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Need for Competition Act in an era of free competition where geographical boundaries are fading
fast for business
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INDEX
Sr. No. Topic Pg. No.
1. Introduction to Competition Law 3
2. MRTP 4
3. Difference between MRTP and Competition Act 10
4. Indian Competition Act
4.1 Evolution 11
4.2 Highlights of the Competition Act 11
4.3 Important Provisions of the Act 13
5. European Union Competition Law
5.1 Introduction 27
5.2 Core Provisions 28
6. Case Study I : ArcelorMittal 39
Case Study II : DLF 48
7. Conclusion 57
8. Webliography 60
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1. INTRODUCTION TO COMPETITION LAW
Competition law, known in the United States as antitrust law, is law that promotes or
maintains market competition by regulating anti-competitive conduct.
The history of competition law reaches back to the Roman Empire. The business practices of
market traders, guilds and governments have always been subject to scrutiny, and sometimes
severe sanctions. Since the 20th century, competition law has become global. The two largest
and most influential systems of competition regulation are United States antitrust law and
European Union competition law. National and regional competition authorities across the world
have formed international support and enforcement networks.
Competition law, or antitrust law, has three main elements:
prohibiting agreements or practices that restrict free trading and competition between
business. This includes in particular the repression of free trade caused by cartels.
banning abusive behavior by a firm dominating a market, or anti-competitive practices that
tend to lead to such a dominant position. Practices controlled in this way may include
predatory pricing, tying, price gouging, refusal to deal, and many others.
supervising the mergers and acquisitions of large corporations, including some joint
ventures. Transactions that are considered to threaten the competitive process can be
prohibited altogether, or approved subject to "remedies" such as an obligation to divest part
of the merged business or to offer licenses or access to facilities to enable other businesses to
continue competing.
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2. MRTP
Evolution of Competition Law in India
The Constitution of India, in its essay in building up a just society, has mandated the
State to direct its policy towards securing that end. Articles 38 and 39 of the
Constitution of India, which are part of the Directive Principles of State Policy, mandate
the state to direct its policy towards securing: that the ownership and control of material
resources of the community are so distributed as to best subserve the common good; and that
the operation of the economic system does not result in concentration of wealth and means of
production to the common detriment. Accordingly, after independence, the Indian
Government assumed increased responsibility for the overall development of the country.
Government policies were framed with the aim of achieving a socialistic pattern of
society that promoted equitable distribution of wealth and economic power. However, even as
the economy grew over the years after independence, there was little evidence of the
intended trickle-down. Concerned with this, the Government appointed a Committee on
Distribution of Income and Levels of Living (Mahalanobis Committee) in October 1960. The
Committee noted1 that big business houses were emerging because of the “planned economy”
model practised by the Government and recommended looking at industrial structure, and
whether there was concentration. Subsequently, the Government appointed the
Monopolies Inquiry Commission (MIC) in April 1964, which reported that there was high
concentration of economic power in over 85 percent of industrial items in India. The MIC
observed that big businesses were at an advantage in securing industrial licences to open or
expand undertakings. This intensified concentration, especially as the Government did not
have adequate mechanisms to check it. Subsequently, the Planning Commission of India, in
July 1966, appointed the Hazari Committee to review the operation of the industrial
licensing system. The report echoed previous concerns regarding skewed benefits of the
licensing system. Following this, the Government, in July 1967, appointed the
Industrial Licensing Policy Inquiry Committee, which felt that licensing was unable to check
concentration, and suggested that the Monopolies and Restrictive Trade Practices (MRTP) Bill
(as proposed by the MIC) be passed, to set up an effective legislative regime. With this
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backdrop, the MRTP Act, India’s competition law, was enacted in December 1969 to
check concentration of economic power, control the growth of
monopolies and prevent various trade practices detrimental to public interest. It came into force
in June 1970 and the MRTP Commission, a regulatory authority to deal with offences falling
under the statute, was set up in August 1970. Under the Act, large business houses and
dominant undertakings (also called MRTP companies4) were required to be registered with the
federal government. Public sector enterprises, co-operative societies and agriculture were
exempt from the purview of the Act.
The thrust of the Act was directed towards:
- prevention of concentration of economic power to the common detriment;
- control of monopolies;
- prohibition of monopolistic trade practices (MTPs);
- prohibition of restrictive trade practices (RTPs);
- prohibition of unfair trade practices (UTPs) (post-1984 amendments)
With the passage of time, it was noticed that the objectives of the MRTP Act could not
be achieved to the desired extent. Accordingly, the Government appointed a High-Powered
Expert (Sachar) Committee in June 1977, which recommended widening the scope of the MRTP
Act to include unfair trade practices (UTPs) like misleading and deceptive advertising5.
Subsequently, the MRTP Act was amended in 1984 to bring unfair trade practices within its
ambit.
Following the adoption of economic reforms in early 1990s in India, most far-reaching
amendments to MRTP Act were introduced in 1991. Two of the five thrust areas mentioned
above, namely, prevention of concentration of economic power to the common detriment, and
control of monopolies, were de-emphasised. The 1991 amendments removed the need for prior
Government approval to establish new undertakings or the expansion of existing
undertakings, and also diluted the provisions of mergers and acquisitions (M&As). The
thrust was on curbing monopolistic, restrictive and unfair trade practices. Size, as a
factor, to discourage concentration of economic power, had been given up.
Furthermore, the amendments deleted exemption granted to Government undertakings
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and cooperative sector. Exemption to agriculture was not touched, because it is an issue under
the legislative control of states (provinces).
Experience with the MRTP Act
Despite its laudable goals, the MRTP Act did not deliver as expected. This was partly because
the Act was created at a time when all the process attributes of competition such as entry,
price, scale, location, etc., were regulated. The MRTP Commission had no influence over
these attributes of competition, as these were part of a separate set of policies. Another reason
for its inadequacy in dealing with anti-competitive practices was the absence of proper
definitions in the Act. A perusal of the MRTP Act shows that there is no definition nor
even a mention of certain offending trade practices, which are restrictive in character,
for example,cartels, predatory pricing, and bid-rigging. Further, the MRTP
Commission was unable to take any action against any of the international cartels that
attracted the attention of other competition authorities.The MRTP Commission was poorly
resourced, which further constrained its functioning. Its budget was a very small proportion of
both the Gross Domestic Product (GDP) and the budget of the Central Government. The
inadequacy of budget allocation was compounded by
the need for the MRTP Commission to seek Government permission to incur expenditure
beyond certain limits. This severely curtailed its independent functioning. The
independence of the MRTP Commission got further impaired due to the discretionary power of
the Government to appoint senior level officers.
Since attaining Independence in 1947, India, for the better part of half a century
thereafter, adopted and followed policies comprising what are known as “Command-and-
Control” laws, rules, regulations and executive orders. The competition law of India, namely,
the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such
act. It was in 1991 that widespread economic reforms were undertaken and consequently the
march from “Command-and-Control” economy to an economy based more on free market
principles commenced its stride.
The first Indian competition law was enacted in 1969 and was christened the MONOPOLIES
AND RESTRICTIVE TRADE PRACTICES ACT, 1969 (MRTP Act). Articles 38 and 39 of
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the Constitution of India mandate, inter alia, that the State shall strive to promote the welfare of
the people by securing and protecting as effectively, as it may, a social order in which justice –
social, economic and political – shall inform all the institutions of the national life, and the State
shall, in particular, direct its policy towards securing:
1. that the ownership and control of material resources of the community are so distributed
as best to subserve the common good; and
2. that the operation of the economic system does not result in the concentration of wealth
and means of production to the common detriment.
It defines a restrictive trade practice to mean a trade practice, which has, or may have the effect
of preventing, distorting or restricting competition in any manner. But the MRTP Act, is
inadequate for fostering competition in the market and trade and for reducing, if not eliminating,
anti-competitive practices in the country’s domestic and international trade.
Three areas informed till 1991 (when the MRTP Act was amended) the regulatory provisions of
the MRTP Act, namely, concentration of economic power, competition law and consumer
protection. Even in its regulatory capacity, it controlled the growth only if it was detrimental to
the common good. In terms of competition law and consumer protection, the objective of the
MRTP Act is to curb Monopolistic, Restrictive and Unfair Trade Practices which disturb
competition in the trade and industry and which adversely affect the consumer interest
Objectives
The principal objectives sought to be achieved through the MRTP Act are:
i) prevention of concentration of economic power to the common detriment;
ii) control of monopolies;
iii) prohibition of Monopolistic Trade Practices (MTP);
iv) prohibition of Restrictive Trade Practices (RTP);
v) prohibition of Unfair Trade Practices (UTP).
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Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms of
regulating the growth of big size companies called the monopoly companies. In other words,
there were pre-entry restrictions therein requiring undertakings and companies with assets of
more than Rs.100 crores (about US $22 million) to seek approval of Government for setting up
new undertakings, for expansion of existing undertakings, etc.
Major amendments were effected to the MRTP Act in 1991. Provisions relating to concentration
of economic power and pre-entry restrictions with regard to prior approval of the Central
Government for establishing a new undertaking, expanding an existing undertaking,
amalgamations, mergers and take-overs of undertakings were all deleted from the statute through
the amendments.
In the pre-1991 reforms period, India’s planned strategy and economic development stressed the
broad policy objectives of (i) the development of an industrial base with a view to achieving self-
reliance and (ii) the promotion of social justice. The specific policy measures towards these
objectives were across-the-board substitution of Indian goods and services for imports,
controlling the pattern of investment and controlling the utilisation of foreign exchange. The
thrust of the policy instruments were the industrial licensing that affected the private sector and
creating of a large public sector. The entire exercise was, as described earlier, the “Command-
and-Control” economy.
The “Command-and-Control” triggered policies meant that Government intervention pervaded
almost all areas of economic activity in the country. For instance, there was no contestable
market. This meant that there was neither an easy entry nor an easy exit for enterprises.
Government determined the plant sizes, location of the plants, prices in a number of important
sectors, and allocation of scarce financial resources. Their further interventions were
characterised by high tariff walls, restrictions on foreign investments and quantitative
restrictions. It may thus be seen that free competition in the market was under severe fetters,
mainly because of Governmental policies and strategies, specifically, (1) industrial policy, (2)
trade and commercial policy, (3) foreign investment policy, and (4) financial sector policy.
A perusal of the MRTP Act will show that there is neither definition nor even a mention of
certain offending trade practices which are restrictive in character. Some illustrations of these
are:
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Abuse of Dominance
Cartels, Collusion and Price Fixing
Bid Rigging
Boycotts and Refusal to Deal
Predatory pricing
Hence, the need for a new and better law was recognized, which gave birth to the Competition
Act, 2002.
When the MRTP Act was drafted in 1969, the economic and trade milieu prevalent at that time
constituted the premise for its various provisions. There has been subsequently a sea change in
the milieu with considerable movement towards liberalisation, privatisation and globalisation.
The law needed to yield to the changed and changing scenario on the economic and trade front.
High Level Committee on Competition Policy and Law
In October, 1999, the Government of India appointed a High Level Committee on Competition
Policy and Competition Law to advise a modern competition law for the country in line with
international developments and to suggest a legislative framework which may entail a new law
or appropriate amendments to the MRTP Act. The Committee presented its Competition Policy
report to the Government in May 2000. The draft competition law was drafted and presented to
the Government in November 2000. After some refinements, following extensive consultations
and discussions with all interested parties, the Parliament passed in December 2002 the new law,
namely, the Competition Act, 2002.
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3. DIFFERENCE BETWEEN MRTP AND INDIAN COMPETITION ACT
MRTP ACT, 1969 COMPETITION ACT, 2002
Based on pre-reforms command and control regime
Based on post-reforms liberalized regime
Based on size/structure as factor Based on conduct as a factor
Frowns upon dominance Frowns upon abuse of dominance
No combinations (i.e. M&As) regulations (post-1991 amendment)
Combinations regulations beyond a certain threshold
No competition advocacy role for the MRTP Commission
CCI has competition advocacy role
No penalties for offences Penalties for offences
Unfair trade practices coveredUnfair trade practices omitted (Consumer Protection Act, 1986 will deal with them)
Rule of law approach Rule of reason approach
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4. INDIAN COMPETITION ACT
4.1 Evolution
Competition Act 2002 has come into force to replace the Monopolies and Restrictive
Trade Practices (MRTP) Act, 1969. After the economic reforms of 1990, it was felt that MRTP
has become obsolete pertaining to international economic developments relating to competition
law and there was a need of law which curbs monopolies and promotes competition. In 1990s
India saw substantial increases in the value and volume of international trade in goods and
services, in foreign direct investments (FDI), and in cross border mergers and acquisitions
(M&A). Over the period of time, trade barriers fell and restrictions on FDI were reduced. The
Competition Act, 2002 has been enacted with the purpose of providing a competition law regime
that meets and suits the demands of the changed economic scenario in India and abroad.
The Competition Act has repealed the Monopolies and Restrictive Trade Practices Act, 1969 and
has dissolved the Monopolies and Restrictive Trade Practices Commission. The cases pending
before the MRTP Commission are transferred to Competition Commission of India “CCI”,
barring those which are related to unfair trade practices and the same are proposed to be
transferred to the National Commission constituted under the Consumer Protection Act, 1986.
4.2 HIGHLIGHTS OF COMPETITION ACT 2002:
It provides for the establishment of a Competition Commission of India “CCI” to prevent
practices having adverse effect on competition, to promote and sustain competition in
markets, to protect interests of consumers and to ensure freedom of trade carried on by
other participants in markets.
CCI prohibits enterprises to enter into anti-competitive agreements, abusing their
dominant position and forming combinations.
Scope of CCI - CCI shall look into any alleged violations under the Act, (a) either on its
own motion, or (b) on receipt of a complaint from any person, consumer or their trade
association, or (c) on references made by the Central Government, State Governments or
any statutory authority.
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Exclusion of jurisdiction of civil courts - No civil court has the jurisdiction to entertain
any suit or proceeding which CCI is empowered by or under the Act to determine. Also,
no injunction can be granted by any court or authority in respect of any action taken or to
be taken in pursuance of any power conferred by or under the Act.
CCI is not bound by the procedure laid down by Code of Civil Procedure, 1908 and must
only follow the principles of natural justice. CCI, thus, has the power to regulate its own
procedure.
If any party to such agreement is outside India; or if any enterprise abuses its dominant
position is outside India; or a combination has taken place outside India; or any party to
combination is outside India; or any other matter or practice or action arising out of such
agreement or dominant position which causes an appreciable adverse effect on
competition in the relevant market in India.
Powers of CCI - CCI has the power
• to grant interim relief award compensation,
• impose penalty and
• to grant any other appropriate relief.
• to levy penalty for contravention of its orders, making of false statements or omission
to furnish material information, etc.
Division of dominant enterprise - CCI can recommend the Central Government division
of a dominant enterprise to ensure that it does not abuse its position. On the
recommendation, the Central Government under Section 28 may direct division of such
an enterprise.
Extent of penalty - For abusing its dominant position or entering in anticompetitive
agreements, CCI can levy penalty to the extent of 10 per cent of the average of the
turnover for the preceding three financial years. The penalty is higher in case of such
abuses by cartels and penalty can be equivalent to three times of the amount of
profits made out of such agreement by the cartel or ten percent of the average
turnover of the cartel for the preceding three financial years.
Appeal from CCI - Any person aggrieved by any decision or order of CCI may file an
appeal to the Supreme Court within 60 days from the date of the communication of the
decision or order.
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4.3 IMPORTANT PROVISIONS OF THE ACT:
Section 3: Anti-competitive agreements-
(1) No enterprise or association of enterprises or person or association of persons 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 appreciable adverse
effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in sub-section (1)
shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or
associations of persons or between any person and enterprise or practice carried on, or
decision taken by, any association of enterprises or association of persons, including cartels,
engaged in identical or similar trade of goods or provision of services, which-
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment or
provision of services;
(c) 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;
(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have
an appreciable adverse effect on competition:
Provided that nothing contained in this sub-section shall apply to any agreement entered into by
way of joint ventures if such agreement increases efficiency in production, supply, distribution,
storage, acquisition or control of goods or provision of se vices.
Explanation- For the purposes of this sub-section, "bid rigging" means any agreement, between
enterprises or persons referred to in sub-section (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.
(4) Any agreement amongst enterprises or persons at different stages or levels of the production
chain in different markets, in respect of production, supply, distribution, storage, sale or
price of, or trade in goods or provision of services, including-
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(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to
cause an appreciable adverse effect on competition in India.
Explanation- For the purposes of this sub-section,-
(a) "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods;
(b) "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;
(c) "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;
(d) "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;
(e) "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.
(5) Nothing contained in this section shall restrict-
(i) the right of any person to restrain any infringement of, or to impose reasonable
conditions, as may be necessary for protecting any of his rights which have been or may
be conferred upon him under-
(a) the Copyright Act, 1957 (14 of 1957)
(b) the Patents Act, 1970 (39 of 1970)
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act,
1999 (47 of 1999)
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(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48
of 1999)
(e) the Designs Act, 2000 (16 of 2000)
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37of 2000)
(ii) 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. Prohibition of abuse of dominant position
CEMENT CARTELISATION IN INDIA
Background: The Indian cement industry showed signs of growth during 1924-1941. The
Indian cement industry was still at its nascent stage until 1924. There was also serious
competition amongst the producers, depressing prices and profitability. The wellknown
Associated Cement Company (ACC) was formed in the wake of this competition wherein
several cement companies to mark the first move towards consolidation.In the early years control
over the cement industry by the government resulted in slow growth. The government realized
this in 1982 when they decided to partially decontrol the sector to allow rapid growth. As this
formula worked out well, the government in lure of modernization and expansion decided to
completelydecontrol the cement sector in 1989.38 The demand for cement has been ever
increasing. Its demand is directly linked to economic activity. The increase in demand is mainly
due to infrastructure investments and construction activity. Both of them form a major key
component of GDP (Gross Domestic Product). Cement demand growth has high correlation to
GDP growth. The takeover of L&T by Grasim, and the strategic alliance between GACL and
ACC have resulted in two major blocks, controlling over 42 percent of the domestic market
share. Before this major consolidation, the top five cement majors in the domestic industry
accounted for 30 percent of total capacity. Post consolidation, the top five companies account for
more than 55 percent of the total cement capacity in the country. After the decontrol policy of the
government, the cement manufacturers started to lobby for higher prices formed Cement
Manufacturers Association.
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Competition concerns in the Indian Cement Industry: There is a widespread belief that the
cement manufacturers have been engaged in collusive price fixing since the decontrol of cement
prices in 1989. The Cement Manufacturer’s Association (CMA) after the governmental decontrol
started lobbying for higher prices and indulging in collective activities. Cement is a homogenous
product, which is prone to cartelization and fixing of prices is not a difficult task to be
accomplished. Due to the fragmented nature of the market, it is at the disposal of the sellers how
to dominate the market. In 1991, the Indian cement industry was accused of cartelization for the
first time wherein the then MRTPC was asked to adjudicate on a matter of collusive price setting
in the Delhi market. There were further many more allegations against the cement manufacturers
and they have continuously denied the allegations by stating that the sudden price rise was due to
the increase in the cost of manufacture. However a closer look at the region-wise capacity and
price-movement in the Northern, Eastern, Southern, Western and Central India there has been a
price-collusive
behavior. In 2007, the Monopolies and Restrictive Trade Practices Commission, New Delhi
ruled that the cement manufacturers have been acting in concert attracting Section 33 (1) (d) of
the MRTP Act. Accordingly, cease and desist order was issued directing them not to get into any
arrangement, directly or indirectly, for fixing the prices of their produce in concert or in follow-
up of a concert.
Section 4: Abuse of dominant position-
(1) No enterprise shall abuse its dominant position.
(2) There shall be an abuse of dominant position under sub-section (1), if an enterprise,-
(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.
Explanation- For the purposes of this clause, the unfair or discriminatory condition in purchase
or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in
purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall
not include such discriminatory condition or price which may be adopted to meet the
competition; or
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(b) limits or restricts-
(i) production of goods or provision of services or market therefore; or
(ii) technical or scientific development relating to goods or services to the prejudice of
consumers; or
(c) indulges in practice or practices resulting in denial of market access; 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.
Explanation-For the purposes of this section, the expression-
(a) "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;
(b) "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.
Section 5: Combination:
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-
(a) any acquisition where-
(i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares,
voting rights or assets have been acquired or are being acquired jointly have,-
(A) either, in India, the assets of the value of more than rupees one thousand crores or
turnover more than rupees three thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than five
hundred million US dollars, including at least rupees five hundred crores in India,
or turnover more than fifteen hundred million US dollars, including at least rupees
fifteen hundred crores in India; or
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(ii) the group, to which the enterprise whose control, shares, assets or voting rights have
been acquired or are being acquired, would belong after the acquisition, jointly have or
would jointly have,-
(A) either in India, the assets of the value of more than rupees four thousand crores or
turnover more than rupees twelve thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than two
billion US dollars, including at least rupees five hundred crores in India, or
turnover more than six billion US dollars, including at least rupees fifteen hundred
crores in India; or
(b) acquiring of control by a person over an enterprise when such person has already direct or
indirect control over another enterprise engaged in production, distribution or trading of a
similar or identical or substitutable goods or provision of a similar or identical or
substitutable service, if-
(i) the enterprise over which control has been acquired along with the enterprise over which
the acquirer already has direct or indirect control jointly have,-
(A)either in India, the assets of the value of more than rupees one thousand crores or
turnover more than rupees three thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than five
hundred million US dollars, including at least rupees five hundred crores in India, or
turnover more than fifteen hundred million US dollars, including at least rupees
fifteen hundred crores in India; or
(ii) the group, to which enterprise whose control has been acquired, or is being acquired,
would belong after the acquisition, jointly have or would jointly have,
(A)either in India, the assets of the value of more than rupees four thousand crores or
turnover more than rupees twelve thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than two
billion US dollars, including at least rupees five hundred crores in India, or turnover
more than six billion US dollars, including at least rupees fifteen hundred crores in
India; or
(c) any merger or amalgamation in which-
(i) the enterprise remaining after merger or the enterprise created as a result of the
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amalgamation, as the case may be, have-
(A)either in India, the assets of the value of more than rupees one thousand crores or
turnover more than rupees three thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than five
hundred million US dollars, including at least rupees five hundred crores in India, or
turnover more than fifteen hundred million US dollars, including at least rupees
fifteen hundred crores in India; or
(ii) the group, to which the enterprise remaining after the merger or the enterprise created as
a result of the amalgamation, would belong after the merger or the amalgamation, as the
case may be, have or would have,—
(A)either in India, the assets of the value of more than rupees four-thousand crores or
turnover more than rupees twelve thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than two billion
US dollars, including at least rupees five hundred crores in India, or turnover more
than six billion US dollars, including at least rupees fifteen hundred crores in India;
Explanation - For the purposes of this section:
(a) "control" includes controlling the affairs or management by-
(i) one or more enterprises, either jointly or singly, over another enterprise or group;
(ii) one or more groups, either jointly or singly, over another group or enterprise
(b) "group" means two or more enterprises which, directly or indirectly, are in a position to -
(i) exercise twenty-six per cent. or more of the voting rights in the other enterprise; or
(ii) appoint more than fifty per cent. of the members of the board of directors in the other
enterprise; or
(iii) control the management or affairs of the other enterprise;
(c) the value of assets shall be determined by taking the book value of the assets as shown, in
the audited books of account of the enterprise, in the financial year immediately preceding
the financial year in which the date of proposed merger falls, as reduced by any depreciation,
and the value of assets shall include the brand value, value of goodwill, or value of
copyright, patent, permitted use, collective mark, registered proprietor, registered trade
mark, registered user, homonymous geographical indication, geographical indications,
design or layout-design or similar other commercial rights, if any, referred to in sub-section
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(5) of section 3.
Section 6: Regulation of combinations-
(1) No person or enterprise shall enter into a combination which causes or is likely to cause an
appreciable adverse effect on competition within the relevant market in India and such a
combination shall be void.
(2) Subject to the provisions contained in sub-section (1), any person or enterprise, who or
which proposes to enter into a combination, may, at his or its option, give notice to the
Commission, in the form as may be specified, and the fee which may be terminated, by
regulations, disclosing the details of the proposed combination, within seven days of-
(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of
section 5, by the board of directors of the enterprises concerned with such merger or
amalgamation, as the case may be;
(b) execution of any agreement or other document for acquisition referred to in clause (a) of
section 5 or acquiring of control referred to in clause (b) of that section.
(3) The Commission shall, after receipt of notice under sub-section (2), deal with such notice in
accordance with the provisions contained in sections 29, 30 and 31.
(4) The provisions of this section shall not apply to share subscription or financing facility or
any acquisition, by a public financial institution, foreign institutional investor,bank or
venture capital fund, pursuant to any covenant of a loan agreement or investment agreement.
(5) The public financial institution, foreign institutional investor, bank or venture capital fund,
referred to in sub-section (4), shall, within seven days from the date of the acquisition, file, in
the form as may be specified by regulations, with the Commission the details of the
acquisition including the details of control, the circumstances for exercise of such control and
the consequences of default arising out of such loan agreement or investment agreement, as
the case may be.
Explanation- For the purposes of this section, the expression-
(a) "foreign institutional investor" has the same meaning as assigned to it in clause (a) of the
Explanation to section 115AD of the Income-tax Act, 1961 (43 of 1961)
(b) "venture capital fund" has the same meaning as assigned to it in clause (b) of the
explanation to clause (23FB) of section 10 of the Income-tax Act, 1961 (43 of 1961).
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Section 29: Procedure for investigation of combinations-
(1) Where the Commission is of the opinion that a combination is likely to cause, or has caused
an appreciable adverse effect on competition within the relevant market in India, it shall issue
a notice to how cause to the parties to combination calling upon them to respond within thirty
days of the receipt of the notice, as to why investigation in respect of such combination
should not be conducted.
(2) The Commission, if it is prima facie of the opinion that the combination has, or is likely to
have, an appreciable adverse effect on competition, it shall, within seven working days from
the date of receipt of the response of the parties to the combination, direct the parties to the
said combination to publish details of the combination within ten working days of such
direction, in such manner, as it thinks appropriate, for bringing the combination to the
knowledge or information of the public and persons affected or likely to be affected by such
combination.
(3) The Commission may invite any person or member of the public, affected or likely to be
affected by the said combination, to file his written objections, if any, before the
Commission within fifteen working days from the date on which the details of t e
combination were published under sub-section (2).
(4) The Commission may, within fifteen working days from the expiry of the period specified in
sub-section (3), call for such additional or other information as it may deem fit from the
parties to the said combination.
(5) The additional or other information called for by the Commission shall be furnished by the
parties referred to in sub-section (4) within fifteen days from the expiry of the period
specified in sub-section (4).
(6) After receipt of all information and within a period of forty-five working days from the
expiry of the period specified in sub-section (5), the Commission shall proceed to deal with
the case in accordance with the provisions contained in section 31.
Section 30: Inquiry into disclosures under sub-section (2) of section 6-
Where any person or enterprise has given a notice under sub-section (2) of section 6, the
Commission shall inquire-
(a) whether the disclosure made in the notice is correct;
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(b) whether the combination has, or is likely to have, an appreciable adverse effect on
competition.
Section 31: Orders of Commission on certain combinations-
1) Where the Commission is of the opinion that any combination does not, or is not likely to,
have an appreciable adverse effect on competition, it shall, by order, approve that
combination including the combination in respect of which a notice has been given under
sub-section (2) of section 6.
2) Where the Commission is of the opinion that the combination has, or is likely to have, an
appreciable adverse effect on competition, it shall direct that the combination shall not take
effect.
3) Where the Commission is of the opinion that the combination has, or is likely to have, an
appreciable adverse effect on competition but such adverse effect can be eliminated by
suitable modification to such combination, it may propose appropriate modification to the
combination, to the parties to such combination.
4) The parties, who accept the modification proposed by the Commission under sub-section (3),
shall carry out such modification within the period specified by the Commission.
5) If the parties to the combination, who have accepted the modification under sub-section (4),
fail to carry out the modification within the period specified by the Commission, such
combination shall be deemed to have an appreciable adverse effect on competition and the
Commission shall deal with such combination in accordance with the provisions of this Act.
6) If the parties to the combination do not accept the modification proposed by the Commission
under sub-section (3), such parties may, within thirty working days of the modification
proposed by the Commission, submit amendment to the modification proposed by the
Commission under that sub-section.
7) If the Commission agrees with the amendment submitted by the parties under sub-section (6),
it shall, by order, approve the combination.
8) If the Commission does not accept the amendment submitted under sub-section (6), then, the
parties shall be allowed a further period of thirty working days within which such parties
shall accept the modification proposed by the Commission under sub-section (3).
9) If the parties fail to accept the modification proposed by the Commission within thirty
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working days referred to in sub-section (6) or within a further period of thirty working days
referred to in sub-section (8), the combination shall be deemed to have an appreciable
adverse effect on competition and be dealt with in accordance with the provisions of this Act.
10) Where the Commission has directed under sub-section(2) that the combination shall not
take effect or the combination is deemed to have an appreciable adverse effect on
competition under sub-section (9), then, without prejudice to any penalty which may be
imposed or any prosecution which may be initiated under this Act, the Commission may
order that-
(a) the acquisition referred to in clause (a) of section 5; or
(b) the acquiring of control referred to in clause (b) of section 5; or
(c) the merger or amalgamation referred to in clause (c) of section 5, shall not be
given effect to:
Provided that the Commission may, if it considers appropriate, frame a scheme to
implement its order under this sub-section.
11) If the Commission does not, on the expiry of a period of ninety working days from the date
of publication referred to in sub-section (2) of section 29, pass an order or issue direction in
accordance with the provisions of sub-section (1) or sub-sect on (2) or sub-section (7), the
combination shall be deemed to have been approved by the Commission.
Explanation- For the purposes of determining the period of ninety working days specified in
this sub-section, the period of thirty working days specified in sub-section (6) and a further
period of thirty working days specified in sub-section (8) shall be excluded.
12) Where any extension of time is sought by the parties to the combination, the period of ninety
working days shall be reckoned after deducting the extended time granted at the request of
the parties.
13) Where the Commission has ordered a combination to be void, the acquisition or acquiring of
control or merger or amalgamation referred to in section 5, shall be dealt with by the
authorities under any other law for the time being in force as if such acquisition or acquiring
of control or merger or amalgamation had not taken place and the parties to the combination
shall be dealt with accordingly.
14) Nothing contained in this Chapter shall affect any proceeding initiated or which may be
initiated under any other law for the time being in force.
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Section 32: Acts taking place outside India but having an effect on competition in India-
The Commission shall, notwithstanding that-
(a) an agreement referred to in section 3 has been entered into outside India; or
(b) any party to such agreement is outside India; or
(c) any enterprise abusing the dominant position is outside India; or
(d) a combination has taken place outside India; or
(e) any party to combination is outside India; or
(f) any other matter or practice or action arising out of such agreement or dominant position or
combination is outside India, have power to inquire in accordance with the provisions
contained in sections 19, 20, 26, 29 and 30 of the Act into such agreement or abuse of
dominant position or combination if such agreement or dominant position or combination
has, or is likely to have, an appreciable adverse effect on competition in the relevant market
in India and pass such orders as it may deem fit in accordance with the provisions of this
Act.
Section 49: Competition Advocacy
1) The Central Government may, in formulating a policy on competition (including review of
laws related to competition) or any other matter, and a State Government may, in formulating
a policy on competition or on any other matter, as the case may be, make a reference to the
Commission for its opinion on possible effect of such policy on competition and on the
receipt of such a reference, the Commission shall, within sixty days of making such
reference, give its opinion to the Central Government, or the State Government, as the case
may be, which may thereafter take further action as it deems fit.
2) The opinion given by the Commission under sub-section (1) shall not be binding upon the
Central Government [or the State Government, as the case may be] in formulating such
policy.
3) The Commission shall take suitable measures for the promotion of competition advocacy,
creating awareness and imparting training about competition issues.
Section 53: Competition Appellate Tribunal
53A. Establishment of Appellate Tribunal:
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(1) The Central Government shall, by notification, establish an Appellate Tribunal to be known
as Competition Appellate Tribunal –
(a) to hear and dispose of appeals against any direction issued or decision made or order passed
by the Commission under sub-sections (2) and (6) of section 26, section 27, section 28, section
31, section 32, section 33, section 38, section 39, section 43, section 43A, section 44, section 45
or section 46 of the Act;
(b) to adjudicate on claim for compensation that may arise from the findings of the Commission
or the orders of the Appellate Tribunal in an appeal against any finding of the Commission or
under section 42A or under sub-section(2) of section 53Q of this Act, and pass orders for the
recovery of compensation under section 53N of this Act.
(2) The Headquarter of the Appellate Tribunal shall be at such place as the Central Government
may, by notification, specify.
53B. Appeal to Appellate Tribunal
(1)The Central Government or the State Government or a local authority or enterprise or any
person, aggrieved by any direction, decision or order referred to in clause (a) of section 53A may
prefer an appeal to the Appellate Tribunal.
(2) Every appeal under sub-section (1) shall be filed within a period of sixty days from the date
on which a copy of the direction or decision or order made by the Commission is received by the
Central Government or the State Government or a local authority or enterprise or any person
referred to in that sub-section and it shall be in such form and be accompanied by such fee as
may be prescribed:
Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period
of sixty days if it is satisfied that there was sufficient cause for not filing it within that period.
(3) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the
parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit,
confirming, modifying or setting aside the direction, decision or order appealed against.
(4) The Appellate Tribunal shall send a copy of every order made by it to the Commission and
the parties to the appeal.
(5) The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it
as expeditiously as possible and endeavour shall be made by it to dispose of the appeal within
six months from the date of receipt of the appeal.
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APPLICABILITY ON INDIAN & FOREIGN ENTITIES
The Indian and foreign companies will fall under the Act only if they fulfill the
following criteria:
Assets Turnover
Only in India No Group Rs. 1500cr Rs. 4500cr
Group Rs. 6000cr Rs. 18000cr
In and Outside
India
No Group US $ 750m
(Rs.750cr)
(US $ 165m)
US $ 2.25b
(Rs.2250cr)
(US $ 500m)
Group US $ 3b
(Rs.750cr)
(US $ 165m)
US$ 9b
(Rs.2250cr)
(US $ 500m)
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5. EUROPEAN UNION COMPETITION LAW
5.1 INTRODUCTION
European Union competition law is one of the areas of authority of the European Union. In
the EU, it is an important part of ensuring the completion of the internal market, meaning the
free flow of working people, goods, services and capital in a borderless Europe. Four main
policy areas include:
Cartels, or control of collusion and other anti-competitive practices that affect the EU (or,
since 1994, the European Economic Area). This is covered under Articles 101 of the Treaty
on the Functioning of the European Union (TFEU).
Monopolies, or preventing the abuse of firms' dominant market positions. This is governed
by Article 102 TFEU. This article also gives rise to the Commission's authority under the
next area,
Mergers, control of proposed mergers, acquisitions and joint ventures involving companies
that have a certain, defined amount of turnover in the EU/EEA. This is governed by the
Council Regulation 139/2004 EC (the Merger Regulation).[1]
State aid, control of direct and indirect aid given by Member States of the European Union to
companies. Covered under Article 107 of the Treaty on the Functioning of the European
Union.
This last point is a unique characteristic of the EU competition law regime. As the EU is made
up of independent member states, both competition policy and the creation of the European
single market could be rendered ineffective were member states free to support national
companies as they saw fit. Primary authority for applying EU competition law rests with
European Commission and its Directorate General for Competition, although state aids in some
sectors, such as transport, are handled by other Directorates General. On 1 May 2004 a
decentralized regime for antitrust came into force to increase application of EU competition law
by national competition authorities and national courts.
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5.2 CORE PROVISIONS
ANTITRUST:
The antitrust area covers two prohibition rules set out in the Treaty on the Functioning of the
European Union.
First, agreements between two or more firms which restrict competition are prohibited by
Article 101 of the Treaty, subject to some limited exceptions. This provision covers a
wide variety of behaviors. The most obvious example of illegal conduct infringing
Article 101 is a cartel between competitors (which may involve price-fixing or market
sharing);
Second, firms in a dominant position may not abuse that position (Article 102 of the
Treaty). This is for example the case for predatory pricing aiming at eliminating
competitors from the market.
Article 102 is aimed at preventing undertakings who hold a dominant position in a market from
abusing that position to the detriment of consumers. It provides that,
"Any abuse by one or more undertakings of a dominant position within the common market or in
a substantial part of it shall be prohibited as incompatible with the common market insofar as it
may affect trade between Member States.
This can mean,
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading
conditions; (b) limiting production, markets or technical development to the prejudice of
consumers; (c) applying dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of
contracts subject to acceptance by the other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection with the subject of such contracts."
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First it is necessary to determine whether a firm is dominant, or whether it behaves "to an
appreciable extent independently of its competitors, customers and ultimately of its consumer."
Under EU law, very large market shares raise a presumption that a firm is dominant, which may
be rebuttable. If a firm has a dominant position, because it has beyond a 39.7% market share then
there is "a special responsibility not to allow its conduct to impair competition on the common
market" Same as with collusive conduct, market shares are determined with reference to the
particular market in which the firm and product in question is sold. Then although the lists are
seldom closed, certain categories of abusive conduct are usually prohibited under the country's
legislation. For instance, limiting production at a shipping port by refusing to raise expenditure
and update technology could be abusive. Tying one product into the sale of another can be
considered abuse too, being restrictive of consumer choice and depriving competitors of outlets.
This was the alleged case in Microsoft v. Commission leading to an eventual fine of €497 million
for including its Windows Media Player with the Microsoft Windows platform. A refusal to
supply a facility essential for all businesses attempting to compete can constitute an abuse. An
example was a case involving a medical company named Commercial Solvents. When it set up
its own rival in the tuberculosis drugs market, Commercial Solvents were forced to continue
supplying a company named Zoja with the raw materials for the drug. Zoja was the only market
competitor, so without the court forcing supply, all competition would have been eliminated.
Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at
what point a dominant firm's prices become "exploitative" and this category of abuse is rarely
found. In one case however, a French funeral service was found to have demanded exploitative
prices, and this was justified on the basis that prices of funeral services outside the region could
be compared. A more tricky issue is predatory pricing. This is the practice of dropping a
products's price so low that smaller competitors cannot cover their costs and fail. In France
Telecom SA v. Commission a broadband internet company was forced to pay €10.35 million for
dropping its prices below its own production costs. It had "no interest in applying such prices
except that of eliminating competitors" and was being crossed subsidised to capture the lion's
share of a booming market. One last category of pricing abuse is price discrimination. An
example of this could be offering rebates to industrial customers who export sugar that your
company sells, but not to Irish customers, selling in the same market as you are in.
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As stated above market definition is arguably the most important part of any competition case
brought under Article 102. However, it is also one of the most complex areas. If the market is
defined too widely then it will contain more firms and substitutable products making a finding of
a dominant position for one firm unlikely. Likewise if it is defined too narrowly then there will
be a presumption that the defendant company will be found to be dominant. In practice, market
definition will be left to economists, rather than lawyers to decide.
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The European Commission has opened formal anti-trust proceedings to investigate an alleged
refusal by several luxury watch manufacturers to supply spare parts to independent repairers, in
breach of EU competition rules. The opening of proceedings follows a General Court judgment
which annulled the Commission's decision to reject a complaint lodged by the European
Confederation of Watch & Clock Repairers' Associations (CEAHR). An initiation of
proceedings does not imply that the Commission has conclusive proof of an infringement. It only
means that the Commission will investigate the case as a matter of priority.
In 2004, the CEAHR lodged a complaint, alleging that luxury watch manufacturers were in
breach of EU competition law. According to the complainant, from 2002, watch manufacturers
began to refuse to supply spare parts to repairers that did not belong to their selective systems for
repair and maintenance whereas luxury watches had previously traditionally been repaired by
independent multi-brand repairers. CEAHR's complaint alleges that since there are no alternative
sources for most of these spare parts, this practice threatens to drive independent repairers out of
business.
On 10 July 2008 the Commission decided to reject this complaint for lack of community interest.
In December 2010, the General Court annulled the Commission's decision to reject CEAHR's
complaint, mainly because the Commission did not sufficiently motivate why it concluded that
there was a not enough Community interest to pursue the investigation.
The Commission will now further investigate the allegations, in order to take account of the
General Court ruling.
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MERGERS:
Reasons for examining mergers at the EU level: While companies combining forces (referred
to below as mergers) can expand markets and bring benefits to the economy, some combinations
may reduce competition. Combining the activities of different companies may allow the
companies, for example, to develop new products more efficiently or to reduce production or
distribution costs. Through their increased efficiency, the market becomes more competitive and
consumers benefit from higher-quality goods at fairer prices.
However, some mergers may reduce competition in a market, usually by creating or
strengthening a dominant player. This is likely to harm consumers through higher prices, reduced
choice or less innovation. Increased competition within the European single market and
globalisation are among the factors which make it attractive for companies to join forces. Such
reorganisations are welcome to the extent that they do not impede competition and hence are
capable of increasing the competitiveness of European industry, improving the conditions of
growth and raising the standard of living in the EU. The objective of examining proposed
mergers is to prevent harmful effects on competition. Mergers going beyond the national borders
of any one Member State are examined at European level. This allows companies trading in
different EU Member States to obtain clearance for their mergers in one go.
Categories of mergers examined: If the annual turnover of the combined businesses exceeds
specified thresholds in terms of global and European sales, the proposed merger must be notified
to the European Commission, which must examine it. Below these thresholds, the national
competition authorities in the EU Member States may review the merger. These rules apply to all
mergers no matter where in the world the merging companies have their registered office,
headquarters, activities or production facilities. This is so because even mergers between
companies based outside the European Union may affect markets in the EU if the companies do
business in the EU. Th e European Commission may also examine mergers which are referred to
it from the national competition authorities of the EU Member States. This may take place on the
basis of a request by the merging companies or based on a request by the national competition
authority of an EU Member State. Under certain circumstances, the European Commission may
also refer a case to the national competition authority of an EU Member State.
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Conditions under which mergers are prohibited or approved: All proposed mergers notified
to the Commission are examined to see if they would significantly impede effective competition
in the EU. If they do not, they are approved unconditionally. If they do, and no commitments
aimed at removing the impediment are proposed by the merging firms, they must be prohibited
to protect businesses and consumers from higher prices or a more limited choice of goods or
services. Proposed mergers may be prohibited, for example, if the merging parties are major
competitors or if the merger would otherwise significantly weaken effective competition in the
market, in particular by creating or strengthening a dominant player.
Conditions under which the European Commission approve mergers conditionally:
However, not all mergers which significantly impede competition are prohibited. Even if the
European Commission finds that a proposed merger could distort competition, the parties may
commit to taking action to try to correct this likely effect. They may commit, for example, to sell
part of the combined business or to license technology to another market player. If the European
Commission is satisfied that the commitments would maintain or restore competition in the
market, thereby protecting consumer interests, it gives conditional clearance for the merger to go
ahead. It then monitors whether the merging companies fulfill their commitments and may
intervene if they do not.
A merger or acquisition involves, from a competition law perspective, the concentration of
economic power in the hands of fewer than before. In the European Union, under the Merger
Regulation 139/2004. This is known as the "ECMR", and the authority for the Commission to
pass this regulation is found under Art. 83 TEC. Competition law requires that firms proposing
to merge gain authorisation from the relevant government authority, or simply go ahead but face
the prospect of demerger should the concentration later be found to lessen competition. The
theory behind mergers is that transaction costs can be reduced compared to operating on an open
market through bilateral contracts. Concentrations can increase economies of scale and scope.
However, often firms take advantage of their increase in market power, their increased market
share and decreased number of competitors, which can have a knock on effect on the deal that
consumers get. Merger control is about predicting what the market might be like, not knowing
and making a judgment. Hence the central provision under EU law asks whether a concentration
would if it went ahead "significantly impede effective competition... in particular as a result of
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the creation or strengthening of a dominant position. Under EU law, a concentration exists when
a "change of control on a lasting basis results from (a) the merger of two or more previously
independent undertakings... (b) the acquisition... if direct or indirect control of the whole or parts
of one or more other undertakings." Art. 3(1), Regulation 139/2004, the European Community
Merger Regulation
This usually means that one firm buys out the shares of another. The reasons for oversight of
economic concentrations by the state are the same as the reasons to restrict firms who abuse a
position of dominance, only that regulation of mergers and acquisitions attempts to deal with the
problem before it arises, ex ante prevention of creating dominant firms.
MERGER IN THE PHARMACEUTICALS SECTOR
Two large mergers in the pharmaceutical sector were notified to the European Commission:
Sanofi /Synthélabo and Pfizer/Pharmacia. The European Commission concluded that both
mergers could have an adverse impact on competition, limiting the choice of certain drugs
available to patients. In both cases, the parties proposed transferring some of their products to
competitors, which the European Commission agreed would restore competition in the markets
and so protect the interests of patients. In the case of Sanofi /Synthélabo , among the products
transferred or sold were, for instance, vitamin B12 sold under the name ‘Delagrange’, certain
antibiotics, hypnotics and sedatives. In the case of Pfizer/Pharmacia, the parties, for instance,
proposed transferring to competitors certain products in development which would compete with
Pfizer’s Viagra, thereby allowing the deal to be cleared.
CARTELS:
Action against cartels is a specific type of antitrust enforcement. A cartel is a group of similar,
independent companies which join together to fix prices, to limit production or to share markets
or customers between them.
Instead of competing with each other, cartel members rely on each others' agreed course of
action, which reduces their incentives to provide new or better products and services at
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competitive prices. As a consequence, their clients (consumers or other businesses) end up
paying more for less quality.
This is why cartels are illegal under EU competition law and why the European Commission
imposes heavy fines on companies involved in a cartel.
Since cartels are illegal, they are generally highly secretive and evidence of their existence is not
easy to find. The 'leniency policy' encourages companies to hand over inside evidence of cartels
to the European Commission. The first company in any cartel to do so will not have to pay a
fine. This results in the cartel being destabilised. In recent years, most cartels have been detected
by the European Commission after one cartel member confessed and asked for leniency, though
the European Commission also successfully continues to carry out its own investigations to
detect cartels. Since 2008 companies found by the Commission to have participated in a cartel
can settle their case by acknowledging their involvement in the cartel and getting a smaller fine
in return.
Under EU law cartels are banned by Article 101 TFEU. Art. 101 TFEU makes clear who the
targets of competition law are in two stages with the term agreement "undertaking". This is used
to describe almost anyone "engaged in an economic activity" but excludes both employees, who
are by their "very nature the opposite of the independent exercise of an economic or commercial
activity" and public services based on "solidarity" for a "social purpose". [13] Undertakings must
then have formed an agreement, developed a "concerted practice", or, within an association,
taken a decision. Like US antitrust, this just means all the same thing;[14] any kind of dealing or
contact, or a "meeting of the minds" between parties. Covered therefore is a whole range of
behaviour from a strong handshaken, written or verbal agreement to a supplier sending invoices
with directions not to export to its retailer who gives "tacit acquiescence" to the conduct. [15] In the
language of Article 101(1), prohibited are,
"All agreements between undertakings, decisions by associations of undertakings and concerted
practices which may affect trade between member states and which have as their object or effect
the prevention, restriction or distortion of competition within the common market."
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This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and
suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101
has been construed very widely to include both informal agreements (gentlemen's agreements)
and concerted practices where firms tend to raise or lower prices at the same time without having
physically agreed to do so. However, a coincidental increase in prices will not in itself prove a
concerted practice, there must also be evidence that the parties involved were aware that their
behaviour may prejudice the normal operation of the competition within the common market.
This latter subjective requirement of knowledge is not, in principle, necessary in respect of
agreements. As far as agreements are concerned the mere anticompetitive effect is sufficient to
make it illegal even if the parties were unaware of it or did not intend such effect to take place.
Exemptions to Article 101 behaviour fall into three categories. Firstly, Article 101(3) creates an
exemption for practices beneficial to consumers, e.g., by facilitating technological advances, but
without restricting all competition in the area. In practice the Commission gave very few official
exemptions and a new system for dealing with them is currently under review. Secondly, the
Commission agreed to exempt 'Agreements of minor importance' (except those fixing sale
prices) from Article 101. This exemption applies to small companies, together holding no more
than 10% of the relevant market. In this situation as with Article 102 (see below), market
definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has
also introduced a collection of block exemptions for different contract types. These include a list
of contract permitted terms and a list of banned terms in these exemptions.
LATEST PRESS RELEASE:
The European Commission can confirm that, starting on 7 June 2011, Commission officials
carried out unannounced inspections at the premises of companies that supply car seatbelts,
airbags and steering wheels, known in the industry as automotive occupant safety systems. The
Commission has reason to believe that the companies concerned may have violated EU antitrust
rules that prohibit cartels and restrictive business practices (Article 101 of the Treaty on the
Functioning of the European Union).
Automotive occupant safety systems cover safety products such as seatbelts, airbags and steering
wheels that are supplied to car manufacturers.
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The Commission officials were accompanied by their counterparts from the relevant national
competition authority.
Unannounced inspections are a preliminary step into suspected anticompetitive practices. The
fact that the Commission carries out such inspections does not mean that the companies are
guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself.
The Commission respects the rights of defence, in particular the right of companies to be heard
in the Commission’s proceedings against them.
There is no legal deadline to complete inquiries into anticompetitive conduct. Their duration
depends on a number of factors, including the complexity of each case, the extent to which the
undertakings concerned co-operate with the Commission and the exercise of the rights of
defence.
STATE AID:
The objective of State aid control is, as laid down in the founding Treaties of the European
Communities, to ensure that government interventions do not distort competition and trade inside
the EU. In this respect, State aid is defined as an advantage in any form whatsoever conferred on
a selective basis to undertakings by national public authorities. Therefore, subsidies granted to
individuals or general measures open to all enterprises are not covered by Article 107 of the
Treaty on the Functioning of the European Union (TFEU) and do not constitute State aid.
The EC Treaty pronounces the general prohibition of State aid. The founders, however, saw of
course that in some circumstances, government interventions are necessary for a well-
functioning and equitable economy. Therefore, the Treaty leaves room for a number of policy
objectives for which State aid can be considered compatible. By complementing the fundamental
rules through a series of legislative acts that provide for a number of exemptions, the European
Commission has established a worldwide unique system of rules under which State aid is
monitored and assessed in the European Union. This legal framework is regularly reviewed to
improve its efficiency and to respond to the call of the European Councils for less but better
targeted State aid in order to boost the European economy.
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While new legislation is adopted in close cooperation with the Member States, the application of
exemptions to the general prohibition of State aid rests exclusively with the European
Commission, which possesses strong investigative and decision-making powers. At the heart of
these powers lies the notification procedure which -except in certain instances- the Member
States have to follow. It is only after the approval by the Commission that an aid measure can be
implemented. Moreover, the Commission has the power to recover incompatible State aid.
Through these means, three Directorate-Generals are carrying out effective State aid control:
while sector-specific services safeguard fair competition in Fisheries (the production, processing
and marketing of fisheries and aquaculture products), and Agriculture (the production,
processing and marketing of agricultural products), the Diretorate-General for Competition deals
with all other sectors.
The Commission aims at ensuring that all European companies operate on a level-playing field,
where competitive companies succeed. It ascertains that government interventions do not
interfere with the smooth functioning of the internal market or harm the competitiveness of EU
companies.
Companies and consumers in the European Union are also important players who may trigger
investigations by lodging complaints with the Commission. Furthermore, the Commission invites
interested parties to submit comments through the Official Journal of the European Union when
it has doubts about the compatibility of a proposed aid measure and opens a formal investigation
procedure.
LATEST PRESS RELEASE:
The European Commission has granted temporary approval, under EU state aid rules, to a
recapitalisation worth up to €3.8 billion for Irish Life & Permanent Group Holdings (IL&P) by
the Irish authorities. The recapitalisation is necessary to increase the bank's solvency ratios,
thereby enabling it to resist potential stress situations and preserving stability on the Irish
financial markets. The Commission will take a final decision on the state measures in favour of
IL&P on the basis of the new restructuring plan that Ireland committed to submit by the end of
July to take account of this additional state support.
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The restructuring plan will ensure (i) a return to long term viability of the bank, (ii) adequate
participation in the restructuring costs by shareholders and subordinated debt holders and (iii)
proper measures to limit the distortion of competition created by the state support.
The EU-IMF support programme for Ireland included a prudential capital assessment review of
all banks subject to the programme. The review carried out by the Irish central bank identified
capital needs of €4.0 billion for IL&P (broken down as € 3.6 billion in Core Tier 1 capital and
€0.4 billion in contingent capital). In a first stage, to be implemented by 31 July 2011, the Irish
State will purchase ordinary shares in IL&P for €2.3 billion and contingent capital notes for €0.4
billion. In a second stage, the Irish State will provide up to €1.1 billion of additional Core Tier 1
capital if the capital raising measures recently launched by IL&P fail to raise the remaining
amount of capital needed to satisfy the requirements identified by the central bank review. €200
million of capital will be provided by the group itself.
The capital raising measures include liability management exercises, consisting of debt for cash
offers and the sale of the group's life insurance business.
Irish Support Programme
The November 2010 Support Programme for Ireland requires Bank of Ireland, Allied Irish Bank,
Educational Building Society and IL&P to increase their capital to meet new regulatory
requirements during the period 2011 to 2013. The base case and the stress case capital targets
used by the Irish Central Bank were respectively 10.5% and 6%, assuming further deleveraging
of the banks in order to meet the 122.5% loan-to-deposit ratio by the end of 2013.
Earlier this month the Commission also granted temporarily approval to the recapitalisation of
Bank of Ireland and the newly merged AIB/EBS (see IP/11/859 and IP/11/892). These
recapitalisations also arise from the Support Programme stress test requirements. The
Commission is also awaiting restructuring plans for the entities concerned. The €85 billion EU-
IMF Support Programme comprises €35 billion to meet the recapitalisation needs of the financial
sector and to act as a contingency fund. Half of this sum is provided by Ireland itself.
6.
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6. CASE STUDY I: ARCELOR- MITTAL CONTROVERSY
Background:
1. On 7/4/2006, the Commission received a notification of a proposed concentration by
which the undertaking Mittal Steel Company N.V. (“Mittal”, The Netherlands) acquires
control of the whole of the undertaking Arcelor S.A. (“Arcelor”, Luxembourg) by way of
public bid announced on 27/1/2006.
2. In the course of the proceedings, the notifying party submitted undertakings designed to
eliminate competition concerns identified by the Commission, in accordance with Article
6(2) of the Merger Regulation. In light of these modifications, the Commission has
concluded that the notified operation falls within the scope of the Merger Regulation and
does not raise serious doubts as to its compatibility with the common market and with the
functioning of the EEA Agreement.
The Parties
1. Mittal, controlled by the Mittal family, is the largest steel producer at the worldwide
level. Mittal is incorporated in the Netherlands and listed on the New York and
Amsterdam stock exchanges.
2. Arcelor is the largest European steel producer and the second largest at the worldwide
level. The Arcelor group has been created through the merger of the European steel
producers Aceralia, Arbed and Usinor in February 20022. The group is listed on the
Brussels, Luxembourg, Paris and Madrid stock exchanges.
The Operation –
Mittal announced on 27 January 2006 an unsolicited bid for all of the outstanding shares
and convertible bonds of Arcelor. Mittal’s offer is conditional upon Arcelor’s shareholders
tendering more than 50% of Arcelor’s total issued share. The offer was officially launched on 18
May 2006 in France, Belgium and Luxembourg and on 24 May 2006 in Spain. The offers are
expected to close on 5 July 2006.
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The Relevant Markets –
The operation deals with the production and direct sales of steel and other related activities,
including steel raw materials and distribution of steel products. As regards the production and
direct sale of steel the Commission distinguished four broad categories of finished steel products:
(i) Carbon steel
(ii) Stainless steel
(iii) Highly alloyed steel
(iv) Electrical steel
Steel products in these four categories differ in term of chemical composition, price and end
applications. Arcelor’s and Mittal’s activities overlap only in carbon steel products and the
present decision thus does not further discuss the other steel products. Steel raw materials and
distribution of steel products are also assessed.
Relevant Carbon Steel Product Markets
The production of carbon steel products
There are two principal production processes for the production of carbon steel; the integrated
route and the electric arc furnace route. There are four types of iron-containing materials that
may be used in steelmaking furnaces - hot metal (liquid carbon-saturated iron), pig iron (solid
carbon-saturated iron), direct reduced iron (DRI) and scrap.
The integrated method involves the production of iron from a mixture of iron ore, coke and
limestone in a blast furnace to produce hot metal. The hot metal must subsequently be refined
into steel in an oxygen converter where scrap or pig iron may be added. During this process, or
in a separate “secondary steelmaking” vessel, the composition of the steel is adjusted by adding
alloys to obtain the desired chemical specification.
On the other hand, the electric arc furnace method involves melting scrap or less frequently DRI
or pig iron into liquid steel. During this process, or in a separate “secondary steelmaking” vessel,
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the composition of the steel is adjusted by adding alloys to obtain the desired chemical
specification.
The Commission has consistently found in past cases that flat steel products form a separate
product market from long steel products8. These two types of carbon steel products are
manufactured in different rolling mills and are used in different end applications.
Semi-finished carbon steel products
Steel is processed into semi-finished products primarily using the continuous casting process in
which the molten metal is poured directly into casting machines to produce the required shapes.
The majority of semi-finished steel produced in the EEA is further processed into finished
products in integrated rolling mills belonging to the steel producer.
In accordance with previous Commission decisions6, the following basic shapes of semi finished
steel products can be distinguished –
a. blooms (used to produce heavy sections)
b. billets (used to produce bars, wire rod and light sections)
c. slabs (used to produce plate, strip and sheet)
To date the Commission has not finally determined whether all three types of semi-finished
products constitute a single relevant product market.
Finished carbon steel products
Semi-finished products are subsequently rolled into flat or long steel products. Flat products are
generally manufactured from slabs, while long products are manufactured from billets and
blooms. The Commission has consistently found in past cases that flat steel products form a
separate product market from long steel products.
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Relevant Geographic Market
The geographic market for both semi-finished carbon steel and flat carbon steel was
defined as at least EEA wide.
As regards flat carbon steel, Mittal submits that flat carbon steel markets are characterized by
extensive trade flows at the EEA level. There are no barriers to trade within the EEA. Moreover,
the adoption of EEA-wide standards has led to the harmonization of customer requirements
within the EEA. The definition of the relevant geographic market was ultimately left open.
In previous decisions the Commission considered the markets for steel for packaging and coated
steel products to be not wider than the Community. The results of the market investigation in this
case point towards an at least EEA-wide dimension for these markets. However the precise
geographic scope of the markets for the production and direct sale of steel for packaging and
coated steel products may be left open as it does not modify the competitive assessment.
In line with previous Commission decisions, Mittal has submitted that the geographic market for
long carbon steel products is at least EEA wide. For rails, the Commission has previously found
that the scope of the relevant geographic market is at least EEA wide, but probably wider.
However the precise geographic scope of the markets for the production and direct sale of hot
rolled carbon steel products, quarto plates and cold rolled carbon steel flat products may be left
open as the competitive assessment is unchanged on any reasonable market definition.
With respect to heavy sections, the results of the market investigation have largely confirmed the
existence of an EEA-wide market. In rebuttal to Arcelor’s claims, Mittal submitted
counterarguments in favor of the broader EEA-wide market definition. The Commission has
carefully examined the evidence submitted by Arcelor and Mittal, in conjunction with the results
of the market investigation and the responses of third parties, and concluded that the balance of
evidence favored defining the market as EEA wide. The market for heavy sections is thus
assessed on the basis of an EEA-wide geographic market definition.
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COMPETITIVE ASSESSMENT
Introduction –
In its notification, Mittal has emphasized the complementarily of the two companies’ activities,
both geographically and from the product range viewpoint. Arcelor is principally active in
Western Europe and America, with only minor operations in Eastern Europe, and Asia. In
contrast, Mittal is active principally in North America, Central and Eastern Europe, Africa, and
Kazakhstan, with only a minor presence in Western Europe and no presence in South America.
As to product complementarily, in the EEA, while Mittal achieves the majority of its sales in
long carbon steel products, Arcelor is active mainly in flat carbon steel products.
Heavy sections (beams) –
In 2005 the EEA market for heavy sections was approximately 8-10 million MT of which
Arcelor provided 2.5-3.5 million MT i.e. 25-35% and Mittal 0.5-1.5 million MT i.e. 5-15%. The
combined entity would therefore have a market share of 35-45%. In the longer term an increase
of 2-4% a year in demand is expected for the period 2004 -2010. As a result of the proposed
operation the new entity will become the undisputed market leader in the EEA market for heavy
sections. In this position they may be able to raise prices unilaterally. Other producers are not
likely to have an incentive to compete strongly nor are they likely to be able to do so. This effect
is likely to be particularly strong in the CHPS (Czech Republic, Hungary, Slovakia and Poland)
area.
The combined entity will be at least three times as big as the next competitor the EEA. In fact it
will be bigger than the next four competitors combined. This large difference in market shares
between the combined entity and its competitors would make it more difficult for other
players to respond to Mittal/Arcelor’s price increases and/or output reductions in such a way as
to make such unilateral action of the merged firm unprofitable. The concentration will provide
Mittal/Arcelor with a larger base for sales on which to enjoy any resulting price rise while
eliminating its largest competitor.
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Capacity estimates in this area are particularly difficult for a number of reasons. Some rolling
mills will produce both light and heavy sections while others will produce or have the capacity to
produce heavy sections, rails and sheet piling. Therefore a given mill might produce more than
one product and theoretically has the possibility of using all of its capacity for a particular
product.
The combined entity may have sufficient additional capacity to discipline new entrants.
As previously explained, Czech Republic, Hungary, Slovakia and Poland constitute an area
within the EEA market for heavy sections on which competitive conditions may be different. In
this area Mittal is already well established with production facilities in Poland and Czech
Republic and has high market shares. Arcelor is the leading competitor supplying the bulk of its
sales in to the CHPS area. Thus, the removal of the competitive constraint exercised by the
production capacity would significantly strengthen the position of Mittal. d imports from outside
the EEA.
The combined entity would have significant market shares in both the EEA as a whole and in the
CHPS area. The Commission considers that there are serious risks that the Mittal/Arcelor may be
able to significantly impede competition in the EEA and, more particularly, in the so-called
CHPS area. Moreover, the one area of serious concern identified by third parties in their replies
to the Commission’s market investigation was heavy sections. These third parties mentioned the
high market shares particularly in Eastern Europe and the parties’ excess capacity.
On the basis of the above considerations the Commission has serious doubts as to the
compatibility of the transaction, as initially notified, with the common market.
Remedy Package
In order to address the competition concerns identified by the Commission, Mittal submitted a
remedy package on 8 May 2006. The Commission carried out an extensive market test among
Mittal’s competitors and customers to assess the effectiveness of the remedy package to remove
the competition concerns identified. With a view to incorporating comments and suggestions
expressed by market players as regards the first remedy package, Mittal submitted a revised
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remedy package on 31 May 2006 a revised remedy package including, an addition to the first
package.
The revised remedy package proposed by Mittal on 31 May 2006 comprises three steel
production facilities producing long carbon steel products together with related commercial and
marketing assets. Under the proposed remedy package, Mittal undertakes to divest –
Stahlwerk Thüringen GmbH (“Stahlwerk Thüringen”), Arcelor’s heavy section mill in
Unterwellenborn, Germany, together with an option to purchase Arcelor’s sales offices
and stockholding centers in the Czech Republic and Poland
Travie Profilati di Pallanzeno S.p.A. (“Pallanzeno”), Arcelor’s medium section mill in
Pallanzeno, Italy, together with an option to purchase its 49.9% shareholding in the San
Zeno di Naviglio facility (“San Zeno”), which supplies feedstock to the Pallanzeno mill
Huta Bankowa Ltd (“Huta Bankowa”), a Mittal section and bar mill located in Poland.
Mittal also undertakes to give the purchaser(s) of Stahlwerk Thüringen and Pallanzeno
the option of having Arcelor sales and marketing personnel included in the divestiture
package.
Mittal undertakes to divest all tangible and intangible assets of the three manufacturing
facilities, including all manufacturing equipment, personnel, licenses, contracts, agreements,
leases, customer lists, intellectual property rights and technical information.
The Commission has assessed the improved remedy package and has concluded that it is
sufficient to remove the competition concerns identified and that the divested businesses
constitute independent and economically viable entities able to compete effectively with the
combined Mittal/Arcelor on the market for the production and direct sale of heavy sections
(beams) in the EEA. The Commission therefore concludes that the remedy package, as revised
on 31 May 2006, is sufficient to remove the competition concerns brought about by the proposed
transaction.
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Assessment of the remedies
The Commission assesses the compatibility of a notified concentration with the common market.
Where a concentration raises competition concerns as it could lead to a significant impediment to
effective competition, the parties may seek to modify the concentration in order to resolve the
competition concerns rose by the Commission and thereby gain clearance of the merger. In
assessing whether or not the remedy will restore effective competition, the Commission
considers the type, scale and scope of the remedies by reference to the structure of and particular
characteristics of the market in which competition concerns arise. The divested activities must
consist of a viable business that, if operated by a suitable purchaser, can compete with Mittal /
Arcelor on a lasting basis.
Whenever the notifying parties submit remedies, the Commission has thus to assess whether the
remedies will lead to the restoration of effective competition on the relevant markets. In so
doing, the Commission has to assess both
The independence, the viability and the competitiveness of the divested business on the
long term – The Commission’s investigation has confirmed that the three divested
businesses would constitute independent, viable and competitive businesses. The
Commission’s assessment of the matter particularly focused on the ability of the divested
businesses to source input materials and to sell their steel production.
The effectiveness of the proposed remedy in removing the competition concerns – The
revised remedy package eliminates the overlap between Arcelor and Mittal in heavy
sections in the EEA in terms of sales and reduces significantly the capacity overlap.
Moreover, it includes steel production and distribution assets located in Eastern Europe,
an area which, within the EEA-wide relevant geographic market, was likely to be
particularly affected by the transaction. Stahlwerk Thüringen and Pallanzenos are the two
Arcelor facilities geographically most proximate to Mittal’s plants in Eastern Europe.
The Commission has concluded that the proposed remedy package is effective in removing all
competition concerns brought about by the proposed transaction at the EEA level. Moreover, the
Commission has also concluded that the package satisfactorily addresses potential concerns
Page | 46
specific to the so called CHPS countries in that most of the production capacity to be divested is
located close or within the CHPS area.
The assessment of the proposed remedy package carried out by the Commission shows that the
three manufacturing facilities to be divested, together with the related commercial and marketing
assets, constitute stand-alone and viable businesses capable of competing with Mittal and
Arcelor on the market for the production and direct sale of heavy sections. The three facilities to
be divested account for roughly 1-2 million MT in sales in 2004, which removes the entire
overlap brought about by the proposed transaction. The geographic location of the three facilities
and the addition of commercial teams and distribution assets in Poland and in the Czech
Republic provide sufficient guarantees that the divested businesses will have the capacity to
compete with Mittal/Arcelor and that competition concerns will be entirely removed, in
particular in Eastern Europe.
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CASE STUDY II: DLF
The case under consideration concerns competition issues and consumer interests in the
residential real estate market in India. Along with the growth in real estate industry, accompanied
by increased level of income, demand for residential units has also risen throughout India.
Residential sector constitutes a major share of the real estate market; the balance comprising of
commercial segment like offices, shopping malls, hotels etc. Real estate industry in India was
said to be worth $12 billion in the year 2007 and is estimated to be growing at the rate of 30
percent per annum.
Background:
The informant in this case has alleged unfair conditions meted out by a real estate player.
It has been alleged that by abusing its dominant position, DLF Limited (DLF) has imposed
arbitrary, unfair and unreasonable conditions on the apartment - allottees of the Housing
Complex ‘the Belaire’, being constructed by it.
The Informant
The informant in this case is Belaire Owners’ Association. The association has been
formed by the apartment allottees of a Building Complex, ‘Belaire’ situated in DLF City, Phase-
V, Gurgaon, being constructed by DLF. The President of the association is Sanjay Bhasin, who
himself is one of the allottees in the complex.
Respondent: DLF Limited :
DLF Limited (referred to hereafter as DLF or DLF and includes group companies), the
main respondent is a Public Limited Company. DLF with its different group entities has
developed some of the first residential colonies in Delhi such as Krishna Nagar in East Delhi that
was completed as early as in 1949. Since then, the company has developed many well known
urban colonies in Delhi, including South Extension, Greater Kailash, Kailash Colony and
HauzKhas. However, following the passage of the Delhi Development Action 1957, the state
assumed control of real estate development activities in Delhi, which resulted in restrictions on
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private real estate colony development. As a result, DLF commenced acquiring land outside the
areas controlled by the Delhi Development Authority (DDA), particularly in Gurgaon. The
company was listed on July 5, 2007 and is at present listed on NSE and BSE.
Assessment of Relevant Market
The Relevant Geographic Market in the case is the territory of Gurgaon of National
Capital Territory of Delhi in which the builders/developers including DLF are developing and
selling residential houses. A person who wants to reside in Gurgaon for various reasons like
offices, work place, schools, and colleges and will like to settle in Gurgaon will ask a builder to
develop and build arouse for himself in Gurgaon only.
The geographic limit of real estate is determined with reference to its locations. The geographic
market is defined in case of services towards real estate once the determination is being
considered of competition or lack of it in particular area or place. There is no doubt that
builders–developers not only from Gurgaon but from National Capital Territory of Delhi and all
over India can provide their services to the consumers of Gurgaon for developing and
constructing a house. However, that is a question of entry in the market. Thus, the relevant
geographic marketing this case, has to be Gurgaon.
Assessment of Dominance
As per Draft Red Herring Prospectus filed before SEBI, dated 25.05.2007, DLF in its
own admission has stated that “We are the largest real estate development company in India in
terms of the area of our completed residential and commercial developments.
The Annual Report of the Company for the year2009, states, that “ DLF’s dominant position in
Indian homes segment is established due to its trusted brand with superior execution track
record, pioneered townships and group housing in India, complete offering of super luxury,
luxury and mid-income homes”.
The market share of Altogether with its subsidiary company – DLF Home Developers Limited is
the highest in India among all the listed companies engaged in housing construction during the
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year 2007-08 and 2008-09. In the year 2007-08 it reached 40.46% and in the year 2008-09 it
was32.65%.
Sales of DLF New Gurgaon Developers Limited to the extent of Rs.300.24crore for the year
2008-09 have not been considered. If that is also taken into account, the market share of DLF
would go up further.
The market share of the DLF among all companies (for housing construction) in the relevant
market of Gurgaon during the period 2007-08 and 2008-09 shall be around 70% and 65%
respectively.
An analysis of total sales figure of 82 companies taken from CMIE, who are engaged in real
estate(residential) business and are not only operating in Gurgaon but also outside Gurgaon and
all over India, also establish the superior market share of DLF at about 44%. For the year 2009-
10 also, the market share of DLF in relevant market to be about 50%.Sales, operating profit,
PAT, Market capitalization, enterprise value, of a larger sample of different real estate players
taken and analyzed in Outlook profit (issue dated October 2010) has also stated that DLF is a
market leader in India in almost all respect also in quarter ending June 2010. The share of the
second large real estate company is almost 1/3rd of DLF. As far as companies operating in
Gurgaon are concerned on the basis of their all India sales during Quarter ending June 2010,
market share of DLF is about 45% as compared to second largest company i.e. Unitech, about
19%. If sales figure only for relevant market of Gurgaon is taken, the market share of DLF may
be much more than the above figures since it is mainly concentrated in Gurgaon.
It can be finally concluded that DLF is having the highest market share among all the companies
operating in the relevant market over a period of three years 2007-08, 2008-09, 2009-10 and also
for the quarter ending June 2010, which establishes that its position as market leader remains
undisputed over last three-four years. DG has stated that it cannot be said that any other player
enjoys similar or near to similar market share than that of DLF. In their annual reports and
various literatures, DLF have stated that Unitech is one of their close competitors; however,
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market share of DLF is more than double of the market share of Unitech its nearest competitor as
on date.
Dependence of consumers on the enterprise:
DLF has acquired land quite early and has developed integrated township in Gurgaon. If
consumers want to have all the developed facilities within the DLF Township, they will have to
opt for residential units developed and constructed in Gurgaon. Further, there is superlative
brand power of DLF which affects consumers in its favor.
Entry barriers:
There exist many barriers such as regulatory barriers, financial risk, high capital cost of
entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of
substitutable goods or service for competitors since DLF is in this business from 1946.
Countervailing buying power:
The consumers are dependent on DLF in Gurgaon because of its huge land reserves and
projects under construction. The demand is huge while the supply is less. Thus, there is no case
of countervailing buyer power in this case which has any sobering impact upon the dominance
and market power of DLF.
Citing case laws from other jurisdictions like EU, DLF may be considered dominant since the
market share of the nearest competitor is much less than DLF, and therefore there is limited
competitive constraint
Thus due to its sheer size and resources, market share and economic advantage over its
competitors DLF is not sufficiently constrained by other players operating on the market and has
got a significant position by virtue of which it can operate independently of competitive forces
(restraints) and can also influence consumers in its favor in the relevant market. Based upon all
the above factors, it can be concluded that DLF enjoys a position of Dominance in terms of
Section 4 of the Act.
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Abuse of Dominance
It has been alleged in the information that by abusing its dominant position, DLF has
imposed 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.
The informant has submitted that DLF has used its position of strength in dictating the terms by
which while on the one hand it has excluded itself from any obligations and liabilities, on the
other hand it has put the apartment allottees in extremely disadvantageous conditions. The
allegations of the informant are summarized in the paragraphs below.
DLF announced a Group Housing Complex, named as ‘The Belaire’ consisting of 5 multi-storied
residential buildings to be constructed on the land earmarked in Zone 8, Phase-V in DLF City,
Gurgaon, and Haryana. As per the advertisement of DLF, each of the five multi-storied buildings
was to consist of 19 floors and the total number of apartments to be built therein was to be 368
and the construction was to be completed within a period of 36 months. However, in place of 19
floors with 368 apartments, which was the basis of the apartment allottees booking their
respective apartments, now 29 floors have been constructed. Consequently, not only the areas
and facilities originally earmarked for the apartment allottees are substantially compressed, but
the project has also been abnormally delayed. The fall-out of the delay is that the hundreds of
apartment allottees have to bear huge financial losses, as while on one hand, their hard-earned
money is blocked, on the other hand, they have to wait indefinitely for occupation of their
respective apartments.
The informant has submitted that as the Apartment Buyer’s Agreements were signed months
after the booking of the apartment and by that time the allottees having already paid substantial
amount, they hardly had any option but to adhere to the dictates of DLF. In this case, DLF had
devised a standard form of printed “Apartment Buyer’s Agreement” for booking the apartments
and a person desirous of booking the apartment was required to accept it in ‘toto’ and give his
assent to the agreement by signing on the dotted lines, even when clauses of the agreement were
onerous and one-sided.
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The informant has stated that agreement stipulates that DLF has the absolute right to reject and
refuse to execute any Apartment Buyer’s Agreement without assigning any reason, cause or
explanation to the intending allottees. Thus, there is neither any scope of discussion, nor
variation in the terms of the agreement.
DLF had inserted clauses that the apartment allottees would not even be permitted to carry out
any investigation and would not be entitled to raise any objection to the competency of DLF.
DLF will retain 10% of the sale price as earnest money for the entire duration of the apartment
on the pretext that the apartment allottee complies with the terms of the agreement.
Further, the apartment allottees would not be entitled to any interest on the said amount either.
Similarly, if there is a change in the super area at the time of completion of building and issuance
of occupation certificate, although the total price shall be recalculated but the amount, if any is
required to be returned, the apartment allottees would not get the refund and rather DLF would
retain this amount, with the right to adjust this refund amount against the final installment as
well. The apartment allottees also in the process have to forego the interest thereon.
While time has been made essence with respect to apartment allottee’s obligations to pay the
price and perform all other obligations under the agreement, DLF has conveniently relieved itself
by not making time as essence for completion in fulfilling its obligations, more particularly,
handing over the physical possession of the apartment to the apartment allottee.
In future the apartment allottees shall be at the mercy of DLF who has reserved to itself the right
not only to alter/delete/modify building plan, floor plan, but even to the extent of increasing the
number of floors and /or number of apartments. While the common areas and facilities might
stand largely compressed on count of increased number of floors, the said clause has absolutely
debarred the apartment allottees from claiming any reduction in price occasioned by reduction in
the area. The apartment allottees would only receive a mere formal intimation. In case the
apartment allottees refuses to give consent, DLF has the discretion to cancel his agreement and to
refund the payment made by the apartment allottees that too with the interest @9% per annum,
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which is wholly arbitrary as in case of default by the apartment allottees, the rate of
interest/penal interest is as high as18%.
The informant has further submitted that clause 10.1prescribes a period of three years from the
date of execution of the agreement. However, while DLF started collecting the payment from the
allottees, even if the date of allotment, it is not at all bothered that its collection of money must
be commensurate with the stage-wise completion of the project.
Also in the event of DLF failing to deliver the possession, the apartment allottees shall give
notice to DLF for terminating the agreement. DLF thereafter has no obligation to refund the
amount to the apartment allottees, but would have right to sell the apartment and only thereafter
repay the amount. In the process, DLF is neither required to account for the sale proceeds nor
even has any obligation to pay interest to the apartment allottee and the apartment allottees has to
depend solely on DLF. The quantum of compensation has been unilaterally fixed by DLF at the
rate of Rs. 5/- per sq. ft. (or even Rs. 10/- per sq. ft.) of the super area which is mere pittance.
According to informant, DLF can abrogate all that has been promised to the apartment allottees
as in exercise of the power under that clause it is permitted to unilaterally amend or change
annexure to the agreement. The annexure appended to the agreement describe the apartment
area, super area, common areas and facilities, club, etc. as also the nature of equipments, fittings,
which the DLF has contractually committed to provide to the Apartment Allottee.
The decision to increase the number of floors was without consulting the allottees and while
payment schedule was revised based upon the increase in the number of floors, there was no
proportionate reduction in the price tube paid by the existing allottees whose rates were
calculated purely on the basis of 19 floors and the land beneath it although their
rights/entitlements of the common areas and facilities substantially got compressed due to
increase in number of floors and additional apartments.
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The informant has alleged that the various clauses of the agreement and the action of DLF
pursuant thereto are unfair and discriminatory attracting the Competition Act, 2002 and per-se
the acts and conduct of DLF abreacts of abuse of dominant position by DLF.
Report by Director General
DG has contended that as per preamble, the Act is to ensure that the interests of the
consumers are protected and there should be free and fair competition in the market. Taking into
account all the above factors, DG has submitted that the instant case falls within the ambit of the
Act.
As far as relevant geographic market is concerned, DLF has contended that its dominance needs
to be looked into taking into account entire Northern India since the informant has stated that it is
a leading developer in Northern India. DLF has also contended that in any case the geographical
market should be entire NCR and not only Gurgaon.
Based upon exhaustive analysis, DG has stated that the relevant market in terms of relevant
product and relevant geographic market in this case would be services provided by
developers/builders for construction of high end residential buildings carried out in Gurgaon
decision under section 27 of the Competition Act, 2002
In the real estate market, DLF Ltd. has a dominant position within the meaning of the term as per
Explanation(a) to section 4, read with section 19 (4). Finally, the Commission has concluded that
DLF Ltd. is in contravention of section 4 (2) (a) (i) by imposing unfair conditions on the sale of
its services to consumers.
The Commission directs DLF Ltd. and its group companies offering services of building /
Developing:-
i. To cease and desist from formulating and imposing such unfair conditions in its
agreements with buyers in Gurgaon.
ii. To suitably modify unfair conditions imposed on its buyers as referred to above, within 3
months of the date of receipt of this order.
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The facts of this case and the conduct of the DLF, as discussed above and the duration during
which this abuse has continued to the advantage of DLF Ltd. and to the disadvantage of
consumers, warrant imposition of a heavy penalty. Keeping, in view the totality of the facts and
circumstances of the case, the Commission considers it appropriate to impose penalty at the rate
of 7% of the average of the turnover for the last three preceding financial years on DLF.
Therefore, in exercise of powers under section 27 (b) of the Act, the Commission imposes
penalty on DLF Ltd. as computed below:
Particulars Rs. (in crores)
Turnover for year ended 31.03.2009 10,035.39
Turnover for year ended 31.03.2010 7,422.87
Turnover for year ended 31.03.2011 9,560.57
Total 27,018.83
Average (total ÷ 3) 9,006.27
7% of average 630.43
Penalty rounded off to nearest number 630
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7. CONCLUSION
INDIA
In Indian law, a foreign entity desiring to enter into a combination outside India which
affects the relevant market in India, must give a notice to the CCI in the prescribed form to
establish the same. The Competition Commission of India has the power to extend its
jurisdiction beyond the Indian shores and declare any qualifying foreign merger or acquisition
which affects the relevant market in India as void. CCI can exercise its power by way of entering
into arrangements and memorandum of understandings with the regulatory bodies of other
countries in order to facilitate the entire process.
EUROPEAN UNION
Article 4 of the Merger Regulation of European Commission states that merger shall be
notified to the Commission prior to its notification. It shall be notified jointly notified by the
parties to the merger or by those acquiring joint control. They shall also publish the fact of the
notification, at the same time indicating the names of the undertakings concerned their country
of origin, the nature of the concentration and the economic sectors involved. The parties shall
make a submission to the Commission prior to the notification stating that the merger
significantly affects competition in a market within a Member State which presents all the
characteristics of a distinct market and should therefore be examined. The decision whether or
not to refer the case shall be taken within 25 working days starting from the receipt of the
reasoned submission by the Commission.
Articles 1-5 of Implementation Regulation2 of European Commission also makes it more or less
obligatory for the parties to file pre-filing notification as failure to comply with the obligation to
notify renders the parties liable to fines and may also entail civil law disadvantages for them.
COMPARISON
From the above analysis we observe that the procedure for pre-filing notification is
similar throughout the world. The Competition Act throughout the world has been enacted to
protect the consumers, society and the business community. The pre-filing notification is
effective in cases where the transaction is going to affect competition beyond one-member
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nation. It proposes whether the proposed transaction violates the Competition law. Each
jurisdiction has a mandatory merger notification based on targeting parties to "large transactions"
which must notify the agency, supply required information for the review of competition issues
and wait for the lapsing of established time periods before they can legally complete the
transaction.
The Commission needs to swing into action undertaking substantial capacity building to
implement the extra territorial jurisdiction that is embodied in the Competition Act, 2002.
As India integrates at a fast pace with the global economy there is a need to ensure international
co-operation to tackle cross border challenges. Even though the COMPETITION ACT embodies
the ‘effects’ doctrine, its implementation has been more or less ineffective.
The Competition Act is yet to fully come into force as a result of which a significant
jurisprudence under the legislation is yet to be developed. Moreover, the actual implications in
enforcing the rather broad mandate prescribed for the Competition Commission of India are to be
fully realized. The difficulties in implementing the provisions are yet to be encountered; they can
only be anticipated or predicted based on the analysis of the bare provisions of the enactment.
International examples can be of some assistance for the purpose of serving a broad guideline or
a roadmap. They cannot be definitive for other jurisdictions where the legal systems are
differently positioned. The routes taken by Europe and US need not be
necessarily followed by India. They can be digressed from and other alternatives more
suitable to the needs of socio-economic scenario of India can be followed.
For instance, the legislative and administrative mechanism for cross border merger
control as prevalent in US and Europe can serve little purpose while determining the competition
policy for India. It is undeniable that Competition Act has embodied the ‘effects’ doctrine for the
purpose of controlling the cross border mergers and controls. This is an importation of the law
as prevalent in the US. The need and the rationale for including such a provision in the Indian
landscape is contestable. Indian economy is vastly different from the highly developed and
corporation dominated economy of US.
Moreover, the laws of a particular country are chosen in the background of the social and
the economic contexts of a particular country. There are lessons India can and should learn from
the experiences of the Europe and US instead of imitating their legal regimes. Nonetheless the
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efficacy and the merit of the provision need not be dismissed merely because it is based upon the
law prevailing in a different country. The need is to prevent tardy implementation and not to
stifle the entrepreneurship of the corporate sector.
For instance, The corporate sector of India has been over-active in the past few years as
far as the merger activity is concerned, driving the country’s economic growth. Hence,
there is an imperative need not to stifle the growth activity nor give it a free hand. There is a
need to strike the right balance between proper regulation and over-regulation and perhaps learn
from the experiences of its own regulatory authorities as well. The Commission needs to swing
into action undertaking substantial capacity building to implement the extra territorial
jurisdiction that is embodied in the Competition Act, 2002. As India integrates at a fast pace with
the global economy there is a need to ensure international co-operation to tackle cross border
challenges. The experience has been a mixed bag. Since 1990s various sectoral regulators like
those in power and telecommunications have been appointed to attract investment in various
areas as well as ensure healthy competition. However, this augurs a conflict due to an overlap
in competition policy. The fact there have been hardly any problems so far is because the
competition authority has been ineffective. For instance, a plethora of agencies apart from CCI
regulate mergers and acquisitions in India. These include the Telecom Regulatory Authority of
India, Petroleum and Natural Gas Regulatory Board, Central Electricity Regulatory Commission,
Reserve Bank of India, Securities Exchange Board of India, Company Benches, etc. The
interface between sector-specific regulation and competition law in India is unique. In the
immediate past, the Indian economy has witnessed a massive growth spurt. While the fast-paced
development has lifted millions of people up from poverty levels, it has also led to concomitant
challenges. India has seen several economic scandals and other crises during the period of
economic boom. A significant feature of the Indian economic and legal regime during this period
has been a mushrooming of innumerable regulatory authorities. Hence, with several regulatory
authorities cropping up simultaneously, it is natural that they might end up having
overlapping jurisdictions.
Apart from defining its relationship with the existing regulators the Commission needs a
proper mechanism in order to make the regulation effective. This mechanism includes the need
to evolve a well defined and purposive competition policy. There is need for synergy between
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government action and competition. The government also needs to resolve the complexities
that exist due to the inter-relationship between various government policies like trade policy,
industrial policy with competition policy as a whole. The government also needs to resolve the
complexities that exist due to the inter-relationship between various government policies
like trade policy, industrial policy with competition policy as a whole. The imperative need is
thus to develop a synergy between government action and competition. The synergy can be
developed by incorporating a few important touchstones and parameters which shall
ensure a compatible development of the two. These broad parameters can thus be stated as:
Assess all laws and government policies on the touchstone of competition
All government policies should have an explicit statement about the likely impact of the
policy on competition
Governments at the union and the state level should frame and implement policies by
acknowledging the market process
Government should evolve a system of ‘competition audit’ which could be applied to all
existing and future policies
A failure to develop a harmonious relationship between the government policy and the competition policy shall be detrimental to the cause and purpose of both. Competition policy by virtue of its nature leaves an impact across various sectors of the economy. Hence, the failure of any governmental policy especially in the aforementioned areas to take into account the competition issues involved there with would inevitably reduce its effect and thus frustrate the purpose of its incorporation.
Webliography
http://www.indiajuris.com/comlaw.pdf
http://jurisonline.in/2008/11/competition-act-a-critical-analysis/
http://ec.europa.eu/competition/index_en.html
http://www.cci.gov.in/
http://www.caclubindia.com/forum/notifications-of-competition-and-companies-act-1978-2011--135237.asp
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