory pricing discriminatory pricing. What is meant by unfair competition?

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5 What constitutes competition policy? Competition policy is defined as those Government measures that affect the behavior of enterprises and structure of the industry with the view to promote efficiency and maximize welfare. There are two elements of competition policy:- First, a set of policies, such as liberalized trade policy, relaxed FDI policy, de-regulation, etc., that enhance competition in the markets. Second, legislation to prevent anti-competitive practices with minimal government intervention.

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6 When was the competition law enacted in India? The Monopolies & Restrictive Trade Practices Act, 1969 is the first enactment to deal with competition issues and came into effect on 1st June 1970. The Government appointed a committee in October 1999 to examine the existing MRTP Act for shifting the focus of the law from curbing monopolies to promoting competition and to suggest a modern competition law. Pursuant to the recommendations of this committee, the Competition Act, 2002, was enacted on 13th January 2003. It provides for different notifications for making different provisions of the Act effective including repeal of MRTP Act and dissolution of the MRTP Commission

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7 Whether provision relating to repeal of MRTP Act has been notified? Not as yet.

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8 Certain provisions such as those relating to establishment of the Commission, appointment of Chairperson and Members, appointment of staff, undertaking of competition advocacy have been notified. Other provisions of the Act are yet to be notified such as those relating to adjudication of anti-competitive practices and regulation of combinations. Whether all provisions of the Competition Act have been notified?

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9 The objectives of the Competition Act are to prevent anti-competitive practices, promote and sustain competition, protect the interests of the consumers ensure freedom of trade. . What are the objectives of the Competition Act?

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10 The objectives of the Act are sought to be achieved through the instrumentality of the Competition Commission of India (CCI) which has been established by the Central Government with effect from 14th October, 2003. How would the objectives of the Act be achieved?

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11 CCI shall prohibit anti-competitive agreements and abuse of dominance, and regulate combinations (merger or amalgamation or acquisition) through a process of enquiry. It shall give opinion on competition issues on a reference received from an authority established under any law (statutory authority)/Central Government. CCI is also mandated to undertake competition advocacy, create public awareness and impart training on competition issues. What are the functions of CCI?

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12 An agreement includes any arrangement, understanding or concerted action entered into between parties. It need not be in writing or formal or intended to be enforceable in law. What is an “agreement” under the  Competition Act?

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13 An anti-competitive agreement is an agreement having appreciable adverse effect on competition. Anti-competitive agreements include:- agreement to limit production & supply agreement to allocate markets agreement to fix price bid rigging or collusive bidding conditional purchase/sale (tie-in arrangement) exclusive supply/distribution arrangement resale price maintenance refusal to deal What is an anti-competitive agreement?

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14 Dominance refers to a position of strength which enables a dominant firm to operate independently of competitive forces or to affect its competitors or consumers or the market in its favour.  Abuse of dominant position impedes fair competition between firms, exploits consumers and makes it difficult for the other players to compete with the dominant undertaking on merit.  Abuse of dominant position includes imposing unfair conditions or price, predatory pricing, limiting production/market, creating barriers to entry and applying dissimilar conditions to similar transactions. What constitutes abuse of dominance?

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15 On its own on the basis of information and knowledge in its possession, or On receipt of a complaint, or On receipt of a reference When the Commission may initiate enquiry into anti-competitive agreements / abuse of dominance?

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16 Any person, consumer, consumer association or trade association can make a complaint against anti-competitive agreements and abuse of dominant position. A person includes an individual, Hindu Undivided Family (HUF), company, firm, association of persons (AOP), body of individuals (BOI), statutory corporation, statutory authority, artificial juridical person, local authority and body incorporated outside India. A consumer is a person who buys for personal use or for other purposes. Who can make a complaint?

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17 The Central Government or a State government or an authority established under any law may make a reference for an enquiry. Who can make a reference for an enquiry?

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18 Yes, it is reiterated that the Commission can initiate enquiry on its own on the basis of information or knowledge in its possession. Can the Commission initiate enquiry on its own?

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19 On its own, or receipt of complaint/ reference, if the Commission is of the opinion that there is a prima facie case, it shall direct the Director General, appointed under the Act, to investigate the matter and report his findings. How will the Commission proceed with an enquiry?

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20 After receipt of the investigation report from the Director General, the Commission shall adjudicate the matter after hearing the parties and pass orders as deemed fit. What will the Commission do after investigation?

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21 During the course of  enquiry, the Commission can grant interim relief restraining a party from continuing with anti competitive agreement or abuse of dominant position To impose a penalty of not more than 10% of turn-over of the enterprises and in case of cartel - 3 times of the amount of profit made out of cartel or 10% of turnover of all the enterprises whichever is higher After the enquiry, the Commission may direct a delinquent enterprise to discontinue and not to re-enter anti-competitive agreement or abuse the dominant position To award compensation To modify agreement To recommend to the Central Govt. for division of enterprise in case it enjoys dominant position. What orders the Commission can pass in case of anti-competitive agreements and abuse of dominance?

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22 Combination includes acquisition of shares, acquisition of control by the enterprise over another and amalgamation between or amongst enterprises. What is a combination under the Act?

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23 Combination, that exceeds the threshold limits specified in the Act in terms of assets or turnover, which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India, can be scrutinized by the Commission What kind of combination is regulated under the Act?

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24 In case of combination the threshold limits are- For acquisition – Combined assets of the firms more than Rs 1000 cr or turnover more than Rs 3000 cr (these limits are US$ 500 millions and 1500 millions in case one of the firms is situated outside India). The limits are more than Rs 4000 cr or Rs 12000 cr and US$ 2 billion and 6 billions in case acquirer is a group in India or outside India respectively . For merger/amalgamation – Assets of the merged/amalgamated entity more than Rs 1000 cr or turnover more than Rs 3000 cr (these limits are US$ 500 millions and 1500 millions in case one of the firms is situated outside India). The limits are more than Rs 4000 cr or Rs 12000 cr and US$ 2 billion and 6 billions in case merged/amalgamated entity belongs to a group in India or outside India respectively What are the threshold limits?

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25 A firm proposing to enter into a combination, may, at its option, notify the Commission in the specified form disclosing the details of the proposed combination within 7 days of such proposal. Does a firm proposing to combine have to notify the commission?

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26 If  the Commission is of the opinion that a combination is likely to cause or has caused adverse effect on competition, it shall issue a show cause notice to the parties as to why investigation in respect of such combination should not be conducted. On receipt of the response , if Commission is of the prima facie o pinion that the combination has or is likely to have appreciable adverse effect on competition, it may direct publication of details inviting objections of public and hear them, if considered appropriate. It may invite any person, likely to be affected by the combination, to file his objections. The Commission may also enquire whether the disclosure made in the notice is correct and combination is likely to have an adverse effect on competition. What is the procedure for investigation of combinations?

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27 It shall approve the combination if no appreciable adverse effect on competition is found It shall disapprove of combination in case of appreciable adverse effect on competition May propose suitable modification as accepted by parties What orders the Commission can pass in case of combinations?

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28 Person or through Authorized representative or Legal practitioner or Company Secretary or Chartered Accountant or Cost and Works Accountant or Who can represent the parties before the Commission?

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29 During the course of any proceeding before it,  a Statutory Authority may  make a reference for opinion if any party raises an issue that the decision of the authority is likely to be contrary to the provisions of the Competition Act. Who can make a reference on a competition issue?

Can the Government seek the Commission’s opinion on competition policy?:

Can the Government seek the Commission’s opinion on competition policy? Yes.  The Central Government, in formulating policy relating to competition, may seek opinion of the Commission by making a reference which the Commission is mandatorily required to give within sixty days from the date of reference. 30