Abuse of Dominant Position Under the Indian Competition Act, 2002

I. A new approach to Competition Policy:Nevertheless, with the Act not in force at the time
The august words of the Preamble and the directivesof this article, certain legitimate doubts may be raised
embodied in Article 39 of the Indian Constitution inin respect of the veracity of this conclusion.
tandem with the strategy of planned economicIII. Abuse of Dominant Position:
development necessitated the promulgation of a3.1 Unfair or discriminatory conditions or prices in
conservative competition policy in the form of thepurchase and sale:
Monopolies and Restrictive Trade Practices Act, 1969.There shall be an abuse of dominant position if an
The policies of that era were preordained to achieveenterprise directly or indirectly, imposes unfair or
state aspirations such as self reliance and socialdiscriminatory condition in purchase or sale of goods
justice and were characterized by the scepter ofor service or price in purchase or sale (including
government participation/regulation in virtually everypredatory price) of goods or service. One of the
vista of economic activity. Government interventionmost blatant forms of this abuse is manifested in
in the determination of prices, limiting the role of thediscounts on the selling price. If discounts are given
private sector, in using industrial licensing to channelonly to a select few customers to the peril of others
private investment and creating high tariff walls andwithin the customers' relevant market, or to a
restrictions of foreign investment stand testimony tocustomer who is willing to forgo its rights to purchase
the fact that most economic decisions were notfrom another competitor, such discounts in tandem
guided solely by pecuniary considerations but also bywith its terms and conditions are said to be unfair
government intervention.and discriminatory. Moreover, if such discounts and
The Report of the High Level Committee onconditions are imposed with the intention of
Competition Laws aptly reviews the Indian economyeliminating competitors or distorting the competitive
as it was in the era of the Monopolies and Restrictiveforces established within the relevant market it is
Trade Practices Act, 1969 in the following manner:abuse of dominant position. Such a discount is usually
"2.2.3 Although there was a private sector in India,imposed by an enterprise on account of its financial
there were virtually no elements of economic activitydominant and might which cannot be matched by its
that were not subject to Government interventioncompetitors. By using its deep financial resources,
and control. Entry and exit were restricted, firm andcertain enterprises succeed in entering into
plant sizes were determined by Government policy,exclusionary contracts with a majority of the
much of production was directly in the public sector,consumers in the relevant market. In the long run,
prices in a number of important sectors were fixedthe competitions' incapability to give these
by Government, the allocation of scarce financialdisproportionate discounts and induce consumers into
resources was determined by formal Governmententering into such exclusionary contracts will drive
policy and informal interventions, and competitionthem out of the market.
from abroad was severely curtailed by quantitative3.2 Restrict technical and scientific development in the
restrictions (QRs), high tariff walls and restrictions onmarket:
foreign investment. Thus, most economic decisionsAny dominant enterprise, which by its actions limits or
were guided by the visible hand of Government andrestricts the technical and scientific development
there was no place in this system for competitionwithin the relevant market, is said to abuse its
policy."dominant position. Incessant improvements to
Nevertheless, contemporary economic policies andproducts and services in most markets/sectors have
realities compelled policy makers to reflect upon thepropelled research and development costs to reach
relevance of the incumbent legislation. In a WTOgargantuan proportions. Thus, any dominant
compliant economic environment Indian enterprisesenterprise that uses its exceptional financial strength
have to grapple with stiff competition from foreignto develop a product and sell it at disproportionately
competitors in an unending quest to maximize profitslow costs will in effect limit its scientific development
and any competition policy must be a contrivancein the market. The competition will be unable to
which allows enterprises to achieve efficient allocationsustain itself in the market in wake of an advanced
of resources and technical progress, but keeping inand cheaper variant, with its product becoming
mind consumer welfare and regulation ofobsolete and its returns/profits diminishing the
concentration of economic power. Contemporaryenterprise will be driven out of the market as it
competition policies on the global level increasinglycannot sell its present product and it may not have
indicate a paradigm shift from curbing monopolies tothe kind of resources required to develop a new
promoting competition.product and sell it at the disproportionately low costs.
Therefore, the Competition Act, 2002 aims atWith the dominant enterprise's product the sole
promoting and ensuring fair competition in India byproduct or a product facing competition from
prohibiting trade practices which cause an appreciablesignificantly weaker and handicapped rivals, such an
adverse effect on competition in markets withinenterprise will be able to dictate all further
India, and for this purpose it provides for thedevelopments in the product and its prices, thereby
establishment of a quasi-judicial body, namely, thestifling any scope of innovation by the rivals.
Competition Commission of India. In this article the3.3 Denial of market access:
researcher aims at exploring the various nuances ofIf an enterprise uses it's dominance to enter into any
"dominant position" under the Act and its effect onagreement or arrangement resulting in the rivals right
various aspects of the Indian economy.to the relevant market being denied/adversely
II. Treatment of "Dominant Position" under the Act:affected, it is said to be abusing its dominant position.
2.1 Determination of "dominant position" of anIf an arrangement has the effect of denying a
"enterprise":consumer the right to purchase from any other rival
Section 4 of the Act specifically states that nosupplier and such an arrangement has come into
enterprise shall abuse its dominant position. Dominantforce because of any inducement given on account
position has been defined as a position of strengthof the enterprises dominance, it can be concluded
enjoyed by an enterprise in a relevant market, whichthat it is in effect denying market access (read:
enables it to operate independent of the establishedabuse of its dominant position).
competitive forces and adversely affect its3.4 Using dominant position in one market to enter
competitors or the consumers in the relevant market.another:
2.2 Definition of an "enterprise" and "relevant market":An enterprise may have 'a marked ascendancy' over
At the onset one must peruse the pivotal terms ofanother enterprise in a different market; this may be
the aforementioned definition, namely "enterprise"manifested in an enterprise exercising its dominance
and "relevant market." Section 2 (h) of the Actin a particular market to affect the competitive
provides an all pervading definition of an "enterprise,"forces in allied/corollary markets. Any enterprise,
which includes all companies (including governmentwhich uses its financial or technical dominance in one
companies and foreign companies), firms, individuals,market to enter another market or distort the
association of persons and departments of thecompetitive forces in that market is said to abuse its
government (subject to certain exceptions). Thisdominant position in violation of the provisions.
definition is certainly more effective in its scope inMicrosoft's entry into the Internet Browser market
comparison with the corresponding definition in theserves as an apt illustration of abusing a marked
incumbent legislation and brings within its fold all publicascendancy. In this example, Microsoft used its
sector undertakings with the exception of sensitiveposition as the overwhelmingly popular Operating
sectors. Section 2 (r) of the Act deals with theSystem, to catapult its Internet Explorer browser
concept of "relevant market." Determining thesoftware into the forefront of the Browser market.
relevant market is crucial for the application ofAs a result of Microsoft bundling its aforesaid
Section 4 of the Act, as it provides the context orsoftware for free with their OS, they entered into
background on which one may determine theanother product market and ran its competitors out
dominant position of an enterprise and theof business.
subsequent abuse thereof. Relevant markets consistIV.Summary of penalties under the Act:
of 'relevant geographic market' and "relevant productThe Competition Commission is empowered to
market." Such a division is necessary as animpose penalties on a party, which fails to comply
enterprise's dominant position must necessarily be inwith its directions. It can impose a penalty of not
relation to other enterprises in a similar business; ormore than 10% of the turnover of the enterprise. It
other enterprises operating in the same geographicalcan pass a "cease and desist" order, and pass such
area under the same jurisdiction and similar businessother orders as may be considered appropriate in
conditions.light of equity and justice. It can also recommend to
2.3 No Mathematical Parameters:the Central Government for "division of dominant
It is pertinent to note that there are no mathematicalenterprise". The Competition Commission has the
parameters to determine the dominance of anpower to direct an enterprise to disclose vital
enterprise/undertaking in the relevant market. Primainformation to its competitors. It is pertinent to note
facie this would make the provision ambiguous.that the penalties mentioned in the act are pecuniary
However, this can be justified on the grounds thatand the act does not provide for any criminal
even a firm with a low market share can enjoy apunishments.
position of dominance if the remaining market shareV. Concluding remarks:
is divided among a large number of competitors.The legislation has been enacted to ensure
While an enterprise/undertaking with only 25%consumers' right to free and fair competition.
market share may enjoy a dominant position onCompetition policy should always be molded as an
account of the remaining 75% belonging to a largeeffective instrument to achieve efficient allocation of
number of competitors; another enterpriseresources, technical progress, consumer welfare and
undertaking with 65% market share may not enjoyprohibition of concentration of wealth. The shift from
the same position because the rest of the marketprotectionism to promotion of competition in relevant
share belongs to a single powerful competitor. Thus,markets represents the legislators' endeavours to
the legislators have intended to give Section 4 amake the Competition Act, 2002 such an instrument.
wider scope and make it more effective than theThe overall structure and scope of Section 4: Abuse
previous provision on abuse of dominant position.of Dominant Position; adequately reflects the
Specifying set parameters would have limited theaforesaid objectives in the following manner:o
provision and allowed genuine offenders to escape,Inclusion of most public sector undertakings into the
while embroiling others in tedious litigation.definition of an "enterprise" reflects a positive step
Section 19 of the Act lays down certain grounds toaway from protectionism.o The lack of any
be considered in determining the dominant position ofmathematical parameters in determining dominance,
an enterprise. Relevant statistics regarding markettoo, indicates that the legislators wish to give the
share , the size and resources of the undertaking,provision the widest scope possible.o Section 4 does
the size of its competitors and the existence ofnot prohibit "dominance" it only protects the market
entry barriers will be scrutinized while establishing theand consumers from any abuse of such dominance.
dominance of an undertaking.Therefore, it does not limit the possibilities for
2.4 Dominant Position not prohibited henceforth:expansion of an enterprise, but truly safeguards
In consonance with the prevailing economicconsumer rights.
environment in the country the legislators haveTherefore, Section 4 is not against maximization of
stated that, "no enterprise shall abuse its dominantprofits it merely safeguards against unfair means
position." Thus, it can be deduced that a dominantused to maximize profits.
position is no longer prohibited. This represents a shiftNOTE: FOR CERTAIN TECHNICAL REASONS THE
in the legislators' attitude towards competition law -FOOTNOTES DO NOT APPEAR IN THIS ARTICLE,
from strictly prohibiting monopolies to encouragingTHE AUTHOR CAN BE REACHED FOR A COPY OF
and ensuring competition in the market. Only anTHE FOOTNOTED ARTICLE ON THE EMAIL
enterprise, which uses its position in a manner thatADDRESS PROVIDED HEREIN. THE INCONVENIENCE
adversely affects the existing competitive forces orIS REGRETTED AND THE PROBLEM WILL SOON BE
the consumers in the relevant market i.e. abuses itsRECTIFIED.
position, will be liable under this provision.