Analyzing Anti-Competitive Agreements under the Indian Competition Act, 2002

An Analysis of Anti-Competitive Agreements under the Competition Act, 2002 in India

Introduction

The Competition Act, 2002 ("the Act") was enacted in India 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 (Brahm Dutt v. Union Of India, 2005 SCC OnLine SC 26; Preamble to the Competition Act, 2002). A cornerstone of this legislation is the prohibition of anti-competitive agreements, primarily governed by Section 3 of the Act. Such agreements can distort market dynamics, leading to detrimental outcomes for consumers and the economy. The Competition Commission of India (CCI) is the statutory body responsible for enforcing the Act and adjudicating on matters related to anti-competitive practices. This article undertakes a comprehensive analysis of the legal framework governing anti-competitive agreements in India, drawing upon statutory provisions and key judicial pronouncements.

The Statutory Framework: Section 3 of the Competition Act, 2002

Section 3 of the Act is pivotal in addressing anti-competitive agreements. Its provisions are designed to capture a wide array of collusive conduct that can harm competition.

Section 3(1): General Prohibition

Section 3(1) lays down the general prohibition against anti-competitive agreements. It states: "No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India." (Competition Commission Of India v. Bharti Airtel Limited And Others, Supreme Court Of India, 2018; Yashoda Hospital & Research Centre Ltd., Ghaziabad Informant v. India Bulls Financial Services Ltd., New Delhi Opposite Parties, Competition Commission Of India, 2011; Competition Commission Of India v. State Of Mizoram And Others, Supreme Court Of India, 2022). Any agreement entered into in contravention of Section 3(1) is deemed void under Section 3(2) of the Act.

The Supreme Court in Rajasthan Cylinders And Containers Limited (S); v. Union Of India (S). (2018 SCC ONLINE SC 1718, Supreme Court Of India, 2018) reiterated that Section 3 prohibits those agreements which cause or are likely to cause an appreciable adverse effect on competition (AAEC) within India. The objective is to eliminate practices having adverse effect on competition and promote and sustain competition (Rajasthan Cylinders And Containers Limited (S); v. Union Of India (S). (Supreme Court Of India, 2018), quoting Competition Commission of India v. Steel Authority of India Ltd. (2010) 10 SCC 744).

Section 3(3): Horizontal Agreements (Presumption of AAEC)

Section 3(3) of the Act deals with agreements entered into between enterprises or associations of enterprises, or persons or associations of persons, or between any person and an enterprise, engaged in identical or similar trade of goods or provision of services (horizontal agreements). Such agreements, including cartels, are presumed to have an AAEC if they:

  • directly or indirectly determine purchase or sale prices;
  • limit or control production, supply, markets, technical development, investment or provision of services;
  • share the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;
  • directly or indirectly result in bid rigging or collusive bidding.

(Competition Commission Of India v. Coordination Committee Of Artistes And Technicians Of West Bengal Film And Television And Others, Supreme Court Of India, 2017; Aluminium Phosphide Tablets Manufacturers, In Re, Competition Commission Of India, 2012). This presumption of AAEC is, however, rebuttable (Rajasthan Cylinders And Containers Limited (S); v. Union Of India (S). (Supreme Court Of India, 2018)).

Section 3(4): Vertical Agreements (Rule of Reason Analysis)

Section 3(4) addresses agreements amongst enterprises or persons at different stages or levels of the production chain in different markets (vertical agreements). These include tie-in arrangements, exclusive supply agreements, exclusive distribution agreements, refusal to deal, and resale price maintenance. Such agreements are prohibited if they cause or are likely to cause an AAEC in India. Unlike Section 3(3) agreements, there is no presumption of AAEC for vertical agreements; they are analyzed under a 'rule of reason' approach, balancing pro-competitive benefits against anti-competitive harms. (L.H. Hiranandani Hospital v. Competition Commission Of India, Competition Appellate Tribunal, 2015). Allegations under Section 3(4) read with Section 3(1) were noted in Meru Travel Solutions Pvt. Ltd. v. Ani Technologies Pvt. Ltd. (2018 SCC ONLINE CCI 46) concerning agreements between cab aggregators and their drivers.

Key Concepts and Judicial Interpretation

Appreciable Adverse Effect on Competition (AAEC)

The determination of AAEC is central to the application of Section 3. While Section 3(3) agreements carry a presumption of AAEC, for agreements under Section 3(1) generally, and specifically for those under Section 3(4), the CCI must establish such an effect. Section 19(3) of the Act lists factors the CCI shall consider when determining AAEC, including creation of barriers to new entrants, driving existing competitors out of the market, foreclosure of competition, accrual of benefits to consumers, improvements in production or distribution, and promotion of technical, scientific, and economic development.

Cartels and Evidentiary Challenges

A cartel is an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or trade in goods or provision of services (Section 2(c) of the Act). Cartels are considered the most egregious form of anti-competitive conduct.

Proving the existence of a cartel often presents significant evidentiary challenges, as such agreements are typically shrouded in secrecy. The Supreme Court in Rajasthan Cylinders And Containers Limited (S); v. Union Of India (S). (2018 SCC ONLINE SC 1718) emphasized the necessity for concrete evidence over circumstantial indicators when alleging cartelization. The Court noted that "parallel conduct in oligopolistic markets necessitates concrete evidence before inferring collusion," referencing its earlier decision in Excel Crop Care Limited v. Competition Commission of India (2017 SCC 8 47). It also drew upon international jurisprudence, such as Dyestuffs (Imperial Chemical Industries Ltd. v. Commission of European Communities, 1972), which established that concerted practices do not require a formal agreement but can arise from coordinated behavior, and U.S. cases like Monsanto Co. v. Spray-Rite Service Corp. and Matsushita v. Zenith Radio Corp., which articulated the need for evidence that excludes the possibility of independent action.

In Builders Association Of India v. Cement Manufacturers' Association (2016 SCC ONLINE CCI 46), the CCI found cement manufacturers and their association (CMA) to be involved in an agreement on prices, production, and supply, acting as a cartel. The CMA was also found to be collecting price data and was directed to disassociate from such activities. Penalties were imposed under Section 27(b) of the Act.

In Aluminium Phosphide Tablets Manufacturers, In Re (2012 SCC OnLine CCI 100), the CCI dealt with identical pricing (price parallelism). While acknowledging the Supreme Court's view in Hindustan Development Corporation (1993 (3) SCC 499) that price parallelism by itself does not lead to a conclusion of a cartel, the CCI noted that Section 3(3) of the Competition Act, 2002, creates a different legal landscape where certain agreements are presumed to cause AAEC.

Bid Rigging / Collusive Bidding

Bid rigging or collusive bidding is specifically proscribed under Section 3(3)(d) of the Act. It refers to "any agreement, between enterprises or persons referred to in sub-section (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."

The Supreme Court in Excel Crop Care Limited v. Competition Commission Of India And Another (2017 SCC 8 47) dealt with allegations of cartelization and bid rigging in tenders for Aluminium Phosphide Tablets (APT). The companies were found to have submitted identical bids, violating Section 3(3). The Court interpreted collusive bidding and bid rigging as overlapping concepts.

The case of Rajasthan Cylinders And Containers Limited (S); v. Union Of India (S). (2018 SCC ONLINE SC 1718) involved allegations of bid rigging among LPG cylinder suppliers. The Supreme Court set aside the orders of the CCI and COMPAT, emphasizing the need for concrete evidence, especially in oligopsonistic markets (few large buyers), where parallel pricing might occur without explicit collusion. The Court cautioned against over-reliance on meetings of trade associations as sole proof of collusion without evidence of substantive discussions on pricing strategies.

The NCLAT in Saifudheen E. v. The Competition Commission of India & Ors. (2019 SCC OnLine NCLAT 1089) observed that an informant must lay evidence, direct or circumstantial, before the CCI that an agreement was entered into which resulted in bid rigging or collusive bidding for the presumption of AAEC to apply.

Algorithmic Pricing and Hub-and-Spoke Cartels

The rise of digital platforms has introduced new complexities, such as algorithmic pricing. In Samir Agrawal v. Competition Commission Of India And Others (Cab Aggregators Case) (2021 SCC 3 136), the Supreme Court addressed allegations that cab aggregators Ola and Uber engaged in price-fixing through their algorithms, effectively creating a "hub-and-spoke" cartel with drivers. The Court, however, found no evidence of an agreement between the platforms and their respective drivers, or between the drivers themselves, to fix prices. It noted that drivers were independent and did not collude. The Court distinguished this from a scenario where the algorithm itself might be used as a tool for collusion if there was an underlying agreement.

This contrasts with the earlier CCI case, Fast Track Call Cab Pvt. Ltd. v. Ani Technologies Pvt. Ltd. (2017 SCC ONLINE CCI 36), which primarily focused on abuse of dominance (Section 4) by Ola. While the DG investigated Ola's conduct, the CCI noted that the DG had not come to a conclusion on Section 3 of the Act in that specific matter.

Enforcement and Procedure

Role of the CCI and Director General (DG)

The CCI can initiate an inquiry into an alleged contravention of Section 3 either on its own motion, on receipt of any information from any person, consumer or their association, or on a reference made by the Central Government, a State Government or a statutory authority (Section 19(1) of the Act). If the CCI is of the opinion that there exists a prima facie case, it directs the Director General (DG) to cause an investigation (Section 26(1) of the Act) (Competition Commission Of India v. Bharti Airtel Limited And Others, 2018 SCC ONLINE SC 2678).

The Madras High Court in Hyundai Motor India Limited v. Competition Commission Of India (2015 SCC ONLINE MAD 2364) clarified that the DG's role is to assist the CCI and the DG cannot initiate an investigation suo motu. The DG is appointed under Section 16(1) and is obliged to do what the Commission directs (Section 41(3)). The Court also noted that an order under Section 26(1) forming a prima facie opinion does not require detailed reasons, as per the proviso to Section 26(1).

Penalties under Section 27

If, after inquiry, the CCI finds a contravention of Section 3, it may pass orders, including imposing penalties. Section 27(b) empowers the CCI to impose a penalty of up to ten percent of the average of the turnover for the last three preceding financial years upon each person or enterprise party to such agreement. A significant development in penalty jurisprudence came with the Supreme Court's decision in Excel Crop Care Limited v. Competition Commission Of India And Another (2017 SCC 8 47). The Court endorsed the "relevant turnover" doctrine, holding that penalties should be calculated based on the turnover derived from the specific product or service involved in the anti-competitive conduct, rather than the total turnover of the enterprise. This ensures proportionality in penalties, especially for multi-product companies. In Builders Association Of India v. Cement Manufacturers' Association (2016 SCC ONLINE CCI 46), the CCI considered net profits for computing penalties, noting that penalties in other jurisdictions for cement cartels were also significant.

Locus Standi

The Supreme Court in Samir Agrawal v. Competition Commission Of India And Others (Cab Aggregators Case) (2021 SCC 3 136) addressed the issue of locus standi. While dismissing the appeal on merits, the Court discussed the scope of "any person" who can file information under Section 19(1)(a). It clarified that the Act's framework is inquisitorial and regulatory, and the informant's role is primarily to bring information to the CCI's notice. The Court affirmed a broad interpretation of who can be an informant but emphasized that for an appeal against a CCI order, the appellant must demonstrate a legal injury or be a "person aggrieved."

Jurisdictional Considerations

The interplay between the CCI and sectoral regulators has been a subject of judicial scrutiny. In Competition Commission Of India v. Bharti Airtel Limited And Others (2018 SCC ONLINE SC 2678), the Supreme Court held that where a sectoral regulator (like TRAI) is empowered to deal with certain aspects of an industry, the CCI should defer its inquiry until the sectoral regulator has made its findings, especially on technical or policy issues within the sector's domain. However, the ultimate jurisdiction to determine if an agreement is anti-competitive rests with the CCI.

Regarding the writ jurisdiction of High Courts, in Jai Balaji Industries Ltd. v. Union Of India And Ors. (2011 AIR GAU 109), the Gauhati High Court suggested that if parties believe tender conditions are anti-competitive or abusive of a dominant position, they should approach the CCI under the Competition Act, which provides a specific forum and procedure, rather than invoking writ jurisdiction, unless the alternative remedy is inadequate or inefficacious.

Analysis of Specific Agreements and Conduct

Agreements by Associations

Trade associations can play a role in facilitating anti-competitive agreements. In Builders Association Of India v. Cement Manufacturers' Association (2016 SCC ONLINE CCI 46), the Cement Manufacturers Association (CMA) was found to be instrumental in the cartel's functioning. However, the Supreme Court in Rajasthan Cylinders And Containers Limited (S); v. Union Of India (S). (2018 SCC ONLINE SC 1718) cautioned against presuming collusion merely from meetings of trade associations without concrete evidence of anti-competitive discussions or decisions.

The Supreme Court in Competition Commission Of India v. Coordination Committee Of Artistes And Technicians Of West Bengal Film And Television And Others (2017 SCC OnLine SC 428) dealt with practices and decisions by associations of artists and technicians that limited or controlled services in the film and television industry, falling foul of Section 3.

Standard Form Agreements

While not directly a Section 3 issue in the provided material, the imposition of unfair terms through standard form agreements can sometimes raise competition concerns, often analyzed under Section 4 (abuse of dominance). For instance, in Lt. Col. Anjani Kumar Singh v. City Corporation Ltd. (2013 SCC ONLINE CCI 60), allegations were made that a developer abused its dominant position by imposing a one-sided buyer's agreement. While primarily a Section 4 concern, the underlying principle of non-negotiable, potentially anti-competitive terms imposed by a powerful entity could, in certain contexts involving agreements between multiple parties, also attract Section 3 scrutiny if they have an AAEC.

Conclusion

The legal framework in India for regulating anti-competitive agreements, centered around Section 3 of the Competition Act, 2002, is robust and continually evolving through judicial interpretation. The CCI plays a crucial role in investigating and adjudicating alleged contraventions, with the appellate process and Supreme Court oversight refining the understanding and application of these provisions. Key themes emerging from jurisprudence include the high evidentiary burden for proving cartels, the distinction between per se prohibitions (for certain horizontal agreements) and rule of reason analysis (for vertical agreements), and the principle of proportionality in imposing penalties, notably through the "relevant turnover" doctrine.

As markets, particularly digital ones, become more complex, the challenges in identifying and remedying anti-competitive agreements will persist. The Indian competition law regime, however, demonstrates a commitment to fostering fair competition, protecting consumer welfare, and ensuring economic efficiency, guided by both domestic needs and international best practices.