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Effect of Anti-Competitive Agreements on the Indian Economy

Apr. 10, 2022   •   Nikita Saha


AUTHOR'S PROFILE: I am Rajshree Shekhar, a 4th-year student currently pursuing BBA LLB from Amity University, Kolkata. I am interested in Business and commercial laws


INTRODUCTION

The Competition Act, of 2002 was adopted in India, because of growing awareness which has adverse effects of anti-competitive practices on the economies as well as the populations. In developing countries, the source of economic growth and development depends upon the growth and improvement of technologies in a broad range. Sound competition law and policy can bolster a successful market economy that has a dynamic and competitive environment. Due to Liberalization, Privatization Globalization (LPG) aggressive competition, and economic efficiency were observed as governmental control was reduced. In the era of liberalization, privatization, and globalization Monopolies and Restrictive Trade Practices Act, 1969, (MRTP) was found inadequate to deal with anti-competitive practices. The MRTP Act had not made any express provisions related to cartels, price-fixing, bid-rigging, and predatory prices. The competition law was fostered because of the necessary rehabilitation of monopolies and restrictive trade practices laws in India. Twin objectives were fulfilled by India’s Competition Act, 2002, first was to regulate any anti-competitive practices, and the second was to give effect to the World Trade Organization (WTO) Agreements. In BrahmDutt v. Union of India, the Supreme Court of India said that the progress of the law was stymied by a successful challenge on which the constitution, by the central government of the competition commission rested.

In the period of post-liberalization economy, the legislative history of anti-competitive practice can be traced down. There was a budge from monopolistic and restrictive trade practices administration to a highly competitive and liberalized environment. To promote and sustain competition in the market by preventing the practice which hurts trade practices the Competition Act, of 2002 was enacted. The 2002 Act provided various provisions to promote and sustain competition in the market such as anti-competitive agreements that have the aim or impact of preventing, restricting, or distorting competition; contumelious behaviour that could be harmful to consumer welfare by a monopolistic or dominant firm with significant market power; and mergers that would reduce competition between firms in the market and have an impact on detrimental consequences for consumer welfare.

Anti-Competitive Agreement

Section 3 of the Competition Act 2002 describes the substantive prohibition on anti-competitive agreements. Section 3(1) prohibits agreement among the following entities as Enterprises, Association of Enterprises, Enterprise and Association of Enterprises, Persons, Association of persons, Person and Association of Persons, Person, and enterprise, Association of person and enterprise, Association of enterprise and persons, Association of persons and association of enterprises. Above mentioned entities must not have any agreement related to production, supply, distribution, storage, acquisition, or control of goods or provision of services that have the potential to cause or likely to cause damage or an appreciable adverse effect on competition within India. The term agreement has been defined in section 2(b) of the Competition Act, 2002 the definition has a wider concept, it includes any arrangement or understanding or action which is in concert whether it is formal or in writing or intended to be enforceable by legal proceedings. In general words, it includes not only all the agreements which come under the Indian Contract Act 1872 but also agreement which is not written or enforceable by law. For such agreement direct proof is not required circumstantial evidence is enough.

Nowhere in the Competition Act 2002, have appreciable adverse effects been defined. Section 19(3) of the Act while determining whether an agreement has appreciable adverse effect under section 3 delineates certain factors which must be taken into account. Section 19(3) of the Competition Act states that while determining whether an agreement has an appreciable adverse effect on competition under section 3 of the Act, the commission shall due regard to the following factors:

(a) In the market there was the creation of barriers for new entrants

(b) Existing market competitors were driven out.

(c) Hindering entry into the market results in restrictions on competition.

(d) Consumers were provided accrual benefits

(e) production or distribution of goods or services were improved

(f) The means of production or distribution of goods and services led to the promotion of technical, scientific, and economic development.

In Uniglobe Mod Travels Pvt. Ltd. v. Travel Agents Association of India & Ors. The CCI held that the parties can rebut the presumption of an appreciable adverse effect on competition if the parties can prove that their conduct has pro-competitive effects, and the act does not result in an appreciable adverse effect on competition.

Under section 2(c) of the Act, a cartel has been defined as 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. Under section 3 anti-competitive agreements are created between competitors like those of cartels at different levels of the production chain. Those agreements directly or indirectly result in bid-rigging, price-fixing, collusive bidding, etc. are presumptively deemed void.

Horizontal Agreement

Section 3(3) of the Competition Act, 2002 states that horizontal agreements are those agreements in which enterprises or persons who are involved in identical or similar trade of goods or provision of services which also includes cartels, which have an appreciable adverse effect on competition if such agreement:

(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 the geographical area of market, or type of goods or services, or number of customers

in the market or any other similar way; or

(d) directly or indirectly results in bid-rigging or collusive bidding.

Issues under the Horizontal Market agreement

  • Production supply limitation: An independent decision related to increase or decrease of production, sales or capacity, entry into new markets, capacity utilization, etc. must be taken. The petition can be filled between competitors in respect of any of the above-raised concerns,
  • Market sharing: There shouldn’t be any type of agreement neither the formal nor the informal agreement between the parties in respect of sharing territories and products
  • Bid Rigging: Any agreement which results in eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.

In A.R. Polymers Pvt. Ltd. v. Competition Commission of India, Competition Appellate Tribunal (COMPAT) on the ground that Competition Commission of India and DG failed to provide expected weightage to the nature of the market for jungle boots, due to which the tender was conducted. Because of identical pricing, the execution of the rate of the contract was the result of bid-rigging

Vertical Agreement

Those agreements in which the individual and enterprises enter into an agreement at different stages of the production chain in the different markets of such products. These include tie-in arrangements which mean an agreement that imposes a condition on the consumer on purchase of such product he also has to buy some other product, exclusive supply agreements mean an agreement in which the seller restricts the consumer in the course of his trade from acquiring any other goods other than the seller or any other personal goods, Exclusive distribution agreement, Refusal to deal, resale price maintenance. The “rule of reason” method is used as a standard of assessment for analyzing anti-competitive agreements In Shri Shamsher Kataria v. Honda Siel Cars India Ltd. &Ors, Car manufacturers and the Original Equipment Suppliers (OESs) and authorized dealers were involved in anti-competitive agreements which restricted the sale of spare parts and tools in the open market. After that, it was alleged that by restricting the Original Equipment Suppliers (OESs) from supplying their spare parts in the open market the car manufacturers were abusing their dominant position. CompetitionCommission of India ordered under section 3 of the Competition Act 2002 that the supplying of the parts used for manufacturing cars and to prevent the sourcing of spare parts was restricted by the car manufacturer from OESs. CCI held that a stricter approach would be adopted by the enterprise that is dominant while assessing vertical agreements. A penalty of 2% of average turnover from the last three years and onerous behavioural remedies were imposed.

Effects of Agreement

How the goods and services are distributed among the different levels of consumers is considered to be the major concern of economists. It has been aptly stated by Brandeis J, “A lawyer who has not studied economics — is very apt to become a public enemy.” India has a mixed economy but the applicability of economic emphasis has equal emphasis. All the provisions related to the anti-competitive agreement have been analyzed in Competition Act 2002. Recent new development can intervene and bring the state into excessive involvement in the world of business. The high-technology businesses have distinct economic features due to which they commit anti-competitive conduct. They involved themselves in practices like deep discounting and cashback offers which help in capturing the market. It is important to examine the present and future impact of these market players as it can adversely affect the competition. Examination of gains which a company gains by providing discounts to the consumers. While performing the recoupment test Competition Commission of India can investigate the predatory pricing used by the firms that operate on online platforms. The essential facilities doctrine can be used by the CCI to mandate interoperability between dominant players who are indulged in the abuse of position. The economy as a whole can be benefited by imposing interoperability requirements on a dominant payments network. The payment of fair and reasonable access fees, the complexity of institutional arrangements are the factors that have to be balanced for the imposition

In Varca Druggist & Chemist & Others v/s Chemist & Druggists Association, Goa72 (“Varca Drug”), the complaint was filed by Varca Druggist & Chemistand two other proprietors of pharmaceutical drugs and medicines firms against the Chemist & Druggist Association, Goa (CDAG) to the Director-General (Investigation & Registrations), Monopolies & Restrictive Trade Practices Commission(DGIR, MRTPC) alleging that the defendant was indulged in restrictive trade practices. After the MRTP Act was repealed, the case was transferred to the Competition Commission of India (CCI). It was held by the CCI that the CDAG was involved in the practice of limiting and controlling the supply of drugs in Baroda in Gujarat under the violation of provisions of Section3(3)(b) and Section 3(1) of the Competition Act.

In Sunshine Pictures Private Limited & Eros International Media Limitedvs Central Circuit Cine Association, Indore & Ors.75 (“Eros International”) the plaintiff alleged that the opposite party due to the trade association had become a vehicle that uses collusive conduct for distribution and exhibition of films for the persons and enterprises who are engaged in the identical business. The CCI held that the associations were involved in issuing circulars and letters which were used to restrict the exhibition of films. The conduct violates the provision of Section 3(3)(b)of the Competition Act. The penalty was imposed on each of the associations who were involved at a rate of 10% of the average of their three years total receipts.

Conclusion

The negative effect on the consumers can be prevented with the help of anti-competition law; the major reason for such effect was the higher price and the restricted supply which was prevailing in the market. Promoting competition internally as well as externally was more important and much needed than curbing monopolies. Even till now, the government has not incorporated any international law that would effectively resolve the issues arising from the extraterritorial application of competition law. Both in developed as well as developing countries the anti-competitive agreement harm consumers. In long run, the competitiveness would be lessened due to a dearth of competition in the industrial sector, which will also have an impact on the country’s economic growth. In India, the number of leniency cases has been increasing which reflects that the country needs a thorough awareness of the leniency regime. In the domain of public procurement, the conspicuous trend in the number of bid-rigging is the major issue. The sustainable economic development of the country can be weakened by the anti-competitive activities, Government needs to thrust into this issue now.


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ENDNOTES


http://www.legalserviceindia.com/legal/article-1281-anti-competitive-agreements-a-greater-awareness-of-competition-law.html

https://www.mondaq.com/india/trade-regulation-practices/250048/anti-competitive-agreements-tests-and-tribulation

https://inc42.com/resources/anti-competitive-agreements-heavy-discounting-by-ecommerce-players/

https://unctad.org/en/docs/ditcclp20082_en.pdf

https://m.economictimes.com/policy/role-of-economics-in-competition/articleshow/5442582.cms

https://journals.sagepub.com/doi/full/10.1177/0256090916647222

https://globalcompliancenews.com/antitrust-and-competition/antitrust-and-competition-in-india/

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https://assets.kpmg/content/dam/kpmg/in/pdf/2020/02/Economics-in-Anti-trust-and-competition.pdf

https://www.researchgate.net/publication/301602199_Regulation_of_Anti-Competitive_Practices_and_Trade_Secret_Laws_under_Competition_Legislation_of_India_A_Paradigmatic_Analysis

http://docs.manupatra.in/newsline/articles/Upload/EF2A29AB-9571-4F5C-90A2-89E8A73EDFB5.pdf



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