Legal Environment of Business

IBS - Gurgaon

Compétition & Consumer Protection Laws

Semester III
Course Code: SL GM 502

Arun K. Agarwal, ACA, ACS

Competition Law
 Concept & Background

“The main objective of the Competition Law is to promote economic

efficiencies using competition as one of the means of assisting the
creation of a market (which is) responsive to consumer preferences.” –
Supreme Court of India

Competition can be defined as a process wherein cost efficient

production is achieved in a structure having reasonable number of
players (producers and consumers) with simple entry and exit
procedures and where exists a close substitution between products of
different players in a given industry.

Competition refers to a market situation in which sellers independently

strive for buyer’s patronage in order to achieve the business objectives
of profit, sales turnover and market share. In other words, it is the act of
competing by an enterprise against other business enterprises for the
purpose of achieving dominance in the market or attaining a reward or
goal. It is the foundation on which a market system works.
 Concept & Background

Such a competition stimulates innovation and productivity and thus

leads to the optimum allocation of resources in the economy; guarantees
the protection of consumer interests; reduces costs and improves
quality; accelerates growth and development and preserves economic
and political democracy.

In the absence of adequate safeguards, enterprises may undermine the

market by resorting to unfair practices for their short term gains. Thus,
there arises the need to have a proper regulatory environment which
can ensure a healthy competition so that all business enterprises can
grow and expand and stimulate economic development of the country.
Legislation of an effective competition law should contain short term and
long term policy options that can regulate the competition to run the
economy on a safe track with sustaining speed.
 The Competition Act, 2002

The Competition Act, 2002 seeks to increase economic efficiency, enhance

consumer welfare, ensure fair trading, and prevent abuse of market power
through regulating the under mentioned key areas:
a.Anti-competitive agreements – Section 3
b.Abuse of dominance – Section 4, and
c.Mergers which have potential for anti-competitive effect – Sec 5 & 6.

The Competition Commission of India or CCI which was set up under the
Competition Act, 2002 for the administration, implementation and
enforcement of the Act and was duly constituted in March 2009.

The judicial hierarchy for the disposal of cases under the Act is as under:
Level 1: Order is passed by the CCI after carrying out an investigation;
Level 2: Appeals against the order of CCI to be filed before COMPAT
(Competition Appellate Tribunal);
Level 3: Appeal before the Supreme Court against the order of COMPAT;
Role of Central Govt: Has the power to supersede the CCI, issue directions,
grant exemptions from applicability of the Act. The role of CG arises on the
constitutional issue and not as an appellate body.
 The Competition Act, 2002
Abuse of Dominance
A company can restrict competition if it is in a position of strength in a
given market. A dominant position is not in itself anti-competitive, but if the
company exploits this position to eliminate competition, it is considered to
have abused it. Examples include: charging unreasonably high prices

Dominant position has been defined under Section 4 of the Competition Act,
2002 as one constituting the following elements:
i.A position of strength;
ii.That position being enjoyed in a relevant market in India (both product and
geographical markets)
iii.Such position gives the enterprise the power to ‘operate independently of
competitive forces in the relevant market; and
iv.Enables it to disregard market forces and conditions and impose its own
trading conditions, which will include the prices at which it is prepared to
supply goods or services
 The Competition Act, 2002
Abuse of Dominance

Background: What constitutes a “Dominant Position”

Under section 4 of the Act, the term ‘dominant position’ has been defined to
mean a position of strength, enjoyed by an enterprise, in the relevant market,
in India, which would enable it to:
i.operate independently of competitive forces prevailing in the market; or

ii.affect its competitors or consumers in the relevant market in its favour.

 The Competition Act, 2002
Is Jio guilty of Dominant position misuse

In 2017, Bharti Airtel has filed an information under Section 19(1) of

Competition Act, 2002. This information is pertaining to the allegation
against Reliance Jio, for providing services at predatory prices, by abusing
its dominant position in the market. Abuse of Dominant position is
prohibited under section 4 of Competition Act, 2002.

Background: What constitutes a “Dominant Position”

Under section 4 of the Act, the term ‘dominant position’ has been defined
to mean a position of strength, enjoyed by an enterprise, in the relevant
market, in India, which would enable it to:
i.operate independently of competitive forces prevailing in the market; or
ii.affect its competitors or consumers in the relevant market in its favour.
 The Competition Act, 2002
Is Jio guilty of Dominant position misuse

Airtel’s contention
To support its assertion that Jio does in fact enjoy dominance, Airtel
pointed to two key factors:
i.the unprecedented investment (nearly Rs 1,50,000 crore) made by Jio’s
parent company reflecting its lasting economic power; and
ii.the ‘welcome offers’ (free unlimited services for specific durations) which
through ‘predatory pricing’ served as the source of its increasingly
dominant position in the market.

The resultant impact, Airtel argues, disproportionately affected Jio’s

competitors, forcing them to reduce their tariffs to remain competitive –
causing them to enter a negative spiral of loss-making and dwindling
business feasibility.
 The Competition Act, 2002
Is Jio guilty of Dominant position misuse
The Judgment by Competition Commission of India
The Competition Commission notes that while dominant position is
traditionally defined in terms of market share of the enterprise in
question, section 19(4) of the Act lists a number of factors are mandatorily
required to be considered, such as the size and resources of the enterprise,
the economic power of the enterprise, the source of dominant position
and the dependence of consumers upon the enterprise. Thus, to effectively
gauge whether Jio does in fact enjoy a dominant position in the Telecom
sector, the market share it enjoys need only form part of the Commission’s
overall consideration.

This issue must be seen on two counts, viz

i.Is Jio in Dominant Position?
“As may be seen, the market is characterised by the presence of several
players ranging from established foreign telecom operators to prominent
domestic business houses like TATA. Many of these players are
comparable in terms of economic resources, technical capabilities and
access to capital.”
 The Competition Act, 2002
Is Jio guilty of Dominant position misuse

This does not sufficiently counter the contention that Jio’s parent
company, Reliance Industries has, and will continue to, inject
significant sums of money at an unprecedented rate into a sector that
has resulted in vast and rapid movements away from established
market entities into Jio. The very presence of established industries
such as the Tatas, for example, does not necessarily exclude the
possibility of new entrants in the market exercising lasting and
disruptive economic power.

Hence the CCI held that Jio was not in a Dominant Position in the
Telecom Industry
 The Competition Act, 2002
Is Jio guilty of Dominant position misuse
ii. Is it indulging in predatory pricing?
More pertinent however, is the argument concerning Jio’s ‘predatory
pricing’? The term predatory pricing is defined under section 4 of the
Act, being the sale of goods or provision of services, at a price which is
below the cost, as may be determined by regulations, of production of
the goods or provision of services, with a view to reduce competition
or eliminate the competitors. Jio’s introductory offer – free and
unlimited data, voice calling and roaming amongst other
telecommunication services – was and continues to be unprecedented
in the Indian telecom sector.

“The Commission notes that providing free services cannot by itself

raise competition concerns unless the same is offered by a dominant
enterprise and shown to be tainted with an anti-competitive objective
of excluding competition/ competitors, which does not seem to be the
case in the instant matter as the relevant market is characterised by
the presence of entrenched players with sustained business presence
and financial strength.”
Consumer Protection Law
 Consumer Protection Act

 Enacted by the Parliament in 1986

 To provide for better protection of interest of consumers.

 To make provisions for the establishment of Consumer

Councils and other authorities for the settlement of consumer
disputes.
 Who is a Consumer?

Consumer is one who

 Buys any goods for a consideration and includes a hire-purchaser;

 Any user of such goods for consideration but excludes one, who
obtains for re-sale or for commercial purposes;

 Hires a service for consideration and includes a beneficiary of

such service, if availed of with the approval of the hirer.
 Deficiency - Service

‘Deficiency’ means
a fault, imperfection, shortcoming or inadequacy in quality, nature,
or manner of performance than is required.

‘Service’ includes
service in connection with banking, financing, insurance, transport,
processing, supply of electrical and other energy, boarding or
lodging, housing construction, entertainment, amusement or
purveying of news and other information

but does not include any service free of charge or under a personal
contract.
 What is a Complaint?

An allegation in writing by a complainant that:

 An unfair or restrictive trade practice is practiced by a trader
or a service provider

 Goods bought or to be bought or services hired or to be

hired suffered from any deficiency

 Trader or service provider has charged excess price

 Goods and services are hazardous or are likely to be

hazardous to life and safety.
 Who Can File a complainant?

 A consumer

 Any voluntary consumer association registered under the

Companies Act or any other law

 Central or State Government, if it makes a complaint

 One or more consumers having same interest

 In case of death of a consumer, his legal heir or representative.

 When does a Consumer Dispute Arise?

A Consumer Dispute arises when a complaint is denied

or disputed.
 Adjudicating Authorities under the Act

 Central Consumer Protection Council - Established by Central

Govt

 State Consumer Protection Council - Established by State Govt

 District Consumer Protection Council - Established by State Govt

for every district
 Consumer Dispute Redressal Machinery

There are various Consumer Fora at the District, State and National levels
 District Forum – At the District level

 State Commission – At the State level

 National Commission – At the National level

 Pecuniary Jurisdiction

Forum where complaints can be entertained

Depends on value of goods and service and compensation being
claimed
The monetary Limits of filing claims are as under:
District Forum – For Claims not exceeding Rs.20 lakhs

State Commission – For Claims exceeding Rs.20 lakhs but not

exceeding Rs.1 Crore

National Commission - when the amount of Claim exceeds Rs.1

Crore.
 Territorial Jurisdiction

Territorial Jurisdiction lies in the court of the place

 Where the opposite party resides or carries on business or personally
works for gain –; OR

 Where the cause of action wholly or partly arose i.e. the place where
the sale took place
 Disposal of disputes

District Forum may

i. ask the opposite party to remove the defect,
ii. replace the goods with new goods and free from defect
iii. to return to the complainant the price of goods or
iv. to pay any amount as compensation

All “Appeals” to be filed within thirty days from the date of the order. In
the case of the order of the District Forum the “Appeal” has to be made to
the State Commission and against the order of the State Commission the
“Appeal” has to be filed before the the National Commission
The Appellate body can entertain appeals beyond thirty days on sufficient
cause shown for the delay.

All disputes have to be disposed within ninety days from its

admission.
 Time Limit for filing complaint

 Within two years from the date on which the cause of action arises

 Even where the time limit expires, the complaint can be taken up
 provided complainant is able to satisfy the Forum or Commission
about the reasonableness in the delay; and

 The delay for every single day has to be explained.

 What are the rights of a ‘consumer’?

 To be protected from hazardous goods and services by adequate

care taken by the seller in storage and selling of such goods;

 To be provided with full information about the quality, quantity,

purity, standard and price of the goods being purchased by him;

 To be given access to a variety of goods and services at

competitive prices.

 To be provided with an assurance that his interests will be

considered and addressed at the appropriate forum in case of any
dispute between him and the seller of goods.

 To be provided with adequate education about the market and

products available in the market.
 Can medical patients get protection as ‘consumers’?

In a recent judgment, the Supreme Court discussed whether

the Consumer Protection Act is applicable to hospitals. The Court said
that only those hospitals which provide free medical services to all
patients will fall outside the coverage of the Consumer Protection Act.

So, the Consumer Protection Act does not apply to hospitals that do not
charge anyone for any medical service i.e, hospitals that only provide free
services. However, if you are a patient and you approach a hospital that
charges for medical services, then you can get protection as a consumer
under the Consumer Protection Act.
 Can medical patients get protection as ‘consumers’?

In Indian Medical Association v. VP Shantha, the Supreme Court looked at 3

situations where a hospital provides medical services:
Hospitals that provide medical services free of cost to all persons – Consumer
Protection Act is not applicable.

Hospitals that provide medical services in return for payment by patients –

Consumer Protection Act is applicable.

Hospitals that mostly provide services on payment basis, but also provide
free service to some poor patients – The Court said that in this situation, the
hospital’s expenses for providing the free service are met out of the income it
gets from the paying patients. So, the Consumer Protection Act is applicable
to these hospitals. Patients who get medical services from these hospitals
should be treated equally, irrespective of the fact that some of them pay for
the service and others get the service free of charge. Even a person who is
given free service in these hospitals is considered as a ‘consumer’ under the
Act.
Can complaints against Govt Hospitals providing free medical
services be enforced under the Consumer Protection Act?

The Commission had then clarified that the doctors and staff of the
Government hospital, where no kinds of fees are collected from the
patients, cannot be held guilty of medical negligence under the
jurisdiction of the consumer protection act
 Consumer Protection Act, 1986

CONSUMER
ii.Consumer of services
The term ‘consumer’ also covers any person who hires or avails of any
‘services for consideration and also includes any beneficiary of such
sentences. According to sub-clause (ii) of section 2(1)(d) of the Act, a
consumer of services includes any person, who

a.hires or avails of any services for consideration which has been paid or
promised or partly paid and partly promised or under any system of
deferred payment, and
b.includes any beneficiary of such services other than the person who hires
or avails of them, when such services are availed of with the approval of the
hirer.

Thus, for the purpose of consumer of services, it is essential that

the services must have been hired or availed of for the
consideration. But it is not essential that the payment of
consideration must be made immediately, it may be paid
afterwards or even in installments.
Donoghue vs Stevenson

Facts
Mrs Donoghue drank a bottle of ginger beer purchased for her by her friend at
a cafe in Paisley. The bottle, which contained the decomposed remains of a
snail, was manufactured by the defendant Mr Stevenson. The bottle was
opaque in colour and sealed so the snail could not be detected until Mrs
Donoghue had already consumed a large part of the ginger beer. She claimed
to suffer from shock and severe gastroenteritis as a result of the incident.

The contract of sale to purchase the ginger beer was between Mrs Donoghue’s
friend and the shop owner, so there was no direct contractual relationship
between Donoghue (herself) and Stevenson (the manufacturer).

Mrs Donoghue sued Mr Stevenson based on the law of delict (referred to as

the law of negligence in England and Wales). Delict is a civil law ‘tort’ in which
one person ‘B’ can seek a remedy from another ‘A’ for injury or loss suffered
due to A not taking reasonable care or skill in performing a task.
Donoghue vs Stevenson

Delict covers certain cases where there is no contract between the parties and
creates a ‘duty of care’ from one person owed to another, to reach a certain
level of competence in their actions. For example, if you drive a car you owe a
‘duty of care’ to other road users to take reasonable care when driving your
car. This creates a legal relationship between you and them if you negligently
cause injury to another road user, even though you do not have a contract
with them.

In Donoghue, the judges had to decide whether Stevenson owed a duty of care
to Donoghue. Was the relationship between them sufficiently close that
Stevenson should be required by law to exercise a certain degree of care in
carrying out particular tasks? Specifically, when Mr Stevenson manufactured a
bottle of ginger beer, sealing it in a container in such a way that it would not be
possible to inspect it before drinking it, and knowing that it would be drunk by
a consumer, was he required by law to take reasonable care to ensure that the
consumer was not injured by the contents of the bottle?
Donoghue vs Stevenson

The case was brought in the Scottish courts. In the initial hearing, the judge
found in favour of the pursuer Mrs Donoghue. This was appealed successfully
by the defendant, Mr Stevenson, to a higher court. Donoghue then appealed
further to the House of Lords, then the highest court in the UK for civil cases
from Scotland. It is the House of Lords judgment that you will consider here.

Lord Atkin’s judgment stated:

The rule that you are to love your neighbor becomes in law, you must not
injure your neighbor; and the lawyer’s question, Who is my neighbor? receives
a restricted reply. You must take reasonable care to avoid acts or omissions
which you can reasonably foresee would be likely to injure your neighbor.
Who, then, in law is my neighbor? The answer seems to be – persons who are
so closely and directly affected by my act that I ought reasonably to have them
in contemplation as being so affected when I am directing my mind to the acts
or omissions which are called in question.

This is the ‘neighbor principle’, a way of describing at a general level which

relationships give rise to a duty in law to take care.
 PROBLEM - 1

A had purchased some agricultural seeds from a seller. However, the

seeds did not germinate. A approached the party with his problem but
the seller refused to entertain him and took the plea that A was not a
consumer under the Consumer Protection Act.

Is purchase of seeds for the purpose of agriculture, a purchase for

commercial purpose under the Consumer Protection Act?

PROBLEM - 2

A had applied for electricity connection to the Power Supply Company.

However, he was not provided with the electricity connection.

Can A seek redressal of his grievance in Consumer Court?

 PROBLEM - 3

A’s car met with an accident. The insurance claim was rejected on the
ground that A’s driver was not holding valid driving license.

Should A approach a Consumer Court for seeking the Insurance claim?

PROBLEM - 4

A had applied to the Haryana Housing Board for the purchase of an MIG
Flat under the scheme of the Haryana Housing Board. He was allotted a
MIG flat under the scheme. Now his grievance is that the board had
escalated the price of the flats three times within a period of two years.

Does his case lie within the jurisdiction of Consumer Fora?

 PROBLEM - 5

A registered letter sent to Anil was not delivered to him.

What is the liability of an employee of the Post Office in this matter?

 PROBLEM - 6
 A injured his knee in a game of football. It was diagnosed as ACL TEAR. He
was operated upon in the knee for the same.

 After the operation his knee developed stiffness, which is unusual in such
cases. Even after undergoing physiotherapy for two months he was unable
to bend or straighten his knee.

 So after 2 months of operation his knee was again manipulated under

anesthesia to relieve the stiffness and a plaster was put on his knee for one
month.

 He was told to start walking. He used to walk with a limp. For about 8
months he continued to walk with a limp. Then, his condition deteriorated
and he had to start using crutches to move around.

 He Both operations were carried out in military hospitals, and they were
done free of cost since he was serving in army.

Can he sue the doctors and the hospital for negligence and deficiency of service
under Consumer Protection Act?
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