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Bill moots penalty for anti-competitive deals

In a bid to check market abuse, the government has proposed to impose a penalty to the tune of 10 per cent of a company's average turnover in the event of it getting into anti-competitive agreements. The proposed Competition Bill has warned that abuse of dominant position by corporates would be treated as a 'crime'.

"Enjoying dominant position will not be a crime but its abuse will be," says the Bill, which when passed by the Parliament will provide for a high powered regulatory body -- Competition Commission -- to check market abuse by companies.

"The bill will be a major deterrent against multinationals which acquire domestic companies after their entry into India thus creating monopolistic situation," said a senior law ministry official.

The proposed commission would be effectively checking the anti-competitive agreements as it would have powers to impose the 10 per cent penalty.

Brushing aside adverse remarks by economists on the absence of mandatory pre-merger scrutiny, the officials said, "the law would curb those practices which would have an appreciable adverse effect on competition. The proposed law identifies three ways in which such practices could occur."

Spelling out the details as to what would be anti-market in terms of competition and abuse of dominance, he said the criteria for deciding the dominant position would be broader than that defined in the MRTP Act, which the proposed policy seeks to repeal.

The proposed law is not against every acquisition, merger or amalgamation but would provide a check against elimination or reduction of competitors, the law ministry official said.

He said the parameters for such deals would be quite different from those for judging dominance.

"There are various methods of determining dominance. It can be in terms of size (of the merged entity), size of the market, number of players and tariff barriers," the official said, adding that any of the relevant factor could attract provisions of the proposed law.

Terming the issues dealt in the competition policy as 'complicated', which required the law ministry to study and confabulate with industry, economists and experts for ten long months, he said: "Rule of thumb can eliminate discrimination but might create an illogical situation."

To effectively regulate the market against abuses, proposed commission would have wide-ranging powers including imposing fines on the guilty and order division of dominant undertakings and demergers, he said.

The commission would also be empowered to issue 'cease and desist order', award compensation and grant necessary interim relief in each case besides imposing costs for frivolous complaints, he said.

In addition to the adjudication function, the commission would also have the roles of advocacy, investigation, prosecution and merger control, he said adding that statutory regulatory authorities could also seek advice from it.

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