Tuesday, April 26, 2011

The Competition Act, 2002 : Important Elements

The economy of any country is always volatile. This is generally due to the dynamic nature of the constituent markets and their elements. The world is changing fast. India is also opening its economy to foreign investments. The current period is the period of globalization and liberalization.


Globalization means inviting foreign investments and trying to get into as many alignments as necessary.


Liberalization on the other hand includes the process of reducing burden of the legal provisions so the foreigners will get attracted toward our markets. 


Globalization and liberalization has many advantages such as:

Ø     Pumping in foreign exchange.

Ø     Development of technology.

Ø     Maximum utilization of resources.

Ø     Development of inter country relations.

Ø     Increment in the average velocity of money leading to better movement of the wealth cycle.

Ø     Development of countries indigenous industries.


Another important thing that has to be kept in mind is that the indigenous market has to be protected. What we see in Egypt and Jordan was an ill effect of too much liberalization and foreign influence. Though it is needed that foreign investors are to be attracted towards Indian markets but our countries industries, consumers and resources are to be protected.   


The MONOPOLIES AND TRADE RESTRICTIVE ACT, 1969, had become OBSOLETE and was influencing the growth of the economy badly. THE INDIAN COMPETITION ACT WAS TO ESTABLISH A MORE LIBERAL SYSTEM. The new act was to fulfill the following objectives:

Ø     Prevention of practices that adversely effect the competition on the country.

Ø     Promotion and sustenance of competition in market to establish an environment of confidence and surety so that the basic freedom to practice trade, profession, occupation & vocation of any person is not infringed.

Ø     To protect the basic rights of the consumer.


 The act has a very wide coverage as it is shown in the section 2(f) in the definition of consumer; the persons covered are as under:

Ø     One who buys for a consideration

Ø     One who uses the goods with the approval of the owner who brought it for a consideration.


Here it doesn't matter whether the goods are purchased for resale or for any commercial or personal purpose. It is also provided that the consideration may be an act or a promise or an admixture of both. This shows that the lawmakers tried to keep it consistent with the Indian Contract Act as the contract act infuses confidence and surety in commercial transactions.


*    Consumer includes any person who hires or avails of any service for a consideration

*    It includes any beneficiary of services other than the person who gave the consideration


Thus, the act not only covers the physical goods but also covers the service which forms greater industries than the physical goods industries.


The law makers use two words – "hires" and "avails". Some services can be hired but cannot be availed. On the other hand some services can be availed but cannot be hired. For example, a pool cart can be hired but cannot be availed. But the services like electricity, water connection, and sewerage connection are to be availed. So they covered both the aspects.


Another important point is regarding the definition of goods in section 2(i) was also devised inconsistency with the sale of goods act. The definition was kept same with simple changes. Section 2 of sale of goods act (1930) defines goods as, "goods means any kind of movable property other than actionable claim and money and includes stock and shares, growing crops, grass and things attached to or forming part of land which are agreed to be served before sale or under contract of sale. The changes made are that trademark, copyright, patent, goodwill, electricity, water and gas are all goods. Here it is to be kept in mind that products manufactured, processed or mined, debentures, stock and shares after allotment all are goods.


Sections 3 to 6 are the most important sections as they imposed the necessary control over unethical practices that can effect the competition in the market.


Section 3 strictly provides that no enterprise or person shall enter into an 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. THE AGREEMENT MADE SHALL BE REGARDED AS VOID. Here an important thing is to be remembered that the activity may have not caused any effect to the competition yet but is likely to cause such adverse effect then the same is covered into this act. Another thing is the definition of enterprise itself. As per section 2(h) the enterprise will cover person whether it is an individual, a huf,a company, a firm, an AOP, BOI(whether incorporated in India or outside India, a body corporate, a local authority, a cooperative society. All will be construed as a person. Enterprise includes Department of Government. The enterprise must exchange in production, storage, supply, distribution, acquisition or control of ARTICLES or GOODS or is engaged in the service of provision of services. It also includes INVESTMENTS making enterprises which may also include business of AQUIRING HOLDING OR DEALING WITH SHARES AND OTHER SECURITIES OR UNDERWRITTING.THIS MAY BE EITHER BY THE ENTERPRISE ITSELF OR BY ANY UNIT OF IT OR BY ANY OF ITS SUBSIDIARY. AS PER  SEC 3(1) THIS RULE MAY ALSO APPLY TO ASSOSIATIONS OF ENTERPRISES.


SECTION 4 PROVIDES THE NECESSARY SECURITY TO MINOR ENTERPRISE AND CONSUMERS. It bars DOMINENT enterprise to use their DOMINENCE unethically. It includes the event when a firm DIRECTLY or INDIRECTLY imposes unfair conditions in purchase and sell of goods and services. It also includes the event when a dominant firm charges predatory prices. It will also include the act of hoarding supply or restriction of development. It also covers the event when a dominant firm restricts free access to market. The section also covers the event when a firm which is dominant in one market uses its dominance in protecting another market. Indian constitution defines India as a socialist republic the ARTICLE 19 gives freedom of profession. This is also supported by ARTICLE 21 that gives the right to life. The act safeguards the interest of many small and medium firms. If any one controls the market the results will be high rice low employment and downfall of market.

 Many times it happens that for mutual benefit two or more enterprises combines this is called combination. Combination is a process when to use the unutilized resources of one enterprise it combines wit another enterprise. Section 5 construes acquisition as merger. Section 6 bares any such combination if it is injurious to the competition in the market. This helps to keep the competition running and the market remains resourceful.

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