Anti-Competitive Agreements
Anti-Competitive Agreements
Anti-Competitive Agreements
AGREEMENTS
Vishesh Dahiya
Assistant Professor- Law
INTRODUCTION
The term “Anti-Competitive Agreements” is not defined within
the body of the statute. But, inescapable meaning which can be
gathered from the term is that it is about such agreements which
have the effect of restricting the competition unfairly and
diminishing fair competition within the relevant market.
It reads as following:
“No enterprise or association of enterprises or person or association of
persons shall enter into any agreement in respect of production,
supply, distribution, storage, acquisition or control of goods or
provision of services, which causes or is likely to cause an appreciable
adverse effect on competition within India.”
Section-3(1) works as a restraint on the individual freedom to
a contract, in the public interest. It casts a duty on the
enterprises to examine proposals for agreement or
arrangement in light of the effect they would make on
competition.
Applicability of Section-3(1) depends upon the fact whether
any activity relating to production, supply, distribution,
storage, acquisition or control/provision of G/S would have
AAEC or not. If such activity causes AAEC, Section-3(1)
becomes enforceable.
ESSENTIALS OF Section-3(1)
They are as follows:
1. There should be an Agreement.
2. Agreement should be between enterprise or person
or their associations.
3. Agreement should cause AAEC in India.
Agreement under Section-3
Agreement: It has been defined under Section-2(b) of the Act as follows:
This definition is an inclusive definition. It covers not only the conventional meaning of agreement
as given under Section-2(e) of Indian Contract Act 1872 but also includes any “Arrangement”,
“Understanding” or “Action in Concert” between the parties.
Agreement under Section-3(1) can be oral or written. Such agreement may or may not be intended
to be enforceable by law. This relates to such cases where there is no intention of parties to legally
bind themselves; but they have knowledge about the action they would take under the
arrangement or understanding.
Enterprise
Section-3(1) expressly forbids the anti-competitive agreement between Enterprise, Person or their
associations.
Enterprise: The term has been defined under Section-2(h). It includes Person or Department of
Government which is engaged in any of the following activities:
• Production, storage, supply, distribution, acquisition, control, provision of G/S.
• Investment
• Acquiring, holding, underwriting or dealing with shares, debentures of other securities of any body
corporate.
Such Person/Department may be acting either directly or through its unit/division or subsidiary.
Activities not covered under Section-2(h): Any activity of the Government related to the sovereign
functions of the Government. This includes all activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence and space.
Person
Section-3(1) applies to Person. The term “Person” herein not only covers natural persons having rights
but also includes juristic persons who conduct economic activities.
1. Agreements regarding Prices: All agreements which directly or indirectly fix purchase
or sale price.
2. Agreements regarding Quantities: Agreements aimed at limiting or controlling
production, supply, markets, technical development, investment or provision of
services.
3. Agreement regarding Bids (Collusive Bidding or Bid Rigging): These include tenders
submitted as a result of any joint activity or agreements.
4. Agreements regarding Market Sharing: These include agreements for sharing of
markets or sources of production or provision of services by allocating geographical
area of market or type of G/S or number of customers in the market.
Under Section-3(3), in case of aforementioned 4 types of
agreements; it is not necessary to prove that they have
an AAEC. Rather, the onus is on the person/enterprise to
prove that the agreement does not fall under the
prohibited category in the enquiry before the CCI. It is
presumed that such agreements have AAEC.
Horizontal Agreements Covered under Section-
3(3)
These 4 types of Horizontal Agreements are presumed to have an AAEC
under Section-3(3).
CCI- It was held that UPDF was acting to fix sale prices by fixing revenue share ratio in
violation of Section-3(3)(a) of the Act. They were also limiting/controlling the supply of Hindi
films by refusing to release them to multiplexes under Section-3(3)(b) of the Act. The
collective decision taken by UPDF was held to be an anti-competitive agreement under
Section-3(3).
2. Limiting or Controlling Production, Supply etc.
[Section-3(3)(b)]
Agreements which limit/control production, supply,
markets, technical development, investment or provision
of services are considered to be anti-competitive
because it creates an artificial scarcity by keeping supply
lower than demand. As a result even the efficient
producers are not able to supply goods in market.
The central idea of competition is that the efficient enterprise which is
able to supply goods at a reasonable price to consumers will increase their
production and the less efficient enterprises will reduce their production
or even go out of business.
Any agreement interfering with this process is anti-competitive, as in such
a situation, less efficient enterprise will pop up by artificial support to
continue in production even though forces of demand and market prices
do not justify their continuance.
An agreement limiting production may lead to a rise in prices of the
concerned product. Similarly, limiting technical development that may
help in lowering the costs of a product, may affect the interests of
consumers.
3. Market Allocation and Sharing [Section-3(3)(c)]
These anti-competitive practices are very restrictive as they do not
leave any room for competition in the relevant market and are
considered per se illegal in most jurisdictions.
Market Allocation is a practice whereby the competitors divide
customers or markets and arrive at non-compete agreements with
each other for sales in those markets. As a result, in one territory,
only one product is available and there is absence of a substitute
product. Buyers are left with no choice but to buy the product
available in their market. Such agreements diminish choice of
customer and are therefore anti-competitive.
4. Bid Rigging or Collusive Bidding [Section-3(3)(d)]
Bid rigging occurs when two or more competitors agree that
they will not compete genuinely with each other for tenders,
allowing one of the members of their agreement to ‘win’ the
tender.
Bid rigging takes place when bidders collude and keep the bid
amount at a pre-determined level. Such pre-determination is by
way of intentional manipulation by the members of the bidding
group. Bidders could be actual or potential ones, but they
collude and act in concert.
Bidding, as a practice, is intended to enable the
procurement of goods or services on the most favorable
terms and conditions. Invitation of bids is resorted to both
by Government (and Government entities) and private
bodies (companies, corporations, etc.). But the objective of
securing the most favorable prices and conditions may be
negated if the prospective bidders collude or act in concert.
Such collusive bidding or bid rigging contravenes the very
purpose of inviting tenders and is inherently anti-
competitive.
Forms of Bid Rigging or Collusive Bidding
It may take following forms, namely:
Such agreements may provide for a system of compensation to unsuccessful bidders based on
certain percentage of profits of successful bidders to divide among unsuccessful bidders.
If bid rigging takes place in Government tenders, it is likely to have severe adverse effects on its
purchases and on public spending. Bid rigging or collusive bidding is treated with severity in the
law. The presumptive approach reflects the severe treatment
BID RIGGING CONSPIRACIES
Bid Rigging Conspiracies usually fall into one or more of
the following categories:
1. Bid Suppression
2. Complimentary Bidding
3. Bid-Rotation
4. Sub-Contracting
BID SUPPRESSION
In Bid Suppression schemes, one or more competitors who otherwise would be expected
to bid, or who have previously bid, agree to refrain from bidding or withdraw a previously
submitted bid so that the designated winning competitor’s bid will be accepted.
A form of collusion in which a relatively stable set of bidders for contracts which are
routinely tendered agree between themselves which contracts each participant will bid
for and, more importantly, which contracts they will decline to bid for.
For example, a buyer may issue tenders to three bidders, only to find that bidders B and C
decline to tender. On a subsequent cycle, bidders A and C will decline to tender, and so on.
This is a relatively conspicuous form of collusion and it is more likely that bidders A and C
would submit a bid, but on such poor terms that only bidder B’s offer would be acceptable
to the buyer.
COMPLEMENTARY BIDDING
Complementary bidding (also known as ‘cover’ or ‘courtesy’ bidding)
occurs when some competitors agree to submit bids that are either
too high to be accepted or contain such terms that will not be
acceptable to the buyer.
Such bids are not intended to secure the buyer’s acceptance, but are
merely designed to give the appearance of genuine competitive
bidding.
Complementary bidding schemes are the most frequently occurring
forms of bid rigging, and they defraud purchasers by creating the
appearance of competition to conceal secretly inflated prices
BID-ROTATION
In bid rotation schemes, all conspirators submit bids but take turns to be
the lowest bidder. The terms of the rotation may vary; for example,
competitors may take turns on contracts according to the size of the
contract, size of bidding companies, etc. A strict bid rotation pattern defies
the law of chance and suggests that collusion is taking place.
For example, A may submit the lowest bid for contracts let over a
particular time period or for a particular scope of work. The other bidders
will deliberately inflate their bids on the express understanding that their
turn will come. On the expiry of his turn, A will inflate their subsequent
bid in order for it to become bidder B’s turn to win the contracts.
SUB-CONTRACTING
Subcontracting arrangements are often part of a bid
rigging scheme. Competitors, who agree not to bid or to
submit a losing bid, frequently receive subcontracts or
supply contracts in exchange from the successful bidder.
In some schemes, a low bidder will agree to withdraw its
bid in favor of the next low bidder in exchange for a
lucrative subcontract that divides the illegally obtained
higher price between them.
SIGNS OF POSSIBLE BID-RIGGING
Bid rigging can be difficult to detect. However, suspicions may be aroused by unusual bidding or
something a bidder says or does. Situations of suspicious behavior include the following (not
exhaustive):
1) The bid offers by different bidders contain same or similar errors and irregularities (spelling,
grammatical and calculation). This may indicate that the designated bid winner has
prepared all other bids (of the losers).
2) Bid documents contain the same corrections and alterations indicating last minute changes.
3) A bidder seeks a bid package for himself/herself and also for the competitor.
4) A party brings multiple bids to a bid opening and submits its bid after coming to know who
else is bidding.
5) A bidder makes a statement that a bid is a ‘complementary’, ‘token’ or ‘cover’ bid.
6) A bidder makes a statement that the bidders have discussed prices and reached an
understanding.
7) A bidder who regularly bids, declines to tender his bid for no obvious reasons.
CCI DECISIONS on BID-RIGGING
Reference Case No. 01 of 2012 filed by Director General
(Supplies & Disposals), Directorate General of Supplies &
Disposals, Department of Commerce, Ministry of Commerce
& Industry, Government of India
Facts- This case was initiated on a reference made by DG S&D
in respect of a tender enquiry dated 14.06.2011 for
conclusion of new rate contracts for polyester blended duck
ankle boots rubber sole. The reference alleged bid rigging and
market allocation by the suppliers while bidding against the
above tender enquiry.
After a detailed inquiry, CCI held that the bidder-suppliers by quoting identical/ near
identical rates had, indirectly determined prices/ rates in the Rate Contracts finalized
by DG S&D and indulged in bid rigging/ collusive bidding in contravention of the
provisions of section 3(1) read with section 3(3)(a) and 3(3)(d) of the Act.
Further, CCI noted that the parties had also controlled/ limited the supply of the
product in question and shared the market of the product amongst themselves under
an agreement/ arrangement in contravention of the provisions of section 3(1) read
with sections 3(3)(b), 3(3)(c) and 3(3)(d) of the Act.
Accordingly, CCI directed the contravening parties to cease and desist from indulging
in such anti-competitive conduct in future apart from imposing a penalty of Rs. 625.43
Lakhs on eleven companies.
• A Foundation for Common Cause & People Awareness v. PES Installations
Pvt. Ltd. & Ors., Case No. 43 of 2010
The Commission examined inter alia allegations of bid rigging by the bidders in
the tender floated by Hospitals Services Consultancy Corporation for supply,
installation, testing and commissioning of Modular Operation Theatre and
Medical Gases Manifold System to Sports Injury Centre, Safdarjung Hospital,
New Delhi.
The Commission found commonality of mistakes in the tender forms by the
bidders as indicative of collusion amongst them to manipulate the process of
bidding.
The Commission imposed a penalty upon each of the contravening party @ 5%
of the average turnover of the company. However, COMPAT vide its order dated
25.02.2013 passed in Appeal No. 93 of 2012 after considering the aggravating
and mitigating factors reduced the penalty to 3% of the average turnover.
CARTELS
Cartels are most egregious violations of Competition Law and are
included in the category of agreements which are presumed to have an
AAEC.
Other than these sectors, Real Estate and Banking Sector is also considered
prone to cartelization.
CARTELS under CA 2002
Under Section-2(c) of CA 2002, Cartel is defined as
following:
“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;
ESSENTIALS OF A CARTEL
In any horizontal agreement, the 3 essential ingredients that
constitute a cartel are:
The relief granted under this Program is based on CCI’S discretion. CCI can grant the relief
of the conditions set out in Regulation-3 are fulfilled. They are as follows:
1. The Applicant must cease to engage in any form of participation with the Cartel
against whom he is disclosing valuable information. This condition stands subject to
the directions of Commission.
2. The Applicant must provide vital information which substantially proves that the
cartel has acted in breach of provisions of Section-3 of Competition Act. As per
Section-2(i) of Regulations, information is vital if information or evidence produced
must be true and complete enough to enable Commission to make opinion about
existence of the cartel or contravention of Section-3 of Competition Act 2002.
3. The Applicant must present all such information, documents and other evidences as
Commission requires of him.
4. Applicant must maintain his cooperation with Commission genuinely throughout
investigation stage and through other proceedings instituted by Commission.
5. Applicant must not in any manner conceal, manipulate or destroy relevant
documents which enable establishment of Cartel.
Conditions mentioned above are not exhaustive and Commission may impose more
restrictions or conditions on any applicant depending upon the facts and circumstances
of the matter.
It is important to highlight that most important condition to be adhered to by the Applicant
is to furnish vital information about the functioning of the cartel. If the Commission does
not find the information up to this standard, the rejection of application is imminent. Also,
it must be noted that conditions mentioned above are not exhaustive and Commission may
impose more restrictions or conditions on any applicant depending upon the facts and
circumstances of the matter.
Any departure from adhering to any of these conditions shall effectively disqualify the
Applicant. Furthermore, Commission can still utilize the evidence and information that
Applicant submits.
STEP-2 FIXATION OF PRIORITY STATUS
1. Stage at which Application is made- Stage of proceedings helps ascertain the usefulness of
evidence furnished. If the Commission has already instituted investigation against the alleged
business enterprise, then granting full exemption from penalty is not a sound decision. The haste
with which an Applicant appears before the Commission; signifies his intent to cooperate.
Therefore, early application can lead to better relief.
2. Evidence with Commission- Once the Commission orders investigation; it begins to gather cogent
evidence by itself. So, it is understandable that Commission shall not allow relief to any Applicant
for such information/evidence which Commission already possesses.
3. Quality of Evidence/ Information- Vitality of evidence is important. Unless evidence is strong and
complete, relief may not be obtained. The regulations clearly specify that information/evidence
must be vital. Such information must be strong enough to prove establishment of cartel. In absence
of such quality of evidence, relief shall not be granted.
LENIENCY DECISIONS by CCI
• In Re: Cartelization in respect of tenders floated by Indian Railways for supply of
Brushless DC Fans and other electrical items. [Suo Motu Case No. 03 of 2014 ]
• Brief Facts- 3 electrical equipment supplier companies- Pyramid Electronics, Kanwar Electricals and Western
Electric and Trading Company had cartelized their resources in respect of obtaining tenders and supplying
Brushless DC fans and other electrical goods to Indian Railways. Investigation began after CCI took suo motu
cognizance of the matter upon receiving information from Superintendent of Police, Anti-Corruption HQ, CBI in
New Delhi. Pyramid Electronics applied for leniency and made relevant disclosures about bid-rigging and modus
operandi of the cartel.
• Order- The evidence produced by the applicant (Pyramid Electronics) was strong enough to prove contraventions
under Sevtion-3 of Competition Act 2002. CCI, however, did not accede to the requests of the applicant and
granted it 75% reduction in penalty solely for the reason that Applicant had made its request for leniency after
commencement of investigation process against it.
• Cartelisation in respect of zinc carbon dry cell batteries market in India Vs. Eveready Industries India Ltd &
Ors. [Suo Motu Case No. 02 of 2016 ]
• Brief Facts- CCI took suo motu cognizance of the matter upon info received. Later, Panasonic Energy India Ltd.
filed an application under Lesser Penalty Regulations 2009. Panasonic alleged that there is a cartel between
Panasonic Energy India Ltd, Eveready Industries India Limited and Indo National Ltd which controlled
distribution and prices of zinc-carbon dry cell batteries in India. It was alleged that due to fall in value of
Indian Rupee in international markets, the input cost of manufacturing these dry cell batteries had increased.
To set this off, the aforementioned companies decided mutually to fix retail price of such batteries in India.
After investigation was instituted, Eveready Ltd and Indo National Ltd presented their applications respectively.
• Order- CCI decided that Panasonic Ltd was the first company to file application and furnish evidences.
Contravention of Section-3 was proved with the help of evidences furnished by Panasonic Ltd so 100%
reduction in penalty was granted. In respect of remaining 2 applicants, Eveready received 30% reduction in
penalty because it had abided by the directions of CCI and gave corroboratory evidences which added
significant value. It was placed higher in priority list because it had made its application under 2009
Regulations just 3 days after investigation commenced. On the same grounds, Indo National Ltd was granted
20% reduction in its penalty for providing substantial corroboratory evidences.
• In Re: Cartelisation by broadcasting service providers by rigging the bids
submitted in response to the tenders floated by Sports Broadcasters. [Suo Motu Case No. 02 of 2013]
• Brief Facts: In this case, applications for leniency were filed by Globecast India Pvt ltd and Globecast Asia Pvt Ltd which
alleged establishment of a cartel between aforementioned broadcasting companies with Essel Shyam Communications
Ltd aka Planetcast Media Services Ltd. These aforementioned companies were broadcasters in India and had
proceeded to exchange information of commercial and confidential nature related to pricing of broadcasting services.
This was done to perform bid-rigging in various tenders offered to broadcast many sporting events in India mainly in
years 2011-2012. Investigation ensued and later Essel Shyam also filed for leniency.
• Order- CCI awarded 100% reduction in penalty to first applicant Globecast for bringing the matter to its notice.
Globecast had furnished true and complete information/evidences which led CCI to make prima facie opinion about
establishment of cartel. Furthermore, Globecast gave strong evidences to prove bid rigging, role of ex-employees,
email correspondences signifying exchange of price sensitive information etc. to prove contravention of Section-3 of
Competition Act 2002. CCI also granted 30% reduction in penalty to Essel Shyam for providing some valuable
information related to exchange of information between itself and Globecast which constituted a wrongful exchange of
information within terms of the Act.
DRAWBACKS OF INDIA’S LENIENCY PROGRAM
1. Prolonged Process- One ascertainable aspect of every case in which relief has been granted by CCI is that there has
been considerable passage of time from filing of application and actual receipt of relief. For instance, in case of
rigging of tenders for broadcasting Sports events, the matter was brought to the notice of CCI in 2013 and the
decision of relief was made 5 years later in 2018. It is difficult to proceed with business when your business is under
constant scrutiny and surveillance.
2. Lack of Innovation- This Leniency Program has limited incentives. Exemption from full punishment is the only viable
incentive for the members. But, to ensure greater participation from the members of cartel, other jurisdictions have
introduced more innovative mechanisms, like Leniency Plus. According to this program, a member being investigated
as part of a cartel may be allowed the relief of exemption of lesser penalty if he provides full and true information
about another cartel which is yet out of scrutiny of the Competition Regulator. This program is currently in operation
in jurisdictions of UK, US, Singapore and Brazil.
3. No Withdrawals- Competition Law Review Committee of 2018 remarked that many times, cases falling under 2009
Regulations are matters of purely commercial disputes and in many cases there is no contravention of Section-3 of
Competition Act 2002. In such cases inability of withdrawing the application would unnecessarily drag the applicant
into the process of investigation and inquiries. It also leads to unnecessary expenditure of effort by CCI.
VERTICAL AGREEMENTS (Section-3(4))
Vertical Agreements are agreements between
enterprises that are at different levels of the production
chain, for instance, agreement between manufacturer
and distributor.
Since they are part of Section-3(4), Rule of Reason
approach is applied in their case and therefore they are
not generally treated as anti-competitive per se. Such
agreements are considered illegal only if they result in
appreciable adverse effect on competition.
Most common types of vertical agreements are those which relate
to supply, distribution, production, purchase and sale of G/S. These
agreements impose potential restrictions on members.
Restrictions included in vertical agreements can be of following
nature:-
1. Seller is not supplying goods to any body else but the specific
buyer in the territory.
2. Purchaser agrees to not buy goods from other providers.
3. Condition imposed upon resale of products regarding price,
location or consumer.
Section-3(4)
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 AAEC in India.
Legality of Vertical Agreements under Section-3(4)
1. DG defined the two relevant markets in this case as the ‘market for chimneys’ and ‘market for hobs’ in India,
noting that the competitive nature of the markets
implied that KAFF did not possess sufficient market power to cause an appreciable adverse effect on
competition.
2. DG concluded that it was not ideal for either the company or its dealers to consistently sell products at a
particular price. Therefore, resale price management was done by KAFF.
3. DG also noted that since Jasper Infotech is only a market platform that does not perform any material
functions, it does not form part of the vertical chain and therefore cannot be subjected to a vertical restraint
under Section 3(4)(e) of the Act.
ISSUES
CCI faced following issues in this matter:
1. Whether Section 3(4)(e) of the Act would apply to Online market platforms?
2. Whether resale price management by KAFF result in anti-competitive effect on the concerned
market?
DECISION
• CCI laid down following rulings in respect of aforementioned issues:
• Issue 1- CCI held that online market platforms provide sourcing and grievance redressal
opportunities to consumers, which would indicate that they form part of the value chain even
though they did not have literal ‘ownership’ of the goods. Thus, within a modern online
market, these platforms form a part of the vertical chain. Finally, CCI held that online market
platforms, and as a corollary, agreements between manufacturers/distributors and e-commerce
players can be examined under Section 3(4) read with Section 3(1) of the Act
• Issue 2- The CCI examined the evidence presented to them and found that the dealers were not
required to adhere to a minimum price. Discounts offered online where also funded by the retailers
themselves. Thus, as against the dealers, the CCI concluded that there was no imposition of a
resale price maintenance agreement. CCI lastly ruled that there was no evidence of any
appreciable adverse effect on competition by the action of KAFF.
• JUDGMENT- Plaintiff’s case was denied.