Competition Law: Meaning, Nature, Scope, Objectives and the Need for It in India

This topic is the foundation on which the rest of the subject rests, and it is worth stating carefully because a good deal of confused writing follows from a loose definition. Competition law is not a law against big business, not a law protecting small traders from larger ones, and not a branch of consumer protection. It is a law that preserves the process by which firms compete for custom, on the footing that where that process survives, prices, output, quality and innovation look after themselves.

1. Meaning

Competition, in the economic sense the statute uses, is rivalry between firms for the custom of buyers. A market is competitive when no participant can profitably raise price above the level that costs and demand dictate, because buyers will go elsewhere. Competition law is the body of rules that prevents firms from removing that constraint, whether by agreeing with each other not to compete, by using a position of strength to exclude those who would compete, or by buying up the firms that do.

Three propositions follow from that definition and should be kept in view throughout the subject.

1. The law protects competition, not competitors. A firm driven out of business because a rival is cheaper, quicker or better has suffered from competition, not from a contravention. The complaint of a competitor is evidence that something is happening in the market; it is not by itself evidence that anything unlawful is.
2. Size and dominance are not offences. A firm may grow to any size by its own efforts. Section 4 prohibits the abuse of a dominant position, and the explanation to that section defines dominance as a position of strength enabling an enterprise to operate independently of competitive forces or to affect its competitors, consumers or the relevant market in its favour. Attaining that position is lawful; using it in the ways the section describes is not.
3. The unit of analysis is the market, not the transaction. Every question in this subject begins with the definition of the relevant market, in its product and geographic dimensions, because conduct that is harmless in a wide market may be decisive in a narrow one.

2. Nature

The nature of competition law can be described under four heads, and each has a practical consequence for how the subject is studied and argued.

• It is economic regulation in legal form. Its central concepts are economic. Market, dominance, entry barrier, appreciable adverse effect and efficiency are terms of economics before they are terms of law, and the statute directs the Commission in Section 19 to weigh economic factors rather than to apply a rule of construction. Evidence in a competition case is accordingly economic evidence: market shares, price movements, cost structures and patterns of bidding.
• It is civil and administrative, not criminal. The Act creates no offence punishable with imprisonment for anti-competitive conduct. The consequences are a penalty computed on turnover, a direction to discontinue and not to re-enter the agreement, modification of an agreement, and in an extreme case the division of an enterprise under Section 28. This distinguishes Indian law from the United States, where hardcore cartel conduct is a felony.
• It is both ex post and ex ante. Sections 3 and 4 look backwards at conduct that has occurred. Sections 5 and 6 look forward, requiring a combination above the thresholds to be notified before it takes effect, because a merger once completed is difficult to undo.
• It is enforced by an expert regulator with an investigative arm. The Commission forms a prima facie opinion, the Director General investigates and reports, and the Commission then hears the parties and decides. The appeal lies to a judicial tribunal, which is the structure the amendment of 2007 introduced after Brahm Dutt v. Union of India, (2005) 2 SCC 431.

3. Scope

The reach of the Act is defined by whom it binds, what it covers and where it applies.

1. Whom it binds. Enterprises and persons. Enterprise is defined in Section 2(h) to include 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. The exclusion is narrow: activities relating to the sovereign functions of the Government, including atomic energy, currency, defence and space. A public sector undertaking selling goods is therefore an enterprise, and a government department acting commercially is within the Act.
2. What it covers. Anti-competitive agreements under Section 3, whether horizontal between competitors or vertical between parties at different levels of the production chain; abuse of a dominant position under Section 4; and combinations under Sections 5 and 6.
3. Where it applies. Throughout India, and to conduct outside India that has or is likely to have an appreciable adverse effect on competition in a relevant market in India. Section 32 states this in terms and is the statutory form of the effects doctrine.
4. What it does not cover. Unfair trade practices in the consumer sense, which belong to the Consumer Protection Act, 2019; the terms of an individual contract as between the parties, which belong to contract law; and matters that Section 54 exempts, under which the Central Government may exempt a class of enterprises in the interest of security of the State or public interest, or a practice arising out of an international obligation.

4. Objectives

The preamble states the objects: having regard to the economic development of the country, to establish 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.

• Preventing practices having an adverse effect on competition. This is the prohibitory object and accounts for Sections 3, 4 and 6. The measure throughout is effect. An agreement is not bad because it is restrictive in form; it is bad because it causes or is likely to cause an appreciable adverse effect on competition.
• Promoting and sustaining competition. A positive duty, discharged through the advocacy function in Section 49, under which the Commission gives its opinion on any policy referred by a government and takes measures to promote competition awareness. Much of what restricts competition in India is public policy rather than private conduct, which is why this object was given statutory form.
• Protecting the interests of consumers. Not by compensating an individual buyer but by keeping markets such that consumers get the benefit of rivalry. Consumer interest in this sense is aggregate: lower prices, greater output, better quality and wider choice.
• Ensuring freedom of trade of other participants. The object that links the statute to Article 19(1)(g) and to the Indian concern with the concentration of economic power reflected in Articles 38 and 39 of the Constitution.

These objects are not ranked, and they can conflict. A merger that lowers costs may benefit consumers and reduce the number of participants. A dominant firm's aggressive pricing benefits buyers now and may remove the rivals who would have constrained it later. Systems that have adopted consumer welfare as the single standard resolve such conflicts by asking only what happens to buyers. The Indian preamble leaves all four objects standing, and the Commission balances them by reference to the factors in Section 19(3), which is why Indian orders read as a weighing exercise rather than the application of a single test.

5. The Need for a Competition Law in India

The need is best understood historically. Before 1991 the Indian economy was licensed, and what was produced, by whom, in what quantity and often at what price were settled by administrative decision. In such a system there is little competition to protect, and the Monopolies and Restrictive Trade Practices Act, 1969 accordingly concerned itself not with conduct in a market but with the size of industrial houses and with prior approval for their expansion. When licensing was dismantled and prices were freed, the constraint on firms changed from public regulation to private rivalry, and the risk changed with it.

1. Cartels. Once prices were free, firms in a concentrated industry had both the ability and the incentive to agree on price, output or the division of territory. The MRTP Act had no effective provision against a cartel, no presumption to assist proof, no leniency mechanism to break the secrecy on which cartels depend, and no penalty commensurate with the gain.
2. Exclusionary conduct by dominant firms. The old law reached such conduct through the concept of a monopolistic trade practice, which was tied to registration and size rather than to market power and effect, and it had no vocabulary for predatory pricing, refusal to deal, tying or denial of market access.
3. Mergers. The provisions requiring prior approval for amalgamation and takeover were deleted in 1991, leaving no mechanism to examine a transaction before completion at exactly the time when merger activity increased.
4. Foreign conduct affecting Indian markets. An international cartel in a raw material, or a merger abroad between the two suppliers of a component to Indian industry, could not be reached at all under the MRTP Act.
5. Indian firms in world markets. As Indian enterprises competed abroad and faced competition at home from imports, a competition regime comparable with those of trading partners became part of the ordinary infrastructure of an open economy.
6. Public procurement. Government is the largest buyer in India, and bid rigging in public tenders transfers public money to colluding suppliers. Section 3(3)(d) treats bid rigging as presumptively harmful for that reason.

6. What Competition Law Is Not

• Not a price control law. It does not fix prices; it removes the arrangements by which firms fix them among themselves.
• Not a law against monopoly as such. A monopoly won on the merits is lawful; only its abuse is not.
• Not a consumer grievance forum. An individual buyer with a complaint about a defective product goes to a consumer commission. The Commission acts on information about market conduct, and Section 53N provides a separate route to compensation after a finding.
• Not a protector of small enterprise. Support for small enterprise is industrial policy. Competition law protects the process, and a small firm that is out-competed has no remedy under it.
• Not a substitute for sectoral regulation. Where a network industry requires tariffs, access terms and service standards to be prescribed, that is the work of a sectoral regulator; the Commission's function begins where the market is capable of working and something is preventing it.

7. Related Topics and Provisions