Critical Analysis of the Anti-Competitive Agreements

SYMBIOSIS LAW SCHOOL, PUNE

CRITICAL ANALYSIS

ANTI COMPETITIVE AGREEMENT

SUBMITTED BY-
ADITYA LADHA
PRN: 16010125019
4th Year BA LLB (Hons.),
SYMBIOSIS LAW SCHOOL, PUNE

Competition Law
 Critical Analysis of the Anti-Competitive Agreements

ABSTRACT .............................................................................................................................. 1

MEANING OF COMPETITION AND NEED OF COMPETITION LAW ...................... 1

BRIEF HISTORY OF COMPETITION LAW .................................................................... 2

COMPETITION LAW IN INDIA ......................................................................................... 3

ISSUE HIGHLIGHTED ......................................................................................................... 4

ANALYSIS ............................................................................................................................... 4

CASES....................................................................................................................................... 8

CONCLUSION ........................................................................................................................ 9

BIBLIOGRAPHY .................................................................................................................. 10

Competition Law
 Critical Analysis of the Anti-Competitive Agreements

ABSTRACT
An overhaul in India’s economic policies and removal of trade barriers with the coming of
the millennium automatically led to a paradigm shift in the Indian economic market sphere.
This concerned the authorities as they felt the need to regulate the un-groomed forces of the
market. Thus, it became necessary for the legislature to make such laws which would ensure
fair competition for the benefit of consumers and smooth functioning of market and though
still not impose complete arbitrary external regulation. Thus, was born the Competition Act,
2002. Seventeen years after its enactment, the author ventures on a journey to dissect the act,
more specifically, mandate of the act with respect to Anti-Competitive Agreements and muse,
what was the scheme of the act as it was envisioned? Whether it has been successful in its
mission? What was the intent behind the enactment of some provisions and present the
findings.

MEANING OF COMPETITION AND NEED OF COMPETITION LAW

When you search the meaning of the word “Competition” on the Internet, it says, “the activity
or condition of striving to gain or win something by defeating or establishing superiority over
others.”1 Competition means a conflict or contention for superiority, and in the commercial
world, this means a striving for the custom and business of people in the Ps: competition has
described as “a process of rivalry between firms seeking to win customers' business over
time”.2 In other words, competition means "a situation in a market, in which firms or sellers
independently strive for the buyers' assistance to achieve particular business objectives, for
example, profits, market shares, and market growth."

Competition law not only ensures competition in the market it also actively checks practices
that is harmful to the competitive process. It can be considered as an act of Government,
which prohibits conduct, which is anti competitive and tends to interfere with the free
enterprise is unprotected by the Government, it sometimes produces, in some areas of
business, practices which are anti-competitive or monopolistic leading to inefficiencies in the
market.

The primary purpose of competition law is to promote economic productivity using

competition as one of the means of supporting the creation of market responsive to consumer
preferences. It requires not only protection of free trade but also to secure the interest of the

1
Meaning as per Google.com
2
Richard Whish and David Bailey, “Competition Law,” 3 (Oxford university Press, 7 th edn., 2012).

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 Critical Analysis of the Anti-Competitive Agreements

consumer. It enables the user, best guarantee for consumer protection. It is a means of
diminishing cost and improving quality. It also implies an open market system where
shortages rapidly eliminated through the best allocation of resources. It expedites growth and
development, preserves economic and political democracy.

Competition Laws (Also known as Anti-trust laws in certain jurisdictions) imbibe the idea
that competition law is designed to be a comprehensive charter of economic liberty aimed at
preserving free and unfettered competition as the rule of the trade and that unrestrained
interaction of competitive forces will yield the best allocation of economic resources of the
country, the lowest prices, the highest quality and greatest material progress.

BRIEF HISTORY OF COMPETITION LAW

United States of America: The history of modern competition law is traced to the United
States, where the Sherman Act was enacted in 1890. The Sherman Act 1890 prohibited
contracts, combinations or conspiracies in restraint of trade3 and also prohibited
monopolization or attempts or conspiracies to monopolize.4 However, owing to the brief
nature of the act it fell short of meeting the dynamism of the U.S. economy. Hence, most of
the deficiencies were covered under the Clayton Act, 1914, which contained provisions for
merger control and also against tying, price discrimination and exclusive dealing. In the wake
of the tide of anti-competitive mergers in the 1940s the Clayton Act, was amended through
the Celler Kefauver Act, 1950 to further strengthen control over mergers.

UNITED KINGDOM: In the United Kingdom, the Monopolies and Restrictive Practices
(Inquiry and Control) Act was enacted in 1948. The Competition Act 1998 and the
Enterprises Act 2002 fundamentally changed both the substantive provisions and the
institutional architecture of the domestic competition law of the United Kingdom. In March
2011 the Government began consultation exercise considering the case for introducing
further changes to various aspects of domestic law and in particular the institutional
architecture5.

3
Section 1, Sherman Act, 1890.
4
Section 2, Sherman Act, 1890.
5
Office of Fair Trading, A Competition Regime for Growth: a consultation on options for reform, A
Competition Regime for Growth: a consultation on options for reform, June 2011, available at
http://webarchive.nationalarchives.gov.uk/20131101190942/,
http://oft.gov.uk/shared_oft/consultations/OFT1335.pdf, last accessed on 10 th August, 2019

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 Critical Analysis of the Anti-Competitive Agreements

GERMANY: The years of World War II witnessed the operation of huge cartels both at the
national and international levels. After the war, antitrust was also looked upon as a check
against private owner power. Anti-trust legislation was introduced in Germany in 1957,
attributed to the influence of both the ordo-liberal philosophy of the Freiburg School and the
Marshall Plan.

JAPAN: Antitrust law was introduced in Japan in 19476, however it was generally felt that in
Japan the law did not take root for many years due to the tacit acceptance of cooperative
business practices and Government business collaboration prevailing in the country.

COMPETITION LAW IN INDIA

India is regarded as a mixed economy. The post independence period marked turbulence in
terms of elevating the economy and to ensure the socialistic policies, which the then
Congress government sought to ensure to the citizens.

Parliament first enacted the Monopolies and Restrictive Trade Practices Act, 1969. In the
wake of economic liberalization and widespread economic reforms introduced by India since
1991 and in its attempt to march from a “command – and - control” regime to a regime based
on free market principles, India decided to replace it with the new law, i.e. the Competition
Act, 2002.7

It aims to preserve competition in the market, principally through control of anti-competitive

agreements, abuse of dominant position, and mergers that would impair or eliminate
competition in a particular market. It was introduced at a time when large multinational
companies, taking advantage of India's liberalized economic policy and permitting to
participate in economic activities in India established in India. The Act received the assent of
the President of India on 13 January 2003. The progress of the law was stymied by a
successful challenge, in the Supreme Court of India, in Brahm Dutt v. Union of India8, to the
adequacy of the legal basis on which the constitution, by the central government of the
competition commission rested.

6
Japanese Antimonopoly Act, 1947, See Fox Elenor M (2002): Competition Law in Lowenfeld, Andreas N:
“Oxford University Press”, Oxford (2002) pp-340-83.
7
Act No.12 of 2013.
8
Brahm Dutt v. Union of India , AIR 2005 SC 730.

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 Critical Analysis of the Anti-Competitive Agreements

ISSUE HIGHLIGHTED
Through this paper, the main issue to be highlighted is that of test of appreciable adverse
effect on competition which is used to determine, whether the agreement entered into, by the
parties, is void or not.

The paper will also discuss the steps that are followed in order to determine the appreciable
adverse effect on competition. It is clear from the Section 3(1), that if an agreement does not
have an appreciable adverse effect on competition, then it will remain outside the purview if
this section. But if someone alleges that an agreement is likely to cause appreciable adverse
effect, then action arises under this section. However, the term used in Section 3(1) has not
been defined in the Act, and thus the entire concept of the appreciable adverse effect on
competition is made subjective that may vary from case to case. Thus, in order to determine
this, the following analysis has been sought out.

ANALYSIS
The Competition Act, 2002 defines the “Anti-Competitive Agreement” as “any agreement
with respect to production, supply, distribution, storage, acquisition, control of goods or
provision of services that causes an appreciable adverse effect on competition in India. At the
same time, the definition also prohibits any enterprise, or association of enterprises, any
person or association of persons from entering into such agreements.”9

This rests on the premise that competition law is designed to be a comprehensive charter of
the economic liberty aimed at preserving free and unfettered competition as the rule of the
trade,10 that unrestrained interaction of the competitive forces will yield the best allocation of
economic resources of the country, the lowest prices, the highest quality and greatest material
progress.11

Thus, an anti-competitive agreement might be characterized as one, which interferes with the
commercial freedom of either party to the agreement (or even a third party) to trade freely as
it would wish.12 The Competition Law treats such concerted actions very harshly on the

9
Section 3(1), The Competition Act, 2002.
10
Abir Roy and Jayant Kumar, Competition Law In India, 2, Eastern Law House, 2014
11
Northern Pacific Railway Company & Northwestern Improvement Company v. United States of America, 365
U.S. 1
12
Supra 10

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 Critical Analysis of the Anti-Competitive Agreements

premise that concerted activity is fraught with the anti-competitive risk as it deprives the
marketplace of the independent centers of decision making.13

Section 3 of the Competition Act, 2002 deals with the anti-competitive agreement. Section
3(1) and 3(2) of the Act reads as under:

“3. Anti-competitive agreements.—

(1) No enterprise or association of enterprises or person or association of

persons shall enter into any agreement in respect of production, supply,
distribution, storage, acquisition or control of goods or provision of services,
which causes or is likely to cause an appreciable adverse effect on competition
within India.

(2) Any agreement entered into in contravention of the provisions contained in

sub-section (1) shall be void.”

Competition law usually places anti-competitive agreements in two categories of horizontal

and vertical agreements. The horizontal agreements are viewed more seriously than vertical
agreements. The Act doesn’t specifically use the terms horizontal agreement and vertical
agreement. However, the agreements referred in section 3(3) are horizontal while those
referred in section 3(4) are vertical agreement.14

Now, as we have seen above, in order to determine that whether an agreement is an anti-
competitive agreement or not, it has to undergo the test of “appreciable adverse effect.” The
Act does not provide that all the agreements between enterprises and persons are prohibited.
The Act recognizes the positive synergies that emanate from the agreements between the
enterprises. This is in order to ensure that the agreements entered into between the enterprises
do not distort the competitive structure of the market.

The major key role in deciding the anti-competitive agreements is played by the phrase
“appreciable adverse effect”. Whether an agreement is anti-competitive by reason of its
appreciable adverse effect on competition is determined on the basis of application of either
Rule of Reason or the ‘per se’ Rule.

13
Copperwel Corpn. v. Independence Tube Corporation, 467 U.S. 752
14
Vinod Dhall, Competition Law Today, Oxford University Press, First Publication, p. 504

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 Critical Analysis of the Anti-Competitive Agreements

While determining whether an agreement has an appreciable adverse impact on competition

or not, the CCI has to look at the following factors15:

a. Creation of barriers to the new entrants in the market

b. Driving existing competitors out of the market
c. Foreclosure of Competition by hindering entry into the market
d. Accrual of benefits to consumers
e. Improvement in production or distribution of goods or provision of services
f. Promotion of technical, scientific and economic development by means of production
or distribution of goods.

The per se Rule:

The ‘Per se' is a Latin expression significance in itself in legal terms it mostly implies that the
courts will respect a particular activity to dependably be harmful and consequently it should
just prove that the respondent has conferred the activity to discover him liable.16 The per se
rule classifies certain actions as illegal per se irrespective of attenuating factors such as
impact on market, intention etc. Under the per se rule, the acts or practices specified in the
Act as deemed or presumed to have an AAEC are by themselves prohibited. It is unnecessary
to consider, under the per se rule, if they limit or restrict competition. It is based on the
experience of nature to produce an anti-competitive effect. There is no need to prove the
nature of per se violations.

This rule came into being, as a convenient alternative to a cumbersome inquiry process into
the actual conditions prevalent in the market where the economic impact of the agreement
between two enterprises or persons is such that the practice engaged in is anti-competitive in
all likelihood and the price is unnecessary to be determined to ascertain whether in fact, the
conduct is anti-competitive in nature.17 Instances of this include: price fixation, bid rigging,
collusive bidding, territory allocation, resale price maintenance, group boycotts etc. This rule
is applied in the treatment of Horizontal Anti-Competitive Agreements.

The only exception to this per-se rule is in the nature of joint venture arrangements which
increase efficiency in terms of production, supply, distribution, storage, acquisition or control

15
Supra 10
16
Pratima Singh Parihar, “Anti-Competitive Agreements- Underlying Concepts & Principles Under the
Competition Act, 2002,” 28 (Competition Commission of India, LL.M. dissertation, National Law Institute
University, Bhopal (M.P., 2012).
17
Fefforson parish Hospital Dist. No. 2 v Hyde

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of goods or services. Thus there has to be a direct nexus between cost / quality efficiencies
the agreement and benefits to the consumers must at least compensate consumers for any
actual or likely negative impact caused by the agreement.

Rule of Reason:

The Rule of Reason approach is a mechanism where stock is taken of the agreement entered
into between persons or enterprises and the subsequent impact caused upon the market, the
economy and the consumers before arriving at a conclusion. This rule is applied in the
treatment of vertical Anti-Competitive Agreements.The rule of reason is a doctrine developed
by the US Supreme Court in its interpretation of the Sherman Act. The rule, stated and
applied in the case of Standard Oil Co. v. US18 is that only combinations and contracts
unreasonably restraining trade are subject to actions under the antitrust laws and that size and
possession of monopoly power are not illegal. This landmark judgement came as a relief
having significant ramifications right at the heels of United States v Trans-Missouri Freight
Association19 Judgement which had declared any restriction on trade to be a restraint on trade
within the meaning of the competition act.

Section 3(4) of the Competition Act provides that any agreement among enterprises or
persons at different stages or levels of the production chain in different markets, in respect of
production, supply, distribution, storage, sale or price of, or trade in goods or provision of
services, including (a) tie-in arrangement; (b) exclusive supply agreement; (c) exclusive
distribution agreement; (d) refusal to deal; (e) resale price maintenance, shall be an agreement
in contravention of Section 3(1) if such agreement causes or is likely to cause an appreciable
adverse effect on competition in India. As can be reason, these agreements are not deemed
anti-competitive. Only if they cause or are likely to cause an AAEC in India will these
agreements be in violation of section 3(1) of the Competition Act. The rule of reason must be
applied in this determination.

In M/s Jasper lnfotech Private Limited (Snapdeal) v. M/s Kaff Appliances (India) Pvt. Ltd.,20
the CCI held that display of products at prices less than that determined by the
dealers/distributors, hinders their ability to compete and is thus a violation of Section 3(4)(e)
read with 3(1) of the Act. Similarly, imposition of restrictions on the dealers to deal with

18
Standard Oil Co. v US, 221 US 1 (1911)
19
United States v Trans-Missouri Freight Association,166 US 290 (1897)
20
Case No. 61 of 2014 decided on 29.12.2014

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competing brands in the market and thereby restricting the interbrand competition too is a
breach of Section 3(4) with section 3(1) of the Act.21 However, as decided in XYZ vs. M/s
Penna Cements, M/s India Cements, M/s Bharathi Cement,s M/s Dalmia (Bharat) Cements
etc.22 the mere allegation of increasing the prices of a product would not make the transaction
anti-competitive.

CASES

1. Akali Manufacturers v. American National Soda Ash Corporation Case No. 66 of

2011, 16 April 2013

Allegations: The parties were using the Alkali Manufacturer’s Association of India
(AMAI) as a platform for sharing confidential and commercially sensitive business
data.

CCI Order: Information being exchanged was not confidential or commercially

sensitive. It was available in AMAI’s Annual Reports and was published by the
Government of India. No evidence to suggest that data such as commercial strategies
on issues like forecasts of production/ capacity utilization rate, increase of prices,
allocation of markets and market shares, terms of discounts and other trading terms
was being exchanged.

2. Indian Sugar Mills Association (ISMA) v. Indian Jute Mills Association,Case No.
38 of 2011, 31 October 2014.

The CCI penalized the Indian Jute Mills Association (IJMA) and the Gunny Trade
Association (GTA) for contravening the provisions of the Competition Act by:
Price fixing of jute material through the circulation of daily price bulletins between
themselves, and limiting and controlling the supply of jute packaging material. 30 out
of 34 members of IJMA were also members of GTA, and the CCI held that the IJMA
as an association provided a forum to its members for suggesting changes in the daily
price bulletins by the GTA, thereby actively influencing the determination of price
and limiting the supply of jute packaging in a concerted manner.

21
Case No. 81 of 2014, St. Antony’s Cars Pvt. Ltd. v. Hyundai Motor India Ltd, decided on 20.11.2014
22
Ref. Case No. 7 of 2014 decided on 19.11.2014

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CCI Order: Members of Executive Committee of IJMA and GTA penalized at 5% of

their average income for last 3 years.

3. Mr. Ramakant Kini v. Dr. L.H. Hiranandani Hospital, Powai, Mumbai, Case No.
39 of 2012.
CCI Order: The CCI in this case held that the exclusive agreement entered into
between Dr. L.H. Hiranandani Hospital and Cyrobanks International India is violation
of Section 3 because it causes AAE.
The said case is very relevant because the CCI held that such exclusive agreement
was anti-competitive, even though L.H. Hiranandani Hospital was not dominant in the
relevant market.

CONCLUSION
Anti-competitive agreements do harm the competition in the market as it could lead to
monopoly or provides unfair advantage to the business enterprise. However, these
competitive agreements are not always injurious to business and at times such agreement may
result in consumer welfare. The role of competition commission is of great importance with
respect to anti-competitive agreements. The problem which could be faced by CCI is the
investigation of these agreements or arrangements. This is probably because of lack of
investigating power given to the Director General (DG). Power to inspect records of
enterprises without a court warrant creates time delay in investigation of such an agreement.
The role of CCI is much closer or similar to the role of a referee in a football match. He has
to regulate the game, prevent and punish on foul play and further has to run along with the
players. Similarly, CCI has control on competition in the market and has to function in
accordance with the ever changing dynamics of market. Prohibition on anti-competitive
agreements is very much similar to the rule of ‘off- side’ in football. Like as per off-side rule,
one cannot pass the ball to his own player unless and until a defenders is there to stop such a
pass. Similarly, an enterprise cannot form an agreement that prohibits its competitors from
entering or stopping him to have unfair advantage of the market that will ultimately harm the
consumers.

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 Critical Analysis of the Anti-Competitive Agreements

BIBLIOGRAPHY
Statutes

• Competition Act, 2002 (Act No. 12 of 2003)

• Monopolies and Restrictive Trade Practices Act, 1969 (Act No. 54 of 1969)
• Sherman Antitrust Act, 1890
• Clayton Antitrust Act, 1914

Cases

• Brahm Dutt v. Union of India , AIR 2005 SC 730.

• Northern Pacific Railway Company & Northwestern Improvement Company v.
United States of America, 365 U.S. 1
• Copperwel Corpn. v. Independence Tube Corporation, 467 U.S. 752
• Fefforson parish Hospital Dist. No. 2 v Hyde
• Standard Oil Co. v US, 221 US 1 (1911)
• United States v Trans-Missouri Freight Association,166 US 290 (1897)
• M/s Jasper lnfotech Private Limited (Snapdeal) v. M/s Kaff Appliances (India) Pvt.
Ltd., Case No. 61 of 2014 decided on 29.12.2014
• St. Antony’s Cars Pvt. Ltd. v. Hyundai Motor India Ltd, Case No. 81 of 2014
• XYZ vs. M/s Penna Cements, M/s India Cements, M/s Bharathi Cement,s M/s Dalmia
(Bharat) Cements etc., Case No. 7 of 2014 decided on 19.11.2014
• Akali Manufacturers v. American National Soda Ash Corporation Case No. 66 of
2011
• Indian Sugar Mills Association (ISMA) v. Indian Jute Mills Association,Case No. 38
of 2011
• Mr. Ramakant Kini v. Dr. L.H. Hiranandani Hospital, Powai, Mumbai, Case No. 39
of 2012

Books

• Dugar, S.M. Guide to Competition Act, 2002 (LexisNexis) 7th Ed., 2017
• Tripathi, S.C. Competition Law (Central Law Publications) 1st Ed. 2015
• Ramappa, T. Competition Law in India: Policy, Issues and Developments (Oxford
University Press) 3rd Ed. 2013

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 Critical Analysis of the Anti-Competitive Agreements

• Singh, Avtar, Law of Monopolies and Restrictive and Unfair Trade Practices (Eastern
Book Company) 3rd Ed. 1999
• Whish, Richard, Competition Law (Oxford University Press) 7th Ed. 2012
• Vinod Dhall, Competition Law Today, Oxford University Press, First Publication

Research Papers

• Aditya Bhattacharjea, India's New Competition Law: A Comparative Assessment, 4 J.

Competition L. & Econ. 609 

• IttaiPaldor, The Vertical Restraints Paradox: Justifying the Different Legal Treatment
of Price and Non-Price Vertical Restraints, 58 U. Toronto L.J. 317 

• Aman Srivastava, Anti-Competitive Agreements under Competition Act, 2002,
I.S.S.N. 2321 6417
• Francis Devlin, Resale Price Maintenance and Leegin: Opening Pandora's Box in
Global 
Competition Law, 31 Hous. J. Int'l L. 565
• EinerElhuage, Tying, Bundled Discounts and the Single Monopoly Profit Theory, 123
Harv. L. Rev. 397
• William Baxter, The Viability of Vertical Restraints Doctrine, 75 Cal. L. Rev. 933
• Pratima Singh Parihar, “Anti-Competitive Agreements- Underlying Concepts &
Principles Under the Competition Act, 2002,” 28 (Competition Commission of India,
LL.M. dissertation, National Law Institute University, Bhopal (M.P., 2012).

Online Legal Databases

• Manupatra
• Kluwer Competition Law
• LexisNexis

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