Appreciable Adverse Effect of the Competition in the Market

The article describes the objective of competition law and the essential ingredient for having any appreciable adverse effect on competition. Further, the article explains cartels and their impact on the competition with the help of some relevant case law. It also lists three causes which result in an appreciable adverse effect on the competition in the Indian market, namely, anti-competitive agreements, abuse of dominance and combinations.

Introduction

When an economic rivalry exists amongst companies or entities to draw the maximum number of customers and make the most of the profit, such a situation is known as competition. The law drafted by the legislature to regulate such competition is known as competition law. It is also known as antitrust law in some countries around the world.

A free, fair, healthy and reasonable competition prevailing in the market is a sine qua non for creating and maintaining a conducive environment for business so that the country can prosper. The motto of all the competition laws operational in various parts of the world is to ensure an environment where all companies can deal with fair competition.

The Indian Competition Act has just bloomed from the bud and is still undergoing various improvements. A lot of time has not elapsed since the new competition law was adopted. MRTP Act operated the competition in the market before the Competition Act, 2002 came to the forefront. The structure of the competition law has been kept in such a way that not only promotes but also provides a fair and reasonable chance to all the enterprises in the market to have healthy competition so that the interests of the consumers can be protected.

One of the main objectives with which the Competition Act was brought is to do away with those practices that adversely impact the competition.[1] There are three ways by which there can be appreciable adverse on the competition: anti-competitive agreements, combinations and abuse of dominance.

The Act has also cast a duty upon the Competition Commission of India to prohibit all practices that adversely impact the competition in the Indian market and to get all the objectives stated in the preamble implemented.[2]

Appreciable Adverse Impact on Indian Competition

For creating any impact, it is essential ingredient to have an agreement between two enterprises or individuals in the market.[3] Such an agreement should be capable to produce an appreciable adverse effect on the competition prevailing in the Indian markets.

Void Agreements

It is deemed as if any agreement that falls under the ambit of Sections 3 (3) & (4) of the Competition Act, 2002 will be contrary to the principle envisaged in Section 3 (1) of the Competition Act, 2002 and shall be considered as void.[4]

Cartels

The Act provides a definition of a cartel as an association of service providers, traders, distributors, sellers or producers who went to form an agreement among themselves to control, limit or attempt to control the trade, price, sale, distribution or production of goods or provisions of service.

Cartel has been classified under the category of those anti-competitive agreements with the help of which the producers, sellers or manufacturers had agreed to control the prices, supply, production and so on of the goods in the market so that they can derive maximum profits and exercise control over the market.

Certain kinds of practices or arrangements are capable of creating a harmful impact on the competition, and they are presumed to be illegal and unreasonable. The CCI in the matter of FICCI Multiplex Association of India v. United Producers/Distributors Forum [5] held that the distributors or the producers, by virtue of their collective market power, came to provide the guarantee that till the time the multiplex owners did not provide their consent to the offer of enhanced revenue share, they will not get any matter for film exhibition.

Hence, the CCI pronounced that any conduct of the producer that results in the formation of cartel-like conduct is in contravention of the provision of the Act[6] and is in the capacity to cause an adverse impact on the competition.

Further, in the landmark case of Builders Association of India v. Cement Manufacturers Association and Other,[7] the CCI imposed a penalty of around Rs. 6000 crores over eleven cement producers who were leading the market then. It was done because they were found guilty of forming cartels amongst themselves to have control of the supply, production and costs of the cement sold in the market. As per CCI, it had found them guilty of violating the provisions of the Competition Act, 2002.

Anti- Competitive Agreements

The basic premise behind the insertion of the provision concerning the anti-competitive agreements in the competition law of India is fostering competition so that the consumers' welfare and interests can be promoted.[8]

The Act covered almost all business areas such as promotion, sales, advertising, packaging, purchasing, investment, pricing, distribution, production, take- over or merger amalgamation with any undertaking. Further, the Act restricts all these departments if they enter into any such agreement, which is anti-competitive in nature, that cause or is likely to cause an adverse impact on the competition prevailing in the Indian market.[9]

If any company enters into an agreement, which is against the general restriction as prescribed by the Act, it is declared both null and void.[10]

Presumption of Appreciable adverse effect

The whole concept of appreciable adverse effect[11] has been put under the head of subjective since it differs from person to person. Horizontal agreements are covered under Section 3 (3) of the Competition Act, 2002. There arises a presumption in the case of such agreements that there exists an appreciable adverse effect on the prevailing competition in the market. However, any such effect is not considered in the case of vertical agreements[12]; pursuant to this, the anti-competitive agreements are under strict rules and regulations.

The Indian Evidence Act provides that any fact that is produced before the court has to be presumed as a fact by it until and unless the contrary gets proved.[13] Hence, it becomes clear that the presumption regarding the appreciable adverse effect on the competition with respect to the Horizontal Agreements as provided under Section 3 (3) is subject to be rebutted, but the person who is in power to undertake such trade practice has to come forward and prove otherwise.

Abuse of Dominance

Whenever an industry reaches such a height that it ousts all the competitors in the market and becomes the only ruling party, thereby acquiring complete control over not only the market but also the consumers, it is considered that such an industry has acquired the dominant position in the market.

It is deemed that an enterprise or a person holds a dominant position in the market when any such entity is in possession of a position of strength, and with the help of such a position, that entity can operate independently from any of the competitive forces that are capable of producing an effect on consumers or competitors or any other force that is available in the market.[14]

A very wide ambit has been provided to the dominant position in the competition law regime of other jurisdictions across the world.

The industry uses the dominant position in the market to:

1. Operate in an independent manner irrespective of all the forces that prevail in the market
2. Affect its market or consumers or competitors in its favour, it is considered that the industry has abused its dominance.

CCI had penned down certain points to determine whether there is an abuse of dominance by any industry or enterprise, such as :

1. If it causes limitations on scientific development or any kind of production
2. If it denies any kind of market access to anyone
3. If it imposes any kind of discriminatory or unfair condition or price in the sale or purchase
4. If it takes into use its position in one relevant market to protect or enter into a relevant market
5. If it comes into agreement subjected to supplementary obligations

The market where the determination of adverse effects on the competition is to be done is known as the relevant market. Sec 2 (r) of the Act provides a framework that helps in determining the relevant market. The broad term ‘relevant market’ can be broken down into two small terms with a limited scope namely ‘relevant product market’ and ‘relevant geographic market’.

A relevant product market takes a market into its ambit where the services and products are of such a nature that they can be substituted or interchanged by other services and products that are readily available in the market.[15] However, the relevant geographic market refers to that market in an area where there exists a homogeneous condition for varied aspects of commerce and trade.

These conditions are different from those carried out in the market of the neighbouring areas.[16] the commission is required to refer to either the ‘relevant product market’ or ‘relevant geographic market’ or both.

The Glossary provided by the European Commission describes that when a firm has the capacity to perform its functions independently of its customers, suppliers, consumers, and competitors, such a firm is considered to be in a dominant position. However, the Competition Act, 2002 provides an explanation of the dominant position and states that it is directly proportional to the relevant market, as mentioned above.

Henceforth, in order to figure out the presence of any dominant position in the market, the very first task is to figure out whether the enterprise in question has occupied a dominant position in reference to a particular kind of product market as well as the demarcation of the market geographically for the purpose of that particular product.

Regulation of Combinations

The provisions dealing with the regulations of combinations have been looked into by Section 6 of the Act. It necessitates issuing a notice containing the details of the proposed combination to the Commission with the fees prescribed within 30 days from the date the Board of Directors approved the proposal of merger or amalgamation or execution of any other document of acquisition.[17]

The time span prescribed by the statute for the combination to occur is 210 days. The process will commence only after providing notice to the commission or from when the commission has passed the order with respect to that notice, whichever is earlier.[18] The Act has also provided some exceptions that cover the bank, foreign institutional investor, venture capital fund or financial institutions relating to any investment agreement or any loan agreement covenants.[19]

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[1] Preamble of the Competition Act, 2002

[2] Section 18 of the Competition Act, 2002

[3] Section 3 (1) of the Competition Act, 2002

[4] Section 3 (2) of the Competition Act, 2002

[5] Case No. 01 of 2009

[6] Section 3 (3) of the Competition Act, 2002

[7] Case No. 29 of 2010

[8] The provision relating to the anti-competitive agreements came into effect on May 20, 2009.

[9] Section 3 (1) of the Competition Act, 2002

[10] Section 3 (2) of the Competition Act, 2002

[11] Section 3 (1) of the Competition Act, 2002

[12] Section 3 (4) of the Competition Act, 2002

[13] Section 4 of the Indian Evidence Act

[14] Section 4 Explanation (a) of the Competition Act, 2002

[15] Section 2 (t) of the Competition Act, 2002

[16] Section 2 (s) of the Competition Act, 2002

[17] Section 6 (2) of the Competition Act, 2002

[18] Section 6 (2A) of the Competition Act, 2002

[19] Section 6 (4) of the Competition Act, 2002

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1. Competition Law
2. History and Development of Competition Law