NATURE OF ANTI-COMPETITIVE AGREEMENT LAW IN INDIA: A BRIEF REVIEW
Updated: Jun 28, 2021
Author: Jayanta Boeyah, Ph.D from North-Eastern Hill University, Shillong, India.
To have an efficient economy, it is essential to build up a market structure where every participant remains independent and acts as competitive restraints on each other. But some participants to increase profits may end up entering into agreements that may restrict the spirit of healthy competitors in the like field which was even foreseen by the great economist Adam Smith. This is the reason why regulation of the anti-competitive agreement becomes essential, and it is a subject matter of the Competition Law. In India, the Competition Act of 2002 governs the provision of the anti-competitive agreement.
This article will try to make an analysis of the anti-competitive agreement provision under the Indian law and to find out the difficulties in the implementation of this provision by making a study of the views provided by different scholars in brief.
Competition Law, Anti-Competitive Agreement,
The first recognition of the competition law was given by the Roman Empire. Now the Competition Law has acquired global recognition. Competition law is nothing but a legal framework to maintain market competition by regulating the anti-competitive behavior of the companies. Competition law is recognized in different forms in different nations based on the principles of law governing the market behavior, for instance, in the United States it is referred to as antitrust law, in China and Russia as anti-monopoly law, while in the United Kingdom it is referred to as both antitrust as well as competition law.
Competition law in India
India had to adopt the policy of liberalization, privatization, and globalization (LPG) which liberalized the market economy of the country, thereby making the market secretor of India face competition from both domestic as well as foreign companies. This development made it most necessary for India to build up an effective legal framework to promote justice in commercial matters which ultimately led to the enactment of the India Competition Act 2002.
However, the legacy of competition law dates back to the decade of the 1960s when the Monopolies and Restrictive Trade Practices Act (MRTP) was passed in the year 1969. But later after the LPG reforms were introduced, this particular legislation became inefficient to perform in a satisfied manner for which the Act of 2002 was enacted in the year 2003 establishing a new quasi-judicial body in the form of The Competition Commission in India to monitor the implementation of this Act.
Anti-Competitive Agreement under the Competition Act, 2002
It is obvious from the above that competition in the market forces are to be regulated in India by the Competition Act of 2002 for which Section 3 of the said Act prohibits Anti Competitive Agreements. This section deals with two types of Agreements, via- Horizontal Agreements which are amongst the Competitors, and Vertical Agreements which are related to the potential or actual relationship of purchasing and selling to each other. Under this Act, an Anti-Competitive Agreement will include all agreements entered into by association, enterprises, or persons that have an appreciable adverse effect on competition (AEC) within India in respect of the acquisition, control of goods, distribution, production, provision of services, etc. and thereby they are prohibited.
Section 19 further provides the necessary factors for determining whether an agreement falls under the category of Anti-Competitive Agreement by the Competition Commission of India which are as follows-
If by any agreement barriers are created in the market to restrict the incoming of any new entrants to that market;
If any agreement divides competitors in the market;
Any agreement for closing the competitions by hindering entry into the market;
Any agreement providing benefits or accrual to the consumers;
Any agreement that may be for improving the production of goods or provision of services;
Any agreements promoting scientific, technical, and economic development utilizing the production or distribution of goods or services.
Further cartels agreements that are entered between competing firms to regulate the price for restricting new entries to the market which are engaged in production, distribution, supply of goods or services of similar nature that determines the sell or purchase prices; control or limits the markets, production, supply, technical development, or provision of services; sharing the production or provision of goods or services or the markets by way of allocation of the market’s geographical area, nature of goods or services, the number of customers or in any other similar ways; or resulting in bid-rigging or collusive binding that may lead to AAEC in India are also restricted by law.
Furthermore, Agreements in different levels of the production chain in the markets or at different stages in respect of distribution, production, sale, supply, trade, etc. of goods or services that includes- tie-in arrangement; agreements of exclusive supply; agreements of exclusive distribution; agreements refusing to deal; and resale price maintenance are also prohibited if they cause or apprehends in causing AAEC in India.
Section 27 of the same Act also provides remedies against these kinds of Anti Competitive Agreements whereby the Competition Commission can pass the following listed orders-
Interim Order when the inquiry is pending;
Ordering to the offending parties directing them not to continue such agreements and not to repeat such agreements;
May also order the offending parties to modify any such agreements in the manner provided in such order; and
A hefty pecuniary penalty may also be imposed on each number of cartels.
Thus, this Section makes Exclusive Dealing void. These Agreements may possess an anti-competitive element but may also possibly redeem efficiencies. A valid question however can be put as to whether consumers can be a part of anti-competitive agreements or not. This question was first decided in the case of Yashoda Hospital and Research Center Ltd v. India Bulls Financial Services Ltd. (IFSL) where it was held by the CCI that for the application of Section 3 it is necessary to have two or more enterprises and there must also be an agreement between them. In one another similar case, the Gujarat High Court held that consumers have no role to play in the anti-competitive agreement. Thus, these judicial pronouncements clearly stated that consumers can never be a part of anti-competitive agreements.
Controversy in the Applicability of Section 3(1)
The controversy arose in the case of Ramakant Krini v. Dr. L.H. Hiramandani Hospital… where the Competition Commission of India (CCI) observed that Section 3(3) and Section 3(4) are in the manner of expansion of Section 3(1) but they are not exhaustive of it. Section 3(1) and its scope are in no way dependent exclusively on Section 3(3) and Section 3(4). It was not easy for the CCI to implement the provision of this section although one ex-member Rajender Prasad did make several orders for acknowledging the standalone applicability of Section 3(1).
In the Neeraj Malhotra case, it was noted by the member that if any agreement is made by an enterprise to deal with an individual that causes AAEC in India then that agreement will be struck down by Section 3(1) and Section 3(2) of the said Act. Again, in Savitri Leasing and Finance case it was held that the pre-penalty clause levied by the Bank on the Customers to force them to move to other Banks for applying for loans is a violation of Section 3(1) and therefore was void. It was further observed in this case that being an end-customer agreement, it may not fall under Section 3(4) of the Act but still, it reduces efficiencies, restrict new entries into the market as well as exploited the consumers therefore it was struck under Section 3(1).
However, the surprising element of these facts is the reluctance of CCI to pass a single order for standalone applicability in the Hiramandani case. It may happen that certain agreements concerning production, sale, supply, etc. of goods and services may not directly fall under the category of Horizontal agreements under Section 3(3) or vertical agreements under Section 3(4) of the Act but still may cause anticompetitive effects.
This Hiramandani case raised a valid question that whether there may be any agreement that does not fall under Section 3(3) or Section 3(4). The agreement, in this case, was examined based on the lines of hospitals while the same could have been examined based on the principles of Exclusive Supply Agreements. The greatest example that can highlight the CCI’s inconsistencies in their orders is the case of Sri Sonam Sarma wherein the CCI held that the disputed agreement was a contractual tying between Apple and the Airtel/Vodafone who joined hands to offer a packaged product to a customer.
The important aspect is that the nature of this agreement was similar to the one made between Hiramandani and Cryobanks and further the agreement between Apple (manufacturer) and Vodafone/Airtel (Service Provider) dealt with a completely different product than that of Hiramandani and thereby formed part of a different chain of production, yet it was considered as a tie-in agreement under Section 3(4) rather than under Section 3(1). And then the AAEC was scrutinized. Thus the justification of the CCI to consider the Hiramandani agreement under Section 3(1) is under grave doubts. Again, in the Financing Software and Systems Private Ltd case, the CCI observed that that the agreement made between the ACI and ACI banks cannot be categorized under Section 3(1) since they do not form part of the production chain required under Section 3(4) as the agreement was between a purchaser and a service provider. Here, the CCI is seemed to have deviated from its precedent.
Another valid point that can be drawn from the reading of this section is that an analysis of AAEC must take place before declaring an agreement as void, only consumer harm will not be sufficient under Section 3(2). But in the Hiramandani case, the Commission believed that such a requirement is not necessary to declare certain agreements as void and this opinion is likely to destroy the very purpose of AAEC analysis as well as the provision of Section 19(3). However, although in this case, the CCI observed that there is no need to identify the Relative Market, yet it was declared as a market of stem cell banking where the competition was adversely affected. The CCI’s reluctance to delineate the provision of Relative Market has highly made it hard to envision its assessment and the basis of holding an agreement as anti-competitive under Section 3(1). Even the CCI penalized the hospital in this case initially although the said agreement entered into by both the hospital and the stem cell bank was held to be anti-competitive. The reason behind doing so was not provided by the Commission until a next order preceded the initial order issuing the penalty. This again raised a vital question on the role of the CCI in implementing the provisions of Section 3(1).
In one another case the Supreme Court (SC) of India on March 7, 2017, observed that while determining the anti-competitive agreement the first and foremost thing that is to be given priority is the Relevant Market by the CCI. The provision of Relevant Market is not provided under Section 3 of the Competition Act. Initially, if any agreement fell under the specified categories of Section 3 having AAEC, then such agreements were declared to be void without the requirement of any further proof. But this judgment of SC has not only increased the burden of proving the Relevant Market conditions upon the CCI but has also made it possible for the CCI to provide a scope of subjectivity while determining such agreements.
The article very briefly analyzed the concept of Competition law in general and also in India in particular. There is no doubt in the fact that this law is to regulate the market sector of a nation in building an efficient economy allowing every commercial participant an adequate platform to compete in a handy manner. One of the major objectives of this law is to avoid anti-competitive agreements and in India, Section 3 of the Competition Act of 2002 deals with this provision whereby the nature of both horizontal and vertical restraints agreements are provided.
The CCI is made responsible to determine that whether any agreement is an anti-competitive agreement or not and accordingly has been attributed with the power of taking necessary action on this behalf. However, it has been found that there have been grave doubts relating to the question of applying the provisions of Section 3 while deciding the matters before the Commission. The emphasis of Relevant Market, the assessment of AAEC, the intention of delineating from the provisions of Section 3(1), etc. remains unresolved. We must also acknowledge the fact that it is highly technical and as such very difficult to determine that whether there can be any anti-competitive agreement beyond the scope of Section 3(3) and 3(4) and whether an agreement falls under the ambit of Section 3(1). Thus, in such a situation it becomes very necessary to amend the law to make it more clear about the parameters of each different kind of anti-competitive agreement.