Until the advent of competition law in
India, many large corporate entities functioned on the principle that “might is
right”. The stronger and more influential would set the norms, which others
would have to follow. This practice took various shapes and forms, by which
companies which had a substantial market share would dictate the terms on which
a particular market / industry would function, and all the others were expected
to fall in line.
Substantive provisions of the Competition
Act, 2002 (the “Act”) were notified in 2009. A regulator, namely the
Competition Commission of India (“CCI”) was established with the avowed
objective of promoting and sustaining competition in the market and for
striking down and preventing activities found to be having an appreciable
adverse effect on competition in the relevant market.
The thrust of the competition policy is directed
to preventing cartel-like anti-competitive arrangements (section 3 of the Act)
and preventing parties from abusing their dominant position (section 4 of the
Act) so as to adversely affect consumers as well as competitors in a relevant
market. The Act also provides for regulation of mergers and acquisitions which
exceed certain prescribed thresholds of assets and turnover where the prior
approval of the CCI will be required before giving effect to such transactions
(sections 5 and 6 of the Act).
The Regulator – Role and Powers
Since its inception, the CCI has set about
its role investigating into anti-competitive conduct of various companies
across various sectors, and taking appropriate remedial measures with alacrity.
Over the years, the CCI has investigated the activities of various corporate
entities, trade associations and PSUs, and has passed various orders with the
object of restoring the balance in the relevant market. The various sectors
investigated include the cement manufacturers, real estate developers,
automobile part manufacturers, explosive manufacturers and the practices of
stock exchanges.
The CCI is a quasi-judicial body which has
the power to frame regulations, to investigate into offences through its
investigative wing, namely the office of the Director–General, and also to hear
and decide complaints in connection with anti-competitive conduct and to pass
appropriate, reasoned orders in respect of the same. Under the Act, the CCI has
been bestowed the powers to initiate investigations suo motu or upon
receipt of complaints / information from parties aggrieved by anti-competitive
conduct of other entities.
Further, the CCI has been granted extensive
powers to issue appropriate orders against entities found to be in violation of
the provisions of the Act. For instance, the CCI may impose penalties not
exceeding 10% of the average turnover of an offender for the preceding three
financial years. In case of a cartel, the penalty may be up to three times the
profits for each year of the continuance of the agreement, or 10% of turnover
for each year of continuance of the agreement, whichever is higher. The CCI
also has the power to direct enterprises to terminate an agreement which is
found to be anti-competitive; to direct them not to re-enter into such an
agreement, and even to modify an agreement which is perceived to have an
anti-competitive effect. An order passed by the CCI may be appealed before the
Competition Appellate Tribunal constituted under the Act. Any appeal against an
order of the Appellate Tribunal will lie directly before the Supreme Court.
Abuse of Dominance
Many sectors in the Indian market had
companies which held a substantial market share and huge asset base, and which
were in a position to abuse their dominance in the market by indulging in
discriminatory pricing policies and prescribing unfair terms and conditions for
purchase / sale of products dealt with by these entities.
Such conduct is caught by section 4 of the
Act, which states that no enterprise shall abuse its dominant position. The
types of ‘abuses’ of a dominant position caught by the Act are enumerated in
section 4(2) of the Act, and includes the imposition of an unfair or
discriminatory condition or price in the purchase / sale of goods, limiting or restricting
production of goods or services, practices resulting in denial of market
access, and also using a dominant position in one market to enter into or
protect another market. As such, abuse of dominance under the Act would cover
scenarios where a dominant entity imposes unfair conditions on consumers
directly (such as by excessive pricing). It also covers behaviour where a
dominant entity engages in conduct which would preclude competitors from
entering into or expanding in a particular market (such as by tying – i.e.
making the sale of one product conditional upon purchase of another product).
Such conduct reduces competition in the market, which ultimately harms
consumers. It is pertinent to note that abuse of dominance can also occur
across markets, for instance, where a supplier holding a dominant position in
an upstream market (e.g. for raw materials / input products) refuses to supply
its competitor in a downstream market, and thereby forecloses competition in
the downstream market.
One of the widely recognised forms of abuse
of dominance is by indulging in predatory pricing policies, where goods are
sold below the cost of production by a dominant undertaking with a view to
eliminate competition and capture the market. The concept is in the nature of
undertaking short-term pain for long-term gain, where an undertaking would, on
the basis of its vast resources, willingly undertake losses in the short-run
with the expectation of recouping these losses in the future when competition
would be eliminated. Smaller players and market participants would not be able
to match such a conduct of dropping prices below the cost and consequently
would be driven out of the market, leaving the dominant entity free to raise
prices and recover its losses.
A recent case which saw this kind of a
conduct was in MCX-SX vs. NSE, where NSE, a leading stock exchange, used its
dominant position in the market to implement a zero transaction fee structure
for trading on its currency derivatives segment, thereby making it unviable for
others who did not have a similar asset and resource base to match the NSE’s
transaction-fee waiver. MCX-SX, a relatively newer and smaller market player,
brought this conduct to the attention of the CCI, alleging that NSE had abused
its dominant position in violation of section 4 of the Act. A full-fledged
inquiry was conducted by the CCI, and a detailed order was passed holding that
NSE was in a dominant position in the relevant market, that it had used its
dominant position in one market to abuse its position in another market, and
huge penalties were consequently imposed on NSE for such a conduct in addition
to directions to refrain from such a conduct which had an anti-competitive
effect on the market1.
In another case, huge penalties were imposed
on DLF, a real-estate major, in connection with anti-competitive practices
whereby onerous terms and conditions were imposed on consumers looking for
residential accommodation in real estate projects. It was observed by the CCI
that DLF was holding a substantial market share in the relevant market, which
was defined as the market for high-end residential accommodation in Gurgaon2.
Factors that determine violation
As can be seen, there have been a number of
cases where the CCI has stepped in where a dominant undertaking was found to be
abusing its market position to the detriment of consumers and/or other
competitors. However, the determination of whether each such company has, by a
particular practice, abused its dominant position in a particular market, is
not a cut-and-dried formula. Each industry exhibits different complexities in
the factors that influence the development of competition in that market, and
therefore each type of market practice alleged to be abusive and violative of
the Act may impact different markets differently. Therefore, in each of the
cases that the CCI is faced with, a detailed analysis is conducted to arrive at
a conclusion as to (i) the relevant product market and geographic market in
which the entity which was subject to scrutiny, operated, (ii) whether the
entity in question was a dominant undertaking in the relevant market, so
defined, and (iii) whether the conduct complained of amounted to an abuse of
the dominant position, contrary to section 4 of the Act.
A pre-condition to a finding of abuse of
dominance in terms of section 4 of the Act, therefore, is that the entity in
question holds a dominant position in the relevant market. The assessment of
dominance includes an analysis of various factors including the market share of
the entity in the relevant market, its assets and resource base, barriers to
entry and expansion of competitors in the market, the relative size, importance
and resources of competitors, etc.
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1 Case
No. 13/2009,MCX-SX vs. NSE, decided on 23 June 2011
2
Case No. 19/2010, Belaire Owner’s Association vs. DLF Limited
Can more than one entity be dominant?
While there have been a number of cases
where a single undertaking is found to be abusing its dominant position in a
particular market, it remains to be seen whether the concept of ‘dominance’
under Indian competition law will embrace possibility of there being more than
one undertaking exercising substantial market power in a particular market,
where either or all of such companies can be said to be in a dominant position.
For example, there may be instances where
the market can be potentially carved out between two companies, both exercising
substantial market power without them indulging in any concerted arrangement inter
se. It may be possible for these two dominant undertakings to mirror each
other’s anti-competitive practices to the exclusion of other smaller players
who do not have the resources to compete in such anti-competitive conduct. The
situation which could result would be one where the market is carved out
between two undertakings exercising market power and being in a position to
abuse such power. Also, the possibility of two players trying to carve out markets
by indulging in similar practices and eventually aligning their forces,
directly or indirectly, cannot be ruled out.
While there is nothing in the Act which
prevents the possibility of more than one dominant undertaking in a relevant
market, the jurisprudence on this aspect is yet at a nascent stage. In a recent
decision, the CCI has taken the view that the Act does not allow for more than
one dominant player. According to the CCI, the concept of ‘dominance’ is meant
to be ascribed to only one entity.
By contrast, antitrust laws of other
jurisdictions have recognised the concept of “collective dominance”. European
competition law, for instance, prohibits abuse of a dominant position “by
one or more undertakings”, thereby expressly accounting for the possibility
of two or more economically independent undertakings together holding a
dominant position vis-à-vis the other operators in the same market.
Other jurisdictions have also embraced the
possibility of more than one dominant undertaking operating in a particular
market in circumstances that merit such a finding. One such instance was the
case of Visa and Mastercard which was decided by the District Court of New
York, where it was alleged that both Visa and Mastercard had both violated
antitrust law by implementing rules prohibiting their member banks from issuing
cards of their competitors, American Express and Discover. Pursuant to a
detailed analysis of the market and the impugned market practices, the Court
came to the conclusion that both Visa and Mastercard had market power, whether
considered jointly or separately. This finding of the District Court was upheld
by the US Court of Appeals3. In a similar case before the Canadian
Competition Appellate Tribunal, the Canadian authorities too, accepted the
proposition that both Mastercard and Visa each possess market power in the same
relevant market4.
Even under the Indian Competition Act, if an
enterprise enjoys a position of strength and the potential to operate
independently of competitive forces in the market or affect its competitors /
consumers / the market in its favour, it will be an enterprise having a “dominant
position” 5. Such a position would not change even if there
is another enterprise which also meets the above criteria.
Evolution and Way Forward
Competition law in India is a dynamic law
which must constantly adapt to meet with the requirements of the time and the
changed circumstances of different markets. Competition jurisprudence and
policy must evolve to meet the challenges which new facts and situations may
present. The legislation ought to be given effect to further the object of the
law-makers; the approach must be to identify a wrong-doing and prevent mischief
from bearing fruition. Any constraint on the law or to the ability of a
regulator to act in such a case may result in a situation which may defeat the
avowed objects with which the law was enacted. As Lord Denning famously said6:
“What is the
argument on the other side? Only this, that no case has been found in which it
has been done before. That argument does not appeal to me in the least. If we
never do anything which has not been done before, we shall never get anywhere.
The law will stand whilst the rest of the world goes on; and that will be bad
for both.” _
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3 United
States Court of Appeals for the Second Circuit, United States of America vs.
Visa & Mastercard, Decision dated 17 September 2003
4 CT-2010-010
Commissioner of Competition vs. Visa Canada Corporation & Ors., Decision
dated 23 July 2013
5 Explanation
(a) to section 4 of the Competition Act, 2002
6 Packer vs. Packer
[1953] 2 All ER 127
