[DOCUMENT TITLE]

Analyse anti-competitive agreements under Competition Act, 2002.

AUGUST 22, 2018

NISHCHAL SANDEEP ANAND
15010126474 DIVISION E
INTRODUCTION

This paper focuses on the analyses of Anti-competitive agreements under the Competition Act, 2002 in all
their dimensions. A commensurate focus has been made on the nature and meaning of anti-competitivc
agreements and how they impact adversely the competitive process at the market and the consumer. Further,
a comparative analysis of how such trade practices were dealt under the earlier Indian competition law arid
the present (Competition Act, 2002 was also adequately highlighted with reference to the provisions of both
the enactments in the light of the decided case law. The study also makes considerable focus on the decided
case law absolutely based on the legal regime created under the MRTP Act 1969. A comparative study of
has also been made for drawing salutary lessons.

One of the principle aims of the Competition Act, 2002 as declared in its preamble is to prevent practices
having adverse effect on competition.1 A duty has also been cast on the Competition Commission to
eliminate practices having adverse effect on competition and which further reinforces the objectives set out
in the preamble.2 Though a perfectly competitive market would definitely take care of the welfare and well
being of consumers yet the attaining of such market is just a utopia like the consumer sovereignty. There is a
preponderance of evidence suggesting that markets are vulnerable to manipulations and manoeuvrings of
manufacturers and sellers, aims at profiteering to the detriment of the consumer. Products and Services are
of wide variety, many of them are complex and the consumer has imperfect product knowledge. The
supplier often has an entrenched position in the market vis-à-vis the buyer, who has either a little or no
bargaining power in the market. Besides this, the desire of suppliers of goods and services to maintain their
profits at pre-determined levels may motivate them to resort to various legally assailable trade practices to
the detriment of competition and the interest of consumers.

Consumers, therefore, needs and deserves legal protection against certain trade practices that have adverse
effect of preventing, distorting, restricting and suppressing competition. Competition law, almost
everywhere, prohibits three kinds of activities namely, anti-competitive agreements, abuse of dominance and
anti-competitive mergers.3

1
The Preamble to the Competition Act, 2002 declares that it is “An Act to provide, keeping in view of the economic
development of the country for the establishment of a commission to prevent practices having an adverse effect on
competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of
trade carried on by other participants in markets in India, and for matters connected there with or incidental hereto.”
2
Section 18 of the Competition Act, 2002.
3
Vinod Dhall, 2007, Key concepts in Competition Law, The Competition Law Today, Oxford University Press, New Delhi, P 1 to
35.
ANTI-COMPETITIVE AGREEMENTS UNDER THE COMPETITION ACT, 2002

Anti-Competitive Agreements under the Competition Act, 2002 are Restrictive Trade practices under the
extant MRTP Act, 1969.4 Firms enter into agreements, which may have the potential of restricting,
distorting, suppressing, reducing or lessening competition. A scan of the competition laws across the world
will demonstrate that they invariably make a distinction between “Horizontal” and “Vertical” agreements
between firms. The Horizontal agreements are those among competitors in the same chain of production
while the vertical agreements are between parties in the supply chain. Most co petition laws view Vertical
agreements generally more leniently than horizontal agreements, as the latter in all probabilities would have
more severe and serious adverse effects on competition.

The legislative intent behind inserting the provision s relating to Anti-Competitive agreements into the
Competition Act, 20025 is to foster competition for promoting the interests and welfare of consumers.

The Competition Act, 2002 contains a general prohibition of any agreement in respect of production, supply,
distribution, storage and acquisition or control of goods or provision of services, which causes or is likely to
cause an appreciable adverse effect on competition within India by explicitly construing such agreements as
anti-competitive in nature and character. 6 Any agreement in contravention of the general prohibition is
declared by the Act as null and void. 7

The Act also enumerates certain kinds of anti0competitive agreements.8 It deals with certain actions or
decisions made by a group of persons or associations in the form of an undertaking, arrangement or
agreement either formal or informal, including cartels9 and further enumerates certain vertical restrains on
trade in an illustrative manner.10 What are prohibited are the agreements or arrangements to control and
dominate trade and commerce in a commodity, couples with the power and intent to eliminate competitors
to a substantial extent. What matters under the Act is not the form or the specific means but undoubtedly the
impact and effect of such means would be minutely assessed prior to arriving at the conclusion: whether an
agreement is or not an anti-competitive one.

The Anti-competitive agreements under the Competition Act, 2002 are bifurcated into two categories:

(a) Horizontal Agreements and

(b) Vertical Agreements

4
The Report of the High level Committee on Competition Policy and Competition Law.
5
The provisions pertaining to Anti-Competitive agreements have come into force with effect from 20-5-2009.
6
Section 3(1) of the Competition Act, 2002.
7
Section 3(2) of the Competitive Act, 2002.
8
Section 3(3) & (4) of the Competitive Act, 2002.
9
Ibid. Sec 3(3)
10
Ibid. Sec 3(4)
HORIZONTAL AGREEMENTS

These agreements are between competitors operating at the same level in the economic process i.e
enterprises engaged and operating in broadly same activity.

These are agreements between producers or between whole sellers or between retailers, dealing in similar
kinds of products.11 These agreements are construed as presumed anti-competitive agreements. Hence, these
agreements are subject to per se rule and therefore, they are presumed to have appreciable averse effect on
competition.

Any agreement entered into between enterprises or association 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: -

i. Directly or indirectly determines purchase or sale price.

ii. Limits or controls production, supply, markets, technical development, investment or provision
of services.
iii. Shares the market or source of production or provision of services by way of allocation of
geographical area of the market, or type of goods and services or number of customers in the
market or any other similar way.
iv. Directly or indirectly results in bid rigging12 or collusive bidding shall be presumed to have
adverse effect on competition. 13

However, exemptions have been given to joint ventures agreements promoting efficiency in production,
supply, distribution etc export arrangements and reasonable restrictions forming part of protection or
exploitation of intellectual property rights.

AGREEMENT CARRIES WIDEST MEANING AND AMPLITUDE

In order to constitute an agreement, a concerted action on the part of enterprises is a sine qua non. Through
the parties to an agreement do not have any intention to create any legally enforceable mutual duties and
obligations, yet it shall be considered as an agreement under the Competition Act, 2002. Further, no written
proof of such agreement is necessary as mere informal understanding or arrangement would also be
construed as an agreement. Hence, the legislative intent and desire is quite apparent so as to give a vast and

11
These are agreements between the persons operating at the same level of the economic process and therefore, they are
entered into between the competitors.
12
Explanation to S.3(3) provides ‘bid rigging’ means any agreement between enterprises or persons referred to in Section 3(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.
13
Supra Note 8.
sweeping coverage for concerted and collaborative anti-competitive practices. 14 Even oral or written or
formal or informal understanding would fall within the broad ambit of ‘agreement’ through the parties to
such agreement do not have any intention to enforce it by legal proceedings.

In Registrar of Restrictive Trade Agreements v. W.H. Smith and Sons,15 the court observed, people who
combine together to keep up prices do not shout from the house tops. They keep it quiet. They make their
own arrangements in cellar, where no one can see. They will not put anything into writing not even into
words. A nod or wink will do. Parliament is well aware of this. So, it included not only an ‘agreement’
properly so called but any ‘arrangement’ however informal.

APPRECIABLE ADVERSE EFFECT ON COMPETITION SHALL BE PRESUMED

The entire concept of appreciable adverse effect on competition is made subjective as it may vary from case
to case.16 The agreements enumerated in Section 3(3) are popularly known as horizontal agreements and
they shall be presumed to have appreciable adverse effects on competition while this presumption shall not
apply in regard to the vertical agreements.17 Thus, the legislative intent is to view horizontal agreements
mire seriously than vertical agreements. According to Section 4 of the Indian Evidence Act18 wherever it is
directed that the court shall presume a fact, it shall regard such facts as proved, unless until the contrary is
proved. Thus it is quite clear that the presumption as to appreciable adverse effect on competition in regard
to the Horizontal agreements envisaged in Section 3(3) is rebuttable but the burden to rebut the same would
lie upon the person charged with the commission of such trade practices. Hence, it is quite apparent that they
are not ‘deemed’ anti-competitive practices as there is a clear distinction between presumed and deemed
restrictive trade practices. Court has to assume that the ‘deemed practice’ is a factual position and apply law
accordingly. In case of ‘presumed practice’ the disputant can prove that the impugned trade practices are not
anti-competitive but the onus of proof lies on him. Court has to assume that the ‘deemed position’ is real
position and apply law accordingly. Defendant cannot prove that they are not really anti-competitive
practices. In case of ‘presumed practice’, defendant can prove that they are not anti-competitive practices,
but burden of proof is on him.

14
Firms entering into cartels mostly indulge in concerted and collaborative restrictive trade practices by entering into informal
agreements and in fact, it is very difficult to prove and establish such agreements as the parties to such agreements strive very
hard to leave no trade of evidence.
15
(1960) BA11ER 721.
16
The term appreciable adverse effect on competition used in S.3(1) has not been defined in the Act.
17
Agreements envisaged in S. 3(3) are treated as Horizontal in nature while those envisaged in S. 3(4) are regarded as vertical in
character. However, the Competition Act, 2002 doesn’t specifically use the terms Horizontal & Vertical agreements.
18
The section provides that wherever it is directed by the Act that the Court shall presume a fact, it shall regard such fact as
proved, unless and until it is disproved.
VERTICAL AGREEMENT

There is another category of agreements which may be hit by the prohibition against Anti-competitive
agreements, if they cause or is likely to cause an appreciable adverse effect on competition19 i.e., those
agreements that are to be judged by “Rule of Reason as against rule of per se” and the burden of proof lies
on the investigator/prosecutor. They are-

i) Tie-in agreements. This includes any agreement requiring a purchaser of goods, as a condition of
such purchase, to purchase, some other goods;
ii) Exclusive supply agreement. This 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 seller or any other person;
iii) Exclusive distribution agreement. This 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;
iv) Refusal to deal. These would include any agreement which restricts or is likely to restrict by any
method the persons or classes of persons to whom goods are sold from whom goods are bought.
v) Resale price maintenance. This includes any agreement to sell goods on a 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.20

It may be noted here that all the five concepts are carried forward in Competition Act, 2002 from its
predecessor i.e. Monopolies and Restrictive Trade Practices Act, 1969. However, the major difference is that
under the Monopolies and Restrictive Trade Practices Act, 1969 the practices were categorized as
“Restrictive Trade Practices” and any enterprise indulging in such practices was subjected to actions under
the MRTP Act, 1969 where as under Competition Act, 2002 such practices will fall under the prohibitory
legal framework only when they cause or likely to cause appreciable adverse effect on competition. Thus, an
in-built flexibility is provided to foster exploitation of market potential by the enterprises of persons i.e. if
any one indulges into any of the five actions and this action does not adversely affect competition in the
market, one will be outside the rigours of Anti-Competitive practices. The effect on Anti-Competitive
agreement is that they are void.

19
Competition Act, 2002. Section 3(4).
20
Ibid. Explanation to Section 3(4)
BENCHMARKS FOR ASSESSING APPRECIABLE ADVERSE EFFECT ON COMPETITION

While determining whether an agreement has an appreciable adverse impact on competition or not. The
Competition Commission of India- the nodal agency, established under the Act has to look into the
following factors prior to arriving at its conclusion.

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. 21

The first three factors pertain to negative effects on competition while the remaining three relate to
beneficial or positive effects. Thus, in analysing whether an agreement has an appreciable adverse effect on
competition, both the harmful and beneficial effects as envisaged in section 10 (3) of the Competition Act,
2002 are to be considered. ‘Barriers to new entrants' can be created through an agreement among existing
players to set unconscionably high standards. Pushing existing competitors out of the market could happen,
if an enterprise enters into an exclusive supply agreement with distributors by compelling the latter to cease
their trade with other suppliers as a mandatory condition for the continuous enforceability of the distribution
ship agreement. Competition may be foreclosed when an enterprise enters into a long-term agreement with a
supplier of raw material or components by imposing a condition that no supply of raw material should be
made to anyone except with the explicit assent of the enterprise. Accrual to consumers may be in the form of
lower prices, enhanced quality, effective after sales service, efficiency in delivery of services, affording
safety to consumers etc. Promotion of technical, scientific and economic development may emanate from
agreements to research and development or specialization in production. The approach to determine the
appreciable adverse effect on competition is akin to the rule of reason that is common in the competition
laws of most countries.

In the U.S, the rule of reason is applied in a more specific way. The principal question to be examined
before arriving at a definite conclusion would be what is the impact of the agreements in increasing market
share or power in a manner inimical to consumers’ interest and welfare.

The Act under Section 3 of the Act also prohibits any agreement amongst enterprises which materialize in:
 Tie-in arrangement

21
Section 19(3) of the Competition Act, 2002.
What is a tie-in arrangement? According to the Statute it includes any agreement requiring purchaser of
goods, as a condition of purchase, to purchase some other goods. In the case of Sonam Sharma v. Apple &
Ors., the CCI stated that in order to have a tying arrangement, the following ingredients must be present:
1. There must be two products that the seller can tie together. Further, there must be a sale or an agreement
to sell one product or service on the condition that the buyer purchases the other product or service. In
other words, the requirement is that purchase of a commodity is conditioned upon the purchase of another
commodity.
2. The seller must have sufficient market power with respect to the tying product to appreciably restrain free
competition in the market for the tied product. That is, the seller has to have such power in the market for
the tying product that it can force the buyer to purchase the tied product; and
3. The tying arrangement must affect a “not insubstantial” amount of commerce. Tying arrangements are
generally not perceived as being anti- competitive when substantial portion of market is not affected.
 Exclusive supply agreement- The Act defines such agreements to include 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.
 Exclusive distribution agreement- This 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 goods.
 Refusal to deal- The Act states that this criteria includes agreement which restricts by any method the
persons or classes of persons to whom the goods are sold or from whom goods are bought.

In Tata-Engineering (Telco) v. Registrar of Restrictive Trade Agreement,22 the TELCO had an agreement
with its dealers. Some of the clauses in the said agreement were: 1) Dealer will not directly sell the TATA
trucks outside the territory assigned to him. 2) Dealer will maintain organization for sale and service within
its territory to the satisfaction of TELCO. 3) Dealer will not sell, indirectly or directly, trucks of other
manufacturer.

The Apex Court after considering the facts and circumstances of the case observed that any agreement
restrains and binds persons or place or prices. Any such agreement would not be ‘per se’ bad. The question
is whether the restraint is such as to regulate and thereby promote competition or suppress competition. It
will be bad, if it destroys competition. Hence: a) facts peculiar to the business, b) condition before and after
restraint and c) probable effects of restraint, have to be considered. The rules laid down by the Supreme
Court are popularly known as the ‘rule of reason.’

TELCO stated that they had to ensure equitable distribution of trucks so that trucks reach even remote places
like Nagaland, Tripura etc. Otherwise, the trucks will be concentrated in large metro-centres only, where
demand is heavy. Prompt and efficient after sales service is vital for the truck user. Dealer has to maintain
stock of spares and good service facilities with adequate equipment and trained mechanics. This would cost

22
(1977) 2 SCC, 55.
Rs. 5 lakhs. The dealer would not be able to maintain those facilities if he is not sure of business from that
area. Consumer interest demands that he gets good after sales service. Sales tax rates vary from State to
State. If there is no territorial restriction, business will be concentrated in the States where sales tax is lower.
After sales service need specialization which would not be possible if the dealer deals in trucks of other
makes. Thus, ultimately, consumers will suffer. Supreme Court accepted these contentions and declared that
restrictions imposed by TELCO do not amount to restrictive trade practices. It was held that the restrictions
ensure equitable distribution of vehicles and efficient after-sales service to consumers and therefore, they are
construed as reasonable in nature.

Apart from general provisions23 the Competition Act, 2002 assumes that certain agreements as having
appreciable adverse effect on competition. Horizontal Agreements are presumed to have appreciable adverse
effects on competition in which case the burden of proof shifts on the enterprise or person against which the
charge is levelled. 24

Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors- Important case law on Anti-competitive
Agreements
In the case of Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors25, the concept of vertical
agreements including exclusive supply agreements, exclusive distribution agreements and refusal to deal
were deliberated by the Commission.
Facts– The informant in the case had alleged anti-competitive practices on part of the Opposite Parties (OPs)
whereby the genuine spare parts of automobiles manufactured by some of the OPs were not made freely
available in the open market and most of the OEMs (original equipment suppliers) and the authorized
dealers had clauses in their agreements requiring the authorized dealers to source spare parts only from the
OEMs and their authorized vendors only. The Commission held the impugned agreements were in
contravention of Section 3 of the Act and remarked that the network of such agreements allowed the OEMs
to become monopolistic players in the aftermarkets for their model of cars, create entry barriers and
foreclose competition from the independent service providers.
The Commission further stated that such a distribution structure allowed the OEMs to seek exploitative
prices from their locked-in consumers, enhance revenue margin form the sale of auto component parts as
compared to the automobiles themselves besides having potential long term anti-competitive structural
effects on the automobile market in India.

23
Section 3(1) of the Competition Act, 2002.
24
The Raghavan Committee observed in para 438 that the presumption stating that such horizontal agreements and
membership of cartels lead to unreasonable restrictions on competition and may therefore, presumed to have an appreciable
adverse effect on competition. The rule of per se illegality is rooted in the provisions of the U.S Law.
25
Case o 03/2011
 CCI’s decision– The Commission held that such agreements were in the nature of exclusive supply,
exclusive distribution agreements and refusal to deal under Section 3(4) of the Act and hence the
Commission had to determine whether such agreements would have an AAEC in India.

The concept of resale price maintenance was discussed by the Commission in the case of Fx Enterprise
Solutions India Pvt. Ltd. v. Hyundai Motor India Limited26. In the case, the Informant had alleged that
according to the agreement with Hyundai, dealers were mandated to procure all automobile parts and
accessories from Hyundai or through their vendors only. While collaborating on alleged anti-competitive
practices of Hyundai, the Informant stated that Hyundai imposed a “Discount Control Mechanism”, whereby
dealers were only permitted to provide a maximum permissible discount and dealers were also not
authorized to give discount beyond a recommended range, thereby amounting to “resale price maintenance”
in contravention of Section 3(4)(e) of the Act.
The CCI in the case observed that Hyundai through exclusive agreements and arrangements contravened
provisions of Section 3(4)(e) read with Section 3(1) of the Act through arrangements which resulted into
Resale Price Maintenance. The CCI while imposing penalty of INR 87 Crore on Hyundai noted that the
infringing anti-competitive conduct of Hyundai in the case included putting in place arrangements, which
resulted into Resale Price Maintenance by way of monitoring maximum permissible discount level through a
Discount Control Mechanism and also a penalty mechanism for non-compliance of the discount scheme.

Intellectual Property Rights – An exception

Then comes the exemptions in subsection (5). Section 3(5)(i) of the Act provides an exemption, from the
adverse effect of Section 3 to 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 conferred upon him under:-

1. The Copyrights Act, 1957

2. The Patents Act, 1970

3. The Trade and Merchandise Marks Act, 1958

4. The Geographical Indications of Goods ( Registration and Protection) Act, 1999

5. The Designs Act, 2000

6. The Semi-conductor and Integrated Circuits Layout-Design Act, 2000

The effect of Section 3(5) is that entire Section 3 dealing with prohibition of anti-competitive agreements will
not apply where the owner of any intellectual property rights under the enactments provided above does
anything in the exercise of his right to restrain the infringement of any of those rights, or imposes reasonable
conditions as may be necessary for the protection of any of those rights.

26
Case Nos. 36 and 82 of 2014
In the case of FICCI – Multiplex Association of India vs. United Producers/Distributors Forum and Others,27it
was held that the extent of non-obstante clause in Section 3(5) of the Act is not absolute as is clear from the
language used therein and it exempts the right holder from the rigors.

27
Case No.1/2009 decided on 25.5.2011
CONCLUSION

There has been increasing reliance on competition policy and law across the world to address market
abusive and anti-competitive practices at the market place and to preserve and promote competition for
ensuring consumer welfare and efficient allocation of resources in an economy. Thus, competition is seen as
the life and blood of the market economy. Developing countries like India should not lag behind in putting
in place an effective competitive regime to address effectively the manipulations and distortions taking place
in the market place and also to foster competition culture in all sphered of the national economy.

The Competition Act, 2002 has been designed as an omnibus code to deal with matters pertaining to
existence and regulation of competition and monopolies. Its objectives include the promotion and sustenance
of competition in markets, protection of consumer interests and ensuring freedom of trade of other
participants in the market, all against the backdrop of the economic development of the country in the post
reforms era. This Act has made radical departure from the earlier competition law in dealing with abuse of
dominance, cartels, including cross border cartels, merger regulation, extra territorial jurisdiction, anti-
competitive agreements etc. Further, the Competition Act, 2002 has explicitly assigned the competition
advocacy role to the Competition Commission of India to promote and foster competition process in the
Indian economy and it is definitely a step in the right direction.

The Competition Act, 2002 is definitely an outcome of the changing economic milieu of our country. It has
been brought into force to meet the changing needs and times of the Indian economy and to strengthen the
competitive process. It is not feasible to any researcher to assess and gauge the efficacy and relevancy of the
Act to the Indian conditions as it has been in existence for a limited period and therefore, only time could
disclose whether the Competition Act really addresses the ground realities of the Indian economy. However,
the new Act is definitely a prelude to the right beginning as it lays down adequate thrust on the need to curb
and combat market abusive trade practices and the need to foster and promote competitive culture in the
Indian economy.