Antitrust and competition issues in India are governed by the Competition Act 2002 (the Competition Act). The Competition Act was enacted by the Indian parliament in December 2002 and received the assent of the president of India in January 2003. The Competition Act prohibits anticompetitive agreements and abuse of dominant position, and regulates combinations. The Competition Act also promotes competition advocacy. The provisions relating to anticompetitive agreements and abuse of dominant position and other related provisions of the Competition Act were enforced with effect from 20 May 2009 (see the notification dated 15 May 2009). The provisions relating to regulation of combinations came into force on 1 June 2011 (see the notification dated 4 March 2011).
The Competition Act prohibits an enterprise or person from entering into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods, or provision of services, that causes, or is likely to cause, an appreciable adverse effect on competition in the relevant market in India, and provides such anticompetitive agreements to be void.
Horizontal agreements entered into between enterprises or associations of enterprises, or persons or associations of persons or enterprises (including cartels), are presumed to have an adverse effect on competition and are considered to be per se illegal if they:
- directly or indirectly determine purchase or sale prices;
- limit or control production, supply, markets or technical development, investment or provision of services;
- directly or indirectly result in bid rigging or collusive bidding; or
- share the market or source of production by way of allocation of geographical area of markets, or the type of goods or services, or the number of customers in the market.
However, joint venture agreements are excluded if they increase efficiency in production, supply, distribution, storage, acquisition or control of goods, or provision of services.
Tie-in agreements, exclusive supply agreements, exclusive distribution agreements, refusal to deal and resale price maintenance agreements causing or likely to cause an appreciable adverse effect on competition in the relevant market in India are considered anticompetitive. These types of ‘vertical agreement’ have been subjected to review by the Competition Commission of India (CCI), which is the regulator under the Competition Act.
However, the right to impose reasonable conditions for protecting intellectual property rights and the rights of any person in relation to production, supply, distribution or control for export of goods are not restricted under the Competition Act.
Abuse of a dominant position
An enterprise is said to be dominant if it is able to operate independently of competitive forces prevailing in the relevant market, or it is able to affect its competitors, consumers or the relevant market in its favour. Abuse of a dominant position by an enterprise or a group has been described in the Competition Act to include:
- directly or indirectly imposing unfair or discriminatory conditions or prices in purchase or sale of goods or services;
- restricting or limiting production of goods and services or the market, or limiting technical or scientific development relating to goods or services to the prejudice of consumers;
- indulging in practices resulting in denial of market access; and
- using dominance in one market to move into or protect other markets.
Certain factors such as market share, the size and resources of the enterprise, the size and importance of competitors and the economic power of the enterprise, would have to be given due regard by the CCI when determining whether an enterprise enjoys a dominant position.
Regulation of combinations
The Competition Act seeks to regulate ‘combinations’, including acquisitions, mergers or amalgamations of enterprises. Acquisitions of shares, voting rights, control or assets of one or more enterprises by one or more persons, or mergers or amalgamations of enterprises, are combinations if they meet the prescribed thresholds. Notifications of combinations are mandatory. The Competition Act prohibits enterprises from entering into combinations that cause or are likely to cause an appreciable adverse effect on competition within the relevant market in India. Various factors have been listed that the CCI has to take into account to determine whether a combination has had, or is likely to have, an appreciable adverse impact on competition in India.
The Competition Act prescribes assets and turnover-based thresholds. Thresholds for parties having assets or turnover in India are different from parties that have assets or turnover within and outside India. The government of India, through a notification dated 4 March 2011, has enhanced (on the basis of the wholesale price index) the value of assets and turnover by 50 per cent, thereby enhancing the threshold for combinations. By way of a separate notification, the government of India has exempted groups exercising less than 50 per cent of voting rights in other enterprises from the applicability of combination-related provisions. Through yet another notification, the government has also exempted acquisition of control, shares, voting rights or assets over a target enterprise having assets of the value of up to 2.5 billion rupees, or turnover of up to 7.5 billion rupees from the purview of provisions relating to combinations, for a period of five years.
It is mandatory to notify the CCI within 30 days of approval of the proposal relating to a merger by the board of directors of the enterprises concerned, or execution of any agreement or other document for acquisition, disclosing the details of the proposed merger or an acquisition, if said merger or acquisition meets the threshold limits. As per the Competition Commission of India (procedure in regard to the transaction of business relating to combination) Regulations 2011 (Combination Regulations), ‘other document’ as used under the Competition Act means any binding document, by whatever name it may be called, conveying an agreement or decision to acquire control, shares, voting rights or assets. In cases of acquisition without the consent of the target, any document executed by the acquirer conveying a decision to acquire control, shares or voting rights will be the ‘other document’. The obligation to notify in case of an acquisition is that of the acquirer and, in case of a merger or an amalgamation, all the persons or enterprises to the proposed merger or amalgamation are required to jointly notify. Where the CCI acts suo motu, the party to whom the notice has been issued is required to notify the combination.
The Combination Regulations provide for a shorter form (Form I) and a longer, detailed form (Form II). The fee prescribed is 1.5 million rupees for Form I and 5 million rupees for Form II. The parties are ordinarily required to notify in Form I. The parties may give notification in Form II if the parties are involved in activities relating to identical, similar or substitutable goods and have a combined market share of 15 per cent or more, or in cases where the parties are engaged at different stages or levels of the production chain in different markets and their combined market share is 25 per cent or more. In a case where the parties have filed the notice in Form I, the CCI may require further information to form a prima facie opinion or may also require the parties to file information in Form II. Public financial institutions, foreign institutional investors, banks or venture capital funds are required to inform of any acquisition pursuant to a covenant of a loan agreement or investment agreement in Form III. No fees are payable to the CCI for such a notification by public financial institutions, foreign institutional investors, banks or venture capital funds.
The Competition Act read with the Combination Regulations provides for a two-phase assessment of combinations. In the first phase, the CCI forms a prima facie view on the appreciable adverse effect of the combination on competition within the relevant market. Where the CCI is of the prima facie view that the combination would not have any appreciable adverse effect on competition, it approves such combination by passing an order. However, in case the CCI is of the prima facie view that the combination may have an appreciable adverse effect on competition, the assessment goes into the second phase and the CCI passes an order only after conducting a thorough assessment. If, after assessment, the CCI is of the view that the appreciable adverse effect on competition can be removed, it may suggest modifications to the combination. The Sun Pharma/Ranbaxy merger, the notice for which was filed on 6 May 2014, was the first combination matter to go into the second phase, and a final order approving the combination subject to certain modifications, including divestiture by Sun Pharma and Ranbaxy, was passed by the CCI on 5 December 2014. The merger between Holcim Limited and Lafarge SA, the notice for which was received by the CCI on 14 July 2014, is the second combination to have gone in the second phase. To effectively eliminate the appreciable adverse effect on competition, the CCI ordered Lafarge to divest its plants in eastern India and then went on to approve the proposed merger (see the order dated 1 April 2015).
The CCI is required to frame a prima facie opinion within 30 days from the date of filing and is required to give a final decision on the combination within 210 days, failing which the combination is deemed to be approved. However, in computing the time period of 210 days, the time taken by the parties to submit any additional documents or information requested, or any extension of time as well as time taken by the parties to seek amendment to the modification proposed by the CCI, shall not be included. As per the Combination Regulations, the CCI is required to form a prima facie opinion as to the existence of appreciable adverse effect on competition within 30 days of receipt of the notice. Thus, the CCI is not required to wait for the entire period of 210 days in a situation where, prima facie, it is of the view that a combination does not have an appreciable adverse effect on competition. The Combination Regulations also require the CCI to endeavour to pass an order or issue directions within 180 days of the date of notice.
If the CCI is of the prima facie view that the combination will have or may have an appreciable adverse effect on competition, it would issue a notice to the parties as to why the investigation should not be conducted. After receiving the response of the parties, the CCI may direct the director-general (DG) to carry out an investigation in the matter and submit a report. On receipt of the report from DG, if the CCI is of the view that the combination has or may have an appreciable adverse effect on competition, it would require the details of the combination to be published inviting written objections from any member of the public likely to be affected by such combination. Thereafter, the CCI proceeds with the assessment of the combination. Upon assessment, if the CCI is of the opinion that an adverse effect of a combination can be eliminated by modification, it may propose modifications to the combinations as it may deem fit, and upon modifications being accepted by the parties, approve the combination.
The CCI has been empowered to give its opinion on references made to it by the central government or state governments on the possible effects of any competition policy (including the review of laws related to competition) formulated by the government. It has the power to promote competition advocacy, create awareness and impart training.
The Competition Commission of India
The Competition Act seeks to ensure fair competition in India through the CCI. The CCI has the authority to inquire on its own motion, on information or on a reference made by the central government, the state government or statutory authorities, or upon receiving a complaint. The CCI also has the power to investigate agreements, combinations or abuse of dominant position outside India that have an appreciable adverse effect on competition in India.
If, after an inquiry, the CCI finds that the provisions of the Competition Act are being contravened, it may: direct the enterprise to stop abusing its dominant position; direct that an agreement or a combination should not be given effect or should be discontinued; impose penalties or direct an amendment to the agreement or combination.
The Competition Act provides for the imposition of hefty penalties in cases of contravention. If, after inquiry, the CCI is of the opinion that any agreement is an anticompetitive agreement or that any enterprise has abused its dominant position, it may, inter alia, impose a penalty of up to 10 per cent of the average turnover for the past three financial years. In the case of cartels, the CCI may impose on each member a penalty of up to three times its profit for each year of the duration of the cartel. The CCI imposed a penalty of about 63 billion rupees on 11 cement manufacturers of the Cement Manufacturer’s Association for indulging in anticompetitive practices and forming a cartel (see the order dated 20 June 2012). In another order dated 23 April 2012, the CCI imposed a combined penalty of 3.17 billion rupees on United Phosphorus Limited, Excel Crop Care Limited and Sandhya Organic Chemicals Private Limited for indulging in collusive bidding in tenders and for collectively refraining from bidding in a tender floated by Food Corporation of India. Recently, the CCI imposed a combined penalty of 2.58 billion rupees on three airline companies for conniving an arrangement for fixation of fuel surcharge for transportation of cargo, and ordered them to cease and desist from the anticompetitive practices (see the order dated 17 November 2015).
The CCI, in its first major penalty on a state-owned company, imposed a fine of 17.73 billion rupees on Coal India Limited for abusing its dominant position in the supply of coal as the company and its subsidiaries had been found to be imposing unfair, discriminatory conditions in fuel supply agreements with the power producers for supply of coal (see the order dated 9 December 2013). The CCI, while imposing the penalty, also directed Coal India and its subsidiaries to modify the fuel supply agreements. In another order dated 17 February 2015, the CCI held Coal India and Western Coalfields responsible for imposing unfair and discriminatory conditions relating to quality, sampling and analysis, stones and oversized coal. However, the CCI refrained from imposing any further penalty, considering that a penalty of 17.73 billion rupees has already been levied on Coal India, but gave an order to cease and desist from indulging in such anticompetitive practices.
In yet another case, the CCI, in its order dated 25 August 2014, imposed a combined penalty of 25.45 billion rupees on 14 car manufacturers for abusing their dominant position by making the genuine spare parts of automobiles manufactured by them not freely available in the open market. The CCI, after considering the material on record and all facts and circumstances of the case, directed the car manufacturers to cease and desist from such practice, to make the spare parts and diagnostic tools easily available through an efficient network and to place no restrictions or impediments on operation of independent repairers and garages. The CCI further issued a continuance order on 27 July 2015 and imposed a penalty of 4.20 billion rupees on three of the 14 car manufacturers for indulging practices that deny market access to independent repairers and for abusing their dominant position in the market for spare parts and diagnostic tools, thereby affecting fair competition.
The CCI may also impose a lesser penalty, inter alia, in case a member of a cartel has made full and true disclosures in respect of the alleged contraventions, and such disclosures are vital. The Competition Commission (Lesser Penalty) Regulations 2009, that were published on 13 August 2009, contain regulations for imposing lesser penalties. Entities that fail to notify a qualifying combination to the CCI could face penalties that may extend to 1 per cent of the total turnover or the assets of the combination, whichever is higher. The Competition Act also empowers the CCI to impose fines that may reach up to 100,000 rupees for each day of non-compliance with the directions or orders issued by the CCI, subject to a maximum of 100 million rupees. Further, if the orders or directions of the CCI are not complied with or there is a failure to pay the fine imposed, the CCI can order imprisonment for a term of up to three years, or a fine of up to 250 million rupees.
The Competition Act also provides for the establishment of a three-member quasi-judicial body, the Competition Appellate Tribunal (COMPAT), to hear and dispose of appeals against any directions or orders passed by the CCI. COMPAT was established with effect from 15 May 2009, with its headquarters based in Delhi. COMPAT, by its order dated 26 August 2015, gave its first decision involving substantive aspects of merger control and set aside a penalty of 10 million rupees on Thomas Cook (India) Ltd & Others. The CCI had earlier imposed the penalty on the grounds that the scheme of combination and market purchases of the equity shares of Sterling Holiday Resorts (India) Ltd by Thomas Cook Insurance Services (India) Ltd were interconnected and interdependent, making it obligatory for the parties to file separate applications with respect to market purchases, which they failed to do. However, COMPAT noted that transactions in a series, or transactions that are interrelated and interdependent, shall be considered as a composite whole, if the ultimate objective can be achieved on successful completion of all such transactions in a series of transactions that are interrelated or interdependent. The market purchases are separate from the proposed combination insofar as the notified transaction would still have taken place irrespective of the market purchase, and thus held that the penalty imposed by the CCI is legally unsustainable and liable to be set aside.
In another appeal made before COMPAT by the Board for Control of Cricket in India (BCCI), COMPAT, while setting aside the order of the CCI, held that the CCI’s order was legally unsustainable because information downloaded from the internet and similar sources does not have any evidentiary value and, in any case, the same could not have been relied upon without giving an effective opportunity to the BCCI to controvert the same (see the order dated 23 February 2015). Earlier, the CCI had imposed a penalty of 520 million rupees on BCCI for abusing its dominant position by denying market access to potential competitors (see the order dated 8 February 2013). In yet another appeal against the order of the CCI dated 23 April 2012, COMPAT recognised the concept of ‘relevant turnover’ for the calculation of penalties in cartel cases (see the order dated 29 October 2013). COMPAT, in its order, accepted the contention that in the case of multi-product companies, the penalty for cartelisation should be calculated on the basis of the ‘relevant turnover’ instead of overall turnover of the entire company or group. The total penalty on the parties was reduced to 100.4 million rupees, from the 3.17 billion rupees imposed by the CCI.
The appeals from COMPAT lie with the Supreme Court of India to hear and dispose of appeals against any direction or order of COMPAT. In a landmark judgment, the Supreme Court of India has held that taking a prima facie view by the CCI, and the subsequent issuance of directions to the DG for investigation, would not be an order appealable to COMPAT. The Supreme Court observed that the orders, which have not been specifically made appealable under the Competition Act, cannot be treated as appealable by implication. Hence, taking a prima facie view by the CCI, and thereafter issuing directions to the DG for investigation, would not be an order appealable and COMPAT will not have the jurisdiction to entertain such an appeal. The Supreme Court also observed that the opinion on existence of prima facie cases has to be formed by the CCI within 60 days and the report of the DG should be submitted within 45 days. These observations were made by the Supreme Court pursuant to the CCI challenging the order of COMPAT, whereby COMPAT had directed the DG to stay the investigation into allegations levelled by Jindal Steel & Power Ltd over an agreement between the Steel Authority of India Limited (SAIL) and Indian Railways for exclusive supply of rails. Earlier, a complaint was filed before the CCI that the agreement between SAIL and Indian Railways was anticompetitive because it had, or would have had, an appreciable adverse effect on competition in India, since it would impact the rights of other steel manufacturers and suppliers. The CCI, after forming a prima facie view, directed the DG to investigate the agreement. The DG directed SAIL to provide information within a week; this was challenged by SAIL before COMPAT.