Shivangi Chandra | University of Mumbai Law Academy | 7th August 2020
Introduction
The term ‘market’ means a mechanism by which buyers and sellers of a commodity are capable to contact each other for having economic exchanges and can strike a deal about the price and the quantity to be bought and sold. A market exists in various structures around the world it can be a monopoly, oligopoly, perfect competition, monopolistic competition or monopsony.
Existence of competition amongst the sellers in a market is vital to serve the purpose of consumer welfare by way of a range of choices, innovative products and lower prices. If such a competition ceases to exist, a hostile environment will occur in the market. The ease of doing business in such a market will drop and it will be contrary to the welfare of consumers. “Concerted activity inherently is fraught with anti-competitive risk. It deprives the marketplace of the independent centres of decision-making that competition assumes and demands”[i]
Foul play by a big business hub to eliminate small business entities, false speculations created to restrict new entry into the market and other anti-competitive strategies are used to disrupt the market. Hence, the primary objective of Competition Law is to maintain market competition by curbing out this anti- competitive behaviour’s.
India’s ‘Monopolies and Restricted Trade Practices Act, 1969’[ii] was the first law to establish laws relating to competition in the market and regulate anti-competitive conduct and curbing monopolies. It was introduced as a bill in the parliament in 1967 and dully passed in 1969. This Act was based on socio-economic welfare policy based on the Directive Principles of State Policy enshrined in our Constitution. The MRTP Act underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991. “The Monopolies and Restrictive Trade Practices Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. Government has decided to appoint a Committee to examine this range of issues and propose a modern Competition Law suitable for our conditions.”[iii] Later this Act was repealed and a new Act called the ‘Competition Act’[iv] came into force in the year 2002.
The task of eliminating ‘abuse of dominant position’ is complex and challenged with practicalities present the world of markets. The Competition Commission of India (CCI) has been set up under the Competition Act, 2002 to complete this task and regulate market activities on competition in India. It may become difficult to stay in line and not jump the thin line of what is abuse and what is not. The challenge sometimes is to identify whether or not the player is a dominant player in that particular market. More often a practice may be justified or legitimate from a business point of view yet the practice may be within the ambit of the abuse under competition law.
“Antitrust laws … are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”[v]
What is competition Law?
Raghavan Committee was constituted to get recommendation so that a new law can be formulated overcoming drawbacks and shortfalls of the existing Act. The committee pointed out the biggest flaw of the MRTP Act to be the lack of remedy available to the complainant. The offender was not charged any fine or penalty and authorities could only pass orders of ‘cease’.
Competition Law as stated above came into force in 2002, it is a body of legislation formulated to preclude market fall out by way of anti- competitive strategies. The purpose of this Act is to ensure a fair marketplace for the consumers and producers exist without any hindrance from unethical trade practices.
Three main elements of Competition Law are:-
- Anti-Competitive Agreements (Section 3 of the Act)
- Abuse of Dominant Position (Section 4 of the Act)
- Combination’s (Section 5 & 6 of the Act)
Abuse of Dominant position
Prohibition of abuse of dominant position is mentioned in section 4 of the Act. Per this section, no ‘enterprise’ or ‘group’ shall abuse its dominant position. This provision is broadly moulded based on European Union prohibition on abuse of dominance contained in Article 102 of the Treaty on the Functioning of the European Union (TEFU). The term ‘dominant position’ has been defined in the Act as “a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour”[vi]
What is termed as abuse of dominant position is listed under section 4 (2) of the Act in 5 broad categories:-
- Directly or indirectly imposing unfair or discriminatory conditions in purchase/sale of goods or services; or any such price in purchase/sale of goods or services, it shall also amount to abuse when predatory pricing policy practices;
- Limits or restricts the production of goods or services or market; or any technical or scientific development relating to goods or services relating to the disadvantage of consumers;
- Indulges in practice or practices resulting in denial to market access;
- Makes conclusion of contracts subject to acceptance by other parties of supplementary obligations by other parties, and those obligations are such that by their very nature or according to commercial usage in that field, they have no connection with the subject-matter of the contract.
- Uses its dominant position in one relevant market to enter into, or protect other relevant markets.[vii]
It is pertinent to point out that holding a dominant position is not an offence under this Act it is the abuse of this dominant position that is prohibited by the Competition Act. In Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd.,[viii]the CCI observed that Section 4 of the Competition Act does not prohibit an enterprise from holding a dominant position in a market; it does place a special responsibility on such enterprises, in requiring them not to abuse their dominant position.
Determination of abuse of dominant position
The process to examine whether or not there has been an abuse of dominant position a three-stage process is followed. Since the abuse can happen only if the enterprise or group holds a dominant position in the relevant market, hence, the 3 stages in the process include identification of relevant market, dominance in the said relevant market and abuse of such dominance.
This test for determining abuse of dominant position consists of three steps: a) delineation of the relevant market; b) determination of dominant position; c) whether the conduct amounts to an abuse of dominant position. The same test was found to be applicable in Google Search Bias Case in European Union and The United States.[ix]
Relevant Market
The relevant market is one of the primary concern while ascertaining the dominant position and determining abuse of such a dominant position. Section 2 (r) states that ‘relevant market’ means the market which may be determined by the Commission concerning the relevant product market or the relevant geographic market or both markets.
The relevant product market is defined as a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.[x]
Relevant geographic market refers to a market comprising the area in which the conditions of competition for the supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.[xi]
In M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Company Limited[xii] it was held that to determine the “relevant product market”, the Commission is to have due regard to all or any of the following factors viz., physical characteristics or end-use of goods, price of goods or service, consumer preferences, exclusion of in-house production, the existence of specialized producers and classification of industrial products, in terms of the provisions contained in section 19(7) of the Act. To determine the “relevant geographic market”, the Commission shall have due regard to all or any of the following factors viz., regulatory trade barriers, local specification requirements, national procurement policies, adequate distribution facilities, transport costs, language, consumer preferences and need for secure or regular supplies or rapid after-sales services, in terms of the provisions contained in section 19(6) of the Act.
Dominant Position
Once the relevant market is ascertained the question for the existence of dominance shall be considered. A dominant position has been defined above however dominant position is based on a number of factors mentioned in section 19 (4) of the Act. It is stated that while enquiring whether an enterprise enjoys a dominant position or not under section 4 due regard to all or any of the factors shall be placed by the Commission. These factors include market share, size and resources of the enterprise, size and importance of competitors, economic power including advantage over competitors, vertical integration or sale or service network, the dependence of consumers, monopoly acquired as a result of any statute or by virtue of being a government company, entry barriers, countervailing buying power, market structure and size, social obligations, relative advantages, or any other factor the Commission may consider relevant for the inquiry.
However, under the present competition law, the dominant position of an enterprise is with reference to a ‘relevant market’ in India and the test is twofold
- The said position of strength enables the enterprise to operate independent of the competitive forces prevailing in the market, this indicates that the enterprise is a dominant player in the relevant market and has no dependency on actions of other existing competitors. In a common market, a firm cannot afford to operate in such an independent manner, hence if such an operation is reflected it can be said that the firm is a dominant player in the relevant market. In Fast Track Call Cab Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd v. ANI Technologies Pvt. Ltd., “Dominant position as a position of economic strength enjoyed by the enterprise in the relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market or affect its competitor or consumer or the relevant market in its favour. Such ability of the enterprise to behave independently of competitive forces needs to be assessed in light of all relevant circumstances and the factors enlisted under Section 19(4) of the Act.”[xiii]
- The said position of strength enables it to affect its competitors, or consumers or the relevant market in its favour. In Belaire Owner’s Association v/s. DLF Limited Haryana Urban Development Authority Department of Town and Country Planning[xiv] The informants alleged that DLF Ltd had abused its dominant position by imposing highly arbitrary, unfair and unreasonable conditions on the apartment allottees of the Housing Complex ‘the Belaire’, which has serious adverse effects and ramifications on the rights of the allottees it was held that DLF was a dominant player and it was abusing its dominant position by CCI.
Abuse of such dominant Position
Only after it is determined that enterprise in question holds a dominant position in the relevant market the issue of abuse of dominant position is considered. In AIOVA v. Flipkart India Pvt. Ltd. & Anr[xv] it was clearly stated by the CCI that “Flipkart India is not dominant in the relevant market; therefore, the issue of abuse of dominance does not arise”.
The acts of the abuse of dominant position are set out in Section 4(2) (a to e) of the Act. Moreover, an enterprise may said to be indulging in abuse of dominance when for its benefit it carries out such conduct and uses opportunities that have upstretched out of the enterprise being a dominant which would not have arrived if the market was sufficiently competitive. In the case of Jupiter Gaming Solutions Pvt. Ltd. v. Government of Goa & Ors, “the CCI while determining alleged abuse of dominance by Government of Goa stated that dominance per se is not bad, but its abuse is bad in Competition Law in India. CCI further opined that abuse is said to occur when an enterprise uses its dominant position in the relevant market in an exclusionary or /and an exploitative manner.”[xvi] The CCI held that the Government of Goa by imposing such conditions abused its dominant position denial/restriction of market access to the other parties in the relevant market.
Predatory pricing as defined under Section 4[xvii] means the sale of goods or services or provision of services, at a price which is below the cost, with a view to reduce competition or eliminate competition. Hence, an Informant has to prove that (a) there is an incidence of underpricing; and (b) there should be evidence that surviving monopolist can raise prices long enough to recoup the costs. This was stated in MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd., DotEx International Ltd. and Omnesys Technologies Pvt. Ltd.[xviii]
It is important to note that the intention of the conduct must be driving competitors out of business and creating an environment which will favour their goods or services of provisions of services.
Remedies
Once the inquiry of abuse of dominance is completed and it is found that the action of an enterprise holding a dominant position in a relevant market amounts to an abuse of dominance the commission may pass any of the orders mentioned in Section 27 of the Act. These orders are enumerated below:
- Direction to discontinue such abuse of dominance;
- Impose penalty as it may deem fit, but shall not be more than 10% of the average of the turnover for the last three preceding financial years;
- Direct the enterprise to make a move which the authority regards fit.
- Give any other request which it might think fit.
- Divide the prevailing endeavour.
- In the instance of allure to the Competition Appellate Tribunal, the Tribunal may arrange for payment to the party bearing misfortune.
Conclusion
The Competition Law has come into force since 2002 to ensure fair competition in the market and the elimination of dishonest conduct. The laws relating to competition are still new in practice and awareness about the same is limited. It is therefore suggested that CCI should also be entrusted with the responsibility of creating awareness about these laws in the market, specifically educating small traders and business hubs.
Competition Law has been effective in piercing through the corporate veil and penalising the real faces behind anti-competitive conducts. However, it is important to note that this Act is not free from ambiguity. While taking into consideration the specific provisions of abuse of dominance discussed above under this Act it is not clear what factors are to be taken into account to ascertain dominant position. The list given in section 19 is not exhaustive and application of different factors may result in different answers. This section can often be used as an advantage to escape the liability under the abuse of a dominant position. Moreover, certainty and transparency in the approach of CCI would enable firms to plan a procompetitive business strategy within the framework of the Competition Act.
[i] Copper weld Corp. v. Independent Tube Corp.
[ii] Monopolies and Restricted Trade Practices Act, 1969
[iii] https://www.indiabudget.gov.in/doc/bspeech/bs19992000.pdf
[iv] Competition Act, 2002
[v] The United States v. Topco Associates Inc.
[vi] Competition Act, 2002 explanation (a) to Section 4
[vii] Section 4 (2) of the Competition Act, 2002
[viii] Case No. 06/2009.
[ix] FTC File No. 111-0160.
[x] Section 2(t) of the Competition Act, 2002
[xi] Section 2(s) of the Competition Act, 2002
[xii] Case No. 20 of 2013
[xiii] Case No. 6 & 74 of 2015
[xiv] Case No. 19 of 2010
[xv] Case No. 20 of 2018
[xvi] Case No. 15 of 2010
[xvii] Explanation (b) of the Competition Act, 2002
[xviii] Case No. 13 of 2009
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