Section 4 of Competition Act, 2002, which came into effect on January 13, 2003, is a key part of Chapter II of the Act. This chapter focuses on preventing anti-competitive practices, including prohibiting certain agreements, regulating business mergers and addressing the abuse of dominant position. Specifically, Section 4 aims to stop enterprises or groups with significant market power from engaging in practices that harm competition, consumers, or the market as a whole. Below is a clear and detailed explanation of Section 4, covering its legal framework, definitions, prohibited practices, enforcement mechanisms and implications, making it easier for legal practitioners, businesses and policymakers to understand.
Elevate your career with our Advanced Certification Program in Mergers & Acquisitions designed to transform your professional journey in just six months. This high- engagement course emphasizes real-world applications and features master classes from NLU and industry partners led by expert faculty.
Legal Framework and Purpose of Section 4 of Competition Act
Section 4 of Competition Act, 2002 is designed to prevent enterprises with a dominant position from abusing their market power. A dominant position refers to an enterprise’s ability to act independently of competitors and influence the market in its favor, which can negatively affect competitors or consumers. Section 4 works alongside other parts of the Act, such as Section 3 (which prohibits anti-competitive agreements) and Section 5 (which regulates business mergers), to create a comprehensive framework for promoting fair competition in India.
The objective of Section 4 is to ensure that businesses with significant market power do not engage in practices that disrupt fair competition or harm consumers, thereby maintaining a balanced and competitive market environment.
Definition of Dominant Position under Section 4 of Competition Act
Under Section 4(1), the Competition Act prohibits any enterprise or group from abusing its dominant position. The term "dominant position" is defined in the Explanation to Section 4 as a position of strength in a specific market in India that allows the enterprise to:
Operate independently of competitive forces in that market, meaning it can make decisions without being significantly influenced by competitors.
Influence competitors, consumers, or the market in its favor, such as by controlling prices, supply, or market conditions.
To determine whether an enterprise holds a dominant position, the Competition Commission of India (CCI) looks at the "relevant market." This is defined based on factors like the type of product or service (e.g., whether other products can be used as substitutes) and the geographic area where the enterprise operates, as outlined in Sections 19(5) to 19(7) of the Act. These guidelines help the CCI assess whether an enterprise has enough market power to be considered dominant.
Read to learn more about Merger and Acquisition Process
Prohibited Practices: Abuse of Dominant Position
Section 4(2) lists specific practices that are considered abusive when carried out by an enterprise with a dominant position. These practices are harmful because they limit competition or exploit consumers. Following are the prohibited practices as per the provison:
Imposing Unfair or Discriminatory Conditions or Prices
An enterprise may set unreasonable or unfair terms for buying or selling goods or services. For example, a company might require customers to purchase a set of books only if they also buy a specific set of notebooks, even if the customer doesn’t need them.
Setting discriminatory or unreasonably high or low prices, including predatory pricing, where goods or services are sold below cost to drive competitors out of the market.
Limiting Production or Market Access
Restricting the production of goods or the provision of services, which reduces supply and can harm consumers by limiting their choices.
Limiting or preventing advancements in technology or scientific development, which stifles innovation and keeps new ideas from benefiting consumers.
Denial of Market Access:
Engaging in practices that block other businesses from entering or competing in the market. This provision was added by the Competition (Amendment) Act, 2007, to address actions that unfairly keep competitors out of the market.
Tying and Bundling:
Forcing customers to agree to additional obligations that are unrelated to the main product or service being purchased. For example, requiring a customer to buy an unrelated product as a condition of purchasing the desired product.
Leveraging Dominant Position:
Using dominance in one market to gain an advantage in another market or to protect an existing market. For instance, a company dominant in one product market might use its power to push competitors out of a different market.
These practices are considered abusive because they exploit the enterprise’s market power to harm competition or consumers, rather than competing fairly based on quality, price, or innovation.
Enforcement and Penalties under Section 4 of Competition Act
The Competition Commission of India (CCI) is responsible for enforcing Section 4, as outlined in Chapter IV of the Act. The enforcement process typically involves the following steps:
A complaint is filed, or the CCI may start an investigation on its own (suo motu).
The CCI conducts an inquiry, often with the help of the Director General, as per Sections 26 and 27 of the Act.
If the CCI finds that an enterprise has abused its dominant position, it can take the following actions:
Issue a cease and desist order to stop the abusive practices.
Impose a penalty of up to 10% of the enterprise’s average turnover over the previous three financial years, as stated in Section 27(b).
In rare cases, order structural remedies, such as requiring the enterprise to sell off parts of its business to restore competition. However, such remedies are uncommon and subject to judicial review.
The enterprises who's being declared guilty can appeal the CCI’s decisions to the National Company Law Appellate Tribunal (NCLAT) under Section 53N of the Act. Further appeals can be made to the Supreme Court of India in order to ensure a fair and robust legal process for addressing grievances.
Summary
Section 4 of the Competition Act, 2002, plays a vital role in maintaining a competitive market in India by preventing enterprises with dominant positions from engaging in harmful practices. By clearly defining what constitutes a dominant position, listing prohibited abusive practices, and establishing strong enforcement mechanisms through the CCI, this section protects competition and consumer interests. It ensures that businesses compete fairly, fostering innovation and choice in the market.
Related Posts
Section 4 of Competition Act: FAQs
Q1. What actions are considered an abuse of dominant position?
Abuses include setting unfair or discriminatory prices or conditions (e.g., predatory pricing to eliminate competitors), limiting production or services, restricting technical or scientific development, denying competitors access to the market, forcing unrelated obligations in contracts (tying or bundling), and using dominance in one market to enter or protect another market.
Q2. What is the aim of Section 4 of the Competition Act, 2002?
The aim is to prevent enterprises with significant market power from engaging in practices that harm competition or consumers, ensuring a fair and competitive market environment.
Q3. What is meant by "dominant position" under Section 4?
A dominant position is when an enterprise has enough strength in a specific market to act independently of competitors and influence competitors, consumers, or the market in its favor.
Q4. How is the "relevant market" determined under Section 4?
The relevant market is determined by factors such as the product or service (e.g., whether other products can be substituted) and the geographic area, as outlined in Sections 19(5) to 19(7). The CCI uses these factors to assess whether an enterprise is dominant
