Section 3 of the Competition Act states that any agreement which causes or is likely to cause an appreciable adverse effect (AAE) on competition in India is deemed anti-competitive.
Section 3 (1) of the Competition Act prohibits any agreement with respect to “production, supply, distribution, storage, and acquisition or control of goods or services which causes or is likely to cause an appreciable adverse effect on competition within India”.
Although the Competition Act does not define AAEC and nor is there any thumb rule to determine when an agreement causes or is likely to cause AAEC, Section 19 (3) of the Act specifies certain factors for determining AAEC.48 The intent of the legislature reflected vide the mandatory language of Section 19 (1) of the Act is that the CCI is required to carry a balanced assessment of anti-competitive effect as well pro-competitive justification of the agreement. As stated above AAE is not defined but Section 19 (3) provides the following factors that the CCI must have due regard to which determining whether an agreement has an AAEC under Section 3:
i. creation of barriers to new entrants in the market;
ii. driving existing competitors out of the market;
iii. foreclosure of competition by hindering entry into the market;
iv. accrual of benefits to consumers;
v. improvements in production or distribution of goods or provision of services;
vi. promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
The language in section 19(3) states that the CCI shall have ‘due regard to all or any’ of the aforementioned factors. In the adjudications that have been analysed by us below, we note that the CCI has examined the allegations and material on record as against the elements of Section 19(3) as set out above. However, in Automobiles Dealers Association v. Global Automobiles Limited & Anr., CCI held that it would be prudent to examine an action in the backdrop of all the factors mentioned in Section 19(3).
The Competition Act does not categorize agreements into horizontal or vertical however the language of Sections 3 (3) and 3 (4) makes it abundantly clear that the former is aimed at horizontal agreement and later at vertical agreements. Horizontal agreements relating to activities referred to under Section 3 (3) of the Competition Act are presumed to have an AAE within India.
The Supreme Court in Sodhi Transport Co. v. State Of U.P. as interpreted ‘shall be presumed’ as a presumption and not evidence itself, but merely indicative on whom burden of proof lies. Vertical agreements relating to activities referred to under Section 3(4) of the Competition Act on the other hand have to be analyzed in accordance with the rule of reason analysis under the Competition Act. In essence these arrangements are ant-competitive only if they cause or are likely to cause an AAEC in India.
Section 3(3) of the Competition Act provides that agreements or a ‘practice carried’ on by enterprises or persons (including cartels) engaged in trade of identical or similar products are presumed to have AAEC in India if they:-
• Directly or indirectly fix purchase or sale prices;
• Limit or control production, supply, markets, technical development, investments or provision of services;
• Result in sharing markets or sources of production or provision of services;
• Indulge in bid-rigging or collusive bidding.
The first three types of conducts may include all firms in a market, or a majority of them, coordinating their business, whether vis-à-vis price, geographic market, or output, to effectively act like a monopoly and share the monopoly profits accrued from their collusion. The fourth type of cartelised behavior may involve competitors collaborating in some way to restrict competition in response to a tender invitation and might be a combination of all the other practices.
The only exception to this per-se rule is in the nature of joint venture arrangements which increase efficiency in terms of production, supply, distribution, storage, acquisition or control of goods or services. Thus there has to be a direct nexus between cost/ quality efficiencies the agreement and benefits to the consumers must at least compensate consumers for any actual or likely negative impact caused by the agreement.
Section 3(4) of the Competition Act provides that any agreement among enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance;
shall be an agreement in contravention of Section 3(1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. As can be reason, these agreements are not deemed anti-competitive. Only if they cause or are likely to cause an AAEC in India will these agreements be in violation of section 3(1) of the Competition Act. The rule of reason must be applied in this determination.
The Competition Act does recognize that protectionist measures with respect to rights granted under intellectual property laws need to be taken by the holder thereof in the course of activities and entering into agreements and arrangements. Consequently, the Competition Act specifically states that the contours of anti-competitive restraints will not apply with respect to those horizontal and vertical agreements which impose reasonable conditions to protect or restrain infringement of, the rights granted under intellectual property laws.
In the pronouncements /orders passed by the CCI in the context of allegations under section 3 and section 4 of the Competition Act examined by us in this paper, the CCI has not set out broad principles of ingredients of an offence or of the nature of permitted activities.
Generally, CCI has, on an examination of the material before it and on an analysis of the relevant provisions of the Competition Act, arrived at a conclusion as to whether an agreement or arrangement is violative of section 3 or section 4 of the Competition Act without setting principles of interpretation or a broad proposition of law. As the court of first instances, the CCI has shown that it is generally more concerned with establishment of facts.
The decisions by the CCI under Section 3 that have gained most significance and have had the greatest impact are those pertaining to cartelization. Since the establishment of an anti-competitive or a cartel like conduct is fact based, the CCI in all cases has relied extensively on reports of the DG In certain cases, the CCI has directed the DG to file a supplementary report as well.
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