Introduction

• My topic focuses on the Anti- competitive Agreements under the Competition Act, 2002.
The main focus was made in the nature and meaning of Anti –competitive agreements
and how they impact adversely the competitive process at the market and the consumer.
Competition laws are introduced to regulate the manner in which business are conducted
India, so as to create a level playing field with effective competition in the market.
• The underlying intent for this statue is for business to compete on merit, and not with the
aid of anti-competitive agreements or conduct. Anti – competitive agreements under the
Competition Act , 2002 are in the nature of Restrictive trade practices under the extant
MRTP act, 1969.Substantive clauses in the Indian Competition Law dealing with anti-
competitive agreements and contracts are provided under sec-3 of Competition act, 2002
. An anti- Competitive agreement is an arrangement which has a major adverse impact on
the market.

Anti – competitive agreements meaning

Anti-competitive agreements are those that have as their object to , or actually effect in
preventing , restricting or distorting competition in any market in India. Such arrangements
competition refers not a particular list of agreements, but to particular economic consequences
which may be produced by quite different sorts of agreements in varying time and
circumstances.
It refers to any action which operates to the prejudice of the public interests by unduly restricting
competition or unduly obstructing due course of trade.
Any act which essentially obstructs the free flow of commerce between the states, or restricts ,
the liberty of a trader to engage in business, including restraints of trader to engage in business,
including restraints of trade aimed at compelling third parties and strangers involuntarily not to
engage in any other trade, is said to have an appreciable adverse effect of competition.

Section 3 of the Act is the fundamental clause

of Anti-competitive Agreements and Arrangements in the Indian Competition Act.
An anti-competitive agreement is an arrangement which
has a major adverse impact on the market.
Section 3 prohibits any agreement concerning the manufacture, supply, distribution, storage,
acquisition or control of goods
or services which causes, or is likely to cause, a significant adverse effect on the Indian
competition.
Section 3(1) reads as follows: No enterprise or association of enterprises or persons or
associations of persons shall enter into any arrangement relating to the
manufacture, supply, distribution, storage, acquisition or control of goods or services that causes
or is likely to have a major adverse effect on competition in India.

Essential elements of Anti-competitive agreements

Thus, there are two essential requirements to bring into operation sec-3(1)-
1. There should be an agreement.
2. The agreement should cause an appreciable adverse effect on competition in the market.
The term agreement is defined under section –3(b) of the Competition act ,2002 in the following
way-
It includes any arrangement or understanding or action in concert-
1. Whether or not, such arrangement, understanding or action is formal or inwriting or
2. Whether or not, such arrangement, understanding or action is intended to be enforceable
by legal proceeding.
The parties of agreement should be independent of each other.

How to determine AAEC?

The act provides that any agreement including cartels, which -
• Directly or indiectly determines purchase or sale prices
• Limits production , supply, technical developments or provision of service in market.
• Result in bid rigging or collusive bidding
Shall be presumed to have an appreciable adverse effect on competition in India
Section 3 of the Act specifies that the above conditions shall not apply to joint ventures entered
into
with the intention of improving the efficiency of production, delivery, distribution, procurement
and control of goods or services
An arrangement is anti-competitive if it has an adverse
effect on competition, or is likely to cause it.
The word adverse effect appreciable has
not been specified in the Act.
In the case of Haridas Exports vs. All India Float Glass Manufacturers Associations [(2002) 111
Comp. Cas.617 (SC)] The SC observed that the words "serious adverse effect on competition"
involve laws, contracts, agreements or combinations that
act to the detriment of the public interest by unduly restricting competition or unduly hindering
the course of trade.

Factors determining whether an agreement has an

appreciable effect on competition-
1. Creating of barriers to the new entrants
2. Driving existing competitors out of the market
3. Foreclosure of competition by hindering entry into the market
4. Improvements in production or distribution of goods or provision of services
5. Accrual of benefit to the consumers
6. Promotion of technical , scientific and economic developments

Types of Anti – competitive agreements:

Anti - competitive agreements further classified into two types:
• Horizontal agreements
• Vertical agreements
 Horizontal agreements(Section-3(3)
Horizontal Agreement is a cooperative arrangement between two or more rival firms that
operate in the same market at the same point of the supply chain.
Such arrangements are between two producers, two dealers, or
two retailers, or others dealing in goods of similar nature. Such deals have a strong negative
impact
on successful market competition and consumer prices.
They are, then,
hollow per se.

Horizontal agreements are arrangements between enterprises at the same stage of production. Section
3(3) of the Act provides that such agreements includes cartels, engaged in identical or similar trade of
goods or provision of services, which-

3. Directly or indirectly determines purchase or sale prices

4. Limits or controls production, supply
5. Shares the market or source of production
6. Directly or indirectly results in bid rigging or collusive bidding

Horizontal agreements are put in a special category under the Act

and are subject to the negative assumption that they are anti-competitive.
This is often called
the 'per se' law.
It means that if there is a horizontal arrangement pursuant to Section 3(3) of the Act,
it is believed that such an arrangement is anti-competitive and has a substantial adverse impact
on competition
The horizontal agreements are further divided into 4 kinds:
• Price fixing agreements

a. Agreement to raise or stabilize price

b. Establish uniform discount or eliminate discount
c. Set uniform price as stating point for negotiation
d. Discontinue free service
e. Impose mandatorily surcharge
f. Restrict price advertising

• Facilitating practices
This include agreements that make it easier for competitiors to collectively exercise market
power and to avoid competing with each other.
Eg. -Agreements to share information
Sellers agrees either to meet any price. The buyer is able to obltain from another supplier or
release the buyer to purchase from seller.
• Quiet life agreements
They are Agreements that restrict competition by free competitors from some significant
aspect of competition.
Eg. - agreements not to advertise Agreements to limit business hours
• Group boycotts
They are agreements among competitors not to deal with other competitors, suppliers distributors
or retailers
• Trade association
 Certain key issue under horizontal agreements:
1. Limiting production or supply
All decisions or increase or decrease of production , sales or capacity, entry into new
markets, capacity utilization etc. Should be taken independantly . Any agreement /
understanding on the above between competitors may raise concerns . It is best to keep a
record of independent business reaons for any decisions regarding the same.

2. Market sharing

There should not be anyformal or informal agreement or understanding with competitors in

relation to sharing of territories / products. Competitors must agree not to target each other’s
customers .

3. Big- rigging
Any agreement which has the effect eliminating or reducing competition for bids or
adversely affecting or manipulating the process for bidding. Common forms of bid-rigging:

• Bid suppression
• Complementary bidding
• Bid rotation,
• Agreements not to bid against each other or squeeze other bidders,
• Agreements on common terms or pricing formulae

Vertical agreements(3)(4)
Vertical Agreement is an arrangement between two or more
firms, each working at a separate manufacturing or distribution chain.
In general, these arrangements are not regarded as anti-competitive per se
but are to be judged under the test of 'law of reason.' The following are the vertical arrangements
which, if found to have an appreciable adverse effect on the market are considered to be anti-competitive.

• e-in arrangement
• Exclusive supply agreement
• Exclusive distribution agreement
• Refusal to deal
 • Resale price maintenance

The ‘per se’ rule as applicable for horizontal agreements does not apply for vertical
agreements. Hence, a vertical agreement is not per se anti – competitive or does not have
an applicable adverse effect on competition.

Different kinds of vertical agreements:

A) Tie in arrangements
This shall contain any provision allowing the purchaser of the goods to purchase those other
products as a condition of such purchase.
This includes where there is a seller who offers to sell desirable product or service that
ties the product only on condition that the consumer buys a less desirable second product or
service; That is, the joined product, regardless of whether
or not the consumer wants the second product.
It is an agreement with a provision that the party can
only sell the product so that the buyer also buys another product.
In ex:
In ex.
Boyce and
Godrej Mfg.
Co.
Co.
Pvt:
Pvt.
Ltd.[8], the duty of proof is that of the
plaintiffs who brought the violation argument per se to prove:-
• The seller contained in the sale of the product or service on the purchase of second.
• That the two products or services are two separate products that they are not parts of the
same product.
• That the seller has sufficient position on the market for trying the product to enforce it.
In Apple Case: Necessary Ingredients-Presence of two separate goods or services capable of
being connected, Seller: ample economic power in binding good to inhibit competition in tied
good, and Binding agreement affects a not insubstantial amount of trade.
Fx Enterprises v. Hyundai Motor India Limited Allegations: Hyundai entered into
exclusive supply deals with its dealers and declined to resolve arrangements.
Furthermore, it was reported that it engaged in resale
price management by recommending maximum allowable discounts for its dealers.
This was also reported to have related sales
of CNG packs, lubricants, oils, and auto insurance.

b. Excluisive supply agreements

An Exclusive Supply Agreement includes any agreement which prevents the purchaser from
acquiring or otherwise
dealing in goods other than those of the seller or any other individual in the course of his trade.
For example, if a dealer / distributor is forbidden
to deal with products from competitors of the suppliers. Exclusive supply arrangements have
been considered admissible where reasonably necessary-such as
defending against free roaming, ensuring investment security and ensuring quality of supply.
In Intel case: the CCI held that when the manufacturer deals with goods belonging to the
rivals of the seller, a obligation to notify the seller can not amount to an exclusive supply
agreement.
.c exclusive distribution agreement
Any agreement to limit, restrict or withhold the manufacture or supply of any goods or to
designate
any region or market for the disposal or sale of the goods shall constitute an exclusive
distribution agreement.
Bajaj case: Bajaj assigned business areas to all its dealers – found to be an exclusive dealership

arrangement pursuant to Section 3(4)(c) of the Act – however, accordingly, no AAEC found any
infringement.

Spare parts case: Agreement between OEM and local OES prohibiting the latter from
supplying the aftermarket-found to be in violation of Section 3(4)(c).

d. Refusal to deal
Refusal to deal requires any arrangement that limits, or is likely to limit, the individuals or
groups of individuals to whom goods are sold or from whom goods are purchased by any
process.
Spare parts case: Agreement between OEM and local OES prohibiting the latter from supplying
the
aftermarket – often considered to be a refusal to enter into a contract.

e. resale price maintainence

The protection of resale prices requires any arrangement to sell goods, given that the prices to be
paid on resale by
the buyer are the prices stipulated by the seller unless it is explicitly specified that prices below
such prices can be paid.
Fx: hyundai case Fx/Hyundai Case: restrictions imposed on maximum permissible discount that
could be given by a dealer to customers – held to be RPM.
Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors: Section 3 and 4 Violations Allegations:
Car manufacturers have entered into anti-competitive deals with their original suppliers
of equipment (OESs) and approved dealers, limiting the selling of spare parts and tools on the
open market.
It was further claimed that the car manufacturers exploited their dominant position by
limiting the supply of their spare parts to the open brand by the OESs

Entities covered under Anti- competitive agreements

Subsection(1) identifies the entities that are included in this section . These included
agreement between:
1. Enterprises
2. Association of Enterprises
3. Enterprises and Association of Enterprises
4. Persons
5. Association of Persons
6. Person and Association of Persons
7. Person and enterprise
8. Association of Person and Enterprise
9. Association of enterprise and persons
10. Association of persons and association of enterprise

The Competition Act Expressly prohibits any agreement that falls within any of the mentiones
categories .Sub-section(2) expressly prohibits the entities mentioned above from entering into
any agreements about production, supply, distribution, acquisition or control of goods or service
which have the potential to cause harm or are likely to cause Appreciable Adverse Effect on
Competition (AAEC) within India . AAEC can be defined as a phenomenon which is observed
in the case of any of the provision of this act is contravened . It includes the negative effect that it
creates on the market players and healthy competition in the market. The ambit of section 3 is
wide enough because it not includes those agreements that are expressly stated but also implied
agreements that come under its purview.
Categories of Anti-Competitive Agreements
These categories broadly includes the following agreements, between two entities ,engaged in
trade of similar or indentical 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 service by way of
allocations of geographical area of market, or type of goods or service, 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 persumed 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
Comission of India. According to Section 19 of the Acr, 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 ofbenefits to consumers ;
9. Improvements in production or distribution of goods or provision of services;
10. Promotion of technical , scientifical and economic development utilizing production or
distribution of goods or provision of services.
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 agrrement 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 agreements 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 infirngements 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 cause appreciable adverse effect or not.
However, in the case of Automobiles Dealers Association v. Global Automobiles Limited &
Anr.,(1)CCI held that while examining the said matter , it shall work on the principles pf
prudence in light of the factors as mentioned in Section 19(3).

Remedies to Anti- competitive agreements

After an inquiry if the commission finds that the agreement in question falls within the category
of Section-3, it can pass any of the following orders as the case may be:

1. Direct the person , enterprise or association involved in the agreement to discontinue or

re-enter such agreement;
2. Impose such penalties on person enterprise or associations, as it deems fit. Such penalties
shall not exceed ten percent of the average turnover for the preceeding three financial
years
3. In case of cartels the penalties mentioned above shall extend to each producer , seller,
distributor, trader, or service provider included in the cartel and the amount of penalty
could extend upto either three times of its profit for each year of the agreement’s
continuance or ten percent , whichever is higher.
4. Direct for modification of the agreement to the extent and in the manner as may be
specified in the order of the commission.
5. Payment of cost and issuing of directions to the enterprise to comply with the orders.
6. Pass any such order or directions as it may deem fit.

CCI’s Orders in relation To Anti- competitive agreements

• General Matters

Scope of the Competition Act

A large number of the CCI’s initial orders under Section-3 of Competition act were
dismissals of complaints filed with the CCI on the basis that the facts of such complaints did
not constitute a prima facie case under the Competition Act . Several such complaints were
based upon an incorrect understanding of the scope of the Competition Act , and included
individual commercial disputes, complaints under the MRTP Act and ordinary consumer
compalints . The CCI clarifies through its orders that such matters did not fall within the
scope of the Competition Act, and the complainants remedy lay with other regulators.

While these initials orders did not go far to elucidate the CCI’s view of the substantial
prohibitions under Section-3 and 4 of the Competition Act , they contributed towards
establishing the basic substantive framework within which the CCI’s operates , and set the
ground for subsequent substantive orders of the CCI.

Relief granted by the CCI

In addition to the CCI’S powers to fine parties to anti-competitive agreements and order
behavioral modifications the Competition Act enables the Competition Appellate Tribunal
(COMPAT) to grant compensation for a loss shown to have been suffered by any person as a
result of a contravention of a substantive prohibitions of the Competition Act, on the basis of
a determination of such contravention by the CCI or the COMPAT.
In this regard ,the CCI has clarified that it is not empowered to grant damages for tortious
liability for harassment , mental agony and torture.
Further, in relation to its competence to examine government policy, the CCI has observed
that in the event that anti- competitive conduct arises pursuant to any policy of the
Government the CCI .

Sectoral Overlap
The Competition Act envisages the possibility of an overlap between the jurisdiction of the
CCI and sectoral regulators . It provides for statutory authorities and the CCI to mutually
refers issues relating to competition law. Further, Section –62 of the Competition Act
clarifies that the provision of the Competition Act shall be in addition to , and not in
derogation of the provision of any other law.

Several complaints presents to the CCI have related to industries regulated by specific
sectoral regulators. In general , the CCI has followed an approach of deferring to the relevant
sector regulators policies on technical issues, and demarcating its jurisdiction on competition
related issues across all sectors.
Conclusion
The Act aims to prevent practices that are anti- competitive or harmful for the market . It can
ensured when there is freedom of trade and protect the interest of all the parties. This aim cannot
be followed unless cartels are removed and all the principles in the act is followed. It is
important for the parties while doing business in India to keep a check on retaining any anti-
competitive element in the agreement between them. Enterprises should be practice and diligent
to indentify the existing anti-competitive elements from their current agreements. There must be
training programme for better understanding for the implications of anti- competitive agreements
and how to avoid it.