I am honoured
to be here amidst this gathering of business leaders. I am grateful to CII for
giving me this opportunity to talk about a new law that will affect business in
a big way. You are aware that Writs
are pending in the Hon’ble Supreme Court. The Competition Act can become fully
operative only after the decision of the
I am happy to be
in this city, which was my home until 7 months ago. The attraction of this
seminar is thus doublefold.
The
Competition Act, 2002 was enacted in January, 2003. The Competition Commission
of India was established last October. It is yet to become fully functional. The
new law follows the Monopolies and Restrictive Practices Act, 1969, which,
loosely speaking, was the first competition law of the country. Government
constituted a committee in 1999 to examine the MRTP Act for shifting the focus
of the law from curbing monopolies to promoting competition and to suggest a
modern competition law in line with international developments to suit Indian
conditions. The Expert Committee observed that the MRTP Act is not complete in
its sweep and has outlived its utility in the changed business and trade
scenario in the domestic as well as global markets. Pursuant to the
recommendations of the Committee, the Competition Act was enacted to eliminate
anti-competitive practices, to promote and sustain competition in the markets
with the objective of protecting interest of
consumers.
The MRTP Act represents an era of aggressive government interventionist
policy reflected unambiguously in controls, licensing, permits and promotion of
public sector. The dawn of liberalization in 1991, following a financial crisis,
rendered some laws inconsistent with new economic policies. One of them was MRTP
Act. An effort at redefining this Act, through major amendments, worked for a
while. The need for change was urgent and the resultant is the new
law.
The MRTP Act was meant to curb monopolies and did so by exercising
control over the size of the enterprise. The task of the enforcer was made easy
by incorporating deeming provisions and mechanical definitions. To grow fat in
human society is tolerable but is an anathema in the business world under the
MRTP regime. In more than three decades of operation of the MRTP Act, not only
public sector monopolies thrived, even private monopolies weren’t rare. The
failing of the stated objective was partly attributable to the regulator being
toothless. The MRTP Commission could not enforce its orders but had to depend on
courts. It did not have powers to impose penalties for breach of its directives.
Its chief investigator, the DG(I&R) did not have powers to even enforce
attendance of a witness. Budget was measly for the enormity of the task.
Personnel were not having the right skills to delve in to what can be called
investigation of economic transactions. Of course, some failings cannot be
shifted.
The Competition Act has been tailor-made for the new economic
environment; one that holds in high esteem entrepreneurship and creation of
wealth that goes with it. Growing fat is no longer a taboo but bullying will no
longer be an acceptable behaviour. The emphasis clearly has shifted from size to
behaviour and effect. And behaviour must always be established under common law.
The Act lays down carefully the contours of unacceptable behaviour in business
and also the parameters to be considered in coming to any conclusion.
Anti-competitive agreements are void per se and, therefore, cartels,
tie-in sales, etc will have to be shunned by the business community. Dominance
of an enterprise no longer rests on market share alone. Even a dominant
enterprise need not apprehend intervention until it abuses its dominant position
by way of either exclusionary or discriminatory behaviour or predatory pricing
or ousting competitors or creating entry barriers. There are no deeming
provisions to come to the rescue of the Competition Commission. Anti-competitive
behaviour has to be ‘established’ by Rule of Reason on a case-by-case basis. As
head of the investigative arm of the Commission, my job is certainly
unenviable!
I must dispel any apprehensions regarding the role of the Commission that
may have crept in. What has been said so far should not sound like creation of a
policing authority. We are not policemen but facilitators. The Act is as trade
friendly as can be. No competitor could file a complaint under the MRTP Act but
shall be able to do so now and thus get a right to be a party to the
proceedings. Consumers of intermediate goods, who do not qualify as consumers
before the Consumer Courts, are eligible under the Act to seek ‘Cease and
Desist’ orders and also seek compensation to offset business loss. Even
Government departments engaged in production or supply of goods or providing
services are within the ambit of the Act. Acts done outside the national
boundries, but having appreciable adverse effect on competition in markets, in
Regulation of mergers (our Act calls it combination) is a soft regime.
Merger notification is voluntary. By contrast, most developed countries favour
compulsory notification regimes. Threshold limits, that decide the jurisdiction
of the Commission, are very high. For example, a combination having asset base
of at least Rs 1000 crore or turnover of Rs 4000 crore alone need to worry.
While notification is voluntary, the Commission has the power to enquire in to a
combination for a period of one year from the effective date. The prudent would
face no music since the time limit of approval (or disapproval) is a mere 90
days beyond which approval is deemed to have been given. You may recall that
under the MRTP Act mergers were regulated by executive action. In contrast,
under the new law, it shall be regulated by a separate Mergers Bench following
judicial processes.
The Commission has another legislative mandate. Competition Advocacy is
an important responsibility of the Commission. Advocacy is enforcement of
competition policy without intervention.
Do we need competition policy? I would have dealt with it much earlier
but choose to do so now having acquainted you about the Act. Competition fosters
efficiency and innovation. It ensures optimal allocation of scarce resources. As
long as markets are ‘contestable’, the consumer is guaranteed of the right stuff
of the right quality at the right price in adequate quantity. When players in
the market contest on merits, they also maximize their profits in the long run.
It is a win-win situation for both the producer and the consumer. The raison
d’etre of competition law follows as a natural corollary. Competition policy has
two components. One deals with government policy such as trade regime,
liberalization, FDI, etc and the other consists of law. Both the components are
complementary. Simultaneity of their existence is a sine qua non for
effectiveness and spread of competition on merits in the
markets.
There have been a number of successful enquiries against anti-competitive
practices in other jurisdictions. Each of these pointed at huge amounts of monopoly profits earned
by the perpetrators. The vitamin cartel was found to have robbed the consumers
of billions of dollars across the globe. Abuse of dominance by Microsoft has
attracted the attention of the US, Japanese, Korean and EU authorities recently.
Similar offences against consumers may not attract punitive measures in our
country unless the Competition Act is made operational, the sooner the
better.
Existence of other regulators in the recently opened up sector, mostly in
infrastructure or networked sectors, can invoke doubts for the rationale of
another regulator. Roles of sector specific regulators and competition authority
are complementary. The complementarities of the two are widely recognized in
contemporary literature on the subject. Developed countries are contemplating
shift to soft regulatory regimes in the infrastructure sectors, timing it with
growth of competition in these erstwhile monopolies. Until such time, it will be
naive to rule out possibilities of ‘turf wars’. A group of competition experts
are engaged in deliberations, under the aegis of the International Competition
Network, to iron out the rough surfaces. We are contemplating some interaction
too at the appropriate fora with the sole intention of removing uncertainties
for business. It is not going to be easy given the nuisance of ‘regulatory
capture’ by the incumbent monopolist. I am sure we will be able to create an
atmosphere of co-operation within the parameters of laws to avoid ‘regulatory
capture’ and ‘fora shopping’ by unscrupulous rent seeking enterprises.
Laws dealing with IPRs create legal monopolies. Competition law, by
definition, is against all kinds of monopolization. Both have to co-exist within
the parameters of their respective laws. The Competition Act recognizes creation
of legal monopolies and excludes laws dealing with IPRs, under certain
conditions, from its jurisdiction. The exclusion is limited to provisions
dealing with anti-competitive agreements and does not cover abuse of dominant
position. We should not forget that both IPRs and competition law encourage
‘innovation’ – it is only freezing of ‘innovation’ that is frowned
upon.
We are just about a year old. I am reminded of an official of the Italian
competition authority stating that his outfit was a toddler after 15 years of
existence (compared to 115 years of the Canadian authority and 114 years of the