November 30, 2017
Section 4 of Competition Act
Section 4 of the Competition Act, 2002 prevents any enterprise or group from abusing its dominant position. The Act also provides circumstances under which there is abuse of dominant position. Section 4(2) of Act prevents following acts resulting in abuse of dominant position:
1. Impose unfair or discriminatory condition or price in sale and purchase of goods or services;
2. Limit or restrict;
3. Production of goods or services
4. Technical or scientific development relating to goods or services to the prejudice of consumers;
Indulges in practice resulting in denial of market access;
1. Make conclusion of contracts subject to acceptance by other parties;
2. Use its dominant position in one market to enter into other relevant market;
Definition of Dominant position and Predatory pricing
According to the Act, dominant position means a position of strength, enjoyed by an enterprise in the relevant market in India which enables it to:
1. Operate independently of competitive forces in relevant market
2. Affect competitors, consumers or relevant market in its favour
Predatory price means sale of goods or services at a price which is below the cost as may be with the view to reduce competition or eliminate competitors.
Judicial Dicta on Abuse of Dominant Position
What does dominant position imply?
In the case of, Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd., the CCI observed that Section 4 of the Competition Act does not prohibit an enterprise from holding a dominant position in a market, it does place a special responsibility on such enterprises, in requiring them not to abuse their dominant position. The CCI further held that Section 4 does not contain an exhaustive list of activities that would amount to contravention of its provisions. The actions, practices and conduct of an enterprise in a dominant position have to be examined in view of the facts and circumstances of each case to determine whether or not the same constitutes an abuse of dominance in terms of Section 4 of the Competition Act.
In substance, `dominant position’ means the position of strength enjoyed by an enterprise that enables it to act independently of competitive forces prevailing in the relevant market. Such an enterprise will be in a position to disregard market forces and unilaterally impose trading conditions, fix prices, etc. The abuse may result in the restriction of competition, or the elimination of effective competition.
How to examine dominant position of an enterprise?
In a recent case Fast Track Call Cab Pvt. Ltd. and Meru Travel Solutions Pvt. Ltd v. ANI Technologies Pvt. Ltd., the CCI while determining whether the OP (OLA) held a dominant position in relevant market or not remarked that abuse of dominant position under Section 4 would be attracted only when the entity under scrutiny holds a dominant position in the relevant market. CCI also elaborated on the concept of dominant position and stated dominant position as a position of economic strength enjoyed by the enterprise in the relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market or affect its competitor or consumer or the relevant market in its favour. Such ability of the enterprise to behave independently of competitive forces needs to be assessed in light of all relevant circumstances and the factors enlisted under Section 19(4) of the Act. The CCI in the case while determining dominance of OLA took the following factors into consideration:
- Market shares of OLA;
- Its competitors in relevant markrt;
- Annual and monthly number of trips in the relevant market during the period of investigation;
What is relevant market?
While discussing the concept of dominant position, one of the most intriguing questions which lingers our minds what does relevant market connote? ‘Relevant market’ is one of the primary concerns while determining dominant position as well as abuse of dominant position by an enterprise.
Section 2(r) of the Competition Act renders an exclusive definition for the term ‘relevant market’. It states that it means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both markets.
Relevant product market is defined as 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.
Relevant geographic market refers to a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighboring areas.
M/s Saint Gobain Glass India Ltd. v. M/s Gujrat Gas Company Limited– In this case, the CCI in order to determine the ‘relevant market’ took note of factors to be considered while determining relevant product market and relevant geographic market. The CCI stated that to determine the “relevant product market”, the Commission is to have due regard to all or any of the following factors viz., physical characteristics or end-use of goods, price of goods or service, consumer preferences, exclusion of in-house production, existence of specialized producers and classification of industrial products, in terms of the provisions contained in .
To determine the “relevant geographic market”, the Commission shall have due regard to all or any of the following factors viz., regulatory trade barriers, local specification requirements, national procurement policies, adequate distribution facilities, transport costs, language, consumer preferences and need for secure or regular supplies or rapid after-sales services, in terms of the provisions contained in Section 19(6) of the Act.
Section 19(6) enlists the factors to be considered by CCI while determining ‘relevant geographic market’:
1. Regulatory trade barriers;
2. Local specification requirements;
National procedure policies;
1. Adequate distribution facilities;
2. Transport costs;
Need for secure or regular supplies
Section 19(7) of the Act enlists the factors to be considered by the CCI while determining ‘relevant product market’:
1. Physical characteristics or end-use of goods;
2. Price of goods or services;
1. Exclusion of in-house production;
2. Existence of specialized producers;
3. Classification of industrial products;
When does an enterprise engage in an abusive conduct or abuse its dominant position?
An undertaking in a dominant position is entitled also to pursue its own interests. However, such an undertaking engages in abusive conduct when it makes use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition. For the purposes of this section, the conduct of a party would be tested on the basis of the end effect i.e. whether access to a market has been denied not. In other words, the same conduct by different parties may attract provisions of Section 4(2) of Act depending on whether the conduct of the parties results into denial of market access in any manner. As per Section 4(2)(c) of Act of the Act, there shall be an abuse of dominant position if any enterprise indulges in a practice resulting in denial of market access in any manner.
In the case of Jupiter Gaming Solutions Pvt. Ltd. v. Government of Goa & Ors , the CCI while determining alleged abuse of dominance by Government of Goa stated that dominance per se is not bad, but its abuse is bad in Competition Law in India. CCI further opined that abuse is said to occur when an enterprise uses its dominant position in the relevant market in an exclusionary or /and an exploitative manner. In the case the Government’s tender bid of lottery contained certain conditions which apparently restricted the size of bidders such as, minimum gross turnover of the participating entity, participating entity should have experience of at least three years. The CCI held that the Government of Goa by imposing such conditions abused its dominant position denial/restriction of market access to the other parties in the relevant market.
1Case No. 6 & 74 of 2015