"ANTI-COMPETITIVE AGREEMENT IN INDIAN MARKET" INSTEAD OF "INDIAN ECONOMY." BY - VIBEK MEHER
"ANTI-COMPETITIVE
AGREEMENT IN INDIAN MARKET" INSTEAD OF "INDIAN ECONOMY."
AUTHORED BY - VIBEK MEHER
4TH YEAR, SYMBIOSIS LAW SCHOOL, NAGPUR
Introduction:-
The ecosystem of the India market is well known for its
dynamic and diverse nature and this dynamic structure of the market is
responsible for the economic growth in the country. Because of this vast market
structure it affects the competition of the market and also affects the freedom
of trade in the market. But this competitive environment threatened the market
when any individual business (dominated position in the market) or group of
business tried to manipulate the entire market only for their own benefit. This
ends up harming both fair competition and consumer. One of the major such
problems in the Indian market comes from the Anti competitive agreement between
the businesses because of this it affects the natural balance of and harm the
economy of the entire country. To prevent such anti competitive
practices in the Indian market The Competition act -2002 was introduced in the
year 2002. This act restricts all type of anti-competitive practices which may
have adverse effects on the freedom of trade in the market.
Research
Question:-
1.
What is the objective of the competition act?
2.
what is Anti-competitive agreement?
3.
How Anti-competitive agreement cause appreciable adverse
effect on competition?
4.
what is Effect of anti-competitive agreement in Indian economy?
Objective
Of The Competition Act
The primary objective of the competition act is to prevent
such practice which will have the adverse effect on the competition of the
market by protecting the interest of the consumer as well as it protects the
all producer businesses by establishing freedom of trade for
everyone in the market. Competition law of India focused on
three primary subject matter-
1-
Anti- competitive agreement (section-3 of competition act )
2-
Abuse of dominant position (section -4 of competition act)
3-
Regulation of combinations ( section- 5 and 6 of competition
act)
This article is going to deals with the first subject matter
that is Anti- competitive agreement (section-3 of competition act). According
to this act, anti-competitive agreement means any agreement which can “cause
appreciable adverse effect in competition in market”. The purpose of the act is
the prohibit such actions of parties which can affect the competition. Anti
competitive agreement includes price fixing, limiting the supply and creating
artificial need in the market, restricting new player to come in the market,
market allocation etc.
What
is Anti-competitive agreement?
According to this law under section 3 of the competition act
restricts the agreement which is anti competitive in nature. Under section 3 of
the act it “prohibits any
enterprise or association of person or enterprises or association of persons to
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”. Any such kind of agreements enter in between the parties would be
consider as void agreement.
In this act before
understanding what anti competitive agreement lets first discuss the what
exactly an agreement. Under section 2(b) of this act define the term
“agreement” this section states that “agreement
includes any arrangement or understanding or action in concert whether or not
formal or in writing and it need not be enforceable by legal proceedings”.[1] It simply means agreement is said to be an agreement when
two or more person agree on something, even if it’s officially written down or
not and need not to be legally binding.
And the second term we have to understand is that
“enterprise” and “person” as it have used in section 3 of sub-section(1) it
prevent anti-competitive agreement between such entities. Sections 2(h) and
2(l) of the act have been used to describe these two terms.
According to the act's section 2(h), a "enterprise"
is any individual or government agency involved in a variety of commercial
endeavors pertaining to the manufacture, distribution, storage, acquisition, or
control of products or services. Businesses in any industry are included,
regardless of whether they are privately held, publicly owned, owned by the
government, or owned by foreign companies. But such activities which are
carried out by the government related to the sovereign function of the government
are excluded from the activities of enterprise.
Under section 2(l)[2] it defined wide range of entities both individual and legal
entities. It include an individual, Hindu undivided family(HUF),company, firm,
any association or body of individual, whether it incorporate or not, in India
or outside India. It also encompasses any type of corporation
established by or under government law, whether at the state or central level.
This includes all government companies, cooperative societies, local authorities,
and any other artificial legal entities that do not fall under the previous
categories of this sub-clause.
We shall now examine the operation of anti-competitive
agreements. Any arrangement that "causes or is likely to cause an
appreciable adverse effect on competition" is considered anti-competitive,
as we have already covered. Now we will understand what appreciable adverse
effect on competition and when it will be consider that any agreement is
causing adverse effect on the competition. We must first comprehend section
19(3) of this act in order to comprehend this. In accordance with section 19(3)
of the act, the Competition Commission of India (CCI) must take into account
the following elements while evaluating any anti-competitive agreement to determine
whether it is having a negative impact on competition, which is forbidden by
section 3 of the act:
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; or
f)
promotion of technical, scientific and economic development
by means of production or distribution of goods or provision of services”.[3]
The detrimental impacts on competition, such as erecting
obstacles for new companies and hurting current rivals, are outlined in detail
in clauses (a), (b), and (c) of this section. However, clauses (d), (e), and
(f) draw attention to the possible advantages, such as better production or
distribution, advantages for customers, and improvements in economic growth and
technology.
Horizontal
agreement:-
We will now talk about many kinds of anti-competitive
agreements. First, we shall learn what horizontal agreement is. Section 3(3)
states that "any agreement entered into between enterprises or
associations of enterprises or persons or associations of persons or practices
carried on, or decision taken by any association of enterprises or association
of persons, including cartels, engaged in identical or similar trade of goods
or provision of services, shall be presumed to have appreciable adverse effect
on competition.",[4] which-
a)
“Directly or indirectly determines purchase or sale prices;
b)
(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 geographical area of market, or type of goods
or services, or number of customers in the market or any other similar way;
d)
Directly or indirectly results in bid rigging or collusive
bidding (effect of eliminating or reducing competition for bids or adversely
affecting or manipulating the process for bidding)”.
The proviso of the section says that the rule and restriction
in this section will not apply to agreements which are made for joint ventures
and that joint venture agreement help improve efficiency in areas like
production, supply, distribution, storage, acquisition or control of goods or
services. Joint ventures means if two or more parties come together to work on
specific project or business activity and making things more effective or
efficient.
Here in this phrase “shall be presume to have an appreciable
adverse effect on competition” it means that the court will presume the entire
allegation to be true unless otherwise is proved. It is based on “per se rule,”
it means the does not need any additional proof to establish that any specific
action or agreement of the parties can causes harm. This per se rule is given
under section 2(l) of Bharatiya Sakshya Adhiniyam “Whenever it is directed by
this Adhiniyam that the Court shall presume a fact, it shall regard such fact
as proved, unless and until it is disproved”.[5] This means hear it is the responsibility of the accused to
disprove the allegation and the burden
of proof is on the accused unless it will be disprove it will be that agreement
of the parties will automatically cause an Appreciable
adverse effect on competition(AAEC).
The words “cartels” is also addressed under section 3(3) of
this act, which are one type of horizontal agreement (any agreement in between
the enterprises at the same stage of the production chain is called horizontal
agreement). According to section 2(c) of the act “cartels 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”. Because of restrict supply and limits consumer choice and preventing
fair pricing in the market the cartels can cause harmful effect in the Indian market.
Vertical
Agreements:-
Vertical agreement is type of agreement where its an
agreement between various businesses or enterprises which operate at different
level of the production or supply chain. The primary example of such kind of
agreement can be an agreement between a manufacturer and a distributor or it
can be in between a wholesaler and retailer. These businesses and enterprises
are connected through the flow of goods and services. According to the section
3(4) of the act, any agreement of different levels of production or supply
chain which must be related to production, supply, storage, sale price or
trading of goods and services. Such agreement will be consider as
anti-competitive if that agreement is causing adverse effect on the competition[6]
Vertical agreement includes various type of agreement such as
tie-in arrangement, exclusive supply agreement, exclusive distribution
agreement, refusal to deal, and resale price maintenance. Now we will
understand all the type of agreement one by one.
Tie-in arrangement:- any
agreement which put condition on the buyer, when buyer purchase a particular product the buyer needs
to purchase any other specified product along with that primary product such
kind of arrangement is called tie-in agreement. In simple words when seller put
condition or force the buyer to purchase one product as a condition for buying
another product.
Exclusive supply
agreement:- Any agreement which
restrict the buyer to purchase goods from only seller and not from any other
supplier. It simply means that such agreement limits the buyer’s to purchase
product from any other alternative suppliers.
Exclusive distribution
agreement:- Any agreement which restrict and limits specific distributor
for a particular region or market and appoints them in any specific market and
prohibits other distributors in that particular region or market such agreement
is called exclusive distribution agreement.
Refusal to deal:- “Any agreement which restricts, or is likely to restrict, by
any method, the persons or classes of persons to whom goods are sold or from
whom goods are bought” such agreement are called refusal to deal agreement.
Resale price maintenance:-
In such kind of agreement the
manufacturer or supplier controls the resale price of product by directing the
retailers or seller not to sell below a specific price. It means that it
restrict the retailers to offer discounts unless that is specified by the
manufacture or supplier.
Effect
of anti-competitive agreement in Indian economy:-
Now we will analysis that how such anti-competitive agreement
cause adverse effect to competition as well as the economy of the country. In
the year 2012 the competition commission of India found that 11 cement
companies where engaging in cartelization practices such as fix cement prices
and limit the production of cement in market and creating artificial scarcity
in the market. In this case main players are ACC, Ambuja Cements, UltraTech,
and shree cement these all main cement company were engaged in anti-competitive
agreement in between them self to create manipulation in the Indian market.
This case is well known as Builders Ass’n of India v. Cement Mfrs.
Ass’n & Ors.,[7] because of this anti-competitive agreement between the
company it result in increasing of cement prices by approximately more than 40%
from the year 2008 to 2011. It also affects the construction costs and it rose
by 20-25%. This construction sector contributes about 8% to the Indian GDP.
Disruption in this sector due to high cement costs slowed the GDP growth in
India.[8]
In the case of auto parts cartel[9] it was found by the CCI that several leading car
manufacturers of India were engaging in anti-competitive agreement practices in
the spare parts market. This agreement leads to manipulation of pries of spare
parts of cars, and inflated costs for consumers. Because of this practices the
cost of car parts increased by 25 % on average, which directly affected the
consumers. It has also negative impact on the Indian consumer durable market
the market its dropped by 4% in the year 2014. This shows that anti-competitive
agreement, could cause adverse effect throughout the economy.
In 2018, in the case of Beer Market Cartel was engaging in
market allocation agreement which also involve fix prices and divided the
market among themselves, it also eliminating the competition in market. By
dividing the market it reduced consumer choice and quality. The direct effect
of such anti-competitive practices was shows in 12% decline in sales of beer in
urban market, primarily it is because of higher prices which was caused by the
cartel. This indicates in which way such anti-competitive agreement effect the
consumers and also reduce the overall market demand, which also affect the
economy[10].
Anti-competitive agreement between the parties in India have
significant economic impact, as it is highlighted by reports from the world
bank in 2021 and the competition commission of India annual report 2023.
According to report of word bank 2021 because of cartelized market and price
manipulation by cartel leads to harming affordability and reducing economic
efficiency, it also result in inflated costs by an average of 30%[11]. And according to CCI annual report in between 2010 to 2023,
the CCI imposed 25,000 crore of penalties on the parties whose who are
involving in anti-competitive agreement, cartels and abuse of dominance.
Despite this penalties the consumer losses caused by the such practices during
the same period exceeded 1.2 lakh crore[12].
Conclusion:-
Anti –competitive agreement is not just prevalent in India it
is affecting the worldwide economy, it disrupt the Indian by undermining fair
competition in the market, inflating product and service prices and it also
restrict consumer choice, because of all there anti-competitive activities it
harm the overall economy of the country. The competition act,2002 the primary
act which prohibiting all such agreement which is anticompetitive in nature.
Through section 3,4,5, and 6 of the targets anti-competitive agreement, abuse
of dominance and anti-competitive combination. This act also create an
enforcement mechanism through the competition commission of India, and play a
vital role in identifying and penalizing anti-competitive behaviors. Increasing
market transparency and promoting awareness are crucial in preserving
competition in the market and also it help to fostering the economic growth in
the country.
[7] Builders
Ass’n of India v. Cement Mfrs. Ass’n & Ors., Case No. 29 of 2010,
Competition Commission of India (2012)
[11] World Bank, India:
Competition and Economic Development at 45 (2021), available at https://www.worldbank.org.
[12] Competition
Commission of India, Annual Report 2023, at 12-15 (2023), available at
https://www.cci.gov.in.