by Anti-Competitive Agreements (Section 3)
An agreement includes any arrangement, understanding or concerted action entered into between parties. It may or may not be in writing. Anti-competitive agreements under competition law are broadly classified into two categories, the Anti-competitive Horizontal Agreement and Anti-competitive Vertical/Agreement.
Anti-Competitive Horizontal Agreements-Section 3(3)
Horizontal Agreements are those agreements where enterprises engaged in identical or similar trade of goods or services. When enterprises collude amongst each other to distort competition in the markets, such agreement is presumed to have an appreciable adverse effect on competition and thus, shall be void. The following four categories of such agreements amongst competitors are presumed to have AAEC-
- Agreement to fix price;
- Agreement to limit production and/or supply;
- Agreement to allocate markets;
- Bid rigging or collusive bidding.
However, such presumption is rebuttable.
Vertical Agreements-Section 3(4) Vertical Agreements are those agreements which are entered into by enterprises at different stages or levels of production, distribution, supply, storage etc. Such vertical restrains include:
- Tie-in arrangement;
- Exclusive supply/distribution arrangement;
- Refusal to deal; and
- Resale price maintenance.
Imposition of reasonable conditions as may be necessary for protection of intellectual Property Right (IPR) which are listed under Section 3(5), is generally not to be treated as volatile of the Act.
They are however, subject to scrutiny by the Commission to decide whether such conditions are reasonable and necessary to protect IPR.
Abuse of Dominant Position (Section 4)
Dominance refers to a position of strength which enables an enterprise to operate independently of competitive force in the market or to affect its competitors or consumers in its favour. Dominant position of an enterprise itself is not prohibited; however, if the enterprise by virtue of having dominant position in the relevant market abuses its dominance then the same stands prohibited. Abuse of dominant position impedes fair competition between firms exploits consumers and makes it difficult for the other players in the market to compete with the dominant undertaking. Abuse of dominant position covers:
- Imposing unfair condition or price, including predatory pricing;
- Limiting production/market or technical or scientific development
- Denying market access, and
- Making conclusion of contracts subject to conditions, having no nexus with such contracts; and
- Using dominant position in one relevant market to gain advantages in another relevant market.
Anti-competitive agreements and other conduct
Scheme of the Competition Act
The Competition Act is based on the “effects doctrine” and grants the CCI jurisdiction over any agreement, abuse of a dominant position or combination that takes place outside of India as long as such agreements, conduct or combination have or are likely to have an AAEC in India. This is a significant development in the new competition law regime since the erstwhile MRTP Commission did not have extra-territorial jurisdiction.
Anti-competitive agreements
The Competition Act seeks to regulate two kinds of agreements:
(a) Anti-competitive agreements between/amongst competitors (horizontal agreements)
(b) Anti-competitive agreements between enterprises or persons at different stages or levels of the production chain (vertical agreements).
Under the Competition Act, certain kinds of horizontal agreements (described in the next subsection) are presumed to cause an AAEC in India. The presumption does not mean that all alleged horizontal agreements are necessarily anti-competitive; it remains open to the parties entering into such an agreement to provide evidence that their agreement does not result in an AAEC and rebut the presumption. On the other hand, such presumption does not apply to vertical agreements. Vertical agreements are usually permitted unless it is established that they cause, or are likely to cause, an AAEC within India. The Competition Act provides an exhaustive list of horizontal agreements that are presumed to cause an AAEC in India, as well as an inclusive list of vertical agreements that may be prohibited depending upon their effect on conditions of competition within India.
Cartel conduct
The Competition Act sets out a list of horizontal agreements that are presumed to cause an AAEC within India. In other words, once it is established that such an agreement exists and the agreement results in any of the conduct listed, the CCI may, on the basis of the presumption that they cause an AAEC, seek to prohibit them. These four types of agreements, which are also known as “cartel” arrangements, are set out in this list:
- Price-fixing agreements, i.e., agreements between competitors, which directly or indirectly have the effect of fixing or determining purchase or sale prices;
- Agreements between competitors, which seek to limit or control production, supply or markets;
- Market-sharing agreements between competitors irrespective of the form that they may take; this includes market sharing by way of product allocation, allocation of geographic markets or source of production; and
- Bid-rigging agreements, i.e., agreements between competitors, which have the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process of bidding.
Mergers and Acquisitions
Any combination, whether a merger, an acquisition, or an amalgamation, must adhere to the provisions of Section 5 and Section 6 of the Act and needs prior approval from the CCI. The two requirements are the filing of such mergers and combinations and the de minimise test. The Act also gives jurisdiction to the CCI over all the combinations, even those outside the country. A notification prior to the combination is required within 30 from the board of directors showing approval in the case of mergers and amalgamations or within 30 of the execution of such an agreement which shows the intention to acquire a business if it is an acquisition. The failure will pave the way for an investigation as authorised by the Act to the CCI.
However, Schedule 1 of the combination regulations provides certain exemptions where a pre-notification to CCI is not necessary. These are:
- Acquisition made only as an investment and where the acquirer does not hold 25% of the shares or more directly or indirectly,
- Acquisition of additional shares which is not more than 5 % in a financial year and where the acquirer holds more than 25% but less than 50% of the shares or voting rights prior to or after such acquisition.
- An acquisition where the acquirer already holds more than 50% of the shares of the company to be acquired except where the transaction is from joint control to sole control.
- Renewed tender where the notice has already been filed with the Commission.
- Acquisition of raw materials, stock-in-trade, spares etc. in the course of business.
- Acquisition by a person in the same group except if the business is jointly controlled and they do not belong to the same group.
- A merger or amalgamation where one has more than 50% of shares in another and the transaction is not from joint control to sole control.
Penalties and liabilities under the Competition Act, 2002
The Act also provides provisions for penalties and gives the CCI the power to impose such penalties. In the case of anti-competitive agreements, it can fine up to 10% of the average turnover of the last 3 financial years. For cartel agreements, the fine is equal to the profits made in 3 continuous years of such agreement. It can also order desist or ask to modify the agreements. The Act also provides penalties for non-compliance with the order of the Commission under Section 42 and false information under Section 44 of the Act. The Act also empowers CCI to impose lesser penalties under Section 46 of the Act.
