Competition regulation could herald a new era for the industry
The Industry needs to actively consider the impact of the Competition Act, 2002 as amended by the Competition (Amendment) Act, 2007.
By Vinay Kumar Sanduja, |
The Industry needs to actively consider the impact of the Competition Act, 2002 as amended by the Competition (Amendment) Act, 2007. Before discussing the impact of the Act, it will be useful to give basic features of this legislation.
Like other comprehensive competition law regimes, the Act mainly deals with three areas, viz, prohibition of anti-competitive agreements; prohibition of abuse of dominant position; and regulation of combinations (broadly, combination includes acquisitions, mergers and amalgamations exceeding the thresholds specified in the Act in terms of assets or turnover).
For the purposes of the Act, the Competition Commission of India has been established. In terms of the Act, it is the duty of the commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers, and ensure freedom of trade carried on by other participants, in markets in India. Thus, the commission has a pivotal role to play under the Act.
In addition, the Act gives the commission the responsibility of undertaking competition advocacy. It is important to note that the Act empowers the commission to inquire into agreement, dominant position, combination which has, or is likely to have, an appreciable adverse effect on competition in the relevant market in India irrespective of the fact that the agreement has been entered outside India or any party to the agreement is outside India or any enterprise abusing dominant position is outside India or a combination has taken place outside India or any party to the combination is outside India or any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.
Till date, only some of the provisions of the Act have been notified. Other provisions of the Act, those relating to inquiry into anticompetitive agreements, abuse of dominant position and regulation of combinations, are yet to be notified. At present, the commission is undertaking ground work that will be required to commence the inquiry and regulatory work.
Once the Act becomes operational in its entirety, merger and acquisition (M&A ) transactions which are above certain prescribed threshold limits in terms of assets or turnover as laid down in the Act will be subject to combination review in accordance with the provisions of the Act. Similarly, commercial agreements may also be looked into by the commission in case such agreements raise competition concerns under the Act.
It is important to note that the Act expressly recognises that the provisions relating to anti-competitive agreements shall not restrict the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under various intellectual property rights (IPR) statutes mentioned under the Act.
However, by implication, we can say that unreasonable conditions incorporated under IPR agreements do not fall outside the jurisdiction of the commission. The actions of dominant enterprises may also be looked into by the commission if it results in abuse of dominant position as per the provisions of the Act.
In these circumstances, compliance with the Act is important. Further, the consequences of non-compliance may be serious for any business in terms of significant financial penalties; agreements being declared void; adverse impact on M&A deal including directions by the commission that the combination shall not take effect or directions that the parties to such combination to carry out necessary modifications to the combination; and loss of reputation and goodwill.
In view of above, the industry may devise appropriate mechanisms such as conducting training on competition related issues for its employees; devising competition compliance manual; preparation of competition compliance checklists in order to ensure compliance with the provisions of the Act. Broadly speaking, for ensuring compliance with the Act, it is beneficial to disseminate knowledge of what constitutes violation of the Competition Act and to create culture of compliance with the Act. All this will facilitate early detection of violations and will go a long way in preventing violations. However, the steps that need to be taken to ensure compliance may vary from business to business.
From the aforesaid discussion, it can be pointed out that it is important for the industry to assess the impact of the Act on its business operations by way of reviewing their commercial agreements from competition angle. Similarly, enterprises enjoying dominant position must be cautious in their approach while conducting their business operations so that there is no abuse of dominant position in terms of the Act. Further, in cases of M&A deals, industrial players need to assess the deal from the competition angle at the earliest opportunity in the deal negotiation process.
Like other comprehensive competition law regimes, the Act mainly deals with three areas, viz, prohibition of anti-competitive agreements; prohibition of abuse of dominant position; and regulation of combinations (broadly, combination includes acquisitions, mergers and amalgamations exceeding the thresholds specified in the Act in terms of assets or turnover).
For the purposes of the Act, the Competition Commission of India has been established. In terms of the Act, it is the duty of the commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers, and ensure freedom of trade carried on by other participants, in markets in India. Thus, the commission has a pivotal role to play under the Act.
In addition, the Act gives the commission the responsibility of undertaking competition advocacy. It is important to note that the Act empowers the commission to inquire into agreement, dominant position, combination which has, or is likely to have, an appreciable adverse effect on competition in the relevant market in India irrespective of the fact that the agreement has been entered outside India or any party to the agreement is outside India or any enterprise abusing dominant position is outside India or a combination has taken place outside India or any party to the combination is outside India or any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.
Till date, only some of the provisions of the Act have been notified. Other provisions of the Act, those relating to inquiry into anticompetitive agreements, abuse of dominant position and regulation of combinations, are yet to be notified. At present, the commission is undertaking ground work that will be required to commence the inquiry and regulatory work.
Once the Act becomes operational in its entirety, merger and acquisition (M&A ) transactions which are above certain prescribed threshold limits in terms of assets or turnover as laid down in the Act will be subject to combination review in accordance with the provisions of the Act. Similarly, commercial agreements may also be looked into by the commission in case such agreements raise competition concerns under the Act.
ADVERTISEMENT
It is important to note that the Act expressly recognises that the provisions relating to anti-competitive agreements shall not restrict the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under various intellectual property rights (IPR) statutes mentioned under the Act.
However, by implication, we can say that unreasonable conditions incorporated under IPR agreements do not fall outside the jurisdiction of the commission. The actions of dominant enterprises may also be looked into by the commission if it results in abuse of dominant position as per the provisions of the Act.
In these circumstances, compliance with the Act is important. Further, the consequences of non-compliance may be serious for any business in terms of significant financial penalties; agreements being declared void; adverse impact on M&A deal including directions by the commission that the combination shall not take effect or directions that the parties to such combination to carry out necessary modifications to the combination; and loss of reputation and goodwill.
In view of above, the industry may devise appropriate mechanisms such as conducting training on competition related issues for its employees; devising competition compliance manual; preparation of competition compliance checklists in order to ensure compliance with the provisions of the Act. Broadly speaking, for ensuring compliance with the Act, it is beneficial to disseminate knowledge of what constitutes violation of the Competition Act and to create culture of compliance with the Act. All this will facilitate early detection of violations and will go a long way in preventing violations. However, the steps that need to be taken to ensure compliance may vary from business to business.
ADVERTISEMENT
From the aforesaid discussion, it can be pointed out that it is important for the industry to assess the impact of the Act on its business operations by way of reviewing their commercial agreements from competition angle. Similarly, enterprises enjoying dominant position must be cautious in their approach while conducting their business operations so that there is no abuse of dominant position in terms of the Act. Further, in cases of M&A deals, industrial players need to assess the deal from the competition angle at the earliest opportunity in the deal negotiation process.
ADVERTISEMENT
The author is senior associate at Dua Associates a law firm. The views are personal Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
