COMPETITION

ACT

OBJECTIVE, BACKGROUND, FEATURES –

ANTI-COMPETITIVE AGREEMENTS
BACKGROUND
• The Monopolistic Restrictive Trade Practices Act,
1969 mainly focused on curbing monopoly.

• It had become obsolete in certain respects in the

light of international economic developments
relating more particularly to Competition Laws.

• In order to fall in line with the Competition Policy of

WTO & due change in environment, the need for a
new Competition Act was felt, which would focus
exclusively on promotion of Competition.
• Competition Act 2002, seeks to ensure fair
competition in India by prohibiting trade practices
which cause appreciable adverse effects on
competition in markets within India.

• It provided for the establishment of quasi judicial

body which is called the Competition Commission
of India (CCI).

• It aims at curbing negative aspects of Competition

through the medium of CCI.
OBJECTIVE
• To provide for the establishment of a
commission to prevent practices having
adverse effect on competition;

• To promote and sustain competition in

markets in India ;

• To protect the interests of consumers;

• To ensure freedom of trade carried on by

the participants in the markets in India and
for related matters.
SALIENT FEATURES OF
THE ACT
• Prohibition of Anti-Competitive Agreements

• Prohibition of Abuse of Dominant Position

• Regulation of Combinations

• Establishment of Competition Commission of India

• Penalties for Contravention & Non-Compliance

• Competition Advocacy

• Constitution of Competition Fund

DEFINITIONS
Agreement
The Act has a wide and inclusive definition of an
“agreement”. It is an arrangement/understanding or
action in concert. It includes both written and oral
agreements. It need not to be enforceable by law. Any
communication among competitors, either in person or
by telephone, letters, e-mail or through any other
means even a wink or a nod can be construed as an
agreement.
Enterprise:
“enterprise” means a person or a department of the
Government, who or which is, or has been, engaged in any
activity, relating to the production, storage, supply,
distribution, acquisition or control of articles or goods, or the
provision of services, of any kind, or in investment, or in the
business of acquiring, holding, underwriting or dealing with
shares, debentures or other securities of any other body
corporate, either directly or through one or more of its units
or divisions or subsidiaries, whether such unit or division or
subsidiary is located at the same place where the enterprise
is located or at a different place or at different places, but
does not include any activity of the Government relatable to
the sovereign functions of the Government including all
activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence
and space.
Consumers:
The Act defines “consumers” as any person who
purchase goods either for personal use or for resale or
for any commercial purpose. It also includes those
consumers who hires or avails any service either for
personal or commercial purpose.
 WHAT IS A CARTEL?
• Sec 2(c) “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;’

• An international cartel is said to exist, when not all of the enterprises in a

cartel are based in the same country or when the cartel affects markets of
more than one country.

• An import cartel comprises enterprises (including an association of

enterprises) that get together for the purpose of imports into the country.

• An export cartel is made up of enterprises based in one country with an

agreement to cartelize markets in other countries. In the Act, cartels
meant exclusively for exports from India have been excluded from the
provisions relating to anti-competitive agreements.
EXTRA- TERRITORIAL REACH

Anti-competitive activities, including cartels, taking place outside

India but having effect on competition in India would fall within the
ambit of the Act and can be inquired into by the Commission. The
Act thus has extra territorial each (section 32).
 COMMON CHARACTERISTICS OF CARTELS

• Cartels function in secrecy.

• The members of a cartel, by and large, seek to camouflage their

activities to avoid detection by the Commission.

• Perpetuation of cartels is ensured through retaliation threats. If any

member cheats, the cartel members retaliate through temporary price
cuts to take business away or can isolate the cheating member.

• Another method, known as compensation scheme, is resorted to in

order to discourage cheating. Under this scheme, if a member of a
cartel is found to have sold more than its allocated share, it would have
to compensate the other members.
CONDITIONS CONDUCIVE TO FORMATION OF
CARTELS

• high concentration - few competitors

• high entry and exit barriers
• homogeneity of the products (similar products)
• similar production costs
• excess capacity
• high dependence of the consumers on the product
• history of collusion
• active trade association
ANTI-COMPETITIVE
AGREEMENT (SEC 3)
PROHIBITION OF ANTI-COMPETITIVE
AGREEMENTS (SECTION 3)

Section 3 provides that any agreement which restricts the

production, supply, distribution, acquisition or control of goods or
provision of services, which causes or is likely to cause an
appreciable adverse effect on competition (AAEC) within India, is
prohibited and void. Anti-competitive agreements may include
Horizontal and Vertical Agreements.
HORIZONTAL AND VERTICAL AGREEMENTS

Source: Price water house Coopers

HORIZONTAL AGREEMENTS (SECTION 3(3))
“Horizontal Agreement” means an agreement between
enterprises, each of which operates at the same level in the
production or distribution chain.

This includes :
a) Directly or indirectly determine purchase or sale prices

b) Limit or control output, technical development, services etc.

c) Share or divide markets

d) Indulge in bid-rigging or collusive bidding

It refers to agreements amongst competitors which are at the
same stage of production and in the same market – the
agreements among them would be anti-competitive when they
relate to prices, quantities, bids and market sharing.
FIXING, DIRECTLY OR
INDIRECTLY, PURCHASE OR
SELLING PRICE
LIMITING OR CONTROLLING
PRODUCTION & INVESTMENTS
Agreement for price fixing may be extended to agreements on
outputs & market shares assigned to each of the participants.

Without price fixing there could be agreement for controlling

output or for market sharing, with the same competitive effect,
output is to be restricted to below optimum consumer welfare
levels & the price correspondingly maintained above competition
level.
MARKET ALLOCATION &
SHARING
It can be done by way of –

Geographical area of markets

Types of goods & services

Number of customers in the market

Any other similar way

WHAT IS BID RIGGING?

• “bid rigging” is “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.”

• Bid rigging or collusive bidding is one of the horizontal

agreements that shall be presumed to have appreciable
adverse effect on competition under Section 3 of the Act.
 COMMONLY ADOPTED WAYS OF BID RIGGING

• agreements to submit identical bids

• agreements as to who shall submit the lowest bid,
• agreements for the submission of cover bids (voluntarily inflated
bids)
• agreements not to bid against each other,
• agreements on common norms to calculate prices or terms of bids
• agreements to squeeze out outside bidders
• agreements designating bid winners in advance on a rotational
basis, or on a geographical or customer allocation basis
• agreement as to the bids which any of the parties may offer at an
auction for the sale of goods or any agreement through which any
party agrees to abstain from bidding for any auction for the sale of
goods, which eliminates or distorts competition
FORMS OF BID RIGGING

• Bid Suppression

• Complementary Bidding

• Bid Rotation

• Subcontracting
COLLUSIVE BIDDING

Collusive bidding refers to agreements by contractors or

suppliers in a particular trade or area to cooperate to defeat the
competitive bidding process in order to inflate prices to artificially
high levels. It can occur in large and small contracts.

Collusion is more is more likely to occur if there are few qualified

competitors in the area, and where access to the market is
difficult because of high entry costs, restrictive legislation or other
reasons.  Collusion also may occur when there are a number of
qualified firms, but there is a smaller group of major companies
that dominate the market.
BID RIGGING BY INSURANCE COMPANIES

Bid Rigging by Insurance Companies, Case. No. 02 of 201421 CCI

imposed a Rs. 671 crore penalty on four state-run insurance companies
—National Insurance, New India Assurance, Oriental Insurance and
United India Insurance for cartelisation and indulging in anti-competitive
practices. It was observed that the four companies colluded with each
other and manipulated the tendering process initiated by the Kerala
government by forming a cartel and quoting higher premium rates.
COAL TRANSPORTERS PENALISED FOR BID-
RIGGING

The Competition Commission of India (CCI) has imposed a

cumulative penalty of INR 120 million (approx. USD 1.87 million)
on ten coal and sand transporters (Opposite Parties or OPs) for
bid-rigging. The OPs were found to have rigged the bids
submitted in relation to four tenders for coal and sand
transportation floated by Western Coalfields Limited (Informant), a
subsidiary of the state-owned monopolist, Coal India Limited.
 CASE LAW
INDIAN RAILWAYS( BID- RIGGING)

1) DATE OF CCI JUDGEMENT – 18/1/17

INDIAN RAILWAYS
V/S
PYRAMID ELECTRONICS(OP-1)
R KANWAR ELECTRONICS(OP-2)
WESTERN ELECTRIC(OP-3)
2) On the basis of information given by CBI, suomoto
enquiry by CCI in respect of tenders of Indian Railways
3) CBI gave to CCI copy of email dated 17/3/13 sent by OP-1
to OP-2, which was in turn sent by OP-2 to OP-3. Said
email contained table of rates to be quoted for future
tenders of Indian Railways, first tender was to be issued on
20/3/13
4) It was agreed between the parties that for each tender
particular party will quote lower bid and accordingly they
will share all future bills
5) CCI ordered enquiry under sec 26 (1) through DG
6) DG report to CCI dated 27/3/15
7) Rates indicated in the above email and the rates filled
–up by OP1 to OP3 in railway tender were the same.Each
party won separate tenders i.e OP1 got first tender, OP2
got second tender(i.e OP1 to OP3 decided which party
will get which tender by quoting lower rate)
8) OP1 during DG enquiry admitted collusive bidding in
tender process
9) DG tallied the email details, call records and statement
given by each party and proved collusive bidding/bid
rigging
10) Since bid rigging/ cartel fell under section 3(3) onus
to rebut (i.e burden of proof) was on all OPS but they
could not rebut
11) OP 1 invoked provisions of section 46 ( lesser
penalty/whistle blowing)
12) As per section 46 read with regulation 5, OP 1 fully
cooperated with CCI before completion of enquiry and
gave adequate information to CCI to deliver judgement
and hence lesser penalty of only 25% was imposed on
OP1 & OP2 & OP3 suffered full penalty
13) Penalty of Rs. 46,77,475=00 was imposed under
OP1(only 25% & full penalty of Rs. 66,70,040 was imposed
upon OP2 & full penalty of Rs. 6,27,44,883 was imposed
upon OP3
Note: In case of cartel, penalty up to three times the profit
made can be imposed
14) CCI also passed cease and desist order for
future period( CCI restrained them from
repeating such behaviour in fututre
VERTICAL AGREEMENTS (SECTION 3(4)
“Vertical Agreements” are agreements between firms at
different levels of the manufacturing or distribution
processes. For example, an agreement between the
manufacturer and a distributor is a vertical agreement.

Includes :
a) Tie-in arrangements

b) Exclusive distribution agreements

c) Refusal to deal

d) Resale price maintenance

TIE-IN AGREEMENT
Two products tied-up

Unwanted product forced on the consumer

EXCLUSIVE SUPPLY
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
Imposing restriction concerning where or to whom or in what form
or quantities of goods supplied or other goods may be resold
could be anti-competitive i.e exclusive territory or territorial
market restrictions.
REFUSAL TO DEAL
Restricts or likely to restrict by any method the persons or
classes of person to whom goods are sold or from whom goods
are bought. This provision relates to restriction on customers
which would include refusal to sell & refusal to buy.
RESALE PRICE MAINTENANCE
It includes any agreement to sell goods on conditions that the
prices to be charged on the resale by the purchaser shall be the
price stipulated by the seller unless it is clearly stated that price
lower than those price may be charged.
FACTORS CONSIDERED FOR INQUIRING INTO AGREEMENTS

(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
AGREEMENTS THAT ARE NOT ANTI-COMPETITIVE

ANY AGREEMENT RELATING INTELLECTUAL PROPERTY RIGHTS

a) Copyright

b) Patent

c) Trade Marks

d) Design

e) Geographical Indication
 POWERS OF THE COMMISSION
After the inquiry, the Commission may pass inter- alia any or all of the
following orders under section 27 of the Act:
1) direct the parties to discontinue and not to reenter such agreement;

2) direct the enterprise concerned to modify the agreement.

3) direct the enterprises concerned to abide by such other orders as the

Commission may pass and comply with the directions, including payment
of costs, if any; and

4) pass such other orders or issue such directions as it may deem fit
CASES
IMPORTANT CASES OF ANTI-
COMPETITIVE AGREEMENTS
 EXCEL CROP CARE LIMITED V. COMPETITION
COMMISSION OF INDIA & ANOTHER

The Competition Act, 2002  is still in its infancy and various uncertainties
and ambiguities have developed despite its relatively short period of
application. One such ambiguity which arose was the ambit of the term
‘turnover’, as given in Section 27(b), while calculating the penalty for
anti-competitive agreements and abuse of dominance. Did turnover
mean the relevant turnover or the total turnover?

This question was answered by the Supreme Court in its judgment

passed on May 16, 2017, in the case Excel Crop Care Ltd vs.
Competition Commission of India (“CCI“) . The case had reached the
Supreme Court after CCI, the competition regulator, had appealed
against the decision of the appellate tribunal, COMPAT, which had
overturned its decision to calculate the penalty on the total turnover and
instead, based it on the relevant turnover.
SHRI SHAMSHER KATARIA V. HONDA SIEL CARS
INDIA LTD. & ORS

In the case of Shri Shamsher Kataria v. Honda Siel Cars India Ltd. &
Ors., the concept of vertical agreements including exclusive supply
agreements, exclusive distribution agreements and refusal to deal were
deliberated by the Commission.
FX ENTERPRISE SOLUTIONS INDIA PVT. LTD. V.
HYUNDAI MOTOR INDIA LIMITED
The concept of resale price maintenance was discussed by the Commission in the
case of Fx Enterprise Solutions India Pvt. Ltd. v. Hyundai Motor India Limited. In the
case, the Informant had alleged that according to the agreement with Hyundai,
dealers were mandated to procure all automobile parts and accessories from
Hyundai or through their vendors only. While collaborating on alleged anti-competitive
practices of Hyundai, the 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.

The CCI in the case observed that Hyundai through exclusive agreements and
arrangements contravened provisions of Section 3(4)(e) read with Section 3(1) of the
Act through arrangements which resulted into Resale Price Maintenance. The CCI
while imposing penalty of INR 87 Crore on Hyundai noted that the infringing anti-
competitive conduct of Hyundai in the case included putting in place arrangements,
which resulted into Resale Price Maintenance by way of monitoring maximum
permissible discount level through a Discount Control Mechanism and also a penalty
mechanism for non-compliance of the discount scheme.