Competition Act, 2002 – Economic, Business and Commercial Laws Important Questions

Competition Act, 2002 – Economic, Business and Commercial Laws Important Questions

Question 1.
Write a short note on Conditions conducive to cartelization [December 2012 & June 2013 (3 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization:
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 2.
Write a short note on Cartel [Dec. 2013 (3 Marks)]
Answer:
Definition- Section 2(c)
Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.

  • Cartel result in higher prices, poor quality, and less or no choice for goods and/or services which result in injury to consumer and to the economy
  • Examples of Cartel:
  • All tire manufacture increasing prices uniformly and simultaneously by mutual agreement.
  • Association of transporter fixing prices and prohibiting its members from quoting price below the price fixed by association.
  • Trade association asking their members not to sell below the rates announced by it with the threat of expulsion in the event of non-compliance.

All above agreements or arrangements are cartels; they are anti-competitive and hence are void.

Question 3.
What do you understand by the word ‘competition’ in the market? In what ways ‘competition kills competition’? Discuss briefly. [Dec. 2015 (8 Marks}]
Answer:
Meaning of the word “ Competition”

  1. Definition by Competition Act: The term ‘competition’ is not defined under the Competition Act, 2002. Competition is a complex and technical subject that does not lend itself to easy summary or concise clarification.
  2. General Meaning: Competition can be defined as a process of economic rivalry between market players to attract customers.
  3. Corporate World Meaning: In the corporate world, the term is generally understood as a process whereby the economic enterprises compete with each other to secure customers for their products.
    These market players can be multinational or domestic companies, wholesalers, retailers, or even the neighborhood shopkeeper.
  4. World Bank and OECD Meaning – A situation in a market in which firms or sellers independently strive for the buyers’ patronage in order to achieve a particular business objective, for example, profits, sales on market share.

In what way “competition kills competition”

  • In the process to outdo rival enterprises, the market players may adopt fair means or indulge in unfair measures.
  • The enterprises compete to outsmart their competitors, sometimes to eliminate their rivals.
  • Some competitors may adopt destructive tactics and throw the viable and deserving producer out of the market
  • Competition in the sense of economic rivalry is unstable and has a natural tendency to give way to a monopoly.
  • Thus, competition kills competition.

Question 4.
Write a note on* Evolution and development of Indian competition laws [Dec. 2016 (5 Marks)]
Answer:
Constitution of India (Articles 38 and 39)
The Directive Principle of State Policy in those Articles lays down, inter alia that the State shall strive to promote the welfare of the people by securing and protecting as effectively, as it may, a social order in which justice – social, economic, and political- shall inform all the institutions of the national life, and The State shall, in particular, direct its policy towards securing
1. That the ownership and control of material resources of the community are so distributed as best to sub-serve the common good; and

2. That the operation of the economic system does not result in the concentration of wealth and means of production to the common f detriment.

  • First Competition Law
    The first Indian competition law was the Monopolies and Restrictive j Trade Practices Act, 1969 (MRTP Act).
  • Other Legislation
    Legal framework dealing with competition in India spread over other legislations, besides the Monopolies and Restrictive Trade Practices
    Act, 1969, other legislations dealing with competition include Consumer Protection Act, 1986, the Patents Act, 1970, etc.
  • Competition Act 2002
    Parliament has enacted Competition Act 2002 to prevent the practices from having adverse effects on competition, to promote and sustain competition in the market, and to protect the interest of consumer.

Question 5.
“Competition spurs efficiency and improves consumer welfare. There is a close relationship between competition and economic efficiency”. How far do you agree with this statement? Elucidate. [Dec. 2017 (8 Marks)]
Answer:
A number of empirical studies found a positive relationship between competition and innovation, productivity, and economic growth. P. Aghion and P. Howitt in Endogenous Growth Theory offered several theoretical situations where competition is conducive to innovation.

  • Intensified product market competition could force managers to speed up the adoption of new technologies;
  • Intensive product market competition with incumbent firms engaged in step-by-step innovative activities could enhance each firm’s incentive to acquire or increase its technological lead over its rivals and, if labor markets are flexible, competition will induce skilled workers to move to opportunities employing best practices and technologies.
  • The competition also reduces slack by providing more incentives for managers and workers to increase efforts and improve efficiency.
    Therefore, the product market competition disciplines firms into efficient operation.

Nickel in his article “Competition & Corporate Performance” suggested three different channels of incentives:

  • Competition creates greater opportunities for comparing performance;
  • A more competitive environment where price elasticity of demand tends to be higher induces greater efforts among workers and managers for cost-reducing improvements in productivity since improvements could generate a larger increase in revenue and profits; and
  • A more competitive environment forces managers to improve efficiency, because of the more intense the competition, the greater the chances for inefficient to be extinguished.

Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs, and providing incentives for the efficient organization of production.

Empirical evidence shows that strong competition is closely linked to dynamic and efficient markets.’ The benefits of competitive forces for economic growth and consumer welfare are widely recognized and evidenced by several studies.

Recently, an empirical study in the U.K. by the Centre for Competition Policy, University of East Anglia showed that prices were more than halved through competition in international telephony and airfares, and were significantly reduced in other areas. The survey also brought home the point that competition is not just about prices but is typically multi-faceted, bringing new ways of doing business and leading to technological and other advances.

Michel Porter in his recent work “Can Japan Compete “shows that in Japan only those sectors characterized by strong domestic competition remain internationally competitive following the country’s recent economic downturn, examples include cameras, automobiles, and audio equipment. Many leading competition experts believe in the premise that, in the presence of competition, the market will achieve the objective of maximizing welfare.

Question 6.
What do you mean by Cartel? Explain it with reference to the Com-petition Act, 2002. [Dec. 2018 (3 Marks)]
Answer:
Definition- Section 2(c)
Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.

  • Cartel result in higher prices, poor quality, and less or no choice for goods and/or services which result in injury to consumer and to the economy
  • Examples of Cartel:
  • All tire manufacture increasing prices uniformly and simultaneously by mutual agreement.
  • Association of transporter fixing prices and prohibiting its members from quoting price below the price fixed by association.
  • Trade association asking their members not to sell below the rates announced by it with the threat of expulsion in the event of non-compliance.
    All above agreements or arrangements are cartels; they are anti-competitive and hence are void.

Question 7.
Who is “consumer” under the Competition Act, 2002? [Dec. 2018 (3 Marks)]
Answer:
As per section 2(f) of the Competition Act, 2002, Consumer means any person who:

  1. Buys goods for a consideration and includes the use of goods, whether a person obtains such goods for resale or for any commercial purpose or
  2. Hires or avails of services for a consideration and includes a beneficiary of services, with the approval of the

It is to be noted that consideration for goods or services may be paid or promised to be paid or partly paid and partly promised. The consumer also includes a person who takes goods or services under a deferred payment system.

Explanation:
If a person purchases goods or avails of services for commercial purposes, he will be a Consumer, whereas, for purposes of the Consumer Protection Act, a person purchasing goods/availing services for commercial purposes is not a “Consumer” and cannot seek relief under that Act.

Question 8.
The Competition Act, 2002 is an improvement on the MRTP Act, 1969. Critically analyze this statement. [June 2019 (5 Marks)]
Answer:
It is true that Competition Act, 2002 is an improvement on the MRTP Act, 1969.

Question 9.
What do you mean by the term “person” as given under the Competition Act, 2002? [Dec. 2019 (3 Marks)]
Answer:
Definition Section 2(1) as per Competition Act, 2002 “person” includes:

  1. an individual;
  2. a Hindu undivided family;
  3. a company;
  4. a firm;
  5. an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
  6. any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section the Companies Act;
  7. anybody corporate incorporated by or under the laws of a country outside India;
  8. a co-operative society registered under any law relating to co-operative societies;
  9. a local authority;
  10. every artificial juridical person, not falling within any of the preceding sub-clauses.

Question 10.
What are the conditions conducive to cartelization under the Com-petition Act, 2002 [Dec 2019 (3 Marks)}
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 11.
What are the factors which the Competition Commission of India will take into consideration for determining whether an agreement has an ‘appreciable adverse effect’ on the competition? [June 2013 (5 Marks)]
Answer:

  1. “Adverse appreciable effect on competition” is a key factor while en-quiring into an anti-competitive agreement
  2. As per Section 19(3) of the Competition Act, 2002, the Commission shall, while determining whether an agreement has an appreciable adverse effect on competition may consider the following factors, namely:
  3. Creation of barriers to new entrants in the market.
  4. Driving existing competitors out of the market.
  5. Foreclosure of competition by hindering entry into the market.
  6. Accrual of benefits to consumers.
  7. Improvements in production or distribution of goods or provision of services.
  8. Promotion of technical, scientific, and economic development by means of production or distribution of goods or provision of services.
  9. The first three factors are anti-competitive, while the latter three factors have little effect.

Question 12.
What is an ‘anti-competitive agreement’ under the Competition Act, 2002? Mention any five anti-competitive agreements. [Dec. 2013 (5 Marks)]
Answer:
1. Meaning of Anti-Competitive Agreement
An anti-competitive agreement is an agreement having an appreciable adverse effect on competition.

2. Prohibition on anti-competitive agreements [Section 3]:
Any enterprise or association of enterprises or person or association of persons shall not enter into any agreement 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 within India.

3. Effects of anti-competitive agreements
Any agreement entered into in contravention of the above provision shall be void.

4. Presumed/deemed anti-competitive agreements
Following agreements shall be presumed to be anti-competitive agreements:

5. Types of Anti-competitive Agreement
The following agreement shall be considered to be agreements made in contravention of section 3 which are likely to cause an appreciable adverse effect on competition

  • Tie-in arrangement
  • Exclusive supply agreement
  • Exclusive distribution agreement
  • Refusal to deal
  • Resale price maintenance.

Question 13.
Explain in brief ‘anti-competitive agreement’ under the Competition Act, 2002. [June 2014 (5 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 14.
What are the factors which the Competition Commission of India shall take into consideration to ascertain whether an agreement has an appreciable adverse effect on competition under the Competition Act, 2002? [June 2016 (5 Marks)]
Answer:
Definition Section 2(1) as per Competition Act, 2002 “person” includes:

  1. an individual;
  2. a Hindu undivided family;
  3. a company;
  4. a firm;
  5. an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
  6. any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section the Companies Act;
  7. any body corporate incorporated by or under the laws of a country outside India;
  8. a co-operative society registered under any law relating to co-operative societies;
  9. a local authority;
  10. every artificial juridical person, not falling within any of the preceding sub-clauses.

Question 15.
What is meant by ‘bid rigging’? What are the most commonly used ways in which bid-rigging may occur? [June 2016 (5 Marks)]
Answer:
Meaning of Bid Riggings
Bid rigging means any agreement which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

Bid rigging occurs when two or more competitors agree they will not compete genuinely with each other for tenders, allowing one of the cartel members to ‘win’ the tender.

Participants in a bid-rigging cartel may take turns to be the ‘winner’ by agreeing about the way they submit tenders, including some competitors agreeing not to tender.
1. The legality of Bid Rigging
As per Section 3(3), agreements that directly or indirectly results in bid-rigging or collusive bidding are presumed to be anti-competitive agreements and therefore void.

2. Types of Bid Rigging
Bid rigging can take a variety of forms. They include:
Cover Bidding: Where competitors choose a winner and everyone but the winner deliberately bids above an agreed amount to establish the illusion that the winner’s quote is competitive.

Bid Suppression: Where a business agrees not to tender to ensure that the pre-agreed participant will win the contract.

Bid Withdrawal: Where a business withdraws its winning bid so that an agreed competitor will be successful instead.

Bid Rotation: Where competitors agree to take turns at winning business while monitoring their market shares to ensure they all have a predetermined slice of the pie.

Non-conforming Bids: Where businesses deliberately include terms and conditions that they know will not be acceptable to the client.

Question 16.
Briefly explain categorically the conditions that are conducive to ‘Cartelization’. [June 2018 (3 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 17.
What agreements are anti-competitive agreements under the Competition Act, 2002? [Dec. 2018 (3 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 18.
How the competition committee will determine whether an agreement has an appreciable adverse effect on the competition? [June 2019 (3 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 19.
Explain what is meant by Bid-rigging, Tie-in agreement, Exclusive supply agreement, and Refusal to deal. [June 2019 (3 Marks)]
Answer:
Bid-rigging:

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Tie-in Agreement: The term tie-in agreement means any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods.

Tie-in agreements are anti-competitive
Examples:
Where a gas distributor requires a consumer to buy a gas stove as a precondition to obtaining a connection of domestic cooking gas. [Chanakaya and j Siddharth Gas company]

Exclusive Supply Agreement: The agreement that the purchaser shall not deal with goods, products, articles manufactured by any person other than the seller is an exclusive supply agreement and is an anti-competitive agreement.

Example: Manufacturer asks a dealer not to deal in similar products of its competitor directly or indirectly.

Refusal to deal: Refusal to deal includes any agreement which restricts by any method the persons or classes of persons to whom goods are sold or | from whom goods are bought.

Refusal to deal is anti-competitive.

Question 20.
In what circumstances collusive bidding or bid rigging mat occur as per the Competition Act, 2002?
Answer:
Circumstances in which collusive bidding or bid rigging may occur are:

  • agreements to submit identical bids
  • agreements as to who shall submit the lowest bid, agreements for the submission of cover bids (voluntarily inflated bids)
  • agreements not to bid against each other,
  • agreements on common norms to calculate prices or terms of bids
  • agreements to squeeze out bidders
  • agreements designating bid winners in advance on a rotational basis, or on a geographical or customer allocation basis.

Question 21.
“The Competition Act, 2002 does not prohibit dominance but the abuse of dominant position”. Discuss. [June 2015 (7 Marks)]
Answer:
Abuse of dominant position [Section 4]: No enterprise or group shall abuse [ its dominant position. (Note that ‘dominant position ’is not prohibited. What is prohibited is its misuse)

There shall be an abuse of dominant position if an enterprise or group
(a) Directly or indirectly, imposes unfair or discriminatory condition in purchase or sale of goods or services or

  • price in purchase or sale (including predatory price) of goods or services.

(b) Limits or restricts:

  • production of goods or provision of services or market; or
  • technical or scientific development relating to goods or services to the prejudice of consumers; or

(c) Indulges in practice or practices resulting in a denial of market access in any other manner; or

(d) Makes conclusion of contracts subject to acceptance by other parties I of supplementary obligations which, by their nature or according to | commercial usage, have no connection with the subject of such contracts; or

(e) Uses its dominant position in one relevant market to enter into, or protect other relevant markets.

Meaning of certain terms:
1. Dominant Position: Dominant position means a position of strength, enjoyed by an enterprise, 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.

2. Predatory Price: Predatory price means the sale of goods or provision of services, at a price that is below the cost with a view to reduce competition or eliminate the competitors.

Example: Microsoft has used its dominant position Disk Operating System (DOS) to dominate the browser market and ruined Netscape.

Question 22.
Explain the term “Abuse of Dominance” under Competition Act, 2002. [June 2017 (3 Marks)] I
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 23.
What constitutes ‘abuse of dominance’, under Competition Law? [June 2018 (5 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 24.
What constitutes an abuse of dominance under the Competition Act, 2002? [Dec. 2018 (3 Marks)] j
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 25.
What factors have to be taken into consideration by the Competition Commission of India for the purpose of determining whether an enterprise enjoys a dominant position or not? Explain. [Dec. 2018 (5 Marks)]
Answer:
As per section 19(4) of the Competition Act, 2002, the Commission while inquiring whether an enterprise enjoys a dominant position or not may consider the following factors:

  • Market share of the enterprises
  • Size and resources of the enterprises
  • Size and importance of competitors
  • The economic power of the enterprises including commercial advantage over competitors
  • Relative advantages by way of contribution to the economic development
  • Vertical integration of the enterprises or sale or service network of such enterprises
  • Dependence of consumers
  • Monopoly or dominant position
  • Entry barriers including barriers such as regulatory barriers, financial risk, the high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers
  • Countervailing buying power
  • Market structure and size of the market
  • Social obligations and social costs
  • Any other factor.

Question 26.
What is meant by dominant position under the Competition Act, 2002? [June 2019 (3 Marks)]
Answer:
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Question 27.
Mention the provisions of the Competition Act, 2002 relating to ‘regulation of combinations’. [Dec. 2007 (3 Marks)]
Answer:
Regulation of combinations [Section 6]: No person or enterprise shall enter into a combination that causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void. (Thus, combination in itself is not prohibited. It will be held void only if it adversely affects competition.)

Notice to Commission: Any person or enterprise, who or which proposes to enter into a combination shall give notice to the Commission, in the prescribed form along with prescribed fees, disclosing the details of the proposed combination, within 30 days of:
(a) Approval of the proposal relating to merger or amalgamation by the board of directors,
(b) Execution of any agreement or other document for acquisition.

No combination shall come into effect until 210 days have passed from the day on which the notice has been given to the Commission or the Commission has passed orders u/s 31, whichever is earlier.

After receipt of the notice, the Commission shall deal with such notice in accordance with the provisions contained in sections 29, 30 & 31.

Section 29- Procedure for investigation of combination by CCI Section 30- Commission to determine whether disclosure made to it is correct Section 31 – Commission may allow combination if it has no adverse effect on competition.

Provisions not to apply to PFI & FII: The provisions of this section shall not apply to share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank, or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement.

However, such PFI/FII, etc. are put under obligation to file with the Commission the details of the acquisition in specified Form within 7 days from the date of the acquisition.

Question 28.
What do you understand by the term “Combination” under the Competition Act, 2002? [Dec. 2018 (3 Marks)]
Answer:
Combination under the Competition Act, 2002, means the acquisition of control, shares, voting rights or assets, acquisition of control by a person over an enterprise where such person has direct or indirect control over another enterprise engaged in competing businesses, and mergers and amalgamations between or amongst enterprises when the combining parties exceed the thresholds set in the Act.

The thresholds are specified in the Competition Act, 2002 in terms of assets or turnover in India and outside India. Entering into a combination that causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India is prohibited and such combination shall be void.

Question 29.
How is the Competition Commission of India established and what is its composition? Discuss the procedure laid down for the selection of Chairperson and other members along with their term of office under the provisions of the Competition Act, 2002. [Dec. 2015 f8 Marks)]
Answer:
Establishment of Commission [Section 7]: The Central Government has established a Competition Commission of India by notification in the year 2003. ”

The Commission shall be a body corporate having perpetual succession and a common seal with power, to acquire, hold and dispose of property, both movable and immovable, and to contract and shall, by the said name, sue or be sued.

The head office of the Commission is situated in New Delhi. The Commission may establish offices at other places in India.

Composition of Commission [Section 8]:
1. Chairperson & Members: The Commission shall consist of a Chairperson and two to six other Members to be appointed by the Central Government.

2. Qualification & Experience: The Chairperson and every other Member shall be a person of ability, integrity, and standing and who has special knowledge of, and professional experience of not less than 15 years in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which may be useful to the Commission in the opinion of the Central Government.

3. Terms of employment: The Chairperson and other Members shall be whole-time Members.
Selection of Chairperson & Members [Section 9]: The Chairperson and other Members of the Commission shall be appointed by the Central Government from a panel of names recommended by a Selection Committee.

Selection Committee consists of Chief Justice of India or his nominee, as a Chairperson; and the Secretary of Ministry of Corporate Affairs, Member; the Secretary in the Ministry of Law and Justice, Member and two experts of repute as a member.

The term of the Selection Committee and the manner of selection of a panel of names shall be such as may be prescribed.

Term of office of Chairperson & Members [Section 10]:
1. The Chairperson and Members shall hold office for a term of 5 years ) and shall be eligible for re-appointment. The Chairman or other members shall not hold office as such after he has attained the age of 65 years.

2. A vacancy caused by the resignation or removal of the Chairperson or any other Member or by death or otherwise shall be filled by fresh appointment.

3. The Chairperson and every other Member shall, before entering upon his office, make and subscribe to an oath of office and of secrecy.

4. In the event of the occurrence of a vacancy in the office of the Chair- j person by reason of his death, resignation, or otherwise, the senior-most Member shall act as the Chairperson until the date on which a new Chairperson is appointed.

5. When the Chairperson is unable to discharge his functions owing to absence, illness, or any other cause, the senior-most Member shall discharge the functions of the Chairperson.

Question 30.
State the composition, duties, powers, and functions of the Competition Commission of India under the Competition Act, 2002. [June 2017 (8 Marks)]
Answer:
Establishment of Commission [Section 7]: The Central Government has established a Competition Commission of India by notification in the year 2003.

The Commission shall be a body corporate having perpetual succession and a common seal with power, to acquire, hold and dispose of property, both movable and immovable, and to contract and shall, by the said name, sue or be sued.

The head office of the Commission is situated in New Delhi. The Commission may establish offices at other places in India.

Composition of Commission [Section 8]:
1. Chairperson & Members: The Commission shall consist of a Chairperson and two to six other Members to be appointed by the Central Government.

2. Qualification & Experience: The Chairperson and every other Member shall be a person of ability, integrity, and standing and who has special knowledge of, and professional experience of not less than 15 years in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which may be useful to the Commission in the opinion of the Central Government.

3. Terms of employment: The Chairperson and other Members shall be whole-time Members.
Duties of Commission [Section 18]: Duties of the Competition Commission are as follows:

  • To eliminate practices having an adverse effect on competition
  • To promote and sustain competition
  • To protect the interests of consumers
  • To ensure freedom of trade carried on by other participants, in markets in India.

The Commission may enter into any memorandum or arrangement with the prior approval of the Central Government with any agency of any foreign country for the purpose of discharging its duties or performing its functions.

Power to issue interim orders [Section 33]: Where during an inquiry, the j Commission is satisfied that an act in contravention of section 3(1) or Section 4(1) or Section 6 has been committed and continues to be committed 2 or that such action is about to be committed, the Commission may, by order, g temporarily restrain any party from carrying on such activities until the conclusion of such inquiry or until further orders, without giving notice to such party, where it deems it necessary.

Power to award compensation [Section 34]: This section is deleted.

Powers of Commission to regulate its own procedure are as follows [Section 36]:
Power of Civil Court: The Commission shall be guided by the principle of natural justice and shall have the same powers as are vested in a Civil Court, while trying a suit, in respect of the following matters:

  • Summoning and enforcing the attendance of any person and examining him on oath.
  • Requiring the discovery and production of documents.
  • Receiving evidence on affidavit.
  • Issuing commissions for the examination of witnesses or documents.
  • Requisitioning any public record or document or copy from any office.

Power to take help of an expert: The Commission may call upon experts from the field of economics, commerce, accountancy, international trade, etc. to assist in the conduct of inquiry.

Power to call records: The Commission may direct any person:

  • To produce before the Director-General or the Secretary or authorized officer books or other documents the examination of which may be required for the purposes of the Act.
  • To furnish information to the Director-General or the Secretary or an authorized officer as may be required for the purposes of the Act.

Power of CCI to rectify order [Section 38]: The Commission may amend any order passed by it with a view to rectifying any mistake apparent from the record on its own motion. The Commission may make an amendment of an order for rectifying apparent from the record, which has been brought to its notice by any party to the order.

However, while rectifying any mistake apparent from the record, the Commission shall not amend the substantive part of the order passed by it.

Question 31.
Discuss the duties, powers, and functions of the Competition Commission of India. {June 2018 (5 Marks)]
Answer:
Regulation of combinations [Section 6]: No person or enterprise shall enter into a combination that causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void. (Thus, combination in itself is not prohibited. It will be held void only if it adversely affects competition.)

Notice to Commission: Any person or enterprise, who or which proposes to enter into a combination shall give notice to the Commission, in the prescribed form along with prescribed fees, disclosing the details of the proposed combination, within 30 days of:
(a) Approval of the proposal relating to merger or amalgamation by the board of directors,
(b) Execution of any agreement or other document for acquisition.

No combination shall come into effect until 210 days have passed from the day on which the notice has been given to the Commission or the Commission has passed orders u/s 31, whichever is earlier.

After receipt of the notice, the Commission shall deal with such notice in accordance with the provisions contained in sections 29, 30 & 31.

Section 29- Procedure for investigation of combination by CCI Section 30- Commission to determine whether disclosure made to it is correct Section 31 – Commission may allow combination if it has no adverse effect on competition.

Provisions not to apply to PFI & FII: The provisions of this section shall not apply to share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank, or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement.

However, such PFI/FII, etc. are put under obligation to file with the Commission the details of the acquisition in specified Form within 7 days from the date of the acquisition.

Question 32.
What orders can be passed by the Competition Commission of India under section 27 of the Competition Act, 2002 after any inquiry into agreement entered into by any enterprise or association of enterprises or person or association of persons or an inquiry into abuse of dominant position? Explain. [Dec. 2018 (5 Marks)]
Answer:
Section 27 of the Competition Act, 2002 provides that if after inquiry the Commission finds that any agreement is in contravention of section 3 or section 4, it may pass all or any of the following orders:
(a) Cease & Desist Order: Direct to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position (known as Cease & Desist Order)

(b) Penalty Order: The Commission may impose a penalty not exceeding 10% of the average turnover of last 3 financial years, upon each party to the agreement.

In case any agreement has been entered by any cartel, the Commission may impose a penalty which may higher of following two amounts:

  • 3 times of its profits for each year of the continuance of such agreement or
  • 10% of its turnover for each year of the continuance of such agreement.

(c) Order to modify agreement: The Commission may direct that the agreements shall stand modified to the extent and in the manner as specified in the order.

(d) Compliance Order: The Commission may direct the enterprises to do comply with other orders and directions, including payment of cost, if any, as it deems fit.

(e) Other Orders: The Commission may Pass such other order as it may deem fit.

Question 33.
Whether the jurisdiction of the competition commission of India extends to acts/agreements taking place outside India, which affects competition in India? Explain. [June 2019 (3 Marks)]
Answer:
Section 32 of the Competition Act, 2002 provides that the jurisdiction of the Competition Commission of India extends to inquire and pass orders into an agreement or dominant position or combination, which is likely to have, an appreciable adverse effect on competition in the relevant market in India even if:

  • An agreement referred to in section 3 has been entered into outside India or
  • Any party to such agreement is outside India or
  • Any enterprise abusing the dominant position is outside India or
  • A combination has taken place outside India or
  • Any party to 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.

Thus acts taking place outside India but having an effect on competition in India will be subject to the jurisdiction of the Commission. The Competition Commission of India will have jurisdiction even if both the parties to an agreement are outside India but only if the agreement, dominant position, or combination entered into by them has an appreciable adverse effect on competition in the relevant market of India.

Question 34.
Who can appear before the Competition Commission of India? Explain [Dec. 2019 (3 Marks)]
Answer:
1.Authorized to Appear
As per Section 35 of the Competition Act, 2002, the following persons are entitled to appear before the Competition Commission of India:

  1. a complainant; or
  2. a defendant; or
  3. the Director-General.

2. Representative
They may either appear in person or authorize any of the following:
(a) a chartered accountant as defined in section 2(1 )(b) of Chartered Accountants Act, 1949 who has obtained a certificate of practice; or

(b) a company secretary as defined in section 2(l)(c) of the Company Secretaries Act, 1980 and who has obtained a certificate of practice;

(c) a cost accountant as defined in section 2(l)(b) of the Cost and Works Accountants Act, 1959 and who has obtained a certificate of practice;

(d) a legal practitioner that is an advocate, vakil, or an attorney of any High Court including a pleader in practice.

Question 35.
State the process of selection of chairperson and members of Competition Commission of India as given in the Competition Act, 2002. Under what circumstances, they may be removed by the Central Government [Dec. 2019(5 Marks)]
Answer:
Selection of Chairperson and Member
Meaning

  • Cartel includes an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services.
  • Cartels are anti-competitive and hence are void.

Conditions conducive to cartelization
Some of the conditions that are conducive to cartelization are:

  • High concentration – few competitors
  • High entry and exit barriers
  • Homogeneity of the products (similar products)
  • Similar production costs
  • Excess capacity
  • High dependence of the consumers on the product
  • History of collusion

Removal of Chairperson and Member – Section 11(2)

The Competition Act, 2002 provides that in the following circumstances the Central Government may, by order, remove the Chairperson or any j Member from his office if such Chairman or Member as the case may be,

  1. Insolvency: Is, or at any time has been, adjudged as an insolvent; or
  2. Paid Employment: Has engaged at any time, during his term of office, in any paid employment; or
  3. Offense Involving Moral Turpitude: Has been convicted of an offense which, in the opinion of the Central Government, involves moral turpitude; or
  4. Financial Interest: Has acquired such financial or other interest as is likely to affect prejudicially his functions as a Member; or
  5. Prejudicial Public Interest: Has so abused his position as to render his continuance in office prejudicial to the public interest; or
  6. Incapacity: Has become physically or mentally incapable of acting as a Member.

Question 36.
Describe the duties and powers of the Director-General under the Competition Act, 2002. [Dec. 2017 (3 Marks)]
Answer:
Duties of Director General [Section 41]: The Director-General shall assist the Commission in investigating any contravention of the provisions, rules, or regulations made under the Act.

The Director-General shall have all the powers available to the Com-mission u/s 36(2).

The provisions of the Companies Act shall apply to an investigation made by the Director-General as they apply to an inspector appointed under that Act.

Power of Civil Court [Section 36(2)]: The Commission shall have the same powers as are vested in a Civil Court, while trying a suit, in respect of the following matters:

  • Summoning and enforcing the attendance of any person and examining him on oath
  • Requiring the discovery and production of documents
  • Receiving evidence on affidavit
  • Issuing commissions for the examination of witnesses or documents
  • Requisitioning any public record or document or copy from any office.

Question 37.
Write a short note on Competition Advocacy [June 2010 (3 Marks)]
Answer:
Competition Advocacy is one of the main pillars of modern competition law which aims at creating, expanding, and strengthening awareness of competition in the market. Section 49 of the Competition Act, 2002 mandates the CCI to undertake advocacy for promoting competition.

Competition Advocacy [Section 49]:

  • The Central or State Government may seek the opinion of the CCI on the possible effects of the policy on competition or any other matter.
  • On receipt of such a reference, the Commission shall give its opinion within 60 days of making such a reference.
  • The role of the Commission is advisory and the opinion given by the Commission shall not be binding upon the Central or State Government in formulating such a policy.
  • The Commission shall take suitable measures for the
  • Promotion of competition advocacy,
  • Creating awareness and
  • Imparting training about competition issues.
  • Creating awareness about the benefits of competition and imparting training in competition issues is expected to generate a conducive environment to promote and foster competition, which is the sine qua non for accelerating economic growth.

Question 38.
Write a short note on Competition Advocacy [June 2013 (3 Marks)}
Answer:
Section 27 of the Competition Act, 2002 provides that if after inquiry the Commission finds that any agreement is in contravention of section 3 or section 4, it may pass all or any of the following orders:
(a) Cease & Desist Order: Direct to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position (known as Cease & Desist Order)

(b) Penalty Order: The Commission may impose a penalty not exceeding 10% of the average turnover of the last 3 financial years, upon each party to the agreement.

In case any agreement has been entered by any cartel, the Commission may impose a penalty which may higher of following two amounts:

  • 3 times of its profits for each year of the continuance of such agreement or
  • 10% of its turnover for each year of the continuance of such agreement.

(c) Order to modify agreement: The Commission may direct that the agreements shall stand modified to the extent and in the manner as specified in the order.

(d) Compliance Order: The Commission may direct the enterprises to do comply with other orders and directions, including payment of cost, if any, as it deems fit.

(e) Other Orders: The Commission may Pass such other order as it may deem fit.

Question 39.
What is the purpose of the competition policy of India and Competition Act, 2002? [June 2019 (3 Marks)]
Answer:
The basic purpose of Competition Policy and law is to preserve and promote competition as a means of ensuring efficient allocation of resources in an economy.

Competition policy typically has two elements:

  • A set of policies that enhance competition in local and national markets.
  • Legislation designed to prevent anticompetitive business practices Le. a competition law.

Competition law by itself cannot produce or ensure competition in the market unless this is facilitated by appropriate Government policies. On the other hand, Government policies without a law to enforce such policies and prevent competition malpractices would also be incomplete.

Question 40.
How can the orders of the Competition Commission imposing monetary penalty be executed under the Competition Act, 2002? [Dec. 2014 (7 Marks)]
Answer:
Execution of orders of Commission imposing monetary penalty [Section 39]:
1. If any person fails to pay any monetary penalty imposed under the Act then the Commission shall proceed to recover such penalty in a specified manner as per the Regulations made under the Act.

2. If the Commission is of the opinion that it can recover the penalty as per the provisions of the Income Tax Act, 1961 then it may make a reference to the concerned income-tax authority for the recovery of the penalty.

3. In such cases the person upon whom the penalty has been imposed shall be deemed to be an assessee in default under the Income Tax Act, 1961 and the provisions of the said Act shall apply for recovery of penalty.

Question 41.
What penalties are prescribed by the Competition Act, 2002 for contravention of orders of the Competition Commission? [Dec. 2019 (3 marks)]
Answer:
1. Enquire into compliance of orders or directions
As per section 42, the Competition Commission of India may cause an inquiry to be made into compliance with its orders or directions made in the exercise of its powers under the Act.

2. Penalty for Non-Compliance
If any person, without reasonable cause, fails to comply with the orders or directions of the Commission issued under sections 27, 28, 31, 32,33, 42A, and 43A of the Competition Act, he shall be punishable with a fine which may extend to rupees one lakh for each day during which such non-compliance occurs, subject to a maximum of rupees ten crores, as the Commission may determine.

3. Fail to comply with the penalty
If any person fails to comply with the orders or directions or fails to pay a fine, he shall be punishable with imprisonment up to three years or a fine which may extend to rupees twenty-five crore, or both, as the Chief Metropolitan Magistrate, Delhi may deem fit.

Question 42.
State the composition of the “Competition Appellate Tribunal”, comprising of qualification term provisions relating to Resignation and Restriction on employment after the resignation of chairperson and/or member; and who can represent the appellant before the Tribunal? [June 2018 (7Marks)]
Answer:
Appellate Tribunal [Section 53A]: The NCLAT constituted u/s 410 of the Companies Act, 2013 shall be the Appellate Tribunal.

Appellate Tribunal shall hear and dispose of appeals against any direction issued or decision made or order passed by the Commission.

Appellate Tribunal shall adjudicate on a claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any finding of the Commission and pass orders for the recovery of compensation.

Qualification: (Section 411 of the Companies Act, 2013)
The Chairperson shall be a person who is or has been a Judge of the Supreme Court or the Chief Justice of a High Court.

A Judicial Member shall be a person who is or has been a Judge of a High Court or is a Judicial Member of the Tribunal for five years.

A technical member shall be a person of proven ability, integrity, and standing having special knowledge and professional experience of not less than twenty-five years in industrial finance, industrial management, industrial reconstruction, investment, and accountancy.

Resignation: (Section 416 of the Companies Act, 2013)
The President, the Chairperson, or any Member may, by notice in writing under his hand addressed to the Central Government, resign from his office.

However, the President, the Chairperson, or the Member shall continue to hold office until the expiry of three months from the date of receipt of such notice by the Central Government or until a person duly appointed as his successor enters upon his office or until the expiry of his term of office, whichever is earliest.

Right to legal representation [Section 53S]:
1. A person preferring an appeal to the Appellate Tribunal may either appear in person or authorize one or more Chartered Accountants or Company Secretaries or Cost Accountants or legal practitioners or any of its officers to present his or its case before the Appellate Tribunal.

2. The Central or State Government or a local authority or any enterprise preferring an appeal to the Appellate Tribunal may authorize one or more Chartered Accountants or Company Secretaries or Cost Accountants or legal practitioners or any of its officers to act as presenting officers and every person so authorized may present the case with respect to any appeal before the Appellate Tribunal.

3. The Commission may authorize one or more Chartered Accountants or Company Secretaries or Cost Accountants or legal practitioners or any of its officers to act as presenting officers and every person so authorized may present the case with respect to any appeal before the Appellate Tribunal.

Question 43.
Discuss the consequences of making a false statement by a person being a party to a combination under the Competition Act, 2002. [June 2019 (3 Marks)]
Answer:
As per Section 44 of the Competition Act, 2002, Any person who being a party to a combination and committing the following acts shall be liable to a penalty which shall not be less than ₹ 50 lakhs but which may extend to ₹ 1 Crore for the following:

  • A person who makes a statement that is false in any material particular, or knowing it to be false.
  • A person who omits to state any material particularly knowing it to be material.

Economic, Business and Commercial Laws Questions and Answers

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