ABUSE OF DOMINANT POSITION: AN ANTI- COMPETITIVE AGREEMENT

Introduction

Abuse of a dominant position is one of the most challenging areas of competition law existing in both developed and emerging markets. It is said to occur when a company or a group of companies or association uses its dominant position in the relevant market exploitatively. It is considered to be an unfair trade practice that large/successful companies or industries adopt to gain monopoly in the market. To control such monopolies and prevent unfair or restrictive trade practices, an act was passed in 1969 which was known as Monopolies and Restrictive Trade Practices (MRTP) Act,1969.


But with the expansion of the market, the Government of India decided to make some amendments in order to cope up with the foreign players so that they do not gain control over the local players and remove them by exercising their dominance over them. Thus, the Competition Act, 2002 was enacted to promote and enhance the competition in the market.


Implementation of Competition Law

The Competition Act, 2002 does not intend to prohibit competition in the market but to ensure free and fair competition by prohibiting anti-competitive agreement. The Act comprises various activities which are prohibited as being anti-competitive. Those activities include:

(i) Anti-Competitive Agreements

(ii) Abuse of Dominance Position

(iii) Mergers and Acquisitions that have an adverse effect on competition in India.

The Act also provides for the establishment of the Competition Commission of India (CCI) which functions as a market regulator for preventing and regulating anti-competitive practices throughout the country. Furthermore, “Competition Appellate Tribunal” (COMPAT), a quasi-judicial body was established to hear and dispose of appeals against any directions issued, or decision made by the CCI.


Competition Act, 2002, Section-3 deals with anti-competitive agreements. It states that:

(1) “No enterprises 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 subsection (1) shall be void.”

In short, when an association or persons enter into any agreement which is likely to cause an appreciable adverse effect on competition in India, such agreement, by virtue of Section-3(2) shall be declared void and thus is prohibited.


Competition Act, 2002, Section-4 provides for Prohibition of Abuse of Dominant Position.

Section 4(1) states “No enterprise or group shall abuse its dominant position.”

Section 4(2) provides for the grounds which is considered to be an abuse of dominant position under subsection (1) if an enterprise or a group: -

(a) Directly or indirectly, imposes unfair or discriminatory (i) condition in purchase or sale of good or services; or (ii) price in purchase or sale (including predatory price) of goods or service; or

(b) Limits or restricts (i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services to the prejudice of consumers; or

(c) Indulges in practice or practicing 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, another relevant market.

From the aforesaid provisions under Section 4 of the Act, the conditions which are deemed to be an abuse of dominant position in the market becomes clear.


Definitions

Some of the definitions for the purpose of competition law would be:

Agreement as defined in Section-2(b) of the Competition Act,2002 as follows: “Agreement” includes any arrangement or understanding or action in concert- (i) whether or not, such arrangement, understanding or action is formal or in writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.

“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 favor.

“acquisition” under Section 2(a) of the Act defines ‘acquisition’ means directly or indirectly, acquiring or agreeing to acquire- (i) shares, voting rights or assets of any enterprise; or (ii) control over management or control over assets of any enterprise.

“relevant market” defined in Section 2(r) of the Act means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

“Anti-Competitive Agreements” are those that substantially prevent, restrict, or lessen competition. It might be characterized as one that interferes with the commercial freedom of either party to the agreement to trade freely as it would wish.[1]


Factors for Determining Dominant Position

Primarily, there are three stages in determining whether an enterprise has abused its dominant position. First, the relevant market has to be determined. For determining whether a market constitutes a “relevant market” for the purposes of the Competition Act,2002, the Commission shall have due regard to the “relevant geographic market” and “relevant product market.” [Section-19(5)]

Second stage is to determine whether the concerned enterprise has a monopoly power or in the relevant market.

Thirdly, determining whether the concerned enterprise has engaged in activities prohibited by the statute or amounting to abuse of dominant position.


Relevant Case Laws

In the case of Ajay Devgn Films Informant v. Yash Raj Films Private Limited & Others, Yash Raj Films were alleged by Ajay Devgn Films that the former was abusing its dominant position in realizing the film “Jab Tak Hai Jaan” by way of indulging in anti-competitive practices which is in contravention of Section 4 and 3(4) of the Competition Act. Yash Raj Films released one film on 15 August,2012 and contemplated releasing another film during Diwali in the same year. It was alleged that the respondent (Yash Raj Films) put one condition on the single-screen theater while distributing the first film, to simultaneously exhibit the second one at the time of Diwali.[2]

It was contended by the informant (Ajay Devgn Films) that the opposite party’s films being a mega starrer, was bound to be a blockbuster and profitable for single-screen theaters. The single-screen theaters under compulsion had to enter into this contract. The informant’s grievance was that he would not get enough theaters for his own upcoming film Son of Sardar because of the opposite party’s agreement with the single-screen theaters and thus, the opposite party’s act being in contravention of Section-3(4)(a), Section-3(4)(b) and Section-3(4)(d) as well as Section-4(2)(a).[3]

The Commission noted that the agreement entered into by the opposite parties with the single-screen theater was undoubtedly vertical in nature. The commission was not convinced with the informant’s allegation regarding violation of Section-3(4). The CCI (Competition Commission of India) also held that the agreement neither created entry barriers for new entrants nor drove existing competitors out of the market, nor is there any appreciable effect on the benefits accruing to the ultimate consumers viz. the viewers.

The informant however failed to substantiate how ‘film industry in India’ was the relevant market and how the opposite party were dominant in this relevant market. The Commission also stated the factors under Section-19(4)[4] whether an enterprise enjoys a dominant position or not. The CCI[5] then held that Yash Raj Films cannot be a dominant player in the industry and the act of ‘block-booking’ by the distributors for its two films was not in contravention of the Competition Act,2002.


In the case of Belaire Apartment Owners Association v. DLF Ltd. & Huda[6]The Belaire Owners Association (BOA) filed an information with the CCI against the DLF Ltd. alleging that they were abusing their dominant position by using several unfair and arbitrary terms of contract on the apartment allottees of the Group Housing Complex.

DLF contended that it is not a dominant player in the relevant market i.e., ‘High End residential accommodation in Gurgaon.’ Also, they contended that the conditions included in the agreement are the “usual practices” adopted by the builders and are part of industry practice. The CCI observed that a Dominant Position has two aspects: First, a dominant enterprise’s position is such as it enables it to operate independent of competitive forces generated by its rivals. The second aspect of dominance relates to the ability of an enterprise to affect its competitors or consumers or the relevant market in its favor. The CCI also made an observation that while assessing the dominant position of an enterprise, the sole factor is not the market share of the enterprise in the relevant market but a host of other factors are to be seen which are enumerated in Section-19(4).[7]

The CCI therefore imposed a penalty of Rs.630 crores on DLF for abusing its dominant position in the relevant market of Gurgaon by imposing unfair conditions in its agreements with the flat buyers. The fine imposed by CCI has been stayed by the Competition Appellate Tribunal (COMPAT) on being approached by DLF.


In Sh. Surinder Singh Barmi v. Board of Control of Cricket in India[8], the CCI noted that the BCCI[9] prevented players from opting for a league competing with IPL (Indian Premier League) and used its dominant position as a regulatory body to prevent competition.


In M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Limited[10], “the CCI noted that in order to determine the relevant market took into account the factors to be considered while determining the ‘relevant geographic market’ and ‘relevant product market’. Further stated that in determining the relevant product market, the Commission has to consider all or any of the following factors viz. price of goods or services, exclusion of in-house production, physical characteristics or end-user of goods, consumer preferences, the existence of specialized producers and classification of industrial products, in terms of the conditions contained in.”


Penalties

Section-27 provides for the penalties for abuse of dominant position which states order by Commission after inquiry into agreements or abuse of dominant position. Under this Section, the Commission may pass all or any of the following orders, namely: -

(i) direct an enterprise with dominant position which has contravened Section-4 to discontinue such abuse of dominant position;

(ii) impose penalty not exceeding 10% of the average turnover of last three preceding financial years, upon a dominant enterprise contravening Section-4;

(iii) direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission;

(iv) any such order as the Commission may deem fit.


Conclusion

Competition is necessary for business growth, economic development and also to encourage business owners who lack business exposure in the market.

But where on one hand competition has a positive effect on the market, on the other hand large business owners/associations may use it as a weapon towards small enterprises and abuse its dominant position by using restrictive trade practices. As long as competition is fair and healthy, it contributes greatly to the economic growth of the country. The Competition Law acts as a tool to prevent anti-competitive business practices by firms and enterprises. The Competition law policy and practice find reference in the Articles 38 and 39[11].As the time is changing so is the market regulation, for this purpose the law governing competition in the market should be more stringent and necessary amendments should be made from time to time.


Sources: [1] Dr. S.C.Tripathi, Central Law Publication (Jan 2019) Universal, Competition Act, 2002, Bare Act (2020) https://www..oecd.org [2] Ajay Devgn Films Informant v. Yash Raj Films Private Limited & Others [2012] Case No.66 [2012] CCI University of Delhi, Case Material [2021] https://taxguru.in [3] Competition Act,2002 [4] Competition Act,2002 [5] Competition Commission of India [6] Belaire Apartment Owners Association v. DLF Ltd. Huda [2011] Comp LR 0239 [2011] CCI [7] Competition Act,2002 [8] Sh. Surinder Singh Barmi v. Board of Control of Cricket in India (BCCI) [2013] 113 CLA 579 [2013] CCI [9] Board of Control of Cricket in India [10] M/s Saint Gobain Glass India Ltd. v. M/s Gujarat Gas Limited [2013] Case No. 20 [2013] CCI [11] Constitution of India https://indiankanoon.org https://mondaq.com


This article is written by Jwngsumwi Brahma of Campus Law Centre, University of Delhi.

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