various dimensions of the indian competition act, 2002 › article_pdf › indian railway ppt...
TRANSCRIPT
© 2008 Luthra & Luthra Law Offices www.luthra.com
RELEVANCE & APPLICABILITY OF
COMPETITION ACT, 2002 TO INDIAN RAILWAYS
G R Bhatia Partner & Head of Competition Law Practice
Luthra & Luthra
Law Offices New Delhi
06.08.2013
Table of Contents:
Why Competition?
The New Regime – Background & Introduction
The Competition Act, 2002 - Key Provisions
The Risk of Non-Compliance
Risk Mitigation - Critical Steps
www.luthra.com
2
Competition is BENIGN- brings prosperity:
Reduces prices
Improves quality
Boosts choice
Facilitates better governance
Promotes efficiency
Encourages innovation
Punishes THE LAGGARDS
Ensures AVAILABILITY OF GOODS in abundance of acceptable
quality at affordable price (AAA)
www.luthra.com
3
No one likes competition
Markets are infected with anti competitive practices and abusive conducts.
The need for a law and an umpire is critical.
Stringent action is inevitable
Need to infuse competition in markets is imperative.
MRTP Act soft, rigid and limited in sweep.
Why Competition Law?
www.luthra.com 4
To prevent practices having an adverse effect on competition.
To promote and sustain competition in markets.
To protect the interests of the consumers.
To ensure freedom of trade carried on by other participants.
3 tier mechanism.
GOALS OF THE ACT
www.luthra.com 5
FOUR DIMENSIONS OF THE ACT
Anti-competitive Agreements [Sec. 3]
Abuse of Dominance [Sec. 4]
Combinations, include acquisition of shares, voting rights, assets/control, mergers, amalgamations and takeovers [Secs. 5 & 6]
Advocacy - maximum impact with least intervention
Advisory- to State and its arms.
All these dimensions of law are in force
www.luthra.com
6
Cease & Desist orders (adverse sanction) in relation to Anti competitive agreement/abuse of dominance;
Impose penalty-3 times of profits or 10% of the turnover of the enterprise, whichever is higher, in respect of cartels; for e.g. Cement Manufactures , Explosives Manufactures, LPG and Phosphide Tablet Manufactures;
Modify the agreement;
Grant interim relief during enquiry;
Risks of Non-Compliance – Powers of the CCI
www.luthra.com 7
Contd..
Up to 10% of the average turnover of enterprise for other violations;
Impose penalty on delinquent directors and functionaries who are entrusted with responsibility of compliance;
Order division of a dominant enterprise or groups;
Approve/approve with modifications or block combinations;
Any other orders which the CCI may deem fit.
Affected person can ask for compensation from COMPAT.
www.luthra.com
8
Understanding Competition law is important for IR functionaries
IR is an ‘Enterprise’;
IR is subject to discipline of competition law;
IR is a ‘buyer’ as well as ‘seller’;
IR is facing stiff Competition (market share is dwindling);
Several cases considered by CCI;
CCI is in continuous dialogue with CAG;
CCI can punish delinquent officers. www.luthra.com
9
‘Relevant Market’ includes relevant product market and relevant geographic market.
Relevant Product Market – comprises all those products or services which are regarded as interchangeable or substitutable by the consumer. In the case United Brands v. Commission – ECJ Case.
Relevant Geographic Market – refers to market comprising the area in which the conditions of competition are distinctly homogenous.
Relevant Market - Foundation
www.luthra.com 10
Section 3 prohibits agreements 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 (AAEC) within India.
The Act declares that agreements entered into in contravention of the above prohibition shall be void.
Anti-Competitive Agreements (ACAs)
www.luthra.com 13
Horizontal Agreements (Presumption of AAEC)
Agreements between enterprises or persons engaged in similar trade of goods or provision of services.
Agreements including cartels that:
(a) fix prices,
(b) limit or control production,
(c) allocates markets or customers, and
(d) rig bids/collusive bidding
are presumed to have an appreciable adverse effect on competition (AAEC)
The prosecutor needs to prove existence and not the
harm caused.
www.luthra.com
12
Few Illustrative Examples…
Cartels:
• LPG Cylinder Manufactures : The CCI imposed a penalty on each of the contravening company at the rate of 7% of the average turnover of the Company for contravening Section 3(3) of the Act.
• Coal India Ltd. v. Gulf Oil Corporation Limited and Ors: The CCI decided to impose upon each party a penalty at the rate of 3% of the average turnover of the last three years for contravention of Section 3(3) of the Act.
• In Re: Aluminum Phosphide Tablet Manufactures: The CCI imposed a penalty at the rate of 9% of the average three years of all the parties.
• Builder Association of India v. Cement Manufactures Association of India and Ors: The CCI imposed a total fine of Rs. 6300 crores by imposing a penalty of 0.5 times of the net profit for 2009-10 and 2010-11 upon each manufacture.
www.luthra.com
13
Conditions which are conducive to Cartelization
Oligopolistic market;
Structural factors;
Highly concentrated market;
Demand and supply conditions;
Dependence of customers;
Homogeneous product;
Entry Barriers;
Exchange of Information/Meetings;
Active Trade Association/Monitoring mechanism;
www.luthra.com
14
Symptoms of Cartel
Identical pricing;
Common terms and conditions;
Uniform/coordinated action in supply /capacity utilization;
Effective Trade Association.
www.luthra.com
15
Vertical Agreements (Rule of Reason)
Agreements between enterprises at different stages or levels of the production chain.
Such agreements include
(a) tie-ins
(b) exclusive supply
(c) exclusive distribution
(d) refusal to deal
(e) resale price maintenance
The scope and ambit of above concepts is broad as the definition has been made “inclusive”.
Less sensitive than the Horizontal Agreement.
www.luthra.com
16
The Act does not prohibit dominant position – it only frowns upon the ‘abuse’ thereof.
Dominant Position refers to a position of strength enjoyed by an enterprise or group in the relevant market, in India, which enables it to -
Operate independently of competitive forces prevailing in the relevant market; or
Affect its competitors or consumers or the relevant market in its favor.
‘Group’ is open ended.
Abuse of Dominant Position
www.luthra.com 20
The Act regulates combinations (merger control) which involves an ex ante assessment of changes in the structure of the relevant market.
No combination can take effect unless the transaction is approved by the CCI.
Reporting and prior appointment.
Regulation of Combinations – Merger Control
www.luthra.com 24
Process of Inquiry
CCI Regulations prescribes format of ‘Information’.
Information preferably supported by relevant documents.
CCI forms prima facie view.
Investigation by DG is a must (in AOC/AOD).
DG mandated to submit report within the allotted time.
CCI is not bound by the finding of the DG.
www.luthra.com
19
Powers of the DG
Requisition of information from the parties.
Requisition of information from third parties.
The DG can summon and record evidence during investigation.
DG can exercise the powers of ‘Search and Seizure’ (“Dawn Raids”).
DG are vested with the powers of a Civil Court to aid Inquiry/Investigations
www.luthra.com
20
A word of caution in communication?
Email, SMS, FAX, Communication in any e-mode are admissible evidence.
Skillful communication is imperative.
Do not sound guilty .
Do not use expression like “destroy after reading”.
Avoid the exaggerated use of “power” words(e.g. “we’ll destroy them”, “we will nail them to the wall”)
Avoid giving the false impression that a customer is being given favored treatment( e.g. “None of our other customers is getting this special discount”).
www.luthra.com
21
G.R. Bhatia
Luthra & Luthra
Law offices
103, Ashoka Estate
24 Barakhamba Road
New Delhi – 110001
Tel No. 011-41215100
Email: [email protected]