4 Feb 2014

Competition Commission of India - 4 Years of Enforcement of Competition Law

Competition Commission of India
Free and fair competition is one of the pillars of an efficient market economy. Competition has become a driving force in the global economy. May 19, 2009 changed the paradigm of doing business in India. That is the day the enforcement of the Competition Act was started by the Competition Commission of India. 

During its brief existence of about 4 years, CCI has come a long way. Though relatively short in terms of life span, the Competition Law is hugely significant as a building block for economic development and rising levels of economic welfare.

Evolution of Competition Law in India
 India was among the first developing countries to have a competition law in the form of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969. The MRTP Act was designed to check concentration of economic power, prohibit restrictive or unfair trade practices and control of monopolies. Then came 1991, which has proved to be a watershed in the history of India’s economic development. 

The new India required new rules. Hence, the need for a new competition law. Accordingly, the Competition Act was passed in 2002 and amended in 2007. The Competition Commission of India (CCI) was established on March 1, 2009 as an autonomous body comprising of a Chairperson and six members. 

An appellate body Competition Appellate Tribunal was also set up in May 2009 with final appeal lying to the Supreme Court of India. Subsequently, the MRTP Act was repealed, MRTP Commission established under that act was abolished and its pending cases were transferred to the CCI. Sections 5 & 6 relating to Merger & Acquisition were notified in June, 2011.

Developments Over the Past 4 Years
 Since the notification of provisions of sections 3 and 4 relating to anti-competitive agreements and abuse of dominance in May 2009, CCI has received more than 350 matters and passed final orders in more than 260 cases. The forms of enforcement include a wide range of anti-competitive issues like cartels, bid rigging, abuse of dominance, after markets etc.

            Under Sections 5 & 6 of the Competition Act, more than 120 notices have been received and disposal rate has been more than 95%.  All the notices were cleared within the self-imposed limit of 30 days wherein the Law allows a period of upto 210 days for clearing the notices.

Major Sectors Covered under Various Orders of CCI
The sectors that have been covered are as diverse as infrastructure, finance, entertainment, IT, telecom, civil aviation, energy, insurance, travel, automobile manufacturing, real estate and pharmaceuticals etc.

Cement is a crucial input in construction industry vital for economic development of the country. CCI imposed a penalty of approx. Rs.6700 crore on eleven cement manufacturers and their trade association for behaving like a cartel.

The cement manufacturers and their trade association have subsequently preferred an appeal before the COMPAT.   Even while the hearing continues in the case, COMPAT has directed the cement companies to deposit 10% of the penalty imposed by CCI.  This is a significant development in the process of enforcement of Competition law in the country.

Earlier, in another case with major ramifications for consumers,  the Commission had imposed a penalty of approx. Rs. 630 crore on DLF, a major real estate player. It was found that it had abused its dominant position by imposing arbitrary and unreasonable conditions on the apartment owners. Subsequently, CCI issued an order modifying the terms and conditions of the agreement signed by the companies with its investors to ensure that the terms and conditions between the buyer and seller were fair and transparent. This order may well become the harbinger of change in the real estate sector for the benefit of consumers.

Suo Moto Actions
The CCI not only hears and investigates cases based on the information received by it, but it also takes suo moto action wherever it finds that a prima facie violation of Competition Act has been committed.

       In 2011, the Commission had taken suo-moto cognizance of the reported manipulation of the bids by manufacturers of LPG cylinders for supplying cylinders to the Indian Oil Corporation. A penalty of more than Rs.187 crore  was imposed on parties to the bid rigging.
Many more such notices have been sent by CCI in the Petroleum sector, Agricuture sector etc. taking cognisance suo-moto.

Role of Trade Associations
An area of focus which suggested itself based on matters which were enforced is the role of trade associations. CCI’s experience in handling cases of anti-competitive agreements suggest that the trade associations can also, either due to ignorance or deliberately, get involved in acts of commission or omission which can fall foul of various economic legislations.

Competition law treats the activities of trade associations much like any other form of cooperation between competitors. For competition law purposes, decisions or recommendations of trade associations are treated as agreements between its members and law may be breached even when they are not binding on the members.

The very first case investigated by CCI related to actions of a trade association. CCI imposed a nominal penalty of Rs. 1 lakh each on 27 film producers on charges of colluding through an association to exploit multiplex owners.

There have been number of cases involving the associations in the Pharmaceutical sector/Film production etc where CCI has passed orders against the associations and asked them to “cease and desist” from activities that may be anti-competitive in nature.

Public Procurement and Competition Law
 Another issue which has been of paramount concern to CCI has been the dimension of public procurement. Public procurement is a contentious issue vis-à-vis application of competition law due to a number of factors. Competition Act does not make a distinction between a public and private enterprise. As such, public enterprises, which are generally the big procurers, are subject to competition assessment.

       In recent months, the Commission has decided a number of matters, including cartelization in government contracts. Penalties have been imposed on firms to discourage the anti-competitive practices and abuse of dominance. Wherever, after inquiry, it has been found that competition could be enhanced if certain policies of government were modified, the Commission has suggested changes in such policies.

Orders have been passed in more than 21 cases wherein SOEs and Government Departments were a party. Some of these include Oil Companies, Railways etc.

CCI has been taking up the issue with the public procurement agencies and has had number of interactions with the nodal officers of more than 50 Ministries/ Departments to ensure that the practices followed in the public procurement are in compliance with the letter and spirit of the Competition Act.

Four years is a very small period to judge the effectiveness of a new legislation. However, as the developments of the past four years suggest, Competition Commission of India is set to change the rules of the game and play the role of a watchdog to check anti-competitive practices in the market. The Competition Act and the culture of competition are slowly but definitely finding their feet in India.

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