Anti-Competitive Agreements under Competition Act, 2002

The article gives a deep insight into the anti-competitive agreements as described under the Competition Act, 2002. Further, it also goes to find out the roots of such agreements and their classification, viz., horizontal agreement and vertical agreement. The article provides a detailed overview of both kinds of Anti-competitive Agreements.

Introduction

When there exists an economic rivalry amongst companies or entities to draw the maximum number of customers and make the most of the profit, such a situation is known as competition. The law drafted by the legislature to regulate such competition is known as Competition Law. It is also known as antitrust law in some countries around the world.

A free, fair, healthy and reasonable competition prevailing in the market is a sine qua non for the creation and maintenance of a conducive environment for business so that the country can prosper. The motto of all the competition laws operational in various parts of the world is to make sure that there exists such an environment where all the companies can deal with fair competition.

The Indian Competition Act has just bloomed from the bud and is still going through various improvements. A lot of time has not elapsed since the new competition law was adopted. MRTP Act was used to operate the competition in the market before the Competition Act of 2002 came to the forefront.

The structure of the competition law has been kept in such a way that not only promotes but also provides a fair and reasonable chance to all the enterprises in the market to have healthy competition so that the interests of the consumers can be protected.

One of the main objectives with which the Competition Act was brought is to do away with those practices that create an adverse impact on the competition.[1] It has also cast a duty upon the Competition Commission of India to prohibit all those practices that produce an adverse impact on the competition in the Indian market and to get all the objectives stated in the preamble, implemented.[2]

Anti-Competitive Agreements

The nature of the Restrictive Trade Practices[3] under the MRTP Act, 1969 has been covered under the ambit of Anti- Competitive Agreements as mentioned under the Competition Act, 2002. The companies in the market enter into agreements that have the potential to lessen, reduce, suppress, distort and restrict the competition.

When the competition across the global markets is analyzed, it comes across that the agreements entered into by the firms can be classified into two types, namely, vertical and horizontal agreements.

The competition that exists amongst the firms taking part in a similar chain of production is known as a Horizontal Agreement while the competition that exists amongst the parties taking part in the same chain of supply is known as Vertical Agreement.

Horizontal agreements can create a serious and severe impact on the competition pursuant to which these agreements are taken seriously rather than the vertical agreements by many of the competition laws in the world.

The basic premise behind the insertion of the provision concerning the anti-competitive agreements in the competition law of India is fostering competition so that the welfare and the interests of the consumers can be promoted.[4] The Act covered almost all business areas, such as promotion, sales, advertising, packaging, purchasing, investment, pricing, distribution, production, take- over or merger amalgamation with any undertaking.

Further, the Act restricts all these departments if they enter into any such agreement, which is anti-competitive in nature, that cause or is likely to cause an adverse impact on the competition prevailing in the Indian market.[5] If any company enters into an agreement against the general restriction prescribed by the Act, it is declared null and void.[6]

Many kinds of anti-competitive agreements are described by the Competition Act 2002.[7] It comprises certain decisions or actions done by an association or a group of persons by means of an agreement, arrangement or understanding, which is either formal or informal in nature, comprises cartels[8] and also covers a different kind of vertical restraint on trade.[9]

The arrangements or agreements[10] entered into are in the nature of controlling and dominating commerce and trade of any commodity, along with the intent and power to do away with the competitors substantially.

As mentioned above, the Anti- Competitive Agreements can be classified under two heads:

1. Horizontal Agreement
2. Vertical Agreement

I. Horizontal Agreement

The agreement relating to the competition that operates at a similar level of the economy falls under the ambit of the Horizontal Agreement. Such agreements are between the levels that deal with the same type of products such as producers and producers, sellers and sellers, retailers and retailers and so on and so forth.

These agreements are considered anti-competitive agreements. These are the agreements that are strictly governed by the rules as they create an adverse impact on the competition in the market.

Any agreement that has been entered into amongst the association of individuals or individuals or association of enterprises or enterprises or individual and enterprise, along with the cartels that are involved in similar or identical trade or services such as:

1. Indirectly or directly affects the selling or buying price
2. Puts a limit on services, investment, technical development, markets, supply or production
3. Indirectly or directly leads to big rigging[11] or a presumption arises that collusive bidding have an adverse impact on the competition.[12]

On the other hand, there are various kinds of exemptions provided to joint ventures that promote efficient distribution, supply, production etc., along with reasonable restrictions and export arrangements, which form part of the exploitation or protection of intellectual property rights.[13]

Wide Scope

It becomes essential for the enterprises to show action of their concern to form an agreement. Even if the parties to the agreement do not want to create any mutual duties and obligations for each other, all such arrangements will fall under the ambit of an agreement under the Competition Act, 2002.

Moreover, it is not necessary to have written proof of any such arrangement, and thus, if any oral arrangement has a similar impact, it will fall under the ambit of the agreement.

In the matter of Registrar of Restrictive Trade Agreements v. W. H Smith and sons,[14] it was observed by the Court that those people who come together to keep the prices up, do not scream from the top of their houses. They remain silent and make their arrangement at a place where none can see them, maybe in the cellar.

They do not intend to put anything in writing, and only words work for them. For instance, a wink or a nod is sufficient. Thus, the Parliament has covered both written and oral agreements.

Presumption of Appreciable adverse effect

The whole concept of appreciable adverse effect[15] has been put under the head of subjective since it differs from person to person. Horizontal agreements are covered under Section 3 (3) of the Competition Act, 2002. There arises a presumption in the case of such agreements that there exists an appreciable adverse effect on the prevailing competition in the market. However, any such effect is not considered in the case of vertical agreements[16] and pursuant to this, horizontal agreements are under strict rules and regulations.

The Indian Evidence Act provides that any fact that is produced before the court has to be presumed as a fact by it, until and unless the contrary gets proved.[17] Hence, it becomes clear that the presumption regarding the appreciable adverse effect on the competition with respect to the Horizontal Agreements as provided under Section 3 (3) is subject to be rebutted, but the person who is in power to undertake such trade practice has to come forward and prove otherwise.

II. Vertical Agreements

There exists another category of agreements that might get hit from the prohibition created against the Anti- Competitive Agreements if they result in an appreciable adverse effect on the competition[18] and, thus, fall under the ambit of those agreements that have to be judged by the application of ‘rule of reason’ instead of ‘rule of per se’. The burden to prove the same lies on the prosecutor or the investigator. These include-

1. Tie-in Agreements- These are those agreements that require a buyer of the product as a condition precedent to such purchase.
2. Exclusive Distribution Agreements- Such an agreement is entered into for limiting or restricting, or withholding the supply or output of any good or allocating any area or disposal in some market.
3. Exclusive Supply Agreements- These are those agreements that restrict the buyer in any manner in the course of his business or trade from dealing or acquiring any good.
4. Refusal to Deal- These are those agreements that prohibit any person or class of persons from dealing with a particular good, either selling a particular good or buying them.
5. Resale Price Maintenance- The agreements that cover the condition that the charges on the reselling of the goods by the buyer will be equivalent to the price that was stipulated by the seller.[19]

It can be noted here that all the above-mentioned concepts were covered under the Monopolies and Restrictive Practices Act, 1969 and were taken forward by the Competition Act, 2002.

Essentials of Vertical Agreement

As per Section 3 (4) of the Competition Act, 2002, the ingredients for classifying an agreement as a vertical agreement is:

1. Existence of an agreement between the persons or enterprises
2. Parties to the agreement must regulate at different stages of the production chain
3. The agreement must result in an adverse impact on the competition.

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[1] The preamble of the Competition Act, 2002

[2] Section 18 of the Competition Act, 2002

[3] Section 33 of the MRTP Act, 1969

[4] The provision relating to the anti-competitive agreements came into effect on May 20, 2009.

[5] Section 3 (1) of the Competition Act, 2002

[6] Section 3 (2) of the Competition Act, 2002

[7] Section 3 (3) and 3 (4) of the Competition Act, 2002

[8] Section 3 (3) of the Competition Act, 2002

[9] Section 3 (4) of the Competition Act, 2002

[10] Section 2 (b) of the Competition Act, 2002

[11] Explanation to Section 3 (3) of the Competition Act, 2002

[12] Section 3 (3) and 3 (4) of the Competition Act, 2002

[13] Section 3 (1) of the Competition Act, 2002

[14] (1960) BAI l EK 721

[15] Section 3 (1) of the Competition Act, 2002

[16] Section 3 (4) of the Competition Act, 2002

[17] Section 4 of the Indian Evidence Act

[18] Section 3 (4) of the Competition Act, 2002

[19] Explanation to Section 3 (4) of the Competition Act, 2002

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1. Competition Law
2. History and Development of Competition Law