The Competition Act, 2002: Object, Scope and Scheme

The Act is short in its substance and long in its machinery. Four sections state what is forbidden, and the remaining sixty-odd build the body that enforces them, the procedure it follows, the penalties it may impose, the appeal that lies from it and the advocacy function that distinguishes a competition authority from a prosecuting agency. Reading the statute in that order, substance first and machinery afterwards, is the quickest way to understand it.

1. The Object

Four objects are stated, and the opening words qualify them all. The Act is to be administered keeping in view the economic development of the country, which is the statutory recognition that competition law in a developing economy operates alongside industrial policy and cannot be applied as though the only value in play were market efficiency. The four objects are prevention of practices having an adverse effect on competition, promotion and sustenance of competition, protection of the interests of consumers, and the freedom of trade of other participants. They are not ranked, and the balancing between them is done through the factors the Act itself supplies in Section 19.

2. The Scope

1. Extent and commencement. Section 1 extends the Act to the whole of India. Its provisions were brought into force in stages: Sections 3 and 4 with effect from 20 May 2009, and the combination provisions in Sections 5 and 6 with effect from 1 June 2011.
2. Whom it binds. Enterprises and persons. Enterprise in Section 2(h) covers 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, whether such unit is located at the same place or at different places. The exclusion is confined to activities relating to the sovereign functions of the Government, including atomic energy, currency, defence and space. Person in Section 2(l) is equally wide and includes an individual, a company, a firm, an association, a cooperative society, a body corporate incorporated outside India and a local or statutory authority.
3. What it reaches. Agreements under Section 3, unilateral conduct by a dominant enterprise under Section 4, and combinations under Sections 5 and 6.
4. Where it reaches. Within India, and under Section 32 to an agreement, a party or a combination outside India where the conduct has or is likely to have an appreciable adverse effect on competition in a relevant market in India.
5. What it leaves out. Unfair trade practices in the consumer sense, which the Act of 2002 deliberately omitted and which belong to the Consumer Protection Act, 2019; and matters exempted under Section 54, under which the Central Government may exempt a class of enterprises in the interest of security of the State or public interest, a practice arising out of an international obligation, or an enterprise performing a sovereign function.

3. The Scheme, Chapter by Chapter

The chapters of the Act and the logic of their arrangement

3.1 The substantive provisions

Section 3(1) prohibits an agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services which causes or is likely to cause an appreciable adverse effect on competition within India, and Section 3(2) makes such an agreement void. Section 3(3) deals with horizontal agreements between enterprises at the same level of the production chain and raises a presumption of appreciable adverse effect where the agreement directly or indirectly determines purchase or sale prices, limits or controls production, supply, markets, technical development, investment or provision of services, shares the market or source of production, or results in bid rigging or collusive bidding. Section 3(4) deals with vertical agreements, being tie-in arrangements, exclusive supply and distribution agreements, refusal to deal and resale price maintenance, which are judged by their effect and carry no presumption. Section 3(5) preserves the right to impose reasonable conditions to protect intellectual property and to restrain conduct necessary for exports.

Section 4 prohibits the abuse of a dominant position and lists the forms: imposing unfair or discriminatory conditions or prices, including predatory prices; limiting or restricting production or technical development to the prejudice of consumers; denial of market access; conclusion of contracts subject to supplementary obligations unconnected with the subject matter; and using a dominant position in one relevant market to enter into or protect another. The explanation defines dominant position as a position of strength enjoyed in a relevant market in India which enables the enterprise to operate independently of competitive forces or to affect its competitors or consumers or the relevant market in its favour.

Sections 5 and 6 regulate combinations. Section 5 defines a combination by reference to asset and turnover thresholds, and after the amendment of 2023 also by reference to the value of the transaction where the target has substantial business operations in India. Section 6(1) prohibits a combination that causes or is likely to cause an appreciable adverse effect on competition and declares such a combination void; Section 6(2) requires notice to the Commission, and the regime is suspensory, so the transaction cannot take effect until the Commission has approved it or the statutory period has run.

3.2 The institution

Chapter III establishes the Competition Commission of India as a body corporate. Section 8 provides for a Chairperson and not less than two and not more than six other Members, appointed by the Central Government, being persons of ability, integrity and standing with 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 or competition matters. Section 9 provides for selection by a committee headed by the Chief Justice of India or his nominee. Section 10 fixes the term at five years with eligibility for reappointment, subject to the age limit. Section 16 provides for the Director General, who assists in conducting inquiries and who, after the amendment of 2023, is appointed by the Commission.

3.3 The process

1. Section 18 states the duty of the Commission: to eliminate practices having an adverse effect on competition, to promote and sustain competition, to protect the interests of consumers and to ensure freedom of trade.
2. Section 19 states how an inquiry begins, namely on the Commission's own motion, on receipt of information from any person, consumer or association, or on a reference from the Central Government, a State Government or a statutory authority. The same section supplies the tests: sub-section (3) lists the factors relevant to an appreciable adverse effect, sub-section (4) the factors relevant to dominance, and sub-sections (5) to (7) the factors relevant to the definition of the relevant market.
3. Section 21 and Section 21A provide for references between the Commission and a statutory authority where a question arises in proceedings before either that falls within the other's domain.
4. Section 26 sets out the stages: a prima facie opinion, a direction to the Director General to investigate, a report, and where the report finds a contravention, an inquiry in which the parties are heard.
5. Section 27 states the orders that may follow an inquiry into Sections 3 and 4: a direction to discontinue and not to re-enter the agreement or to discontinue the abuse, a penalty, a direction to modify an agreement, and such other order as the Commission may deem fit. Section 28 permits the division of an enterprise enjoying a dominant position.
6. Sections 29 to 31 set out the procedure for a combination and the orders that may be made: approval, rejection, or approval subject to modifications.
7. Section 33 permits a temporary injunction during an inquiry, and Sections 36 and 41 give the Commission and the Director General the powers of a civil court and of investigation respectively.

3.4 Sanction, advocacy and appeal

Chapter VI supplies the penalties: Section 42 for contravention of an order of the Commission, Section 43 for failure to comply with the directions of the Commission or the Director General, Section 43A for failure to give notice of a combination, Section 44 for a false statement or omission in a notice, Section 46 for lesser penalty in a cartel where an applicant makes a full and true disclosure, and Section 48 for the liability of a person who at the time of the contravention was in charge of and responsible to a company for the conduct of its business. Sections 48A and 48B, inserted in 2023, provide for settlement and for commitment. Chapter VII contains Section 49, the advocacy provision. Chapter VIII-A provides the appeal to the National Company Law Appellate Tribunal under Section 53B, compensation under Section 53N, and a further appeal to the Supreme Court under Section 53T.

Two closing provisions are frequently examined. Section 61 bars the jurisdiction of civil courts in respect of any matter which the Commission or the Appellate Tribunal is empowered to determine. Section 62 provides that the Act is in addition to and not in derogation of any other law for the time being in force, which is the provision on which the relationship with sectoral regulation turns.

4. How the Scheme Works in a Case

5. Related Topics and Provisions