Existence of an agreement between enterprises at the same stage of service chain which are

engaged in identical or similar trade of goods or provision of services is sine qua non to an
offence under Section 3(3) of the Act

Issue- Abuse of dominant position

GENERAL

However, in spite of the clear text of Section 27, imposition of penalty remains a highly
contentious issue, especially in light of the varying factual conditions that exist between
companies and in the market. Indeed, while imposing penalty, the Commission itself
acknowledges that it benefits from wide discretionary power by the Legislature.
However, there are no set guidelines, mechanism or precedence to explain which factors
result in a high punishment. This leads to varying results for similar situations or meagre
penalties in cases where a higher penalty is fully justified due to severe contravention
and substantial impact. For instance, in Cartelization by Public Sector Insurance
Companies, In re [2015] 59 taxmann.com 214 (CCI) in rigging the bids submitted in
response to the tenders floated by the Government of Kerala for selecting insurance
service providers for Rashtriya Swasthya Bima Yojna (2015), the parties were found
guilty of bid rigging by colluding to increase the price for the tenders which were
released by the government of Kerala. The CCI, after noting the bona fide objective of
the social welfare scheme, the collective and anti-competitive conduct of the parties and
the need to maintain the solvency of the insurance companies, surprisingly decided to
only impose a penalty of 2% which was significantly less compared to the annual
turnover the parties generated in the preceding three years. Moreover, many times the
Commission itself takes the liberty to note various mitigating factors even if the parties
do not raise them. For instances, in In Re: Alleged Cartelization in the matter of supply
of spares to Diesel Loco Modernization Works (2014), the parties were again found
guilty of bid rigging but none of the parties raised any mitigating factors to claim lesser
penalty and instead the Commission noted mitigating factors itself, on the basis of which
decided to impose a penalty of 2%. The amount of penalties imposed by the Commission
have also been inconsistent in similar conditions. For instance, in the case of Director,
Supplies & Disposals, Haryana v. Shree Cement Ltd. [2017] 78 taxmann.com 70
(CCI) the CCI imposed a meagre penalty of 0.3% of the average turnover of the preceding
three years of the cement manufacturers which were involved in bid-rigging, after noting
the peculiarities of the tendering process and the various pleas raised by the parties.
However, in the case of Builders Association of India v. Cement Mfgrs.
Association [2016] 73 taxmann.com 247, the CCI imposed its highest ever penalty of
over Rs. 6.5 thousand crores on the same cement manufacturers.

In spite of the various issues while claiming leniency in an ongoing case, in case of

whistleblowers, the situation is quite different as the CCI appropriately awards the
whistleblower with full leniency while ensuring its confidentiality. For example,
in Cartelisation in respect of zinc carbon dry cell batteries market in India, In re [2018]
93 taxmann.com 71 (CCI), Panasonic filed an application under Regulation 5 of the
Lesser Penalty Regulations and provided vital information which exposed a cartel in dry
cell batteries in India. For this, it was awarded full leniency while subsequent applicants
were given a lesser reduction. Similarly again in Anticompetitive conduct in the Dry-Cell
Batteries Market in India, In re [2019] 102 taxmann.com 153 (CCI), Panasonic tipped
off a six-year long cartel between Panasonic, Godrej and Geep by providing vital
disclosures for which Panasonic was again awarded a 100% reduction on the penalty.
Moreover, there may be instances where parties may claim leniency by mentioning
certain mitigating factors and proving its continued good conduct. For instance, in the
case of Cartelization in Industrial & Automotive Bearings, In re (2020), the CCI noted
that one of the parties had cooperated with the DG, provided vital information, was not a
habitual offender and had faced losses during the period of cartelization. Due to these
mitigating factors, the CCI did not penalize that party but only passed a cease and desist
order and warned of strict action in case of failure to comply. Therefore, leniency can be
a fruitful option when an applicant can substantially prove the existence of strong
mitigating factors, good past conduct or when an applicant is a whistleblower. However,
for whistleblowers, the information must amount to a 'vital disclosure' to benefit from
full leniency or otherwise it can prove to be counter-productive.

Penalty imposed on Jet Airways, IndiGo and Spicejet for fixing fuel
surcharge through Cartelization

The present case opens up the debate on jurisprudential concepts of conscious

parallelism and collective abuse. The term 'collective abuse' means a concept where two
or more enterprises having collective dominance over a market can abuse their dominant
position. The Indian law on Competition does not recognize this concept under section 4
which deals with abuse of dominant position. There is a Bill pending in the Parliament
[The Competition (Amendment) Bill, 2012] which proposes to insert the words – 'singly
or jointly' in section 4(1), which shall cover the cases of collective abuse. After this Bill is
passed by the Parliament and it becomes law, such cases may also be analyzed from the
perspective of collective abuse.
Conscious parallelism is a concept under which competitors follow a pricing strategy
which may or may not result in competition law violation. In some cases one competitor
takes a lead and others follow the suit. Court/Tribunal/Commission has to see whether
there exist any factors due which the competitors are behaving in a parallel manner, e.g.,
their own economic interest, linkage of price with some index, etc. The present case is
based on this concept as there is absence of 'collective abuse' under Indian law and the
Commission had no opportunity to analyze it from that perspective.

The firm holds a dominant position when it accounts for a significant share of a relevant
market and has a significantly larger market share than its next rival. In that case, it has the
capacity to set prices independently and abuse its market power. For example, in Michelin
judgment (9 November, 1993), the European Court of Justice stated that dominant position
refers to a situation of economic strength, which gives the enterprise power to obstruct the
maintenance of an effective competition in the market concerned because it allows the
enterprise to conduct itself in a way that is independent of from its competitors, clients and,
finally, consumers. There is no single objective market share criterion that can be used as a
test of dominance. Dominance is the position of economic strength of an enterprise,
determined on the basis of its power to operate independently of influence of competitors or
consumers or the market. The basis of judging that power may be its market shares, total
annual turnover, size of assets, number of employees, or any other criteria or factor, so that it
is in a position to raise prices above, or depresses below, the competitive level for a
significant period of time. 

Dominance-factors - Other than market share (entry barriers) - As aforesaid, an undertaking

may be presumed to have a dominant position in the market if it has a very large market share
and holds it for some time by means of the volume of production and the scale of supply.
Fifty one per cent of such share is indicative of the dominance. Where the market share is
lower, it may still be dominant. For that purpose, other factors have to be looked into.
In addition to market share, the structural advantage possessed by the undertaking can be of
decisive importance in the determination of dominance. According to the European Court of
Justice the relevant factors are [see Hoffmann-La Roche & Co. v. Commission (1979) ECR
461] :
(1)   relationship between the market shares of the undertaking concerned and of its
competitors, especially those of the next largest. It enables the competitive strength
of the undertaking in question to be assessed;
(2)   the technological lead of an undertaking over its competitors. It represents in itself
the technical advantage;
(3)   the essence of highly developed sales network. It represents in itself the commercial
advantage;
(4)   the absence of potential competitors. It is the consequence of the existence of
 obstacles presenting new competitors from having access to the market.
The Court further observed :
"49. It is in the light of the preceding considerations that Roche's share of each of the
relevant markets, complemented by those factors which in conjunction with market
shares make it possible to show that there may be a dominant position, must be
evaluated. Finally, it will also be necessary to consider whether Roche's submissions
relating to the implication of its conduct on the market, mainly as far as concerns prices,
are of such a kind as top alter the findings to which the examination of the market shares
and other factors taken into account might lead."
In United Brands Co. v. Commission (1978) ECR 207, the Court of Justice held that a
dominant position derived from a combination of several factors which, when taken
separately are not necessarily determinative. In that case, the court held that the United
Brands is an undertaking vertically integrated to a high degree, that it based its advertising
policy in the relevant market on the quality of its Chiquita brand of banana, that it guaranteed
steady supply of bananas to customers, that it controlled every stage of the distribution
process, which together gave the undertaking a considerable advantage over its customers.
The Court observed :
"122. The particular barriers to competitors entering the market are the exceptionally
large capital investments required for the creation and running of banana plantations, the
need to increase sources of supply in order to avoid the effects of fruit diseases and bad
weather (hurricane, floods), the introduction of an essential system of logistics which the
distribution of a very perishable product makes necessary, economies of scale from
which newcomers to the market cannot derive any immediate benefit and the actual cost
of entry made up inter alia of all general expenses incurred in penetrating the market
such as the setting up of an adequate commercial network, the mounting of a very large-
scale advertising campaigns, all those financial risks, the cost of which are irrecoverable
if the attempts fail."
The Treaty of Rome and the European laws mainly rely on market shares to establish
dominance, the Indian law, like the US law requires additional criteria of entry barriers.
Dominance under the Indian law has been defined not in terms of market share, though it is
still an important factor. The focus of the law is to determine dominance and prevent its
abuse. The current market share is a necessary but an insufficient pre-requisite of dominance.
Factors besides market share are taken into account to evaluate whether an undertaking is in a
dominant position, such as pro-duct differentiation, cost advantage, economies of scales,
vertical integration, patent monopoly, initial capital investment, superior technology
advantage, etc. These are entry barriers and discussed in Chapter 9.

The adverse effect of the agreement on competition within India must be significant. It refers
not to a particular list of agreements, but to a particular economic consequence, which may
be produced by quite different sort of agreements in varying time and circumstances. The
words "adverse effect on competition" embraces acts, contracts, agreements or combinations
which operate to the prejudice of the public interests by unduly restricting competition or
unduly obstructing due course of trade. Public interest is the first consideration. It does not
necessarily mean interest only of the industry [see Haridas Exports v. All India Float Glass
Manufacturers Association [2002] 111 Comp. Cas. 617 (SC)]. It is not the nature of factum
of trade restraint but its being prejudicial to the public interest which is sought to be targeted.
The restraint of trade is tolerable, if it is reasonable as to the public and the parties and
limited to what is reasonably necessary. Otherwise, it becomes appreciably adverse. All
agreements having adverse effect on competition are not forbidden. There can scarcely be
any agreement or contract among businessmen that does not directly or indirectly affect and
possibly restrain commerce (United States v. Joint Traffic Association 171 US 505).
In National Collegiate Athletic Assn. v. Board of Regents of University of Oklahoma 468 US
85 (1984), the Court observed :
"There can be no doubt that the challenged practices of the NCAA constitute a 'restraint
of trade' in the sense that they limit members' freedom to negotiate and enter into their
own television contracts. In that sense, however, every contract is in restraint of trade,
and ..... The Sherman Act was intended to prohibit only unreasonable restraints of trade."
If an agreement "had no appreciable effect upon general market prices, nor has it merely
affected the total volume of grain coming to Chicago.....", it is not illegal restraint of trade.
(See Board of Trade of the City of Chicago v. United States 246 US 231). Thus, to determine
that effect, market in its economic context has to be looked at.

Section 3(3) deals with agreements between persons, or concerted practices or decisions of
associations of enterprises which have anti-competitive effect. It, therefore, covers multiple
possibilities that go beyond "agreement". Practices carried on, decisions taken, by an
association of enterprises including cartel are various devices which cannot be taken to be
agreement, but may have adverse effect on competition. The possibilities of evading the
prohibitory provision, through such devices, are removed. The term "agreement" has been
defined in section 2(b), which has already been discussed. Agreement may not be formal and
written. It may be informal, oral, or non-binding. A concerted practice is even less formal
than an agreement. It could be defined as a form of co-ordination between enterprises which
has not yet resulted in the conclusion of a contract within its real meaning, but consciously
substitutes competition connected with risks by practical co-operation. Thus, such practice
exists when there is informal co-operation without a formal agreement. An arrangement
between the parties, however informal, agreeing to share know-ledge of their business
decisions, may amount to concerted practice. Concerted practice in terms of the decision of
the European Court of Justice in Re the European Sugar Cartel; Cooperative Vereniging
'Suiker Unie' UA  v. Commission (1975) ECR 1663/(1976) 1 CMLR 295, means —
"direct or indirect contract between (competitors), the object or effect whereof is either
to influence the conduct on the market of an actual or potential competitor or to disclose
to such competitor the course of conduct which they themselves have decided to adopt or
contemplate adopting on the market."
The distinction between agreement and the concerted practice is that the agreement is a
consensual act, whereas concerted practice is a form of co-operation, without having reached
the stage of agreement, which could only be established by proof of "subsequent conduct on
the market, and a relationship of cause and effect between the two" [see Huls
AG v. Commission (Polypropylene) (1995) 5 CMLR 1016].
Respondent cases

Builders’ Association of India v. Cement Manufacturers’ Association & ors. (2012), The
Competition Commission of India(CCI) imposed Rs. 6000 crores fine on cement
manufacturers in India for holding them guilty of cartelization in the cement industry and
cement manufacturers’ association was directed to disengage and disassociate itself from
collective wholesale and retail prices.

The CCI recently (August 2014) imposed a fine of Rs. 2545 crores on 14 automobile
companies including Maruti Suzuki, Tata motors and Mahindra & Mahindra for entering in
anti-competitive agreements under S.3(4) of the Act.

In the seminal case of Competition Commission of India v. Steel Authority of India

Limited561 , the hon‘ble Supreme Court limited the intervention of appellate authority in
prima facie investigation562 . This case pronounced guidelines on several issues563 which
further become lodestar for the Commission in the enforcement of the Act; the case is
responsible for the development of competition law jurisprudence in India till date.

The Judgement of the Hon‘ble Supreme Court in the land mark case of Competition
Commission of India v. Steel Authority of India Limited589 , deserves mentioning here since
the case not only defines the extent of powers of CCI but also its limitations. In this case, the
hon‘ble Supreme Court held that a direction passed by the Commission under S. 26(1) of the
Act while forming prima facie opinion would not be appealable u/s 53A(1)590 of the Act.
Section 53A (1) of the Act expressly provides decisions or orders or directions appealable
before COMPAT, and this does not include a direction of CCI under Section 26(1) of the
Act591. The Hon‘ble Court further observed that with reference to Section 26 (1) of the Act,
neither any statutory duty is cast upon on CCI to issue notice or grant hearing, nor any party
can claim, as a matter of right, notice and/or hearing at the stage of formation of opinion by
CCI. However, CCI, being a statutory body exercising, inter alia, regulatory jurisdiction, even
at that stage, in its discretion and in appropriate cases may call upon the concerned party(s) to
render required assistance or produce requisite information, as per its directive592 . With
respect to compliance with the principles of natural justice, SC held that in consonance with
the settled principles of administrative

Through this judgement, the Hon‘ble Supreme Court has ruled out the various ambiguities
pertaining to the interpretation of the provisions of the Competition Act, 2002 and more
precisely it has put to rest the various controversies with regard to the demarcation of the
power of the COMPAT and CCI.

In case of cartels, the focus lies on proving the existence of the arrangement itself rather than
demonstrating its impact on the market in economic terms1

Circumstantial evidence may include minutes of the meetings, memorandum, records of

telephonic conversations, correspondence and so on2

Lombard Club Case, IP/02/844. The European Commission relied upon the meetings, records
of telephonic conversations, correspondence etc for determining the liability of the eight –
banks which indulged in price-fixing cartel.3

The awareness of an existing collusion is brought to their knowledge by informant4or by

reference5

Leniency/ amnesty programs are universally accepted as one of the best way to detect cartels.
This is because the activity is so guarded that internal information is necessary to break such
agreements6

The CCI is empowered to grant up to 100% reduction in fines, i.e. complete immunity, to the
applicant who is the first to make ‗vital disclosure‘ to the CCI. Such information should
either enable the CCI to form a prima facie opinion of the existence of the cartel or establish
contravention of Section 3 of the Act in a matter under investigation by the DG

In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless
DC Fans and other electrical items622 , CCI set the precedent of granting lesser penalty
regulations

1
4 G R Bhatia, ―Combating Cartel in Markets-Issues and Challenges‖, Vol.no XXXVI, Chartered Secretary,
July 2006
2
Lombard Club Case, IP/02/844. The European Commission relied upon the meetings, records of telephonic
conversations, correspondence etc for determining the liability of the eight –banks which indulged in price-
fixing cartel.
3
G R Bhatia, ―Combating Cartel in Markets-Issues and Challenges‖, Vol.no XXXVI, Chartered Secretary, July
2006.
4
In Re: Cartelization by public sector insurance companies in rigging the bids submitted in response to the
tenders floated by the Government of Kerala for selecting insurance service provider for Rashtriya Swasthya
Bima Yojna And National Insurance Co. Ltd, New IndiaAssurance Co. Ltd, Oriental Insurance Co. Ltd., United
India Insurance Co Ltd Competition Commission of India , Suo Moto Case No. 02 of 2014; In Re: Express
Industry Council of India (Informant) and Jet Airways (India) Ltd., IndiGo Airlines , Spice Jet Ltd. , Air India
Ltd. , Go Airlines (India) Ltd. COMPETITION COMMISSION OF INDIA Case No. 30 of 2013.
5
4 In re Manufacturers of Asbestos cement Products, 2014 CompLR 272 (CCI); In re Sheth & Co. 2015
CompLR 715 (CCI).
6
Massimo Motta, Competition Policy; Theory and Practice, (Cambridge: Cambridge University Press, 2004), at
p. 193.
The burden of proof under S. 3 (3) lies with the defendant. The presumption is always
rebuttable. In other words, in the case of cartel agreements, the burden to prove non-
appreciable adverse effect or pro-competitive effect is on the defendant. In a catena of cases
such as in Neeraj Malhotra v Deutsche Post Bank Home Finance Limited & Ors7 the CCI
emphatically laid down that existence of an agreement is very well warranted under S. 3(3).
On account of the cartel case studies conducted, the researcher founds that in later years CCI
started to make the shift towards relying on circumstantial evidences as well as on economic
evidences.

S. 27 empower the CCI to impose fines up to 10% of turnover and in case of cartels 3 times
of the profit. The fine imposed by the CCI is based on various mitigating or aggravating
factors such as deterrence, harm caused to the public and competition, duration of the
collusion, subsequent infringement by the parties, the leadership role undertaken by the firms
in the collusion, Co-operation with Commission, the pro-competitive effect, the limited
participation of firms etc8In proven cases of cartelization the CCI has ordered fines in the
form of penalties. In re Manufacturers of Asbestos cement Products638 , Builders‘
Association of India v. Cement Manufacturers‘ Association & Ors, Competition Commission
of India639 are the landmark decisions where the CCI have imposed fines.

7
Case No. 5/2009. Shailesh Kumar v M/s Tata Chemicals Ltd & Ors, Case No. 66 of 2011., Reference Case No.
01 of 2012. And In Re Alleged Cartelization of steel producers, Case No. RTPE 09/2008.
8
CCI v. SAIL (2005)2 SCC 431.