Evolution of Competition Law in India

Indian competition law has had two statutes and one change of premise. The Monopolies and Restrictive Trade Practices Act, 1969 was built for a licensed economy and treated the concentration of economic power as the mischief, controlling the size and expansion of industrial houses. The Competition Act, 2002 abandoned that premise. Size ceased to be the question and effect took its place: what matters is whether an agreement, a course of conduct or a merger causes an appreciable adverse effect on competition. The change was recommended by the Raghavan Committee, and it followed the liberalisation of 1991 rather than preceding it.

The sequence of committees, statutes and amendments, and the change of premise

1. The Background to the MRTP Act

The constitutional impulse came from the Directive Principles. Article 39(b) requires that the ownership and control of the material resources of the community be so distributed as best to subserve the common good, and Article 39(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. Article 38 requires the State to promote the welfare of the people by securing a social order informed by justice. These provisions explain why the first Indian statute on the subject was directed at concentration rather than at conduct.

Three inquiries supplied the evidence. The Hazari Committee, reporting in 1955 on the working of the industrial licensing system, found that licensing had allowed a small number of business houses to pre-empt capacity by obtaining licences they did not immediately use. The Mahalanobis Committee, reporting in 1964 on the distribution of income and levels of living, found a similar concentration of economic power. The Monopolies Inquiry Commission, chaired by K.C. Das Gupta and reporting in 1964, was appointed specifically to inquire into the extent and effect of the concentration of economic power in private hands and into the prevalence of monopolistic and restrictive practices, and it produced the draft Bill that became the Act of 1969.

2. The MRTP Act, 1969

The Act was passed in 1969 and came into force on 1 June 1970. It had three limbs, and the first was much the most important in practice.

1. Control of the concentration of economic power. Undertakings above a stated asset size, and dominant undertakings, were required to register. Chapter III required the prior approval of the Central Government for the substantial expansion of such an undertaking, the establishment of a new undertaking, and any merger, amalgamation or takeover. This was the operative part of the statute: an industrial house could not grow without permission.
2. Monopolistic trade practices. Practices by which a person exercising market power maintained prices at an unreasonable level, limited output or technical development, or prevented competition, could be inquired into and controlled.
3. Restrictive trade practices. Practices which prevented, distorted or restricted competition, such as tie-in sales, exclusive dealing, refusal to deal and resale price maintenance, could be registered and, on inquiry, discontinued.

The amendment of 1984, following the report of the Sachar Committee, added unfair trade practices concerned with misleading advertisement, false representation as to quality or price, and the like. The amendment of 1991 removed Chapter III altogether, so that the requirement of prior approval for expansion, new undertakings and mergers disappeared as part of the general dismantling of the licensing system.

3. The Raghavan Committee

The High Level Committee on Competition Policy and Law, chaired by S.V.S. Raghavan, was constituted in 1999 to examine the existing law in the light of international economic developments and to recommend a suitable legislative framework. It reported in May 2000. Its central conclusion was that the MRTP Act should be repealed and replaced by a modern competition law addressed to conduct rather than to structure, administered by an expert body.

• On agreements. Anti-competitive agreements should be prohibited. Horizontal agreements of the hardcore kind, being those fixing price, limiting output, sharing markets or rigging bids, should be presumed to be anti-competitive, while vertical agreements should be judged by their effect.
• On dominance. The mere existence of dominance should not be prohibited, since a firm may become dominant by its own efficiency. The law should prohibit the abuse of that position.
• On mergers. A merger regime should be introduced with thresholds set high enough that only significant transactions are examined, and with definite time limits so that legitimate transactions are not delayed.
• On the regulator. An expert Competition Commission should be established with its own investigative wing, and its orders should be subject to appeal before a judicial forum.
• On advocacy. Competition advocacy should be a statutory function, because a substantial part of the restraint on competition in India comes from government policy, from licensing and from the conduct of public enterprises.
• On the State and on foreign conduct. The law should apply to the State when it engages in commercial activity, and should reach conduct abroad producing effects in India.

4. The Competition Act, 2002

The Act was passed in December 2002 and received assent in January 2003. Its substantive provisions were not brought into force at once, because the constitution of the Commission was challenged on the ground that a body exercising adjudicatory functions was to be headed by a person selected by the executive.

Enforcement therefore came in stages. The Commission was established in 2003 but functioned initially in an advisory and advocacy role. Sections 3 and 4 were notified with effect from 20 May 2009, and the MRTP Act was repealed with effect from 1 September 2009, its Commission being wound up and its pending cases transferred to the Competition Appellate Tribunal and to the National Commission under the consumer legislation as the repealing provision directed. The combination provisions in Sections 5 and 6 were notified with effect from 1 June 2011, so Indian merger control is only as old as that date. The Competition Appellate Tribunal was abolished by the Finance Act, 2017 and its jurisdiction transferred to the National Company Law Appellate Tribunal from 26 May 2017. The Competition (Amendment) Act, 2023 introduced settlement and commitment, a deal value threshold for combinations, shorter merger timelines, leniency plus, penalties computed on global turnover and a limitation period for filing information.

5. The MRTP Act and the Competition Act Compared

6. What the Change of Premise Means in Practice

Three consequences are worth stating, because they recur throughout the subject. The first is that market definition became central. Under the old law the question was how large an undertaking was; under the new one it is how much power a firm has in a defined market, which cannot be answered until the market is defined in its product and geographic dimensions. The second is that evidence became economic. Proof of a contravention now involves market shares, price movements, cost data and the factors listed in Section 19, rather than the formal characterisation of a clause. The third is that the law became forward-looking in one of its three branches: merger control asks what a transaction is likely to do, which is a prediction rather than a finding, and that is why the combination provisions are drafted around notification, time limits and conditional approval rather than around penalty.

7. Related Topics and Provisions