interplay dynamics between competition & consumer...

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22 | P a g e JOURNAL ON CONTEMPORARY ISSUES OF LAW [JCIL]

VOLUME 6 ISSUE 3

INTERPLAY DYNAMICS BETWEEN COMPETITION & CONSUMER

PROTECTION LAWS IN INDIA

Authored by: Bhagwati Tiwari*

* 5th Year B.A.-LL.B. (Hons.) Student at National Law University, Punjab

______________________________________________________________________________

INTRODUCTION

In 2010, one informant group named Belaire Owners Association1 sets in motion the Competition

Commission of India against a giant real estate developer named DLF alleging that DLF in its

‘standard contract’ had imposed discriminatory and biased conditions, which was an abuse of his

dominant position in the ‘relevant market’ of real estate development. Informants alleged that they

entered into contract with DLF pertaining to buying of apartment and along with the contract they

also paid a substantial booking amount.2 Subsequent, to this payment the parties also became

signatories to a standard & non-negotiable Apartment Buyers’ Agreement. The informants pleaded

before the Commission that since they had already paid a considerable amount of money before

signing the Buyer’s Agreement, their switching cost in addition to searching cost for any other

builder rose substantially and hence they had no other option but to comply with the arbitrary terms

and conditions of the ‘standard contract’ drafted by DLF.3

The Competition Commission of India through the findings prepared by the Director General

concluded that the ever so increasing information asymmetry between the giant market players and

the novice but irrational consumers is allowing the corporates like DLF to play the market & impose

arbitrary terms & conditions to the customers leading to a direct harm and since they are able to

make huge profits by these practices it restricts the entry of new players in the market and hence in

long term these practices do not only harm the customers directly but the whole market and the

competition thereto.4The purpose of citing this example at the very beginning of this paper is to

1 Case No. 19/2010, before CCI. 2 Ibid. 3 Ibid. 4 Ibid.

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make this point vividly crystal that an issue arising out of single cause of action which though prima

facie looks like a matter falling into the jurisdiction of consumer fora can also be heard by the

competition commission and vice versa, hence providing both the adjudicatory bodies a concurrent

jurisdiction.5

This dilemma of how to choose appropriate adjudicatory body can be understood by throwing light

to following two cases which may arise in a market.

CASE I - Complainant decides to move the consumer forum: In such a case as mentioned above

the consumer forum, if properly sought by the complainant would have held that it is a matter

pertaining to ‘direct harm’ caused to the complainant (maybe due to either deficiency of services

or due to unfair trade practices undertaken by the opposite party or any of other n number of reasons

for which the forum would have admitted the matter on merit) and would have subsequently passed

relevant orders.6

CASE II - Informant seeks remedy by moving the Competition Commission: In the same

proposition if the informant would have moved to the Competition Commission of India alleging

that the opposite party through the means of its ‘standard contract’ or other practices indulged in

unfair practices like ‘abuse of dominance’ then the commission would have held that the opposite

party is distorting competition in the market and thus had caused indirect harm to the informant.

Ultimately, in aforementioned both the cases the claimant/informant suffered harm but depending

upon his choice of adjudicatory body i.e. consumer fora or Competition Commission, he could have

received different remedies.

Parallel to the ongoing context of ‘issue of concurrent jurisdiction’ this paper strives to answer the

problem that in such cases what would be the appropriate adjudicatory body for the aggrieved?

This paper shall also strive to establish that a healthy application of competition law & policy in

the domain of consumer disputes not only protects the interests of the consumer but becomes a

5 See Commission Notice on co-operation within the Network of Competition Authorities, OJ 2004 C101/43. Cf. A.

Buenside and H. Crossley, ‘Co-operation in competition: a new era’? European Law Review, 30 (2005): 234-60. 6 Martyn Tylor, The Effect of Anti-Competitive Conduct Crosses Territorial Boundaries, It may Escape Effective

Regulation.

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necessary implication for the much sought after philosophical outcome of “consumer sovereignty”

& “Consumer welfare”.

This paper makes a workable case that how laws proscribing the anti-competitive practices among

the manufacturers, producers, retailers or any other market player for that matter play an integral

part in the promotion of consumer protection.

However, this paper by no means attempts to assert or conclude that the goals of effective consumer

protection can be achieved by mere application of ‘proper’ anti-trust/competition laws & policies

and vice versa. This paper strives to bring home the solution to the questions like, ‘is consumer law

solely responsible for protecting a consumer’s interest in the market or does it requires interference

from the competition laws & policies for guarding him against anti-competitive practices and abuse

of dominance?’

Another important solution to look for in this paper would be a proposition that if either of the two

laws i.e. competition laws or consumer laws exclusively are capable of solving both the harms i.e.

‘direct’ or ‘indirect’ that is caused to consumers (either due to the failure of market in maintaining

the competition or through deficiency in the services provided to the end consumer)? Inter-alia this

paper would like to propose that is it possible to have a singular adjudicating & administrative

authority for governing both the laws as is the case in UK & in USA?7

This paper in the conclusion shall also attempt to establish that both the laws in the ambit of

‘consumer welfare’ cannot perform independently of each other while striving for the ‘consumer

well-being’ which is endgame for both the laws.8

The scope of this study can be divided in following parts: first part of this paper delineates the

competition law & policy in India and attempts to portray the boundaries for the questions that this

paper shall strive to answer in the upcoming parts. Second part of this paper deals with the

legislature available in India revolving around the concept of ‘consumer welfare’ which would

specifically include the Constitution of India, then The Competition Act, 2002 and ultimately the

Consumer Protection Act of 2019. The third part would deal with the intersection of both the

competition policy and consumer protection laws. Fourth part would mention that how consumer

7 P. Evans, “Making competition real: EU super-complaints;” Consumer Policy Review, 15/5 (2005) 8 T. Ramappa, Competition Law in India – Policy, Issues And Development, Oxford University Press, New Delhi, 2006.

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welfare can be achieved through regulation of competition laws and policies of the state with

specific reference to the ‘mergers’.9 Last part of this paper would provide the concluding remarks

for this paper.

LEGISLATIVE BACKDROP OF ‘CONSUMER WELFARE’ LAWS IN INDIA: A

REVIEW

Constitution of India & Consumer welfare

The preamble of Indian Constitution expressly provides for those fundamental values which act as

the cornerstone to many other socio-economic legislations in India as well as the constitution

itself.10 Inter alia the preamble provides for “Sovereign, Socialist, Secular Democratic Republic”11

where the term ‘socialist’ implies socio-economic equality among the people and should not be

confused with the term ‘socialism’ as an political ideology.

Economic equality necessarily entails that state shall strive for wealth distribution among its people

proportional and equitable as far as practical and practicable.12

Article 38 and 39 mandate, inter alia, that “the state shall strive to promote the welfare of the

people” while reflecting the aim of moving India to a welfare state, and in particular directs its

policy towards securing (a) “that the ownership and control of material resources of the community

are so distributed as best to sub serve the common good;”13 and (b) “that the operation of the

economic system does not result in the concentration of wealth and means of production to the

common detriment”.14 Article 38 and 39 of the Constitution of India embody the jurisprudential

doctrine of “distributive justice”15.

9 K. Holmes, ‘Public Enforcement or Private Enforcement? Enforcement of Competition Law in the EC and UK;

European Competition Law Review 25 (2004): 25-36. 10 The preamble of Indian Constitution was amended in 1976. 11 The Term ‘Socialist’ was added to the preamble through 42nd Constitutional Amendment Act. 12 Nakara v. Union of India; 1983 AIR 130, 1983 SCR (2) 165 13 Article 39(b): Constitution of India, 1949. 14 Article 39(c); Constitution of India 1949. 15 Central Inland Water Transport Corporation v. Brajo Nath Ganguly (1986) 3 SCC 156

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In State of Tamil Nadu v. Abu Kavar Bai16 the court upheld the validity of a law enacted for the

nationalization of transport services on the ground that it was for giving effect to the directives

contained in Article 39(b) and (c).17 Thus, it may be argued that at some extent the state’s

interference in the free flow of the market is beneficial as it stops the accumulation and

concentration of wealth in a few hands.

After 1947 the Government of India started laying down policies which aimed at promoting

equitable distribution of wealth and economic power and later on in 1964 the Government

appointed the MIC (Monopolies Inquiry Committee) to investigate the “extent and effect of

concentration of power in the private sector” and to suggest necessary legislative, or political

measures in the light of such findings.

Anti-Competitive Laws in India: Historical Trends

Trade and competition are closely related. As it is observed that “competition is vital to innovation,

strong and effective market, consumer interests, productivity and growth in economy”.18 It is of

common understanding today that competition in the market can either be of adverse nature when

left unchecked or it can promote free and fair market if properly regulated. The adverse effect of

competition on the market can be seen when enterprises indulge into proscribed practices like

entering into ‘anti-competitive agreements’, forming cartels either horizontal or vertical, abusing

their dominance etc. and once these players in the market are properly regulated they offer their

consumers better options to choose from, relatively lower prices, par standard quality of products

etc.

In this context of protecting the market from evil competition, India in 1969 enacted its first ever

anti-competitive law in the form of The Monopolies and Restrictive Trade Practices Act, 1969

(hereinafter mentioned as ‘MRTP Act’). For next seventeen years the MRTP Act regulated all the

anti-competitive aspects of the Indian economy but even after several amendments, a few inherent

defects of the Act were not cured which was basically because the underlying foundation of the Act

16 (1984) 1 SCC 516 17 Ibid. 18 UK White Paper on Competition, July 2001 in Mohan R., New Competition Regime in India, available at

http://www.bukisa.com/articles/441419_new-competition-regime-in-india, last accessed on 16th October 2019

http://www.bukisa.com/articles/441419_new-competition-regime-in-india

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itself suffered from a major problem in the form of approach undertaken by the legislators while

enacting the aforesaid Act.19

The objective of the MRTP Act was “curbing of monopolies” as against the contemporary

competition laws which strive for the “promotion of competition” what the MRTP Act could not

comprehend through its legislative intent was that the monopolies or dominance in the market is

not per se harmful it is the abuse of such dominance which is harmful for the economy.

India’s journey to this contemporary free, fair and competitive economy can be divided into two

halves. First one being pre-1991 era in which main focus of the Indian competition law & policies

was inclined at curbing of monopolies thus, freedom to the market players whether Indian or foreign

was quite limited due to heavy interference of the government in the free flow of the market. Then

after 1991, once India became a party to the World Trade Organization (hereinafter mentioned as

WTO) on 1st of January 1991 it saw a substantial change in the foreign and economic policies of

India vis-à-vis the Indian market.20 It opened its doors for foreign players to enter Indian market

with relative ease and do their business while competing with local players in the market. Thus,

finally enhancing its thrust on globalization and integrating Indian economy with the world

economy via removing controls and resorting to liberalization.21

This policy of the then finance ministry was well received by the people of India but at the same

time there were heavy criticism around also, that this free influx of foreign players in the Indian

market would harm the indigenous manufacturers and retailers. Ultimately now when we see back

at the 90s there is no doubt today that the policy of Liberalization, Privatization & Globalization

(hereinafter mentioned as LPG) is the single best thing that ever happened to the Indian economy.22

As was already foreseen by the Indian economists and academicians of that time that post 1991, the

then prevailing anti-competitive law in the name of MRTP Act, 1969 would not be able to satisfy

the ever-growing demands of the dynamic Indian market as it suffered from a foundational defect

19 Seethankom G Arun, Regulation And Competition: Emerging Issues In an Indian Perspective, 2 (Centre on

Regulation & Competition, Working Paper No. 39, 2003). 20 P. J. Slot and Ac Johnston, An Introduction To Competitoin Law, 5 (1st. English Ed., Hart Publishing, 2006). 21 T. Ramappa, Competition Law in India – Policy, Issues And Development, Oxford University Press, New Delhi,

2006 22 T. Ramappa, Competition Law in India – Policy, Issues And Development, Oxford University Press, New Delhi,

2006.

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of approach towards the competition. Ultimately due to ever so increasing inadequacies of the

MRTP Act in restricting the anti-competitive practices and abuse of dominance in the market in the

ambit of domestic as well as foreign trade led to the formation of a “High level Committee” in

October of 1999.23 The purpose of this High Level Committee was to advise the policy makers and

legislators about any and all changes that are required.

The committee’s report expressly stressed the need to harmonize the ongoing conflict between the

competition policy of the state and other government regulatory frameworks and policies. While

mentioning the inherent limitations of the MRTP Act the committee recommended the enactment

of a new competition law suitable to the changing needs of the contemporary India and the world.

In 2002 the Competition Act was enacted by the parliament while scrapping the erstwhile MRTP

Act of 1969 on the recommendations of the Raghvan Committee.24

One other finding of the Raghvan Committee was that “competition law and policy must emerge

out of a National Competition Policy and thus, a need for drafting NCP was recognized in the mid-

term appraisal of the Ninth Plan25 and finally in 2011, Government formulated a National

Competition Policy.

‘Pure’ Consumer Protection Law in India; Consumer Protection Act, 2019

While we have understood the history of the legislations pertaining to ‘consumer welfare’ in the

terms of competition laws and policies there is one another important aspect to such goal in the

mandate of Consumer Protection Act of 2019 (hereinafter mentioned as CPA 2019) which recently

repealed the erstwhile prevalent Consumer Protection Act of 1986 (hereinafter mentioned as CPA

1986).26

A holistic understanding of the consumer protection laws must start with the understanding its basic

unit which is a ‘consumer’, because a consumer forms the focal point of a nation’s economic

23 The Committee mentioned here is the ‘Raghavan Committee’ chaired by S. V. S. Raghavan, and the report submitted

by it is known as ‘Raghavan Committee Report”. 24 Richard Whish, Competition Law, Oxford University Press, New Delhi, 2005. 25 Kati Cseres, The Impact of Consumer Protection on Competition and competition law, the case of deregulated

markets, SSRN available at http://paprs.ssrn.com/so13/papers.cfm?abstract-id+903284. 26 Pradeep S. Mehta and Anant Sharma, The Consumer: What to do?, Calcutta, Unity and Trust Society, 1989, p.3.

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development as, in a competitive market it is the consumer who decides the success or failure of a

particular player and such philosophy is well enshrined in the doctrine “consumer is king”.27 In

traditional theory the consumer is considered to be well-informed about costs, price and quality of

goods28 but lately amid advanced modern marketing and sales techniques today’s consumer feels

betrayed and voiceless. Though he dreams of a ‘buyer’s market’ where he can order what he desires

but instead everywhere he looks there is a ‘seller’s market’.29

If we talk about the meaning of the term ‘consumer’ it is quite explicit in the name only as “one

who consumes” but if the conversation is steered towards the concept encompassing the term

‘consumer’ then its altogether a different thing, as then the meaning would start revolving around

terms like consumerism, ‘consumer sovereignty’30 and consumer welfare. A consumer within the

ambit of CPA, 2019 means any individual who purchases a good or services for his ‘personal use’

and not for his ‘professional use’.31

‘Consumerism’ as an ideology started gaining traction in 1960s as another response to the alleged

evil capitalism, which represented a movement that promotes the interest of consumers through

protecting them from unsafe, low quality products, fraudulent advertising and other unfair trade

practices.32 Consumerism also aims at making the government more responsible for protecting

consumer interests via various legislation, policy or regulations.33

The CPA, 2019 safeguards the economic rights of the consumer effectively against the exploitative

and unfair practices undertaken by the supplier while transacting with the consumer. In J. J.

Merchant & Others v. Shrinath Chaturvedi34 the Hon’ble Supreme Court on behalf of the CPA,

27 Gopal R. Bhatt, “Consumerism Concept and its Need in our Era”, Indian Journal of Marketing, June-August, 1985,

p.3. 28 P. Sivaprakasam, “Recent Trends that reflect the Consumer Protection in India”, Indian Consumer Co-Operator,

Vol.22, No.1, January- March, 1995, p. 4. 29 J. Stuyck, ‘EC Competition Law after Modernisation: more than ever in the interests of consumers’, Journal of

Consumer Policy, 28 (2005): 1-30, p. 27. 30 Cheena Gambhir, Consumer Protection Aministration: Organization and Working, New Delhi Deep & Deep

Publications, 2007, p. 30. 31 G. Howells and S. Weatherill, Consumer Protection Law, 2nd edn (Aldershot, 2005), Chs 1 and 12. 32 Gurjeet Singh, The Law of Consumer Protection in India: Justice within Reach, New Delhi, Deep & Deep

Publication, 1996, p. 6. 33 S. V. Gulshan, Consumer Protection and satisfaction, New Delhi, Manas Publications, 1994, p. 3. 34 AIR 2002 SC 2931

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1986 stated the basic purpose of the act as “to render simple, inexpensive and speedy remedy to the

consumer with complaints against defective goods and deficient services.”35

The Act also provides for setting up of Consumer Protection Councils at the central, state and

district level along with the National Commission, State Commission and District forum, these

councils act as catalyst to change so that the present market system functions for the welfare of the

consumers and for satisfying their needs rather than being subservient to the interest of industrialist

and monopolies.

CROSSROADS BETWEEN COMPETITION LAW AND CONSUMER LAW

The primary goal of competition law is to promote and maintain competition in the market.36 It

achieves so by demarcating those business practices which are beneficial for the economy and

ultimately to the consumers from those practices or transaction which are detrimental to the proper

growth of the economy. Those practices which are proscribed by the Competition Act, 2002

includes formation of cartels37, entering into anti-competitive agreements38 and abuse of

dominance39 etc. One might say that competition law primarily cares about the proper and efficient

allocation of resources so that a free and fair economy can be ensured.40

In the other quadrant we have ‘pure’ consumer protection laws, which in Indian context is

Consumer Protection Act, 2019* (hereinafter mentioned as CP Act) which aims fundamentally to

protect the end consumer from any unfair trade practices or any injury that may occur ‘directly’ to

him due to his disadvantageous position in the market when compared to the manufacturer,

producer, seller or retailer. It must be assumed for the working of this paper that a consumer stands

35 V. Lokanathan and A. Lakshmiratan, Business and Society, Madras, emerald Publishers, 1984, p. 187

*Repealed the erstwhile Consumer Protection Act, 1986. 36 William Kolasky, What is Competition? A Comparison of US and EU Perspective, 49 Antitrust Bill 29/ 2004

(Explains the meaning of the term ‘competition’) 37 J. Stuyck, ‘EC Competition Law after Modernisation: more than ever in the interests of consumers’, Journal of

Consumer Policy, 28 (2005): 1-30, p. 27. 38 Section 3; The Competition Act, 2002. 39 Section 4; The Competition Act, 2002. 40 Kati. J. Cseres, Competition and Consumer Policies: Starting Point for Better Convergence (Amsterdam Centre for

Law & Economics Working Paper Group, Paper No. 2009-06)

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at a disadvantageous position41 due to his inferior bargaining power having sources in myriad

reasons like lack of market education, poverty, financial illiteracy, ignorance, irrationality etc.42

On a bare perusal of the preambles of different competition law statutes and policies around the

world it becomes quite vivid that the aspect of ‘consumer welfare’ is the primary aim of such laws.43

This paper establishes the principal of common shared goal of both the laws with relative ease, still

the importance of further study of such intersection lies in the difficulty that even though both the

laws have a lot to play in the course of governing ‘consumer welfare’ there is quite a distinctive

path taken by their governing policies which ultimately affects the remedy and the course of inquiry

into complaints filed before such adjudicatory bodies.44

This paper takes quite a creative liberty while using the term ‘consumer welfare’ as it is relatively

quite difficult to delineate the term in context of both the relevant laws as well as in principle

because it is such dynamic term that it undertakes the color of whatever relevant market it is thrown

to. For example what falls within the ambit of ‘consumer welfare’ in the field of healthcare industry

can be quite different than that to the relevant market of furniture, in the former the ambit of

consumer welfare is quite sensitive and volatile when compared to the latter because in the market

of healthcare industry there is a lot at stake when compared to the deficiency of service while buying

a furniture.45

The Hypothesis of ‘Unification’

At this junction this paper must raise the question that can either laws i.e. competition law and

consumer protection laws sustain independently? and is it possible that only one of the either laws

is capable enough to provide the somewhat utopian concept of ‘consumer welfare’?

41 “The Author believes that the concept is utopian because what can be considered ‘consumer welfare’ at a particular

time and in a particular market may not be able to hold water if it is thrown to some other relevant market.” 42 J. Stuyck, ‘EC Competition Law after Modernisation: more than ever in the interests of consumers’, Journal of

Consumer Policy, 28 (2005): 1-30, p. 27. 43 The preamble of the Competition Act 2002 mentions the aspect of ‘consumer welfare’ in the following terms “An

Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to

prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the

interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for

matters connected therewith or incidental thereto.” 44 Jayant Kumar and Garima Panwarl (2013), “An interface between Competition Law and Consumer Welfare”,

Competition Law Report, Vol. 3 Part III, December, p. 325. 45 Jayant Kumar and Garima Panwarl (2013), “An interface between Competition Law and Consumer Welfare”,

Competition Law Report, Vol. 3 Part III, December, p. 325.

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For proper understanding of the proposed hypothesis the author puts forward following two theories

and then these two theories shall be analyzed to bring home the point that how it is possible to have

only one adjudicating body through merging of competition commission with consumer forum.46

THEORY I: All the players in a market compete with each other to gain the consumer attention

and thus ultimately convert it into a profitable venture by satisfying the needs of such consumers.47

This competition for making of a profit in the market and sustaining in a cut throat economy totally

depends upon their capacity to satisfy consumer’s demand which is only possible via providing

their customers with standard goods and services. Thus, if the competition policy of a state* is

strong enough that it can maintain a free and fair competition in the market then theoretically

speaking the consumers of that state do not require a consumer protection law because the players

are competing (fairly) in the market for providing best possible services while maintaining relations

(because ultimately satisfied consumer is the only way to gain profitable share and sustain in the

competition) then these players would refrain from indulging in unfair trade practices and providing

sub-par standard goods and services which is fundamentally the task of consumer protection laws.

Thus, we can now understand that even though the competition policies are framed for the

maintenance of a free and fair market if it is substantially well made and well-regulated then there

is no need of consumer protection laws (theoretically speaking) because the competition policies

ensure competitive market and to sustain in a competitive environment no player can afford to

betray the consumers in any possible way (either through indulging into the unfair trading practices

or providing deficient quality goods or services).48

This ultimately leads to a happy and satisfied customer on whom no harm is brought upon by the

market thus keeping him out of consumer forum and ultimately in long term making the consumer

protection laws obsolete. It is also very easy to perceive here that in a competitive market those

players who want to sustain in the competitive economy cannot afford to risk their goodwill because

once the customer loses his trust in the market then it’s very difficult for seller to thrive in the

46 Gurjeet Singh, The Law of Consumer Protection in India: Justice within Reach, New Delhi, Deep & Deep

Publication, 1996, p. 6. 47 “Competition Laws in India – an Overview” Kocchar and Co. Advocates and Legal Consultant, available at

“www.kocchar.com/pdf/Rationale_for_competition_laws.pdf”, Last accessed 20 October 2019.

* The term ‘State’ here implies the political concept of statehood and not mere physical boundaries.

* The term ‘State’ here implies the political concept of statehood and not mere physical boundaries. 48 V. Lokanathan and A. Lakshmiratan, Business and Society, Madras, emerald Publishers, 1984, p. 187

http://www.kocchar.com/pdf/Rationale_for_competition_laws.pdf

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competition for long, as his consumers would switch to other similar supplier of product or services.

Thus, this point also emphasize that once fair competition in the market can be ensured it would

automatically weed out the dishonest suppliers who indulge in unscrupulous activities to boost their

profit share.

THEORY II: Consumer protection laws strive to relieve the customers from any direct harm that

may be caused to them through any transaction undertaken to buy any goods or services. Such

harms can take a myriad forms and occur in n number of ways for example we studied the case

against DLF in which a direct harm was caused to the home buyers because of the nature of the

“Buyers’ Agreement”. The informant/complainant alleged that the font of the agreement was too

small to read comfortably also the nature of such contract was not intimated to the customers in

addition to these the terms and conditions of the agreement were onerous, unilateral and biased

against the buyers. The customer can get relief against such direct harm by moving to the

adjudicatory body provided under the statute which in Indian scenario is District/State/National

forum/commission.49

Now after understanding the direct harm caused to the consumers and the power of the adjudicatory

body to relieve them the theory which this paper proposes is that if theses adjudicatory bodies are

made capable enough that ‘any’ problem which may occur and bring harm to the consumers can be

cured by the forum/commission then there is no need for distinction between the direct or indirect

cause of such harms. If anyhow sufferings of the customers can be cured by the consumer forums

then theoretically speaking there is no need of having competition laws or policies which are

fundamentally aimed at protecting the end consumers from any harm caused indirectly.

With a comparative reading of both the abovementioned theories the question this paper puts

forward is that can either of the two laws is sufficient in theory to completely satisfy the state with

its aim of ‘consumer welfare’? Or do both the laws require each other in a complimentary way?

One patent solution to this question which the author can comprehend is what would happen if

leaving aside the general and theoretical tone of this question we discuss a few peculiar and practical

instances. One being a situation related to infrequent purchases from a certain supplier, when we

49 “Competition Laws in India – an Overview” Kocchar and Co. Advocates and Legal Consultant, available at

www.kocchar.com/pdf/Rationale_for_competition_laws.pdf, Last accessed 20 October 2019.


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started with the basic assumption that competitive market leads to satisfied consumer because all

of the players in a competitive market rely on their goodwill for long run profits this paper

deliberately left out the example of such transactions which are highly infrequent. In such scenarios

where the consumer is only going to purchase a certain item hardly once or twice in his life time,

the supplier of such item need not to have to maintain a goodwill in the market. In such instances

even though the supplier is a part of a free and fairly competitive market he can still indulge into

unfair trade practices.50 It is for such cases we need both the laws working complimentary to each

other and not any one law serving both the purposes, because where the function of consumer

protection law is enhancing the customer’s ability to make an effective choice among the various

options available in the market at the same time it is the function of competition law to ensure the

presence of various options for the consumer to choose from by maintaining a healthy and

competitive market environment.*

Comparative Legal Approach to the study

This point in the study shall be apt for having a comparative legal approach to this question. The

separation of adjudicatory bodies in form of CCI/COMPAT** and District Forum/State

Commission/National Commission provided under the relevant legislatures in India is in quite

contrast to the mechanism established in USA and UK where there is no differentiation between

the matters arising out of competition law failure or consumer protection failure for both the issues

are heard by the same body.51

The adjudicatory body in USA is established under the name of “Federal Trade Commission” and

in the UK it is known by the name of “Office of Fair Trading” both the bodies mentioned here in

USA and in UK are entrusted with the task of enforcing both the laws i.e. competition law as well

as the consumer protection laws and cure any harm caused to the consumers in case of failure

thereof. Now again a food for thought here is that if major economies of the world having advanced

50 Gurjeet Singh, The Law of Consumer Protection in India: Justice within Reach, New Delhi, Deep & Deep

Publication, 1996, p. 6.

* More can be read on this hypothesis under part 4 of this paper.

** COMPAT authority is shifted to NCLAT. 51 Kati. J. Cseres, Competition and Consumer Policies: Starting Point for Better Convergence (Amsterdam Centre for

Law & Economics Working Paper Group, Paper No. 2009-06).

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legal systems than that of India are not having two disjointed adjudicatory bodies then why do India

is a having a separate commission for enforcement of competition laws and other body for hearing

of consumer disputes? One naïve answer to such problem can be ‘administrative convenience’ but

the problem with such solution is that it is not thoroughly thought out, because if merely the

separation of both the bodies is meant for bringing convenience in administration and adjudication,

then a better solution to that is to legislate right policy tools needed for implementation along with

better and abundant infrastructure which can readily cure any harm caused to the consumers without

adding to the backlog of civil cases pendency in India in addition to this establishment of multiple

branches or benches instead of having two separately disjointed bodies would also help a lot.52

This paper puts forward the policy for merging both the adjudicatory body in one more powerful

and well-regulated body having the authority to deal with the matters arising out of competition

Act, 2002 as well as Consumer Protection Act, 2019. This theory for the unification of both the

bodies is particularly helpful because these two laws cannot live in isolation to each other. Both are

complimentary to each other in the sense that both laws have common shared aim of ‘Consumer

welfare’ for achieving the stated objective it is necessary that the interaction between both the

policies is well understood and regulated which is only possible if the power to deal with both the

laws is vested in the same adjudicatory body. It would also be justified in the name of doing

complete justice and leaving behind good and binding precedents, because if one issue can be heard

by two adjudicatory bodies then at times these bodies might pronounce conflicting judgment which

would only hamper the development of legal literature and shall pull back the ongoing evolution of

‘consumer welfare’ laws.

This hypothesis of ‘unification’ propounded by this paper can also be understood in the light of

how NCLT (National Company Law Tribunal) in India performs. NCLT is an adjudicatory body

established and vested with the powers of hearing matters arising out of two laws which are

Companies Act, 2013 and Insolvency & Bankruptcy Laws, 2016.

The hypothesis of ‘unification’, however does not preclude that if a single body is given the function

of adjudication it should read both the laws in a similar tone while interpreting because even though

the end goal of both the laws is identical in nature the policy to reach such goals are quite different.

52 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008).

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Where the competition law and policy strive for maintaining of free and fair competition in the

market the fundamental focus of the consumer protection law is on giving the consumers an equal

platform while bargaining with the supplier in a trade/transaction.53

Junction of Remedies

First two paragraphs of this part makes it quite clear that if there is a direct harm to the consumer

caused due to deficiency in product or services purchased by the consumer then it is matter

pertaining to the consumer protection laws and thus the appropriate adjudicatory authority for

seeking remedy would be the consumer forum established under the statute governing the consumer

protection laws. On the other hand if the consumer suffers an indirect harm due to the market failure

which is caused due to any anti-competitive practice or abuse of dominance then it becomes a matter

pertaining to the competition laws and for which the relevant adjudicatory body in India is the

Competition Commission of India. The problem lies in the adjudication of those types of matters

or issues which lie at the crossroads of both the consumer protection as well as competition laws.

For proper understanding of such cases a proposition can be taken as follows which is patently

inspired by the famous “Snail in a bottle case”.54

‘X’ buys a ginger beer bottle from a retailer ‘Y’ and the manufacturer of such ginger beer is ‘Z’.

‘X’ drinks the ginger beer but in the end finds a snail in the bottle which results in immediate

health as well psychological uneasiness to him. ‘Z’ who is the manufacturer of such ginger beer

is a dominant player in the relevant market and has exclusive contracts of sale with all the

retailers of the city of which ‘Y’ is one.

In the abovementioned illustration there is both a direct as well as an indirect injury to the consumer.

Direct in the sense that there is a deficiency in service provided by the manufacturer of the drink

and indirect in the sense that the manufacturer ‘Z’ is abusing his dominance by not providing

standard quality products and escaping the repercussions as it is dominant player in the market

having exclusive sale contracts with the retailers in the city. In such scenario the consumer can

53 “Competition Laws in India – an Overview” Kocchar and Co. Advocates and Legal Consultant, available at

www.kocchar.com/pdf/Rationale_for_competition_laws.pdf, Last accessed 20 October 2019. 54 Stephen Rhodes; Reducing Consumer Ignorance: An Approach and its Effects, 20 Antitrust Bill 309 (1975)


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approach both the adjudicatory bodies provided under consumer protection and competition law

statute i.e. the consumer fora or competition commission.

In Pravahan Mohanty v. HDFC55 complainant alleged that bank (HDFC) was holding a dominant

position in the market and the terms and conditions imposed by the bank in its ‘Card Member

Agreement’ were unfair and discriminatory towards the consumers and also the customers were not

intimated with regard to the unilateral nature of the contract before signing of the agreement56. The

complaint was ultimately dismissed by the Commission on the ground that the alleged bank was

not in a dominating position in the market and hence did not fall under the ambit of Section 4(2)

(a) of the Competition Act, 2002. This matter before the Competition Commission can act as a

perfect prototype of various other complaints that are filed before the commission with regard to

the allegations made against abuse of dominance, most of the times these allegations revolve around

the imposition of unfair terms and contracts in the form of ‘standard contracts’.57

A patent look to the abovementioned case workably concludes that the complainant could have

instead moved to the relevant consumer forum but the allegations pertaining to the dominant

position and the abuse thereof triggered the Competition Commission and even though the bank

was indulging in unfair trade practices the informant could not get relief because the complaint was

rejected on the point that the bank was not in a dominating position in the market.

After reviewing such cases one might ask that, how one can decide what would be the appropriate

adjudicatory body to approach when the informant/complainant can approach either of the two

bodies i.e. competition commission or consumer forum. The solution to such questions shall be

attempted by this paper in the upcoming chapters.*

Pravahan Mohanty v. HDFC is a perfect example to understand that how even when the issue at

hand is only related to the unfairness in trade practices like preparing of unilateral and onerous trade

agreement the complainant often while drafting the complaint allege that the opposite party is

55 Case No.17/2010, decided on May 23, 2011 56 “The terms and conditions were of such nature that it allowed the bank authorities to alter the contract and negotiation

agreements without any say of the customers thus bringing heavy prejudice to the consumers also the agreement was

of small print.” 57 EMGEE Greens Co-operative Housing Society v. Mudhit Gupta, Case No. 63/2011, December 14, 2011; In Re Brig

B.S. Perhar v. Hill View Infrastructure Pvt Ltd. with In Re Pritam Perhar v. Hill View Infrastructure Pvt. Ltd., Case

No. 22/2011 & 23/2011, November 30, 2011; Neelam Sood v. Raheja Developers, Case No.62/2011, December 21,

2011.

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having a dominant position in the market and thus spark the jurisdiction of competition commission

even when the matter should have only reached to the consumer forum at best. The commission

also held that the terms and conditions in the agreement prepared by the DLF were in contravention

to the law provided under Section 4(2) (a) (i) of the Competition Act.

Similarly in the Magnolia Flat Owners’ Association v. DLF58 the informant alleged DLF of

abusing its dominance in the market against which the Commission issued a cease and desist order

against DLF on the basis of report prepared by the Director General Investigation and held that the

DLF has imposed unfair terms and conditions in the Buyer’s Agreement against the customers. The

commission also held that the terms and conditions in the agreement prepared by the DLF were in

contravention to the law provided under Section 4(2) (a)(i) of the Competition Act, 2002 and in

furtherance of the order also ordered the DLF to amend its provisions in its ‘standard contract’.

In such cases one may look for the duration and impact of harm that is caused to the economy as

well as individual customer. If harm is caused in long term then it is most probably an issue to be

checked by the competition law and policies of a state, whereas if the harm caused is transient and

have an impact within a shorter period of duration then it is probably a direct harm that is caused

to the customer and the appropriate remedy would be with the relevant consumer forums. Another

test that can be done to determine whether a matter is worth moving to the competition commission

or it should be filed with the consumer forum is the number of people that are affected by such

practice undertaken by the supplier of such goods or services.

Market failure: Who to blame; whether competition or consumer law?

This part of the paper deals with the process of determining market failure with respect to the failure

of either competition law or consumer protection laws. In other words once the market fails to

satisfy the consumer how should we determine that on whose account this failure has occurred,

whether the competition policies have failed in maintaining fair competition in the market or the

consumer protection laws have failed in taking care of the harm caused to the consumer.59

58 Case No. 67/2010.

* For more on the same context please read part IV of this paper. 59 Stephen Rhodes; Reducing Consumer Ignorance: An Approach and its Effects, 20 Antitrust Bill 309 (1975)

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Because if we take a very short sighted approach to a market failure it may deem us justified that

some practices undertaken by the supplier require competition law scrutiny for distorting the fair

competition in the market. Which may arise from countless reasons for example there is high

switching or searching cost or there is information asymmetry in the relevant market or the supplier

has entered into price fixing agreements or the supplier has drafted arbitrary and unilateral standard

contracts. Then the question would be that in such instances whether the competition commission

would be appropriate adjudicatory body to move instead of consumer forum? The solution to such

questions are attempted by the author in this part whilst understanding the interplay between the

market failures that these policy tools seek to rectify.60

This is now well understood in the legal literature pertaining to the ‘consumer welfare’ that if there

is impairment in the options available in the market to choose from then such market failure is

regulated by the competition law whereas if there is a market failure leading to the consumer’s

reduced ability to choose effectively the options available to him is to be regulated by the consumer

protection laws.

Following is an illustration pertaining to consumer law failure that ultimately leads to the failure of

competition law in the long run:

‘X’ is a seller of certain edible item who deceptively claimed that his product is 100% organic

and is certified by the FSSAI when in reality it is not. ‘Y’ misled by the statements purchased

such item, in such case if ‘Y’ discovers the fraud he can move to the consumer court but in case

he never discovers the truth he would continue to buy the products from the same seller. Like ‘Y’

there are thousands of other consumers who are also misled but are not aware and thus, they

keep purchasing the item. Now in long run those suppliers who are genuine and are making

truthful claims about being 100% organic would not be able to survive in the competition against

‘X’ because production of organic product is a costly affair. Higher production cost and selling

at smaller margins would disincentives other players in competing and thus they would ultimately

leave the market.

60 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008).

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In this example prima facie talking the seller indulges in unfair trade practices against which the

appropriate authority would be the consumer protection law and the adjudicatory body established

thereof, but if the dishonesty of the seller is not caught then ultimately as illustrated above it distorts

competition in the market making competition law the appropriate authority.61 The hypothesis for

‘unification’ presented in this paper is strengthened each time such abovementioned cases arise

because an injured consumer can only move to one adjudicatory body and if a wrong body is

approached in such situations the cost of false positives and true negatives increase substantially.62

Also one way to tackle such circumstances which for a short period only looks like a matter

pertaining to customer protection laws whereas in long term they are proved to be distorting the

market itself is through increasing ‘consumer awareness’. Increased consumer awareness will lead

to better exercise of free options available to the consumer but again ironically consumer awareness

can be increased only through the process of actions taken in accordance with the statute of

consumer protection63 which would ultimately lead to a free and fair competition in the market.

‘CONSUMER WELFARE’ ACHIEVED THROUGH COMPETITION LAW

Generally speaking competition law and policies protect the consumer’s interest through checking

anti-competitive practices in the market. Thus, it would be safe to say that the route taken by the

competition laws towards the consumer welfare is not that of a ‘direct’ one as is the case with

consumer protection laws but an ‘indirect’ one. At this point this paper must elucidate the proper

definition of the term ‘consumer’ within both the relevant statutes.64

Under Consumer Protection Act, 2019 the term ‘Consumer’65 usually means the end user or the

final user of the goods and services who does not avail it for “commercial purpose”,66 whereas

61 Stephen Rhodes; Reducing Consumer Ignorance: An Approach and its Effects, 20 Antitrust Bill 309 (1975) 62 Kati. J. Cseres, Competition and Consumer Policies: Starting Point for Better Convergence (Amsterdam Centre for

Law & Economics Working Paper Group, Paper No. 2009-06) 63 Consumer Protection Act, 2019. 64 “How Competition Law can protect consumers interest”, http://www.google.co.in/gwt/x?gl=IN&u=

http://www.classf.org/compL.Rev/issues/vo3issue2Art2.pdf, last accessed 18 October 2019. 65 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008). 66 Explanation of the Section appended to the section 2 of CPA, 2019 should be read together.

http://www.google.co.in/gwt/x?gl=IN&u

http://www.classf.org/compL.Rev/issues/vo3issue2Art2.pdf

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under the Competition Act, 2002 the term ‘consumer’ includes any person who purchases the goods

or services irrespective of whether it is purchased for personal use or commercial purposes.67

Thus, the scope of the term ‘Consumer’ is quite wide in the ambit of Competition Act of 2002,

when compared to the Consumer Protection Act of 2019, as the competition policy enshrines the

provisions for the protection competition in the market thus catering the overall needs of the

society.68 But, at the same time the broader meaning of the term in the competition law makes it

more complex to understand. Robert Bork* equates ‘consumer welfare’ with ‘total welfare’ of the

market not bothering with the short term loss that may occur to the collective consumer wealth

while others emphasize more on the protection of consumer wealth** in the short term as against

the increasing the efficiencies of the players in the long term.69

Rationales for Merger Control

One of the fundamental aim of competition policy is to create ‘allocative efficiency’ but this

objective can sometimes seen to be conflicting with its other main goal which is ‘consumer welfare’

and then there is a trade-off decision that has to be made.70 If we aim towards the ‘allocative

efficiency’ there may arise a situation in which there is a negative impact on the consumer in a short

run.71 There can be in totality three ways for solving this issue first one being that the competition

policy may decide such trade-off in the favor ‘total welfare’ which may bring short term loss to the

consumer’s wealth, thus, leaning towards the efficiency.72 Second way may be through protecting

the consumer’s wealth in the short run which would ultimately bring harm to the long-term interest

of the market. In long term the loss would ultimately occur to the consumer’s because once the

competition policy start protecting the short-term consumer’s wealth then the market players would

67 Jayant Kumar and Garima Panwarl (2013), “An interface between Competition Law and Consumer Welfare”,

Competition Law Report, Vol. 3 Part III, December, p. 325. 68 Stephen Rhodes; Reducing Consumer Ignorance: An Approach and its Effects, 20 Antitrust Bill 309 (1975)

*Robert Bork was former Additional Solicitor General of the United States of America and a legal scholar. 69 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008). 70 “On the evolution and current practice of EC merger control” see J. Cook and C. Kerse, EC Merger (London, 4th

edn, 2005). Naturally older editions contain more historical background. 71 T. Soames and S. Maudhuit, ‘Changes in EU Merger Control’ Parts 1, 2 and 3, European Competition Law Review,

26 (2005) 57-64, 75-82, 144-50 respectively. 72 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008).

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have no interest in increasing their future efficiency by investing in intellectual property rights,

technology and innovation which in long term would keep the prices high. Third way might be

through prioritizing the overall welfare of the economy over short term consumer’s interest73 this

would ensure that the individual’s part in the ‘total welfare’ is safeguarded.

One instance of such trade-off dilemma comes into picture when the competition policy has to deal

with ‘merger agreement’ between firms in a market. The conflicting issue that arise while assessing

the merger agreement is that should they favor the short-term effect of such merger on the

consumer’s wealth and its effects on prices or should it lean towards the positive effects on the

efficiency and innovation which in long term would bring the prices down. In other words the

decision that is to be made is a trade-off between short-term ‘consumer welfare’ vs. long-term

‘consumer welfare’. Generally speaking it sounds like a no-brainer because any day a long-term

‘consumer welfare’ should be picked over ‘short-term’, but it is not that easy because it is very easy

to see the effects of anything which is short-term in nature because public is more receptive towards

short term goals. Also it is very difficult to choose the long-term ‘consumer welfare’ bringing harm

to the consumer’s wealth in the short run because it goes directly against the public policy as state

under no circumstance can deliberately bring harm to the public.

While looking for solutions if we took a comparative legal approach then it is easy to argue against

the stance taken by the European Union’s competition policy for leaning towards the short-term

consumer welfare as it is bringing prejudice to the long term interests of the market.74

The focal point of this debate is choosing between the ‘consumer welfare standard’ vs. ‘total welfare

standard’. The increased market control via merger of players in the market may hike the prices for

a short-term but because both the firms would gain from the mutual innovation, IPR, technology

and capital, the prices of producing goods would fall because of increased ‘productive efficiency’

in the long term the firms would decrease the selling price. In such a situation the economy as a

whole would be benefitted because the merger of the firms led to less expenditure for the firms in

producing goods as well as lower cost for the producers in the long term. But, such a practice would

73 OJ 2004 C31/5, paras 78, 79. Also available via: http://europa.eu.int/comm/competition/legislation/regulation. 74 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008).

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not be allowed by the principles of ‘consumer welfare’ because it may bring short-term harm to the

consumers even if in long term everyone in the economy is benefitted.75

Generally an economist would argue that a merger proposal should not only be rejected because it

may bring short-term harm to the consumers if in the long term such merger increases the ‘total

welfare’ of the economy. But, the ethics which is prevalent in law making would never allow the

‘total welfare’ to trump ‘consumer welfare’. If the competition commission authorities do not settle

this debate in the form of either set precedent or in form of legislation then it would become a

herculean task for them to decide each matter on case to case basis, because in case to case basis

the competition authorities would have to speculate each time the course of the business in near and

long term future i.e. the increase in prices or decrease thereof which in itself is a task undertaken

by the investment professionals and not by judges.

One important concept that can be reflected through the ongoing debate is that proponents of the

consumer welfare standard in contradiction to the total welfare standard support the theory that the

non-economic aspects of the welfare should also be one among various goals of competition law

and policy whereas according to the supporters of the total welfare standard the competition law

should focus only on increasing the efficiency of the market, not bothering themselves with the

“distributional aspects of the transaction”.

This also throws light on another major shortcoming of the Competition Act, 2002 as it is only

concerned with the economic aspect of the market while completely failing to regulate the non-

economic aspects of a transaction for example the health and safety aspects of the market. At this

point on the cross-road the consumer protection laws comes out shining as it focuses on both

economic as well as non-economic aspect of a transaction between a supplier and a consumer by

not only regulating the cost savings of the consumer but also his health and safety.76

75 Jayant Kumar and Garima Panwarl (2013), “An interface between Competition Law and Consumer Welfare”,

Competition Law Report, Vol. 3 Part III, December, p. 325. 76 Vinod Dhall, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford University Press, New

Delhi (2008).

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CONCLUSION

The concluding remarks of this paper shall strive to answer as briefly as possible all the questions

that are raised at some point or the other while undertaking the study.

The first and foremost question that this paper raised that what should be the appropriate

adjudicatory body to move in case there is a market failure? For which now there is no complication

in asserting that whenever the relevant market fails to perform (exclusionary) according to the

desires of the consumer by limiting the available options in the market or restricting the supply of

a certain item, then it is the competition law and the regulatory tools thereby that are the best

remedy. On the other hand when the market fails to perform in the individual market transactions

between supplier and the consumer then the regulatory tools provided under the consumer

protection law are appropriate as they protect the consumers from any direct harm due to unfair

trade practices undertaken by the seller.

The other question that this paper raises is what would be the appropriate authority in cases where

the market fails due to unethical or unfair trade practices of the seller affecting the individual but

also disrupting the free and fair competition in the market? The judicial precedent we have for such

answer is that the competition commission scrutiny shall be apt for such situation but there are a

few tests this paper lays down to decide on the appropriate regulatory tool. First being the balance

of harm between the ‘consumer welfare’ and the ‘total welfare’, if there is substantial harm to the

‘consumer welfare standard’ then the consumer forum is appropriate adjudicatory body whereas if

the harm brought to the ‘total welfare standard’ trumps the harm inflicted upon the ‘consumer

welfare standard’ then the appropriate body would be the competition commission. Another test

that might decide which regulatory body to approach is the duration of the harm, in other words if

the harm caused (either direct or indirect) to the consumer is a short-term then the appropriate

remedy would be the consumer forum whereas if the harm caused is a long-term harm to the

consumers then the appropriate body should be the competition commission. Third and final test

that this paper puts forward is the time taken to cure the harm and the swiftness of remedy required.

It means that if the harm caused to the consumer would if initiated to be cured is going to take a

while then it must be a matter pertaining to competition commission and if the consumer is looking

for a prompt remedy then the matter at hand is most probably an issue concerning consumer forum.

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The third question raised in the course of this paper is in form of a hypothesis to merge competition

commission and consumer forum. One argument in the favor can be that since both the laws

ultimately aim for the protection of ‘consumer interest’ though route might be different it would be

convenient if powers proscribing anti-competitive practices as well as unfair trade practices is

vested in one single body. In cases like HDFC even if the complainant moved to wrong adjudicatory

body it would bring him no prejudice in getting its harm remedied. Another benefit of a single body

is that in cases where it is difficult to decide whether the market failure is caused by the distorted

competition or unethical practices of the seller, such merged body would be able to decide the

matter irrespective of the direct/indirect harm. In addition to all these those cases which vest

concurrent jurisdiction to both the bodies would act as a limitation if both the adjudicatory bodies

are not merged.

Informants/claimants, lawyers and regulatory authorities established under both the statutes must

understand that the cost that is incurred due to moving a wrong adjudicatory body in terms of false

positive or true negative is way too much as we saw in the case of HDFC, and when along with the

cost incurred if we take a look to the bad precedent that might be set due to lack of proper

understanding regarding the interface between the consumer protection law and the competition

law it would not be workably difficult to assert that market, economy as well as judiciary all would

lose because even in cases where somehow justice is done the basic principal of natural justice

would not be satisfied that “justice should not only be done but should be seen to be done”.

interplay dynamics between competition & consumer...

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