Internal Assessment II

COMPETITION LAW

Submitted to,

Prof. Kulkarni

Submitted by,

Adhiraj Singh Chauhan

PRN- 14010125102

Div – ‘B’
Q1. NARRATE THE EVOLUTION OF COMPETITION JURISPRUDENCE DURING
THE MRTP PERIOD.

Answer: The MRTP Act was indeed a pioneer of the Competition Act and the inception of the
Competition Act that we have today is credit to it. From 1969 to 2003 Govt. provided the
regulation to monopolistic trade for the first time by means of the enactment of the Monopolies
and Restrictive Trade Practices Act (MPTP Act) which was inspired by the mandate of the
Directive Principles of State Policy in the Constitution of India. The Preamble of the MRTP Act
preached a socialistic philosophy intended to ensure that the operation of the economic system
did not led to the concentration of economic power to the common detriment.

A substantial part of the MRTP Act was focused around monopolistic behavior and economic
concentration. In light of the changing economic situation and initiation of economic reforms in
the country post 1991, the need was felt for a change in approach towards fostering competition.

Three enquiries conducted by three different committees acted as the loadstar for the enactment
of the MRTP Act are:-

 The Committee under the chairmanship of Mr. Hazari studied licensing procedure for the
Industrial sector under the Industries (Development and Regulation) Act, 1951. The
Committee found that licensing system led to the disproportionate growth of some big
business houses (Hazari, 1965).

 In October 1960 a committee was set up which was chaired by Professor Mahalanobis. The
Committee enquired the distribution and levels of income and came to a conclusion in
February 1964 that the top 10% of Indian population cornered almost 40% of the income
and the big business companies were flourishing because of the existence of country’s
‘planned economy’.

 The Government of India appointed ‘The Monopolies Inquiry Commission (MIC)’ in April,
1964 which was chaired by Mr. Das Gupta. The Committee researched about the monopoly
practice in the industry and its impact on the Indian economy. The Commission reported in
October 1965 that product wise and industry wise concentration of economic power existed
 in the system due to large-scale restrictive and monopolistic trade practices as a few business
houses were operating a large number of companies.

It was felt that although the MRTP Act seemingly had provisions regulating anti-competitive
practices, in comparison with competition laws of many countries it was inadequate for
promoting competition in the market trade and for reducing, if not eliminating, anti-competitive
practices in the country’s domestic and international trade. One of the biggest failings of the
MRTP Act was the inadequacy of MRTP Act to provide adequate remedy to complainants.
Except for orders directing a respondent to ‘cease and desist’ from the alleged monopolistic,
restrictive or unfair trade practices the MRTP Commission could not impose penalties for breach
of law and; no other penalty or fine could be imposed.1

Secondly, it is a generally accepted principle that competition law has extraterritorial application
in all the cases where the overseas conduct of defendant distorts competition in the domestic
market. However the Supreme Court repeatedly refused to acknowledge this principle and had
held that the wording of MRTP Act did not provide for extra territorial jurisdiction.

Thirdly, MRTP Act did not define certain key terms2 such as abuse of dominance, cartels,
collusion, price fixing, bid rigging, boycotts, refusal to deal and predatory pricing. It is often
argued that lack of definition was immaterial. Because the general nature of MRTP Act could
have covered all anti-competitive practices e.g. RTP was defined in fairly general terms to
include all trade practice that prevents, distorts or restricts competition and therefore there was
no need for a new law. It is true that the generic nature of MRTP Act was very wide but this
generic nature caused ambiguities in the interpretation and application of the MRTP Act and
ambiguities resulted into atmosphere of general business uncertainty on key issues. In pursuance
of its mandate, The Raghavan Committee3 was constituted to recommend a suitable legislative
framework relating to competition law for the country which deliberated between amending the
existing MRTP Act and enacting a new competition law.

1
Chakravarthy’s MRTP Act metamorphoses into Competition Act. www.cuts-international.org/doc01.doc;
2
See Study of Cartel Cases in select Jurisdiction at http:// www.cuts-ccier.org/CARTEL/pdf/FinalReport.pdf
3
http://theindiancompetitionlaw.files.wordpress.com/2013/02/report_of_high_level_committee_on_competition_poli
cy_law_svs_raghavan_ committee.pdf
In particular the Raghavan Committee was wary that amendments to the MRTP Act to address
the issues would have to be exhaustive and would be tantamount to drafting a new legislation.
Further the Raghavan Committee was also wary of the fact that during the 30 years of its
existence there had been a lot of binding jurisprudence on the interpretation of various provisions
of the MRTP Act and the wording of the existing law had been considered inadequate by judicial
pronouncements. Given the above, it was felt that drafting a new law would be most beneficial.
This led to the enactment of the Competition Act, The validity of the Competition Act was
challenged in the Supreme Court, even before it became fully operational. A writ petition on the
case Brahm Datt v. Union of India4 filed in the Supreme Court challenged the constitutional
validity of the appointment of a retired bureaucrat as the head of the Commission. As stated in
the abovementioned petition, the Competition (Amendment) Bill, 2007 was passed in September
2007 and the said amendment Act inter alia divided the competition authority, as envisaged in
the original Act, into two (a) CCI as an administrative expert body; and COMPAT to carry out
adjudicatory functions. The CCI was established in October 2003. However the operative
provisions of the Competition Act would be brought into force in two phases in May, 2009 and
June, 2011 respectively.

The Competition Act intended to promote equal distribution of power in the economy of the
country and to prohibit the concentration of economic power and wealth. It was enacted to
provide the procedure for the formation of a commission to prevent practices which affect
adversely on competition, and to promote a sustainable competition in the business structure and
the economic system of the country.

4
(2005) 2 SCC 431
Q2. Explain the post liberalization factors which necessitated the formulation
of modern competition law.

Answer: The MRTP Act became ineffective for different reasons. Some difficulties arose while
practicing and implementing MRTP Act were as follows –

 Lack of clarity on various definitions and interpretations – the Act neither define nor
even mention certain trade practices which are restrictive in character. Such as- abuse of
dominance, cartels, collusion and price fixing, bid rigging, boycotts and refusal to deal,
predatory pricing etc.

 Discrimination between public and private sector – in spite of being a competition law,
the MRTP Act could not be effective in the absence of the element of competition.

Upon realization of the necessity for review of the MRTP Act, the government appointed a
high-powered expert committee chaired by Justice Rajinder Sachar, in June 1977 to consider
and suggest suitable changes. The Sachar Committee presented a report to the Government in
August , 1977.

 The LPG Paradigm – after the economic reforms in 1991, there had been a subsequent
change in the economic scenario with the effects of liberalization, privatization and
globalization, which impelled the need for a new competition law.

As a result of adopting liberalization, India accepted and agreed to two important agreements of
the World Trade Organization namely General Agreement on Tariffs and Trade (GATT) and
Trade Related Aspects of Intellectual Property Rights (TRIPS). It led to the capability of
multinational companies to enter the Indian market which made the MRTP Act less important
and less effective and MRTP Commission under the MRTP Act realized that a new legislation
was needed. The origin of a much needed new law lies in Finance Minister’s budget speech in
February, 1999 –
“The MRTP Act has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing monopolies
to promoting competition. The Government has decided to appoint a committee to examine this
range of issues and propose a modern competition law suitable for our conditions.”

The Govt. of India constituted a High Level Committee on Competition Policy and Competition
Law, chaired by Mr. S V S Raghavan, a retired senior Central Govt. officer (popularly known as
‘Raghavan Committee’) in October 1999 to advise a new and effective contemporary
competition law to cope up with the international economic developments and to recommend a
suitable legislative framework, which may imply a new law relating to competition law for
necessary amendments in the MRTP Act,1969.

The Raghavan Committee considered between amending the existing MRTP Act and enacting a
new modern competition law. They agreed to the finance minister’s view that the MRTP Act has
become obsolete in certain areas in line with the international economic developments relating to
competition laws. The amendments of MRTP Act would only be beneficial for curbing
monopolies and it wouldn’t be effective for the fair competition in the market economy. It was
perceived by the Raghavan Committee that drafting a new and modern competition law suitable
for Indian economy would be most beneficial for promoting competition and suitable for dealing
with issues of the competition of the new liberal business atmosphere, which was the main focus
of the Indian Govt.

This led to the enactment of the Competition Act. The report of the Raghavan Committee
concluded in May 2000. The committee studied the government strategies and policies and their
effect on the Indian industrial system, the insufficiencies and inadequacies of the Industry to
compete with multi-nationals.

The major recommendations and suggestions submitted to the government by the RAGHAVAN
COMMITTEE were as follows:
1. To repeal the MRTP Act and to enact a new Competition Act for the regulation of
Anti-competitive agreements and to prevent the abuse of dominance and combinations
including mergers.
2. To eliminate reservation of products in a phased manner for the Small Scale Industries
and the Handloom Sector.
3. To divest the shares and assets of the government in state monopolies and privatize
them.
4. To bring all industries in the private as well public sector within the proposed
legislation.
Q3. DESCRIBE THE REMEDIES OR RELIEFS THAT WERE AVAILABLE UNDER
THE MRTP ACT.

Answer: A restrictive trade practice under the MRTP Act is one which has, or may have, the
effect of preventing, distorting or restricting competition in any manner and in particular,(/)
which tends to obstruct the flow of capital or resources into the stream of production, or(ii)
which tends to bring about manipulation of prices or conditions of delivery or to affect the flow
of supplies in the market relating to goods or services in such manner as to impose on the
consumers unjustified costs or restrictions.5

The main objective of the MRTP Act is to ensure that the operation of economic system does not
result in the concentration of economic powers in the hands of a few traders. This is sought to be
achieved by providing for Central Government's approval of proposals for substantial expansion,
establishment of new undertakings, mergers, amalgamation, takeovers and the like. Section 33 of
the Act is the king-pin of the Act which enumerates the categories of registrable agreements
covering a wide-range of corporate activities. Such restrictive and monopolistic agreements
cover sale and purchase, production and distribution, horizontal and vertical arrangements, price
and non-price discrimination, territorial and customer allocation, resale price maintenance and
predatory price cutting arrangements.

It is worth noting that every agreement falling within any of the clauses (a) to (b) of s 33 (1) is
deemed to be an agreement relating to restrictive trade practice and is per se registrable. This
requirement of compulsory registration of trade agreements ensures that no single trader acquires
a dominant or monopolistic position. In the market and that unfair practices arising out of
manufacturing inter-linkages are avoided.

The MRTP Act also empowers the Central Government to make a reference to the Commission
for inquiry if it appears to it that one or more undertakings are indulging in any monopolistic
trade practices. If, as a result of its inquiry, the Commission submits an affirmative report, the
government may pass appropriate orders to prevent or remedy the mischief.

Apart from acting on Central Government's references, the Commission can also institute suo
motu inquiry into any monopolistic trade practice
5
Section 2(0), MRTP Act 1969.
The MRTP Act restrains restrictive trade practices in three respects:

(/) certain types of restrictive trade agreements (e.g. exclusive dealing, price fixing)are required
to be registered;

(ii) the MRTP Commission can inquire into any restrictive trade practice and if the practice is
found to be prejudicial to public interest, it may by order direct that the practice be discontinued
or not to be repeated in future or declare the agreement void; and

(iii) the restrictive trade practice of resale price maintenance is prohibited outright.

More recently, in Society for Civic Rights v. Colgate Palmolive (India)Ltd.6 the Full Bench of
the MRTP Commission ruled on a complaint under sections 36A.

The MRTP Act enables the MRTP Commission to institute an inquiry into certain trade practices
alleged against a trader and if those trade practices had or might have the effect of preventing or
distorting or restricting competition or having the effect of imposing unjustified costs or
restrictions on the consumers and if such trade practices were prejudicial to public interest.

The MRTP Act and the Consumer Protection Act have much in common with one another. In a
way, they are cognate legislation when it comes to unfair trade practices. They would appear to
form one code and should be taken together as forming one system.

6
Unreported MRTP Commission 19 June 1991 (Inquiry no 41/84). See also P. Anand "Colgate given the brush off"
(1991) 7 IP Asia 11-12, where this case has been noted.
Q4. DESCRIBE THE ROLE OF PROFESSIONAL ECONOMISTS IN THE
DEVELOPMENT OF COMPETITION JURISPRUDENCE IN YOUR WORDS

Answer: The role of a Professional economist is to create a vision, leadership/management

skills, and technical competence required to achieve the goals set by the company.

A Professional Economist provides intellectual leadership relating to all aspects of economics

within the organization, as well as to contribute to project conceptualization, design, funding,
implementation, and quality assurance. Coming forward to how economists help in the
development of competition jurisprudence is basically that economists tell society about itself.
It’s important to note, judging from the other answers to this question, that economics is subject
to significant specialization. Metrics and indices are created to track specific niches of economics
phenomena, and the reporting of some indices over others can create a large amount of
confusion.
Economics is often confused with Finance. This is not without good reason: money is the
medium of economic exchange: and the two are extremely dependent upon each other.
But economists do not control the economy any more than physicists control the laws of physics.
While their models are sometimes quite vague, this is intentional - vague statements should
always be indicative of uncertainty. Indeed, Economists will throw out a model without a
stochastic (random) error term. Any economist who makes an assertion of fact in their forecasts
either hasn't been around long enough, or is saying something painfully obvious.

It is basically that to run a market you need an economist for the understanding of finance,
fixing/ standardizing rates for consumers and many other things and thus economists play a
major role in competition jurisprudence.

However, Sections 35 and 53S unfortunately do not mandate professional economists to cause
appearance before the Commission as well as the Competition Appellate Tribunal (COMPAT)
which further complicates the problem. The law only mandates chartered accountants, cost
works accountants, company secretaries and lawyers to represent cases of their clients before the
CCI and the COMPAT, but it does not make any identical provision for economists. Therefore,
in reality, a complex economic analysis should, for ends of justice, should be presented by the
economists who prepared them. Unless the law is amended to this effect, the problem would
remain unresolved. Moreover, the COMPAT has, at several occasions, upheld the commission’s
orders but at some other times distinguished many. The process of evolution of jurisprudence of
the law is a continuing process. India is one of the last major common law democracies to adopt
the modern competition law; therefore, more and more opportunities and roles must be presented
to the professional economists, in order to develop and improve this modern law of competition.