Introduction and Foundations of Competition Law

Competition law regulates the conduct of enterprises in a market so that the process of competition survives. It does not fix prices, license entry or decide who should succeed; it removes the practices by which firms agree not to compete, by which a dominant firm shuts others out, and by which a merger takes a competitor out of the market. India's first attempt at such a law, the Monopolies and Restrictive Trade Practices Act, 1969, was built for a licensed economy and controlled the size of firms. The Competition Act, 2002 abandoned that approach and asks a different question: does this agreement, this conduct or this merger have an appreciable adverse effect on competition.

1. Meaning, Nature and Scope

Competition, in the sense the law uses, is the process by which firms strive for the custom of buyers. Where it works, price falls towards cost, quality and variety improve, and firms that cannot keep up lose business to those that can. Competition law protects that process. It is important to see at the outset that it protects competition and not competitors: a firm that loses business because a rival is cheaper or better has no complaint, and the law is not concerned with the fortunes of any particular participant.

The nature of the subject is economic regulation carried out through a legal form. Its standards are drawn from economics, so words like market, dominance and effect carry economic rather than dictionary meanings, and the authority is an expert body rather than a court. Its sanctions are civil and administrative. There is no offence created by the Act, no arrest and no imprisonment except for contempt or failure to comply with an order; what the Commission imposes is a penalty, a direction to cease and desist, a modification of an agreement or, at the extreme, a division of an enterprise.

The scope of the Act may be stated in five propositions.

1. It applies to enterprises and to persons. The definition of enterprise in Section 2(h) is wide, covering a person or a department of the Government engaged in any activity relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, excluding activities relating to the sovereign functions of the Government, including atomic energy, currency, defence and space.
2. It applies to three kinds of conduct. Anti-competitive agreements under Section 3, abuse of a dominant position under Section 4, and combinations, meaning mergers, amalgamations and acquisitions, under Sections 5 and 6.
3. It applies whether or not the conduct occurs in India. Section 32 permits the Commission to inquire into an agreement made outside India, a party outside India or a combination outside India, where it has or is likely to have an appreciable adverse effect on competition in a relevant market in India. This is the effects doctrine in statutory form.
4. It operates both after the event and before it. Sections 3 and 4 are enforced after the conduct has occurred; the combination provisions require notification before the transaction takes effect, so that a merger likely to harm competition is stopped rather than undone.
5. It does not displace other laws. Section 62 provides that the Act is in addition to and not in derogation of any other law, so a sectoral statute and the Competition Act both apply, subject to the question of sequence discussed later in these notes.

2. Objectives

The preamble states the purpose of the Act: having regard to the economic development of the country, to provide for the establishment of a Commission to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets in India. Four objects are packed into that sentence, and they do not always point the same way.

• Preventing practices having an adverse effect on competition. The negative object, pursued through Sections 3, 4 and 6.
• Promoting and sustaining competition. The positive object, pursued through the advocacy function in Section 49, under which the Commission advises government on competition issues and works to build awareness.
• Protecting the interests of consumers. Not by giving an individual consumer a remedy, which the consumer protection law does, but by keeping the market structure such that consumers benefit.
• Ensuring freedom of trade carried on by other participants. The object that connects the statute to Article 19(1)(g) of the Constitution and to the older Indian anxiety about the concentration of economic power.

3. The Need for Competition Law in India

Until 1991 the Indian economy was licensed. What was produced, in what quantity, by whom and at what price were matters largely settled by the State through industrial licensing, price control, import restriction and public ownership. In such an economy competition law has little to do, because competition itself is limited by administrative decision, and the MRTP Act was designed accordingly: it concerned itself with how large an industrial house had become and required approval before it expanded.

Liberalisation changed the question. Once licensing went, entry was open and prices were free, and the risk shifted from the State restricting competition to firms restricting it themselves. Four consequences created the need for a new law. Firms in a concentrated industry could agree on price or on the division of markets, and the MRTP Act had no effective cartel provision or leniency mechanism. A firm that came to dominate a market could use that position to exclude rivals, and the old law reached such conduct only through the concept of monopolistic trade practice, which was tied to size rather than to effect. Foreign firms entered Indian markets and Indian firms entered foreign ones, so conduct abroad began to affect Indian consumers, which the MRTP Act could not reach. And the volume of merger activity grew, with no mechanism to examine a transaction before it was completed.

4. Evolution of Competition Law in India

The sequence from the Monopolies Inquiry Commission to the amendment of 2023

The constitutional starting point is the Directive Principles. Article 38 requires the State to promote the welfare of the people by securing a social order in which justice, social, economic and political, informs all the institutions of national life. Article 39(b) and (c) require the ownership and control of the material resources of the community to be so distributed as best to subserve the common good, and require that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. The MRTP Act was enacted in the shadow of those provisions, and its concern with concentration comes directly from them.

1. The committees of the 1960s. The Hazari Committee reported in 1955 on the working of the industrial licensing system and found that licensing had allowed a few business houses to pre-empt capacity. The Mahalanobis Committee reported in 1964 on the distribution of income and levels of living and found a similar concentration. The Monopolies Inquiry Commission chaired by K.C. Das Gupta, which reported in 1964, examined the extent and effect of the concentration of economic power and of monopolistic and restrictive practices, and produced the draft that became the MRTP Act.
2. The MRTP Act, 1969. Passed in 1969 and brought into force on 1 June 1970, it dealt with the concentration of economic power, the control of monopolies, and monopolistic and restrictive trade practices, and established the MRTP Commission.
3. The amendment of 1984. Unfair trade practices, largely concerning misleading advertisement and false representation, were brought within the Act on the recommendation of the Sachar Committee.
4. The amendment of 1991. As liberalisation began, the provisions requiring the prior approval of the Central Government for the expansion of undertakings, the establishment of new undertakings, and mergers, amalgamations and takeovers were deleted. What remained was a law against practices, without the machinery to deal with them effectively.
5. The Raghavan Committee. The High Level Committee on Competition Policy and Law, chaired by S.V.S. Raghavan, was appointed in 1999 and reported in May 2000. It recommended a modern competition law and an expert regulator.
6. The Competition Act, 2002. Passed in December 2002 and assented to in January 2003. Its substantive provisions were not brought into force immediately, because of litigation about the character of the Commission.

The remaining steps are these. The Competition (Amendment) Act, 2007 restructured the Commission and created the Competition Appellate Tribunal. 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 matters transferred. The combination provisions in Sections 5 and 6 were notified with effect from 1 June 2011, so that merger control in India is younger than the rest of the statute. The Competition Appellate Tribunal was abolished by the Finance Act, 2017 and its jurisdiction transferred to the National Company Law Appellate Tribunal with effect from 26 May 2017. The Competition (Amendment) Act, 2023 made the most substantial changes since the statute began.

5. The MRTP Act and the Competition Act Compared

6. The Raghavan Committee

The High Level Committee on Competition Policy and Law reported in May 2000 after examining the working of the MRTP Act and the experience of other jurisdictions. Its principal recommendations shaped the Act of 2002.

• A new competition law should replace the MRTP Act, and should be directed at the effect of conduct on competition rather than at the size of enterprises.
• Anti-competitive agreements should be prohibited, with horizontal agreements of the hardcore kind treated as presumptively harmful and vertical agreements judged by their effect.
• Dominance should not be prohibited; only its abuse should be.
• A merger regime should be introduced, with a threshold high enough that only significant transactions are notified, and with a definite time limit for the regulator's decision.
• The regulator should be an expert body, with its own investigative arm, and its orders should be appealable to a judicial forum.
• Competition advocacy should be a statutory function, because much of the restriction on competition in India comes from government policy rather than from private conduct.
• The law should apply to the State when it engages in commercial activity, and should reach conduct abroad that affects Indian markets.

7. The Scheme of the Competition Act, 2002

The chapters of the Act and the logic of their arrangement

The substantive law is short. Section 3 prohibits agreements which cause or are likely to cause an appreciable adverse effect on competition, with a presumption against four kinds of horizontal agreement, namely those that fix prices, limit production or supply, share markets or rig bids. Section 4 prohibits the abuse of a dominant position, listing the forms of abuse. Sections 5 and 6 define a combination by reference to asset and turnover thresholds and require notification to the Commission before it takes effect.

The procedural provisions matter as much. Section 19 states how an inquiry begins and lists the factors relevant to an appreciable adverse effect, to dominance and to the definition of the relevant market. Section 26 sets out the stages: a prima facie opinion, a direction to the Director General to investigate, a report, and a hearing. Section 27 states the orders that may be made after an inquiry into Sections 3 and 4, and Section 31 the orders on a combination. Section 33 permits an interim order. Section 48 fixes liability on persons in charge of a company. Section 53B provides the appeal, Section 53N a claim for compensation, and Section 61 bars the jurisdiction of civil courts.

8. The Amendment of 2007

Three changes were made, and all three still govern. The Commission was reconstituted as an expert body which inquires into contraventions and passes orders, and a separate Competition Appellate Tribunal was created, headed by a person who is or has been a judge of the Supreme Court or the Chief Justice of a High Court, to hear appeals and to award compensation. The merger regime was made mandatory and suspensory, so that a combination above the thresholds must be notified and cannot take effect until approved or until the statutory period expires. And the office of the Director General was placed within the structure as the investigative arm, with the powers of investigation set out in Section 41.

9. The Amendment of 2023

The Competition (Amendment) Act, 2023 followed the report of the Competition Law Review Committee and a period in which the Commission's merger workload and the length of its proceedings had both grown. Its principal changes are these.

1. Settlement and commitment. New Sections 48A and 48B permit a party facing an inquiry into an abuse of dominance or into a vertical agreement to offer a commitment before the investigation report, or to apply for settlement after it, on terms the Commission accepts. The mechanism is not available for cartels, because the object there is deterrence rather than the correction of conduct.
2. A deal value threshold. In addition to the asset and turnover thresholds, a transaction must be notified where its value exceeds two thousand crore rupees and the target has substantial business operations in India. The provision answers the difficulty that the acquisition of a digital enterprise with many users and little turnover escaped the old thresholds altogether.
3. Shorter merger review. The Commission must form its prima facie opinion within thirty days of notification, and the overall period for a decision was reduced from two hundred and ten days to one hundred and fifty, after which approval is deemed.
4. Hub and spoke arrangements. The presumption in Section 3(3) was widened so that an enterprise which is not engaged in an identical or similar trade may nevertheless be treated as a party to a horizontal agreement where it actively participates in furthering it. The provision is aimed at the platform or distributor that coordinates competitors who never deal with one another.
5. Leniency plus. An applicant already seeking leniency in one cartel may obtain a further reduction by disclosing a second, unrelated cartel of which the Commission is unaware.
6. Penalties on global turnover. Penalties for contravention of Sections 3 and 4 are now computed by reference to global turnover derived from all products and services, and the Commission has issued guidelines on the determination of penalty.
7. A limitation period. The Commission is not to entertain information on a contravention filed after three years from the cause of action, unless it condones the delay for reasons recorded.
8. Appeals. An appeal to the Appellate Tribunal against an order imposing a penalty is entertained only where the appellant deposits twenty-five per cent of the penalty.
9. Governance. The Director General is now appointed by the Commission with the prior approval of the Central Government, in place of appointment by the Central Government, which strengthens the institutional position of the investigative arm.

10. Competition Policy and Competition Law

The two are related and distinct. Competition policy is the whole set of government measures that affect the degree of competition in markets: the licensing regime, trade policy, public ownership, subsidy, procurement rules, sectoral regulation and the ease of entry and exit. Competition law is one instrument within that policy, directed at the conduct of enterprises. A country may have an excellent competition law and very little competition, because its policy restricts entry; and a country with open policy may still need the law, because private restraints replace public ones.

The Indian statute recognises the distinction in Section 49, which permits the Central Government and a State Government to refer to the Commission any policy that may have an effect on competition, and requires the Commission to give its opinion, and which directs the Commission to promote competition advocacy, create awareness and impart training. The competition assessment of proposed legislation, the examination of procurement practice and the Commission's market studies all fall under this head.

11. The Values behind the Law

11.1 Consumer welfare

Consumer welfare is the object most competition systems treat as decisive, and the preamble lists it. What it means in this subject is not the protection of an individual buyer from an unfair contract, which belongs to consumer protection law, but the aggregate benefit to buyers from a competitive market: lower prices, greater output, better quality and more choice. It follows that conduct which harms a rival but benefits buyers is not a contravention, and that conduct which benefits the parties to an agreement at the expense of buyers is, whatever the parties call it.

11.2 Economic efficiency

• Allocative efficiency. Resources go to their most valued use, which happens when price approaches marginal cost. A cartel or a dominant firm raising price above that level produces the deadweight loss that is the classic harm of monopoly.
• Productive efficiency. Goods are produced at the lowest attainable cost. Competition forces firms towards it, and protection from competition allows costs to drift upward.
• Dynamic efficiency. Innovation over time. This is the efficiency most often invoked to defend conduct, because investment in innovation requires some expectation of reward, and it is the reason the law does not treat every exclusive arrangement as harmful.

11.3 Freedom of trade and Article 19(1)(g)

Article 19(1)(g) guarantees to every citizen the right to practise any profession or to carry on any occupation, trade or business, and Article 19(6) permits reasonable restrictions in the interests of the general public, including a law relating to the carrying on by the State of any trade or business. Competition law engages the article from both directions. It restricts the freedom of an enterprise to contract as it pleases, and that restriction is defended as reasonable and in the interest of the general public. And it protects the freedom of other participants to trade, which the preamble states as an object. A cartel or an exclusionary practice is, in constitutional terms, a private restriction on the Article 19(1)(g) freedom of everyone else in the market.

12. Competition Law and Globalisation

Three consequences of an open economy run through this subject. Conduct abroad affects Indian markets, which is why Section 32 adopts the effects doctrine and why an international cartel in a raw material is within the Commission's reach. Transactions abroad may change the structure of an Indian market, which is why a combination outside India that has an appreciable adverse effect here requires notification. And enforcement now involves other authorities, so the same merger may be examined in several jurisdictions and the same cartel investigated by several regulators, which has produced cooperation arrangements and a practice of coordinated timing among agencies. Against this, competition from imports is itself a constraint on domestic market power, and Section 19(3) requires the Commission to consider the extent of barriers to entry, which includes the openness of the market to foreign supply.

13. Competition Law Distinguished

13.1 Consumer protection law

Both protect the buyer, and they do it differently. Consumer protection law gives an individual a remedy against a particular seller for a defective good, a deficient service or an unfair trade practice, and the relief is compensation to that complainant. Competition law protects the structure of the market and gives the Commission power to penalise conduct and to direct its discontinuance; an individual complainant does not obtain damages from the Commission, and must apply separately for compensation under Section 53N. Unfair trade practices, which the MRTP Act had covered, were deliberately left out of the Act of 2002 and are dealt with by the Consumer Protection Act, 2019.

13.2 Intellectual property law

An intellectual property right is a statutory exclusivity, and competition law is suspicious of exclusivity, so a tension is inevitable. Section 3(5) resolves part of it by providing that Section 3 does not restrict the right of any person to impose reasonable conditions as may be necessary for protecting his rights under the listed intellectual property statutes. The reconciliation is in the word reasonable: the right may be exercised, but a condition going beyond what is necessary to protect it is not saved. Two further points should be noted. Section 4 contains no corresponding exemption, so the abuse of a dominant position acquired through intellectual property is not protected. And where a specialised statute confers its own remedies, as the Patents Act does through compulsory licensing, the question arises whether the Commission or the specialised authority should act first; the Delhi High Court has held, in litigation concerning standard essential patents, that the Patents Act as the special and later law prevails over the Competition Act in that field, and the question is before the Supreme Court.

13.3 Sectoral regulation

Telecommunications, electricity, petroleum, insurance and banking each have a regulator with its own statute, and each regulator has functions that touch competition. The relationship is one of sequence rather than of exclusion.

13.4 Economic regulation generally

The difference is one of method. Economic regulation of the classical kind substitutes the regulator's judgment for the market's: it fixes tariffs, prescribes service standards and licenses entry, and is used where competition is impossible, as in a natural monopoly network. Competition law does the opposite: it leaves outcomes to the market and intervenes only to remove practices that prevent the market from working. Where an industry moves from monopoly to competition, the first ideally recedes as the second takes over, which is the story of telecommunications and, more slowly, of electricity in India.

14. India, the European Union and the United States

15. Related Topics and Provisions