A PROJECT

ON

Anti- Competitive Agreements

Supervised by: Submitted by:

Mrs. Disha Bhangarva Ayushi Bugalia

Asst. Professor Semester-X

RSLW Roll No- 03

Sub- Competition Law

May, 2023

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 Certificate

Mrs. Disha Bhangarva Date: April, 2023

Asst. Professor

Rajasthan School of Law for Women

Jaipur

This is to certify that Ayushi Bugalia, student of semester X, has carried out Project titled
“Anti-Competitive Agreements” under my supervision. It is an investigation report of a
minor research project. The student has completed research work in stipulated time and
according to the norms prescribed for the purpose.

Mrs. Disha Bhangarva

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 Acknowledgement

I have written this project titled “Anti-Competitive Agreements” under the supervision of
Mrs. Disha Bhangarva Asst. Prof. of Rajasthan School of Law for Women, Jaipur. Her
valuable suggestions herein have not only helped me immensely in making this work but also
developing an analytical approach to this work.

I found no words to express my sense of gratitude for Principal Vartika Arora for constant
encouragement at every step.

I am extremely grateful to librarian and library staff of the college for the support and
cooperation extended by them from time to time.

Ayushi Bugalia

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 Table of Content

Certificate (2)

Acknowledgement (3)

Table of case (5)

Research Question and Research Methodology (6)

Chapter-1
(7-8)
Introduction

Chapter-2 (9-19)
Agreement under Competition Law

Chapter-3 (20)
Conclusion

Bibliography (21)

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 Table of Cases

 Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors.
 Fx Enterprises v. Hyundai Motor India Limited
 In re. Godrej and Boyce Mfg. Co. Pvt. Ltd.
 Indian Foundation of Transport Research and Training v. Shri Bal Malkait Singh and
Ors
 A.R. Polymers Case

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  Objective of the Project
The objective of this project is to ensure that the operation of the economic system does not
result in the concentration of economic power in hands of few rich. to provide for the control
of monopolies, and to prohibit monopolistic and restrictive trade practices.

 Research Questions:

 What is competition law?

 What is MRTP act?
 Difference between MRTP act and Competition law.
 What are the types of anti-competitive agreements?
 What is Leniency Programme?

 Research Methodology:

The methodology adopted for this research was non-empirical/doctrinal comprising a

systematic study and analyses of published research (journals, books and online sources).an
attempt has been made to analyse the legal provision in making the minor research project
titled “Anti-Competitive Agreements”.

Chapter-1

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 Introduction

With dynamic trends in the new economic market scenario, there was an enactment of new
Competition law regime in India. One of the major objectives of this law was to change
Indian economic policies, removal of trade barriers and enforce pro-trade changes. All this
would ensure fair competition in the market which would benefit both the consumer and
ensure smooth functioning of the market at the same time not proving to be arbitrary. In
furtherance of the same, it was necessary to ensure that the agreements entered by trading
entities do not acquire an anti-competitive nature. Therefore, while engaging in a business
activity in India, the parties to an agreement although have the freedom of trade are
prohibited from entering into agreements that are anti-competitive in nature. Anti-
Competitive Agreements are those agreements that have their object in furtherance of or
prevent, restrict or distort competition in India. Competition Act of 2002 defines the kind of
anti-competitive agreements that cannot be made in India. According to Section 3 of the
Competition Act, any agreements entered into are deemed to be anti-competitive if it falls
into any of the categories as mentioned in the section. Competition Act, 2002, was enacted by
Parliament of India to establish a commission, to protect the interest of the consumers and
guarantee freedom of trade in markets in India.
 To prohibit the agreements or practices that restricts free trading and also the
competition between two business entities,
 To ban the abusive situation of the market monopoly,
 To provide the opportunity to the entrepreneur for the competition in the market,
 To have the international support and enforcement network across the world,
 To prevent from anti-competition practices and to promote a fair and healthy
competition in the market. But before Competition Act there was MRTP Act, The
Monopolies and Restrictive Trade Practices Act, 1969 which ensure that
concentration of economic power in hands of few rich. The act was there to prohibit
monopolistic and restrictive trade practices. It extended to all of India except Jammu
& Kashmir.1

 The aims and objectives of this act were:

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 To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few rich.
 To provide for the control of monopolies, and
 To prohibit monopolistic and restrictive trade practices.

 Difference between MRTP Act and Competition Act:-

1. Meaning- MRTP Act is the first competition law made in India, which covers rules
and regulations relating to unfair trade practices. Whereas, Competition Act, is
implemented to promote and keep up competition in the economy and ensure freedom
of business.
2. Nature- MRTP Act is reformatory in nature. Whereas, competition Act is punitive in
nature.
3. Penalty- No penalty for offence under MRTP Act. Whereas, in Competition Act,
penalty is present.
4. Objective- MRTP Act controlled monopoly in the market. Whereas objective of
Competition Act is to promote competition.

Chapter-2

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 Agreement Under Competition Act

 Section 3[1] of the Competition Act states about anti-competitive agreement,

there are two kinds of agreement under the Act-

1. Vertical

2. Horizontal

Agreement is defined under Section 2(b) of the Competition Act. Agreement is relating to
production, supply, distribution, storage, acquisition or control of goods or services which
causes or is likely to cause an appreciable adverse effect on competition in India shall be
void. Agreement widely defined – even a nod or a wink can suffice. It need not be written,
covers oral understandings as well. Direct proof of agreement not required, may be
conditional from facts, circumstantial evidence is enough. Cartel is very important part of the
same. Cartel includes 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. Cartel is
a secret and not public, they work under the skin.2

In the case of Indian Foundation of Transport Research and Training v. Shri Bal
Malkait Singh and Ors.- AIMTC had directed its members to uniformly increase the truck
freight (by -15%) due to increase in price of diesel, thereby harming consumers and causing
an AAEC in the market. CCI Order: Held that the similarity of the press reports by the
AIMTC’s President and its spokesperson respectively indicated that there was a meeting of
minds amongst the members of the AIMTC to fix/increase the freight rates consequent upon
the hike in diesel prices. The CCI additionally held that the agreement had an appreciable
adverse effect on competition.

 Horizontal Agreement

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Section 3(3) of the Act states that- Any agreement entered into between enterprises or
associations of enterprises or persons or associations of persons or between any person and
enterprise or practice carried on, or decision taken by, any association of enterprises or
association of persons, including cartels, engaged in identical or similar trade of goods or
provision of services, which—

(a) Directly or indirectly determines purchase or sale prices;

(b) Limits or controls production, supply, markets, technical development, investment or
provision of services;
(c) Shares 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;
(d) Directly or indirectly results in bid rigging or collusive bidding, shall be presumed to
have an appreciable adverse effect on competition.

There is direct or indirect determination of prices, it is between competitors presumed and

anti-competitive. Sharing of -

 Prices,
 Input costs,
 Price/cost components,
 Profit margins,
 Cost structure and price calculation,
Atypical cartel- also known as HUB and SPOKE- is the exchange of sensitive information
between competition and third party. There is no direct cartel and they channelize themselves
through hub.

 Adverse effect on Competition Commission of India-

 Price signalling- wherein there is signal from a cartel to another.
 Oligopoly Market- there is Tacit Collusion, which means price signalling with the
knowledge that competitor, is likely to follow similar trend.
For instance, exchange of prices between two suppliers through a common distributor.
Cases of cartel that are considered worst form of anticompetitive conduct also fall
under Section 3(3) of the Act.

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 Direct evidence in the form of a specific agreement in terms of fixing the prices etc.
would not be available, therefore the authorities rely upon circumstantial and indirect
evidence to come to a conclusion on the existence of an agreement between parties, In
the Cement Cartel Case, the Hon’ble CCI has held that existence of the agreement can
be inferred from the intention and conduct of the parties ad that the parallel behaviour
in price is indicative of a coordinated behaviour amongst the participants in the
market. The Hon’ble CCI has identified but for test in the Cement Cartel Case
wherein it held that but for: some anticompetitive conduct between the parties the
action and conduct of the parties cannot be explained. CCI has also viewed that price
parallelism amongst the price of cement across the country is not reflective of the
oligopolistic market and in light of the fact that the details relating to the cement
companies was facilitated through the association, the price parallelism was indicative
if a co-ordinated behaviour under Section 3(3) of the Act. California produces 60% of
wine in the entire United States, in case there is bad growth of grapes the State
intervene in order to regulate the price of the same. It is also known as Political
Doctrine.3

 Exchange of other types of information (apart from prices) may also be

problematic, such as:
 Strategic information,
 Business plans,
 Production /sales details,
 Capacity details, and
 Expansion plans.
 Information exchange is especially problematic in oligopolistic and concentrated
markets.
Exchange of sufficiently historic data is unlikely to create anticompetitive effects.
Exchange of genuinely aggregated data, i.e. where recognition of company level
information is difficult, should not raise concerns.

3
https://www.legalserviceindia.com/legal/article-1000-anti-competitive-agreements-and-the-
competition-act-2002.html

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 Noerr–Pennington doctrine, private entities are immune from liability under the
antitrust laws for attempts to influence the passage or enforcement of laws, even if the
laws they advocate for would have anticompetitive effects. Petitioning is immune
from liability even if there is an improper purpose or motive. The doctrine is
grounded in the First Amendment protection of political speech, and upon recognition
that the antitrust laws, 'tailored as they are for the business world, are not at all
appropriate for application in the political arena.'

 There is exception for the same which has been stated under Section 19(3) of the
Competition Act:-
The Commission shall, while determining whether an agreement has an appreciable
adverse effect on competition under section 3, have due regard to all or any of the
following factors, namely:

(a) Creation of barriers to new entrants in the market;

(b) Driving existing competitors out of the market;

(c) Foreclosure of competition by hindering entry into the market;

(d) Accrual of benefits to consumers;

(e) Improvements in production or distribution of goods or provision of services;

(f) Promotion of technical, scientific and economic development by means of

production or distribution of goods or provision of services.

 Certain Key Issues under Horizontal Agreements:

1. Limiting production or supply

All decisions on increase or decrease of production, sales or capacity, entry into new
markets, capacity utilization etc. should be taken independently. Any
agreement/understanding on the above between competitors may raise concerns. It is
best to keep a record of independent business reasons for any decisions regarding the
same.

2. Market sharing

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 There should not be any formal or informal agreement or understanding with
competitors in relation to sharing of territories / products. Competitors must not agree
not to target each other’s customers (regardless of the size of these customers).

3. Bid-rigging
Any agreement…which has the effect of eliminating or reducing competition for bids
or adversely affecting or manipulating the process for bidding.4

 Common forms of bid rigging:

 Bid suppression,
 Complementary bidding,
 Bid rotation,
 Agreements not to bid against each other or squeeze other bidders,
 Agreements on common terms or pricing formulae.

 A.R. Polymers Case- the COMPAT overturned the CCI decision on the grounds that
CCI and the DG failed to give due weightage to the nature of the market for jungle
boots, manner in which the tender is conducted, and execution of the rate contract to
arrive at finding of bid rigging solely on the grounds of identical pricing.

 Factors which may not mitigate liability:

 Success or failure of a cartel.
 Normal practice in the industry.
 Ignorance of the law.
 The agreement /understanding between parties not being in writing.
 The practice occurring through a trade association.
 Remaining silent in a meeting where an anti-competitive practice took place.
 Not leading but merely following others in the practice.

 Vertical Agreements

4
https://www.legalserviceindia.com/legal/article-1000-anti-competitive-agreements-and-the-
competition-act-2002.html

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 Vertical agreements are agreements that are entered amongst enterprise or persons at
different stages of the production chain say for e.g. an agreement between an input
supplier and a manufacturer of a product using the input or agreements between
principals and dealers etc. These are agreements that operate at different levels of
trade.

Section 3 of the Clayton Act governs inter-brand restraints involving the sale of
goods. And, Section 2 of the Sherman Act governs restraints entered by monopolists.

The difference between Horizontal and Vertical Agreements is that in Horizontal

Agreements there is same level of competition whereas in Vertical Agreement there is
different level of competition.

Section 3(4) states that any agreement amongst 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 sub-section (1) if such agreement causes or

is likely to cause an appreciable adverse effect on competition in India.

 Essential ingredients of Section 3(4) are :-

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  There must exist an agreement amongst enterprises or persons,
 Parties to such agreement must be at different stages or levels of production chain,
and
 The agreement should cause or should be likely to cause an AAEC (adverse effect
on competition).

 Different kinds of vertical agreements:

A. Tie-In Arrangement- it includes any agreement requiring a purchaser of goods, as

a condition of such purchase, to purchase some other goods. It involves wherein there
exists a seller who agree to sell desirable product or service which are tying the
product only on pre-condition that buyer shall purchase a less desirable second
product or service, i.e. the tied product irrespective of the fact that whether the buyer
wants the second product or not. It is a agreement with a condition that party will sell
the product only on the condition that buyer will also buy another product. In re.
Godrej and Boyce Mfg. Co. Pvt. Ltd., the burden of proof is one the plaintiff who
institutes the claim per se violation to prove that:-
 The seller conditioned the sale of ne product or service on the purchase of second.
 That the two products or services are two separate products that they are not parts
of the same product.
 That the seller has sufficient position on the market for tying the product to
enforce it.

In Apple Case: Necessary Ingredients-

Presence of two separate products or services capable of being tied,

Seller: sufficient economic power in tying good to restrain competition in tied good,
and
Tying arrangement affects a not insubstantial amount of commerce.

 Fx Enterprises v. Hyundai Motor India Limited

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Allegations: Hyundai entered into exclusive supply agreements and refusal to deal
arrangements with its distributors. Further, by prescribing maximum permissible
discounts to its dealers, it was alleged that it was engaging in resale price
maintenance. Additionally, it was alleged that it tied sale of CNG kits, lubricants, oils
and car insurance.

 CCI Order:

No exclusive supply or refusal to deal since the agreement only required dealers to
take prior permission from Hyundai prior to dealing with competitors. Hyundai had
never refused permission as no one had approached.

The Discount Control Mechanism amounted to RPM. AAEC found as it restricted

intra-brand and inter-brand competition. CCI also noted that RPM could be used as a
mechanism to monitor cartels and hub-and-spoke arrangements Tying found in the
case of oil/lubricants

B. Exclusive Supply Agreements- Exclusive supply agreement includes any

agreement restricting in any manner the purchaser in the course of his trade from
acquiring or otherwise dealing in any goods other than those of the seller or any other
person. For instance, if a dealer/distributor is prohibited from dealing with goods of
the suppliers’ competitors. Exclusive supply agreements have been held to be
permissible, where objectively justified - such as to protect from free riding, to ensure
safety of investment and ensure quality of supplies.

 In the Intel Case - the CCI held that a requirement to inform the supplier when the
distributor deals with products belonging to the supplier’s competitors cannot
amount to an exclusive supply arrangement.

C. Exclusive Supply Agreements- exclusive distribution agreement includes any

agreement to limit, restrict or withhold the output or supply of any goods or allocate
any area or market for the disposal or sale of the goods.

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 Bajaj Case: Bajaj was allocating areas of business to all its dealers – found to be an
exclusive dealership agreement under Section 3(4)(c) of the Act – however, no
AAEC found, therefore, no violation.

 Spare Parts Case: Agreement between OEM and local OESs preventing latter from
supplying to the aftermarket – found to violate Section 3(4)(c).

D. Refusal To Deal- refusal to deal includes any agreement which restricts, or is

likely to restrict, by any method the persons or classes of persons to whom goods are
sold or from whom goods are bought.

 Spare Parts Case: agreement between OEM and local OESs preventing latter from
supplying to the aftermarket – also held to amount to a refusal to deal.

Fx/Hyundai Case: No case of refusal to deal where distributor only had to take prior
permission from supplier, before dealing with competitor’s products, and permission
had never been denied.

E. Resale Price Maintenance- resale price maintenance includes any agreement to

sell goods on condition that the prices to be charged on the resale by the purchaser
shall be the prices stipulated by the seller unless it is clearly stated that prices lower
than those prices may be charged.

Fx/Hyundai Case: restrictions imposed on maximum permissible discount that could

be given by a dealer to customers – held to be RPM.

Intel: where a supplier merely provided a suggested price to the distributor as a

guideline, and distributors were thereafter free to decide the resale price, no case of

 Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors - Violations of Section
3 and 4

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 Allegations: Car manufacturers had entered into anti-competitive agreements with
their Original Equipment Suppliers (OESs) and authorised dealers, restricting sale of
spare parts and tools in the open market. It was further alleged that the car
manufacturers were abusing their dominant position by restricting the OESs from
supplying their spare parts in the open market.

 CCI Order on Section 3:

 Car manufacturers restrict OESs from supplying the parts they manufacture using
car manufacturer designs/drawings.
 Car manufacturers prevent unauthorized dealers from sourcing spare parts from
OESs.
 CCI held that where enterprises are dominant, it would adopt a stricter approach
while assessing vertical agreements.
 Penalty: 2% of average turnover for the last three years, which amounted to
approximately USD 422 million. Also ordered onerous behavioral remedies.

 Leniency Programme -
It gives incentive to people who tell about cartel. Leniency programme is a type of
whistle-blower protection, i.e. an official system of offering lenient treatment to a
cartel member who reports to the Commission about the cartel. Competition
authorities have framed various leniency programmes to encourage and incentivize
various actors connected with the commission of such competition infringements to
come forward and disclose such anticompetitive agreements and assist the
competition authorities in lieu of immunity or lenient treatment. A Leniency
programme is a protection to those who come forward and submit information
honestly, who would otherwise have to face stringent action by the Commission if
existence of a cartel is detected by the Commission on its own. It is based on the
principle of fair competition for greater good.

 Remedies to Anti-competitive Agreements

After an inquiry if the commission finds that the agreement in question falls within
the category of Section 3, it can pass any of the following orders as the case may be:

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 1. Direct the person, enterprise or association involved in the agreement to discontinue
or re-enter such agreement;

2. Impose such penalties on person enterprise or association, as it deems fit. Such

penalties shall not exceed ten percent of the average turnover for the preceding three
financial years

3. In cases of cartels the penalties mentioned above shall extend to each producer, seller,
distributor, trader or service provider included in that cartel and the amount of penalty
could extend upto either three times of its profit for each year of the agreement’s
continuance or ten percent, whichever is higher.

4. Direct for modification of the agreement to the extent and in the manner as may be
specified in the order of the commission.

5. Payment of cost and issuing of directions to the enterprise to comply with the orders.

6. Pass any such order or direction as it may deem fit.5

Chapter-3

Conclusion

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The Act aims to prevent practices by parties that are anti-competitive or harmful for the
market. It can insured when there is freedom of trade and protect the interest of all the parties.
This aim cannot be followed unless cartels are removed and all the principles in the Act is
followed. It is important for the parties while doing business in India to keep a check on
retaining any anti-competitive element in the agreements between them. Enterprises should
be proactive and diligent to identify the existing anti-competitive elements from their current
agreements. There must be training programme for better understanding of the implications
of anti-competitive agreements and how to avoid that.

Bibliography

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 Online Sources:
 https://indiankanoon.org
 https://www.cccs.gov.sgs
 https://www.legalserviceindia.com
 https://blog.ipleaders.in

 Books:
 Tripathi, Dr. S.C. (2012) Competition Law. Darbhanga Castle, Prayagraj: Central
Law Publications.

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