qwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmrtyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqwertyuiopasdfghjklzxcvbnmqw

Need for Competition Act in an era of free competition where geographical boundaries are fading

fast for business

Page | 1

INDEX

Sr. No. Topic Pg. No.

1. Introduction to Competition Law 3

2. MRTP 4

3. Difference between MRTP and Competition Act 10

4. Indian Competition Act

4.1 Evolution 11

4.2 Highlights of the Competition Act 11

4.3 Important Provisions of the Act 13

5. European Union Competition Law

5.1 Introduction 27

5.2 Core Provisions 28

6. Case Study I : ArcelorMittal 39

Case Study II : DLF 48

7. Conclusion 57

8. Webliography 60

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1. INTRODUCTION TO COMPETITION LAW

Competition law, known in the United States as antitrust law, is law that promotes or

maintains market competition by regulating anti-competitive conduct.

The history of competition law reaches back to the Roman Empire. The business practices of

market traders, guilds and governments have always been subject to scrutiny, and sometimes

severe sanctions. Since the 20th century, competition law has become global. The two largest

and most influential systems of competition regulation are United States antitrust law and

European Union competition law. National and regional competition authorities across the world

have formed international support and enforcement networks.

Competition law, or antitrust law, has three main elements:

prohibiting agreements or practices that restrict free trading and competition between

business. This includes in particular the repression of free trade caused by cartels.

banning abusive behavior by a firm dominating a market, or anti-competitive practices that

tend to lead to such a dominant position. Practices controlled in this way may include

predatory pricing, tying, price gouging, refusal to deal, and many others.

supervising the mergers and acquisitions of large corporations, including some joint

ventures. Transactions that are considered to threaten the competitive process can be

prohibited altogether, or approved subject to "remedies" such as an obligation to divest part

of the merged business or to offer licenses or access to facilities to enable other businesses to

continue competing.

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2. MRTP

Evolution of Competition Law in India

The Constitution of India, in its essay in building up a just society, has mandated the

State to direct its policy towards securing that end. Articles 38 and 39 of the

Constitution of India, which are part of the Directive Principles of State Policy, mandate

the state to direct its policy towards securing: that the ownership and control of material

resources of the community are so distributed as to best subserve the common good; and that

the operation of the economic system does not result in concentration of wealth and means of

production to the common detriment. Accordingly, after independence, the Indian

Government assumed increased responsibility for the overall development of the country.

Government policies were framed with the aim of achieving a socialistic pattern of

society that promoted equitable distribution of wealth and economic power. However, even as

the economy grew over the years after independence, there was little evidence of the

intended trickle-down. Concerned with this, the Government appointed a Committee on

Distribution of Income and Levels of Living (Mahalanobis Committee) in October 1960. The

Committee noted1 that big business houses were emerging because of the “planned economy”

model practised by the Government and recommended looking at industrial structure, and

whether there was concentration. Subsequently, the Government appointed the

Monopolies Inquiry Commission (MIC) in April 1964, which reported that there was high

concentration of economic power in over 85 percent of industrial items in India. The MIC

observed that big businesses were at an advantage in securing industrial licences to open or

expand undertakings. This intensified concentration, especially as the Government did not

have adequate mechanisms to check it. Subsequently, the Planning Commission of India, in

July 1966, appointed the Hazari Committee to review the operation of the industrial

licensing system. The report echoed previous concerns regarding skewed benefits of the

licensing system. Following this, the Government, in July 1967, appointed the

Industrial Licensing Policy Inquiry Committee, which felt that licensing was unable to check

concentration, and suggested that the Monopolies and Restrictive Trade Practices (MRTP) Bill

(as proposed by the MIC) be passed, to set up an effective legislative regime. With this

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backdrop, the MRTP Act, India’s competition law, was enacted in December 1969 to

check concentration of economic power, control the growth of

monopolies and prevent various trade practices detrimental to public interest. It came into force

in June 1970 and the MRTP Commission, a regulatory authority to deal with offences falling

under the statute, was set up in August 1970. Under the Act, large business houses and

dominant undertakings (also called MRTP companies4) were required to be registered with the

federal government. Public sector enterprises, co-operative societies and agriculture were

exempt from the purview of the Act.

The thrust of the Act was directed towards:

- prevention of concentration of economic power to the common detriment;

- control of monopolies;

- prohibition of monopolistic trade practices (MTPs);

- prohibition of restrictive trade practices (RTPs);

- prohibition of unfair trade practices (UTPs) (post-1984 amendments)

With the passage of time, it was noticed that the objectives of the MRTP Act could not

be achieved to the desired extent. Accordingly, the Government appointed a High-Powered

Expert (Sachar) Committee in June 1977, which recommended widening the scope of the MRTP

Act to include unfair trade practices (UTPs) like misleading and deceptive advertising5.

Subsequently, the MRTP Act was amended in 1984 to bring unfair trade practices within its

ambit.

Following the adoption of economic reforms in early 1990s in India, most far-reaching

amendments to MRTP Act were introduced in 1991. Two of the five thrust areas mentioned

above, namely, prevention of concentration of economic power to the common detriment, and

control of monopolies, were de-emphasised. The 1991 amendments removed the need for prior

Government approval to establish new undertakings or the expansion of existing

undertakings, and also diluted the provisions of mergers and acquisitions (M&As). The

thrust was on curbing monopolistic, restrictive and unfair trade practices. Size, as a

factor, to discourage concentration of economic power, had been given up.

Furthermore, the amendments deleted exemption granted to Government undertakings

Page | 5

and cooperative sector. Exemption to agriculture was not touched, because it is an issue under

the legislative control of states (provinces).

Experience with the MRTP Act

Despite its laudable goals, the MRTP Act did not deliver as expected. This was partly because

the Act was created at a time when all the process attributes of competition such as entry,

price, scale, location, etc., were regulated. The MRTP Commission had no influence over

these attributes of competition, as these were part of a separate set of policies. Another reason

for its inadequacy in dealing with anti-competitive practices was the absence of proper

definitions in the Act. A perusal of the MRTP Act shows that there is no definition nor

even a mention of certain offending trade practices, which are restrictive in character,

for example,cartels, predatory pricing, and bid-rigging. Further, the MRTP

Commission was unable to take any action against any of the international cartels that

attracted the attention of other competition authorities.The MRTP Commission was poorly

resourced, which further constrained its functioning. Its budget was a very small proportion of

both the Gross Domestic Product (GDP) and the budget of the Central Government. The

inadequacy of budget allocation was compounded by

the need for the MRTP Commission to seek Government permission to incur expenditure

beyond certain limits. This severely curtailed its independent functioning. The

independence of the MRTP Commission got further impaired due to the discretionary power of

the Government to appoint senior level officers.

Since attaining Independence in 1947, India, for the better part of half a century

thereafter, adopted and followed policies comprising what are known as “Command-and-

Control” laws, rules, regulations and executive orders. The competition law of India, namely,

the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act, for brief) was one such

act. It was in 1991 that widespread economic reforms were undertaken and consequently the

march from “Command-and-Control” economy to an economy based more on free market

principles commenced its stride.

The first Indian competition law was enacted in 1969 and was christened the MONOPOLIES

AND RESTRICTIVE TRADE PRACTICES ACT, 1969 (MRTP Act). Articles 38 and 39 of

Page | 6

the Constitution of India mandate, inter alia, that the State shall strive to promote the welfare of

the people by securing and protecting as effectively, as it may, a social order in which justice –

social, economic and political – shall inform all the institutions of the national life, and the State

shall, in particular, direct its policy towards securing:

1. that the ownership and control of material resources of the community are so distributed

as best to subserve the common good; and

2. that the operation of the economic system does not result in the concentration of wealth

and means of production to the common detriment.

It defines a restrictive trade practice to mean a trade practice, which has, or may have the effect

of preventing, distorting or restricting competition in any manner. But the MRTP Act, is

inadequate for fostering competition in the market and trade and for reducing, if not eliminating,

anti-competitive practices in the country’s domestic and international trade.

Three areas informed till 1991 (when the MRTP Act was amended) the regulatory provisions of

the MRTP Act, namely, concentration of economic power, competition law and consumer

protection. Even in its regulatory capacity, it controlled the growth only if it was detrimental to

the common good. In terms of competition law and consumer protection, the objective of the

MRTP Act is to curb Monopolistic, Restrictive and Unfair Trade Practices which disturb

competition in the trade and industry and which adversely affect the consumer interest

Objectives

The principal objectives sought to be achieved through the MRTP Act are:

i) prevention of concentration of economic power to the common detriment;

ii) control of monopolies;

iii) prohibition of Monopolistic Trade Practices (MTP);

iv) prohibition of Restrictive Trade Practices (RTP);

v) prohibition of Unfair Trade Practices (UTP).

Page | 7

Prior to the 1991 amendments, the MRTP Act essentially was implemented in terms of

regulating the growth of big size companies called the monopoly companies. In other words,

there were pre-entry restrictions therein requiring undertakings and companies with assets of

more than Rs.100 crores (about US $22 million) to seek approval of Government for setting up

new undertakings, for expansion of existing undertakings, etc.

Major amendments were effected to the MRTP Act in 1991. Provisions relating to concentration

of economic power and pre-entry restrictions with regard to prior approval of the Central

Government for establishing a new undertaking, expanding an existing undertaking,

amalgamations, mergers and take-overs of undertakings were all deleted from the statute through

the amendments.

In the pre-1991 reforms period, India’s planned strategy and economic development stressed the

broad policy objectives of (i) the development of an industrial base with a view to achieving self-

reliance and (ii) the promotion of social justice. The specific policy measures towards these

objectives were across-the-board substitution of Indian goods and services for imports,

controlling the pattern of investment and controlling the utilisation of foreign exchange. The

thrust of the policy instruments were the industrial licensing that affected the private sector and

creating of a large public sector. The entire exercise was, as described earlier, the “Command-

and-Control” economy.

The “Command-and-Control” triggered policies meant that Government intervention pervaded

almost all areas of economic activity in the country. For instance, there was no contestable

market. This meant that there was neither an easy entry nor an easy exit for enterprises.

Government determined the plant sizes, location of the plants, prices in a number of important

sectors, and allocation of scarce financial resources. Their further interventions were

characterised by high tariff walls, restrictions on foreign investments and quantitative

restrictions. It may thus be seen that free competition in the market was under severe fetters,

mainly because of Governmental policies and strategies, specifically, (1) industrial policy, (2)

trade and commercial policy, (3) foreign investment policy, and (4) financial sector policy.

A perusal of the MRTP Act will show that there is neither definition nor even a mention of

certain offending trade practices which are restrictive in character. Some illustrations of these

are:

Page | 8

Abuse of Dominance

Cartels, Collusion and Price Fixing

Bid Rigging

Boycotts and Refusal to Deal

Predatory pricing

Hence, the need for a new and better law was recognized, which gave birth to the Competition

Act, 2002.

When the MRTP Act was drafted in 1969, the economic and trade milieu prevalent at that time

constituted the premise for its various provisions. There has been subsequently a sea change in

the milieu with considerable movement towards liberalisation, privatisation and globalisation.

The law needed to yield to the changed and changing scenario on the economic and trade front.

High Level Committee on Competition Policy and Law

In October, 1999, the Government of India appointed a High Level Committee on Competition

Policy and Competition Law to advise a modern competition law for the country in line with

international developments and to suggest a legislative framework which may entail a new law

or appropriate amendments to the MRTP Act. The Committee presented its Competition Policy

report to the Government in May 2000. The draft competition law was drafted and presented to

the Government in November 2000. After some refinements, following extensive consultations

and discussions with all interested parties, the Parliament passed in December 2002 the new law,

namely, the Competition Act, 2002.

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3. DIFFERENCE BETWEEN MRTP AND INDIAN COMPETITION ACT

MRTP ACT, 1969 COMPETITION ACT, 2002

Based on pre-reforms command and control regime

Based on post-reforms liberalized regime

Based on size/structure as factor Based on conduct as a factor

Frowns upon dominance Frowns upon abuse of dominance

No combinations (i.e. M&As) regulations (post-1991 amendment)

Combinations regulations beyond a certain threshold

No competition advocacy role for the MRTP Commission

CCI has competition advocacy role

No penalties for offences Penalties for offences

Unfair trade practices coveredUnfair trade practices omitted (Consumer Protection Act, 1986 will deal with them)

Rule of law approach Rule of reason approach

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4. INDIAN COMPETITION ACT

4.1 Evolution

Competition Act 2002 has come into force to replace the Monopolies and Restrictive

Trade Practices (MRTP) Act, 1969. After the economic reforms of 1990, it was felt that MRTP

has become obsolete pertaining to international economic developments relating to competition

law and there was a need of law which curbs monopolies and promotes competition. In 1990s

India saw substantial increases in the value and volume of international trade in goods and

services, in foreign direct investments (FDI), and in cross border mergers and acquisitions

(M&A). Over the period of time, trade barriers fell and restrictions on FDI were reduced. The

Competition Act, 2002 has been enacted with the purpose of providing a competition law regime

that meets and suits the demands of the changed economic scenario in India and abroad.

The Competition Act has repealed the Monopolies and Restrictive Trade Practices Act, 1969 and

has dissolved the Monopolies and Restrictive Trade Practices Commission. The cases pending

before the MRTP Commission are transferred to Competition Commission of India “CCI”,

barring those which are related to unfair trade practices and the same are proposed to be

transferred to the National Commission constituted under the Consumer Protection Act, 1986.

4.2 HIGHLIGHTS OF COMPETITION ACT 2002:

It provides for the establishment of a Competition Commission of India “CCI” to prevent

practices having adverse effect on competition, to promote and sustain competition in

markets, to protect interests of consumers and to ensure freedom of trade carried on by

other participants in markets.

CCI prohibits enterprises to enter into anti-competitive agreements, abusing their

dominant position and forming combinations.

Scope of CCI - CCI shall look into any alleged violations under the Act, (a) either on its

own motion, or (b) on receipt of a complaint from any person, consumer or their trade

association, or (c) on references made by the Central Government, State Governments or

any statutory authority.

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Exclusion of jurisdiction of civil courts - No civil court has the jurisdiction to entertain

any suit or proceeding which CCI is empowered by or under the Act to determine. Also,

no injunction can be granted by any court or authority in respect of any action taken or to

be taken in pursuance of any power conferred by or under the Act.

CCI is not bound by the procedure laid down by Code of Civil Procedure, 1908 and must

only follow the principles of natural justice. CCI, thus, has the power to regulate its own

procedure.

If any party to such agreement is outside India; or if any enterprise abuses its dominant

position is outside India; or a combination has taken place outside India; or any party to

combination is outside India; or any other matter or practice or action arising out of such

agreement or dominant position which causes an appreciable adverse effect on

competition in the relevant market in India.

Powers of CCI - CCI has the power

• to grant interim relief award compensation,

• impose penalty and

• to grant any other appropriate relief.

• to levy penalty for contravention of its orders, making of false statements or omission

to furnish material information, etc.

Division of dominant enterprise - CCI can recommend the Central Government division

of a dominant enterprise to ensure that it does not abuse its position. On the

recommendation, the Central Government under Section 28 may direct division of such

an enterprise.

Extent of penalty - For abusing its dominant position or entering in anticompetitive

agreements, CCI can levy penalty to the extent of 10 per cent of the average of the

turnover for the preceding three financial years. The penalty is higher in case of such

abuses by cartels and penalty can be equivalent to three times of the amount of

profits made out of such agreement by the cartel or ten percent of the average

turnover of the cartel for the preceding three financial years.

Appeal from CCI - Any person aggrieved by any decision or order of CCI may file an

appeal to the Supreme Court within 60 days from the date of the communication of the

decision or order.

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4.3 IMPORTANT PROVISIONS OF THE ACT:

Section 3: Anti-competitive agreements-

(1) No enterprise or association of enterprises or person or association of persons shall enter into

any agreement in respect of production, supply, distribution, storage, acquisition or control of

goods or provision of services, which causes or is likely to cause an appreciable adverse

effect on competition within India.

(2) Any agreement entered into in contravention of the provisions contained in sub-section (1)

shall be void.

(3) Any agreement entered into between enterprises or associations of enterprises or persons or

associations of persons or between any person and enterprise or practice carried on, or

decision taken by, any association of enterprises or association of persons, including cartels,

engaged in identical or similar trade of goods or provision of services, which-

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment or

provision of services;

(c) shares the market or source of production or provision of services by way of allocation of

geographical area of market, or type of goods or services, or number of customers in the

market or any other similar way;

(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have

an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by

way of joint ventures if such agreement increases efficiency in production, supply, distribution,

storage, acquisition or control of goods or provision of se vices.

Explanation- For the purposes of this sub-section, "bid rigging" means any agreement, between

enterprises or persons referred to in sub-section (3) engaged in identical or similar production or

trading of goods or provision of services, which has the effect of eliminating or reducing

competition for bids or adversely affecting or manipulating the process for bidding.

(4) Any agreement amongst enterprises or persons at different stages or levels of the production

chain in different markets, in respect of production, supply, distribution, storage, sale or

price of, or trade in goods or provision of services, including-

Page | 13

(a) tie-in arrangement;

(b) exclusive supply agreement;

(c) exclusive distribution agreement;

(d) refusal to deal;

(e) resale price maintenance,

shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to

cause an appreciable adverse effect on competition in India.

Explanation- For the purposes of this sub-section,-

(a) "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a

condition of such purchase, to purchase some other goods;

(b) "exclusive supply agreement" includes any agreement restricting in any manner the

purchaser in the course of his trade from acquiring or otherwise dealing in any goods

other than those of the seller or any other person;

(c) "exclusive distribution agreement" includes any agreement to limit, restrict or withhold

the output or supply of any goods or allocate any area or market for the disposal or sale

of the goods;

(d) "refusal to deal" includes any agreement which restricts, or is likely to restrict, by any

method the persons or classes of persons to whom goods are sold or from whom goods

are bought;

(e) "resale price maintenance" includes any agreement to sell goods on condition that the

prices to be charged on the resale by the purchaser shall be the prices stipulated by the

seller unless it is clearly stated that prices lower than those prices may be charged.

(5) Nothing contained in this section shall restrict-

(i) the right of any person to restrain any infringement of, or to impose reasonable

conditions, as may be necessary for protecting any of his rights which have been or may

be conferred upon him under-

(a) the Copyright Act, 1957 (14 of 1957)

(b) the Patents Act, 1970 (39 of 1970)

(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act,

1999 (47 of 1999)

Page | 14

(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48

of 1999)

(e) the Designs Act, 2000 (16 of 2000)

(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37of 2000)

(ii) the right of any person to export goods from India to the extent to which the agreement

relates exclusively to the production, supply, distribution or control of goods or provision

of services for such export. Prohibition of abuse of dominant position

CEMENT CARTELISATION IN INDIA

Background: The Indian cement industry showed signs of growth during 1924-1941. The

Indian cement industry was still at its nascent stage until 1924. There was also serious

competition amongst the producers, depressing prices and profitability. The wellknown

Associated Cement Company (ACC) was formed in the wake of this competition wherein

several cement companies to mark the first move towards consolidation.In the early years control

over the cement industry by the government resulted in slow growth. The government realized

this in 1982 when they decided to partially decontrol the sector to allow rapid growth. As this

formula worked out well, the government in lure of modernization and expansion decided to

completelydecontrol the cement sector in 1989.38 The demand for cement has been ever

increasing. Its demand is directly linked to economic activity. The increase in demand is mainly

due to infrastructure investments and construction activity. Both of them form a major key

component of GDP (Gross Domestic Product). Cement demand growth has high correlation to

GDP growth. The takeover of L&T by Grasim, and the strategic alliance between GACL and

ACC have resulted in two major blocks, controlling over 42 percent of the domestic market

share. Before this major consolidation, the top five cement majors in the domestic industry

accounted for 30 percent of total capacity. Post consolidation, the top five companies account for

more than 55 percent of the total cement capacity in the country. After the decontrol policy of the

government, the cement manufacturers started to lobby for higher prices formed Cement

Manufacturers Association.

Page | 15

Competition concerns in the Indian Cement Industry: There is a widespread belief that the

cement manufacturers have been engaged in collusive price fixing since the decontrol of cement

prices in 1989. The Cement Manufacturer’s Association (CMA) after the governmental decontrol

started lobbying for higher prices and indulging in collective activities. Cement is a homogenous

product, which is prone to cartelization and fixing of prices is not a difficult task to be

accomplished. Due to the fragmented nature of the market, it is at the disposal of the sellers how

to dominate the market. In 1991, the Indian cement industry was accused of cartelization for the

first time wherein the then MRTPC was asked to adjudicate on a matter of collusive price setting

in the Delhi market. There were further many more allegations against the cement manufacturers

and they have continuously denied the allegations by stating that the sudden price rise was due to

the increase in the cost of manufacture. However a closer look at the region-wise capacity and

price-movement in the Northern, Eastern, Southern, Western and Central India there has been a

price-collusive

behavior. In 2007, the Monopolies and Restrictive Trade Practices Commission, New Delhi

ruled that the cement manufacturers have been acting in concert attracting Section 33 (1) (d) of

the MRTP Act. Accordingly, cease and desist order was issued directing them not to get into any

arrangement, directly or indirectly, for fixing the prices of their produce in concert or in follow-

up of a concert.

Section 4: Abuse of dominant position-

(1) No enterprise shall abuse its dominant position.

(2) There shall be an abuse of dominant position under sub-section (1), if an enterprise,-

(a) directly or indirectly, imposes unfair or discriminatory-

(i) condition in purchase or sale of goods or service; or

(ii) price in purchase or sale (including predatory price) of goods or service.

Explanation- For the purposes of this clause, the unfair or discriminatory condition in purchase

or sale of goods or service referred to in sub-clause (i) and unfair or discriminatory price in

purchase or sale of goods (including predatory price) or service referred to in sub-clause (ii) shall

not include such discriminatory condition or price which may be adopted to meet the

competition; or

Page | 16

(b) limits or restricts-

(i) production of goods or provision of services or market therefore; or

(ii) technical or scientific development relating to goods or services to the prejudice of

consumers; or

(c) indulges in practice or practices resulting in denial of market access; or

(d) makes conclusion of contracts 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; or

(e) uses its dominant position in one relevant market to enter into, or protect, other relevant

market.

Explanation-For the purposes of this section, the expression-

(a) "dominant position" means a position of strength, enjoyed by an enterprise, in the

relevant market, in India, which enables it to-

(i) operate independently of competitive forces prevailing in the relevant market; or

(ii) affect its competitors or consumers or the relevant market in its favour;

(b) "predatory price" means the sale of goods or provision of services, at a price which is

below the cost, as may be determined by regulations, of production of the goods or

provision of services, with a view to reduce competition or eliminate the competitors.

Section 5: Combination:

The acquisition of one or more enterprises by one or more persons or merger or amalgamation of

enterprises shall be a combination of such enterprises and persons or enterprises, if-

(a) any acquisition where-

(i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares,

voting rights or assets have been acquired or are being acquired jointly have,-

(A) either, in India, the assets of the value of more than rupees one thousand crores or

turnover more than rupees three thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than five

hundred million US dollars, including at least rupees five hundred crores in India,

or turnover more than fifteen hundred million US dollars, including at least rupees

fifteen hundred crores in India; or

Page | 17

(ii) the group, to which the enterprise whose control, shares, assets or voting rights have

been acquired or are being acquired, would belong after the acquisition, jointly have or

would jointly have,-

(A) either in India, the assets of the value of more than rupees four thousand crores or

turnover more than rupees twelve thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than two

billion US dollars, including at least rupees five hundred crores in India, or

turnover more than six billion US dollars, including at least rupees fifteen hundred

crores in India; or

(b) acquiring of control by a person over an enterprise when such person has already direct or

indirect control over another enterprise engaged in production, distribution or trading of a

similar or identical or substitutable goods or provision of a similar or identical or

substitutable service, if-

(i) the enterprise over which control has been acquired along with the enterprise over which

the acquirer already has direct or indirect control jointly have,-

(A)either in India, the assets of the value of more than rupees one thousand crores or

turnover more than rupees three thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than five

hundred million US dollars, including at least rupees five hundred crores in India, or

turnover more than fifteen hundred million US dollars, including at least rupees

fifteen hundred crores in India; or

(ii) the group, to which enterprise whose control has been acquired, or is being acquired,

would belong after the acquisition, jointly have or would jointly have,

(A)either in India, the assets of the value of more than rupees four thousand crores or

turnover more than rupees twelve thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than two

billion US dollars, including at least rupees five hundred crores in India, or turnover

more than six billion US dollars, including at least rupees fifteen hundred crores in

India; or

(c) any merger or amalgamation in which-

(i) the enterprise remaining after merger or the enterprise created as a result of the

Page | 18

amalgamation, as the case may be, have-

(A)either in India, the assets of the value of more than rupees one thousand crores or

turnover more than rupees three thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than five

hundred million US dollars, including at least rupees five hundred crores in India, or

turnover more than fifteen hundred million US dollars, including at least rupees

fifteen hundred crores in India; or

(ii) the group, to which the enterprise remaining after the merger or the enterprise created as

a result of the amalgamation, would belong after the merger or the amalgamation, as the

case may be, have or would have,—

(A)either in India, the assets of the value of more than rupees four-thousand crores or

turnover more than rupees twelve thousand crores; or

(B) in India or outside India, in aggregate, the assets of the value of more than two billion

US dollars, including at least rupees five hundred crores in India, or turnover more

than six billion US dollars, including at least rupees fifteen hundred crores in India;

Explanation - For the purposes of this section:

(a) "control" includes controlling the affairs or management by-

(i) one or more enterprises, either jointly or singly, over another enterprise or group;

(ii) one or more groups, either jointly or singly, over another group or enterprise

(b) "group" means two or more enterprises which, directly or indirectly, are in a position to -

(i) exercise twenty-six per cent. or more of the voting rights in the other enterprise; or

(ii) appoint more than fifty per cent. of the members of the board of directors in the other

enterprise; or

(iii) control the management or affairs of the other enterprise;

(c) the value of assets shall be determined by taking the book value of the assets as shown, in

the audited books of account of the enterprise, in the financial year immediately preceding

the financial year in which the date of proposed merger falls, as reduced by any depreciation,

and the value of assets shall include the brand value, value of goodwill, or value of

copyright, patent, permitted use, collective mark, registered proprietor, registered trade

mark, registered user, homonymous geographical indication, geographical indications,

design or layout-design or similar other commercial rights, if any, referred to in sub-section

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(5) of section 3.

Section 6: Regulation of combinations-

(1) No person or enterprise shall enter into a combination which causes or is likely to cause an

appreciable adverse effect on competition within the relevant market in India and such a

combination shall be void.

(2) Subject to the provisions contained in sub-section (1), any person or enterprise, who or

which proposes to enter into a combination, may, at his or its option, give notice to the

Commission, in the form as may be specified, and the fee which may be terminated, by

regulations, disclosing the details of the proposed combination, within seven days of-

(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of

section 5, by the board of directors of the enterprises concerned with such merger or

amalgamation, as the case may be;

(b) execution of any agreement or other document for acquisition referred to in clause (a) of

section 5 or acquiring of control referred to in clause (b) of that section.

(3) The Commission shall, after receipt of notice under sub-section (2), deal with such notice in

accordance with the provisions contained in sections 29, 30 and 31.

(4) The provisions of this section shall not apply to share subscription or financing facility or

any acquisition, by a public financial institution, foreign institutional investor,bank or

venture capital fund, pursuant to any covenant of a loan agreement or investment agreement.

(5) The public financial institution, foreign institutional investor, bank or venture capital fund,

referred to in sub-section (4), shall, within seven days from the date of the acquisition, file, in

the form as may be specified by regulations, with the Commission the details of the

acquisition including the details of control, the circumstances for exercise of such control and

the consequences of default arising out of such loan agreement or investment agreement, as

the case may be.

Explanation- For the purposes of this section, the expression-

(a) "foreign institutional investor" has the same meaning as assigned to it in clause (a) of the

Explanation to section 115AD of the Income-tax Act, 1961 (43 of 1961)

(b) "venture capital fund" has the same meaning as assigned to it in clause (b) of the

explanation to clause (23FB) of section 10 of the Income-tax Act, 1961 (43 of 1961).

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Section 29: Procedure for investigation of combinations-

(1) Where the Commission is of the opinion that a combination is likely to cause, or has caused

an appreciable adverse effect on competition within the relevant market in India, it shall issue

a notice to how cause to the parties to combination calling upon them to respond within thirty

days of the receipt of the notice, as to why investigation in respect of such combination

should not be conducted.

(2) The Commission, if it is prima facie of the opinion that the combination has, or is likely to

have, an appreciable adverse effect on competition, it shall, within seven working days from

the date of receipt of the response of the parties to the combination, direct the parties to the

said combination to publish details of the combination within ten working days of such

direction, in such manner, as it thinks appropriate, for bringing the combination to the

knowledge or information of the public and persons affected or likely to be affected by such

combination.

(3) The Commission may invite any person or member of the public, affected or likely to be

affected by the said combination, to file his written objections, if any, before the

Commission within fifteen working days from the date on which the details of t e

combination were published under sub-section (2).

(4) The Commission may, within fifteen working days from the expiry of the period specified in

sub-section (3), call for such additional or other information as it may deem fit from the

parties to the said combination.

(5) The additional or other information called for by the Commission shall be furnished by the

parties referred to in sub-section (4) within fifteen days from the expiry of the period

specified in sub-section (4).

(6) After receipt of all information and within a period of forty-five working days from the

expiry of the period specified in sub-section (5), the Commission shall proceed to deal with

the case in accordance with the provisions contained in section 31.

Section 30: Inquiry into disclosures under sub-section (2) of section 6-

Where any person or enterprise has given a notice under sub-section (2) of section 6, the

Commission shall inquire-

(a) whether the disclosure made in the notice is correct;

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(b) whether the combination has, or is likely to have, an appreciable adverse effect on

competition.

Section 31: Orders of Commission on certain combinations-

1) Where the Commission is of the opinion that any combination does not, or is not likely to,

have an appreciable adverse effect on competition, it shall, by order, approve that

combination including the combination in respect of which a notice has been given under

sub-section (2) of section 6.

2) Where the Commission is of the opinion that the combination has, or is likely to have, an

appreciable adverse effect on competition, it shall direct that the combination shall not take

effect.

3) Where the Commission is of the opinion that the combination has, or is likely to have, an

appreciable adverse effect on competition but such adverse effect can be eliminated by

suitable modification to such combination, it may propose appropriate modification to the

combination, to the parties to such combination.

4) The parties, who accept the modification proposed by the Commission under sub-section (3),

shall carry out such modification within the period specified by the Commission.

5) If the parties to the combination, who have accepted the modification under sub-section (4),

fail to carry out the modification within the period specified by the Commission, such

combination shall be deemed to have an appreciable adverse effect on competition and the

Commission shall deal with such combination in accordance with the provisions of this Act.

6) If the parties to the combination do not accept the modification proposed by the Commission

under sub-section (3), such parties may, within thirty working days of the modification

proposed by the Commission, submit amendment to the modification proposed by the

Commission under that sub-section.

7) If the Commission agrees with the amendment submitted by the parties under sub-section (6),

it shall, by order, approve the combination.

8) If the Commission does not accept the amendment submitted under sub-section (6), then, the

parties shall be allowed a further period of thirty working days within which such parties

shall accept the modification proposed by the Commission under sub-section (3).

9) If the parties fail to accept the modification proposed by the Commission within thirty

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working days referred to in sub-section (6) or within a further period of thirty working days

referred to in sub-section (8), the combination shall be deemed to have an appreciable

adverse effect on competition and be dealt with in accordance with the provisions of this Act.

10) Where the Commission has directed under sub-section(2) that the combination shall not

take effect or the combination is deemed to have an appreciable adverse effect on

competition under sub-section (9), then, without prejudice to any penalty which may be

imposed or any prosecution which may be initiated under this Act, the Commission may

order that-

(a) the acquisition referred to in clause (a) of section 5; or

(b) the acquiring of control referred to in clause (b) of section 5; or

(c) the merger or amalgamation referred to in clause (c) of section 5, shall not be

given effect to:

Provided that the Commission may, if it considers appropriate, frame a scheme to

implement its order under this sub-section.

11) If the Commission does not, on the expiry of a period of ninety working days from the date

of publication referred to in sub-section (2) of section 29, pass an order or issue direction in

accordance with the provisions of sub-section (1) or sub-sect on (2) or sub-section (7), the

combination shall be deemed to have been approved by the Commission.

Explanation- For the purposes of determining the period of ninety working days specified in

this sub-section, the period of thirty working days specified in sub-section (6) and a further

period of thirty working days specified in sub-section (8) shall be excluded.

12) Where any extension of time is sought by the parties to the combination, the period of ninety

working days shall be reckoned after deducting the extended time granted at the request of

the parties.

13) Where the Commission has ordered a combination to be void, the acquisition or acquiring of

control or merger or amalgamation referred to in section 5, shall be dealt with by the

authorities under any other law for the time being in force as if such acquisition or acquiring

of control or merger or amalgamation had not taken place and the parties to the combination

shall be dealt with accordingly.

14) Nothing contained in this Chapter shall affect any proceeding initiated or which may be

initiated under any other law for the time being in force.

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Section 32: Acts taking place outside India but having an effect on competition in India-

The Commission shall, notwithstanding that-

(a) an agreement referred to in section 3 has been entered into outside India; or

(b) any party to such agreement is outside India; or

(c) any enterprise abusing the dominant position is outside India; or

(d) a combination has taken place outside India; or

(e) any party to combination is outside India; or

(f) any other matter or practice or action arising out of such agreement or dominant position or

combination is outside India, have power to inquire in accordance with the provisions

contained in sections 19, 20, 26, 29 and 30 of the Act into such agreement or abuse of

dominant position or combination if such agreement or dominant position or combination

has, or is likely to have, an appreciable adverse effect on competition in the relevant market

in India and pass such orders as it may deem fit in accordance with the provisions of this

Act.

Section 49: Competition Advocacy

1) The Central Government may, in formulating a policy on competition (including review of

laws related to competition) or any other matter, and a State Government may, in formulating

a policy on competition or on any other matter, as the case may be, make a reference to the

Commission for its opinion on possible effect of such policy on competition and on the

receipt of such a reference, the Commission shall, within sixty days of making such

reference, give its opinion to the Central Government, or the State Government, as the case

may be, which may thereafter take further action as it deems fit.

2) The opinion given by the Commission under sub-section (1) shall not be binding upon the

Central Government [or the State Government, as the case may be] in formulating such

policy.

3) The Commission shall take suitable measures for the promotion of competition advocacy,

creating awareness and imparting training about competition issues.

Section 53: Competition Appellate Tribunal

53A. Establishment of Appellate Tribunal:

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(1) The Central Government shall, by notification, establish an Appellate Tribunal to be known

as Competition Appellate Tribunal –

(a) to hear and dispose of appeals against any direction issued or decision made or order passed

by the Commission under sub-sections (2) and (6) of section 26, section 27, section 28, section

31, section 32, section 33, section 38, section 39, section 43, section 43A, section 44, section 45

or section 46 of the Act;

(b) to adjudicate on claim for compensation that may arise from the findings of the Commission

or the orders of the Appellate Tribunal in an appeal against any finding of the Commission or

under section 42A or under sub-section(2) of section 53Q of this Act, and pass orders for the

recovery of compensation under section 53N of this Act.

(2) The Headquarter of the Appellate Tribunal shall be at such place as the Central Government

may, by notification, specify.

53B. Appeal to Appellate Tribunal

(1)The Central Government or the State Government or a local authority or enterprise or any

person, aggrieved by any direction, decision or order referred to in clause (a) of section 53A may

prefer an appeal to the Appellate Tribunal.

(2) Every appeal under sub-section (1) shall be filed within a period of sixty days from the date

on which a copy of the direction or decision or order made by the Commission is received by the

Central Government or the State Government or a local authority or enterprise or any person

referred to in that sub-section and it shall be in such form and be accompanied by such fee as

may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period

of sixty days if it is satisfied that there was sufficient cause for not filing it within that period.

(3) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the

parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit,

confirming, modifying or setting aside the direction, decision or order appealed against.

(4) The Appellate Tribunal shall send a copy of every order made by it to the Commission and

the parties to the appeal.

(5) The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it

as expeditiously as possible and endeavour shall be made by it to dispose of the appeal within

six months from the date of receipt of the appeal.

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APPLICABILITY ON INDIAN & FOREIGN ENTITIES

The Indian and foreign companies will fall under the Act only if they fulfill the

following criteria:

Assets Turnover

Only in India No Group Rs. 1500cr Rs. 4500cr

Group Rs. 6000cr Rs. 18000cr

In and Outside

India

No Group US $ 750m

(Rs.750cr)

(US $ 165m)

US $ 2.25b

(Rs.2250cr)

(US $ 500m)

Group US $ 3b

(Rs.750cr)

(US $ 165m)

US$ 9b

(Rs.2250cr)

(US $ 500m)

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5. EUROPEAN UNION COMPETITION LAW

5.1 INTRODUCTION

European Union competition law is one of the areas of authority of the European Union. In

the EU, it is an important part of ensuring the completion of the internal market, meaning the

free flow of working people, goods, services and capital in a borderless Europe. Four main

policy areas include:

Cartels, or control of collusion and other anti-competitive practices that affect the EU (or,

since 1994, the European Economic Area). This is covered under Articles 101 of the Treaty

on the Functioning of the European Union (TFEU).

Monopolies, or preventing the abuse of firms' dominant market positions. This is governed

by Article 102 TFEU. This article also gives rise to the Commission's authority under the

next area,

Mergers, control of proposed mergers, acquisitions and joint ventures involving companies

that have a certain, defined amount of turnover in the EU/EEA. This is governed by the

Council Regulation 139/2004 EC (the Merger Regulation).[1]

State aid, control of direct and indirect aid given by Member States of the European Union to

companies. Covered under Article 107 of the Treaty on the Functioning of the European

Union.

This last point is a unique characteristic of the EU competition law regime. As the EU is made

up of independent member states, both competition policy and the creation of the European

single market could be rendered ineffective were member states free to support national

companies as they saw fit. Primary authority for applying EU competition law rests with

European Commission and its Directorate General for Competition, although state aids in some

sectors, such as transport, are handled by other Directorates General. On 1 May 2004 a

decentralized regime for antitrust came into force to increase application of EU competition law

by national competition authorities and national courts.

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5.2 CORE PROVISIONS

ANTITRUST:

The antitrust area covers two prohibition rules set out in the Treaty on the Functioning of the

European Union.

First, agreements between two or more firms which restrict competition are prohibited by

Article 101 of the Treaty, subject to some limited exceptions. This provision covers a

wide variety of behaviors. The most obvious example of illegal conduct infringing

Article 101 is a cartel between competitors (which may involve price-fixing or market

sharing);

Second, firms in a dominant position may not abuse that position (Article 102 of the

Treaty). This is for example the case for predatory pricing aiming at eliminating

competitors from the market.

Article 102 is aimed at preventing undertakings who hold a dominant position in a market from

abusing that position to the detriment of consumers. It provides that,

"Any abuse by one or more undertakings of a dominant position within the common market or in

a substantial part of it shall be prohibited as incompatible with the common market insofar as it

may affect trade between Member States.

This can mean,

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading

conditions; (b) limiting production, markets or technical development to the prejudice of

consumers; (c) applying dissimilar conditions to equivalent transactions with other trading

parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of

contracts subject to acceptance by the other parties of supplementary obligations which, by their

nature or according to commercial usage, have no connection with the subject of such contracts."

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First it is necessary to determine whether a firm is dominant, or whether it behaves "to an

appreciable extent independently of its competitors, customers and ultimately of its consumer."

Under EU law, very large market shares raise a presumption that a firm is dominant, which may

be rebuttable. If a firm has a dominant position, because it has beyond a 39.7% market share then

there is "a special responsibility not to allow its conduct to impair competition on the common

market" Same as with collusive conduct, market shares are determined with reference to the

particular market in which the firm and product in question is sold. Then although the lists are

seldom closed, certain categories of abusive conduct are usually prohibited under the country's

legislation. For instance, limiting production at a shipping port by refusing to raise expenditure

and update technology could be abusive. Tying one product into the sale of another can be

considered abuse too, being restrictive of consumer choice and depriving competitors of outlets.

This was the alleged case in Microsoft v. Commission leading to an eventual fine of €497 million

for including its Windows Media Player with the Microsoft Windows platform. A refusal to

supply a facility essential for all businesses attempting to compete can constitute an abuse. An

example was a case involving a medical company named Commercial Solvents. When it set up

its own rival in the tuberculosis drugs market, Commercial Solvents were forced to continue

supplying a company named Zoja with the raw materials for the drug. Zoja was the only market

competitor, so without the court forcing supply, all competition would have been eliminated.

Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at

what point a dominant firm's prices become "exploitative" and this category of abuse is rarely

found. In one case however, a French funeral service was found to have demanded exploitative

prices, and this was justified on the basis that prices of funeral services outside the region could

be compared. A more tricky issue is predatory pricing. This is the practice of dropping a

products's price so low that smaller competitors cannot cover their costs and fail. In France

Telecom SA v. Commission a broadband internet company was forced to pay €10.35 million for

dropping its prices below its own production costs. It had "no interest in applying such prices

except that of eliminating competitors" and was being crossed subsidised to capture the lion's

share of a booming market. One last category of pricing abuse is price discrimination. An

example of this could be offering rebates to industrial customers who export sugar that your

company sells, but not to Irish customers, selling in the same market as you are in.

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As stated above market definition is arguably the most important part of any competition case

brought under Article 102. However, it is also one of the most complex areas. If the market is

defined too widely then it will contain more firms and substitutable products making a finding of

a dominant position for one firm unlikely. Likewise if it is defined too narrowly then there will

be a presumption that the defendant company will be found to be dominant. In practice, market

definition will be left to economists, rather than lawyers to decide.

LATEST PRESS RELEASE:

The European Commission has opened formal anti-trust proceedings to investigate an alleged

refusal by several luxury watch manufacturers to supply spare parts to independent repairers, in

breach of EU competition rules. The opening of proceedings follows a General Court judgment

which annulled the Commission's decision to reject a complaint lodged by the European

Confederation of Watch & Clock Repairers' Associations (CEAHR). An initiation of

proceedings does not imply that the Commission has conclusive proof of an infringement. It only

means that the Commission will investigate the case as a matter of priority.

In 2004, the CEAHR lodged a complaint, alleging that luxury watch manufacturers were in

breach of EU competition law. According to the complainant, from 2002, watch manufacturers

began to refuse to supply spare parts to repairers that did not belong to their selective systems for

repair and maintenance whereas luxury watches had previously traditionally been repaired by

independent multi-brand repairers. CEAHR's complaint alleges that since there are no alternative

sources for most of these spare parts, this practice threatens to drive independent repairers out of

business.

On 10 July 2008 the Commission decided to reject this complaint for lack of community interest.

In December 2010, the General Court annulled the Commission's decision to reject CEAHR's

complaint, mainly because the Commission did not sufficiently motivate why it concluded that

there was a not enough Community interest to pursue the investigation.

The Commission will now further investigate the allegations, in order to take account of the

General Court ruling.

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MERGERS:

Reasons for examining mergers at the EU level: While companies combining forces (referred

to below as mergers) can expand markets and bring benefits to the economy, some combinations

may reduce competition. Combining the activities of different companies may allow the

companies, for example, to develop new products more efficiently or to reduce production or

distribution costs. Through their increased efficiency, the market becomes more competitive and

consumers benefit from higher-quality goods at fairer prices.

However, some mergers may reduce competition in a market, usually by creating or

strengthening a dominant player. This is likely to harm consumers through higher prices, reduced

choice or less innovation. Increased competition within the European single market and

globalisation are among the factors which make it attractive for companies to join forces. Such

reorganisations are welcome to the extent that they do not impede competition and hence are

capable of increasing the competitiveness of European industry, improving the conditions of

growth and raising the standard of living in the EU. The objective of examining proposed

mergers is to prevent harmful effects on competition. Mergers going beyond the national borders

of any one Member State are examined at European level. This allows companies trading in

different EU Member States to obtain clearance for their mergers in one go.

Categories of mergers examined: If the annual turnover of the combined businesses exceeds

specified thresholds in terms of global and European sales, the proposed merger must be notified

to the European Commission, which must examine it. Below these thresholds, the national

competition authorities in the EU Member States may review the merger. These rules apply to all

mergers no matter where in the world the merging companies have their registered office,

headquarters, activities or production facilities. This is so because even mergers between

companies based outside the European Union may affect markets in the EU if the companies do

business in the EU. Th e European Commission may also examine mergers which are referred to

it from the national competition authorities of the EU Member States. This may take place on the

basis of a request by the merging companies or based on a request by the national competition

authority of an EU Member State. Under certain circumstances, the European Commission may

also refer a case to the national competition authority of an EU Member State.

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Conditions under which mergers are prohibited or approved: All proposed mergers notified

to the Commission are examined to see if they would significantly impede effective competition

in the EU. If they do not, they are approved unconditionally. If they do, and no commitments

aimed at removing the impediment are proposed by the merging firms, they must be prohibited

to protect businesses and consumers from higher prices or a more limited choice of goods or

services. Proposed mergers may be prohibited, for example, if the merging parties are major

competitors or if the merger would otherwise significantly weaken effective competition in the

market, in particular by creating or strengthening a dominant player.

Conditions under which the European Commission approve mergers conditionally:

However, not all mergers which significantly impede competition are prohibited. Even if the

European Commission finds that a proposed merger could distort competition, the parties may

commit to taking action to try to correct this likely effect. They may commit, for example, to sell

part of the combined business or to license technology to another market player. If the European

Commission is satisfied that the commitments would maintain or restore competition in the

market, thereby protecting consumer interests, it gives conditional clearance for the merger to go

ahead. It then monitors whether the merging companies fulfill their commitments and may

intervene if they do not.

A merger or acquisition involves, from a competition law perspective, the concentration of

economic power in the hands of fewer than before. In the European Union, under the Merger

Regulation 139/2004. This is known as the "ECMR", and the authority for the Commission to

pass this regulation is found under Art. 83 TEC. Competition law requires that firms proposing

to merge gain authorisation from the relevant government authority, or simply go ahead but face

the prospect of demerger should the concentration later be found to lessen competition. The

theory behind mergers is that transaction costs can be reduced compared to operating on an open

market through bilateral contracts. Concentrations can increase economies of scale and scope.

However, often firms take advantage of their increase in market power, their increased market

share and decreased number of competitors, which can have a knock on effect on the deal that

consumers get. Merger control is about predicting what the market might be like, not knowing

and making a judgment. Hence the central provision under EU law asks whether a concentration

would if it went ahead "significantly impede effective competition... in particular as a result of

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the creation or strengthening of a dominant position. Under EU law, a concentration exists when

a "change of control on a lasting basis results from (a) the merger of two or more previously

independent undertakings... (b) the acquisition... if direct or indirect control of the whole or parts

of one or more other undertakings." Art. 3(1), Regulation 139/2004, the European Community

Merger Regulation

This usually means that one firm buys out the shares of another. The reasons for oversight of

economic concentrations by the state are the same as the reasons to restrict firms who abuse a

position of dominance, only that regulation of mergers and acquisitions attempts to deal with the

problem before it arises, ex ante prevention of creating dominant firms.

MERGER IN THE PHARMACEUTICALS SECTOR

Two large mergers in the pharmaceutical sector were notified to the European Commission:

Sanofi /Synthélabo and Pfizer/Pharmacia. The European Commission concluded that both

mergers could have an adverse impact on competition, limiting the choice of certain drugs

available to patients. In both cases, the parties proposed transferring some of their products to

competitors, which the European Commission agreed would restore competition in the markets

and so protect the interests of patients. In the case of Sanofi /Synthélabo , among the products

transferred or sold were, for instance, vitamin B12 sold under the name ‘Delagrange’, certain

antibiotics, hypnotics and sedatives. In the case of Pfizer/Pharmacia, the parties, for instance,

proposed transferring to competitors certain products in development which would compete with

Pfizer’s Viagra, thereby allowing the deal to be cleared.

CARTELS:

Action against cartels is a specific type of antitrust enforcement. A cartel is a group of similar,

independent companies which join together to fix prices, to limit production or to share markets

or customers between them.

Instead of competing with each other, cartel members rely on each others' agreed course of

action, which reduces their incentives to provide new or better products and services at

Page | 33

competitive prices. As a consequence, their clients (consumers or other businesses) end up

paying more for less quality.

This is why cartels are illegal under EU competition law and why the European Commission

imposes heavy fines on companies involved in a cartel.

Since cartels are illegal, they are generally highly secretive and evidence of their existence is not

easy to find. The 'leniency policy' encourages companies to hand over inside evidence of cartels

to the European Commission. The first company in any cartel to do so will not have to pay a

fine. This results in the cartel being destabilised. In recent years, most cartels have been detected

by the European Commission after one cartel member confessed and asked for leniency, though

the European Commission also successfully continues to carry out its own investigations to

detect cartels. Since 2008 companies found by the Commission to have participated in a cartel

can settle their case by acknowledging their involvement in the cartel and getting a smaller fine

in return.

Under EU law cartels are banned by Article 101 TFEU. Art. 101 TFEU makes clear who the

targets of competition law are in two stages with the term agreement "undertaking". This is used

to describe almost anyone "engaged in an economic activity" but excludes both employees, who

are by their "very nature the opposite of the independent exercise of an economic or commercial

activity" and public services based on "solidarity" for a "social purpose". [13] Undertakings must

then have formed an agreement, developed a "concerted practice", or, within an association,

taken a decision. Like US antitrust, this just means all the same thing;[14] any kind of dealing or

contact, or a "meeting of the minds" between parties. Covered therefore is a whole range of

behaviour from a strong handshaken, written or verbal agreement to a supplier sending invoices

with directions not to export to its retailer who gives "tacit acquiescence" to the conduct. [15] In the

language of Article 101(1), prohibited are,

"All agreements between undertakings, decisions by associations of undertakings and concerted

practices which may affect trade between member states and which have as their object or effect

the prevention, restriction or distortion of competition within the common market."

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This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and

suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101

has been construed very widely to include both informal agreements (gentlemen's agreements)

and concerted practices where firms tend to raise or lower prices at the same time without having

physically agreed to do so. However, a coincidental increase in prices will not in itself prove a

concerted practice, there must also be evidence that the parties involved were aware that their

behaviour may prejudice the normal operation of the competition within the common market.

This latter subjective requirement of knowledge is not, in principle, necessary in respect of

agreements. As far as agreements are concerned the mere anticompetitive effect is sufficient to

make it illegal even if the parties were unaware of it or did not intend such effect to take place.

Exemptions to Article 101 behaviour fall into three categories. Firstly, Article 101(3) creates an

exemption for practices beneficial to consumers, e.g., by facilitating technological advances, but

without restricting all competition in the area. In practice the Commission gave very few official

exemptions and a new system for dealing with them is currently under review. Secondly, the

Commission agreed to exempt 'Agreements of minor importance' (except those fixing sale

prices) from Article 101. This exemption applies to small companies, together holding no more

than 10% of the relevant market. In this situation as with Article 102 (see below), market

definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has

also introduced a collection of block exemptions for different contract types. These include a list

of contract permitted terms and a list of banned terms in these exemptions.

LATEST PRESS RELEASE:

The European Commission can confirm that, starting on 7 June 2011, Commission officials

carried out unannounced inspections at the premises of companies that supply car seatbelts,

airbags and steering wheels, known in the industry as automotive occupant safety systems. The

Commission has reason to believe that the companies concerned may have violated EU antitrust

rules that prohibit cartels and restrictive business practices (Article 101 of the Treaty on the

Functioning of the European Union).

Automotive occupant safety systems cover safety products such as seatbelts, airbags and steering

wheels that are supplied to car manufacturers.

Page | 35

The Commission officials were accompanied by their counterparts from the relevant national

competition authority.

Unannounced inspections are a preliminary step into suspected anticompetitive practices. The

fact that the Commission carries out such inspections does not mean that the companies are

guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself.

The Commission respects the rights of defence, in particular the right of companies to be heard

in the Commission’s proceedings against them.

There is no legal deadline to complete inquiries into anticompetitive conduct. Their duration

depends on a number of factors, including the complexity of each case, the extent to which the

undertakings concerned co-operate with the Commission and the exercise of the rights of

defence.

STATE AID:

The objective of State aid control is, as laid down in the founding Treaties of the European

Communities, to ensure that government interventions do not distort competition and trade inside

the EU. In this respect, State aid is defined as an advantage in any form whatsoever conferred on

a selective basis to undertakings by national public authorities. Therefore, subsidies granted to

individuals or general measures open to all enterprises are not covered by Article 107 of the

Treaty on the Functioning of the European Union (TFEU) and do not constitute State aid.

The EC Treaty pronounces the general prohibition of State aid. The founders, however, saw of

course that in some circumstances, government interventions are necessary for a well-

functioning and equitable economy. Therefore, the Treaty leaves room for a number of policy

objectives for which State aid can be considered compatible. By complementing the fundamental

rules through a series of legislative acts that provide for a number of exemptions, the European

Commission has established a worldwide unique system of rules under which State aid is

monitored and assessed in the European Union. This legal framework is regularly reviewed to

improve its efficiency and to respond to the call of the European Councils for less but better

targeted State aid in order to boost the European economy.

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While new legislation is adopted in close cooperation with the Member States, the application of

exemptions to the general prohibition of State aid rests exclusively with the European

Commission, which possesses strong investigative and decision-making powers. At the heart of

these powers lies the notification procedure which -except in certain instances- the Member

States have to follow. It is only after the approval by the Commission that an aid measure can be

implemented. Moreover, the Commission has the power to recover incompatible State aid.

Through these means, three Directorate-Generals are carrying out effective State aid control:

while sector-specific services safeguard fair competition in Fisheries (the production, processing

and marketing of fisheries and aquaculture products), and Agriculture (the production,

processing and marketing of agricultural products), the Diretorate-General for Competition deals

with all other sectors.

The Commission aims at ensuring that all European companies operate on a level-playing field,

where competitive companies succeed. It ascertains that government interventions do not

interfere with the smooth functioning of the internal market or harm the competitiveness of EU

companies.

Companies and consumers in the European Union are also important players who may trigger

investigations by lodging complaints with the Commission. Furthermore, the Commission invites

interested parties to submit comments through the Official Journal of the European Union when

it has doubts about the compatibility of a proposed aid measure and opens a formal investigation

procedure.

LATEST PRESS RELEASE:

The European Commission has granted temporary approval, under EU state aid rules, to a

recapitalisation worth up to €3.8 billion for Irish Life & Permanent Group Holdings (IL&P) by

the Irish authorities. The recapitalisation is necessary to increase the bank's solvency ratios,

thereby enabling it to resist potential stress situations and preserving stability on the Irish

financial markets. The Commission will take a final decision on the state measures in favour of

IL&P on the basis of the new restructuring plan that Ireland committed to submit by the end of

July to take account of this additional state support.

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The restructuring plan will ensure (i) a return to long term viability of the bank, (ii) adequate

participation in the restructuring costs by shareholders and subordinated debt holders and (iii)

proper measures to limit the distortion of competition created by the state support.

The EU-IMF support programme for Ireland included a prudential capital assessment review of

all banks subject to the programme. The review carried out by the Irish central bank identified

capital needs of €4.0 billion for IL&P (broken down as € 3.6 billion in Core Tier 1 capital and

€0.4 billion in contingent capital). In a first stage, to be implemented by 31 July 2011, the Irish

State will purchase ordinary shares in IL&P for €2.3 billion and contingent capital notes for €0.4

billion. In a second stage, the Irish State will provide up to €1.1 billion of additional Core Tier 1

capital if the capital raising measures recently launched by IL&P fail to raise the remaining

amount of capital needed to satisfy the requirements identified by the central bank review. €200

million of capital will be provided by the group itself.

The capital raising measures include liability management exercises, consisting of debt for cash

offers and the sale of the group's life insurance business.

Irish Support Programme

The November 2010 Support Programme for Ireland requires Bank of Ireland, Allied Irish Bank,

Educational Building Society and IL&P to increase their capital to meet new regulatory

requirements during the period 2011 to 2013. The base case and the stress case capital targets

used by the Irish Central Bank were respectively 10.5% and 6%, assuming further deleveraging

of the banks in order to meet the 122.5% loan-to-deposit ratio by the end of 2013.

Earlier this month the Commission also granted temporarily approval to the recapitalisation of

Bank of Ireland and the newly merged AIB/EBS (see IP/11/859 and IP/11/892). These

recapitalisations also arise from the Support Programme stress test requirements. The

Commission is also awaiting restructuring plans for the entities concerned. The €85 billion EU-

IMF Support Programme comprises €35 billion to meet the recapitalisation needs of the financial

sector and to act as a contingency fund. Half of this sum is provided by Ireland itself.

6.

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6. CASE STUDY I: ARCELOR- MITTAL CONTROVERSY

Background:

1. On 7/4/2006, the Commission received a notification of a proposed concentration by

which the undertaking Mittal Steel Company N.V. (“Mittal”, The Netherlands) acquires

control of the whole of the undertaking Arcelor S.A. (“Arcelor”, Luxembourg) by way of

public bid announced on 27/1/2006.

2. In the course of the proceedings, the notifying party submitted undertakings designed to

eliminate competition concerns identified by the Commission, in accordance with Article

6(2) of the Merger Regulation. In light of these modifications, the Commission has

concluded that the notified operation falls within the scope of the Merger Regulation and

does not raise serious doubts as to its compatibility with the common market and with the

functioning of the EEA Agreement.

The Parties

1. Mittal, controlled by the Mittal family, is the largest steel producer at the worldwide

level. Mittal is incorporated in the Netherlands and listed on the New York and

Amsterdam stock exchanges.

2. Arcelor is the largest European steel producer and the second largest at the worldwide

level. The Arcelor group has been created through the merger of the European steel

producers Aceralia, Arbed and Usinor in February 20022. The group is listed on the

Brussels, Luxembourg, Paris and Madrid stock exchanges.

The Operation –

Mittal announced on 27 January 2006 an unsolicited bid for all of the outstanding shares

and convertible bonds of Arcelor. Mittal’s offer is conditional upon Arcelor’s shareholders

tendering more than 50% of Arcelor’s total issued share. The offer was officially launched on 18

May 2006 in France, Belgium and Luxembourg and on 24 May 2006 in Spain. The offers are

expected to close on 5 July 2006.

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The Relevant Markets –

The operation deals with the production and direct sales of steel and other related activities,

including steel raw materials and distribution of steel products. As regards the production and

direct sale of steel the Commission distinguished four broad categories of finished steel products:

(i) Carbon steel

(ii) Stainless steel

(iii) Highly alloyed steel

(iv) Electrical steel

Steel products in these four categories differ in term of chemical composition, price and end

applications. Arcelor’s and Mittal’s activities overlap only in carbon steel products and the

present decision thus does not further discuss the other steel products. Steel raw materials and

distribution of steel products are also assessed.

Relevant Carbon Steel Product Markets

The production of carbon steel products

There are two principal production processes for the production of carbon steel; the integrated

route and the electric arc furnace route. There are four types of iron-containing materials that

may be used in steelmaking furnaces - hot metal (liquid carbon-saturated iron), pig iron (solid

carbon-saturated iron), direct reduced iron (DRI) and scrap.

The integrated method involves the production of iron from a mixture of iron ore, coke and

limestone in a blast furnace to produce hot metal. The hot metal must subsequently be refined

into steel in an oxygen converter where scrap or pig iron may be added. During this process, or

in a separate “secondary steelmaking” vessel, the composition of the steel is adjusted by adding

alloys to obtain the desired chemical specification.

On the other hand, the electric arc furnace method involves melting scrap or less frequently DRI

or pig iron into liquid steel. During this process, or in a separate “secondary steelmaking” vessel,

Page | 40

the composition of the steel is adjusted by adding alloys to obtain the desired chemical

specification.

The Commission has consistently found in past cases that flat steel products form a separate

product market from long steel products8. These two types of carbon steel products are

manufactured in different rolling mills and are used in different end applications.

Semi-finished carbon steel products

Steel is processed into semi-finished products primarily using the continuous casting process in

which the molten metal is poured directly into casting machines to produce the required shapes.

The majority of semi-finished steel produced in the EEA is further processed into finished

products in integrated rolling mills belonging to the steel producer.

In accordance with previous Commission decisions6, the following basic shapes of semi finished

steel products can be distinguished –

a. blooms (used to produce heavy sections)

b. billets (used to produce bars, wire rod and light sections)

c. slabs (used to produce plate, strip and sheet)

To date the Commission has not finally determined whether all three types of semi-finished

products constitute a single relevant product market.

Finished carbon steel products

Semi-finished products are subsequently rolled into flat or long steel products. Flat products are

generally manufactured from slabs, while long products are manufactured from billets and

blooms. The Commission has consistently found in past cases that flat steel products form a

separate product market from long steel products.

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Relevant Geographic Market

The geographic market for both semi-finished carbon steel and flat carbon steel was

defined as at least EEA wide.

As regards flat carbon steel, Mittal submits that flat carbon steel markets are characterized by

extensive trade flows at the EEA level. There are no barriers to trade within the EEA. Moreover,

the adoption of EEA-wide standards has led to the harmonization of customer requirements

within the EEA. The definition of the relevant geographic market was ultimately left open.

In previous decisions the Commission considered the markets for steel for packaging and coated

steel products to be not wider than the Community. The results of the market investigation in this

case point towards an at least EEA-wide dimension for these markets. However the precise

geographic scope of the markets for the production and direct sale of steel for packaging and

coated steel products may be left open as it does not modify the competitive assessment.

In line with previous Commission decisions, Mittal has submitted that the geographic market for

long carbon steel products is at least EEA wide. For rails, the Commission has previously found

that the scope of the relevant geographic market is at least EEA wide, but probably wider.

However the precise geographic scope of the markets for the production and direct sale of hot

rolled carbon steel products, quarto plates and cold rolled carbon steel flat products may be left

open as the competitive assessment is unchanged on any reasonable market definition.

With respect to heavy sections, the results of the market investigation have largely confirmed the

existence of an EEA-wide market. In rebuttal to Arcelor’s claims, Mittal submitted

counterarguments in favor of the broader EEA-wide market definition. The Commission has

carefully examined the evidence submitted by Arcelor and Mittal, in conjunction with the results

of the market investigation and the responses of third parties, and concluded that the balance of

evidence favored defining the market as EEA wide. The market for heavy sections is thus

assessed on the basis of an EEA-wide geographic market definition.

Page | 42

COMPETITIVE ASSESSMENT

Introduction –

In its notification, Mittal has emphasized the complementarily of the two companies’ activities,

both geographically and from the product range viewpoint. Arcelor is principally active in

Western Europe and America, with only minor operations in Eastern Europe, and Asia. In

contrast, Mittal is active principally in North America, Central and Eastern Europe, Africa, and

Kazakhstan, with only a minor presence in Western Europe and no presence in South America.

As to product complementarily, in the EEA, while Mittal achieves the majority of its sales in

long carbon steel products, Arcelor is active mainly in flat carbon steel products.

Heavy sections (beams) –

In 2005 the EEA market for heavy sections was approximately 8-10 million MT of which

Arcelor provided 2.5-3.5 million MT i.e. 25-35% and Mittal 0.5-1.5 million MT i.e. 5-15%. The

combined entity would therefore have a market share of 35-45%. In the longer term an increase

of 2-4% a year in demand is expected for the period 2004 -2010. As a result of the proposed

operation the new entity will become the undisputed market leader in the EEA market for heavy

sections. In this position they may be able to raise prices unilaterally. Other producers are not

likely to have an incentive to compete strongly nor are they likely to be able to do so. This effect

is likely to be particularly strong in the CHPS (Czech Republic, Hungary, Slovakia and Poland)

area.

The combined entity will be at least three times as big as the next competitor the EEA. In fact it

will be bigger than the next four competitors combined. This large difference in market shares

between the combined entity and its competitors would make it more difficult for other

players to respond to Mittal/Arcelor’s price increases and/or output reductions in such a way as

to make such unilateral action of the merged firm unprofitable. The concentration will provide

Mittal/Arcelor with a larger base for sales on which to enjoy any resulting price rise while

eliminating its largest competitor.

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Capacity estimates in this area are particularly difficult for a number of reasons. Some rolling

mills will produce both light and heavy sections while others will produce or have the capacity to

produce heavy sections, rails and sheet piling. Therefore a given mill might produce more than

one product and theoretically has the possibility of using all of its capacity for a particular

product.

The combined entity may have sufficient additional capacity to discipline new entrants.

As previously explained, Czech Republic, Hungary, Slovakia and Poland constitute an area

within the EEA market for heavy sections on which competitive conditions may be different. In

this area Mittal is already well established with production facilities in Poland and Czech

Republic and has high market shares. Arcelor is the leading competitor supplying the bulk of its

sales in to the CHPS area. Thus, the removal of the competitive constraint exercised by the

production capacity would significantly strengthen the position of Mittal. d imports from outside

the EEA.

The combined entity would have significant market shares in both the EEA as a whole and in the

CHPS area. The Commission considers that there are serious risks that the Mittal/Arcelor may be

able to significantly impede competition in the EEA and, more particularly, in the so-called

CHPS area. Moreover, the one area of serious concern identified by third parties in their replies

to the Commission’s market investigation was heavy sections. These third parties mentioned the

high market shares particularly in Eastern Europe and the parties’ excess capacity.

On the basis of the above considerations the Commission has serious doubts as to the

compatibility of the transaction, as initially notified, with the common market.

Remedy Package

In order to address the competition concerns identified by the Commission, Mittal submitted a

remedy package on 8 May 2006. The Commission carried out an extensive market test among

Mittal’s competitors and customers to assess the effectiveness of the remedy package to remove

the competition concerns identified. With a view to incorporating comments and suggestions

expressed by market players as regards the first remedy package, Mittal submitted a revised

Page | 44

remedy package on 31 May 2006 a revised remedy package including, an addition to the first

package.

The revised remedy package proposed by Mittal on 31 May 2006 comprises three steel

production facilities producing long carbon steel products together with related commercial and

marketing assets. Under the proposed remedy package, Mittal undertakes to divest –

Stahlwerk Thüringen GmbH (“Stahlwerk Thüringen”), Arcelor’s heavy section mill in

Unterwellenborn, Germany, together with an option to purchase Arcelor’s sales offices

and stockholding centers in the Czech Republic and Poland

Travie Profilati di Pallanzeno S.p.A. (“Pallanzeno”), Arcelor’s medium section mill in

Pallanzeno, Italy, together with an option to purchase its 49.9% shareholding in the San

Zeno di Naviglio facility (“San Zeno”), which supplies feedstock to the Pallanzeno mill

Huta Bankowa Ltd (“Huta Bankowa”), a Mittal section and bar mill located in Poland.

Mittal also undertakes to give the purchaser(s) of Stahlwerk Thüringen and Pallanzeno

the option of having Arcelor sales and marketing personnel included in the divestiture

package.

Mittal undertakes to divest all tangible and intangible assets of the three manufacturing

facilities, including all manufacturing equipment, personnel, licenses, contracts, agreements,

leases, customer lists, intellectual property rights and technical information.

The Commission has assessed the improved remedy package and has concluded that it is

sufficient to remove the competition concerns identified and that the divested businesses

constitute independent and economically viable entities able to compete effectively with the

combined Mittal/Arcelor on the market for the production and direct sale of heavy sections

(beams) in the EEA. The Commission therefore concludes that the remedy package, as revised

on 31 May 2006, is sufficient to remove the competition concerns brought about by the proposed

transaction.

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Assessment of the remedies

The Commission assesses the compatibility of a notified concentration with the common market.

Where a concentration raises competition concerns as it could lead to a significant impediment to

effective competition, the parties may seek to modify the concentration in order to resolve the

competition concerns rose by the Commission and thereby gain clearance of the merger. In

assessing whether or not the remedy will restore effective competition, the Commission

considers the type, scale and scope of the remedies by reference to the structure of and particular

characteristics of the market in which competition concerns arise. The divested activities must

consist of a viable business that, if operated by a suitable purchaser, can compete with Mittal /

Arcelor on a lasting basis.

Whenever the notifying parties submit remedies, the Commission has thus to assess whether the

remedies will lead to the restoration of effective competition on the relevant markets. In so

doing, the Commission has to assess both

The independence, the viability and the competitiveness of the divested business on the

long term – The Commission’s investigation has confirmed that the three divested

businesses would constitute independent, viable and competitive businesses. The

Commission’s assessment of the matter particularly focused on the ability of the divested

businesses to source input materials and to sell their steel production.

The effectiveness of the proposed remedy in removing the competition concerns – The

revised remedy package eliminates the overlap between Arcelor and Mittal in heavy

sections in the EEA in terms of sales and reduces significantly the capacity overlap.

Moreover, it includes steel production and distribution assets located in Eastern Europe,

an area which, within the EEA-wide relevant geographic market, was likely to be

particularly affected by the transaction. Stahlwerk Thüringen and Pallanzenos are the two

Arcelor facilities geographically most proximate to Mittal’s plants in Eastern Europe.

The Commission has concluded that the proposed remedy package is effective in removing all

competition concerns brought about by the proposed transaction at the EEA level. Moreover, the

Commission has also concluded that the package satisfactorily addresses potential concerns

Page | 46

specific to the so called CHPS countries in that most of the production capacity to be divested is

located close or within the CHPS area.

The assessment of the proposed remedy package carried out by the Commission shows that the

three manufacturing facilities to be divested, together with the related commercial and marketing

assets, constitute stand-alone and viable businesses capable of competing with Mittal and

Arcelor on the market for the production and direct sale of heavy sections. The three facilities to

be divested account for roughly 1-2 million MT in sales in 2004, which removes the entire

overlap brought about by the proposed transaction. The geographic location of the three facilities

and the addition of commercial teams and distribution assets in Poland and in the Czech

Republic provide sufficient guarantees that the divested businesses will have the capacity to

compete with Mittal/Arcelor and that competition concerns will be entirely removed, in

particular in Eastern Europe.

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CASE STUDY II: DLF

The case under consideration concerns competition issues and consumer interests in the

residential real estate market in India. Along with the growth in real estate industry, accompanied

by increased level of income, demand for residential units has also risen throughout India.

Residential sector constitutes a major share of the real estate market; the balance comprising of

commercial segment like offices, shopping malls, hotels etc. Real estate industry in India was

said to be worth $12 billion in the year 2007 and is estimated to be growing at the rate of 30

percent per annum.

Background:

The informant in this case has alleged unfair conditions meted out by a real estate player.

It has been alleged that by abusing its dominant position, DLF Limited (DLF) has imposed

arbitrary, unfair and unreasonable conditions on the apartment - allottees of the Housing

Complex ‘the Belaire’, being constructed by it.

The Informant

The informant in this case is Belaire Owners’ Association. The association has been

formed by the apartment allottees of a Building Complex, ‘Belaire’ situated in DLF City, Phase-

V, Gurgaon, being constructed by DLF. The President of the association is Sanjay Bhasin, who

himself is one of the allottees in the complex.

Respondent: DLF Limited :

DLF Limited (referred to hereafter as DLF or DLF and includes group companies), the

main respondent is a Public Limited Company. DLF with its different group entities has

developed some of the first residential colonies in Delhi such as Krishna Nagar in East Delhi that

was completed as early as in 1949. Since then, the company has developed many well known

urban colonies in Delhi, including South Extension, Greater Kailash, Kailash Colony and

HauzKhas. However, following the passage of the Delhi Development Action 1957, the state

assumed control of real estate development activities in Delhi, which resulted in restrictions on

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private real estate colony development. As a result, DLF commenced acquiring land outside the

areas controlled by the Delhi Development Authority (DDA), particularly in Gurgaon. The

company was listed on July 5, 2007 and is at present listed on NSE and BSE.

Assessment of Relevant Market

The Relevant Geographic Market in the case is the territory of Gurgaon of National

Capital Territory of Delhi in which the builders/developers including DLF are developing and

selling residential houses. A person who wants to reside in Gurgaon for various reasons like

offices, work place, schools, and colleges and will like to settle in Gurgaon will ask a builder to

develop and build arouse for himself in Gurgaon only.

The geographic limit of real estate is determined with reference to its locations. The geographic

market is defined in case of services towards real estate once the determination is being

considered of competition or lack of it in particular area or place. There is no doubt that

builders–developers not only from Gurgaon but from National Capital Territory of Delhi and all

over India can provide their services to the consumers of Gurgaon for developing and

constructing a house. However, that is a question of entry in the market. Thus, the relevant

geographic marketing this case, has to be Gurgaon.

Assessment of Dominance

As per Draft Red Herring Prospectus filed before SEBI, dated 25.05.2007, DLF in its

own admission has stated that “We are the largest real estate development company in India in

terms of the area of our completed residential and commercial developments.

The Annual Report of the Company for the year2009, states, that “ DLF’s dominant position in

Indian homes segment is established due to its trusted brand with superior execution track

record, pioneered townships and group housing in India, complete offering of super luxury,

luxury and mid-income homes”.

The market share of Altogether with its subsidiary company – DLF Home Developers Limited is

the highest in India among all the listed companies engaged in housing construction during the

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year 2007-08 and 2008-09. In the year 2007-08 it reached 40.46% and in the year 2008-09 it

was32.65%.

Sales of DLF New Gurgaon Developers Limited to the extent of Rs.300.24crore for the year

2008-09 have not been considered. If that is also taken into account, the market share of DLF

would go up further.

The market share of the DLF among all companies (for housing construction) in the relevant

market of Gurgaon during the period 2007-08 and 2008-09 shall be around 70% and 65%

respectively.

An analysis of total sales figure of 82 companies taken from CMIE, who are engaged in real

estate(residential) business and are not only operating in Gurgaon but also outside Gurgaon and

all over India, also establish the superior market share of DLF at about 44%. For the year 2009-

10 also, the market share of DLF in relevant market to be about 50%.Sales, operating profit,

PAT, Market capitalization, enterprise value, of a larger sample of different real estate players

taken and analyzed in Outlook profit (issue dated October 2010) has also stated that DLF is a

market leader in India in almost all respect also in quarter ending June 2010. The share of the

second large real estate company is almost 1/3rd of DLF. As far as companies operating in

Gurgaon are concerned on the basis of their all India sales during Quarter ending June 2010,

market share of DLF is about 45% as compared to second largest company i.e. Unitech, about

19%. If sales figure only for relevant market of Gurgaon is taken, the market share of DLF may

be much more than the above figures since it is mainly concentrated in Gurgaon.

It can be finally concluded that DLF is having the highest market share among all the companies

operating in the relevant market over a period of three years 2007-08, 2008-09, 2009-10 and also

for the quarter ending June 2010, which establishes that its position as market leader remains

undisputed over last three-four years. DG has stated that it cannot be said that any other player

enjoys similar or near to similar market share than that of DLF. In their annual reports and

various literatures, DLF have stated that Unitech is one of their close competitors; however,

Page | 50

market share of DLF is more than double of the market share of Unitech its nearest competitor as

on date.

Dependence of consumers on the enterprise:

DLF has acquired land quite early and has developed integrated township in Gurgaon. If

consumers want to have all the developed facilities within the DLF Township, they will have to

opt for residential units developed and constructed in Gurgaon. Further, there is superlative

brand power of DLF which affects consumers in its favor.

Entry barriers:

There exist many barriers such as regulatory barriers, financial risk, high capital cost of

entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of

substitutable goods or service for competitors since DLF is in this business from 1946.

Countervailing buying power:

The consumers are dependent on DLF in Gurgaon because of its huge land reserves and

projects under construction. The demand is huge while the supply is less. Thus, there is no case

of countervailing buyer power in this case which has any sobering impact upon the dominance

and market power of DLF.

Citing case laws from other jurisdictions like EU, DLF may be considered dominant since the

market share of the nearest competitor is much less than DLF, and therefore there is limited

competitive constraint

Thus due to its sheer size and resources, market share and economic advantage over its

competitors DLF is not sufficiently constrained by other players operating on the market and has

got a significant position by virtue of which it can operate independently of competitive forces

(restraints) and can also influence consumers in its favor in the relevant market. Based upon all

the above factors, it can be concluded that DLF enjoys a position of Dominance in terms of

Section 4 of the Act.

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Abuse of Dominance

It has been alleged in the information that by abusing its dominant position, DLF has

imposed highly arbitrary, unfair and unreasonable conditions on the apartment allottees of the

Housing Complex ‘the Belaire’, which has serious adverse effects and ramifications on the rights

of the allottees.

The informant has submitted that DLF has used its position of strength in dictating the terms by

which while on the one hand it has excluded itself from any obligations and liabilities, on the

other hand it has put the apartment allottees in extremely disadvantageous conditions. The

allegations of the informant are summarized in the paragraphs below.

DLF announced a Group Housing Complex, named as ‘The Belaire’ consisting of 5 multi-storied

residential buildings to be constructed on the land earmarked in Zone 8, Phase-V in DLF City,

Gurgaon, and Haryana. As per the advertisement of DLF, each of the five multi-storied buildings

was to consist of 19 floors and the total number of apartments to be built therein was to be 368

and the construction was to be completed within a period of 36 months. However, in place of 19

floors with 368 apartments, which was the basis of the apartment allottees booking their

respective apartments, now 29 floors have been constructed. Consequently, not only the areas

and facilities originally earmarked for the apartment allottees are substantially compressed, but

the project has also been abnormally delayed. The fall-out of the delay is that the hundreds of

apartment allottees have to bear huge financial losses, as while on one hand, their hard-earned

money is blocked, on the other hand, they have to wait indefinitely for occupation of their

respective apartments.

The informant has submitted that as the Apartment Buyer’s Agreements were signed months

after the booking of the apartment and by that time the allottees having already paid substantial

amount, they hardly had any option but to adhere to the dictates of DLF. In this case, DLF had

devised a standard form of printed “Apartment Buyer’s Agreement” for booking the apartments

and a person desirous of booking the apartment was required to accept it in ‘toto’ and give his

assent to the agreement by signing on the dotted lines, even when clauses of the agreement were

onerous and one-sided.

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The informant has stated that agreement stipulates that DLF has the absolute right to reject and

refuse to execute any Apartment Buyer’s Agreement without assigning any reason, cause or

explanation to the intending allottees. Thus, there is neither any scope of discussion, nor

variation in the terms of the agreement.

DLF had inserted clauses that the apartment allottees would not even be permitted to carry out

any investigation and would not be entitled to raise any objection to the competency of DLF.

DLF will retain 10% of the sale price as earnest money for the entire duration of the apartment

on the pretext that the apartment allottee complies with the terms of the agreement.

Further, the apartment allottees would not be entitled to any interest on the said amount either.

Similarly, if there is a change in the super area at the time of completion of building and issuance

of occupation certificate, although the total price shall be recalculated but the amount, if any is

required to be returned, the apartment allottees would not get the refund and rather DLF would

retain this amount, with the right to adjust this refund amount against the final installment as

well. The apartment allottees also in the process have to forego the interest thereon.

While time has been made essence with respect to apartment allottee’s obligations to pay the

price and perform all other obligations under the agreement, DLF has conveniently relieved itself

by not making time as essence for completion in fulfilling its obligations, more particularly,

handing over the physical possession of the apartment to the apartment allottee.

In future the apartment allottees shall be at the mercy of DLF who has reserved to itself the right

not only to alter/delete/modify building plan, floor plan, but even to the extent of increasing the

number of floors and /or number of apartments. While the common areas and facilities might

stand largely compressed on count of increased number of floors, the said clause has absolutely

debarred the apartment allottees from claiming any reduction in price occasioned by reduction in

the area. The apartment allottees would only receive a mere formal intimation. In case the

apartment allottees refuses to give consent, DLF has the discretion to cancel his agreement and to

refund the payment made by the apartment allottees that too with the interest @9% per annum,

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which is wholly arbitrary as in case of default by the apartment allottees, the rate of

interest/penal interest is as high as18%.

The informant has further submitted that clause 10.1prescribes a period of three years from the

date of execution of the agreement. However, while DLF started collecting the payment from the

allottees, even if the date of allotment, it is not at all bothered that its collection of money must

be commensurate with the stage-wise completion of the project.

Also in the event of DLF failing to deliver the possession, the apartment allottees shall give

notice to DLF for terminating the agreement. DLF thereafter has no obligation to refund the

amount to the apartment allottees, but would have right to sell the apartment and only thereafter

repay the amount. In the process, DLF is neither required to account for the sale proceeds nor

even has any obligation to pay interest to the apartment allottee and the apartment allottees has to

depend solely on DLF. The quantum of compensation has been unilaterally fixed by DLF at the

rate of Rs. 5/- per sq. ft. (or even Rs. 10/- per sq. ft.) of the super area which is mere pittance.

According to informant, DLF can abrogate all that has been promised to the apartment allottees

as in exercise of the power under that clause it is permitted to unilaterally amend or change

annexure to the agreement. The annexure appended to the agreement describe the apartment

area, super area, common areas and facilities, club, etc. as also the nature of equipments, fittings,

which the DLF has contractually committed to provide to the Apartment Allottee.

The decision to increase the number of floors was without consulting the allottees and while

payment schedule was revised based upon the increase in the number of floors, there was no

proportionate reduction in the price tube paid by the existing allottees whose rates were

calculated purely on the basis of 19 floors and the land beneath it although their

rights/entitlements of the common areas and facilities substantially got compressed due to

increase in number of floors and additional apartments.

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The informant has alleged that the various clauses of the agreement and the action of DLF

pursuant thereto are unfair and discriminatory attracting the Competition Act, 2002 and per-se

the acts and conduct of DLF abreacts of abuse of dominant position by DLF.

Report by Director General

DG has contended that as per preamble, the Act is to ensure that the interests of the

consumers are protected and there should be free and fair competition in the market. Taking into

account all the above factors, DG has submitted that the instant case falls within the ambit of the

Act.

As far as relevant geographic market is concerned, DLF has contended that its dominance needs

to be looked into taking into account entire Northern India since the informant has stated that it is

a leading developer in Northern India. DLF has also contended that in any case the geographical

market should be entire NCR and not only Gurgaon.

Based upon exhaustive analysis, DG has stated that the relevant market in terms of relevant

product and relevant geographic market in this case would be services provided by

developers/builders for construction of high end residential buildings carried out in Gurgaon

decision under section 27 of the Competition Act, 2002

In the real estate market, DLF Ltd. has a dominant position within the meaning of the term as per

Explanation(a) to section 4, read with section 19 (4). Finally, the Commission has concluded that

DLF Ltd. is in contravention of section 4 (2) (a) (i) by imposing unfair conditions on the sale of

its services to consumers.

The Commission directs DLF Ltd. and its group companies offering services of building /

Developing:-

i. To cease and desist from formulating and imposing such unfair conditions in its

agreements with buyers in Gurgaon.

ii. To suitably modify unfair conditions imposed on its buyers as referred to above, within 3

months of the date of receipt of this order.

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The facts of this case and the conduct of the DLF, as discussed above and the duration during

which this abuse has continued to the advantage of DLF Ltd. and to the disadvantage of

consumers, warrant imposition of a heavy penalty. Keeping, in view the totality of the facts and

circumstances of the case, the Commission considers it appropriate to impose penalty at the rate

of 7% of the average of the turnover for the last three preceding financial years on DLF.

Therefore, in exercise of powers under section 27 (b) of the Act, the Commission imposes

penalty on DLF Ltd. as computed below:

Particulars Rs. (in crores)

Turnover for year ended 31.03.2009 10,035.39

Turnover for year ended 31.03.2010 7,422.87

Turnover for year ended 31.03.2011 9,560.57

Total 27,018.83

Average (total ÷ 3) 9,006.27

7% of average 630.43

Penalty rounded off to nearest number 630

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7. CONCLUSION

INDIA

In Indian law, a foreign entity desiring to enter into a combination outside India which

affects the relevant market in India, must give a notice to the CCI in the prescribed form to

establish the same. The Competition Commission of India has the power to extend its

jurisdiction beyond the Indian shores and declare any qualifying foreign merger or acquisition

which affects the relevant market in India as void. CCI can exercise its power by way of entering

into arrangements and memorandum of understandings with the regulatory bodies of other

countries in order to facilitate the entire process.

EUROPEAN UNION

Article 4 of the Merger Regulation of European Commission states that merger shall be

notified to the Commission prior to its notification. It shall be notified jointly notified by the

parties to the merger or by those acquiring joint control. They shall also publish the fact of the

notification, at the same time indicating the names of the undertakings concerned their country

of origin, the nature of the concentration and the economic sectors involved. The parties shall

make a submission to the Commission prior to the notification stating that the merger

significantly affects competition in a market within a Member State which presents all the

characteristics of a distinct market and should therefore be examined. The decision whether or

not to refer the case shall be taken within 25 working days starting from the receipt of the

reasoned submission by the Commission.

Articles 1-5 of Implementation Regulation2 of European Commission also makes it more or less

obligatory for the parties to file pre-filing notification as failure to comply with the obligation to

notify renders the parties liable to fines and may also entail civil law disadvantages for them.

COMPARISON

From the above analysis we observe that the procedure for pre-filing notification is

similar throughout the world. The Competition Act throughout the world has been enacted to

protect the consumers, society and the business community. The pre-filing notification is

effective in cases where the transaction is going to affect competition beyond one-member

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nation. It proposes whether the proposed transaction violates the Competition law. Each

jurisdiction has a mandatory merger notification based on targeting parties to "large transactions"

which must notify the agency, supply required information for the review of competition issues

and wait for the lapsing of established time periods before they can legally complete the

transaction.

The Commission needs to swing into action undertaking substantial capacity building to

implement the extra territorial jurisdiction that is embodied in the Competition Act, 2002.

As India integrates at a fast pace with the global economy there is a need to ensure international

co-operation to tackle cross border challenges. Even though the COMPETITION ACT embodies

the ‘effects’ doctrine, its implementation has been more or less ineffective.

The Competition Act is yet to fully come into force as a result of which a significant

jurisprudence under the legislation is yet to be developed. Moreover, the actual implications in

enforcing the rather broad mandate prescribed for the Competition Commission of India are to be

fully realized. The difficulties in implementing the provisions are yet to be encountered; they can

only be anticipated or predicted based on the analysis of the bare provisions of the enactment.

International examples can be of some assistance for the purpose of serving a broad guideline or

a roadmap. They cannot be definitive for other jurisdictions where the legal systems are

differently positioned. The routes taken by Europe and US need not be

necessarily followed by India. They can be digressed from and other alternatives more

suitable to the needs of socio-economic scenario of India can be followed.

For instance, the legislative and administrative mechanism for cross border merger

control as prevalent in US and Europe can serve little purpose while determining the competition

policy for India. It is undeniable that Competition Act has embodied the ‘effects’ doctrine for the

purpose of controlling the cross border mergers and controls. This is an importation of the law

as prevalent in the US. The need and the rationale for including such a provision in the Indian

landscape is contestable. Indian economy is vastly different from the highly developed and

corporation dominated economy of US.

Moreover, the laws of a particular country are chosen in the background of the social and

the economic contexts of a particular country. There are lessons India can and should learn from

the experiences of the Europe and US instead of imitating their legal regimes. Nonetheless the

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efficacy and the merit of the provision need not be dismissed merely because it is based upon the

law prevailing in a different country. The need is to prevent tardy implementation and not to

stifle the entrepreneurship of the corporate sector.

For instance, The corporate sector of India has been over-active in the past few years as

far as the merger activity is concerned, driving the country’s economic growth. Hence,

there is an imperative need not to stifle the growth activity nor give it a free hand. There is a

need to strike the right balance between proper regulation and over-regulation and perhaps learn

from the experiences of its own regulatory authorities as well. The Commission needs to swing

into action undertaking substantial capacity building to implement the extra territorial

jurisdiction that is embodied in the Competition Act, 2002. As India integrates at a fast pace with

the global economy there is a need to ensure international co-operation to tackle cross border

challenges. The experience has been a mixed bag. Since 1990s various sectoral regulators like

those in power and telecommunications have been appointed to attract investment in various

areas as well as ensure healthy competition. However, this augurs a conflict due to an overlap

in competition policy. The fact there have been hardly any problems so far is because the

competition authority has been ineffective. For instance, a plethora of agencies apart from CCI

regulate mergers and acquisitions in India. These include the Telecom Regulatory Authority of

India, Petroleum and Natural Gas Regulatory Board, Central Electricity Regulatory Commission,

Reserve Bank of India, Securities Exchange Board of India, Company Benches, etc. The

interface between sector-specific regulation and competition law in India is unique. In the

immediate past, the Indian economy has witnessed a massive growth spurt. While the fast-paced

development has lifted millions of people up from poverty levels, it has also led to concomitant

challenges. India has seen several economic scandals and other crises during the period of

economic boom. A significant feature of the Indian economic and legal regime during this period

has been a mushrooming of innumerable regulatory authorities. Hence, with several regulatory

authorities cropping up simultaneously, it is natural that they might end up having

overlapping jurisdictions.

Apart from defining its relationship with the existing regulators the Commission needs a

proper mechanism in order to make the regulation effective. This mechanism includes the need

to evolve a well defined and purposive competition policy. There is need for synergy between

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government action and competition. The government also needs to resolve the complexities

that exist due to the inter-relationship between various government policies like trade policy,

industrial policy with competition policy as a whole. The government also needs to resolve the

complexities that exist due to the inter-relationship between various government policies

like trade policy, industrial policy with competition policy as a whole. The imperative need is

thus to develop a synergy between government action and competition. The synergy can be

developed by incorporating a few important touchstones and parameters which shall

ensure a compatible development of the two. These broad parameters can thus be stated as:

Assess all laws and government policies on the touchstone of competition

All government policies should have an explicit statement about the likely impact of the

policy on competition

Governments at the union and the state level should frame and implement policies by

acknowledging the market process

Government should evolve a system of ‘competition audit’ which could be applied to all

existing and future policies

A failure to develop a harmonious relationship between the government policy and the competition policy shall be detrimental to the cause and purpose of both. Competition policy by virtue of its nature leaves an impact across various sectors of the economy. Hence, the failure of any governmental policy especially in the aforementioned areas to take into account the competition issues involved there with would inevitably reduce its effect and thus frustrate the purpose of its incorporation.

Webliography

http://www.indiajuris.com/comlaw.pdf

http://jurisonline.in/2008/11/competition-act-a-critical-analysis/

http://ec.europa.eu/competition/index_en.html

http://www.cci.gov.in/

http://www.caclubindia.com/forum/notifications-of-competition-and-companies-act-1978-2011--135237.asp

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