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A level playing field

Violations of the Act now would face serious action. It can be up to 10 per cent of the turnover or three times the profit for each year!

Vinod Dhall | Print Edition: July 12, 2009

Vinod Dhall
Vinod Dhall

On May 15 this year, the Government issued a notification whose significance was quite lost in the din and excitement of the parliamentary elections. The notification brought into force the prohibitions of the Competition Act, 2002, against anti-competitive agreements and abuse of dominance by enterprises. India is the last major economy to enter this field. In our neighbourhood alone, China, Pakistan, Nepal, Singapore, Vietnam, Indonesia and Thailand have such laws in place.

Unlike the MRTP Act, which restricted growth, the Competition Act seeks to promote and sustain competition, along with growth. In India, there have been allegations of anti-competitive trade practices against corporates or industry bodies in the past. The absence of effective laws prevented any follow-up action. Violations of the Act now would face serious action, including monetary penalty of up to 10 per cent of the (global) turnover; in the case of cartels, it can be up to 10 per cent of the turnover or three times the profit for each year! This is apart from compensation claims and class action. The Commission’s mandate is backed up with adequate powers, including dawn raids. Contravention of the Commission’s order can invite further fines, even imprisonment.

It’s a wake-up call for industry, which must review some entrenched practices. Collusion with competitors is out on issues such as prices, discounts, terms of sale, allocation of territories or customers, cut back in production or supplies, quotas, bid rigging and collusive bidding. In India, recently, the provisions of the Competition Act were exercised by the Multiplex Association of India against film producers alleging “cartelisation” to exploit theatre owners. And, given the global precedent, there will be many more such instances in future. Witness the fines paid by some cartels in the EU alone: lifts $1.3 billion, vitamins $1.1 billion, flat glass $650 million, auto glass $1.3 billion, banking $160 million. Several senior executives served prison sentences in the US. Other cartels that have recently felt the heat in mature jurisdictions include cement, airlines and telecom services.

The role of industry associations, too, will need careful monitoring. Associations serve a useful purpose in protecting the broader interests of the particular industry. But collusive activities need to be discouraged, such as discussions on prices, discounts, bids and quotas. Careful records must be maintained to demonstrate that such issues are not deliberated upon. Even informal discussions on the sidelines cannot be used to discuss such matters. Sensitive commercial information, that is not of historical nature, cannot be exchanged. Presence of a professional competition lawyer in the meetings is advisable.

Special responsibility rests on a dominant enterprise, which can operate independently of its rivals or customers. Any abuse of its market power is a serious violation. Recall the travails of several iconic companies. Microsoft paid an aggregate fine of around $900 million for denying access to rival suppliers of application software. British Airways was penalised for giving discounts to agents that had exclusionary effect on other airlines. Tetrapak was fined for product tying and predatory pricing. In the Indian Act, listed abuses include discriminatory or unfair prices or conditions, limiting production, supplies or technical development and predatory pricing. The Competition Act will generate benefits for consumers and increase efficiencies of enterprises, improving their global competitiveness. It will ensure a level playing field against powerful foreign competitors. Compliance of the new law must be integrated into the corporate culture. Companies would do well to develop specific competition law compliance programmes.

Vinod Dhall is former acting chairman, Competition Commission of India.

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