This article has been written by Mr. Yuvraj Singh Rathore, a penultimate student of BBA LLB (H.) at ICFAI Law School, The ICFAI University, Jaipur.

Abstract

In India Competition Laws and Company Laws are the two aspects of business regulations, have their different objects and areas of application. These laws sometimes jointly govern the companies and prevent conglomerates from stepping into methods tantamount to malpractice which tends to affect the competition in the market.  These laws can be said to be the different facets of the same coin, working simultaneously to maintain fair competition in the market while setting a limit for the company to trade or to form an agreement in pursuance to the trade. This article broadly states the objectives of the said statutes and further, sheds light on the nuances that connects these laws from each other and make them a part concerning a single course of action. This article explores the fundamentals of competition law, its interface with the Companies Act, and the significance of their synergy in regulating corporate conduct.

Introduction

Competition law and the Companies Act are two essential pillars of regulatory frameworks that govern business activities, especially in economies promoting fair market competition. Albeit, they are independent legislations, but there are some objectives shared by them both, for instance, both legislations aim for the welfare of commoners from the unfair malpractices of conglomerates. For such purpose, these legislations work simultaneously like parallel lines.  Moreover, their interaction is crucial for ensuring a level playing field in the marketplace and fostering healthy business practices. Apart from the rules, regulations, and precedents; the Competition Act, 2002 (“Act 2002”), and the Companies Act, 2013 (“Act 2013”) play a major role in governing the companies.  

Scope and Objection of Act, 2002

With the advent of the Vajpayee government in power in 1998, they started working on a model to regulate the competition in the market. In year 2002, the Competition Act, 2002 was introduced, after a long journey started from Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 to hither. The MRTP Act, 1969, was the first legislation in independent India aimed at preventing monopolistic practices and promoting fair competition in the market.  In the early 1990s, India embarked on a path of economic liberalization, opening up its markets to foreign investment and dismantling trade barriers.[1] As the economy became more integrated with the global market, there was a growing recognition of the need for a modern competition law to address emerging competition issues and promote market efficiency. The Act 2002 aimed to prevent anti-competitive agreements, abuse of dominant position, and regulate mergers and acquisitions to ensure fair competition in the market. The Competition Commission of India (“CCI”) and the Competition Appellate Tribunal (“CAT”) have been constituted in pursuance to the said amendments in the Act 2002. The CAT was later substituted with National Company Law Appellate Tribunal.[2] Since its enactment, the Act 2002 has undergone several amendments to strengthen its effectiveness and address emerging competition issues. Some notable amendments include the introduction of the merger control regime, enhancement of penalties for anti-competitive conduct, and provisions for cross-border competition issues. One significant amendment to the Act 2002 was the introduction of the merger control regime in 2007. The merger control provisions require parties to certain mergers and acquisitions to notify the CCI and obtain its approval before consummating the transaction. The merger control regime aims to prevent anti-competitive mergers that could harm competition in the market.[3] Over the years, the CCI and Indian courts have developed a body of competition jurisprudence through their decisions and judgments. The evolution of competition jurisprudence has provided clarity on various competition law concepts, enforcement mechanisms, and procedural aspects, contributing to the effective implementation of the Act 2002 in India. 

Objectives of Competition Law

Competition law, also known as antitrust law in some jurisdictions, is designed to promote fair competition among businesses, prevent monopolistic practices, and safeguard consumer welfare. Its primary objectives include:

1. Preventing Monopolies and Market Dominance: Competition law aims to prevent the creation or abuse of dominant market positions that can stifle competition and harm consumers’ interests.
2. Prohibiting Anti-competitive Agreements: It prohibits agreements between competitors that restrict competition, such as price-fixing, bid-rigging, and market allocation agreements.
3. Regulating Mergers and Acquisitions: Competition authorities scrutinize mergers and acquisitions to ensure they do not substantially lessen competition in the relevant market.
4. Protecting Consumer Interests: Competition law seeks to protect consumers from unfair and deceptive trade practices, ensuring they have access to competitive prices, choices, and quality products/services.

Scope and Objection of Act, 2013

The Act 2013 is a significant piece of legislation in India that governs the incorporation, regulation, and functioning of companies in the country. The Companies Act, 1956, was the primary legislation governing companies in India for several decades. However, over time, it became outdated and inadequate to address the evolving needs of India’s corporate sector. It was characterized by its complexity, procedural inefficiencies, and regulatory gaps. As India’s economy liberalized and integrated with the global market in the 21st century, there was a growing recognition of the need for a modern and comprehensive legislation to govern companies and promote corporate governance, transparency, and investor protection. In 2004, the Indian government initiated the process of drafting a new Companies Bill to replace the outdated Companies Act, 1956. The Ministry of Corporate Affairs engaged in extensive consultations with stakeholders, including industry associations, legal experts, regulators, and the public, to solicit inputs and feedback for the new legislation. The Act 2013 repealed the Companies Act, 1956, and introduced a modern regulatory framework for companies in India.[4] It aimed to address key challenges and deficiencies of the previous legislation while aligning with international best practices and standards.

Key Features and Reforms

The Act 2013 introduced several significant reforms and provisions, including:

• Enhanced corporate governance requirements, such as the establishment of independent directors, audit committees, and mandatory rotation of auditors.
• Strengthened provisions for shareholder rights, protection, and activism, including class action suits and shareholder democracy measures.
• Introduction of new concepts such as one-person companies (OPCs), small companies, and dormant companies to facilitate ease of doing business and promote entrepreneurship.
• Establishment of the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) to streamline the adjudication of corporate disputes and matters related to company law.

Since its enactment, the Act 2013 has undergone several amendments and revisions to address practical challenges, clarify provisions, and enhance ease of compliance. The government has periodically amended the Act to streamline procedures, improve corporate governance standards, and align with emerging regulatory trends. The Act 2013 has had a profound impact on India’s corporate landscape, shaping corporate governance practices, investor confidence, and regulatory compliance. Companies across various sectors have had to adapt to the new regulatory requirements and compliance obligations prescribed under the Act.

The Indian government continues to undertake reforms and initiatives to further strengthen the regulatory framework for companies and improve the ease of doing business in the country. Ongoing efforts include digitalization of corporate processes, simplification of compliance requirements, and promotion of responsible corporate citizenship.

Points of Intersection 

The Act 2002 and the Act 2013 in India may intersect or complement each other in several areas where corporate activities have implications for competition, market dynamics, and corporate governance. Here are key points on which these Acts may be looked at simultaneously or where they complement each other:

1. Mergers and Acquisitions (M&A):

• Companies Act: The Act 2013 governs the process of mergers, acquisitions, and amalgamations, including procedures for shareholder approvals, creditor meetings, and regulatory filings.
• Competition Act: The Act 2002 regulates M&A transactions to ensure they do not result in anti-competitive outcomes such as monopolization, substantial lessening of competition, or adverse effects on consumer welfare. The CCI assesses M&A transactions to determine their potential impact on competition in relevant markets.

In the case of Combination of Tata Sponge Iron Limited with Tata Metaliks Limited[5], the CCI examined the proposed combination of Tata Sponge Iron Limited with Tata Metaliks Limited under the Act 2002. The CCI assessed the transaction’s potential anti-competitive effects while considering the Act 2013 provisions related to mergers and acquisitions.

1. Anti-Competitive Agreements:

• Companies Act: The Act 2013 provides guidelines on corporate governance, transparency, and fairness in business operations, including disclosure requirements and duties of directors and officers.
• Competition Act: The Act 2002 prohibits anti-competitive agreements among enterprises that have the effect of significantly restricting competition, controlling market prices, or limiting consumer choices. The Act addresses issues such as price-fixing, bid-rigging, market allocation, and other collusive practices that harm competition and consumer welfare.

In the case of Excel Crop Care Limited v. CCI [6], the Supreme Court of India considered allegations of anti-competitive agreements between manufacturers of pesticides. The Court examined whether the agreements violated the Competition Act’s provisions while also assessing corporate governance issues related to the conduct of the companies involved

1. Abuse of Dominant Position:

• Companies Act: The Act 2013 establishes corporate governance standards and fiduciary duties for directors, officers, and executives to prevent abusive conduct and protect shareholder interests.
• Competition Act: The Competition Act prohibits companies with a dominant market position from abusing their market power to the detriment of consumers or competitors. Examples of abusive conduct include predatory pricing, refusal to deal, and discriminatory practices that harm competition and consumer welfare.

In the case of Fastway Transmission Private Limited v. Ortel Communications Limited & Others[7], the CAT reviewed allegations of abuse of dominant position by Fastway Transmission in the cable television distribution market. The case involved considerations of both competition law principles under the Competition Act and corporate governance standards regarding fair business practices and market conduct.

1. Related-Party Transactions:

• Companies Act: The Act 2013 regulates related-party transactions and conflicts of interest within companies, requiring disclosure, approval, and fairness in dealings involving directors, officers, and their relatives.
• Competition Act: Related-party transactions may raise competition concerns under the Act 2002 if they result in anti-competitive outcomes such as market foreclosure, abuse of dominance, or collusion. The Act addresses issues related to market concentration, barriers to entry, and unfair trade practices that distort competition.

Cases involving related-party transactions may necessitate examinations of both corporate governance practices under the Act 2013 and competition law principles under the Act 2002.

1. Market Concentration and Dominance:

• Companies Act: The Act 2013 governs corporate structures, ownership patterns, and governance mechanisms to prevent excessive concentration of economic power and promote competition.
• Competition Act: The Act 2002 regulates market concentration and dominance to prevent anti-competitive practices, promote level playing fields, and safeguard consumer interests. The Act addresses issues such as barriers to entry, market foreclosure, and abuse of dominance by dominant firms.

In various cases involving allegations of price-fixing, bid-rigging, and cartelization, courts and competition authorities have examined the conduct of companies to determine whether their actions violated competition law provisions under the Act 2002. Such cases often involve assessments of market dynamics, consumer welfare, and the impact of anti-competitive practices on market participants, while also considering corporate governance implications.

Conclusion

The competition law and the company law are essential regulatory frameworks that govern corporate behavior and market competition. While they operate independently, their interaction is crucial for maintaining a competitive marketplace, protecting consumer interests, and promoting corporate accountability. Companies must navigate these legal frameworks diligently, ensuring compliance with both competition law principles and the provisions of the Act 2013 to foster a business environment characterized by fairness, transparency, and healthy competition.

The Act 2013 and the Act 2002 in India may need to be considered simultaneously in situations where corporate activities intersect with competition law principles, market dynamics, and corporate governance standards. Regulatory authorities, courts, and stakeholders play crucial roles in interpreting and enforcing these Acts to promote fair competition, transparency, and accountability in the Indian business environment.

Reference

[1] Banerji, O. (2022, October 15). The Competition Act, 2002. iPleaders. https://blog.ipleaders.in/the-competition-act-2002/#:~:text=The%20Vajpayee%20government%20developed%20the,1991%20economic%20liberalisation%20of%20India.

[2] S. 171 of Finance Act, 2017 amended the Competition Act, 2002; S. 410 Companies Act, 2013.

[3] Briefing, I. (2023, October 11). Merger control regime in India: 2023 revisions to the competition law. India Briefing News. https://www.india-briefing.com/news/merger-control-regime-in-india-analyzing-the-2023-revisions-to-the-competition-law-28830.html/  

[4] 30th January, 2019- S.465 in so far as they relate to the repeal of the Companies Act, 1956 (1 of 1956) [that in except in so far as they relate to the repeal of the Registration of Companies (Sikkim) Act, 1961 (Sikkim Act 8 of 1961)] vide notification No. S.O. 560(E), dated 30th January 2019, see Gazette of India, Extraordinary Part II, sec. 3(ii).

[5] Combination Registration No. C-2017/07/518

[6] Civil Appeal No. 2483 of 2014; (2017) 8 SCC 47

[7] Competition Appellant Tribunal  Appeal No. 1/2017