"Big is beautiful," remarks advocate Pallavi Shroff while describing the utilities of the Competition Commission Act, 2002. As the Standing Committee on Finance has recommended the implementation of the Act, Shroff, one of the experts to have made a representation before the Committee, says the Act is the need of the day. |
Shroff, senior partner in Amarchand Mangaldas corporate law firm, in a Q and A with Bhadra Sinha explains how the Act will promote healthy competition. She, however, feels that more advocacy is needed with regard to the law as business houses have apprehensions about its efficacy on account of lack of knowledge. |
How is Competition Commission Act, 2002 different from the Monopolies Restrictive Trade Practices (MRTP) Act? |
The thrust of MRTP Act was to prevent concentration of monopoly. It was an anti-competition law. At the time when it was introduced, India was still in a 'planned raj' where the government was busy formulating policies and distributing wealth. |
As a result, we had lot of activities in the business, like the unfair trade practice, the restrictive trade practice and the monopoly trade practice. |
Unfortunately, the Act's objective got lost when the MRTP commission became a forum of fighting cases pertaining to just the unfair trade practice. Most of the petitioners were consumers who could approach the commission on the basis of an allegation. And on the basis of prima facie evidence the commission used to grant an injunction. This was anti-competitive in nature because it became very difficult to get the injunction removed. |
However, the Competition Commission Act, per se, is not anti-competitive in nature. The Act lays the concept as well as the factors to determine whether a merger has an appreciable adverse effect on competition. |
A merger or an acquisition under this Act would be bad if only they have an appreciable adverse effect on competition. We need this kind of a law for the liberal economy of India. One can't just make a bold allegation and get away with it. |
The Act undertakes responsibility to safeguard the interest of business houses. Now, the Competition Commission of India can initiate action only after conducting a thorough probe into a merger. |
What kind of an action can the CCI initiate on finding that the merger is anti-competitive? |
The CCI can penalize the companies entering into a merger if it is found that the process has led to the dominance of a particular group and that the latter is abusing it by eliminating competition. |
This is called the abuse of dominance which, if found to be correct, can earn a penalty from the CCI. I feel that the CCI while taking action should put some restrictions on the new company created after a merger. Every industry has peculiarities. The action or restrictions should be accordingly. |
The Act has not been welcomed by corporate houses? What are their apprehensions and are they justified? |
As there is little advocacy about the Act, people do not understand it. Unlike the MRTP Act, the Competition Commission promotes growth in business and a healthy competition. Big is beautiful is what I say. But, alongwith the implementation of this Act, those associated with the industry will have to change their mindset. Also, mergers of companies which have a turnover above the threshold, as declared under the Act, will be under CCI's scrutiny. Therefore, smaller mergers will not have any impact. |
For concluding whether a merger is anti-competitive in nature, the CCI has to be equipped with economic analysis and data with regard to various sectors in which acquisitions are likely to take place. This is what the business houses are more worried about as they are not used to this kind of economic analysis because at present there is no source which can provide us with this information. And we need this data to analyze the appreciable adverse effect on competition. |
In absence of such analysis, how will the CCI go ahead with the decision making process? |
During one of the presentations, I had recommended the CII to take up the responsibility of collecting the data and analysing it to make it available at a cost. I believe even the CCI has undertaken a process of commencing some studies in various sectors like steel, power, transport and telecom. I hope these studies would be completed by the time the Act is implemented, hopefully by next year. |
Once the Act is implemented, this will be the first hurdle. But I am sure somebody will fill in this gap soon. |
How do you react to the Committee's suggestion of making it mandatory for companies to inform CCI about their mergers? |
This is not a welcome change, if it takes place. Informing the CCI about a merger amounts to merger control. This is a negative approach. Companies would now need to recruit a trained staff to approach the CCI for taking permission. |
Also, this would act as a hurdle for smaller mergers which are just above the threshold limit. The process of a merger will get stalled until the CCI does not grant permission to the two companies looking forward to an amalgamation. |
This will also burden the CCI which is neither equipped with infrastructure nor has the expertise to deal with these applications. Even for the purpose of collecting the penalties they are intending to outsource the work to income-tax department. |