Oct 11, 2020 06:26 UTC

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Oct 11, 2020 at 06:26 UTC

Study Notes: Anti-Competitive Agreements under Contest Act, 2002

WHAT ARE ANTI-COMPETITIVE AGREEMENTS?

  • One of the main objectives of Competition Deed, 2002 is to promote a off-white and salubrious competition in the market and prevent anti-competitive practices/agreements that cause or are likely to cause appreciable agin effect on contest.
  • Section 3(one) of Contest Act, 2002 prohibits such Anti-Competitive Agreements relating to production, supply, distribution, storage, acquisition or control of goods or provision of services, which crusade or are likely to cause an Appreciable Adverse Upshot on Contest (hereinafter referred to equally "AAEC") within India.
  • Co-ordinate to Section 32 of the Human activity fifty-fifty if an understanding has been entered into exterior India, the CCI has power to enquire into such an arrangement if such an agreement has an AAEC in Bharat.
  • These anti-competitive agreements are declared void by Section iii(2) of the Act.

TYPES OF ANTI-COMPETITIVE AGREEMENTS

Anti-competitive agreements tin further exist categorized into:

  • Horizontal Agreements [Section three(3)]
  • Vertical Agreements[Section 3(4)]

HORIZONTAL AGREEMENTS [Section 3(three)]

  • Horizontal agreements are agreements/arrangements between enterprises/persons at the aforementioned phase of production and hence more often than not take place between rivals.

For case, understanding between 2 or more than manufacturers of same product or; between two or more service providers of aforementioned service.

Section 3(iii) of the Human action provides that horizontal agreements are agreements between enterprises/persons engaged in identical or similar merchandise of goods or provision of services.

  • Horizontal agreements are subject to the adverse presumption of being anti-competitive. This is known equally 'per se rule' which implies that the agreements (here, horizontal agreement), acts or practices specified past the Competition Deed equally deemed or presumed to accept appreciable adverse effect on competition (AAEC) are past themselves void.

Types of Anti-Competitive Horizontal Agreements:

As per Section iii(iii) of the Act any horizontal agreement of either of the post-obit kinds shall be presumed to have AAEC and hence is anti-competitive and void:

  • Cartel– A serious blazon of anti-competitive agreement is cartel. Dare is defined in Section two(c) of the Human activity every bit an association of producers, sellers, distributors, traders or service providers who, by understanding amidst themselves, limit, control or attempt to control the product, distribution, sale, price or merchandise of goods/services.

There are iv main types of cartel agreements: Price Fixing; Limiting Production or Supply; Marketplace Sharing and; Bid Rigging/Collusive Bidding.

In Builders Clan of India v. Cement Manufacturers Association and Ors. [1] (Cement Dare Example) it was held that existence of written material is not necessary to prove a common agreement or agreement and it is sufficient if the activities of the companies imply the beingness of such an agreement. The Commission also gave the concept of parallelism-plus that parallel behaviour in prices, dispatch, supply, accompanied with some other factors indicating coordinated behaviour amidst firms may get a basis apart to determine the existence of cartels in the market.

  • Cost Fixing- Agreements that directly or indirectly determine purchase or sale prices are void. Price fixing can either be directly (by maintaining actual prices) or indirect (by offering same discounts, credit terms etc.).
  • Limiting Production or Supply– Agreements that either limit or control production, supply, markets, technical development, investment or provision of services are void.
  • Sharing of Market- Under Marketplace Sharing Agreements the competitors carve up/destine the market place amongst themselves in various ways [geographically, goods/services wise, customer wise or in any other fashion] and agree to deal just in their allotted segment of the marketplace. Hence, the competitors agree not to compete with each other past not dealing in each other other's allotted area. Such agreements result in cosmos of monopoly of enterprises in their allotted area; less number of choices of goods/services for consumers; decrease in supply of products/services to customers; increase in prices etc. Therefore, these agreements are presumed to be void.
  • Bid Rigging/Collusive Bidding– Agreements that directly/indirectly eliminate or reduce contest for bids or manipulate the process for bidding are known every bit Big Rigging Agreements. Under these agreements competitors concord and accept turns to be the winner of the tenders past not competing with each other in the tender.

In the landmark judgment Rajasthan Cylinders and Containers Ltd. five. Union of India[two] the Supreme Courtestablished a law on price parallelism for oligopolies that price parallelism by itself is not conclusive of arrangement of bid rigging.

VERTICAL AGREEMENTS [Section 3(4)]

  • Understanding betwixt enterprises operating at dissimilar levels of product is known as Vertical Agreement. These agreements operate at unlike levels of merchandise.

For example, understanding between supplier and manufacturer or; between supplier and dealer.

Every bit per Section 3(4) of the Act Vertical Agreement is an agreement betwixt enterprises/persons at different stages of the production concatenation in different markets.

  • 'Per se Rule' does non apply in case of Vertical Agreements, that is, they are not per se presumed to be anti-competitive. Legality of Vertical Agreement is assessed on the ground of 'Dominion of Reason'. The Dominion of Reason is a legal arroyo where in gild to decide whether or non a do/agreement should exist prohibited an effort is made to evaluate the pro-competitive features of the practice/understanding against its anti-competitive furnishings. In brusk, a vertical agreement is declared void but if information technology causes or is likely to cause AAEC.

US Supreme Court in Chicago Board of Trade v. Us [iii] explained Dominion of Reason in examining the legality of restraint of merchandise as"Whatever restraint is of essence, until it but regulates and promotes contest. To determine this question, the Court must ordinarily consider the facts peculiar to the business organization to which restraint is applied, its condition before and after the restrain was imposed, the nature of restrain and its actual or probable outcome."

Types of Vertical Agreements:

Tie-in Arrangement– Under this organisation, the seller ties the desirable skilful that he is selling with some other good and makes a precondition that in order to purchase the desired good the purchaser has to also purchase the second good (the tied good) irrespective of the fact whether the purchaser wants to buy the 2d expert or not.

In Shri Sonam Sharma v. Apple Inc. [iv] ,the CCI held that the post-obit ingredients must be present in a Tie-in Arrangement:

  1. Presence of ii split products or services capable of beingness tied.
  2. The seller must have sufficient market abilitywith respect to the tying production to appreciably restrain free contest in the market for the tied production.
  3. The tying arrangement must affect a "not insubstantial" amount of commerce.
  • Exclusive Supply Agreement– These agreements restrict the purchaser in the course of his trade from acquiring or dealing in any goods other than those of the seller. For example, a supplier of goods of one seller is prohibited from dealing with other sellers of the same appurtenances.
  • Sectional Distribution Agreement– These agreements limit, restrict or withhold the output or supply of whatever goods or allocate whatever area or market for the sale of goods.
  • Refusal to Deal– According to the Human activity these agreements restrict the persons or classes of persons to whom the goods are sold or from whom goods are bought.

In Shri Shamsher Kataria v. Honda Siel Cars India Ltd.[five](Spare Parts case) the genuine spare parts of automobiles were not made freely bachelor in the marketplace and agreements were fabricated between the OEMs (Original Equipment Manufacturers) and the authorized dealers requiring the latter to source spare parts only from the OEMs or their authorized vendors only.

CCI held that these agreements allowed the OEMs to go monopolistic players in the market place for their model of cars, create entry barriers, preclude competition from the independent service providers, and seek exploitative prices from consumers likewise having potential long term anti-competitive structural effects on the automobile market in Republic of india. These agreements were held to be of the nature of vertical agreements including sectional supply agreements, exclusive distribution agreements and refusal to deal nether Department 3(4) and held them to have AAEC in India.

  • Resale Price Maintenance– This includes whatsoever agreement to sell goods on status that the prices to be charged on the resale by the purchaser shall exist the prices stipulated by the seller unless information technology is conspicuously stated that prices lower than those prices may be charged.

In Fx Enterprise Solutions India five. Hyundai Motor India Limited [6] CCI imposed punishment on Hyundai for violation of Section iii(4)(e) [Resale Price Maintenance] for monitoring maximum permissible discount level through a Discount Control Mechanism whereby dealers (who were mandated to procure all automobile parts and accessories from Hyundai) were simply permitted to provide a maximum permissible discount and were too non authorized to give discount beyond a recommended range.

EXEMPTIONS FROM ANTI-COMPETITIVE AGREEMENTS [Section 3(5)]

  • According to Section 3(5)(i), a person exercising his right to forbid infringement or imposing reasonable conditions to protect his Intellectual Property Rights (hereinafter referred to as "IPRs"), that is, Copyright, Patent, Trademark, Geographical Indications and Designs shall exempted from forming anti-competitive agreement under Department 3.

In Shri Shamsher Kataria v. Honda Siel Cars India Ltd. [7] CCI rejected the exemption claimed under Section 3(five)(i) of the Human action and held that:

"….. though registration of an IPR is necessary, the aforementioned does not automatically entitle a visitor to seek exemption under section 3(5)(i) of the Human action. The important criteria for determining whether the exemption under section 3(5)(i) is bachelor or not is to assess whether the condition imposed past the IPR holder tin be termed as "imposition of a reasonable conditions, equally may be necessary for the protection of any of his rights"." [Para nine.ane.13]

  • As per Section 3(v)(ii), anti-competitive agreement under department iii shall not restrict the right of whatever person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of appurtenances or provision of services for such export.

Enquiry OF ANTI-COMPETITIVE AGREEMENTS [Section 19]

  • Who may ask for inquiry?

Department nineteen(1) of the Competition Act provides that the CCI may inquire into anti-competitive agreements:

  • On its own or;
  • On receipt of whatever information from whatever person or consumer or their association or trade association or;
  • On a reference by the government.
  • Factors Determining Appreciable Agin Effect On Competition

While determining whether an understanding is anti-competitive and has AAEC nether Section 3, the CCI takes into business relationship the following factors equally provided under Section 19(three):

  • Creation of barriers to new entrants in the market;
  • Driving existing competitors out of the market;
  • Foreclosure of competition by hindering entry into the market;
  • Accrual of benefits to consumers;
  • Improvements in product or distribution of goods or provision of services;
  • Promotion of technical, scientific and economic evolution past means of production or distribution of goods or provision of services.
  • Relief in example of Anti-Competitive Agreement [Section 27 & 33]

If later enquiry CC finds that the agreement is anti-competitive and has AAEC, it may laissez passer all or whatsoever of the following orders:

  • Direct the parties to discontinue and not to re-enter such anti-competitive agreement [Section 27(a)].
  • Impose penalization (non to be more 10% of the average of the turnover for the terminal three preceding financial years) upon each party involved in such agreement [Department 27(b)].
  • In case of a cartel, impose a penalty upwards to iii times of its turn a profit for each twelvemonth of the constancy of such agreement or 10% of its turnover for each such year, whichever is higher [Section 27(b)].
  • Modify the agreement [Section 27(d)].
  • Directly the enterprise to comply with the orders, directions and make payment of cost as directed by CCI [Section 27(east)].
  • Laissez passer whatsoever other club or direction as information technology may deem fit [Section 27(chiliad)].
  • Consequence interim orders [Section 33].

[1] Builders Association of India v. Cement Manufacturers Clan, Case No. 29/2010.
[2] Rajasthan Cylinders and Containers Ltd. v. Union of India, 2018 SCC Online SC 1718.
[three] Chicago Lath of Trade v. United States , 246 U.Southward. 231 (1918).
[4] Shri Sonam Sharma v. Apple Inc., Instance No: 24/2011.
[five] Shri Shamsher Kataria 5. Honda Siel Cars India Ltd., Case No. 03/2011.
[6] Fx Enterprise Solutions Bharat v. Hyundai Motor India Limited, Instance no. 36 & 82 of 2014.
[7] Shri Shamsher Kataria v. Honda Siel Cars Republic of india Ltd., Case No. 03/2011.

Shivani Chauhan

Shivani is a Contributing Editor @LegalWires. She has washed B.A.LL.B.(Hons.) from Dr. RMLNLU and has completed her LL.K. in Business organisation law. Her areas of interest are Competition Police, IPR and Sports Law.