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The Competition Commission of India and Small and Medium Enterprises (SMEs)

The Small and Medium Enterprises (SMEs) have been globally recognized as a priority sector for growth and development and India is not an exception to this generality. In India, the Micro, Small and Medium Enterprises (MSMEs) contribute over 45 percent of the country s industrial production and around 40 percent of total exports. The SMEs increase competition, contribute comprehensively by the GDP ensure varied supply of goods and services and give customers wider and customized choice. Thus MSMEs unhesitatingly play a vital role and in fact they are the backbone of the Indian economy and prudence suggests that the backbone not only be protected but strengthened too on a perennial basis.

Small and Medium Enterprises (SMEs) needs to know

What SMEs needs to know is that the law is applicable to them as well. The focus of law is not on “size of the enterprise” which could be in terms of assets /turnover or investment in plant and machinery etc. but on the effects of business practices on competition in the relevant market in India. However, it is unlikely that SMEs would unwittingly fall foul of the law. On individual basis, since SMEs lack market power, their actions are not likely to have appreciable adverse effects on competition in India. Moreover, the exclusions and exemptions from the applicability of law are likely to dilute the effectiveness of competition law which is increasingly believed to be benign for consumers, enterprises as well as economies.

Power of Small and Medium Enterprises (SMEs)

A SMEs or an Association can file information in the prescribed form with the CCI and request for enquiry against any delinquent enterprises in case the latter is allegedly indulging in anti-competitive practices/ agreement or abuse the dominant position. SMEs can also file objection with the CCI in response to public notice or otherwise against any proposed acquisition, merger or amalgamation as sometimes a survival of SME is threatened. Thus, there is an obligation on the CCI to listen to the aggrieved SMEs.

Competition Commission of India and Competition Appellate Tribunal (COMPAT)

The Amendment made to the Act in 2007, casts an obligation upon the Central Government to establish Competition Appellate Tribunal (COMPAT), which shall be a three member quasi –judicial body to

•Hear and dispose of appeals against any direction issued or decision made or the Order passed by the Commission;

•Adjudicate on any claim for compensation that may arise from the findings of the Commission or the Orders of the Appellate Tribunal in an appeal against any finding of the Commission or under section 42A or sub-section (2) of section 53Q of this Act, and pass Orders for the recovery of compensation under section 53N of the Act.

The Competition Appellate Tribunal will be guided by principle of natural justice and it can regulate its own procedure. COMPAT can dismiss a petition for default or decide it ex parte and such order of dismissal or ex parte order can be set aside. The proceedings before COMPAT are deemed to be judicial proceedings. If Appellate Tribunal cannot execute its order, it will be sent to Court within whose local jurisdiction the registered office of the company or place of residence of the person is situated. Order of the C OMPAT will be executed as a degree of court. COMPAT can directly send the order to a civil court for execution. The order will be executed by that Court as if it is a decree of that Court.

Procedure for Investigation of Combination by the Competition Commission of India

On coming to a prima facie opinion that the combination is likely to cause or has caused appreciable adverse effect on competition within the relevant market, the commission shall issue a show cause notice to parties to the combination calling upon them to show within 30 days of receipt as to why investigation of such combination should not be conducted. After the receipt of the response from the parties, the commission may call for a report from the DG within the time as may be specified.

Orders that CCI can pass in respect of Combinations

The commission is empowered to pass the following orders after the due process:

a)        Approve the combination where no appreciable adverse effect on competition in the relevant market in India;

b)        Direct that combination shall not take effect where the Commission is opinion that there is or is likely to have appreciable adverse effect on competition;

c)        Propose modification in the combination where the commission is of the appreciable adverse effect cause or likely to be caused by the combination can be eliminated by the modification.

Competition Law and Leniency Provisions

Most competition laws either exempt specific sectors and/ or types of economic activity, and /or have provision s for the granting of such exemptions in given situations. It is worth observing that there generally tend to be fewer exemptions in countries which have recently adopted competition laws (mainly developing and transition market economies) as compared with more industrialized nations. In India the Competition Commission of India ,While passing orders in respect of cartels , the Commission is vested with the discretion to impose a proportionate /lesser penalty than leviable under the Act upon a producer, seller, distributor, trader or service providers, provided the following conditions are met;

1.        Such producer, seller, distributor, trader or service provider included in the cartel had made full and true disclosure in respect of the alleged violations and such disclosure is vital.

2.        Such disclosure has been made before receipt of DG s report on investigation order under section 26 of the Act

3.        The party making disclosure s continues to co-operate with the Commission till the completion of proceedings before the commission.

4.        The party making disclosure s has;

a)        Complied with the condition of which the lesser penalty was imposed and

b)        Not given false evidence.

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Contact at parascs@gmail.com or refer website www.pnjlegal.com

The corporate governance of banks is different and unique from that of the other organizations. This is because the activities of the bank are less transparent than other organizations. Thus, it becomes difficult for shareholders and creditors to monitor the activities of the bank. The situation becomes even more difficult when a major part of the share capital is with government. Additionally, banks also differ from most other companies in terms of the complexity and range of their business risks, and the consequences if these risks are poorly managed.

The Banking Sector in India has definitely not remained unaffected to the developments taking place worldwide. Enhancing the level of corporate governance structure of Indian banks is imperative. The regulatory bodies in India are the Reserve Bank of India and the Securities Exchange Board India. The RBI prescribes prudential principles and norms. The RBI performs the corporate governance function under the Board for Financial Supervision (BFS).

The Basel Accord was first established in 1988 by the Basel Committee on Banking Supervision under the Bank for International Settlements. The BIS was established on 17 May 1930 and is the world's oldest international financial organization. The Basel Committee was established by the central-bank Governors of the Group of Ten countries in 1974. It meets regularly four times a year. It has four main working groups. The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.

The Basel Accord was established to provide a set of minimum capital requirements to banks. According to this accord, the banks would be required to maintain a minimum capital requirement a propos the loans given out by them. The 1988 Basel Accord also known as Basel I primarily focused on credit risk. The Central Banks of several countries that have agreed to become signatories have been given the responsibility of enforcing the provisions. In India, the Reserve Bank of India shoulders this responsibility.

The second of the Basel Accords, Basel II was first published in June 2004 and established in 2005. This accord widened the scope of Basel I by establishing capital requirements for market risk and operational risk, in addition to credit risk. Basel II also included provisions which allowed banks to use advanced statistical methods to compute possible losses for which they were required to hold capital. Therefore, international banks had an advantage as they could lower their capital requirements through the use of advanced models.

The third of the Basel Accords, Basel III was created in response to the flaws in financial regulation which led to the crisis and also due to appeals for the reform of capital adequacy and liquidity standards for banks.

According to the Basel Committee Report of 1999, Banks have to maintain a certain level of transparency and disclosures in their statements. The annual report should disclose a number of factors relating to the operations of the banks such as accounting ratios, business per employee, related party disclosures and information.

Recent Steps Taken by Banks in India for CG

•                   Induction of non-executive members on the boards

•                   Constitution of various Committees like Management committee, Investor’s Grievances committee, ALM committee, etc.

•                   Role of Independent auditor

•                   Gradual implementation of prudential norms as prescribed by the RBI,

•                   Introduction of Citizens Charter in banks

•                   Implementation of “Know Your Customer” concept

•                   The Board of Directors and top management of the Bank are chiefly responsible for good CG.

Frauds by others

•                   Forgery and altered cheques -This type of fraud involves altering the amount on the face of a cheque for nefarious purposes

•                   Stolen cheques -This type of fraud is initiated by the theft of a few cheques. Then accounts are opened using fake identities, and the suitably altered stolen cheques are deposited, followed by convenient withdrawal of the amount. In a similar way, stolen blank cheque books are misused by fraudsters.

•                   Accounting fraud -Overstating sales and income, dishonest accounting and inflating the worth of the company’s assets to hide that the company is actually functioning in loss constitute Accounting Fraud. E.g., Satyam.

•                   Credit card fraud - Credit cards lend themselves to several opportunities for fraud. Made of three PVC sheets, of which the central sheet is known as the core stock, credit cards carry substantial data. Credit card frauds can be carried out in several ways.

•                   Frauds committed by auditors

•                   Power of Attorney fraud- A “Power of Attorney” (“POA”) is a legal document through which the donor grants the power to his attorney to ‘step into the donor’s shoes’ and conduct legal and financial matters on the donor’s behalf.

•                   Phishing- In this type of fraud, sensitive data such as account numbers, login Independent Directors (IDs), passwords, and other verifiable information are extracted from gullible individuals either through fraudulent telephone calls or emails. These data are then misused for dishonest purposes, including identity theft. Phishing is most often perpetrated through mass emails and spoofed websites.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service requirements.

Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

Contact at parascs@gmail.com or refer website www.pnjlegal.com

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