The Competition Act

We will discuss the following

sections
3. Anti-competitive agreements (Prohibition of agreements)
4. Abuse of dominant position (Prohibition of abuse of dominant position)
5. Combination
6. Regulation of combinations
18. Duties of Commission
19. Inquiry into certain agreements and dominant position of enterprise
20. Inquiry into combination by commission
26. Procedure for inquiry under section
27. Orders by Commission after inquiry onto agreements or abuse of
dominant position
Recap – Horizontal agreements
AAEC
• Agreements, including cartels, between enterprises engaged in
identical trade of goods or provision of services, which—
• 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 provision of services by
way of allocation of geographical area of market, or type of goods or
services, or number of customers in the market or any other similar
way;
• Directly or indirectly results in bid rigging or collusive bidding, shall be
presumed to have an appreciable adverse effect on competition.
Vertical arrangements
 "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods;
 "exclusive supply agreement" includes any agreement restricting in any manner the
purchaser in the course of his trade from acquiring or otherwise dealing in any goods
other than those of the seller or any other person;
 "exclusive distribution agreement" includes any agreement to limit, restrict or withhold
the output or supply of any goods or allocate any area or market for the disposal or sale
of the goods;
 "refusal to deal" includes any agreement which restricts, or is likely to restrict, by any
method the persons or classes of persons to whom goods are sold or from whom goods
are bought;
 "resale price maintenance" includes any agreement to sell goods on condition that the
prices to be charged on the resale by the purchaser shall be the prices stipulated by the
seller unless it is clearly stated that prices lower than those prices may be charged.
Horizontal and Vertical Agreements
• Horizontal and vertical agreements are treated differently
• Horizontal agreements are presumed to have adverse effect on competition which is
similar to per se rule; they are per se illegal.
• Burden of proof on the defendant to prove that the agreement in question is not
causing an appreciable adverse effect on competition.
• Such presumptive rule is not applicable to vertical agreements which are subject to the
rule of reason analysis
• The positive as well as the negative impact of such agreements on competition will
have to be taken into account before coming to any conclusion.
• This also applies to agreements entered into by way of joint ventures that increase
efficiency in production, supply, distribution, storage etc.
• Section 3(5) recognizes and protects intellectual property rights, permitting imposition
of reasonable restrictions by their owners.
• Also agreements relating to exports to the extent to which they relate exclusively to the
production, supply, distribution or control of goods or services are exempted.
M/S Voltas Limited, Bombay vs. Union Of India SC
1995
• Case under MRTP Act
• Involving restrictive trade practices
• The decision whether trade practice is restrictive or not has to be
arrived at by applying the rule of reason and not on the doctrine that
any restriction as to area or price will per se be a restrictive trade
practice.
• Test to be applied – whether any practice which has been held to be
restrictive trade practice does not directly or indirectly restrict or
discourage competition to any material degree in any relevant trade
or industry
What constitutes AAEC – S.19 (3)
• Regarding agreements mentioned under S.3, CCI to conduct an
enquiry and adjudicate on whether the agreement has AAEC based on
the following facts
• Whether there is creation of any barrier to new entrants into market
• Whether the agreement drives out existing competitors in the markets
• Whether there is any foreclosure of competition by hindering the entry
into market
• Whether there is any accrual of benefits to the consumers
• Whether the agreement can produce any improvement in production,
distribution or supply of goods
• Whether the agreement promotes technical scientific or economic
development
Orders by Commission after inquiry
onto agreements (S. 27)
• If the commission finds that the agreement under S.3 is anti
competitive, it can pass following orders
• Direct any enterprise or person to engage in such agreement to
discontinue such agreement
• Impose penalty not more than 10% of the average turnover of last
3 financial years
• Modified the agreement to such extent and manner specified by
CCI
• Order for payment of cost
• Any other orders as the CCI thinks fit
Cartel - S. 2 (c)
• Cartel includes an association of producers, sellers, distributors, traders or service
providers who, by agreement amongst themselves, limit, control or attempt to control
the production, distribution, sale or price of, or, trade in goods or provision of services;’
• Cartels are agreements between enterprises (including a person, a government department and
association of persons / enterprises) not to compete on price, product (including goods and
services) or customers.
• To raise price above competitive levels, injury to consumers and economy.
• For the consumers, cartelisation results in higher prices, poor quality and less or no choice for
goods or/and services.
• An important dimension in the definition of a cartel is that it requires an agreement between
competing enterprises not to compete or to restrict competition.
• implicit and explicit collusion
• Cartels attempt to increase members' profits while maintaining the illusion of
competition.
• There are 4 forms of cartel activity:
• price fixing, sharing markets, bid rigging and controlling output.
• Cartels - Presumed Injurious
Cartel - S. 2 (c)
• Domestic cartels only have members from one country
• International cartel - not all of the enterprises in a cartel based in the same
country or when the cartel affects markets of more than one country.
• Import cartel - comprises enterprises that get together for the purpose of
imports into the country.
• Export cartel - made up of enterprises based in one country with an agreement
to cartelize markets in other countries. Cartels meant exclusively for exports
from India have been excluded from the provisions relating to anti-competitive
agreements.
• Section 3, sub section (5), clause (ii) of the Act states:
• Nothing contained in this section shall restrict the right of any person to export goods
from India to the extent to which the agreement relates exclusively to the production,
supply, distribution or control of goods or provision of services for such export.
• Extra Territorial Reach: Anti-Competitive activities, including cartels, which are taking
place outside India but have an effect on competition in India would fall within the
ambit of the Act and can be enquired into by the commission.
Common Characteristics of Cartels
• Usually function in secrecy.
• Members of a cartel, by and large, seek to camouflage their activities
to avoid detection by the Commission.
• Perpetuation of cartels is ensured through retaliation threats.
• If any member cheats, the cartel members retaliate through
temporary price cuts to take business away or can isolate the cheating
member.
• Another method, known as compensation scheme, is resorted to in
order to discourage cheating. Under this scheme, if a member of a
cartel is found to have sold more than its allocated share, it would
have to compensate the other members.
Conditions Conducive to Formation
of Cartels
• If there is effective competition in the market, cartels would find it
difficult to be formed and sustained. Some of the conditions that are
conducive to cartelization are:
• high concentration - few competitors
• high entry and exit barriers
• homogeneity of the products (similar products)
• similar production costs
• excess capacity
• high dependence of the consumers on the product
• history of collusion
• active trade association
Powers of the Commission
• Commission has the power to pass inter alia any or all of the following
orders (section 27):
• direct the parties to a cartel agreement to discontinue and not to re-
enter such agreement;
• direct the enterprises concerned to modify the agreement.
• direct the enterprises concerned to abide by such other orders as the
Commission may pass and comply with the directions, including
payment of costs, if any; and
• pass such other order or issue such directions as it may deem fit.
Leniency Scheme
• Section 46 empowers the Commission to grant leniency by levying a
lesser penalty on a member of the cartel who provides full, true and
vital information regarding the cartel.
• Scheme designed to induce members to help in detection and
investigation of cartels.
• This scheme is grounded on the premise that successful prosecution
of cartels requires evidence supplied by a member of the cartel.
• Commission notified the CCI (Lesser Penalty) Regulations, 2009 laying
the process, procedure and methodology for granting leniency to the
cartel members who break the ranks of the cartel and become helpful
to the Commission and instrumental in busting the alleged cartel.
Ola Uber – did they form a cartel?
• Challenge - (2020) alleging that they entered into price-fixing
agreements in contravention of section 3(1), 3(3)(a) and engaged in
resale price maintenance.
• No one shall enter into any 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 AAEC within India
• The CCI and the National Company Law Tribunal dismissed the case.
• SC agreed with the findings of fact of the CCI and the NCLAT, wherein
it has been found that Ola and Uber do not facilitate cartelization or
anti-competitive practices between drivers, who are independent
individuals, who act independently of each other, so as to attract the
application of section 3 of the Act
jio airtel cartel case

• Jio approached CCI alleging that Airtel and Idea and Vodafone were
acting in concert to create hurdles for its entry into the sector by
denying its requests for requisite number of poi
• CCI found a prima facie case and asked its DG to investigate.
• Bombay HC granted them relief – in the first instance, it’s TRAI which
has to decide - relevant market being the telecom market,
• SC recognised the distinct duties, powers and functions assigned to
TRAI and CCI with respect to maintaining healthy competition and
ensuring consumer interest in the market
Bid Rigging
• Any agreement, between enterprises or persons referred to in S. 3(3) engaged in
identical or similar production or trading of goods or provision of services, which
has the effect of eliminating or reducing competition for bids or adversely
affecting or manipulating the process for bidding.”
• Bid rigging takes place when bidders collude and keep the bid amount at a pre-
determined level. Pre-determination is by way of intentional manipulation by
the members of the bidding group. Bidders could be actual or potential ones,
but they collude and act in concert.
• Bid Rigging is Anti-Competitive
• Bidding is intended to enable procurement of goods or services on the most favourable
terms and conditions.
• Invitation of bids is resorted to both by Government and private bodies
• Objective of securing most favourable prices and conditions may be negated if the
prospective bidders collude or act in concert. Such collusive bidding or bid rigging
contravenes the very purpose of inviting tenders and is inherently anti-competitive.
 Forms of Bid Rigging
• Bid Suppression
• Competitors agree to refrain from bidding or withdraw a previously submitted bid so that the designated winning
competitor’s bid will be accepted.
• Complementary Bidding (also known as ‘cover’ or ‘courtesy’ bidding)
• Competitors agree to submit bids that are either too high to be accepted or contain special terms that will not be
acceptable to the buyer. Such bids are not intended to secure the buyer’s acceptance, but are merely designed to
give the appearance of genuine competitive bidding. Frequently occurring forms, defraud purchasers by creating the
appearance of competition to conceal secretly inflated prices.
• Bid Rotation
• All conspirators submit bids but take turns to be the lowest bidder. Terms of the rotation may vary; for example,
competitors may take turns on contracts according to the size of the contract, allocating equal amounts to each
conspirator or allocating volumes that correspond to the size of each conspirator. A strict bid rotation pattern defies
the law of chance and suggests that collusion is taking place.
• Subcontracting
• Competitors, who agree not to bid or to submit a losing bid, frequently receive subcontracts or supply contracts in
exchange from the successful bidder. In some schemes, a low bidder will agree to withdraw its bid in favour of the
next low bidder in exchange for a lucrative subcontract that divides the illegally obtained higher price between
them.
• Almost all forms of bid rigging schemes have an agreement among some or all of the bidders, which
predetermines the winning bidder and limits or eliminates competition among the conspiring vendors.
Commonly adopted ways of bid
rigging
• Agreements to submit identical bids
• Agreements as to who shall submit the lowest bid,
• Agreements for the submission of cover bids (voluntarily inflated bids)
• Agreements not to bid against each other,
• Agreements on common norms to calculate prices or terms of bids
• Agreements to squeeze out outside bidders
• Agreements designating bid winners in advance on a rotational basis, or on a geographical or
customer allocation basis
• Agreement as to the bids which any of the parties may offer at an auction for the sale of goods or
any agreement through which any party agrees to abstain from bidding for any auction for the sale
of goods, which eliminates or distorts competition
Inherent in some of these agreements, is a compensation system to the unsuccessful bidders by
dividing a certain percentage of profits of successful bidders.
Bid rigging or collusive bidding is treated with severity in the law. The presumptive approach reflects
the severe treatment.
Warning Signals of Bid Rigging - in
Bids
• The same supplier is often the lowest bidder.
• There is a geographic allocation of winning tenders. Some firms submit tenders that win in
only certain geographic areas.
• Regular suppliers fail to bid on a tender they would normally be expected to bid for, but
have continued to bid for other tenders.
• Some suppliers unexpectedly withdraw from bidding.
• Certain companies always submit bids but never win.
• Each company seems to take a turn being the winning bidder.
• Two or more businesses submit a joint bid even though at least one of them could have
bid on its own.
• The winning bidder repeatedly sub-contracts work to unsuccessful bidders.
• The winning bidder does not accept the contract and is later found to be a subcontractor.
• Competitors regularly socialize or hold meetings shortly before the tender deadline
Warning Signals of Bid Rigging - in
Documents
• Carefully compare all documents for evidence that suggests that bids were prepared by the
same person or were prepared jointly.
• Identical mistakes/corrections in the bid documents or letters submitted by different companies,
such as spelling errors.
• Bids from different companies contain similar handwriting or typeface or use identical forms or
stationery.
• Bid documents from one company make express reference to competitors bids or use another
bidder’s letterhead or fax number.
• Bids from different companies contain identical miscalculations.
• Bids from different companies contain a significant number of identical estimates of the cost of
certain items.
• The packaging from different companies has similar postmarks or post metering machine marks.
• Bid documents from different companies indicate numerous last minute adjustments, such as
the use of erasures or other physical alterations.
• Bid documents submitted by different companies contain less detail that would be necessary or
expected, or give other indications of not being genuine.
Warning Signals of Bid Rigging - in
Bid Pricing
Bid prices can be used to help uncover collusion. When other bids are much higher
than the winner’s bid, bidders may be using a cover bidding scheme. Bid prices that
are higher than the engineering cost estimates or higher than prior bids for similar
tenders may also indicate collusion. Following may be considered suspicious:
• Sudden and identical increases in price or price ranges by bidders.
• Anticipated discounts or rebates disappear unexpectedly.
• Identical pricing can raise concerns.
• A large difference between the price of a winning bid and other bids.
• A certain supplier’s bid is much higher for a particular contract than that supplier’s
bid for another similar contract.
• There are significant reductions from past price levels after a bid from a new or
infrequent supplier e.g. the new supplier may have disrupted an existing bidding
cartel.
Warning Signals of Bid Rigging - in Bid Pricing
• Local suppliers are bidding higher prices for local delivery than for delivery to
destinations farther away.
• Similar transportation costs are specified by local and non-local companies.
• Only one bidder contacts wholesalers for pricing information prior to a bid
submission.
• Unexpected features of public bids in an auction, electronic or otherwise such
as offers including unusual numbers where one would expect a rounded
number of hundreds or thousands may indicate that bidders are using the bids
themselves as a vehicle to collude by communicating information or signalling
preferences.
• In the Statements of Bidders - When working with vendors watch carefully for
suspicious statements that suggest that companies may have reached an
agreement or coordinated their prices or selling practices.
Warning Signals of Bid Rigging - Bidders
Behaviour
Look for references to meetings or events at which suppliers may have an opportunity to
discuss prices, or behaviour that suggests a company is taking certain actions that only
benefit other firms. These could include:
• Suppliers meet privately before submitting bids, sometimes in the vicinity of the location
where bids are to be submitted.
• Suppliers regularly socialize together or appear to hold regular meetings.
• A company requests a bid package for itself and a competitor.
• A company submits both its own and a competitor’s bid and bidding documents.
• A bid is submitted by a company that is incapable of successfully completing the contract.
• A company brings multiple bids to a bid opening and chooses which bid to submit after
determining (or trying to determine) who else is bidding.
• Several bidders make similar enquiries to the procurement agency or submit similar
requests or materials.
Powers of the Commission
• After the inquiry, the Commission may pass inter- alia any or all of the
following orders under section 27 of the Act:
• direct the parties to discontinue and not to re-enter such agreement;
• direct the enterprise concerned to modify the agreement.
• direct the enterprises concerned to abide by such other orders as the
Commission may pass and comply with the directions, including
payment of costs, if any; and
• pass such other orders or issue such directions as it may deem fit.
• The Commission may impose such penalty as it deems fit. Penalty can
be up to 10% of the average turnover for the last three preceding
financial years upon each of such persons or enterprises which are
parties to bid-rigging or collusive bidding.
bid-rigging by manufacturers of Aluminium Phosphide
Tablet
• Three companies participating in the tender process floated by FCI
quoted an identical bid price.
• This was in spite of a marked difference in each company’s cost of
production.
• Entries in the visitors’ register at the offices of FCI showed that all
three participants entered the premises at the same time, with one
signing in for the group.
• CCI inferred the bidders had the opportunity to discuss the prices, and
when combined with the other factors listed above, was sufficient to
prove the existence of an agreement to maintain prices at a certain
level.
Supply and installation of medical equipment to Sports Injury Centre,
Safdarjung Hospital
• CCI identified a cartel on the basis of evidence from the bid documents themselves.
• Three firms participated in the tender process and the contract was awarded to
MDD Medical Systems Pvt. Ltd. as the lowest bidder. Initial estimated cost was INR
100 million but MDD was awarded the work for INR 160 million.
• CCI discovered many common typographical errors in the separate bids submitted
by the three companies (PSE, MDD and MPS), who tried to explain the identical
errors by claiming they all visited the same cyber café.
• CCI did not accept this explanation and analysed the bidding patterns of these three
companies and found that PSE won a contract for similar work at JPNA Hospital
with MDD and MPS submitting complementary, i.e. higher bids.
• This indicated a typical case of rotating bids when all firms, except one, quote
artificially inflated prices, and this process is repeated with different bidders
winning each time.
Bid Rigging by Insurance Companies, Case. No. 02 of 2014
• CCI imposed a Rs. 671 crore penalty on four state-run insurance companies— National
Insurance, New India Assurance, Oriental Insurance and United India Insurance for
cartelisation and indulging in anti-competitive practices. It was observed that the four
companies colluded with each other and manipulated the tendering process initiated
by the Kerala government by forming a cartel and quoting higher premium rates.

Bid Rigging in LPG Cylinder, Case No. 03 of 2011

• The Commission initiated suo moto proceedings against LPG cylinder manufactures
who were found to be involved in bid rigging in supplying LPG cylinders to M/s Indian
Oil Corporation Ltd. pursuant to a tender floated by it. It was noted by the Commission
that the identical price quotations submitted by the opposite parties therein pursuant
to the impugned tender were actuated by mutual understanding/ arrangements. The
Commission apart from issuing a cease and desist order imposed a penalty upon each
of the contravening party @ 7% of the average turnover of the company. In COMPAT's
2013 judgment, the CCI's order was upheld on its merits and CCI was directed to
reconsider the penalties it had imposed on the manufacturers
Dominance
• A position of strength which enables an enterprise to operate
independently of competitive forces or to affect its competitors or
consumers or the relevant market in its favour.
• It is the ability of the enterprise to behave/act independently of the
market forces that determines its dominant position.
• In a perfectly competitive market no enterprise has control over the
market, especially in the determination of price of the product.
• Perfect market conditions are more of an economic “ideal” than
reality.
• Act specifies a number of factors that should be taken into account
while determining whether an enterprise is dominant or not.
 Abuse of dominant position S.4

1. No enterprise or group shall abuse its dominant position.

2. There shall be an abuse of dominant position, if an enterprise or a group
a. directly or indirectly, imposes unfair or discriminatory—
i. condition in purchase or sale of goods or service; or
ii. price in purchase or sale (including predatory price) of goods or service.
(not to include such discriminatory condition or price which may be adopted to meet competition) ; or
b. limits or restricts—
i. production of goods or provision of services or market therefor; or
ii. technical or scientific development relating to goods or services to the prejudice of consumers;
c. indulges in practice or practices resulting in denial of market access [in any manner]; or
d. makes conclusion of contracts subject to acceptance by other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection
with the subject of such contracts; or
e. uses its dominant position in one relevant market to enter into, or protect, other
relevant market.
Dominant position
dominant position means a position of strength, enjoyed by an
enterprise, in the relevant market, in India, which enables it to—
i. operate independently of competitive forces prevailing in the
relevant market; or
ii. affect its competitors or consumers or the relevant market in its
favour.

predatory price means the sale of goods or provision of services, at a

price which is below the cost, as may be determined by regulations, of
production of the goods or provision of services, with a view to reduce
competition or eliminate the competitors.
Predatory price
• Lowering prices so low which ultimately results in creating a monopoly
in the market and washing out other potential competitors present in
the market.
• The ‘predator firm’ creates such a situation in the market by offering
discounts/free scheme which lures the majority of consumers resulting
in the killing of its predators and also restricting any new entrants in the
market.
• Main objective is to establish a dominant hold in the market. To reduce
competition or to eliminate competitors
• Predator himself suffers losses while lowering the price, but the entity
acquires a dominant position as the act impedes newer entrants from
entering the market and kills the existent, thus in a way creating a
monopoly.
Predatory pricing - Airtel against Jio

• For Reliance Jio to be held guilty of predatory pricing, it must be in a

dominant position as per S 4.

• Since Jio was a new entrant in the Telecom market it can not be said
that Reliance Jio was in a Dominant Position and can not be held
guilty of predatory pricing
S 4 (2) - practices qualifying as abuses:
• directly or indirectly imposing unfair or discriminatory condition in
purchase or sale of goods or service;
• directly or indirectly imposing unfair or discriminatory price in purchase or
sale (including predatory price) of goods or service;
• limiting or restricting production of goods or provision of services or
market;
• limiting or restricting technical or scientific development relating to goods
or services to the prejudice of consumers;
• denying market access in any manner;
• making conclusion of contracts subject to acceptance by other parties of
supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts;
Dominance – factors to be taken in account 19 (4)
Dominance traditionally defined in terms of market share of the enterprise or group of
enterprises concerned. Many other factors also play a role. These include:
• Market share,
• The size and resources of the enterprise;
• Size and importance of competitors;
• Economic power of the enterprise;
• Vertical integration;
• Dependence of consumers on the enterprise;
• Extent of entry and exit barriers in the market; countervailing buying power;
• Market structure and size of the market;
• Source of dominant position viz. Whether obtained due to statute etc.;
• Social costs and obligations and contribution of enterprise enjoying dominant position to
economic development.
Commission is authorized to take into account any other factor which it may consider relevant for
the determination of dominance.
Abuse of dominance
• Abuse of dominance occurs when a dominant business (or group of
businesses) engages in activity that stops or substantially reduces
competition in a market.
• Abuse is stated to occur when an enterprise or a group of enterprises
uses its dominant position in the relevant market in an exclusionary
or/and an exploitative manner.
• Dominance is not considered bad per se but its abuse is.
• The Act gives an exhaustive list of practices that constitute abuse of
dominant position and, therefore, are prohibited. Such practices
constitute abuse only when adopted by an enterprise enjoying
dominant position in the relevant market in India.
Exploitative and Exclusionary
Behaviour
• Abuses as specified in the Act fall into two broad categories -exploitative (excessive
or discriminatory pricing) and exclusionary (for example, denial of market access).
• “Predatory price” means “the sale of goods or provision of services, at a price which
is below the cost, as may be determined by regulations, of production of goods or
provision of services, with a view to reduce competition or eliminate the
competitors”
• Predation is exclusionary behaviour and can be indulged in only by enterprises(s)
having dominant position in the concerned relevant market.
• The major elements involved in the determination of predatory behaviour are:
• Establishment of dominant position of the enterprise in the relevant market
• Pricing below cost for the relevant product in the relevant market by the
dominant enterprise
• Intention to reduce competition or eliminate competitors This is traditionally
known as the predatory intent test
Abuse of Dominance - Impact
• Abuse of dominant position impedes fair competition between firms,
exploits consumers and makes it difficult for the other players to
compete with the dominant undertaking on merit. Abuse of dominant
position includes:
• imposing unfair conditions or price, predatory pricing,
• limiting production/market or technical development ,
• creating barriers to entry,
• applying dissimilar conditions to similar transactions,
• denying market access, and
• using dominant position in one market to gain advantages in another
market.
Relevant Market
• Dominance significant only when the relevant market has been defined.
• Relevant market to be determined by the Commission with reference to the
relevant product market or the relevant geographic market or wrt both.
• Act lays down several factors of which any one or all shall be taken into account
by the Commission while defining the relevant market.
• Relevant product market is defined in terms of substitutability.
• Smallest set of products (both goods and services) which are substitutable among
themselves, given a small but significant non-transitory increase in price (SSNIP).
• Market for cars may consist of separate ‘relevant product markets’ for small cars, mid size
cars, luxury cars etc. as these are not substitutable for each other on a small change in
price.
• Relevant geographic market is defined in terms of “the area in which the
conditions of competition for 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”.
Relevant product market – S.19(7)
Due regard to be given to all or any of the following factors:

• Physical characteristics or end-use of goods;

• Price of goods or service
• Consumer preferences;
• Exclusion of in-house production;
• Existence of specialised producers;
• Classification of industrial products.
Relevant geographical market –
S.19(6)
Due regard to be given to all or any of the following factors:
• Regulatory trade barriers;
• Local specification requirements;
• National procurement policies;
• Adequate distribution facilities;
• Transport costs;
• Language;
• Consumer preferences;
• Need for secure or regular supplies or rapid after-sales services
M/s Fast Track Call Cab Private Limited vs. M/s ANI
Technologies Pvt. Ltd. Case No.6 & 74 of 2015
• It was alleged that Ola has been abusing dominance through predatory pricing
• received large scale funding from various foreign investors; with such huge funding, Ola
unleashed a series of abusive practices by virtue of its dominant position in the
Bengaluru market of Radio Taxi Services through predatory pricing (offering discounts to
customers and incentives to drivers) to establish its monopoly
• Relevant market - It was argued that the radio taxi services and non - radio taxi
services do not form separate 'relevant product market' but are merely
different channels of transportation, which are substitutable.
• Another issue was whether Ola was dominant
• The Court observed that for a market player to have a dominant position in the market,
it should hold its market share for a reasonable amount of time. In the instant case, the
market share of Respondent waned due to entry of new market players like Uber, Taxi
for Sure and thus, it cannot be said that the Respondent enjoyed dominant position in
the market.
• The Court has expressly denied labeling an entity as “Dominant Entity” just because the
same possesses a novel concept or superior technological solution.
• Breadth of relevant market definition - important factor in establishing dominance.
• Belaire Owner's Association and DLFLimited: 2010. DLF abused its dominant position
in the market of 'high-end' residential accommodation, in Gurgaon by imposing unfair
and one-sided conditions in agreement. These included
• unilateral changes can be made by the builder without the buyers' consent,
• builder has the right to change the layout plan without buyer consent,
• can unilaterally change inter se areas for different uses like residential, commercial, etc, without
informing anyone etc.
• CCI defined relevant market extremely narrowly to be the market for ‘high-end
residential apartments in the city of Gurgaon’. By restricting the product scope and the
geography of the relevant market to a particular suburb, the CCI decided that DLF was
dominant in the relevant market. SC upheld the decision.
• In contrast, in Coca-Cola cases (dealing with alleged abuse of dominance in relation to
sale of its aerated drinks and bottled water at high prices by Coca-Cola in multiplex
theatres), CCI held that Coca-Cola was not dominant, by defining the market to be all
multiplex theatres in India, as opposed to any single multiplex theatre, which would
no doubt have led to the obvious conclusion that Coca-Cola was dominant.
• A complaint by an individual had alleged that Parsvnath Developers
ltd imposed unfair terms in 'Builder Buyer Agreement’ in one of their
residential projects.
• CCI said that "no prima facie case of contravention of section 4 of the
Act is made out against the opposite parties in the instant matter".
• The Commission observed that there were many other large real
estate developers operating in Gurgaon.
• "The presence of these renowned builders in the relevant market
indicates that the informant was not dependent on opposite party
(Parsvanath Hessa) for booking a residential unit in Gurgaon," CCI
said. "Therefore...opposite party does not appear to be in a dominant
position in the relevant market," it added.
BCCI
• CCI reviewed (2013) the conduct of BCCI in organising IPL, specifically in relation to the
manner in which media rights, franchise rights and other rights were awarded by the
BCCI at the time of establishing the IPL.
• CCI (in the majority order) held that the BCCI has allegedly denied access to the market
for organisation of private professional cricket in India by undertaking to third parties
(by virtue of a clause in the media rights agreement for IPL) to not organise, sanction
or support any other professional domestic Indian Twenty-20 league, and it imposed a
penalty for abuse of dominance by the BCCI.
• However, the CCI order did not throw light on whether the grant of various rights by
the BCCI resulted in abuse of dominant position.
• One member wrote a separate dissent order wherein the BCCI was found not guilty of
abuse of a dominant position.
• Competition Appellate Tribunal (2015) set aside the CCI order against cricket governing
body BCCI for alleged abuse of dominance, saying the regulator relied on “legally
unsustainable” information downloaded from internet for nailing the Board.
More on BCCI
• BCCI was fined Rs.522.4 million (2018) for misusing its dominant position and
anti-competitive practices in awarding broadcast rights for the Indian Premier
League.
• CCI accused BCCI in its order of anti-competitive conduct in assuring
broadcasters that it would not sanction any other domestic T20 league.
• The BCCI’s guarantee to not “organise, sanction, recognise, or support another
professional domestic Indian T20 competition that is competitive to IPL, for a
sustained period of 10 years” was against competition guidelines – as per CCI
• Such restriction had no nexus to the legitimate interest of cricket in the country
• The restriction was pursued to enhance the commercial interest of the bidders
of IPL broadcasting rights and the consideration in turn received by BCCI.”
• Dhanraj Pillai v Hockey India (Hockey India case) on substantially similar facts, CCI
absolved Hockey India of abuse of dominance. CCI examined Hockey India’s
conduct with respect to,
• precluding other competing private professional hockey leagues from entering the market,
on account of its rules relating to the sanctioning of events;
• secondly, restricting hockey players from participating in unsanctioned hockey events, which
included disqualification from the national team for such participation.
• CCI determined Hockey India was dominant in the relevant market for ‘the
organisation of private professional hockey leagues in India’, but used an effects-
based approach to absolve Hockey India of having abused its dominance, as there
was no substantive evidence to demonstrate that Hockey India was, in fact,
restricting both hockey players and rival hockey leagues (especially given that the
rival hockey league in question had never approached it for sanction).
• CCI also went so far as to state that the restrictive conditions imposed on hockey
players were ‘intrinsic and proportionate’ to Hockey India’s objectives and
therefore did not amount to an abuse of dominance.
• The BCCI case, though decided prior to the Hockey India case by a few months
lacked such analysis and balancing of rights.
Google – abuse of dominance
• About 95% of all smartphones in India run on Android, a publicly accessible open-
source OS. Developers can modify and share the design but to make it accessible
to people, tie up with phone manufacturers is required
• This isn’t possible since Google puts in place restrictions that prevent
manufacturers from experimenting too much. For instance, if a manufacturer
intended to use Google’s proprietary apps (such as Google Maps), then they were
forced to use Google’s version of Android.
• In summary, phone manufacturers have to feature Google’s suite of applications,
prominently in some cases. Google has in place agreements that prevent phone
manufacturers from carrying these alternatives. And they also have exclusive
revenue-sharing agreements with phone manufacturers specifically catered to
Google’s search services. This prevents other search services from making a dent.
• This, the CCI believes inhibits competition and affects user experience. So they
slapped a heavy fine and asked Google to do away with these restrictive
agreements.
Google – abuse of dominance
• The second order focused on Google's app store.
• An app store is a medium of distribution.
• If a developer want to create any app, he would like to list the program on
an app store to make it accessible to users.
• And Google’s app store (Play Store) is the most dominant alternative in the
market.
• Developers can’t do away with this restriction. It’s a “take it or leave it”
offer. Either list on Play Store, pay the 30% commission and do business, or
stay out.
• However, Google doesn’t impose this restriction on everyone. YouTube,
Google’s own app, has been given the liberty to use third party billing
systems and bypass the 30% commission rate altogether.
Combination
• S.5 talks about ‘combinations’ and S.6 is about ‘regulation of combinations’
• Combination means acquisition of control, shares, voting rights or assets,
acquisition of control by a person over an enterprise where such person has
direct or indirect control over another enterprise engaged in competing
businesses, and mergers and amalgamations between or amongst enterprises
when the combining parties exceed the thresholds set in the Act.
• The acquisition of one or more enterprises by one or more persons or merger
or amalgamation of enterprises shall be a combination of such enterprises
and persons or enterprises, if it exceeds the thresholds as specified in terms
of assets or turnover in India and abroad.
• Entering into a combination which causes or is likely to cause an appreciable
adverse effect on competition within the relevant market in India is
prohibited and such combination shall be void.
Current Threshold
• Combined assets of the enterprises more than Rs.1,500 crores in India or the
combined turnover of the enterprise is more than Rs. 4,500 crores in India.
• If assets/turnover outside India also, combined assets more than USD 750 millions,
including at least Rs. 750 crores in India, or turnover more than USD 2250 millions,
including at least Rs. 2,250 crores in India.
• Group: The group to which the enterprise whose control, shares, assets or voting
rights are being acquired would belong after the acquisition or the group to which the
enterprise remaining the merger or amalgamation would belong has either assets of
value of more than Rs. 6000 crores in India or turnover more than Rs. 18000 crores in
India. Where the group has presence in India as well as outside India then the group
has assets more than US$ 3 billion including at least INR 750 crores in India or
turnover more than US$ 9 billion including at least INR 2250 crores in India.
• The term Group has been explained in the Act. Two enterprises belong to a “Group” if
one is in position to exercise at least 26 per cent voting rights or appoint at least 50
per cent of the directors or controls the management or affairs in the other Vide
notification
Amalgamation and Merger
• In a merger culture and identity of the target company is lost and swallowed up in the surviving
company. Amalgamation blends multiple companies together into a single entity that takes part
of each company's identity to create something new.
• Merger is fusion of two or more companies wherein the identity of one or more companies is
lost. Amalgamation signifies the blending of two or more companies to form a separate legal
entity.
• Amalgamation results in the formation of an entirely new company.
• Minimum two companies in a merger. Three or more for amalgamation process.
• Advantages
• Removing Trade Barriers
• Creating a Stronger Entity
• Resource Pooling
• Diversification Across Industries
• Economies of Scale
• Synergy in Operations
• Rapid Growth
• Tax Advantages
• Competition Reduction
Regulation of Combinations
'Prevention is better than cure'
• Combinations should not be permitted to create, enhance, or entrench market power
or to facilitate its exercise
• Combinations enhances market power if it is likely to encourage one or more firms to
raise price, reduce output, diminish innovation, or otherwise harm consumers as a
result of diminished competitive constraints or incentives
• Unilateral effects - Firms can enhance market power simply because of elimination of
competition through merger or acquisition.
• Coordinated effects - merger can also result in increased risk of joint dominance
through coordinated, accommodating, or concerted behaviour among remaining
market players in relevant market
• Post-combination, unscrambling a merger may also involve high socio-economic costs.
• Regulation of combination provides legal certainty to business, had the combining
enterprises taken clearance after filing notification
Mandatory filing
• Mandatory filing of notice regarding the combination
• Mergers or amalgamations require a notice [6(2)(a)] to be filed with CCI within 30 days of the
board resolution
• In the case of an acquisition, a notice [6(2)(b)] is required to be filed within 30 days of the
execution of any agreement
• Failure to notify and obtain required approval attracts penalties (up to 1% of total
turnover or the assets, whichever is higher) (S.43A)
• Commission empowered to take suo-moto action by calling for notice from parties
to the mergers, which do not comply with the mandatory filing requirements.
• The transaction would be rendered void, if the CCI subsequently determines that the
combination has an ‘Appreciable Adverse Effect on Competition’ (AAEC) in India’.
• 'Regulation of Combinations' intend to ensure that firms do not acquire such a
degree of market power in the market so as to harm the interest of consumers, the
economy and society as a whole
Timelines and Framework for Assessment
Timeline of 210 days to CCI to take a decision on a Combination filing.
• Pre-Investigation phase: Commission to form a prima facie opinion within 30 days as
to whether the combination is likely to cause an appreciable adverse effect on
competition. Most filings likely to be approved in this shorter time frame. Only few
filings with serious competition concerns may go beyond this period to the second
stage of investigation. These will be deemed cleared at the end of 210 days, if no
order is passed.
• Investigation phase: If Prima-facie opinion is that the combination is likely to cause or
has caused AAEC within the relevant market in India and investigation in terms of
Section 29 of the Act then the Commission by its order can either
• Approve the Combination if there is No likelihood of AAEC
• Approve with modifications - Structural (divestiture) and/or Behavioural remedies
(price ceiling etc.) if the AAEC concerns are addressed through such remedies
• Not approve, in case the Commission considers that there is sufficient likelihood
of AAEC and the same can't be addressed through modifications
Factors for Inquiring into Combination – S.20(4)
• Actual and potential level of competition through imports in the market
• Extent of barriers to entry into the market;
• Level of combination in the market;
• Degree of countervailing power in the market;
• Likelihood that the combination would result in the parties to the combination being able to significantly and
sustainably increase prices or profit margins;
• Extent of effective competition likely to sustain in a market;
• Extent to which substitutes are available or arc likely to be available in the market;
• Market share, in the relevant market, of the persons or enterprise in a combination, individually and as a
combination;
• Likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors
in the market;
• Nature and extent of vertical integration in the market;
• Possibility of a failing business;
• Nature and extent of innovation;
• Relative advantage, by way of the contribution to the economic development, by any combination having or likely
to have
• Whether the benefits of the combination outweigh the adverse impact of the combination, if any.
Green Channel
• As part of its ongoing and regular efforts to make M&A filings approval faster,
the CCI has introduced an automatic system of approval for combinations under
Green Channel. (Aug 19)
• Under this process, the combination is deemed to have been approved upon
filing the notice in the prescribed format. This system would significantly reduce
time and cost of transactions.
• Simultaneously, CCI has also revised its pre-filing consultation guidance note to
extend its scope to include consultation to assist the parties to determine
whether their combination is eligible for Green Channel.
• The parties filing combination notice can also meet the case team on any day.
• Green Channel is aimed to sustain and promote a speedy, transparent and
accountable review of combination cases, strike a balance between facilitation
and enforcement functions, create a culture of compliance and support
economic growth.
Acquisition of Bina Power Supply Limited
(BINA/SPV) by JSW Energy Limited (JSWEL)
• Transaction related to an acquisition of a 100% stake (i.e. all securities
including equity shares and non-convertible debentures) in the SPV by
JSWEL.
• It was in the nature of an acquisition of shares within the meaning of
Section 5(a) of the Act.
• Relevant market in relation to this was described as “the market for
generation of power in India”. Though at that time the SPV was not
involved in any business operation.
• The combination was approved by the commission under section
31(1) of the Act.