Understanding competition law compliance in corporate India

A fair competition benefits everyone, including businesses, consumers and the economy as a whole. The Competition Act, 2002, protects the process of competition in an increasingly innovative and globalized economy. It aims to safeguard the interests of the consumers and ascertain freedom of trade carried on by other players in the market. This is done by regulating the conduct of these enterprises and mitigating the chances of practising any anti-competitive behaviour.

Outlining the ambit of the law

As per the Supreme Court, the main objective of competition law is to promote economic efficiencies using competition as one of the means of assisting the creation of a market that is responsive to consumer preferences. It covers the following –

  1. Regulates anti-competitive agreements
  2. Regulates abuse of dominant position
  3. Regulates combinations
  4. Repeals Monopolistic and Restrictive Trade Practices Act, 1969
  5. Has extra-territorial reach
  6. Covers both goods and provision of services

Additionally, the take-over of the Competition Appellate Tribunal (COMPAT) by the National Company Law Appellate Tribunal (NCLAT) to fast track the process and adhere to strict deadlines is a huge milestone and a welcome move for the industry. Since the takeover in May 2017, the turnaround time has been much faster as compared to COMPAT, with matters under appeal being resolved in a shorter span.

Anti-competitive agreements

While on one hand, competition law was enforced to ascertain fair competition, it was also imperative to make sure that the agreements entered by entities do not take an anti-competitive spin. Anti-competitive agreements are divided into – horizontal and vertical agreements. Horizontal anti-competitive agreements are the ones between enterprises or persons engaged in trade of identical or similar goods or services and are presumed to have Appreciable Adverse Effect on Competition (AAEC), if they:

  1. Directly or indirectly determine purchase or sale prices
  2. Limit or control output, technical development, services etc.
  3. Share or divide markets
  4. Indulge in bid rigging or collusive bidding
  5. Agree to limit, control or attempt to control production, distribution, sale or price

A well known example of such horizontal agreements is a cartel. Cartels are one of the most serious forms of violations of competition law, wherein the two parties involved agree to not compete with each other. This leads to rise in prices for the consumers, restricts supply, making goods unavailable to the masses. The categories of cartels include:

  1. Price fixing
  2. Output restrictions
  3. Market allocation
  4. Bid rigging

Vertical agreements are the ones between enterprises or persons at different stages or levels of production chain in different markets. These agreements include –

  1. Tie-in arrangements
  2. Exclusive supply arrangement
  3. Exclusive distribution arrangement
  4. Refusal to deal
  5. Resale price maintenance

Competition economics

Competition assessment in recent years has evolved from a law-based approach to a case-by-case assessment of economic effects. Anti-trust proceedings conducted globally are increasingly based on a combination of legal arguments supported by concrete economic analysis. It has been observed that in EU and US, legal teams now regularly work with economists who specialize in matters such as market definition, determination of market power and analysis of particular type of business behaviour. Thus, following the global trend, the Competition Commission of India (CCI) is increasingly relying on economic evidence and analysis in anti-trust cases.

Steps to mitigate anti-competitive risks

A robust anti-trust compliance framework is essential to fight anti-competitive risks. The framework should contain the following to deter risks –

  1. Code of conduct
  2. Policies and procedures around compliance
  3. Guidance to ‘At-Risk’ team
  4. Marketing collaterals
  5. Email surveillance
  6. Risk assessment and testing
  7. Whistle-blower mechanism
  8. Training and awareness campaigns

With the Supreme Court empowering the CCI to impose penalties, it is important that they formulate penalty guidelines that will serve as a benchmark for the industry against any non-compliances. In furtherance, continual enforcement action by the CCI is expected to solidify the Indian competition landscape and evolve its procedures.

Follow @EY_India and track #EYForensic for regular updates

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