PROTECTION AGAINST UNFETTERED CAPITALISM
Maharashtra National Law University, Mumbai
Today’s era is one of rapid industrialization and development. in the very primary years of the industrial revolution, and subsequently the technological revolution, there were very few who came to be the pioneers of their respective fields and industries. But, as we advanced, came closer to each other and established a dominantly globalized form of trade and commerce, we ushered in more and more rivals and competitors to meet the soaring demands in all the sectors of the economy. Thus began the era of capitalism and competitive economics.
As such, with the increasing competition, a lot of these businesspersons began sensing the dangers of going out of work, and started exploiting all the resources available with them in order to stay at the top of the table. A lot of these plans of actions included elimination of rival competitors by various means – both moral and immoral. As such, this exploitation brought in a cycle of oppression for many small businesses as well as the workers throughout the economy. As a result, there surged a wave of awareness regarding protection against such widespread and ever-increasing instances of exploitation due to capitalism.
The Constitution of India hence has a lot of Constitutional provisions in place for protecting its citizenry against the cut-throat capitalist markets that are present all around the world.
There are several laws in place to curb corruption and illegal trade in the Indian trade laws, which have provisions to act against unfair, biased, unlawful or illegal trade practices. The Foreign Trade Development and Regulation Act (1992), along with the Customs Act (1962) and the Customs Tarriff Act (1975) both have severe punishments against malpractices in international trade.
The Consumer Protection Act (1986) gives consumers the right to bring to justice the cronies of this capitalist society that work on the grass-root levels of these cheating scams, or unfair practices made by trade organizations. This helps individuals to be able to stand up for themselves in times of such distresses.
There are strict environmental laws in place to curb misuse of power on account of these organizations to increase their profits at the cost of the environment.
Most importantly, the Competition Act of 2002 plays a vital role in checking such unfettered and unjust practices in the capitalist societies. Competition is basically the act of the sellers individually seeking to acquire the patronage of buyers in order to achieve profits and/or market share. The Competition Act of 2002 was enacted by the Parliament of India and it replaced The Monopolies and Restrictive Trade Practices Act of 1969. It is in effect, an enabling act, to help govern Indian competition law. After its enactment, The Competition Act has been amended twice, namely The Competition (Amendment) Act, 2007 and The Competition (Amendment) Act, 2009. Two of the main features of the Act are the framework it provides for the establishment of the Competition Commission, and the tools it provides to prevent anti-competitive practices, and to promote positive competition in the Indian market.
In simple words, Anti-Competitive practices or agreements are agreements that are made by two or more companies competing in the same market to fix prices or reduce stocks et cetera, so as to manipulate the market in their favor. This has the effect of the companies reducing the competition in the market which adversely affects the end consumer, and in a loop, the entire market.
The Competition Act, 2002 defines anti-competitive agreements as such in section 3 wherein it states, “No enterprise or association of enterprises or individuals or association of individuals may enter into an agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”.
Such agreements are termed as AAEC agreement, which means the Appreciable Adverse Effect on Competition agreements. The Act expressly states that such an agreement shall be directly void.
An AAEC agreement is classified as any agreements that result in:-
- Direct or indirect effect on purchase or sale prices
- Limitation on production and/or supply
- Limitation on technical development
- Limitation on service provision in the market
- Rigging of bids
- Collusive bidding
ABUSE OF DOMINANT POSITION
The abuse of dominant position is strictly prohibited by Section 4 of the Competition Act. Abuse of dominant position is defined under the second part of the same Section. According to this act, dominant position means any enterprise that enjoys the position and power in the Indian market which enables it to:
- Operate independently of competitive forces in the relevant market
- Affect its competition, consumer or the relevant market in its favor.
For example, predatory pricing is a practice that is seen to be an abuse of dominant position. In simple words, whenever a dominant enterprise engages in AAEC acts, it is considered an abuse of dominant position. The difference between the definition of anti-competitive agreements and abuse of dominant position is that in anti-competitive agreements there have to be two or more parties and it can be between any enterprise or firm and doesn’t require there to be a dominant firm involved. In abuse of dominant position, it can be done by a single party as well but the party has to be in an absolutely dominant position in the relevant market in context.
Remedies against AAEC agreements and abuse of dominant position are provided by the Competition Commission of India. Upon a review and enquiry into the alleged malpractices the Competition Commission may pass the following orders:
- Direct the immediate discontinuance of such practices
- Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a cartel the penalty shall be 10% or three times the turnover of every financial year and shall continue for the period of continuance of such practices
- Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition of the market
- Pass any order that it may so deem fit.
The Competition Commission of India is established under the Competition Act, 2002. It is a statutory body that has the power to govern and enforce the Competition Act, including penalties. It was established when the need for a healthy competitive environment became necessary following liberalization under the New Economic Policy of 1991.
The Commission is composed of a chairman and a minimum of 2 board members and a maximum of 6 board members. These members are required to have a minimum of 15 years of experience in their respective fields. Its objectives, duties and powers are enlisted in the Competition Act, 2002. Its main duty and objective is to ensure that the Indian markets maintain a healthy and fair competitive environment and is granted power to ensure such an environment and penalize any acts that adversely affect its duties.
REGULATION OF COMBINATION
The term combination has a broad definition under the Act, and it includes:
- Any acquisition of shares,
- Voting rights,
- Control of assets
- Party to merger or amalgamation of enterprises
Any person/enterprise shall not enter into a combination which is likely to have an adverse effect on the competition and such a combination will be void.
If any person/enterprise proposes to enter into a combination he shall intimate the Competition Commission of India within 30 days of:
- Approval of the proposal relating to mergers and amalgamation by the BOD of the enterprises involved in the process.
- Execution of any agreement pertaining to acquiring of control.
Business operation in India requires the business house to have the knowledge regarding the various laws and regulations and also the implementation of the same. Competition in the market is a huge challenge which needs to be worked upon with utmost care.
The various matters to be kept in mind by the business houses are:
- The markets are susceptible to formation of cartels which pose a risk of formation of monopolies. The awareness of the fact that such associations are not permitted under the Competition Act 2002 is essential.
- When discussions are made with competitors, documentation of the same should be done.
- Any meetings wherein any matter is being discussed, which shall raise issues under the competition law shall be avoided.
- It is advisable to avoid discussions pertaining to price and the actual cost to the company.
- Appointment of an Ombudsman for advice on the Competition Law so as to prevent any legal issues may be done.
- Communication aspects although seemingly trivial may leave an impact when it comes to the abuse of dominant position issues. Any statements made shall be weighed carefully.
Hence, with all these pointers in mind, it can be said that there is a solid system of protection in place for assurance of proper economic liberty and also the curbing of malpractices in the name of capitalist objectives.
The Competition Act of 2002 is thus a comprehensive law. The Act protects the free and fair competition which protects the freedom of trade, which in turn protects the interest of the consumer. The Act seeks to prevent monopolies and also to prevent unnecessary intervention by the government. It, along with all the other provisions, only intend to promote fair competition, catch up with the global economy, safeguard the interest of the consumers and ensure a stable market for India.