HISTORICAL BACKGROUND OF THE COMPETITION ACT, 2002

[Mr. M. GOVINDARAJAN]

The Competition Act, 2002 was enacted to repeal the MRTP Act. Fundamentally the Competition Act, 2002 is a law that addresses Anti-Trust issues.  The US Act, the Sherman Act, 1890 which prescribes agreements in restraint of trade, appears to be the earliest Anti-Trust Statute in the world.   In India also the Contract Act was enacted which is earlier than the Sherman Act.  The Contract Act contains a provision declaring agreements in restraint of trade as void.   The expression ‘restraint of trade’ was explained by the US Supreme Court in ‘Business Electronic Corporation V. Sharp Electronics Corporation’ – 285 US 717 (1988) to mean not merely a particular list of agreements but also a particular economic consequence that may be produced by different sorts of agreements in varying time and circumstances.

Even before the advent of Galsnost and globalization which started in the early 1990s, India had enacted an anti trust act that was known as Monopolies and Restrictive Trade Practices Act, 1969.  The Preamble of the said Act advocated a socialistic philosophy by declaring that the Act was intended to ensure that the operation of the economic system did not result in the concentration of economic power to the common detriment. The Act was intended to control Monopolies and to provide for the prohibition of Monopolistic and Restrictive Trade Practices.

The said MRTP Act was found to be very ineffective due to a variety of reasons, one of which was the frequent shift in the industrial policy of the Government. Chapter III of the said Act conferred power upon the Central Government to regulate the expansion of and the establishment of new undertaking by any undertaking falling under Chapter III of the Act. After the new Industrial Policy was introduced in 1991, the Government removed some important regulatory provisions in the Chapter III of the MRTP Act.   In other words, the pre-entry restriction on the investment by the Corporate Sector was removed.

With the process of liberalization, India became a party to two important agreements of the World Trade Organization namely General Agreement of Tariffs and Trade (GATT) and Trade Related Aspects of Intellectual Property Rights (TRIPS).  As a result many multinational companies could able to enter in the Indian market. Therefore, realizing that there was no tooth for the MRTP Commission under the MRTP Act and that a new law was the need of the hour, the Central Government constituted a High Level Committee of Competition Policy and Law. The Committee undertook an exhaustive study of the Government policies, their effect on the Industrial structure in India, the deficiencies of the Indian Industry to compete with multi-nationals and then submitted its report.   The major recommendations made by the Committee were:

• To repeal the MRTP Act and to enact a Competition Act for the regulation of Anti competitive agreements and to prevent the abuse of dominance and combinations including mergers;
• To eliminate reservation of products in a phased manner for the Small Scale Industries and the Handloom Sector;
• To divest the shares and assets of the Government in State Monopolies and private them; and
• To bring all industries in the private as well public sector within the proposed legislation.

The Government, on the basis of the recommendations of the Committee, passed the Competition Act, 2002.  The Competition Act received the assent of the President on 13.01.2003.  The Central Government also notified rules for the selection of Chairperson and other members of the Competition Commission within a few months.

 

The validity of the formation of Competition Commission came to be challenged before the Supreme Court of India in ‘Brahm Dutt V. Union of India’ – 2005 (1) TMI 410 - SUPREME COURT OF INDIA.  In the course of hearing the Central Government informed the Supreme Court that they intended to make amendments to the Act. Thereafter the Act was amended substantially by the Competition (Amendment) Act, 2007. Under the amended Act, the Competition Commission was to function only as a Market Regulator and an Expert body performing Adversary and Regulatory functions.  In the year 2009, there was yet another amendment.

The Act, as it stands today, seeks to cover three anti-trust issues, namely:

• Anti-competitive agreements by an enterprise or association of enterprises or person or association of persons;
• Abuse of dominant position; and
• Combinations.

The anti competitive agreements are dealt with by Section 3. Abuse of dominant position is dealt by Section 4 and combination by way of acquisition or merger or amalgamation is dealt by Section 5 and 6 of the Act.