EVOLUTION OF COMPETITION LAW IN INDIA

Introduction

Competition in the marketplace can be seen as rivalry between businesses, which in turn
benefits the consumers. It has now become a fundamental characteristic of the economy. The
motivation for the economic agents can be purely individual, but the result of the competition
is favourable to the society at large. Competition is beneficial for consumers, businesses and
economy as a whole. Competition offers broad array of choices to consumers at fewer prices,
it stimulates progress, productivity, and leads to optimum allocation of resources.

It is often argued that competition sown the seeds of its own destruction. This implies that there
can be situations where enterprise may achieve a position from where it can prevent others to
complete fairly. Thus, there is need for codification of rules designed to promote and sustain
market competition by regulating anticompetitive conduct and practices of various market
players.

Competition law is known as antitrust law in the United States of America. Anti-trust laws
regulate the market condition by stabilizing the monopoly and unfair business practices. The
term competition law is used in other jurisdictions than the U.S. ANiti-trust law maintains and
promotes market competition within the territorial boundaries of a country. International
competition agencies protect international competition. It aims to protect the interest of the
consumers.

“The importance of competition in an increasingly innovative and globalised economy is clear.

Vigorous competition between firms is the lifeblood of strong and effective markets.
Competition helps consumers get a good deal. It encourages firms to innovate by reducing
slack, putting downward pressure on costs and providing incentives for the efficient
organization of production. As such, competition is a central driver for productivity growth in
the economy, and hence the UK’s international competitiveness.”

2. Background To Competition Law In India

The first law to regulate competition in India was the Monopolies and Restrictive Trade
Practices Act, 1969 (MRTP Act). There are three studies that played a part in the development
of the MRTP Act. The first was a study by the committee chaired by R.K. Hazari, which studies
the industrial licensing procedure under the Industrial (Development and Regulation) Act,
1951. The committee concluded that the working of the licensing system had resulted in
disproportionation growth of some business houses in India. The second was a study by the
committee chaired by Professor P.C. Mahalonobis, to study the distribution and levels of
income in the country. The committee in its report found that the top 10% of the population of
India has amassed as much as 40% of income. The committee further noted that big business
houses were emerging because of planed economy model practiced by the government in the
country and suggested the need to collect comprehensive information related to the various
aspects of concentration of economic power.

The third study was conducted by Monopolies Inquiry Commission (MIC), which was
appointed by the government in April 1964, under the chairmanship of K.C Das Gupta. It was
enjoined to enquire into extent and effect of concentration of power in private hands and
prevalence of monopolistic and restrictive trade practice in important sector of the economic
activity. The MIC, in its report presented in October 1965, noted that there was a product-wise
and industry-wise concentration of economic power. As a corollary to its findings, MIC drafted
a bill to regulate the operations of the economic system to avoid the concentration of economic
power. The bill also provides for controlling of monopoly and prohibition of monopolistic and
restrictive trade practice, prejudicial to public interest.

The bill, drafted by the MIC and amended by the parliament committee, became the MRTP
Act and was enforced on June 1, 1970. The Act, drew its inspiration from the directive
principles of the state policy in the constitution of India, which aims to secure social justice
with economic growth. The premise on which MRTP Act rests include unrestrained interaction
of competition forces, maximum material progress through rational allocation of resources,
availability of goods and services of quality at reasonable prices and finally, a just and fair deal
to the consumers. An interesting feature of the statute is that it covers fields of production and
distribution of both goods and services.

In terms of the behavioural doctrine, the conduct of the companies, undertakings and bodies
which indulge in trade practices in such a manner as to be detrimental to public interest is
examined with reference to whether the said practices constitute any Unfair Trade Practice,
Restriction or Monopoly. In terms of the reformist doctrine, the provisions of the MRTP Act
states that if the Commission, on investigation comes to a conclusion that an entity has indulged
either in monopoly or Unfair Trade Practice, it can advice and direct such entity to discontinue
or not to repeat the such trade practice. The MRTP Act also provides for the acceptance of an
assurance from an entity that it has taken steps to ensure the non-existence of that prejudicial
trade practice. The veneer of the MRTP Act is essentially based on a directive or reformist
approach. There is no deterrence by punishment.

The enactment of MRTP Act, 1969 was based on the socio – economic philosophy enshrined
in the Directive Principles of State Policy contained in the Constitution of India. The MRTP
Act, 1969 underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991. The
amendments introduced in the year 1982 and 1984 were based on the recommendations of the
Sachar Committee, which was constituted by the Govt. of India under the Chairmanship of
Justice Rajinder Sachar in the year 1977.

The Sachar Committee pointed out that advertisements and sales promotions having become
well established modes of modern business techniques, representations through such
advertisements to the consumer should not become deceptive. The Committee also noted that
fictitious bargain was another common form of deception and many devices were used to lure
buyers into believing that they were getting something for nothing or at a nominal value for
their money. The Committee recommended that an obligation is to be cast on the seller to speak
the truth when he advertises and also to avoid half truth, the purpose being preventing false or
misleading advertisements. However, as the times changed, the need was felt for a new
competition law. With introduction of new economic policy and opening up of the Indian
market to the world, there was a need to shift focus from curbing monopolies to promoting
competition in the Indian market.

In October 1999, the Government of India constituted a High Level Committee under the
Chairmanship of Mr. SVS Raghavan [‘Raghavan Committee’] to advise a modern competition
law for the country in line with international developments and to suggest legislative
framework, which may entail a new law or suitable amendments in the MRTP Act, 1969. The
Raghavan Committee presented its report to the Government in May 2000. The committee inter
alia noted: In conditions of effective competition, rivals have equal opportunities to compete
for business on the basis and quality of their outputs, and resource deployment follows market
success in meeting consumers’ demand at the lowest possible cost.
On the basis of the recommendations of the Raghavan Committee, a draft competition law was
prepared and presented in November 2000 to the Government and the Competition Bill was
introduced in the Parliament, which referred the Bill to its Standing Committee. After
considering the recommendations of the Standing Committee, the Parliament passed December
2002 the Competition Act, 2002.

Hence, the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] was repealed
and was replaced by the Competition Act, 2002, with effect from 1 September, 2009.

Key Differences Between MRTP Act and Competition Act

Definition of MRTP Act

MRTP Act known as Monopolistic and Restrictive Trade Practices Act, 1970 was the first,
competition legislation in India. However, it underwent amendment in different years. It aimed
at:

• Regulating and controlling the centralization of economic power.

• Controlling unfair and restrictive trade practices.
• Prohibit and controlling monopolistic activities.

Further, the act made a difference between Monopolistic Trade Practices and Restrictive Trade
Practices, which is summarized as under:

Monopolistic Practices: The practices adopted by a firm, with respect to its dominance in the
market, which harm the consumer interest. It includes:

• Charging unreasonably high prices.

• Policy of lessening existing and potential competition.
• Restricting technical development or capital investment.

Restrictive Practices: Acts that distorts or prevents competition, comes under restrictive trade
practices. A few dominant companies adopt these practices by an agreement to hinder the
growth of competition, such as cartelization. It includes:

• Restricting the sale or purchase of goods from specific persons.

 • Tie-in- agreements.
• Predatory pricing.
• Restricting the areas of sale.
• Forming of cartels.

The fundamental points of differences between Competition Act and MRTP Act are as
follows:

• MRTP Act is a competition law to prevent concentration of economic power in hands

of few. On the other hand, Competition act shift the focus from controlling monopoly
to initiating real competition in the market.
• Competition Act is punitive in nature, whereas MRTP Act was reformatory.
• In (MRTP) Act, the dominance of a firm was determined by its size. On the other hand,
Competition act determines the dominance of a firm in the market by its structure.
• In MRTP Act, there were 14 offenses, which were against the rule of natural justice.
On the other hand, there are only 4 offenses listed out in the competition act, which
violates the principle of natural justice.

• The MRTP Act did not specify any penalty but Competition Act states penalties for
offences.
• The basic purpose of MRTP Act was to control monopolies. On the other hand, the
Competition Act intends to initiate and sustain competition in the market.
• In MRTP Act, the chairperson was appointed directly by Central Government. On the
other hand, in Competition Act the appointment of chairperson is done by Committee
comprising of retired judges

In short, the both acts are different in a many contexts. MRTP Act has a number of loopholes
and the Competition Act, covers all the areas that the MRTP Act lags. The MRTP Commission
plays only advisory role. On the other side, Commission has a number of punitive powers, and
it promotes suo moto and levies punishment to the companies, which affects the market in a
negative way.
Objective of Competition Policy and Law

The main aim of competition law is to check the firm and enterprises flowing anti-competitive
practices. The full benefit of economic reforms are felt to be better realized under the condition
of an effective competition regime. Another important goal of competition law is consumer
protection. It has been seen across jurisdictions that the objective of competition law vary from
country to country and even within a country they can change and evolve with variations in
economic situation.

As per the judgment by the supreme court of India in 2010 the main objective and advantage
of competition law are: “The main objective of competition law is to promote economic
efficiency using competition as one of the means of assisting the creation of market responsive
to consumer preferences. The advantages of perfect competition are three- fold: allocative
efficiency, which ensures the effective allocation of resources, productive efficiency, which
ensures that costs of production are kept at a minimum and dynamic efficiency, which promotes
innovative practices.”

The common perception is that competition law and policy relates to matters of competition
and competitiveness; with the results,, among others, that goods and services are sold at
competitive prices and that consumer have a choice as to the products they wish to purchase.
Competition would also be a matter of larger application that of overall governance and
development of economy, that of better regional and global balances in trade and development.

To understand the objectives of competition law, it is important to understand that objectives

can be final or intermediate. The distinction lies in the fact that intermediate objectives are
short-term intended outcomes, which will help in attainment of final objectives, whereas the
long term outcome will depend on the interplay of other objectives, Likewise, competition
policy also has final or intermediate objectives. Through regulating and controlling practices,
the intermediate objective of competition policy can be regarded as the maintenance of
competition process or free competition in the economy or preventing unreasonable restriction
on competition, in order to achieve freedom of trade, freedom of choice and access to market.
Achievement of these objectives will play a critical part in the attainment of yet another
intermediate objective i.e economic efficiency. Economic efficiency is attained in a market if
there is no other way to reallocate the transection terms in the same market that can increase
the sum of total surplus and total consumer surplus. Economic efficiency can also be
categorized into two: static and dynamic. Static efficiency refers to maximization of total
producer and consumer surplus in a given market at a point in time, while dynamic efficiency
refers to maximization of the sum of such surplus over time or over a specific period to reflect
innovation and technical progress. Thus, one of the intermediate objectives of competition
policy is the attainment of static and dynamic efficiency in the economy.