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Aarti Sahu

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW, RANCHI

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AARTI SAHU

ABSTRACT

The ­­project is concentrated towards abuse of dominant position.by government enterprise in India due to inefficient laws of Competition Commission of India. Begging of the paper researcher will introduce the Competition Act, 2002 then the concept of Abuse of Dominance Position. Competition Act clearly states that use of unfair and discriminatory policy is prohibited moving further concept of Abuse of Dominance Position is explained.

Project is narrowed down by reproducing anti-competitive practices by government enterprise. Government enterprises are further narrowed into Departmental and Non-Departmental enterprise. Departmental enterprises are part of government financial system with funds coming from the general budget but under separate accounts of income and expenditure. Various anti-competitive practice by different government enterprise are practiced which is effecting the economy adversely. The main area which the project will take up is the in efficient competition commission of India in curbing this emerging issue abuse of dominant position by government enterprise in India which will be substantiated by legal precedents portraying how government enterprise is practicing anti-competitive and adversely affecting the economy. Project will concentrate mainly on two sectors; Coal India and electricity department. In Indian Industry, coal is indispensable source of energy. The electricity or power sector is more complex in India as it is a concurrent subject and all state government have their own state regulatory authorities. At the end recommendation for serious amendments in Competition Act, 2002 is suggested so that Abuse of Dominant Position by the government enterprise can be reduced consequently adverse impact on the economy will be controlled which will result in growth and development of the economy.

INTRODUCTION

The Competition Act, 2002 was enacted to repeal the MRTP Act. This law addresses Anti-Trust issues. This act came into existence in January 2003 and the Competition Commission of India was established in October, 2003 as the Act could not be notified due to legal hassles. Finally, the Parliament in September, 2007 passed the Competition (Amendment) Act, 2007 and the Act became optional consequently the Competition Commission of India finally came into existence on 1st March, 2009. The prime objective of the act is to prevent practices having adverse effect on competition, promote and sustain competition in market, protect interest of consumers and ensure freedom of trade.1The substantive test and benchmark for analysis under the Act is to prohibit practices that have an appreciable adverse effect on competition in India.

Section 4 of the Act deals with the regulation of abuse of dominance (i.e. the regulation of unilateral conduct). The Act prohibits the abuse of a dominant position by any ‘enterprise’ or ‘group’, and defines dominant position as a position of strength enjoyed by an enterprise in the relevant market in India that enables it to operate independently of the competitive forces prevailing in the relevant market or effect its competitors or consumers or the relevant market in its favor.

In India ‘dominance’ is based on a qualitative assessment of the prevalent market dynamics and the relative position of strength enjoyed by the market participants. Section 4 stipulates that practices such as imposition of unfair or discriminatory conditions on price in purchase or sale (including predatory pricing), limiting or restricting the production of goods, denial of market access, and leveraging market position in one dominance. The Monopolies and Restrictive Trade Practices Act (MRTP), 1969 emphasis was placed on the size of the concerned player rather than the actual abusive practices or conduct of such a player.

Section 2(h) of Competition Act defines “enterprise” means a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defense and space.

THE CONCEPT OF “ABUSE OF DOMINANCE”

Dominance is not considered per se bad. Its abuse is stated to occur when an enterprise or a group of enterprise uses its dominant position in the relevant market in an exclusionary or/and an exploitative manner. The act gives an exhaustive list of practices that constitutes Abuse of Dominant position. But such practices constitute dominant position in the relevant market only when engaged by an enterprise.

The act specifies following practices by a dominant enterprises or group of enterprises as abuses:-

Unfair or discriminatory condition on price.
Limiting or restricting production of goods or provision of service or market
Limiting or restricting technical or scientific development to the prejudice of consumers
Denying market access in any manner
Making conclusion of contract subject to acceptance by other parties of supplementary obligation which by their nature or according to commercial usage have no connection with the subject of such contracts
Using its dominant position in one position in one relevant market to enter into, or protect, other relevant market.
Provisions Under The Act To Curb Abuse Of Dominant Position
Imposing unfair or discriminatory condition or price (including predatory pricing )as an abuse of dominant position under section 4 (2) (a)
A dominant enterprise has been prohibited from limiting production, market or technical development to the detriment of consumers. The act requires a dominant enterprise to act fairly and to treat like cases alike
In the case of Parke Davis & Co. v Proble and Contra farm2 it was observed that Excessive prices are unfair, having no relation to economic value of the product, which are other than the customer prepared to pay for. Charging them constitutes abuse.

Limiting or restricting production, market, technical or scientific development relating to goods or services as abuse of dominant position under Section (4) (2) (a)
Limiting or restricting production of goods or provision of services or market thereof, technical or scientific development relating to goods or services to the prejudice of customers, shall be treated as abusive.
In the case of Director General v. Gasom Gases (P) Ltd.3 it was held that conditions imposed by the respondents about distributors ensuring smooth selling of 100 gas connections per month, and getting a maximum of 3,000 gas connections over a period of 30 months from the date of first supply, and also maintaining full-fledged showrooms in the defined territory, are restrictive trade practices.

Practices resulting in denial of market access as abuse of dominant position under Section (4) (2) ( c )
A dominant enterprise shall not indulge in any practice or practices resulting in denial of market access in any manner. Any practice by the dominant enterprise which foreclose the market access to other market players or deter entry to new players shall be considered as abuse of dominant position by the Commission.
In the case of Brown Shoe Co. v. United States4 tying contract forces the customer to take product or brand customers need not necessarily want in order to secure one which he does desire. Because such an arrangement is inherently anti-competitive , its use by an established company is likely “substantially to lessen competition”

Conditional contracts as abuse of dominant position under Section (4)(2)(d)
Conditional contract by a dominant enterprise shall be abuse of dominance if conclusion of that contract is subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
In the case of Eastman Kodak Co. v. Image Technical Services, Inc.5 Eastman Kodak Co. adopted policies to limit the availability to ISO’s of replacement parts for its equipment manufactured by the petitioner which was in violation of Section 1 of Sharman Act hence, anti-competitive in nature.

Using dominant position in one relevant market to enter other relevant market to enter other relevant market as abuse of dominant position under Section (4)(2)(e)
An enterprise using its dominant position in one relevant market to enter into, or to protect, other relevant market(s) shall be treated as having abused its dominant position.
In the case of Commercial Solvents v. Commission6 court held that an undertaking which holds a dominant position on a market in raw material and which, with the object of reserving those, materials for its own production of derivatives, refuses to supply a customer who also produces those derivatives, with the possibility of eliminating all competition from that customer is abusing dominant position.

COMPETITIVE POLICY OF STATE OWNED ENTERPRICE

Public sector in India refers to all government activities including administration, running utilities, financial system of the government and commercial enterprises. State owns entities constitute a subset of the public sector. There are many economic entities which do not come under a strict definition of State owned Entity but are part of the public sector, involved in commercial activities and creates significant impact on competition. Further Government enterprises are narrowed into Departmental and Non-Departmental . Departmental enterprises are part of government financial system with funding coming from the general budget but under separate accounts of income and expenditure. A public sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximize social welfare and uphold the public interest.

State-owned enterprises generally tend to be less efficient than private owned firms, for the reasons such as low compensation, low incentives, lack of direct accountability, hard budget constraints for managers etc. These enterprises are generally insulated from market forces and receive benefits such as government imposed barriers to entry, price regulation and subsidies. Thus privatization of state owned enterprises is important element of competition policy. However in the privatization/ disinvestment process, care is to be taken that monopoly is not replaced by private monopoly.

An enterprise may abuse dominant position by exploiting it’s customers and consumers. Competitor as well as contracting parties can also be exploited which would make it impossible for undertaking operating on a competitive market. The abuse is anti-competitive when it results in denial of market access to potential competitor or in the conclusion of contract or in entering into or protective other relevant market.

Competition Commission of India prohibits abuse of dominance position by ‘enterprise or group’ as regarded in the case of Reliance Big Industries & Ors v. Karnatka Film Chamber of Commerce & Ors. 7 Only the conduct of an ‘enterprise’ can be examined under the provisions of section 4 of the Act .

Several State Aids such as Subsidies, Tax- rebates, preferential loans, Capital injection and Public procurement create unequal operating condition for business. These policy measures rarely have successful results and destroy incentives for firms to become efficient. For instance:- postal services, health services etc. Non- departmental enterprises are legally separated from government and maintain a separate set of accounts as under the Company law.

Anti-Competitive Practices by State owned Enterprises
State owned Industries enjoys ‘natural monopoly’ as they are capital intensive where even removal of entry barriers tends to be limited.

Coal India Limited enjoys natural monopoly as they render unbridled preference over CIL. Coal has always been the crucial and primary resource to assimilate the need of the growing economy, however, inconsistent supply, inferior quality and lately sectoral reforms are paving way for new and greener sources of energy.

In Indian Industry, coal is indispensable source of energy. However, inadequacy of laws creates a level playing field and promotes competition. When the current practices are arbitrarily used i.e. when these practices are prejudicial to private participation and at the most being tailor for suitability of CIL these practices became anti-competitive in nature.

Government Enterprise abusing Dominant Position

Competition Commission act as a watch dog and has cleared state run Coal India Ltd for charges of anti-competitive practices while placing orders for supply of mining explosives.

Under Section 19 of the Act Commission may inquire into any alleged contravention of Section 4(1) of the Act prescribes abuse of dominance. Section 19(4) gives a detailed list of factors that the Commission shall consider while inquiring into any allegation of abuse of dominance. The Commission when prima facie satisfied that there exist a cases of dominance then, they shall direct the Direct General for investigation and furnish a report. The commission has the power vested in a Civil Court under the Code of Civil Procedure in respect of anti –competitive matter.

The Competition Appellate Tribunal (COMPAT) is established under section 53A of the Act, to hear and dispose of appeals against any direction issued or decision made or order passed by the Commission under specified section of the Act.

Competition Appellate Tribunal in the case where Explosives Manufacturers Association of India filed a complaint that CIL was procuring 20%-22% of its requirement from Indian Oil Corporation-IBP (IOC-IBP) without inviting bids which is killing competition in market.

Competition Commission of India held that when Coal India has decided to source part of explosives from IOC-IBP to ensure continued supplies without disruptions, overall competition in the market prevails.

“The Competition Appellate Tribunal (COMPAT) is of the considered opinion that the Coal India in the present case has not contravened any of the provisions of Section 3 or 4 of the Act and the matter deserves to be closed”

Hence, in the present matter Government enterprise (Coal India) where prima facie abusing its dominating position CCI declares it innocent. This clearly implies inefficient CCI to curb this emerging problem

The electricity or power sector is more complex in India as it is a concurrent subject and all state government have their own state regulatory authorities. Under this sector new reforms were introduced such as unbundling, introducing private players span an entire spectrum from complete government. Electricity Act, 2003 establishes each regulatory authority responsible Consumer choice to focus on reforms. But under Electricity sector expansion of the transmission network, the prevailing unsatisfied demand for electricity will sustain new networks even at a relatively higher user charges constituting anti-competitive behavior.

In the case of Uttar Pradesh Power Corporation vs Noida Power Company Ltd. And Uttar 8UPPCL abused its dominant position by selling NPCL at price higher than which it has sold to other distributing companies. But this practice of UPPCL cannot be interfered under the provision of Section 609 of the Electricity Act, 2003.
In the instant case Government enterprise, UPPCL being a government enterprise is selling at a price higher than other, thus, constituting anti-competitive practice. Thus, it is clearly showing that CCI is in effective is curbing this serious issue as Section 60 of Electricity Act, 2003 exist. Thus, serious amendments are required.
In the case of Shri Neeraj Malhotra, Advocate v. North Delhi Powers Ltd. & Ors10 it was contended that opposite parties are abusing their dominant position by imposing unfair and discriminatory condition in purchase of electricity through all running meters is established. But the court in this case stated that there is no abuse of dominant position by the opposite party by imposing unfair and discriminatory conditions in pursuance of electricity through fast running meters.

However, Competition Act clearly states that use of unfair and discriminatory policy is prohibited but in the instant case it was declared no abuse of dominant position.

Further coming to electricity department, India is a country where all segments of electricity sector are currently dominated by the public sector. The public sector undertaking does have edge over new private sector entrants. Shell and Reliance ventured into marketing infrastructure.11These public sector undertaking do have edge over new private sector entrants. Shell and Reliance ventured into marketing of oil dispensing outlets due to absence of competitive neutrality between public sector and private sector by confining the subsidy only to public sector oil companies.
Thus above presented legal precedents clearly show that Competition Commission of India is not efficient to manage the issue of abuse of dominance position by government enterprise. Hence serious amendments are required to cope up with the situation.

CONCLUSION

After long years of establishment of Competition Amendment Act 2007 was finally passed by Parliament in September, 2007. However, Competition Appellate Tribunal was established to hear appeals from decisions of the Competition Commission of India, and is currently in the process of being set up. But in the meantime it is being observed that Competition Commission of India is not efficient to curb the major issue of Abuse of Dominance Position by Government enterprise in India. However, major amendments are suggested:-

CCI should fully geared to play its stipulated role to curb the issue of abuse of dominance position by government enterprise as an effective instrument in accelerating economic growth through the various spin-off effects of competition in the economy and ensuring the market to gain advantage in another market.
Under Section 19 of the Director General has the power to investigate the matter. However, if DG finds any contravention in his report it does not explicitly give CCI power to disagree with DG and close the matter.
In many legal precedents it is being observed that CCI have been lacking consistency in applying the economic principles to analyses the abuse of dominance case. Hence, serious amendments are required in Section 4 of the Act.
With the above stated recommendation researcher would like to conclude that the intent of the act is to protect the interest of consumer and ensuring freedom of trade. This shall go long way in formulating the competition law landscape in India.

BIBLIOGRAPHY
Books

T.Ramappa, Competition Law in India, Third Edition, Oxford Publication 2014.
Richard Whish, Competition Law, Sixth edition, Oxford Publication, 2009

Websites
Competition Commission of India, www.ci.gov.in
https://www.jstor.org/
www.manupatrafas t.in
Journals
Dr. Gouri Geeta “The Application of Antitrust Laws to Stock Run Enterprise (SOEs) in India”
Aequitas Legal ; Report on Competitiveness in the Coal Sector; 2nd February, 2012.
Competition Policy in India: Issues for a Globalising Economy, Author(s): Rakesh Basant and Sebastian Morris Source: Economic and Political Weekly, Vol. 35, No. 31 (Jul. 29 – Aug. 4, 2000), pp. 2735-2747
Published by: Economic and Political Weekly
1 Govindarajan.M;T ax Management India.com, 2nd September, 2015
2 1986 ECR 55
3 84 Comp. Cas.615 (MRTPC)
4 370 US 294 (1962)
5 504 US 451 (1992)
6 (1974) ECR 223
7 CCI; Case No. 25 of 2010
8 25 October, 2007 Appellate Tribunal
9 Market domination- The Appropriate Commission may issue such directions as it considers appropriate to a licensee or a generating company if such licensee or generating company enters into any agreement or abuses its dominant position or enters into a combination which is likely to cause or causes an adverse effect on competition in electricity industry.
10 11 May, 2011
11 Para 20 of OECD (2003) available at www.oecd.org/com petition
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