Anti- Competitive Agreements: Knight in Shining Armour

  1. Foreword

Repealing the Monopolistic and Restrictive Trade Practices Act, 1969 (the “MRTP Act”). The Competition Act,2002 came into force and to adjudicate and administer the Act the Competition Commission of India (CCI) was also established.

 In 1776 Adam Sith in his book “The Wealth of Nations”, He talked about the price fixing horizontal agreement. These agreements are harmful for the society and for economy as well but not all horizontal agreements are harmful like for sharing risk, cost saving, pooling know-how and launching innovations faster[1], but agreements for price fixing or to allocate territories have an anticompetitive effect. On 20 May 2009, considerable provisions of Competition Act narrating anti-competitive agreement came into effect. Section 3 of Chapter II of Competition Act, 2002 prohibits anti-competitive agreements.[2]

  1. Competition Essence & Need of The Competition Policy

According to Samuel Johnson ‘competition’ is a noun, meaning “the act of endeavouring to gain what another endeavours to gain at the same time; rivalry; contest[3].

Whereas the UK Competition Commissiondefined it as “a process of rivalry between the firms…. looking to win customers business over time”.[4]

Thus, competition is a term which comes from economics, and indicates a process where there are more sellers and buyers, and the rule of demand and supply determines the price of the commodity.

Many markets do not manifest all the conditions which are necessary for effective competition. Sometimes market fails to deliver efficient results, and this is called market failure. When the market fails or there is no effective competition it gives a way to monopoly. With a monopolistic market the goal of economic productivity can’t be achieved. So, competition is desirable not only for themselves but for the people also taking benefits from it. When firms compete in the market, customers get best prices, quantity, quality for the goods and services, competition leads to innovations, firms to be more efficient and customer focused.

We have understood the concept of competition, now let’s see some of the provisions of Anti- Competitive Agreements in the Competition Act and its types.

  1. Competition Act – Segment Corresponding Anti- Competitive Agreement

Before the existence of the Competition Act,2002, the Monopolistic and Restrictive Trade Practices Act,1969 was in force in India. The MRTP Act,1969 prevent monopolistic trade practices, control monopolies and to prevent unfair and Restrictive business practices. But there are some drawbacks of the Act, it was inadequate for the Competition Law in India. The definition of the Restrictive Trade has a narrower scope and do not cover the Anti-Competitive Agreements. Also, the offences and its penalties were also not covered in the Act, which is affecting the Indian Market. In 2002, after repealing the MRTP Act, 1969 Competition Act (Act 12 of 2013) came into force, with much wider scope than MRTP Act. It prohibits Cartels and Anti-Competitive agreements, misuse of dominant power.

Section 3 deals with Anti-Competitive Agreement, it prohibits industries to enter into agreements which can cause an Appreciable Adverse Effect(AAE) on Competition. The Expression appreciable adverse effect” is not elucidated in the Act. In section 3(2) such agreements are declared void. Whereas section 3(3) and section 3(4) deals with Horizontal Agreements and Vertical Agreements.

  1. Horizontal Agreements

These are those agreements that are entered into between two or more firms operating at the same level of production or distribution in the market.[5]Horizontal agreements are harmful for competition but not all. Agreements to reduce risk, encourage efficiencies, create new improved products are beneficial for the competition as well as for society.Its is presumed that horizontal agreements have AAE effect and the burden of proof that such agreements are not harmful lies on the person who entered into such agreements. Section 3(3) of the Competition Act defines horizontal agreements as “those agreements entered by person or enterprises that are engaged in same business or trade of same goods and services”.

Particular types of horizontal agreements are also known as Cartels. Cartel is generally understood as an explicit arrangement designed to eliminate competition.[6] According to European Commission, the Cartels generate situation rents for the most powerful companies since they need to make an effort either to improve the quality of their products or to improve productivity.[7]Section 2(2) of Competition Act,2002 elucidate cartel as an association of producers, sellers, distributors who by agreement control or limit the production, distribution, sale. In the case of Hindustan Developmet Corporation[8]it was observed that a cartel is an association of producers who, by agreement amongst themselves, attempt to control production to obtain a monopoly in any industry. In Haridas Exports[9], the Supreme Court noted that “a cartel is formed, inter alia, with a view that the members of a cartel do not wage a price war and they sell at an agreed price.”

  • Vertical Agreements

Section3(4) of Competition Act,2002 forbid Vertical Agreements, these are those agreements which are entered by persons or enterprises which are at different level of production chain in different market, and mostly the parties of the agreement are non-competitors. The landmark judgement passed by the Competition Commission of India (CCI) in the case of Shri Shamsher Kataria v. Honda Siel Car India Ltd & Ors.10 where is was discovered that 14 automobiles organizations blame worthy of anti-competitive practice, to infringement of Section 3(4) and 4 of the Act and forced upon them a penalty of INR 2544.65 crores.  Further, to exercise section 3(4) it is necessary that enterprise must be at different stage of production chain in different market. For instance, in the case of FCM Travel Solutions11 it was observed by the CCI that travel agent association themselves do not provide travel agency services, thus their cannot be any vertical agreement between the travel agents association and their constituent members.There are total 5 types of vertical agreements that are forbidden.

  1. Tie-in arrangement
  2. Exclusive supply agreements
  3. Exclusive distribution agreements
  4. Refusal to deal
  5. Resale Price maintenance
  6. Anti-Competitive Agreements: Exceptions

Nature provide exception to every rule. And same was in the case of anti-competitive agreements. There are explicit exceptions provided in the act, and it contain in the section 3(5)(ii). It elucidates that the provisions of anti-competitive agreement will not be barred or restrict the right of a person to enter into any agreement for the purpose of export of goods or services. Similarly, export exemption is also granted on anti-competitive agreements in the provisions of Export Trading Company Act,1982. Similarly, implicit exemption is granted to export agreements. Their target are cartels that prevent, restrict competition in the common market.

  • Sanctions

As prescribed under section 27(b), the penalty that may be imposed in case of anti-competitive conduct cannot be more than 10% of the average turnover of the enterprise for three preceding year. Further, in case of cartel the CCI can impose a penalty of up to three times the profit of cartel or 10% of the turnover of the enterprises.

  • To Conclude

The Competition Act,2002 has repealed the MRTP Act,1969 and came up with a wider scope than the later one. The Competition Act is morestrict towards the cartels, anti-competitive conduct. CCI has significant contribution towards development of awareness of competition law in India. It also identified complex issues in the Act.

[1]European Commission, “Guidelines on horizontal co-operation agreements”, Official Journal of European Communities, C – 3/2, 2001

[2]G Meyerman, MJ Moltenbrey and J Whalley, “Chapter 3: Agreements –  A Framework for the Design and Implementation of Competition Law and Policy 20”, Washington DC: World Bank/OCED Publication, 1998

[3]Samuel Johnson, Dictionary of the English Language (1995)

[4]Maher M Dabbah, “EC and UK Competition Law Commentary: Commentary, Cases and Materials” Cambridge, UK: Cambridge University Press, 2004


[6]DL Kaseman and JH Mayo, “Government and Business: The Economics of Anti-trust and Regulation”, Fort Worth: The Dryden Press, 1995

[7]Press Release IP/98/1060, Brussels, “Commission Strengthens the fight against the cartels”, December 3, 1998

[8]UOI v. Hindustan Development Corporation, AIR 1994 SC 988: JT 1993 (3) SC 15: 1993 (2) SCALE 506: (1993) 3 SCC 499

[9]Haridas Exports v. All India Float Glass Manufacturers Association, AIR 2002 SC 2728: [2002] 111 COMP CAS 617 (SC)

By Hanuwant Singh Rathore

Leave a Reply

Your email address will not be published.

No widgets found. Go to Widget page and add the widget in Offcanvas Sidebar Widget Area.