Acknowledgement

This project assignment was supported by Dr. Mayank Pathak, Assistant Professor, Law
School, Banaras Hindu University. I thank my colleagues from Law School, Banaras
Hindu University who provided insight and expertise that greatly assisted the research,
although they may not agree with all of the interpretations/conclusions of this paper.

I would also like to show our gratitude to my parents and peers for guiding and
providing the requisite amount of knowledge for this project.

Thank You,

Pavitra Shivhare

Roll no. 14137LA044

Introduction
The effect of information exchange and collusion amongst firms can have a
significant impact on the market structure. When firms collude to fix prices and
supply levels, they hold a great degree of market power. However, in the absence
of a written contractual agreement as direct evidence, is there a presumption of
cartelization and illegal information exchange when firms engage in parallel
pricing? This project deals with the anti-competitive agreements under the
Competition Act, 2002.
Anti-competitive agreements:
The term ‘agreement’, has been defined broadly in the Competition Act. It extends
to a mere ‘arrangement’, ‘understanding’ or ‘action in concert’, none of which
need be in writing or enforceable by law.

In a case1, the CCI said that agreement also includes anticompetitive practice
which in this case was the anticompetitive practice of not offering discounts on the
maximum retail price (MRP) of the drugs to the consumers. The necessity for a
broad definition of the term agreement has been aptly described by Lord Denning
in an old case2 “People who combine together to keep up prices do not shout it
from the housetops. They keep it quiet. They make their own arrangements in the
cellar where no one can see. They will not put anything into writing nor even into
words. A nod or wink will do.”

Section 3(1) of the Competition Act lays down that 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. The Act prohibits an anti-competitive
agreement and declares that such an agreement shall be void.3

Section 3(3) of the Competition Act deals with the horizontal agreements as it
covers the agreements between entities engaged in identical or similar trade of
goods or provision of services. It also includes cartels which will be covered in
detail below.

The section covers:

1
In Re Bengal Chemists and Druggists Association, (Suomoto Case No. 02 of 2012 and Ref. Case No. 01 of 2013) CCI
order dated 11/03/2014.
2
RRTA v. W. H. Smith and Sons Ltd.,
3
S. 3(2) of the Act.
a. agreement entered into between enterprises or associations of enterprises or
persons or associations of persons or between any person and enterprise

b. practice carried on by any association of enterprises or association of persons

c. decision taken by any association of enterprises or association of persons.

From the above it is clear that section 3(3) of the Act not only covers agreements
entered into between enterprises or associations of enterprises but also the practice
carried on or decision taken by any association of enterprises engaged in identical
or similar trade of goods or provision of services.

In Re Bengal Chemists and Druggists Association(BCDA) case, CCI held that all
actions and practices of BCDA including those relating to issues such as alleged
fixation of trade margins, issuing circulars directing its retailer members not to
give discount on the MRP in the sale of medicines to consumers, conducting raids
in order to ensure strict compliance of its directives, carrying out vigilance
operations to identify the retailers defying the direction issued by it, forcing the
defiant members to shut their shops as a punishment measure etc. would fall
squarely as ‘practice carried on’ or ‘decision taken’ by an ‘association of
enterprises’ under Section 3(3) of the Act.

Section 3(3): appreciable adverse effect on market checked by CCI on complain by

party shall use sec 19(3) to check the anti-competitiveness of substance.

To justify sec. 3(1) one has to go through sec. 19(3).

According to Section 3(3) certain agreements between enterprises, decisions by

associations of enterprise including cartels engaged in identical or similar trade of
goods or provision of services are presumed to have an appreciable effect on the
competition, 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,

"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.

These kinds of agreements are per se illegal and it is not necessary to show that the
agreement in the issue is anti-competitive or not. A typical example of anti
competitive horizontal agreement would be agreement between two manufacturers
of coal that they will not compete on price with each other.

Bid rigging takes place when bidders collude and keep the bid amount at a pre-
determined level. Such pre-determination is by way of intentional manipulation by
the members of the bidding group. Bidders could be actual or potential ones, but
they collude and act in concert.

BID RIGGING IS ANTI-COMPETITIVE

Bidding, as a practice, is intended to enable the procurement of goods or services
on the most favourable terms and conditions. Invitation of bids is resorted to both
by Government (and Government entities) and private bodies (companies,
corporations, etc.). But the objective of securing the most favourable prices and
conditions may be negated if the prospective bidders collude or act in concert.
Such collusive bidding or bid rigging contravenes the very purpose of inviting
tenders and is inherently anti-competitive. Collusive bidding or bid rigging may
occur in various ways.

Some of the most commonly adopted ways are:

a. agreements to submit identical bids a agreements as to who shall submit the
lowest bid,
b. agreements for the submission of cover bids (voluntarily inflated bids)
c. agreements not to bid against each other,
d. agreements on common norms to calculate prices or terms of bids a agreements
to squeeze out outside bidders
e. agreements designating bid winners in advance on a rotational basis, or on a
geographical or customer allocation basis
f. agreement as to the bids which any of the parties may offer at an auction for the
sale of goods or any agreement through which any party agrees to abstain from
bidding for any auction for the sale of goods, which eliminates or distorts
competition

Inherent in some of these agreements, is a compensation system to the

unsuccessful bidders by dividing a certain percentage of profits of successful
bidders. If bid rigging takes place in Government tenders, it is likely to have severe
adverse effects on its purchases and on public spending. Bid rigging or collusive
bidding is treated with severity in the law. The presumptive approach reflects the
severe treatment.

Joint venture
The proviso to section 3(3) states that “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.”

This gives an exemption for joint ventures. The term ‘joint venture’ implies a
positive arrangement which is aimed at increasing the synergies and efficiencies of
the parties to the joint venture. Such exemption to joint ventures is justifiable
economically also and it is important for enterprises to enter into arrangements
which enhances their efficiencies and is beneficial to the enterprises. Such
efficiencies can lead to joint research & development, innovation, economies of
scale & scope and can ultimately be beneficial to the consumers.

Rule of Reason
Rule of Reason adopted from U.S. law theory.

The rule of reason was a statutory construction of the Sherman antitrust act by the
Supreme Court. Nothing better illustrated judicial policymaking than the rule of
reason, which held that the Sherman Act except from its scope "good trusts" or
"reasonable restraints of trade." The statute expressly declared illegal "every"
contract, combination, and conspiracy in restraint of trade, and as a result the Court
in several early cases rejected the argument that "every" did not mean what it said.

The Court also denied that the statute should be construed in the light of
the common law, which had recognized the legality of certain ancillary restraints
of trade on the ground that they were reasonable. 

“To inquire into matter and its effect on market on basis of surrounding
circumstances”

On basis of complaint that such enterprise has adopted a way which is anti-
competitive in nature, then CCI shall enquire into any such matter.

Burden of proof lies over the shoulder of enterprise being accused of adopting such
anti-competitive approach.

The test of legality whether restrained\ enforced is merely regulatory and hence
promotes competition or suppresses it. To determine this question, court must
consider the fact to the business which the restraint is applied in a conmdition
before and after restraint is imposed.
Rule Per se:
“Prima facie, it is clear that certain enterprises has adopted an anti-competitive
approach or not on basis of surrounding circumstances”

Burden on proof lies over the complainant or any authority empowered to do such
act.

TELCO v. Registrar of Restrictive Trade Agreement4, it was held that

“measures adopted by TELCO to their dealers with certain condition is not
amounting to creation of barriers in market and hence such approach is not anti-
competitive in nature”

Section 19(3) of the Act states that the CCI shall while determining whether an
agreement has an appreciable adverse effect on competition under section 3, have
due regard to all or any of the following factors, namely: -

a) Creation of barriers to 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) Improvements 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 or provision of services.

4
1977 AIR 973, 1977 SCR (2) 685
As listed above, there are six different set of factors which are specifically
mentioned in section 19(3) of the Act. These factors are worded generally and thus
prescribe broad tests to be applied while assessing AAEC. Broadly these set of
factors can be divided into positive and negative factors.

The first three set of factors in this list can be classified as negative factors which
mainly relate to the concept of entry barriers. Entry barriers can be divided into
structural entry barriers related to economic nature of the industry and strategic
entry barriers related to behavior of the incumbent firms in the market. The aim of
considering the negative factors is that market players get a level playing field.

The rest of the three factors listed above can be classified as positive factors which
aim at promoting competition. It shows that CCI need to contemplate as to whether
the action leads to benefit to consumers, improvements in production or technical
or scientific improvement leading to economic development. Thus, both set of
factors need to be taken in to consideration while determining the appreciable
adverse effect on competition.

CCI tends to balance these factors to analyse whether the conduct in question is
anticompetitive by causing appreciable adverse effect on competition. As earlier
discussed, the rule of presumption regarding AAEC in section 3(3) of the Act
shifts the onus on the opposite party to rebut the said presumption.

In FICCI Multiplex Association of India case, CCI has held that the factors
mentioned in section 19(3) may be considered by the Commission while rebutting
the presumption of anticompetitive agreements..

(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.

Vertical Agreements:

Vertical agreements were prohibited per se earlier while rule of reason is being
preferred by the Court now to evaluate vertical restraints. The Indian Competition
law is in tune with US competition law as far as applicability of rule of reason is
concerned. Tata Engineering and Locomotive Co. Ltd. v Registrar of Restrictive
Trade Agreement is a landmark decision of Supreme Court of India which aptly
illustrated the applicability of rule of reason in cases of restrictive trade practices.
The SC, in this case, held that the following three issues should be considered to
determine whether a restraint suppressed or promoted competition:

i. Facts peculiar to the business to which the restraint is applied;

ii. The condition before and after the restraint is imposed;
iii. Nature of restraint and actual and probable effects.

Explanation.—For the purposes of this sub-section,— (a) “tie-in arrangement”

includes any agreement requiring a purchaser of goods, as a condition of such
purchase, to purchase some other goods;

Tie-in-arrangements includes any agreement requiring a purchaser of goods, as a

condition of such purchase, to purchase some other goods. This is an arrangement
by which a seller agrees to sell a product known as the tying item only on the
condition that buyer agrees to buy a second product known as the tied product
from the seller.

(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; 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. It is a sort of boycott.

It means refusal to buy or sell by a mutual agreement with an intention to restrict

competition is illegal. Refusal to buy or sell by a mutual agreement with an
intention to restrict competition is illegal. The Act, however, does not empower the
authority to decide on behalf of any of the parties whether they should enter into
any particular agreement or not. To deal or not to deal is the freedom of the
enterprise and they can choose not to deal with any specific firm or person.

But where such refusal to deal falls within the definition of the Act, the behavior of
the enterprises is said to be anti-competitive.

(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.
CONCLUSION
The ultimate goal of both competition and consumer policies is to enhance
consumer well-being. Both policies are directed at ensuring that markets function
effectively and at correcting market failures, but approach this goal from different
perspectives. Competition policy addresses the supply side of the market and aims
to ensure that consumers have adequate and affordable choices, while consumer
policy tackles demand-side issues and aims to ensure that consumers can exercise
their choices effectively.

Competition policy aims to make markets work for consumers through its core
elements: law enforcement and advocacy. Competition law enforcement deals with
anticompetitive practices arising from the acquisition or exercise of undue market
power by firms that result in consumer harm in the forms of higher prices, lower
quality, limited choices and lack of innovation.
BIBLIOGRAPHY

1. THE COMPETITION ACT, 2002 (12 OF 2003)

2. http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/law/03._competiti
on_law/11._horizontal_agreements_under_competition_act_2002__/et/5652
_et_11et.pdf
3. http://www.legalservicesindia.com
4. https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/Bid
%20Rigging.pdf
5. indiankanoon.org
6. guide.iacrc.org