emerging
professional opportunities for
CAs.
Presented to
Institute of Chartered Accountants of India
G R Bhatia
Partner & Head of Competition Law Practice
Luthra & Luthra
Law Offices
New Delhi
23.08.2014
© 2008 Luthra & Luthra Law Offices
www.luthra.com
Table of Contents:
 Why Competition?
 The New Regime – Background &
Introduction
 The Competition Act, 2002 - Key
Provisions
 Impact of competition law in
distributorship model.
 Risk Mitigation - Critical Steps
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Competition in market is
BENIGN:

Reduces prices

Improves quality

Boosts choice

Facilitates better governance

Promotes efficiency

Encourages innovation

Punishes THE LAGGARDS

Ensures AVAILABILITY OF GOODS in abundance of acceptable
quality at affordable price (AAA)
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Five Dimensions of the Act:





Anti-competitive Agreements (ACAs)
[Sec. 3]
Abuse of Dominance (AOD) [Sec. 4]
Combinations, include acquisition of shares,
voting rights, assets/control, mergers,
amalgamations and takeovers [Secs. 5 & 6]
Advising, on a reference, to Government in
respect to its policies/law
Advocacy – creating awareness
(All these dimensions of law are in force)
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Powers of the CCI:
 Issue directions to discontinue or not to re-enter (Cease
& Desist orders) in relation to ACA/AOD);
 Grant interim relief during enquiry;
 Impose penalty on producers, distributors, suppliers of
up to three times of average profits or up to ten percent
of average turnover for each year of continuance of
agreement, whichever is higher, in case of cartel like
behavior;
 Impose penalty which shall be not more than ten percent
of the average of the turnover for the last years , for
other violations.
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Contd…
 Impose penalty on delinquent directors and functionaries
who are delegated with requisite powers;
 Declare anti-competitive agreements void;
 Order division of dominant enterprise or groups;
 Approve/approve
combinations;
with
modifications
 Any other orders which the CCI may deem fit.
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or
block
Institutional Framework:
 The CCI – Primary body to implement the law;

Office of the DG – to assist the CCI in carrying out investigation
 The COMPAT- For appeals against CCI Orders and to
adjudicate Claims for Compensation.
 Supreme Court of India – For appeals against orders
of COMPAT.
 Central Government – Vested with power to supersede
the CCI; issue directions; grant exemptions from
applicability of the Act.
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Powers of the DG:
 Requisition of information from the parties
 Requisition of information from ex-employees,
distributors etc.
 The DG can summon and record evidence
during investigation.
 DG can exercise the powers of ‘Search and
Seizure’ (“Dawn Raids”).
 DG are vested with the powers of a Civil Court
to aid Inquiry/Investigations
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Relevant Market
 ‘Relevant Market’ includes relevant product market
and relevant geographic market.
Relevant Product Market – comprises all those
products
or
services
which
are
regarded
as
interchangeable or substitutable by the consumer.
United Brands v. Commission – It was argued that bananas
were in the same market as other fruit. The ECJ held that the
banana constitutes a separate market since it has special
features distinguishing it from other fruits, like it is the only
fruit which can be consumed by infants and the elderly.
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Contd…



Relevant Geographic Market – refers to market
comprising the area in which the conditions of
competition are distinctly homogenous.
This could be a ‘small town’, ‘state’, across the nation or
even global.
For instance, relevant geographic market in the DLF
case has been considered as Gurgaon on the basis that
the conditions of competition between Delhi and
Gurgaon and distinctly homogenous and they cannot be
treated as the same (pending appeal). Further, in the
cement cartel case, the relevant geographic market is
considered as India since the same conditions are
prevalent pan-India regarding sale of cement.
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Anti-Competitive Agreements
(ACAs):
 Section 3 prohibits agreements in respect of
production,
supply,
distribution,
storage,
acquisition or control of goods or provision of
services, which causes or is likely to cause an
appreciable adverse effect on competition
(AAEC) within India.
 The Act declares that agreements entered into
in contravention of the above prohibition shall
be void.
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Horizontal and Vertical Agreements
Raw Material
Supplier
Raw Material
Supplier
Raw Material
Supplier
Manufacturer
Manufacturer
Manufacturer
Wholesaler
Wholesaler
Wholesaler
Retailer
Retailer
Retailer
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Horizontal Agreements
(Presumption of AAEC):
 Agreements between enterprises or persons engaged in
similar trade of goods or provision of services.
 Agreements including cartels that:
(a) fix prices,
(b) limit or control production,
(c) allocates markets or customers, and
(d) rig bids/collusive bidding
are presumed to have an appreciable adverse effect on
competition (AAEC)
 The prosecutor needs to prove existence and not the
harm caused.
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e.g. DISCUSS ABOUT PRICE INCREASE, TIMING OF PRICE
INCREASE WITH COMPETITORS
Retail price is too
cheap. Why don’t
we increase the
wholesale price
by 5%?
Medtronic’s
Sales Person
I agree. Let’s
implement the
price increase
next month.
Competitors Sales
Person
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e.g. DISCUSS ABOUT CUSTOMERS AND
TERRITORY WITH COMPETITORS
West district of A
city is our territory.
Do not sell your
products in our
territory.
Medtronic’s Sales Person
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Okay. East district is
our territory.
Promise to us that
you will not sell
your products at our
territory.
Competitor’s Sales Person
Contact with former boss
(Fictional Case)
Long time no see. I did not
know you were working to
get this business for
Medtronic. Why don’t we
keep in touch and exchange
information?
Medtronic sales
person
Ex Medtronic Sales
Person working at
Competitor
What should you say? Think of a script.
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Answer
 " I agree. Give me your contact details so that we can
exchange information.”
 " It is really nice to see you again. Why don’t we go
out for dinner tonight. There are lots of things that we
should talk.”
 Leave the place after saying "It is nice meeting you
again. But we are competitors now, and competing
with each other for this deal. It is against our
company’s policy to interact with competitors. I am
afraid I will have to say “I have to go.”
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Vertical Agreements
(Rule of Reason)
 Agreements between enterprises at different stages
or levels of the production chain.
 What is the Rule of reason analysis?
A rule of reason analysis involves determining
whether conduct can be justified on the basis that
its pro-competitive gains outweigh its anticompetitive effects.
Agreements are not deemed anti-competitive
unless if they cause or are likely to cause AAEC in
India.
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Examples of Competition issues in
vertical relationships
 Vertical agreements include:
(a)tie-in arrangements – any agreement requiring a
purchaser of goods, as a condition of such purchase,
to purchase some other goods.
(b)exclusive supply- any agreement restricting in any
manner the purchaser in the course of his trade from
acquiring or otherwise dealing in any goods other
than those of the seller or any other person.
(c) exclusive distribution agreement- any agreement
to limit, restrict or withhold the output or supply of
any goods or allocate any area or market for the
disposal or sale of goods.
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Contd…
(d) refusal to deal- any agreement which restricts, or
is likely to restrict, by any method the person or
classes of persons to whom goods are sold or from
whom goods are bought;
(e) resale price maintenance- any agreement to sell
goods on condition that the prices to be charged on
the resale by the purchaser shall be prices stipulated
by the seller unless it clearly stated that prices lower
than those prices may be charged.
 The scope and ambit of above concepts is broad as the
definition has been made “inclusive”.
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Factors for Determination of
AAEC:
 Creation of barriers to entry;
 Driving existing competitors out of market;
 Foreclosure of competition by hindering entry
into market;
 Accrual of benefits to consumers;
 Improvements in production or distribution of
goods or supply of services;
 Promotion of technical, scientific and economic
development;
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Risks – The Leniency Provision
 The Act provides for imposition of lesser penalty by the
CCI in cases of violation of Section 3 where a person
makes FULL, TRUE and VITAL disclosure of a cartel to
the CCI; for e.g. Samsung Electronics received full
immunity (100%) from fines under the Commission's
leniency programme in the LCD Cartel case. LG got a
50% reduction.
 The Leniency System is targeted at cartel participants
and seeks to induce participants to break rank and turn
approver against other cartel members.
 A successful applicant can avail the benefit of a reduction
in penalty in the range of up to 100% or 50% or 30%
keeping in view the first mover advantage.
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Exclusions:
 Section 3 does not:
- restrict right of IPR holder to prevent
infringement of IPR or impose
‘Reasonable Conditions’ on use of such
IPR;
- restrict right of a person to export
goods from India.
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Abuse of Dominant Position
 The Act does not prohibit dominant position – it only
frowns upon the ‘abuse’ thereof.
 Dominant Position refers to a position of strength
enjoyed by an enterprise or group in the relevant
market, in India, which enables it to  Operate
independently
of
competitive
forces
prevailing in the relevant market; or
 Affect its competitors or consumers or the relevant
market in its favor.
 ‘Group’ is open ended.
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Contd…
 Determination of
Position’ involves:
‘Abuse
of
Dominant
 Identifying the ‘relevant market’
 Establishing the ‘dominant’ status of the
enterprise or group; and
 Evaluation of the conduct to determine
whether it falls within ‘abuses’ listed under
the Act.
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Types of Abuses


EXPLOITATIVE ABUSES – i.e., conduct which results in
exploitation of others in the value chain, for e.g.,
- imposition of unfair or discriminatory conditions
- imposition of unfair or discriminatory prices e.g.,
predatory pricing.
EXCLUSIONARY ABUSES – conduct which interferes with the
competitive process, for e.g.,
- Denial of market access;
- Making conclusion of contract subject to acceptance of
supplementary obligations
- Limiting production of goods, provision of services;
scientific development;
- Using dominance in one relevant market to enter into or
protect other relevant market ;
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Determination of Dominant
Position - Factors
 Market share of the enterprise
 Size and resources of the enterprise
 Size and importance of the competitors
 Economic power of the enterprise
 Vertical integration of the enterprises
 Dependence of consumers on the enterprise
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Contd…

Dominant position as a result of statute

Barrier to entry

Countervailing buyer power

Market structure and size of market

Social obligations and social costs

Contribution to the economic development

Any other factor (residuary factor)
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Regulation of Combinations –
Merger Control:
 The Act regulates combinations (merger
control) which involves an ex ante assessment
of changes in the structure of the relevant
market.
 No combination can take effect unless the
transaction is approved by the CCI.
 Combination Regulations sets out the
procedure of filing notice, fee payable and
timelines.
 Failure to file notice of a reportable transaction
attract penalty. www.luthra.com
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Contd…
 ‘Combinations’ include:
-
Acquisition of control, shares, voting rights, or assets
of another enterprise; or
-
Acquisition of control where the acquirer already has
control over a similar/identical business’ or
-
Merger or amalgamation of enterprises
where such transactions cross the asset or
turnover thresholds set out in the Act.
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Risks – Impact on Companies
 High penalties/liability for compensation;
 Possible extra fine and/or imprisonment for
breach of CCI orders;
 Legal Expenses;
 Loss of Reputation;
 Agreements rendered null and void;
 Division of dominant enterprise;
 Loss of business from the harmed parties;
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A word of caution in
communication?
 Email, SMS, FAX, Communication in any e-mode are
admissible evidence.
 Skillful communication is imperative.
 Do not sound guilty .
 Do not use expression like “destroy after reading”.
 Avoid the exaggerated use of “power” words(e.g.
“we’ll destroy them”, “we will nail them to the
wall”)
 Avoid giving the false impression that a customer is
being given favored treatment( e.g. “None of our
other customers is getting this special
discount”).
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Contd…
 Do not give false impression that some action is
being taken as a result of an agreement between
competitors ( e.g. “Everyone in the industry
agrees that prices are too low”).
 Be carful with the use of the word “market” (e.g.
“we are dominant”).
 Marking a document “personal and confidential”
or keeping it in your “personal” files or home
office or computer does not mean that it won’t be
discovered.
 Do not use the term “market” when referring to
distribution channels.
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Role of Chartered Accountants
 Sensitize the client about the need for and
usefulness of having competition compliance
program
 Review all purchase and sale agreements
 Prepare customised competition compliance
manual
 Prepare ready recokner of Do’s and Don’ts
 Impart training on Competition Regime
 Have due diligence of transaction from
competition law
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Thank you
Luthra & Luthra
Law offices
103, Ashoka Estate
24 Barakhamba Road
New Delhi – 110001
Tel No. 011-41215100
Email: competitionlaw@luthra.com
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