Important Definitions under Competition Act, 2002 | Explained
The article explains the basic definitions and other concepts necessary to understand better the law that helps promote and regulate competition in the Indian market.
The article explains the basic definitions and other concepts necessary to understand better the law that helps promote and regulate competition in the Indian market. Important Definitions under Competition Act, 2002 The Act works to put a full stop on some Anti-competitive practices such as Mergers and Acquisitions, Abuse of dominant position and anti-competitive agreements. In order to have a proper understanding of the Competition Act, of 2002, it is important to clear the basic terms...
The article explains the basic definitions and other concepts necessary to understand better the law that helps promote and regulate competition in the Indian market.
Important Definitions under Competition Act, 2002
The Act works to put a full stop on some Anti-competitive practices such as Mergers and Acquisitions, Abuse of dominant position and anti-competitive agreements. In order to have a proper understanding of the Competition Act, of 2002, it is important to clear the basic terms of the Act. Let us have a look at such terms.
I. Cartel
The first term which needs to be understood is cartel. The Act provides the definition of the cartel as an association of service providers, traders, distributors, sellers or producers who went to form an agreement among themselves to control, limit or attempt to control the trade, price, sale, distribution or production of goods or provisions of service. The cartel has been classified under the category of those anti-competitive agreements with the help of which the producers, sellers or manufacturers had agreed to control the prices, supply, production and so on of the goods in the market so that they can derive maximum profits and exercise control over the market.
II. Enterprise
When we look into Sec 2 (h) of the Act, we come across another important word known as an enterprise. A department of Government or any other person[1] falls under the ambit of the enterprise, which or who has its involvement in any of the following activities:
- Provisions of service of any nature
- Control, acquisition, distribution, supply, storage or production of goods or articles
- Dealing or holding in shares or any other securities of any corporate body, acquiring or investing in any business either with the help of any subsidiary or directly.
On the other hand, all those departments of Government that carry on the activity in relation to the sovereign function of the government, such as functions relating to space, defence, currency and atomic energy, shall not be covered under the term enterprise under the Act.
III. Person
Moving forward, we come to Section 2(l) of the Act, which provides with the definition of the person. A person includes:
- Any artificial juridical person, local authority or cooperative society
- Any corporate body that gets incorporated under or by the laws of a country other than India
- Any other corporation that comes into existence due to State or Central Government or any other Government Company that is defined under the Companies Act
- Any other association of persons that gets incorporated either in India or in a country other than India
- A firm, company, Hindu Undivided Family (HUF) or an individual
IV. Relevant Market
Sec 2 (r) of the Act provides a framework that helps determine the relevant market. The broad term ‘relevant market’ can be broken down into two small terms with a limited scope: ' relevant product market’ and ‘relevant geographic market’. A relevant product market takes a market into its ambit where the services and products are of such a nature that they can be substituted or interchanged by other services and products readily available in the market.[2]
However, the relevant geographic market refers to that market in an area where there exists a homogeneous condition for varied aspects of commerce and trade. These conditions are different from those carried out in the market of the neighbouring areas.[3] the commission is required to refer to either ‘relevant product market’ or ‘relevant geographic market’ or both.
Moving further, let’s look at the concepts enshrined in the Act. These are first, anti-competitive agreements; second, abuse of dominant position and last, combinations and their regulations.
V. Anti-Competitive Agreements
When a person comes into an agreement with another person (s) that deals with a business transaction which is of the nature that can result in negative competition in a certain market or which provides an undue benefit that causes benefit to a particular person or market while causing loss to others, such agreements fall under the scope of anti-competitive agreements, which are done away by the Act of 2002. The Act also defines the term agreement as it is not required by the parties to execute a formal document to form an agreement between themselves.[4] The parties are free to come into either oral or written agreements. The scope of the definition is very wide and is of inclusive nature instead of being an exhaustive definition.
The idea behind adopting such a wide ambit of the term ‘agreement’ in the Competition Act is also explained. The reason for doing so is that there can be a situation where the persons having their hands in cuffs for any anti-competitive practice may not come into any formal written agreements. For instance, cartels are normally formed in secrecy. Further, the Act also tries to put a full stop on any other agreement relating to the acquisition, storage, distribution, supply, production, provisions of services or control of goods which is likely to cause or cause a substantial effect on the competition in the Indian market.[5] Any agreement that has been formed to contravene the provisions contained in the Act shall be considered void.[6]
VI. Abuse of Dominant Position
It is deemed that an enterprise or a person holds a dominant position in the market when any such entity is in possession of a position of strength, and with the help of such a position, that entity can operate independently from any of the competitive forces that are capable of producing an effect on consumers or competitors or any other force that is available in the market.[7] A very wide ambit has been provided to the dominant position in the competition law regime of other jurisdictions across the world.
The Glossary provided by the European Commission describes that when a firm has the capacity to perform its functions independently of its customers, suppliers, consumers, and competitors, such a firm is considered to be in a dominant position. However, the Competition Act, 2002 provides an explanation of the dominant position and states that it is directly proportional to the relevant market, as mentioned above. Henceforth, in order to figure out the presence of any dominant position in the market, the very first task is to figure out whether the enterprise in question has occupied a dominant position in reference to a particular kind of product market as well as the demarcation of the market geographically for the purpose of that particular product.
VII. Regulation of Combinations
The provisions dealing with the regulations of combinations have been looked into by Section 6 of the Act. It necessitates issuing a notice containing the details of the combination that is proposed to the Commission with the fees prescribed within a time-limit of 30 days from the date on which the Board of Directors had approved the proposal of merger or amalgamation or execution of any other document of acquisition.[8]
The time span prescribed by the statute for the combination to take place is 210 days and the process will commence only after providing notice to the commission or from the date on when the commission has passed the order with respect to that notice, whichever is earlier.[9] The Act has also provided some exceptions that cover bank, foreign institutional investor, venture capital fund or financial institutions relating to any investment agreement or any covenants of a loan agreement.[10]
[1] Defined under Section 2 (l) of the Competition Act, 2002.
[2] Section 2 (t) of the Competition Act, 2002
[3] Section 2 (s) of the Competition Act, 2002
[4] Section 2 (b) of the Competition Act, 2002
[5] Section 3 (1) of the Competition Act, 2002
[6] Section 3 (2) of the Competition Act, 2002
[7] Section 4 Explanation (a) of the Competition Act, 2002
[8] Section 6 (2) of the Competition Act, 20 02
[9] Section 6 (2A) of the Competition Act, 2002
[10] Section 6 (4) of the Competition Act, 2002