ANTI- COMPETITIVE AGREEMENTS [Section 3]

Table of Contents

AUTHOR: Shivam Srivastava,

4th year law student,

Ideal institute of Management & Technology(School of Law)

Sub-section 1 of the section prohibits an enterprise or a person or an association of enterprises or person from entering into Anti- competitive Agreements.

Expression ‘Anti-competitive Agreements’ covers agreements in respect of production, supply, distribution, storage, acquisition or control of goods and services which cause, or are likely to cause, an applicable adverse effect on competition in India.

Sub-section 2 declares any agreement in contravention of provision in sub-section 1 to be void.

HORIZONTAL AGREEMENTS

Horizontal agreements are the arrangements between enterprises at same level of production chain and that is generally between two rivals for either fixing prices or limiting production or for sharing markets.

In all such agreements, there is a presumption in the act that such an agreement cause adverse effect on competition.

Cartel is also a Horizontal Agreement.

WHAT IS CARTEL?

Section 2(c ) of Competition Act, 2002 states, Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves limit the control or attempt to control the production, distribution, sale or price of, or trade in goods & services.

The formation of cartels by the process of enterprises coming into such agreements is known as Cartelization.

Sub-section 3 provides that an agreement would have adverse effect on competition if there is a practice carried on, or a decision taken between any of the parties mentioned above which:-

Directly or indirectly determine the purchase or sale prices
Limits or controls production, supply, markets, technical development etc.
Shares the market or sources of production 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, results in bid rigging or collusive bidding.

Note: The section provides an exception to the Joint ventures, if their is a increase in the efficiency in production, supply, distribution, storage etc.

Sub-section 4 provides that any agreement amongst enterprises or persons at different levels or stages of production chain in different markets in respect of production, distribution, storage, supply, sale or price of or trade in goods and services including:-

Tie-in Agreement,
Exclusive supply Agreement,
Exclusive Distribution,
Refusal to deal,
Resale price maintenance,

Shall be presumed to be an Anti- competitive agreements if such an agreement causes or is likely to cause, an adverse effect on competition in India.

VERTICAL AGREEMENTS

These are between enterprises at different stages of production chain. The presumptive rule U/S 3(3) does not apply to vertical agreements.

The question whether the vertical agreement is causing adverse effect on competition is determined by Rule of Reason.

For an agreement to be in contravention of section 3(4) r/w Section 3(1), the following 5 essential ingredients have to be satisfied:-

There must be an agreement amongst enterprises or persons.
The parties to such agreement must be at different stages of production chain.
The agreeing parties must be in different markets.
The agreement should cause or should be likely to cause appreciable adverse effect on competition.
The agreement should be of one of the following nature, as illustrated in section 3(4):

TIE-IN ARRANGEMENT

It includes any agreement requiring a purchaser of goods as a condition of such purchase, to purchase some other goods.

EXCLUSIVE SUPPLY AGREEMENT

It 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.

EXCLUSIVE DISTRIBUTION AGREEMENT

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

REFUSAL TO DEAL

It includes any agreement to sell goods on condition that the prices are to be changed on the resale by the purchaser shall be the prices stipulated by the seller, unless it is clearly stated that prices lower than these prices may be changed.

PREDATORY PRICE

Predatory price refers to the price of the good, which is below the cost of production of such good. The cost of production, for this purpose, is to be determined by the application of the prescribed regulations.

CASES

Shri Shamsher Kataria V. Honda Siel Cars India Ltd & Ors.

Facts: The informant in the case alleged anti-competitive practices on part of the opposite parties whereby the genuine spare parts of automobiles manufactured by some of the opposite parties were not made freely available in the open market and most of the original equipment suppliers and the authorized dealers had clauses in heir agreements requiring the authorized dealers to source spare parts only from the original equipment suppliers and their authorized vendors only.

Held: Such agreements were in the nature of exclusive supply, exclusive distribution agreement and refusal to deal U/S 3(4) of the Act.

Thus, It is in contravention of section 3(1) of the Act.

Fx Enterprise Solutions India pvt. Ltd. V. Hyundai Motor India Ltd.

Facts: Informant stated that Hyundai imposed a “Discount Control Mechanism”, whereby dealers were only permitted to provide a maximum permissible discount and dealers were also not authorized to give discount beyond a recommended range, thereby amounting to “Resale Price Maintenance” in contravention of section 3(4) (e ) of the Act.

Decision: CCI imposed a penalty of Rs. 87crore on Hyundai on the contravention of section 3 of the act.

Cement corporation of India Case

Here, informant was the builders association of India against the cement companies and cement manufacturers association.

It was alleged that, the cement companies and cement manufacturing association are forming cartels. Thus, contravening Section 3(3) of the Act.

ACC, Ambuja Cement, Binani Cement, JK Cements etc were forming a part of Cartels.

Held: CCI imposed penalty of Rs.6700Crore.

Furthermore, this case was appealed in (NCLAT) National competition law Appellate Tribunal and here the decision of CCI was upheld.