ABSTRACT:-
The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 was promulgated to uphold the socio-economic objectives enshrined in the Preamble and the Constitution of India. However, in the wake of economic reforms like liberalization, globalization, the MRTP Act became obsolete and was hence repealed and replaced by Competition Act, 2002, which was subsequently amended in 2007 and 2009 to suit the requirements of changing scenario. In reference to the Competition Law, competition is the process whereby the economic enterprises compete to serve customers for their product. The Competition Act majorly deals with Competition Commission of India and the legal procedure and jurisdictions involving competitive markets and anti-competitive agreements. However, the Competition Law can be further extended to include securities law regulated by SEBI and its consequent regulations dealing with insider trading in reference to competitive structure set up by Competition Law, Mergers and combinations in Section-5 of Competition Act, 2002. Moreover, essential facilities doctrine is also included to be a part of Section-4 (abuse of dominant position) of Competition Act, 2002, albeit the judicial system has not yet encountered with the act being invoked in any case.
Introduction
The world history is the history of competitive markets. Each and every era and civilization is replete with situations of regulation of economic power whereby the emperors and concentrators of economic power, tried for years to regulate markets by stabilizing prices and supporting local production. All this eventually lead to the introduction of modern competition and antitrust laws all over the world. Since its independence and particularly after the adoption of the path of Nehruvian Socialism (mixed economy model), Indian governments have promoted the industrial growth, however without ignoring the socio-economic objectives. Since growth as well as equality are sine qua non, the State has to create legal frameworks to regulate and balance the economic growth and expansion, ensuring that the economic benefits are channelized for the common good and for the nation as a whole rather than the concentration of economic power in the hands of a few people. The Constitution of India and its Preamble distinctively enumerates the philosophy of welfare state resolving to serve to all its citizens, not only political but also social-economic justice: Article 38 and 39, under part (IV), Directive Principles of State Policy, of the Constitution of India provides respectively 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;
The state shall, in particular, direct its policy towards securing:
(b) That the ownership and control of material resources of the community are so distributed as best to sub-serve the common good; and
(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.
To add a new dimension in the realm of modern economic legislation of our country the MRTP (Monopolies and Restrictive Trade Practices) Act, 1969 was enacted and enforced on June 1, 1970. Thereafter, in the light of international economic developments relating to Competition Law and the institution of economic reforms like liberalisation in the country post 1991, the MRTP Act became obsolete and in certain arenas the need was felt to shift the approach towards fostering competitions and curbing monopolies. This led to the enactment of Competition Act created by Union Legislation without any corresponding state / prominent legislation.
The major contours of Competition Act are-
(1) Prohibition of anti-competitive agreement (Section-3),
(2) Abuse of dominant position (Section-4) and
(3) Regulation of Merger, amalgamation and acquisition (Sections-5 and 6).
The Competition Act does not define the term ‘Competition’. Hence, ‘competition’ is an evasive term that has varied connotations in different contexts. In ordinary parlance, competition means a struggle or contention for superiority and in the commercial arena; it means a striving for custom and business for people in the market. In the corporate world, the term ‘competition’ is generally understood as a process whereby the economic enterprises compete with each other to serve customers for their product, outsmarting their competitors or eliminating the rivals. Thus competition in market is the rivalry with the objective of governing higher market share or more profits. Competition is “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 or market share” (World Bank, 1999).
Insider Trading:-
Section 195 (1) Companies Act, 2013 defines ‘insider trading’ as
1. An act of subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell or deal in any securities by any director or key managerial personnel or any other officer of a company either as principal or agent if such director or key managerial personnel or any other officer of the company is reasonably expected to have access to any non-public price sensitive information in respect of securities of company; or
2. An act of counselling about procuring or communicating directly or indirectly any non-public price- sensitive information to any person; Insider trading is the act of trading, directly or indirectly in the stocks and securities of a publicly listed company by any person, who may or may not be in the management of the affairs of such company, on the basis of certain undisclosed price sensitive information of the working of the company, not available to the public at large. India recognized the detrimental effect of such insider trading which could influence the market price of the securities of a company and severely impair the interests of the corporate governance and financial markets as a whole by inflicting upon the rights of public shareholder. The regulations of insider trading date back to the Constitution of Mr. P. J. Thomas
Committee whereunder section–307 and 308 were introduced in Company Act, 1956.
However, as of now, Securities and Exchange Board of India (SEBI), the market watchdog regulates insider trading through the SEBI (Prohibition of Insider trading) Regulations, 1992 (SEBI Act) and the SEBI (Prohibition of Insider Trading) Regulations, 1992 (Insider Trading Regulations) issued under the SEBI Act. Insider trading implies that some traders, know more than others and so this information will affect their decision making with respect to the stocks and securities of different companies and would, in the same way, also effect the trading behaviour of others if they become pricing to that price sensitive information. Insider trading Act as a hindrance in the premarket mechanism. Be it legal or illegal, Insider trading negates the very objective of laissez-fare market as it thwarts the very basis of the market that is competition. Insider trading does not create efficient market system because competition is regulated by insiders hence equal and similar information is not available to all and so the competition is precluded because it depends on availability of equal advantage to all parties. Hence, many regulations and laws were promulgated in this regard. Its implication on competition can be elucidated from this disadvantage of insider trading, which can be brought under the head of abuse of dominant position in the free and competitive market covered under section 4 of Competition Act 2002. However, insider trading is not always illegal and a hindrance because of certain exceptions. If the insider or some related person extends
some undisclosed information that is not price sensitive then it is not punishable as under Rakesh Aggarwal vs SEBI 1 , the security appellate tribunal judged that punishment in regard to the undersigned pleading cannot be sustained because he did it in the interest of company. In the landmark case Securities Exchange Commission (SEC) vs Rajat Gupta, the SEC ordered Rajaratanam to disgorge his share of profits gained and losses avoided because of insider trading wherein, he used and disclosed material nonpublic information from Rajat to trade profitably, in Galleon Hedge funds.
Mergers
Merger is a legal union of two or more corporation into single entity, typically assets and liabilities being assumed by the buying party. However, under Competition Law the term merger is explained in a broad sense to cover combinations of enterprises in various forms like merger proper, amalgamations, acquisition of shares, nothing rights or assets 1 (2004) 49 SCL 351 SAT
or acquisition of control over an enterprise. Mergers are not considered anti-competitive as they provide business entities opportunity to grow and expand to enter into new markets and diversify without facing any risks. However mergers need to be discouraged if they reduce competitions and need to be regulated by the Competition Law and the Competition Commission of India (CCI) as they could also have implications for the concentration of economic power and ability to use market power, which further have a negative impact on the competitive structure of economic market and harm consumer welfare and financial other players from participating in the market. Hence, for reasons discussed above, the mergers in India are regulated under Companies Act, 1956, Competition Act, 2002 and the Takeover Code, 2011.
Essential facilities doctrine
The Essential Facilities Doctrine (EFD) mandates the duty to share when a market player does not have access to certain indispensable facilities without which it cannot compete effectively. Also referred to as ‘Third Party Access’ or Open Access, this doctrine imposes on monopolist and dominant firms, that control an essential facility, the obligation to make that facility (which is difficult to replicate) available on non- discriminating terms. In India, the provisions associated with EFD have been-incorporated in the regulations governing the telecom industry, Telecom Regulatory Authority of India (TRAI) Act, 1997; Electricity Act,2003; and Petroleum and Natural Gas Regulatory Board (PNGRB) Act, 2006, Electricity and Natural Gas Sector and in the intellectual property laws or more so, in their reference to the Competition Act, 2002. In reference to Indian Judicial system as of today, there has been no Competition law case, before the antitrust authority where this doctrine was invoked. Albeit, the Competition Act, 2002 does not explicitly mentions the doctrine but it has sufficient provision for judicial interpretation to involve the EFD if it so finds justified.
Internal Disrupters in Indian Market
Disruption is a sort of seismic, overpowering event not from a single force, but rather, from collision of interacting forces. Factors like changes in customer behaviour, new methods of distribution, core technologies of production and new kinds of competition; together have the potential to significantly change the nature of an industry and the power and profits of players within it. Predatory pricing behavior practiced by different companies wherein a firm cuts the price of its goods and services and forcing the competitors to lower their prices, which thereby results in the profits of the competitors
falling and them, incurring losses. If the competitor does not cut prices, it loses market share and if it does cut prices to below its average cost of production it runs the risk of insolvency. This act of reducing prices to curb competition and then increase prices to earn monopoly profits is considered anti-competitive and the biggest disrupter in Indian market. Most scaling business see disruptive technology based solution in India be it the taxi aggregators like Ola/Uber or online market places like Flipkart, Amazon, Snapdeal
etc. come up with disruptive strategies with an objective of replacing all traditional markets and attracting the consumers through unhealthy means. Moreover, the recent favours given by telecom operator Reliance Jio are seen as anti-competitive 2 . In addition, the public policy of the Government like demonetization and GST are seen to have a detrimental effect on the competitive economy and their implementation are a market rally disruptor. The innovation disruption like digitalization will not only impact business through changing consumer behaviour but also act as a hindrance in the competition
world. Entry of private and foreign investors in almost all the sectors are seen to be market disruptors in Indian competition market scenario as they bring up disruptive strategies to gain consumers’ patronage.
Conclusion
Competition laws in our national jurisdiction aim at safeguarding long term consumer interests from overt and disguised predatory tactics of market actors. These laws seek to instill a competitive market environment by regulating, monitoring and assessing competitive practice between and among firms. The competition commission of India and independent market regulator responsible for regulating market behavior and competition has investigated a number of instances of unfair competition. The Competition Act is comprehensive enough and meticulously carved out to meet the requirements of the new era of market economy which has dawned upon the horizon of Indian economic system. The Act and the CCI is well equipped to promote fair competition and take care of impinging market practices.
2 http://www.epw.in/journal/2016/39/web-exclusives/reliance-jio-predatory-pricing-or-predatory-behaviour.html
(last seen on 30 September,2017 at 11:00pm)
BIBLIOGRAPHY
Books:
A functional competition policy of India by Pradeep S. Mehta
Websites
http://www.epw.in/journal/2016/39/web-exclusives/reliance-jio-predatory-pricing-or-
predatory-behaviour.html