Anti-Competitive Agreements

Amity Law School

Block I-2, Sector-125

Amity University
 Introduction
With the dynamic trends in today’s extremely competitive economic market scenario, the
emergence of an altogether new age of competition laws in India has been one of the utmost
important changes which had been hitherto nonexistent. The factors such as India’s changed and
overhauled economic policies, removal of trade barriers and all the pro-trade changes, almost
instantly led to a paradigm shift in the Indian economic market sphere. This concerned the
authorities as it conferred upon them a responsibility to regulate the market forces. Thus, it was
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 by legislation. Thus with this view, Competition Act 2002 was
brought about after a couple of amendments after its predecessor the MRTP Act, was
repealed.

MRTP Act- first trade regulatory legislation in India

As per its preamble, the MRTP Act is an “Act to provide that the operation of the economic system
does not result in the concentration of the economic power to the common detriment, for the
control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for
matters connected therewith or incidental thereto.”
Anti Competitive agreements in MRTP Act:
The broad objectives of MRTP Act, 1970 were threefold:
a) To prevent concentration of economic power in few dominant hands
b) Prohibit monopolistic trade practices, and
c) Prohibit Unfair and restrictive trade practices.
The MRTP Act, provided for violation of most of the anti competitive practices, but still was vague
in nature. Its objectives were narrower as compared to the present day competition legislation and
were not efficient enough to be at par with the competition policy which was formulated post-
liberalization period of 1990’s.
Thus, Raghavan Committee was formed, pursuant to whose recommendations. The Competition
Act, 2002 found its inception.
The objective behind the framing of competition policy in the form of competition legislation
derives its validity through the supreme law of land- The Constitution of India, like all other
legislations. Article 38 and Article 39 under the directive principles of state policy; impose a duty
upon the state regarding the economic and social aspect of competition and its regulation for
common benefit of society.

Thus, it has been observed that the role of the new competition policy is to cater against all sorts
of anti competitive practices, formulated as per the report of a High Level committee, appointed
by the Government of India, name- Raghavan Committee Report, 2000.
The concept and importance of a fair and healthy competition as summarized by the Hon’ble
Supreme Court of India in the case of
CCI vs. SAIL1-
“Over all intention of competition law is to limit the role of market power that might result from
substantial concentration in a particular industry. The major concern with monopoly and similar
kinds of concentration is not that being big is necessarily undesirable.
However, because of the control exerted by a monopoly over price, there are economic efficiency
losses to society and product quality and diversity may also be affected. Thus, there is a need to
protect competition. The primary purpose of competition law is to remedy some of those situations
where the activities of one firm or two lead to the breakdown of the free market system, or, to
prevent such a breakdown by laying down rules by which rival businesses can compete with each
other. The model of perfect competition is the economic model that usually comes to an
economist‘s mind when thinking about the competitive markets.”

Therefore, the primary objective of Competition policy is to achieve:

Unhindered market access economic growth social welfare all round efficiency by-effective
allocation of resources, maximum production, and dynamic innovation.

MAIN FEATURES OF COMPETITION ACT, 2002

•Prohibits Anticompetitive Agreements.
•Prohibits Abuse of Dominant Position.
•Provides for Regulation of Combinations, and
•Enjoins Competition Advocacy

1
(2010) 10 SCC 744
Section 3 of the act defines Anti competitive agreements
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.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or
associations of persons or between any person and enterprise or practice carried on, or decision
taken by, any association of enterprises or association of persons, including cartels, engaged in
identical or similar trade of goods or provision of services, which—
(a) Directly or indirectly determines purchase or sale prices;
(b) Limits or controls production, supply, markets, technical development, investment or provision
of services;
(c) Shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the market
or any other similar way;
(d) Directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an
appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall
apply to any agreement entered into by way of joint ventures if such agreement increases efficiency
in production, supply, distribution, storage, acquisition or control of goods or provision of services.
Explanation.—For the purposes of this sub-section, "bid rigging" means any agreement, between
enterprises or persons referred to in sub-section (3) engaged in identical or similar production or
trading of goods or provision of services, which has the effect of eliminating or reducing
competition for bids or adversely affecting or manipulating the process for bidding.
(4) Any agreement amongst 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 sub-section (1) if such
agreement causes or is likely to cause an appreciable adverse effect on competition in India.
Explanation.—for the purposes of this sub-section,—
(a) “Tie-in arrangements” includes any agreement requiring a purchaser of goods, as a condition
of such purchase, to purchase some other goods;
(b) “exclusive supply agreement” includes any agreement restricting in any manner the purchaser
in the course of his trade from acquiring or otherwise dealing in any goods other than those of the
seller or any other person;
(c) “exclusive distribution agreement” includes any agreement to limit, restrict or withhold the
output or supply of any goods or allocate any area or market for the disposal or sale of the goods;
(d) “Refusal to deal” includes any agreement which restricts, or is likely to restrict, by any method
the persons or classes of persons to whom goods are sold or from whom goods are bought;
(e) “resale price maintenance” includes any agreement to sell goods on condition that the prices to
be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is
clearly stated that prices lower than those prices may be charged.
(5) Nothing contained in this section shall restrict—
(i) the right of any person to restrain any infringement of or to impose reasonable conditions, as
may be necessary for protecting any of his rights which have been or may be conferred upon him
under:
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of
1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);
(ii) the right of any person to export goods from India to the extent to which the agreement relates
exclusively to the production, supply, distribution or control of goods or provision of services for
such export.

Categories of Anti-Competitive Agreements

These categories broadly include the following agreements, between two entities, engaged in trade
of similar or identical goods or services:

1. That directly or indirectly leads to determination of purchase or sale prices;

2. That limits or controls production, supply, markets, technical development, investment or
provision of services;
3. That shares the market or source of production or provision of services by way of allocation
of geographical area of market, or type of goods or services, or number of customers in the
market or any other similar way;
4. That directly or indirectly results in bid rigging or collusive bidding, shall be presumed to
have an appreciable adverse effect on competition. Whether an agreement has an anti-
competitive effect on the competition in India is to be decided by the Competition
Commission of India. According to Section 19 of the Act, the parameters for judging or
determining whether the agreement can have appreciable adverse impact on the
competition include the following:
5. Creation of barriers to new entrants in the market;
6. Driving existing competitors out of the market;
7. Foreclosure of competition by hindering entry into the market;
8. Accrual of benefits to consumers;
9. Improvements in production or distribution of goods or provision of services;
10. Promotion of technical, scientific and economic development utilizing production or
distribution of goods or provision of services.
11. Cartelization i.e. a group of sellers o buyers who band together and try to eliminate
competition.
However, an exception can be created to this rule. If the nature of agreements is that of increasing
efficiency regarding production, supply, distribution, storage, acquisition or control of goods or
services. In the case where the agreement has a direct nexus between cost and quality efficiencies
and it benefits the consumers or compensates them for any actual or negative impact that the
agreement is likely to cause, then such an agreement does not fall within this category.

Also the Competition Act, 2002 does not recognize those agreements which impose reasonable
restrictions that restrict or protect infringement of rights as guaranteed under the Intellectual
Property laws. In the case of Shri Ashok Kumar Sharma v. Agni Devices Pvt. Ltd it was held that
a mere restriction on the use of the trademark would not be held as anti – competitive within the
meaning of Section 3 or 4 of the Act.

Section 19(3) requires that the Competition Commission of India should give due regard to the
factors as mentioned above while deciding whether it causes appreciable adverse effect or not.
However, in the case of Automobiles Dealers Association v. Global Automobiles Limited & Anr.2
CCI held that while examining the said matter, it shall work on the principles of prudence in light
of the factors as mentioned in Section 19 (3).

5. Agreements among enterprises or persons at different stages or levels of the production,

supply, storage, sale, price of trade of goods or services including the following:
6. Tie-in arrangement – agreement which requires a purchaser to purchase some other goods
as a condition to purchase the goods that he wants to purchase.
7. Exclusive supply agreement – agreement that restricts a purchaser in any manner, directly
or indirectly, from acquiring or dealing in the goods other than those of the seller or any of
the other people.
8. Exclusive distribution agreement – agreement which limits, restricts or withholds the
output or supply of any goods or allocates the area or market for disposal or sale of the
goods.
9. Refusal to deal – Any agreement that restricts or is likely to restrict any person or class of
persons, by any method, to or from whom the goods can be sold or brought.

2
CCI Case No 33 of 2011, decided on July 3, 2012
 10. Resale price maintenance – Any agreement that in which the price for resale by the
purchaser is stipulated by the seller unless it is clearly stated that the prices lower than
those prices can be charged.

While determining whether the agreement falls within the category of anti-competitive one or not,
the competition Commission can employ the yardstick of the rule of reason. According to the rule
of reason as explained by the United States Supreme Court in the case of Board of Trade of City
of Chicago v. US,3 any restraint is of an essence until it merely regulates and promotes competition.
To determine this question, the Court must ordinarily consider the facts peculiar to the business to
which restraint is applied, its condition before and after the restraint was imposed, the nature of
restraining and its actual or probable effect.

Vertical and Horizontal Agreements

Although the Competition Act, 2002 does not recognize the categorization of anti-competitive
agreements into vertical and horizontal type, the language of Sub – Section (3) and (4) states that
the former deals with horizontal agreement whereas the latter involve vertical agreements.
Horizontal type of agreements is that where two rival enterprises at any same stage of production
either fix prices or limit the extent of production or share markets. It is assumed that such
agreements would cause a situation of AAEC. In the case of Sodhi Transport Co. v. the State of
U.P.,4 phrase ‘shall be presumed’ as used in Section 3(3) has been interpreted as a presumption
and not as evidence in itself which is indicative of the party on whom the burden of proof lies. A
popular example of such horizontal agreement is cartels.

Vertical agreements include those agreements which are entered into by two enterprises at different
stages of the production agreement for example between a producer and seller or between seller
and distributor. The question of vertical agreements is determined by the court using the above-
stated principle of the rule of reason. Both positive and negative impact of competition is analyzed
using this rule.

DETERMINATION OF ANTI COMPETITVE NATURE OF AGREEMENTS

3
[246 U.S. 231-238-39 (1918)]
4
1986 AIR 1099
 1) Rule of Reason; the doctrine of Rule of reason was first stated and applied by the Supreme
Court of U.S.A. in its interpretation of the Sherman Act in the case of Standard Oil Co.
of New Jersey v. United States5.

The Rule of reason is a legal approach by competition authorities or the courts where an attempt
is made to evaluate the pro-competitive features of a restrictive business practice against its
anticompetitive effects in order to decide whether or not the practice should be6

Rule of reason is however only applicable over the class of Vertical agreements, the agreements
mentioned under section 3(4) of the competition act 2002. It has been observed that some market
restrictions which prima facie seem to be anticompetitive may on further examination be found to
have valid efficiency-enhancing benefits

2) Per Se Rule; The per se rule, as defined by the Merriam-Webster’s legal dictionary is-a rule that
considers a particular restraint of trade to be manifestly contrary to competition and so does not
require an inquiry into precise harm or purpose for an instance of it to be declared illegal.

Agreements under section 3(3) of the competition act 2002, or Horizontal agreements are
considered to be illegal and anti competitive ab-initio, i.e. from the very beginning. Unlike vertical
agreements, which are subject to the rule of reason and parameters under section 19(3) for
ascertaining their true nature and legal validity, horizontal agreements are outright anti-
competitive and thus prohibited without considering any criteria. The Per se rule, as a concept was
originated by the US supreme court in 1898, the case Addyston Pipe & Steel Co. v. U.S.7

Exceptions guide

● Joint venture Defense

● Intellectual Property Rights

5
221 U.S. 1 (1911)
6
http://stats.oecd.org/glossary/detail.asp?ID=3305 Khemani R.S., Shapiro D.M.Glossary of
Industrial Organisation Economics and Competition Law, 1993.
7 175 U.S. 211 (1898)
 ● Export Cartels

Conclusion:

From a vague MRTP Act to the well defined and specialized Competition Act 2002, competition
legislation in India has been through a number of changes. Today, the competition Act 2002,
although still young and nascent, stands firmly established on a strong foundation. Many technical
aspects have been included and provided for distinctively by the legislature, thus removing any
possible ambiguity or a vacuum. The concept of anticompetitive agreement has been explored
deeply in the Act. With such provisions the Act aims towards protecting the interests of customer,
a self regulated healthy market economy and to provide better competitive environment to the
market players. Thus, the external aspect of law has been provided with sufficiency and soundness.
Section 3(1), (3) and (4) read with section 19(3), together provide for anti competitive agreements
and the factors causing AAEC. Based on these factors, the act seeks to provide whether such
agreements are to be presumed illegal per se or the rule of reason is to be applied before adjudging
the agreement illegal.

On the other hand, the internal aspect of law, i.e. the judicial interpretation has been also provided
for by conferring adjudicatory powers to the CCI and forming a competition appellate tribunal for
the purposes of appeals. It can be clearly observed by the orders and judgments passed by the
adjudicatory authorities, viz.: CCI, COMPAT, and the Supreme Court of India in various issues
related to anti competitive agreements under the Competition Act 2002, that for adjudging an
agreement or arrangement as being anti competitive under section 3(1) of the act, it must fall either
under the category of section 3(3) or 3(4). Section 3(1) is the main provision having a force and
vigor of its own but section 3(3) and (4) are the enabling provisions, included with the legislative
intent of providing grounds for the application of section 3(1).