COMPETITION LAW

(Class notes)
 Session 1

Date: 18-05-2020

INTRODUCTION

 Ultimate Objective of CL - FAIR COMPETITION FOR GREATER GOOD

 Competition Commission of India was set up as per the mandates of Competition Act,
2002, which replaced the Monopolies and Restrictive Trade Practices Act, 1969.

Notes on CCI (additional info)

o The objectives of the Act are sought to be achieved through the Competition Commission of India, which has been established
by the Central Government with effect from 14th October 2003. CCI consists of a Chairperson and 6 Members appointed by
the Central Government.
o It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition,
protect the interests of consumers and ensure freedom of trade in the markets of India.
o The Commission is also required to give opinion on competition issues on a reference received from a statutory authority
established under any law and to undertake competition advocacy, create public awareness and impart training on competition
issues

 The validity of CCI was questioned in the case of BrahmDutt v. UOI (2005)
Facts: BrahmDutt filed a WP in Supreme Court against UOI regarding composition
of CCI. CCI performs a judicial function so the chairman needs to be a “judge”.
Contention of UOI:CCI is a Regulatory body and requires ‘expertise’ which the
judiciary cannot supply. Power of judicial review against the decision of CCI is still
there. India is not the first country to having non-judicial members in a regulatory
body like CCI.
UOI, amended the the Act during pendency of the case in the following manner –
“Chairman and members of CCI will be selected by the Committee presided by the
CJI” also, the Amendment paved way for COMPAT – Competition Appllate
Tribunal.
Decision of SC – Declared that Amendment is valid because now the regulatory
body will have a “judicial touch”.
 Premise of Competition Law
 The premise of the Indian Competition Law is traced to the Sherman Laws or “Anti Trust
Laws” of the US. The etymology of the phrase “Anti trust”, originated from the Laws made
by the US Government to curb the practice wherein some companies of the market came
together to form organisations i.e. “trusts” to decide and fix the market prices thereby
eliminating common market rivals of the companies. This proved disadvantageous to
companies that did not belong to the said organised platforms. Hence the Government came
up with Anti-Trust Laws to prohibit such trusts that fixed market prices.
Gaining trust of consumers is the basic aim of all producers however in doing so, there
must be fair competition to achieve welfare of all producers and consumers. This is another
aim of Competition Laws and Policy – to establish a fair ground.

Economics of Competition Law

The following are the Economic principles that Competition Law is built upon

(i) Demand Supply

(ii) Concept of Consumer Surplus ( the difference what the consumer is willng to
pay and what he actually pays
(iii)Producer Surplus (The Amount Producers receive in excess of what the amount
necessary for them to produce the good.)

(Note: Shift in perspective from consumer welfare to citizen welfare have been suggested by former Indian representatives in the UNO and
other International Organisations. However, the above three remain largely, to be the economic principles ,which Competition Law and
Policies around the world are built on.)

Objectives of the Module

(i) Understanding features of Globalisation, liberalisation of industrial development and
the market (Post LPG)
(ii) Highlight on importance of competition policy and law for regulation of the
behaviour of the market under liberalisation (Importance of CP and CL)
(iii) Understanding protection and enhancement of competition for growth and
development of the economy (Atmanirbhar)

 Competition law is a negative law that aims to deter negative consequences of unfair
competition in the market. It aims to curb unequal distribution of resources.
READ - Shri Krishna Committee Report – Balancing the data privacy with business needs, titled
“A Free and Fair Digital Economy – Protecting Privacy, Empowering Indians”.Access summary
on - https://www.thequint.com/news/india/key-highlights-from-srikrishna-committee-report-on-
data-protection

 Role of Competition Law in recent times

- Competition Law aims to curb ‘Market Disruption' and trace ‘Market
Distortions’
- Primary objective of businesses is profit and secondary, service. Hence CL
aims to enhance companies’ efficiency which consequentially enhances
consumer welfare leading to betterment of companies as well as the nation.
 Need for Competition Law &Policy (important)

(i) To provide incentive for better performers

(ii) To improve adequate and affordable choices for consumers. Ex: Hindustan Motors in
pre-liberal market
(iii) To ensure level playing field, ex: Jio in Telecommunication in Sector
(iv) To improve economic efficiency because resources are scarce and every nation wants
the most out of it
(v) To address market distortions. Ex: Monopoly of few dominant players ex: AT&T in
USA, JIO in India.
(vi) Consequential goal – National Development

Class Discussion:

Comment on India’s new FDI Policy to introduce prior GoI approval for investment by an entity of ‘a country sharing a land border
with India’.

Withdrawal of money from Indian Markets at the will of foreign investors leads to abrupt disruption of Indian economy. Hence for the
sake of economic sustenance, the Government Restrictions through the notification is fair and necessary for the current economic climate

 What are Market Disruptions?

Market Disruptions are usually caused by new entrants into the market (ex:Swiggy) that offer
freebies to eliminate competition in the formative years of the company.
The Personal Data Protection Bill is being pushed for owing to the fact that the personal data of
consumers collected by these companies are used unfairly to modify supply and influence tastes
of consumers, consequentially leading to unfair competition with other companies pre-existing in
the market.

Note:The term ‘Market Disruption’ is different from ‘Market Distortion’. The former signifies a significant alteration in the existing
market equilibrium usually cased due to new entrants or new inventions entering market. The latter is defined as external shocks that
distort and sometimes cause markets to no longer function properly. When markets are distorted, prices can rapidly fluctuate, goods
become limited.

Session 2

19-05-2020

Consumer Surplus: The difference between the highest price a consumer is willing to pay and
the actual market price

Producer Surplus: The difference between the market price and the lowest price a producer is
willing to accept.

Scenario:Roit offers a commodity at Rs.50 and Neha purchases it at Rs.50 . One day Neha , was asked if she would be willing to pay Rs.100
for the same commodity, she says that she values the commodity enough to pay Rs.100 for it. When asked if she would be willing to pay
Rs.150 for the same, she says yes. Hence the highest price she is willing to pay is Rd.150 as she refuses to pay more than that.

Therefore, for calculation of Consumer Surplus, this highest price must be taken into consideration

However, the price that Neha is willing to pay will reduce after a while owing to diminishing marginal utility.

How do Manufacturers use these concepts?

The incentive (in money) that a producer gets to produce an extra unit is the producer surplus.
Competition Law is drafted keeping this in mind. Understanding at what point, the value of the
product, in the eyes of the consumer, begins to reduce, thereby bringing down producer’s
incentive to produce the commodity is essential. Hence, this concept is used in determining the
right price at which a commodity is to be sold at.

Origin and History of CL – (refer the link it is super simple for 10 mark answers
https://www.cci.gov.in/sites/default/files/presentation_document/OECDKoreaCentreIndianCompetition
Law14Nov2008.pdf?download=1)
  Monopolies and Restrictive Trade Practices Act – first Act but had no vision and was
extremely restrictive and required Government Permissions for everything. This is
contrast to Competition Act which provided prior restrictions
 Raghavan Committee Report made is 1999
 In UK the Competition Act was enacted in 1998 and Enterprise Act was enacted in 2002.
 In US – Sherman Act and Clayton Act and Federal Trade Commission Act was in
existence
 2005 - BrahmDutt vs. UOI - Competition Commission’s and the Appellate body
(established as unConstitutional Validity was upheld provided it had a “judicial touch”.
(Right now NCLAT has taken over the functions of the Commission)
 Art.101and 102 of ET TFEU is similar to provisions (Sec. 3, 4 , 5)of Competition Act

Competition Policy vs. Competition Law

CP- Comes first – independent – Brought by the Government

CL – Follows policy- dependent on policy- made byParliament, Rules by government.

Basic Structure – CG – COMPAT (repealed in 2017) – CCI and MRTP Commission

Basic Terms in Competition in CL

Anti- Competitive Agreement- (Defined in Sec. 3(3))There is always a possibility that market
players can co-ordinate their actions to achieve a position so that they can indulge in anti-
competitive practices (ex: cartels, price fixing). Thus the firms can collude and control
production and raise prices.

There are 2 types of Competitive agreements (Structurally):

(i) Horizontal Agreement-These agreements are between competitors i.e. entities at the
same level of distribution. (ex: Vodofone&Airtel).

Types of Horizontal Agreements:

 a) Price Fixation: Agreements between companies to mutually set prices that they
want to charge in the market.
b) Limitation of Production/Supply: A scenario where competitors agree to restrict
and control production thereby controlling supply in the market to ultimately raise
demand and consequently the price.
c) Market Share Allocation:The competitors agree to divide amongst themselves,
specific territories, customers or products.
d) Cartels:It is a mutual agreement wherein companies come together aiming to
ultimately to eradicate the role of other companies not in a part of the cartel and to
do so by not competing with the members of the cartel.
e) Bid Rigging:It takes place when bidders collude and keep the bid amount at a
pre-determined level (ex: bidding for government tender)

(ii) Vertical Agreement-These are agreements between parties on different levels of the
chain of such as between a manufacturer and distributor or between a wholesaler and
retailer. (ex: Jio asking sim distributors to enter an agreement with them).
a) Refusal to Deal: An agreement to restrict by any method, the person or classes of
persons to whom goods are sold or from whom goods are bought.
b) Tie-in Agreements: It includes any agreement, requiring a purchaser of goods, as
the condition of such purchase, to purchase some other good. (ex:In Re Hindustan
Motors Ltd. Case wherein in was mandated that buyers of the car must also pay
servicing of the car with the sale price)
c) Resale Price Maintenance: It includes agreements to sell goods, on the condition
that the prices to be charged, on the resale, by the purchaser shall be the prices
stipulated by the seller unless clearly stated otherwise.
d) Exclusive Distribution/Supply: It includes any agreements to limit, restrict or
withhold the output or supply of any goods or allocate any market for the
disposal/sale of goods.

Content simplified from following Links -

http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/law/03._competition_law/14._vertical
_agreements_under_competition_act_2002__/et/5654_et_14et.pdf
 http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/law/03._competition_law/14.
_vertical_agreements_under_competition_act_2002__/et/5654_et_14et.pdf

Exception to Anti-Competitive Agreements: Section 3(5)(i) of the Act provides an exemption, from the adverse effect of Section 3 to the
right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights
which have been conferred upon him under:-

1. The Copyrights Act, 1957

2. The Patents Act, 1970
3. The Trade and Merchandise Marks Act, 1958
4. The Geographical Indications of Goods ( Registration and Protection) Act, 1999
5. The Designs Act, 2000
6. The Semi-conductor and Integrated Circuits Layout-Design Act, 2000
The effect of Section 3(5) is that entire Section 3 dealing with prohibition of anti-competitive agreements will not apply where the owner of
any intellectual property rights under the enactments provided above does anything in the exercise of his right to restrain the infringement
of any of those rights, or imposes reasonable conditions as may be necessary for the protection of any of those rights .

Why was MRTP repealed?

 The Act had three major areas of operation – concentration of economic power, i.e.
dominance was one such — the MRTPC was vested with absolute powers to prevent
expansion, acquisitions, transfers of assets and shares, winding up et al.
 So the public sector monopolies grew, while private businesses stagnated..
 The MRTPC’s failure in curbing cartels is attributed to its toothless character.
 The “cease and desist” orders were enforceable only through courts.
 MRTPC had absence of extra-territorial jurisdiction.
 The ANSAC case, illustrated the ill-effects of the law in combatting cartelisation.
MRTPC’s best intentions stood frustrated in this case in which the member body
representing the Indian soda ash producers alleging infringement of several sections of the
Act sought restraint order of the same products being exported to India by a cartelised
group of foreign manufacturers, ANSAC.
 The Commission found evidence of predatory pricing, and imposed an interim injunction
restraining imports. The MRTPC assumed jurisdiction under Section 14 of the Act, even
though the cartel was formed outside India and had faced anti-trust action in other
jurisdictions.
 Parties appealed against MRTP’s injunction to the Supreme Court, which was set aside on
the ground of absence of jurisdiction.
 As a consequence, an effective law but also a regime capable of dealing with cartel
investigation and a proper redressal mechanism, which should give the required relief to
 customers, effective operators and others outside the circle of the cartel was needed and
came in the form of Competition Act, 2002.

(Edited concisely, after extracting info fromhttps://www.business-standard.com/article/economy-policy/-

toothless-mrtp-is-laid-to-rest-109091400054_1.html)

SESSION 3

20-05-2020

NOTE: In the year, 2017 when the Finance Act was enforced, NCLAT which took over the
functions of COMPAT. Now, Appellate Tribunal is defined under Sec2(ba) and is
constituted as per Sec 53A of the Competition Actas under:

Sec. 2(ba): “(ba) Appellate Tribunal” means the National Company Law Appellate Tribunal referred to in sub-
section (1) of section 53A;

Sec. 53A. (1)The National Company Law Appellate Tribunal constituted under section 410 of the
companies Act, 2013 shall, on and from the commencement of Part XIV of Chapter
VI of the Finance Act, 2017, be the Appellate Tribunal for the purpose of this Act
and the said appellate Tribunal shall –

(a) to hear and dispose of appeals against any direction issued or decision made or order
passed by the Commission under sub-sections (2) and (6) of section 26, section 27,
section 28, section 31, section 32, section 33, section 38, section 39, section 43,
section 43A, section 44, section 45 or section 46 of the Act;

(b) to adjudicate on claim for compensation that may arise from the findings of the
Commission or the orders of the Appellate Tribunal in an appeal against any finding
of the Commission or under section 42A or under sub- section(2) of section 53Q of
this Act, and pass orders for the recovery of compensation under section 53N of this
Act.

Provisions Dealing with Anti-Competitive Agreements:

 Sec 2(b) defines an Agreement as –

“agreement” includes any arrangement or understanding or action in concert,— (i)

whether or not, such arrangement, understanding or action is formal or in writing;
or (ii) whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings;

This is different from the “agreement” defined in Contract in Law as here, as the aspect of ‘enforcement’
is not an essential here.

 Sec 3(3) of Competition Act talks about Anti-Competitive Agreements –

  2 Major rules wrt Anti- Competitive Agreement:
(i) Per se rule – presumption of violation of Competition Law unless
proved otherwise
(ii) Rule of Reason – Requires proof of violation leading to adverse
effect of competition in the market. There needs to be proof of
‘Appreciable Adverse’ effect as defined in (Sec19 (3) ) that has to
be proved by the CCI
 Sec.19(3) – mandates on CCI while proving appreciable adverse effect.
o Sec.19(3) The Commission shall, while determining whether an agreement has an appreciable
adverse effect on competition under section 3, have due regard to all or any of the following factors,
namely:—
(a) creation of barriers to new entrants in the market; (b) driving existing competitors out
of the market; (c) foreclosure of competition by hindering entry into the market; (d)
accrual of benefits to consumers; (e) improvements in production or distribution of
goods or provision of services; or (f) promotion of technical, scientific and economic
development by means of production or distribution of goods or provision of services.

 Horizontal Agreements call for application of Per Se Rule and vertical agreements call for
application of Rule of Reason. This is because Sec. 3(3) uses the words – “may presume”
however, the provision clause exempt the enumerated agreements which do not attract the
per se rule and hence attracts the rule of reason.

Class Discussion: In the Hyundai Case, it was questioned if RPM (like in USA and EU)amounted to per se
violation thereby requiring the burden of proof to be borne by the Company and if Court’s could alter the
applicability of the rule?

The Court decided that evidences that the CCI does not deem it necessary to treat RPM cases in a different light (as
in USA and EU), and similar to other vertical arrangements, will be tested on the touchstone of “rule of reason”.

Additional Info on Hyundai Case:

Being the first case to examine the issue of RPM in detail, the decision provides valuable insight in as much as it
classifies the practice of setting a limit on maximum discount as RPM and demonstrates that any assessment in this
regard should necessarily consider intra and inter brand competition as well as the factors stipulated under Section
19(3) of the Act. This is also the first instance where the CCI pursuant to the judgement in the Excel Crop case applied
the principle of “relevant turnover” in the imposition of penalty. All in all, while this decision marks the CCI’s first
step towards providing clarity regarding RPM, it will be interesting to see the decision’s impact on industry and the
subsequent development of jurisprudence in this area, particularly with the introduction of the NCLAT as the appellate
body.

Refer Links - https://competition.cyrilamarchandblogs.com/2017/11/resale-price-maintenance-cci-upped-ante/

- https://www.vantageasia.com/hyundai-case-a-lesson-for-cci/
 Session 4

21-05-2020

USE/ABUSE OF DOMINANT POSITION IN TIE-IN AGREEMENTS:

 To exert dominance in the market the seller/company would launch /would tie-in with
other products that are not famous to the best sellers.
- Ex; If you buy jiosim, you should also buyjio phone
 Ex -Case Law :In Re Anand Gas Ltd1
- A gas distributor insisted his customers to buy gas stove as a mandatory pre-
condition to give gas connection. It was held that it was a restrictive trade
practice
- However, where there is no such precondition and the buyer is free to take
either product, no tying arrangement could be alleged even though the seller
may offer both the products as a single unit at a composite price.
 Tie-in Agreements are not per se anti -competitive practices when the parties to the
agreement are not market dominators. Unless it has an appreciable adverse effect on the
market, it will not be counted as an anti -competitive agreement.
 Vertical agreement does not merely exist within one company at different stages, but also
amongst sellers of complimentary goods and services.

Abuse of Dominant Position

 Earlier, MRTP’s mode of controlling Market Dominance to control market dominance and
its adverse effect was to effectuate “Quota Allocation”. It is a process by which quota for
sales were allocated to restrict the process of sales management and sales representative in
different territories and regions.
 Quota system abolished post LPG. When Competition Act came into position, perception
changed from controlling market dominance to controlling abuse of market dominance.
 Group allocation is allowed as long as the competition is not affected

1
In Re Anand Gas, RTP Enquiry No. 43/1983 Order dated 07.06.1984
  Sec4 r/w Sec19(4) of the Competition Act, nowenlists the pre-requisite factors for
determining ‘abuse of dominance'

 Predatory Pricing is a major consequence of abuse of market dominance.

- Predatory pricing is the practice of using below-cost pricing to undercut
competitors and establish an unfair market advantage.
- It is a method in which a seller sets a price so low that other suppliers cannot
compete and are forced to exit the market. A company that does this will
see initial losses, but eventually, it benefits by driving competitors out of
the market and raising its prices again. This predatory pricing practice often
results in the formation of monopolies controlling market power for a
lengthy period of time.
- EXAMPLE - A prime example of predatory pricing tactics between two
large franchises can be seen in the prescription drug price war between
Walmart and Target in Minnesota.
- Walmart, seeking to undercut the competition, initially began offering
certain prescription drugs at well below its price floor. Set by the
government, a price floor is the lowest price that goods or commodities can
be legally sold at based on the minimum cost at which turning a profit is
still possible. Target, looking not to be undercut, matched these drug price
cuts. However, Minnesota state law forbids the sale of drugs below their
stated cost and limited the discount, thus putting an end to the price war.
 Predatory pricing, in other words, happen when a company drastically lowers their price to
make it impossible for a competitor to remain in the market. It is the opposite of
Competitive pricing where all companies involved test pricing strategies without creating
an unfair market advantage.

Session 5
23-05-2020
Note: – Usually market dominators to avoid proof of predatory pricing, by practice of “price parallelism” and
other non-identifiable modes of pricing without physical agreements. For ex: Airtel makes a pack for Rs.399
and Jio could make one for Rs.390. this method helps in avoiding giving proof of abuse of dominant position
  Dominance is not just exerted by one company but groups of cmany as well

Criterion for ascertaining of Dominance and abuse of the same : Sec 19, Competition Act:

The Commission shall, while inquiring whether an enterprise enjoys a dominant position
or not under section 4, have due regard to all or any of the following factors, namely:—

(a) Market share of the enterprise;

(b) Size and resources of the enterprise;

(c) Size and importance of the competitors;

(d) Economic power of the enterprise including commercial advantages over competitors;

(e) Vertical integration of the enterprises or sale or service network of such enterprises;

(f) Dependence of consumers on the enterprise;

(g) Monopoly or dominant position whether acquired as a result of any statute or by virtue
of being a Government company or a public sector undertaking or otherwise;

(h) entry barriers including barriers such as regulatory barriers, financial risk, high capital
cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high
cost of substitutable goods or service for consumers;

(i) Countervailing buying power;

(j) Market structure and size of market;

(k) Social obligations and social costs;

(I) relative advantage,by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have an appreciable adverse
effect on competition;

(m) any other factor which the Commission may consider relevant for the inquiry.

Comprehension of important criterion with examples

 Criteria 1 :market share of the enterprise.

– Consider the example of Jio. During advent of jio, airtel claimed jio is anti-competitive
in nature, CCI rejected the argument saying as of then, jio was not a market dominant

- Dominant Position is however dependent on how the market is scattered. If

the market is fully scattered, and all companies own 0.5% or less of market
 and just one company owns 5%, then it will be a dominant position.
Dominance is proportional to the size of market, competitors hold.
- Abuse of dominant positiona also comes in form of withdrawal. If one is a
key funder and withdraws to control market, then it is market abuse

 Criteria 2: size and resources of the enterprise

- If on company has a large network / is deeply embedded in the vertical
segment or integration, and if the company abuses the existing structure for
his benefit or to the disadvantage of other companies then it is abuse of
dominant position.
- Ex: if Jio says that its dealers wont deal with Airtel until Airtel cuts jio a
slack, then it is abuse of dominant position
 Criteria 3:size and importance of the competitors
- Ex: Coal India Ltd was a sole dominant player. READ Coal India Ltd. Case.

NOTE : CLASS DISCUSSION Does the concept of "abuse of dominant postition" apply to government owned
companies as well? Can a private entrepreneur sue government for the same? – yes. Sec 19(4)g r/w definition
of enterprise.

The MRTP Act did not have its application on Government owned companies. CA was enacted to attract global
players into Indian markets and hence it demanded applicability of it to Government companies as well

Session 6

26-05-2020

STRUCTURE OF CCI (organogram from website)

  Director General –Prime investigating authority
 Advisors- assess the economic impact of an action – economic division – anti-trust
division-
- Combination division (determines the effect of combination between
companies)
- Legal Division (Provides Legal Advice)
- International Co-operation Division
- Capacity Building Division
 Secretary – government representative – cannot make independent divisions – co-
ordinates with HR Finance and Service Division

Composition of CCI

-Chairperson

-Not less than two and not more than 10 members who shall be appointed by the Centre

Eligibility of members

The Chairperson and every other Member shall be a person of ability, integrity and standing and
who, has been, or is qualified to be a judge of a High Court, or, has special knowledge of, and
professional experience of not less than fifteen years in international trade, economics, business,
commerce, law, finance, accountancy, management, industry, public affairs, administration or in
any other matter which, in the opinion of the Central Government, may be useful to the
Commission.
 (IMPORTANT PROVISIONS TO REFER)

 S. 8- 1 Chairperson and 2 to 6 members. 8(2)-CP- at least 15 years experience- economics,

law, business, public affairs. Whole time members
 S. 9- Selection- 5 member body- CJI; MoCA, MoJ, 2 members who are experts.
 S. 11- Removal- Physically & mentally incapable; insolvent; moral turpitude; paid
employment; financial or non-financial interest; abuse of position
 S. 15- Validity of proceedings
 S. 22- Meetings

NOTE: Qualification- Physically mentally incapable, insolvent, moral turpitude, paid employment, acquiring
financial or non-financial benefit and abuse of position

Read:Harshad Mehta Scam for moral turpitude

For Financial and non financial and abuse of dominant position – SC inquiry report is mandated.

Commission

Secretary Director General Advisors

Secretariat HR/ F&S Anti-trust; Legal Intl. Co-op
Advocacy; Economics Combination Capacity building

COMBINATIONS

 In general parlance understood as two or more enterprises combining together to give rise
to a new venture.
 Combinations are defined under Sec 5 of the Act and are regulated in light of Sec 6 and
20 and the Combination Regulations.

It is essential to understand the difference between mergers, acquisitions and amalgamations

before understanding the significance of combinations in Competition Law.

MERGER ACQUISATION and AMALGAMATION

The legal definition of a merger states that “a merger requires the consolidation of two companies
into a single entity with a new ownership and management structure.” A merger helps companies
to enlarge their reach, obtain increased market shares, and diversify their services

An acquisition refers to a corporate transaction wherein a company purchases a portion or entire

shares/assets of another company. The acquisition is ideally processed to take charge of the target
company’s strengths and seize synergies.

An amalgamation is a type of merger in which two or more companies join their businesses to
create an entirely new company/entity. It is an adequate arrangement of two or more companies
that operates the same industry; thus; amalgamation plays a vital role in reducing the operational
cost.

Historical Evolution of Mergers and Acquisition through ages

- Sec 23 of the MRTP Act 1969 – Before any merger takes place, a prior
approval is required from the Government if merger leads to concentration
of economic power.
- DPSP , Art 39(b) and Art.39(c) – whenever government makes an
economic policy, it shall be taken into consideration that it does not lead to
concentration of wealth / economic resources.
- Sec 30(a) to Sec 30(g) MRTP Act – provisions with respect to acquisition
and transfer of shares.
- Economic Threshold principle employed in the MRTP Act. This
essentially means that if a company reaches an economic threshold, then it
would be discouraged from taking up more acquisitions and mergers
- READ KINGFISHER AIRLINES CASE
- In 2011 Sec 5 came into force
o In 1991, the relevant provisions of the MRTP Act wrt to mergers in Chapter III ,
was transferred to Company Act – Sec 108 A to 108 H
o Relevant provisions of MRTP wrt Acquisition, control and transfer of shares was
transferred to SEBI regulations (created in 1992) – SEBI take over code
o In 2002 –Sec 5 contemplated, 2011 Sec 5 came into picture.
 o Read sec 230 to Sec 240 Mergers and Acquisition Act
o Company Act mandates that scheme of amalgamation needs to be sent to SEBI,
Tax Authorities, CCI etc.
o Deemed Approval as an evolutionary legality

CASE STUDY – Kingfisher airlines (excerpt from -

http://www.legalservicesindia.com/article/805/Mergers-&-Acquisitions-in-Aviation-Sector.html)

In 2007, Kingfisher Airlines acquired a 26% equity stake in Air Deccan and became the largest
single shareholder in Deccan Aviation Ltd. It was agreed that Kingfisher would continue to serve
the corporate and business travel while Air Deccan would focus on serving the low fare segment
but with improved financial prospects for both carriers.

Kingfisher later increased its stake to 46%, and took control of the management of Air Deccan,
upgrading it to a value-based airline with higher airfare and repositioned it as ‘Simplifly Deccan’.

Air Deccan airlines merged with Kingfisher Airlines and decided to operate as a single entity from
April, 2008. Following the merger of Deccan with Kingfisher, in August 2008, Kingfisher renamed
Deccan as Kingfisher Red. After the merger, the company has a combined fleet of 71 aircrafts,
connects 70 destinations and operates 550 flights in a day. The combined entity has a market share
of 33%.

Benefits

The key benefits to Kingfisher Airlines and Air Deccan on account of this were as under:

· Legally, if an airline wants to operate overseas it must have a domestic status of having operated
for 5 yrs and therefore in case of kingfisher operating overseas became easier.

· Besides, operational synergies (engineering, inventory management and ground handling

services, maintenance and overhaul), the management and staff of both the airlines would be
integrated. They would be stronger vis-à-vis lessors, aircraft manufacturers, and will also spend
less on training and employees. Costs would also reduce which is associated with maintenance of
aircraft. The savings in cost would be lower by about 4-5% (Rs 300 crores).

· The merger would create a more competitive business in scale and there would be scope to
emerge as market leader.
Critical Analysis: Kingfisher Airlines-Deccan-

The Kingfisher Airlines acquisition of Air Deccan is another case of underestimating the
challenges of merging two carriers. It is a venture that has proved to be costly. Removing Air
Deccan as an independent operator took out the airline that was most responsible for the irrational
fares in the market place and, to this extent, it restored some pricing discipline which advantaged
the entire industry.

However, integrating such different carriers (one, a classic low cost airline and the other a 5 star
carrier), has proven to be extremely difficult. The huge combined network and distinct inflight
products of the two carriers, has created duplication and confusion about the brand. This has been
damaging to Kingfisher, with repercussions for its financial performance. The combined entity
today has a large network and diverse operations that are proving to be hard to manage.

Combinations - Kinds:
 Three main kinds of combinations (refer the threshold from sec 5)
 Acquisitions (Sec 5(a))- When a company is trying to acquire a target company. It
occurs when one company acquires another with the permission of its board to do
so. Companies pursue acquisitions for several purposes. First, the acquisition may
result in the company increasing its market share. The acquired company may
also provide additional needed facilities to the acquiring company.
For purpose of the Act, acquisition is defined under Sec 2(a) of the Act, which
talks about two types of acquisition, direct (having direct involvement in the
process, eg. Owing shares) and indirect (eg. Owning shares through a subsidiary
company). In India, the process of acquisition is guided by SEBI and SEBI
Regulations.
 Control (Sec 5(b))- It is considered as controlling the affairs or management by
one or more enterprises, either jointly or singly, over another group or enterprise.
It is regulated by the Take Over Regulations, the SAST Regulations and SEBI
Regulations.
 Mergers or Amalgamation (Sec 5(c)) - A merger occurs when two separate
entities combine forces to create a new, joint organization. A merger involves the
 mutual decision of two companies to combine and become one entity. The
combined business, through structural and operational advantages secured by the
merger, can cut costs and increase profits, boosting shareholder values for both
groups of shareholders. An amalgamation is distinct from a merger because
neither of the combining companies survives as a legal entity. Rather, a
completely new entity is formed to house the combined assets and liabilities of
both companies. These are regulated by Sec 230-240 of the Companies Act.
 WHY IS CCI INTERESTED IN COMBINATIONS? (Extra)
Competition Laws aim to protect the appreciable adverse effect of trade related
competition in the relevant market in India. In elemental level, in light of Sec 5,
Combinations are considered as basic transactions of buying and selling and only when a
company is free from external influence would it be able to make independent decisions,
thereby not hampering the competition.
 The four filters in law before a notification of combination can be taken up for
investigation
 Exceeding threshold laid down in Sec 5
 Establishing Appreciable Adverse Effect to Competition in relevant market – Sec
20(4)
 Effect in relevant markets only – sec 19(5)-(7)
 Establishing a prima facie Appreciable Adverse Effect to Competition- Sec 29
 COMBINATIONS PRIOR TO COMPETITION ACT:
In early days, the entire regime of M & A was guided by the MRTP Act in light of
Chapter 3 and 3A.

Sec 23 of the MRTP Act - Before any merger takes place one needs to have a prior
approval of the Central Government if such merger results in concentration of economic
power, wealth and resources.

Sec 30 (a) to 30(g) – Acquisition and Transfer of Shares- If an enterprise is interested in

an acquisition or transfer of shares (which gives right to nominate or show dominance in
the other company), there must be a prior approval of the Central Government if such
transactions lead to the concentration of economic power, wealth and resources.
 WHY THE GOVERNMENT IS INTERESTED IN COMBINATIONS?
 According to Art 39 (b) and (c) of the Constitution states that whenever an entity
is formulating an economic policy in India, the Government must take it into
consideration and examine as to whether such policy would concentrate the
resources and wealth. There is a minimum economic threshold which is laid
down. When this threshold is breached, the Government would not allow such
combination as it would destroy all the other competitors and thereby lead to the
concentration of wealth and resources.
 SUBSTANTAIVE PROVISIONS :
In 1991, the entire Chapter 3 of the MRTP Act was repealed and the provisions relating
to Combinations were shifted accordingly. This repeal was in light of the upcoming of
the LPG Model of changes.

With respect to Mergers, all the provisions regulating mergers from Chapter 3 of the
MRTP Act were shifted to the Companies Act, 1956 (Secs 108A-108H). With respect to
Control and Acquisition, the relevant provisions were shifted to the SEBI Regulations
and the Takeover Regulations of 1997 (SAST Regulations).

In 2002, all the provisions in relation to Combination were added into the Competition
Act 2002. In 2013, the Companies Act was enacted and the provisions of the compromise
and arrangements were shifted to Sec 230- 240.

 How will CCI know about the Mergers or other arrangements –

> in light of the forms and procedures laid down under sections 230 – 240

IMPORTANT DEFINITIONS FROM COMPETITION ACT

1. Consumers – 2(f) – A person who

i. Buys goods or uses the goods of another with permission for a
consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment.
This definition facilitates to all others present in the chain to get to the
ultimate consumer, but all in the chain are considered as consumers, even
 the intermediaries as they are buying the goods for a consideration for
either commercial or personal use or resale.
ii. Hires or avails services or is availed by any beneficiary for a consideration
which has been paid or promised or partly paid and partly promised, or
under any system of deferred payment.
2. Director General – 2 (g) - Appointed under section 16(1) of the Act. Primary function is
to investigate into allegations raised for anti-competitive practices.
3. Enterprise – 2(h) – (Read definition in the Act along with explanations below)

Section 4 of the Act is the substantive provision concerning an abuse of dominant position.
The Act provides that "No enterprise . . . shall abuse its dominant position". As such, the
concept of "enterprise" is paramount in so far as an entity which is not an enterprise shall
not be scrutinised for any alleged abuse of dominance. The definition of Enterprise brings
within its ambit any firm or person engaged in activities relating to production, storage,
supply, distribution, and acquisition etc of goods. Rendering services (of any kind) is also
a critical inclusion in the definition.

In its simplest form, an 'enterprise' (with the exclusion of the sovereign functions of the
government) is any entity engaged in an economic activity. Whereas some activities of a
particular entity are considered a sovereign function, not all functions can be sovereign.
The functional aspects of an entity take precedence over its institutional aspects.

For example: An entity may be established by a statute; it may be working not-for-profit;

but that will not exclude it from the purview of Section 4. It is the nature of the activity
which qualifies or disqualifies the entity as an "enterprise". For instance, fixation of
electricity tariff by regulatory commissions does not make the regulatory commission an
enterprise; collection of taxes does not make the Govt. Department an "enterprise"
(Government can create monopolies – Art 304, 305); however where the Railway
Board issues rate circulars for haulage charges for carriage of goods by private operators
on the Indian Railways Network, the same is covered as a commercial activity.

Thus, for the purposes of Section 4 of the Act, generation and distribution
of electricity, construction of residential apartments, manufacture of cars and providing
 after-sales services, mining and supply of coal, services of stock exchange, organisation of
sports leagues, etc. all constitute economic activities and make an entity liable under
Section 4.

Therefore, it is the functional aspects and not the institutional aspects that are paramount
in determining whether an entity is an "enterprise". A critical inclusion in the definition of
the term 'enterprise' is a Government Department. It is interesting to note that while certain
functions of regulating a public activity may fall within the exercise of sovereign
powers, others like conducting business or being engaged in economic activities may bring
it within the definition of enterprise. A Department of Government engaged in any activity
relating to provision of service or control of services including activities with respect to
grant of licenses may be an enterprise for the purposes of Competition Law
analysis. Furthermore, acquisition of goods or services through a competitive procurement
process can qualify an entity as an "enterprise".

Furthermore, in accordance totrade associations. While the constituent members can be an

'enterprise', associations primarily are meant to provide a platform to their constituent
members. If the sole objective of an association is to provide a platform for their members
to discuss matters of common interest, the association themselves shall not be considered
an enterprise and their conduct shall be exempt from scrutiny under Section 4.However, it
should not be understood that trade associations have a blanket exemption from purview
of Section 4.

(For further information refer: https://www.mondaq.com/india/antitrust-eu-competition-/494670/are-you-an-

enterprise#:~:text='Enterprise'%20has%20been%20defined%20under,critical%20inclusion%20in%20the%20definition
.)

4. Price – Sec 2(o) – it refers to a valuable consideration (direct, indirect or deferred) for the
sale of any goods or to the performance of any services (which could be seemingly related
to any other matter or thing) and it does not have to be monetary in nature.
5. Person- Sec 2(l) - includes—
(i) an individual;
(ii) a Hindu undivided family;
(iii) a company;
 (iv) a firm;
(v) an association of persons or a body of individuals, whether incorporated or not, in India or
outside India;
(vi) any corporation established by or under any Central, State or Provincial Act or a
Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);
(vii) any body corporate incorporated by or under the laws of a country outside India;
(viii) a co-operative society registered under any law relating to co-operative societies;
(ix) a local authority;
(x) every artificial juridical person, not falling within any of the preceding sub-clauses;
6. Chairperson –Sec 2 (d)- Chairperson of the Commission appointed under sub-section (1)
of section 9

Session 7

27-05-2020

SEBI (SST) Regulations

 Securities Exchange Board of India (SEBI) has introduced SEBI (Substantial

Acquisitions of Shares and Takeover) Regulations 2011 to regulate the acquisition of
shares and voting rights in Public Listed Companies in India. The regulation applies
to direct or indirect acquisition of shares or voting rights or control over Target
Company

Read more at: https://www.caclubindia.com/articles/sebi-sast-regulations-2011-13538.asp

Read also -S. 5- acquisition (when acquiring company acquires the target company); control; merger (s. 230-
240) & amalgamation.

S. 5, 6 & 20 r/w Combination Regulations

01-06-2020

- Read and understand Difference b/w agreement (Indian Contract Act v Competition Act)

Cartels

- S. 2(c)- “cartel” includes an association of producers, sellers, distributors, traders or service providers
who, by agreement amongst themselves, limit, control or attempt to control the production, distribution,
sale or price of, or, trade in goods or provision of services;
- Fist pre-requisite- an association of producers, sellers, distributors, traders or service providers.

- Agreement should be in existence.

- Said agreement for limiting, controlling or attemping to control- production, distribution, sale or
price or trade of goods or service.

02-06-2020

Relevant Market

Section 2(r) of the Act renders an exclusive definition for the term ‘relevant market’. It states
that it means the market which may be determined by the Commission with reference to the relevant
product market or the relevant geographic market or with reference to both markets.The notion of
relevant market is used in order to identify the products and undertakings which are directly competing
in a business. Therefore, the relevant market is the market where the competition takes place

Relevant product market (Section 19(6)) is defined as a market comprising all those products or
services which are regarded as interchangeable or substitutable by the consumer, by reason of
characteristics of the products or services, their prices and intended use.

The relevant product market is determined according to these criterion:

1. Demand-side substitution: Demand-side substitution takes place when consumers switch

from one product to another in response to a change in the relative prices of the products,

Ex: Consider Product A is substitutable by Product B, then A and B, are in the same
relevant market

2. Supply-side substitution: When the Consumers are unable to react to a price increase,
producers may be able to do so by for example, increasing their supply to satisfy the
demand of these consumers.

Ex: If producer A is responds to producer B’s increase in relative price of product B by

increasing production of A, then over-all increase in production and consequential supply
would deem unprofitable, any further prie increase by B.
 Here, A has an ability for supply side substitution, as a reaction to B. A and B are in the
same relevant market.

Relevant geographic market (Section 9(7)) refers to a market comprising the area in which the
conditions of competition for supply of goods or provision of services or demand of goods or
services are distinctly homogenous and can be distinguished from the conditions prevailing in the
neighboring area.

Relevant market is hence the intersection of relevant product market and relevant
geographic market.

NOTE:

- The rule of reason or the per se rule was usually used in determination of relevant market
until 1959. For the first time in 1959, the SSNIP test was introduced in order to acertain
relevant market in cases of mergers. The same was also incorporated in the US Merger
Guidelines of 1982.

- The notion of relevant market is used in order to identify the products and undertakings
which are directly competing in a business. Therefore, the relevant market is the market
where the competition takes place. The enforcement of the provisions of competition law
would be not possible without referring to the market where competition takes place. The
extent to which firms are able to increase their prices above normal competition levels
depends on the possibility for consumers to buy substitute goods and the ability for other
firms to supply those products. The fewer the substitute products and/or the more difficult
it is for other firms to begin to supply those products, the less elastic the demand curve is
and the more probable is to find higher prices. For all these reasons it is necessary to define
the relevant markets for the different cases which fall under the Law.

- The relevant market contains all those substitute products and regions which provide a
significant competitive constraint on the products and regions of interest. An interesting
guiding principle provided by Bishop and Darcey (1995) states that a “relevant market is
 something worth monopolising”, in the sense that the relevant market includes all the substitute
products and therefore control of that market would allow the monopoliser to profitably
increase the prices of the products to the monopoly level. This guiding principle gave birth to
the HM test aka Hypothetical Monopoly test and is used in Canada and Australia to determine
market dominance.

Note: SSNIP test and HM test are closely related. The later is understood from the producer
perspective while the former from the market perspective.

THE SSNIP TEST

 SSNIP Test stands for “Small but Significant Non-trasitory Increase in Price”.

 This Small but Significant Non- Transitory Increase in Price can be taken as 5% or
10%.Hence this test may also be known as the 5-10 percent test.

 In order to undertand the applicability of SSNIP test, one must first undertand the meaning
of Hypothetical Monopolist (HM). HM is a producer that can profitably increase prices
without fearing that his product be substituted by the consumer or replaced by another
producer.

 SSNIP test seeks to identify smallest market within which a hypothetical monopolist could
profitably impose a Small but Significant Non-transitory Increase in Price. SSNIP is
usually defined as a price increase of 5% for at least 12 months.

Step by Step Application of SSNIP Test

Step 1 - Start with smallest possible market and ask if 5% price increase in price is profitable.

Step 2 - If not, then firm does not have sufficient market power to raise price.

Step 3 - Next closest substitute is added to the relevant market and test is repeated.

Step 4 - Process continues until the point is reached where a hypothetical monopolist could profitably
impose a 5% price increase.

Step 5 - Relevant Market is then defined.

Note:

1) To answer question could a hypothetical monopolist impose a 5% price increase, need to ask
whether such a price increase would be profitable.
2) Issue is whether selling a smaller quantity at a higher price would be more profitable than selling
a larger quantity at a lower price.
3) This will depend on how sensitive demand is to changes in price, i.e. on the elasticity of demand.

*READ THE SSNIP TEST ARTICLE PUT UP ON GOOGLE CLASSROOM*

IMPORTANT CASE LAWS FOR RELEVANT MARKET AND DOMINANT POSITION

 Competition Commission of India v. Steel Authority of India Ltd.

Crux: “No appeal can be filed against the order of CCI directing an investigation into a
complaint received by it.”

Background of the case

Jindal Steel and Power Limited (JSPL) filed a complaint before the CCI alleging that SAIL had an
exclusive supply agreement with the Indian Railways. SAIL was the biggest player in the market
of manufacture of rail tracks and it had a dominant position in the market, enabling it to create a
monopoly. JSPL contended that SAIL used its dominant position to keep other players out of
market competition.

Facts of this Case

When the CCI received the complaint from JSPL, began the process, and issued notice to SAIL to
submit documents with certain information within 2 weeks. SAIL asked for an extension. CCI did
not permit the same and instead formed a prima facie opinion that there exists a case and asked
DG to go ahead with the inqury under Section 26 of the Act. This was challenged SAILas no
hearing was provided to them and no reason was recorded for not providing adequate time.

SAIL took the case to COMPAT under Sec 53A(1)

Note that COMPAT didn’t let CCI to implead as either necessary party nor proper party and finally
held that under Section 53A(1) of the Act, it had power to listen to appeal even on the CCI order
of investigation where no fair hearing was given and it can grant STAY order.
 Relevant Laws

- Sec 19 (1)(a) of CA - Inquiry into certain agreements and dominant position of

enterprise.—

The Commission may inquire into any alleged contravention of the provisions contained
in sub-section (1) of section 3 or sub-section (1) of section 4 either on its own motion or
on, receipt of a complaint, accompanied by such fee as may be determined by regulations,
from any person, consumer or their association or trade association; or

- Sec 26(1) of CA– Procedure for inquiry on Complaints under Sec 19

On receipt of a complaint or a reference from the Central Government or a State

Government or a statutory authority or on its own knowledge or information, under section
19, if the Commission is of the opinion that there exists a prima facie case, it shall direct
the Director General to cause an investigation to be made…

…and report be published.

- Sec 53A(1) of CA- COMPAT

COMAT may be set up by Central Government to hear and dispose of appeals against any
direction issued or decision made or order passed by the Commission under sub-sections
(2) and (6) of section 26….

Note that DG’s order in the present case was made under Sec.26(1) but 53A(1) only talks
about appeal from orders passed under 26(2) and (6)

Relevant Issues

1) Whether the directions passed by the Commission in exercise of its powers under
Section 26(1) of the Act forming a prima facie opinion would be appealable in terms
of Section 53A(1) of the Act?
 2) What is the ambit and scope of power vested with the Commission under Section 26(1)
of the Act and whether the parties, including the informant or the affected party, are
entitled to notice or hearing, as a matter of right, at the preliminary stage of formulating
an opinion as to the existence of the prima facie case?
3) Whether the Commission would be a necessary, or at least a proper, party in the
proceedings before the Tribunal in an appeal preferred by any party?

Analysis and Conclusion

The apex court in Issue 1 expressed that the direction of CCI to DG to conduct an investigation
under Section 26(1) of the Act is not appealable under Section 53A(1) of the Act, because the order
under section 26(1) does not determine any rights or obligations of the party to the case. The court
reached this after analyzing the provision under Act and rules of interpretation, to note the
difference between “and” & “or”. It followed the principle of Expressum facit cessare tacitum.
They referred to Indian and other country legislation like European and case laws and finally
reached to conclusion that Section 53(1) provides right of appeal which is a substantive right and
this section allows appeal only in things provided in section.

Further in regard to Issue 2, it highlighted that the legislature is competent to enact such laws which
exclude the principle of natural justice. Each matter i.e. facts of each case have to analyzed in the
context of rules and regulation and provision of Act. If the same are vitiated then the whole
proceeding could be nullified on ground of non-application of principles of natural justice. The
power under Section 26(1) of the Act is regulatory and inquisitorial, i.e. the its administrative
power and not adjudicatory power of commission. It’s only a step taken by commission to prepare
for future case i.e. collection of data and hence at this stage right of notice of hearing is not required
to be issued.

In Issue 3 held that in matter where CCI initiated matter suo moto, it will be proper party and in
every other it will be necessary party.

______________________________________________________________________________

 DLF v. Belaire Owner’s Association

Crux:

- Services of DLF falls under the ambit of services and is hence covered under the
ambit of CA
- RPM and RGM to be determined after due applicability of Sec 19(6) and 19(7)
respectively.
- Affordability, convenience of buyers, consumer preferences, amenities located near
the locality where dominance is alleged needs to be taken into account before
determining relevant market, along with SSNIP test.
Background of this Case

DLF announced the launch of Group Housing Complexes, known as The Belaire, Park Place and
Magnolia upon which the informants booked the apartments and entered into the Apartment
Buyer’s Agreements (‘ABA’). Also by that time informants had already paid substantial amount
as they hardly had any option but to adhere to the dictates of DLF.

Facts of this Case

DLF, without informing the consumers (informants), altered the scheme of housing complexes and
arbitrarily increased the prices. In addition there was abnormal delay in giving possession to the
informants. This was questioned by the informants on the grounds of being violative of Section
4(2) of the CA.

CCI held that DLF abused its dominant position and the relevant market was “high end
accommodation” in Gurgaon.

DLF appealed to COMPAT and the following issues were framed-

Issues

Issue 1: Does CA apply to the current case? (Note- The ABA had been entered before CA came
into existence and does construction contracts fall under the preview of ‘services?)

Issue 2: What is the Relevant Market?

  Is the Relevant product market “high end" residential buildings? If yes, how to determine
“high end”residential buildings?
 Is the Relevant geographic market Gurgaon? Is the services of the builder for high-end
accommodation in Gurgaon easily substitutable with a decision to purchase a similar
apartment in any other geographical location?

Issue 3: Does DLF possess the market dominant position? (note- DLF had the highest market
share of 45%)

Issue 4: Has DLF abused the Dominant Position, if yes, how?

Relevant Laws

Sec 4(2) of CA – Abuse of Dominant Position

Sec 19(4) of CA – Factors to be taken into account by CCI

Sec 19(6) of CA – Factors to be taken into account for determining “relevant geographic market”

Sec 19(7) of CA – Factors to be taken into account for determining “relevant product market”.

Analysis and Conclusion

The COMPAT also placed reliance on several Supreme Court judgments and concluded that
housing activities undertaken by development authorities are considered as services and covered
within the definition of ‘service’ as provided under section 2(o) of the Consumer Protection Act,
1986. Relying on this definition along with section 2(u) of the Act, COMPAT agreed with the
CCI order which held that “it is clear that the meaning of ‘service’ as envisaged under the Act is
of very wide magnitude and is not exhaustive in application, thereby including the activities
undertaken by DLF within its ambit of CA.

RPM: COMPAT held that a “luxury” apartment has to be differentiated from an ordinary
apartment. The factor of additional facilities such as club, dispensary, swimming pool, etc being
made available to high-end luxury apartments not only differentiates them from an ordinary
housing scheme of the private builders, but such luxury apartments do stand on their own
separate distinctively higher pedestrian. Therefore it constitutes a separate and distinct market
from the ordinary market of residential accommodation.

RGM: COMPAT after considering several factors including local specification requirements and
consumer preferences held that the relevant market is the market for services of
developer/builder in respect of high-end residential accommodation in Gurgaon (It was
contended by DLF that RGM was not the entirety of Gurgaon but only a small part of it).
COPMAT held that “A decision to purchase a high-end apartment in Gurgaon is not easily
substitutable by a decision to purchase a similar apartment in any other geographical location”.

COMPAT also accepted CCI’s application of SSNIP Test that small increase in price does not
affect the customers as they will not move to non-luxurious apartments or outside Gurgaon.

COMPAT held DLF had market Dominance – 45% share

COMPAT also held that DLF abused its dominant position and violated Sec 4(2)(a) owing to:

 DLF had unilateral power to change clauses of ABA

 No rights given to buyers
 Cost of exit option higher to consumer
 Exit option for DLF- easy.

 The unilateral increase in the holding charges and the threatened consequence
amounting to rewriting of the contract and is therefore amounting to an unfair condition.
 The DLF started constructing additional floors before the final approval from the
concerned authorities which came in 2009, is wholly illegal and unauthorized.
Therefore the DLF was actually offering to the informants a piece of illegal and
unauthorized construction, which amounts to imposing unfair conditions against the
wishes of the consumer.

Extracted from- https://blog.ipleaders.in/competition-appellate-tribunal-upholds-penalty-against-

realty-developer-dlf/

______________________________________________________________________________
  United States v. E. I. du Pont de Nemours & Co.
351 U.S. 377 (1956)

The Cellophane Paradox - a type of incorrect reasoning used in market regulation methods. The
paradox arises when a firm sells a product with few substitutes, which in turn allows the firm to
profitably increase the price of that product.

 Cellophane Paradox arises from the Du Pont case where Du Pont had a market share of
75% in Cellophane manufacturing sector and a 20% market share in ‘Flexible Packaging
Material’ market. Du Pont claimed that the two markets are different and hence it did not
enjoy the position of market dominance despite being a predominant cellophane
manufacturer. It hence claimed that it did not have the advantage of increasing product
prices without fearing substitutability.

 The Court agreed with du Pont that when evaluated at the monopolistic price observed in
the early 1950s, there were many substitutes for cellophane and, therefore, du Pont had
only a small share of the market for wrapping materials (i.e., it possessed little or no market
dominance)

Criticism:

This reasoning was challenged by Willard F. Mueller and George W Stocking. It was pointed out
the Court mistook a monopolist's inability to exercise market dominance by raising price above
the current price for an inability to have already exercised market power by raising price
significantly above the competitive price. A Completed anti-competitive act does not imply ack of
Market Dominance.In other words, the only reason Du Pont did not increase price is because it
had already increased prices and categorically eliminated competition. Had the Court considered
the substitutability of other wrappings at cellophane's competitive price, the sales of other
wrappings would have been much lower.

In Richard Posner’s view, "Reasonable interchangeability at the current price but not at a
competitive price level, far from demonstrating the absence of monopoly power, might well be a
symptom of that power; this elementary point was completely overlooked by the court".

______________________________________________________________________________
  Brown Shoe Company v. US – “Sub-markets”

 Brown, the fourth largest shoe manufacturer and third largest retailer, merged with
Kinney, the eighth largest retailer and seller of two percent of the nation's shoes. In
some metropolitan areas, however, the shares of Kinney and Brown were significantly
greater, resulting in 40% or more of the nation's sales.

 For the determination of Relevant Market, the United States argued for a broad product
market comprising all shoes. Brown and Kinney urged that the broad market be divided
into smaller markets distinguished by the age and sex of the purchasers and the price
and quality of the shoes.

 The Court held that Relevant Market "cannot be determined by any process of logic
and should be determined by the processes of observation." The court decided that it
had no recourse but to "go to the facts in the case" and make its determination guided
by the "practices in the industry, the characteristics and uses of the products, their
interchangeability, price, quality and style."

 The object of this inquiry would be to determine how the industry and the public
perceive shoe products. The court, then, derived three lines of commerce-men's shoes,
women's shoes, and children's shoes-and determined that competition was sufficiently
threatened in these submarkets to condemn the merger.

Refer - https://lawecommons.luc.edu/cgi/viewcontent.cgi?article=2062&context=luclj

______________________________________________________________________________

 Sharat Chandra Jhunjhunwala VS UoI

 IRCTC dealt with the fixing of price, sale and booking of tickets for accessing Indian
Railways. They once imposed a certain increase in the price of the tickets for those
who adhere to the online mode of purchasing tickets via the internet, compared to those
who buy tickets from the counter.
 The primary question which arose was "Whether IRCTC was a dominant player in the
market" which was answered after answering the question as to "Whether IRCTC
was performing a sovereign function".
  The term "sovereign function" is neither defined in the General Clauses Act nor the
Constitution. Therefore to answer this question the Courts relied on the case of UoI vs CCI
(2012), a Delhi High Court judgment which defined what a sovereign function amounted
to. According to this case, a body could be said to have been performing a
sovereign function if it is performing an inalienable function which the government cannot
delegate to the third party. In the present case the Court held that IRCTC was a third party
as it was not a pure government body, therefore it was not performing a sovereign function
and was just performing a business for the Government.

 Furthermore, looking at the primary question, the Courts held that IRCTC was a dominant
player. They stated that it lacked efficiency as despite charging all the passengers, there
was very low maintenance of the trains and other aspects. Therefore there was an abuse of
dominant position. And in order to come to this conclusion the courts looked into the
relevant market, which was the entire passenger segment and not just IRCTC, as both the
passenger segment and the IRCTC were interlinked and coexisted.

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 Hoffman La Roche v Commission
85/76 [1979] ECR 461

Hoffmann – La Roche v Commission Case held that the definition of dominant position did not
apply to oligopolisitic markets where there are a number of undertakings holding market power
and who react to each other conduct in a parallel way. This case also provided a definition for
dominance.

“Such a position does not preclude some competition … but enables the undertaking which profits
by it, if not to determine, at least to have an appreciable effect on the conditions under which that
competition will develop, and in any case to act largely in disregard of it so long as such conduct
does not operate to its detriment”

Read – Document uploaded on Google Classroom.

______________________________________________________________________________

 Ashriya Rail Infrastructure Ltd. V Ministry of Railway & Ors

Facts of the Case

Ministry of Railways had a concession agreement with Private Container Train Operations in
pursuance of Public Private Partnership and the agreement. Ashriya Rail Infrastructure is one
such Private Train Container Operation.

The Agreement possessed the following terms:

- Non discriminatory access to rail networks.

- Uniform Haulage charges to be levied on non-discriminatory basis.
- Level Playing field for all concessionaries.

Allegation 1: The MOR, after signing this agreement, made minerals, ores, coke and coal under
the category of restricted commodities. As a result Private Container Train Operations were
denied market aaccess of freight traffic on rail. The MOR took up 60 to65% of the traffic.

Allegation 2: MOR also entered into an agreement with Container Corporation of India. MOR
gave land to Container Corporation of India at favourable terms and conditions. This was
contended to be propagating unlevel playing field for the Private Container Opeations and
violative of the PPP Agreement.

Allegation 3: MOR had also increased Haulage charges and put Private Operators in a
disadvantageous position.

Issues

Preliminary Issue:

- Does the impugned activities of the MOR amount to Sovereign Function?

- What is the relevant Market to assert abuse of Market Dominance of MOR?
Are Allegations 1, 2 and 3 violative of CA

Issue 1

Allegation 1 – Exclusionary non-price conduct – violative of Sec 4(2)(a)(i) , 4(2)(b)(i) and

4(2)(c) of the Act?

Issue 2

Allegation 2 – unfair trade conditions - violative of Sec. 4(2)(a)(i) and 4(2)(c)?

Issue 3

Allegation 3 – Exclusionary price discrimination/ exploitative pricing and exclusionary pricing-

violative of Sec 4(2)(a)(ii) and Sec 4(2) (c)?

Analysis and Conclusion

- Not Sovereign function, as impugned activities are commercial in nature.

- The question wrt relevant product market was if it is wagons or containers (the private
operators owned only containers and not wagons). CCI decided that relevant market is
transportation of containers within the boundaries of India as wagons cannot practically
substitute containers.
- The test to determine market dominance was based on the principle of whether MOR was
able to operate independently of competitive forces. The CCI held that since container
freight is largely carried on roads, Railways is not a dominant player in the Relevant
Market.
- Since MOR did not even enjoy market dominance, it could not have “abused market
dominance”.
- In relation to access to railway infrastructure (which was claimed by Ashriya to be
exclusively held by MOR), the CCI found that there were no technical, legal or even
economic reasons why container train operators could not create their own terminals or
similar facilities. The CCI, therefore, dismissed the complainants’ allegations of abuse.
 _____________________________________________________________
o Magnus Graphics v. Nilpeter India

 In Magnus Graphics v. Nilpeter India pvt. Ltd, the Magnus Graphics (Informant) was a
proprietorship firm engaged in the business of label printing at Muzaffarnagar, Uttar
Pradesh and Nilpeter India pvt. Ltd. (Respondent No. 1) was engaged in the business of
manufacturing, distribution, marketing, installation, and after sales services including
training of operators of the Nilpeter brand of label printing machines in India. The
informant purchased a Nilpeter brand of label printing machine from the opposite party for
Rs. 2, 41, 11, 148/-

 The Respondent started denying support to the Informant in terms of service, spares and
equipment sales in respect of Nilpeter Printing Machine, etc. after expiry of the warranty
period and the informant applied before the competition commission to restrain the
Respondents from abusing their dominant position in the market.

 To examine the alleged abusive conduct of the Respondents, the Director General was
appointed to investigate into the matter and as per his report, the market of “the servicing
of Nilpeter Printing Machine in the territory of India” was identified as the relevant market
in the present case.

 The issue which was discussed in this case was whether there were substitutable support
and service providers present in the market at that time that could provide adequate service
and maintenance to the informant when the Respondent discontinued and withdrew to
provide such service and support.

 The replies of the competitors similar to that of the Respondent were asked for by the
commission and upon thorough examination, it came to a conclusion that such machines
can be serviced by freelance engineers/ ISPs providing similar services and service parts
were also available in the local market and the informant could have approached them
when such service was denied by the Respondent Therefore, it was held by the commission
that there was no dominant position being held by the Respondent no. 1 and the question
of dominance does not arise.
 Copy Pasted from - https://www.khuranaandkhurana.com/2018/01/22/abuse-of-dominant-
position-in-aftermarkets-and-other-support-and-maintenance-markets-in-india/

o Shamsher Kataria v. Honda Siel Cars India Ltd

In ShamsherKataria v. Honda Siel Cars India Ltd, an order was passed by the Competition
Commission of India restricting 14 car manufacturers and imposing fine upon them with regards
to the issues arising in the aftermarkets. The Original equipments manufacturers (OEM’s) have
restricted the Original equipments suppliers (OES) by way of vertical agreements to sell the spare
parts and other equipments in the open markets. Also, the OEM’s were not providing any
technological information, diagnostic tools and software programs to the independent repairers in
the local market which were necessarily required for the maintenance and service of the
automobiles. Thus, by way of these practices they were charging high prices for such maintenance
and service and such practices were held by the CCI to be amounting to denial of market access to
the independent repair workshops in the market.

The CCI held that the arbitrary pricing and conduct of the enterprises is exploitative in nature and
the consumers are largely getting affected by such conduct which amounts to abuse of their
dominant position. The consumers were totally dependent on the OEM’s for servicing, repairs, or
maintenance of their automobiles and did not have any substitutable remedy to resort to.

______________________________________________________________________________

Other VERY important Cases

1) GKB Hi Tech Lenses vs Transition Optical Industry

2) CCI vs Coordination Committee
3) NSE vs CCI
4) Global Tax Fee Traders vs William and Sons
5) Sunil Bansal vs Jai Prakash

______________________________________________________________________________

Market Efficiencies (Extra information from class discussion)

A Perfectly Competitive Market sees the following types of Market Efficiencies

Productive efficiency means producing without waste so that the choice is on the production
possibility frontier. In the long run in a perfectly competitive market—because of the process of
entry and exit—the price in the market is equal to the minimum of the long-run average cost curve.
In other words, goods are being produced and sold at the lowest possible average cost.

Allocative efficiency means that among the points on the production possibility frontier, the point
that is chosen is socially preferred—at least in a particular and specific sense. In a perfectly
competitive market, price is equal to the marginal cost of production. Think about the price that is
paid for a good as a measure of the social benefit received for that good; after all, willingness to
pay conveys what the good is worth to a buyer. Then think about the marginal cost of producing
the good as representing not just the cost for the firm but, more broadly, as the social cost of
producing that good.

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Harvard school and Chicago school (class discussion) :

*READ RICHARD POSNER’S ARTICLE SHARED ON GOOGLE CLASSROOM*

Harvard School of Thought:

 The Harvard School of Thought emerged in the 1950’s. This school of thought was the
outcome of the WWII.
 This school argued that the courts and agencies enforcing the Sherman Act or the Clayton
Act (the law for regulation of competition in the US) should presume illegality in any
merger, joint ventures and an agreement, that allows any firm or enterprise to obtain,
endure or exercise market power, regardless of potential benefit to the consumer. In other
words this school of thought adhered to the principle where there was a presumption of per
se illegality.
 The reason behind such presumption was owing to the scenario that existed in the market
owing to WWII. There was no cooling period amongst the nations post the war, therefore
there was no form of trust amongst the nations and every transaction was presumed to have
been made with an ill ulterior motive.
 This approach was very predominant in the courts until 1965-1970.
Chicago School of Thought:

 This school of thought emerged in the 1970’s.

 Richard Posner - one of its major forbearers.
 Result of the increase in trust between the nations owing to the involvement of various
factors such as the UNO.
 Doctrine of rule of reason was applied where now the courts looked into the various factors
in the agreement such as the economic and social benefits arising as the result of the
agreement.
 Liberal in nature.
 Predominant amongst the courts in the 1970’s. .

For ex:. If Jio is a dominant party in a market and it wishes to enter into a merger with another
company, then according the rule of pre se presumption of illegality, this agreement would be
considered illegal as there is a presumption of abuse of dominant power by the enterprise. But
under the rule of reason, the agreement would be looked into and the purpose behind such
agreement would be observed and thereon permitted as it focuses on helping the betterment of the
enterprise and the consumers.

Transition Phase:

 As the time passed by there were a lot of confusion amongst the court in light of which
school of thought to adhere. Therefore as a mid-point a new approach was adhered to, the
Quick Look approach - the courts would observe the issue with both strict interpretation
and liberal economic analysis to determine the best result for the market.
 General Note- More than majority of the cases decided prior to 1965 adhered to the
Harvard School of thought and post 1965-70 there was a slight shift towards the Chicago
School of Thought. Post 1970 both the school of thoughts existed in the courts of law.

1. Brown Shoe Co vs USA (1962)

This case is a classic example for the application of Harvard School of Thought by the
court of law.
 Facts: Brown Shoe Company wanted to merge with another company which sold the same
products and the objective behind this agreement was to increase the efficiency of the
products and sell at cheaper prices in comparison to their individual prices.

Held: The court stated that the enterprises must adhere to Congress’s objective behind the
Sherman Act and the Clayton Act which was to protect the small traders and not the
consumers. This was the interpretation of the objective of the congress by the court and not
the interpretation of the objective laid down the Acts.

2. Continental TV vs GTV Silvania (Silvania Case)

This case dealt with the application of the Chicago School of thought.

Facts: Continental TV manufactured televisions and had entered into contractual

agreements with its distributors to sell their televisions only at set locations allotted by
them and not sell at any other location which they have no authorized to.

Issue: Whether such agreement was anti-competitive and which school of thought was to
be applied ?

Held: The agreements weren’t anti-competitive but if the competitor is entering into such
kind of agreement, the particular enterprise has a high possibility of going out of the market
in the near future as there would be better and alternative access to other products to the
consumers and there is no need for the courts to intervene into such matters as the market
forces would in-turn take care of such actions.

3. California Dental Association vs FTC (1999)

This case adopted a middle path between these two schools of thoughts and there was no
strict or liberal approach in particular as both would be considered.

Facts: Members of the dental association argued that they should be allowed to display and
advertise the prices of their services to the public. The FTC denied this claim as they were
of they were of the opinion that this practice would lead to the hike in competition as the
player in dominance would push away smaller competitors.
Held: The courts held that the presumption of the FTC in light of protection the small
competitors was not valid as those who are in the market will have to survive it and it
should not be presumed.
4) Grinell Corporation v US 1966

Facts: Grinell was engaged in manufacturing of alarm services. It entered into an

agreement restricting sale of Central Alarm services to specific geographic areas.

Background:

- Before 1965, all courts followed Harvard Approach. A transition stage post 1965
to 1970. Post 1970 – all cases decided on Chicago approach.
- This case was adjudicated upon during the transition.

Observation: If the Corporation restricting distributorship to specific geographical

location, then over a period of time, owing to the competition existing, the enterprise
concerned will eventually fade away from the market owing to the existence of
competitors.

No objective standards for market dominance and must be determined after analysing the
effect on the market. It is up to the market forces to determine the validity of transaction.

Held: The transaction was hence upheld.

5) USA v Microsoft 1999

Background: Microsoft gaining market power and was considering acquisition of a few
firms. Should government allow it or break the venture into smaller bits/ enterprises?

Issue: The case was with respect to Windows Operating system. Whether the dominant
position be endorsed?

Held: Courts decided that as the company is providing large scale services to consumers,
indulgence in predatory pricing etc needs to be looked into. However, and monopolisation
 cannot be per se seen as illegal. Courts asked for empirical data on adverse effect in the
market.

“Mere dominance is not illegal but abuse of dominance is.”

CHICAGO SCHOOL AND HARVARD SCHOOL (application questions – 10 m)

(additional info to approach application questions)

 Harvard School propagated the “Structural Approach” i.e the number of firms in the
market and their relevant sizes determines how effectively firms will perform in that that
market and hence these numbers need to be regulated.
 Chicago School Propagated the “Approach of Reason” i.e. markets are likely to correct
against any competitive imbalances on their own, without anti trust regulations.
 Comparisons -
HS CS
 Impact of competition differs  Key factor of Competition Law is
according to concentration. to protect competition and not interest of
 The following needs regulation: competitors.
- Structure of market  The following must be considered
- Conduct for minimal regulations :
- Performance - Market entry
- Market forclosure

 Market Power and concentration –  Focuses on consumer welfare. If a

If a merger generates more market power, merger leads to consumer welfare, it is
it means market is concentrated and hence not per se anti competitive.
anti competitive.
 Focuses on competitors and  Does not deem vertical
competition to determine effect on 3rd agreements, M&A and Combinations as
party. Hence deems certain agreements as illegal. Focuses only on illegality of
per se illegal. horizontal agreements
  Presumption of illegality persists.  No presumption of illegality.
Burden of proof on respondent. Burden of proof on Plaintiff.
 Claims that certain  No agreement is per se illegal if it
agreements/activities are per se illegal. ultimately propagates consumer welfare.
 Ex; monopolies Monopoly may increase productive
market efficiency
 Insists penalties for violations  Insists compensation for
violations

Note: Harvard school presumes that either unilateral or co-ordinated approach will be seen in the
competition for market whenever there is increase in market power hence all such transactions
must be invalidated.

Unilateral – one company

Co-ordinated – several companies coming together (cartel etc)

Note: Bright Line Test – before 1970s, to demarcate if any agreement will pass the anti-
competition test ,a bright line of demarcation was present. But after 1970’s on advent of rule of
reason, the lines blurred and tests became ambiguous.

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Other Important Provisions:

 Sec 2(v): “shares” means shares in the share capital of a company carrying voting
rights and includes—

(i) any security which entitles the holder to receive shares with voting rights;

(ii) stock except where a distinction between stock and share is expressed or implied;

Case Law - Independent Media Trust wanted to acquire zero coupon optionally convertible
debentures (zcocd) which gives the company an option to convert zcocd into equity shares within
10 years.
Network 18 could hence be acquired by Independent Media Trust. Here, the transaction was
merely renamed to subvert taxes and due processes in law. This transaction involved shares and
hence resulted in acquisition but was renamed as zcocd. Since in the impugned contract, it was
given that since it was “optional”, it was contended that the process was not acquisition of shares.
But CCI considered it to be “real Acquisition of Shares”.

 Section 2 (y) – Turnover “turnover” includes value of sale of goods or services.

Average turnover and relevant turnover
- RT – turnover of that specific product in that relevant market in the last one assessment
year. This and only this needs to be taken into consideration while imposing penalty.This
applies to companies selling only – ex: if Jio is penalised, only Jio’s turnover will be
imposed penalty on and not the entire Reliance Groups.