Comparative Analysis of Competition Law in UK and India

Comparative Analysis of Competition Law in UK and India

Author: Raksha HR, 

3rd year,
0 School of Law (Christ deemed to be University) Bangalore 

Introduction
Competition law deals with the necessity of intervention within the market when there exists a threat to the competitiveness or there has been a market failure due to the actions of certain firms. This domain concerns itself with a welfare perspective where abuse of economic power is seen as a threat to the society. The main aim of competition law and policy is to ensure that the interests of consumers are being protected and this is done through balancing the gains to the company and the consumer.[1] The origin of policy making in this subject was first in the United States and it is called the anti-trust law and policy. The three important legislations in the US included ‘The Sherman Act’ of 1890, ‘Clayton Act’ of 1914 and ‘The Federal Trade Commission Act’ of 1914. The Sherman Act deals with prohibiting contracts in restraint of trade and monopolizing through unlawful means which results in a detriment to the society. The Clayton Act prohibited price discrimination if it creates an effect of monopoly and the FTC Act created the Federal Trade Commission with concurrent adjudicatory powers to enforce the above Acts.[2]The US systems of anti-trust laws are important because they have exercised considerable influence over other jurisdictions in the policy making of competition law.


 The laws in the European Union started developing post World War 2 and in India it was much later in 1969 when the MRTP Act was enacted. Even though the legislations in the UK were framed post the war, it was scattered and the enforcement was haphazard. This was because the country believed in free market system. The law took almost fifty years to develop and the concrete legislations that were enacted include the Competition Act and the Enterprise Act which were passed in 1998 and 2002 respectively.[3] In India even though the MRTP Act was enacted in 1969, it was found that the legislation was inept in regulating the anti-competitive practices in the market. This Act was replaced in the year 2002 when the Competition Act was passed by the parliament. There are essential similarities and differences between the competition laws in India and UK. This paper is a comparison between the law and policy in the two countries. The research focusses upon the evolution of competition law legislations, important similarities and differences in the statutes and the manner of enforcement mechanisms as developed by both countries. The methodology of research is doctrinal and it is conducted on the basis of secondary data.

 History and Evolution

After India attained independence most of the policies were protectionist in nature and this was done with a view to attain self-reliance and social justice. Initially these policies helped the Indian producers grow because there was no competition from other countries since the entry and exit into the market was restricted. However, with the New Economic Policy in 1991 there was a wave of liberaliz
ation which resulted in opening up of Indian market. The consequence of this was increased levels of competition because government control was reduced and market forces were allowed to operate.[4]With the development of a new economic system, the concern was with respect to concentration of wealth and the increase in the gap of income levels between the people. There was a necessity to bring certain regulations that ensure that the basic principles of a welfare state were being practiced in the country. The word ‘socialist’ was included within the preamble through the 42nd Amendment in 1976. The type of socialism advanced was democratic and communist. Further, the Directive Principles of State Policy[5]provided the constitutional framework through which the Monopolistic and Restrictive Trade Practices Act was enacted in 1969. Post liberalization it was seen that this Act did not cater to the changes in the economic scenario as it only put forth the situations that would be considered as unlawful whereas the economic analysis of the effects of a particular situation was necessary to be established. [6]

The MRTP Act was narrow in its approach and obsolete with respect to the international development in competition law and it was seen that there must be a shift in the perspective from curbing monopolies to increasing competition in the market.[7]In furtherance of this, Raghavan Committee was appointed in 1999 and the committee recommended that there must be an appropriate legislative framework relating to competition law and necessary administrative changes must be brought in order to achieve efficient allocation of resources. The committee also recommended that the new policy must focus upon harmonizing the differences between government policies and the competition policy. The objective was to create an economic system where rivals have equal opportunities so that the resources are used productively and efficiently. This will ultimately result in lower costs for the consumers.[8] In furtherance of the report given by this committee the Competition Act of 2002 was enacted with the objective of establishing a commission and to promote competition in the market by ensuring free trade and to protect the interests of consumers.

The history of competition law in the UK has evolved from a single system of enforcement to a multiple enforcement system conducted by both public and private parties. The first competition policy that was enacted was the Monopolies and Restrictive Practices (Inquiry and Control) Act of 1948. This Act vested enormous powers in the administrative authorities and it did not specify the rights of the persons who were affected by monopoly. Post this; The Fair Trading Act of 1973 was enacted replacing the previous legislation. However, there were many disadvantages as the enforcement mechanisms were not adequate and individuals could not privately enforce their rights through civil suits. Consequently other legislations such as Restrictive Trade Practices Act (1976), Resale Prices Act (1976) and the Competition Act (1980) were enacted. There were several legislations with weak enforcement powers given to the enforcement authorities. In the year 1998, The Competition Act was enacted and this revamped the existing policies. The regulatory authority that was established instead of the Monopolies and Merger Commission was the Competition Commission. Opportunity to privately enforce rights was provided under the Act.[9]

A white paper published in the year 2001 titled ‘A World Class Competition Regime’ was submitted by the Secretary of State to the Parliament. The objective of the paper was to ‘set out a blueprint to build a world-class competition regime for the UK’. It stated that powerful and autonomous competition authorities must be set up. It stated that the ‘Office of Fair Trading (OFT)’ would be given specific legal powers and the recruitment and staffing in both OFT and Competition Commission was sought to be improved. One of the important features of this paper was the suggestion to include criminal liability on hard-core cartels that cause a reduction of welfare to the consumers and the economy in general. The power to enforce the criminal charge is vested with the OFT. Here it is seen that autonomous authorities without the influence of the state were created in order to enforce the law. [10]The recommendations given in this paper were incorporated under the ‘Enterprise Act’ of 2002 which introduced criminal sanctions and private enforcement was further encouraged. The powers to enforce the competition laws are not vested in a single administrative authority, rather there are multiple complementary tools through which the rights can be protected and enforced. [11]

Statutes

The Competition Act in India received the President’s assent in 2003. The preamble of the Act puts forth that the objective is to set up a commission to ‘prevent practices that have adverse effects on competition and to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in the market.’ The important provisions of the Act focus on anti-competitive agreements, abuse of dominant position, regulation of combinations, enforcement mechanisms and remedies. Section 3 of the Act deals with anti-competitive agreements and it prohibits certain agreements that restrain trade. The two facets of this provision relate to whether the agreement is per se a violation of the law or if the anti-competitiveness must be established by the rule of reason.[12]The process by which enquiry must be conducted for such agreements is provided under Section 19 (1) of the Act. After the amendment in 2007, the competition commission can enquire into the matter on its own motion or through information given by any person. The rule of reasons provides certain tests that need to be undertaken to check if the agreement is anti-competitive. This includes the relevant facts of the case, the condition before and after the restraint was imposed, nature of restraint, the consequences of it and the end that is to be achieved. [13]

The abuse of dominant position is given under Section 4 of the Act and it provides the relevant considerations that need to be looked into in order to determine whether the entity enjoying the dominant position is abusing the same. These include imposing unfair trade conditions, predatory pricing, denial of market access, limiting supply of goods and services and market share of the enterprise. The dominant position is determined on the basis of relevant geographic and product market. A combination under competition law is defined under Section 5 of the Act. It includes the merger between two or more enterprises or an acquisition of one enterprise by another. The objective of this is to ensure that equal representation is given to small industries as well
and they are not sabotaged by the bigger industries. This will lead to concentration of wealth in a few firms and will finally result in social and economic disparities within the nation. The types of mergers include horizontal, vertical and conglomerate. If the assets and turnover of the merged enterprise exceeds the prescribed threshold in the Act, the same has to be notified to the competition commission. After this notice is served, the commission must make a prima facie opinion. The parties are then asked to file the details of the combination and the public has an access to this. Any person can file objections against the combination within fifteen working days. After taking into consideration all the information about the combination, the commission gives the final report on whether the new entity causes appreciable adverse competition or not. If not the transaction is approved. The commission can also suggest for changes or modifications to the agreement.

In UK, the provisions of Competition law are influenced by the ‘Treaty on the Functioning of European Union’. Under Chapter 1 of the Competition Act 1998, the law prohibits any agreement between two parties that has the object or effect of preventing or distorting competition. If the said transaction affects the transaction between other European Union states, then the fine imposed may be up to 10% of the company’s turnover. Chapter 2 of the Act deals with the abuse of dominant position. There are certain agreements that fall under excluded category. This includes mergers and concentration as given in schedule 1, competition scrutiny under other enactments as given in schedule 2 and other general exclusions as given in Schedule 3. Exemptions may also be granted if an application in furtherance of it has been made or if it improves production, distribution and promotes technical expertise. The abuse of dominant position includes limiting production, progress of the market or is detrimental to technical development and the welfare of the consumer. The abuse of dominant position generally applies to the companies that have a large market share of 40 % or more. [14]

Enterprise Act of 2002 is the legislation that lists out the provision relating to the Office of Trade (OFT) including its establishment, general functions and the procedure to be followed. It also states about the procedure that has to be followed under the Company Law Appellate Tribunal. The legislation has enacted provisions relating to mergers, public interest cases in which the state interferes and enforcement provisions such as investigation procedure and reports to be filed. Part 6 of the Act states enumerates the provisions about cartel offences and it states the criminal investigation procedure that has to be followed by the OFT.[15]

Enforcement Mechanisms

In order to achieve the objectives of the Competition Act, the Competition Commission of India (CCI) was established by the Central Government in 2003. It consists of a chairperson and 6 persons who are appointed by the Central Government. The duty of the commission is to eliminate adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade. Other functions of the commission include investigations into the matter referred to it by the state and to create awareness about competition advocacy in India. [16]The commission has also introduced e-filing of information through its official portal and the notice regarding combinations must be filed through Form 1. [17]  According to section 33 of the Act, the commission also has the power to pas
s interim orders in order to ensure that damage is mitigated temporarily. Section 19 of the Act provides the process by which investigation must be carried out by the commission. It might be suo moto or on reference. Further the Director General conducts the investigation and a report is framed. The outcomes include that there is contravention or that there is no contravention of law. The appeal against the decision given by the CCI is filed before the National Company Law Appellate Tribunal (NCLAT). [18]

The OFT in UK follows certain key stages in its investigation procedure. Initially there are various sources through which the information is gathered and this is an informal process. These sources include their research and complaints received by the cartel hotline. Further, the formal investigation process is started by issuing a notice in that regard and evidence which is gathered is analyzed. An assessment is done to check whether there is sufficient evidence of infringement and a report is made available too the parties for which they have a right to reply. It is checked if there is enough evidence for it to constitute infringement and accordingly the penalties are imposed. [19]

The competition commission in UK closed down and its functions shifted to the Competition and Markets Authority (CMA). There are five strategic goals of this organization. They are to deter wrongful acts done on the consumers and to spread awareness among businesses, improving competition within the market, developing mechanisms to improve compliance, efficient management of cases and involving people from different areas of expertise to provide the government advice on competition.[20]

Under part 6 of the Enterprise Act 2002, the process of criminal investigation as undertaken by OFT is given. A cartel offence is defined under Section 188 of the Act and it refers to the arrangement made by one person by dishonestly agreeing with other people to do acts such as fix prices of product or services, limit or prevent supply and bid rigging. In such cases, the OFT has the power to enter the premises for the purpose of investigation after obtaining a warrant from the high court. The maximum imprisonment under the law is 5 years for a person who knows that an investigation is being carried on and falsifies or disposes the documents of the investigation thus portraying malafide intent.   

Conclusion

The competition law of a particular country is a direct consequence of the economic structure and the administrative actions of the state. Therefore, there will be certain differences between the provisions of law in this regard even though the objective sought by the legislation is the same. The competition law in India is largely based on European Union laws and the UK legislations. It seeks to resolve similar issues such as restrictive agreements and abuse of dominant position. However, there are certain differences as well. In UK, the enforcement authorities have the power to enter the business premises and conduct the investigation but this provision is not there in the Indian legislation. As opposed to a multifold mechanism of redressal in the UK, the Indian system has a single legislation and an authority to investigate the cases. The Indian legislation specifically states the practices that result in abuse of dominant position and in the UK legislation no such enumeration is made as the word ‘may’ is used. As explained above, the UK legislation has also introduced criminal liability in the case of cartels with the objective of deterring such activities. Therefore, even there exist certain differences with respect to the enforcement procedure in both the countries. Since the development of UK law started at an earlier period, the entire process in the later years has been harmonizing the already existing legislations to make it more effective. In India, there have
not been multiple legislations and the process of amendment was undertaken and the prior Act was repealed to enact a legislation which corresponds to the changes in the economy. Hence, competition law must be dynamic in order respond to the necessary changes that might occur and this has to be implemented to achieve the said objectives of law.
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READ  Doctrine of Pith and Substance

[1] Barry J Rodger & Angus MacCulloh, Competition Law and Policy in the European Community and United Kingdom, Cavendish Publishing Limited (1999).


[2] Richard J Pierce Jr, Comparing the Competition Law Regimes of the United States and India, George Washington University Law School (2017).

[3] Andrew Scott, The Evolution of Competition Law and Policy in the United Kingdom, London School of Economic and Political Science department (2009).

[4] Vinod Dhall, Competition Law in India, 21 ANTITRUST 73, 78 (2007).

[5] Article 38 of the Indian Constitution states that the state must strive to ensure the welfare of the people and reduce the income inequalities and ensure socio-economic and political justice.

Article 39 states that the state must direct its policies so as to ensure that the resources are distributed to serve the common good and it is not concentrated in the hands of few that might lead to a common detriment.

[6] G. R. Bhatia; Abdullah Hussain, Competition Law in India, 1 INDIAN J. INT’LECON. L. 181, 204 (2008)

[7] Manas Kumar Chaudhari, MRTP Act to Competition Act – The way forward, Vikalpa The Journal for Decision Makers, Volume 41 Issue 2 (2016).

[8] http://planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_cpolicy.pdf ( last accessed- 27th February 2020)

[9] Renato Nazzini, Concurrent Proceedings in Competition Law- Procedure, Evidence and Remedies, Oxford University Press, Pg. 35-40 ( 2004).

[10] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/265534/5233.pdf, ( Last accessed- 27th February 2020)

[11] Supra 9, 38.

[12] T Ramappa, Competition Law in India- Policy Issues and Developments, Oxford University Press, (2014)

[13] Board of Trade of City of Chicago V. {US 246 US 231 (1918)}.

[14] https://www.legislation.gov.uk/ukpga/1998/41, ( Last accessed 29th February 2020)

[15] https://www.legislation.gov.uk/ukpga/2002/40/contents, ( Last accessed 29th February 2020)

[16] https://www.cci.gov.in/about-cci, ( Last accessed on 29th February 2020)

[17] https://www.cci.gov.in/what-e-filing( Last accessed on 29th February 2020)

[18] https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/FAQ.pdf, ( Last accessed on 29th February 2020)

[19] https://webarchive.nationalarchives.gov.uk/20140402165006/http://www.oft.gov.uk/OFTwork/publications/publication-categories/guidance/competition-act/(Last accessed 12th July 2019).

[20] https://www.gov.uk/government/organisations/competition-and-markets-authority/about#our-goals( Last accessed on 29th February 2020)

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