ANTI- COMPETITIVENESS IN THE LIGHT OF COMPETITION (AMENDMENT) BILL 2022
In a free market, the ideal system practiced is fair competition wherein the companies enter into the market without any unfair leverage and compete at the same level. Their progress is determined by the quality of their products and the appeal it has among people. It is essential as it gives choices to the consumers and gives no other alternative to the suppliers other than improving the quality of their services. It becomes the driving force behind innovation.
The opposite of this free and fair practice is the anti-competitive behavior that the companies indulge in. It is done by big and well-established companies, often having government backing. Their main purpose is to limit the competition in the market and exercise their monopoly power. It is harmful as it undermines efficiency, limits choice, and depletes the quality of services.
There are two types of agreements under anti-competition: Horizontal and vertical agreements. When the firms are at the same level of the supply chain, they enter into horizontal agreements, whereas vertical agreements are entered into by parties operating at different levels of production.
There are various ways in which anti-competition is practiced:
A) Dumping: An established company sells its products at a very low price while incurring losses just to prevent smaller businesses from competing and forcing them out of the market. For example, China sells its products in the Indian market. Chinese manufacturers produce different quality products for different markets.
B) Price fixing: When competitors agree to either raise, fix, or maintain the price at which their goods or services are being currently sold. This allows them to get a higher margin of profits than they would have made in a free market.
C) Predatory pricing: In such a situation, the predator is the firm setting its prices extremely low, merely because of the reason that it can afford to do so. It continues until the competitors are driven out of the market. Both predatory pricing and dumping are different in the sense that “predatory pricing” applies to domestic trade, while “dumping” is used in the international context.
D) Dividing territories: Two or more big companies come to an arrangement to not compete in decided areas.
These are practiced at a large scale. However, there are many more anti-competitive techniques.
COMPETITION (AMENDMENT) BILL 2022
The Competition Act, 2002 established the Competition Commission of India. It is responsible to ensure that businesses are not engaging in practices that have an adverse effect on market competition, even if it is in the form of combinations. Combinations refer to acquisitions, mergers, or amalgamation of one or more enterprises.
The need for an amendment to this Act was realized by the Competition Law Review which found the current regulatory framework to not be adequate. Thus came the Competition (Amendment) Bill 2022. It expands the definition to include even those businesses that are not engaged in similar businesses and provides a framework for the settlement of anti-competitive agreements and abuse of dominant position.
Key provisions of this Bill-
- It provides for the reduction of the time- limit for the approval of combinations from two hundred ten days to one hundred and fifty days
- It broadens the scope of anti-competitive agreements and inclusion of a party facilitating a horizontal anti-competitive agreement under such agreements
- Provides a limitation period of three years for filing information on anti-competitive agreements before the Commission
- It expands the powers of the Director General for investigating contraventions under the Act
- For appealing against the Competition Commission’s orders, the Bill requires a deposit of 25% of the amount that is to be paid in a manner as specified by the National Company Law Appellate Tribunal (NCLAT)
WHAT THE INDIAN COMPANIES NEED TO KEEP IN MIND
The new Bill recognizes hub-and-spoke agreements so even if market players do not share information directly, but through a common player, it will still be considered an anti-competitive practice. The players should not engage in identical or similar trade and will be presumed guilty if it participates in the furtherance of the agreement.
Further, there are certain agreements that do not strictly fall in the either horizontal or vertical form of arrangement. Such agreements are digitally recognized and are often multi-sided. The Bill proposes the inclusion of such agreements within the Act. Thus, the companies will no longer be able to work in alienation on the online platform and can easily be investigated by the Competition Commission.
The 2022 Bill includes a provision for notifying a merger or acquisition to the CCI if its value exceeds Rs. 2000 crores and has substantial business operations in India. The legislation gives a wider scope of enforcement to the Director General (DG). He will be empowered to even seek information from all parties alike.
If the “negotiated settlements and commitments clause” passes, it will help avoid long, unresolved proceedings and will cut down on .litigation. It provides for businesses accused of anti-competitive practices to settle their cases by negotiating with CCI. So, there will be more flexibility for firms to settle their cases out of court as well.
The Bill has widened the scope of the 2002 Act by a significant margin. However, it has still missed out on its opportunity to reform the Act completely. It does not set in place a test to determine whether a business engaging in practice has the ability to adversely impact competition in the market. It is only fair to exclude those businesses that are not a threat to the market, even if they have a monopoly. Only they should be punished those who deliberately drive competition out of the market.
Another area that the Bill fails to address is the limits to protectionism. A company might only be willing to protect its Intellectual Property Rights, and not engage in any harmful practice. It does not discuss how this defence can be used by such companies without being found guilty of abusing their dominant position.
Further, the Bill does not expand upon the ‘substantial business operations’ for determining if it has to be notified to the CCI. This needs to be determined so that the burden on parties does not increase.
Thus, introducing these mechanisms is a step forward. However, there are certain key aspects that need to be fixed before its implementation as an Act in India.
M/s Aura & Co.