5th Year

Competition Law
Anti-Competitive Agreements

Introduction
Competition law focuses on preserving competition in the market. It is a tool to ensure fair competition
in the market in order to protect the interests of consumers and to ensure freedom of trade. Competition
Law is one of the most dynamic areas of law and has seen an exponential growth throughout the world.

The MRTP Act was the operative competition law of India until it was repealed in the year 2009. The
preamble provided that the MRTP Act is an “Act to provide that the operation of the economic system
does not result in the concentration of the economic power to the common detriment, for the control of
monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected
therewith or incidental thereto.”

The MRTP Act aimed at preventing (a) economic power concentration in a few hands and curbing
monopolistic behavior and (b) prohibition of monopolistic, unfair or restrictive traded practices. The
intention behind this was both to protect consumers as well as to avoid concentration of wealth. The
MRTP Act was a precursor to the Competition Act and sought to legislate over issues relating to
restrictive and monopolistic trade practices. There are areas of similarities between the MRTP Act and
the Competition Act. The primary distinction between the enactments stems from the legislative
objective. While the thrust of the Competition Act is to promote competition, the objective of the MRTP
Act was to prevent economic concentration and restrictive trade practices. Even in respect of merger
control provisions currently found in the Competition Act, the MRTP Act used concentration of
economic power as the basis of merger control. Chapter III of the MRTP Act sought to regulate activities
of undertakings whose asset value crossed certain financial thresholds. These undertakings were
typically called MRTP companies. MRTP companies were under obligation to seek prior approval of the
Government before expanding their operations in any manner including through merger and
acquisitions. This, in addition to acting as a check on abuse of dominance also acted as a merger control
provision. However, the emphasis on economic concentration got removed in 1991, when all such
provisions were omitted.

 Chapter IV of the MRTP Act dealt with Monopolistic Trade Practice (MTP).
 The next category of practices that were dealt with under the MRTP Act was those characterized
as Unfair Trade Practices (UTP). All pending cases after 1986 relating to UTP were transferred
to the National Commission constituted under the Consumer Protection Act, 1986.
 The third and final category of practices under the MRTP Act was characterized under
Restrictive Trade Practices (RTPs) and was dealt under Chapter V – A of the MRTP Act.

The MRTP Commission treated RTPs as a per se violation of the MRTP Act. However the Supreme
Court in TELCO v Registrar of RT Agreement (1977) 2 SCC 55 held that rule of reason had to be
applied in the cases of agreements constituting violations of the RTP.
A substantial part of the MRTP Act was focused around monopolistic behavior and economic
concentration. In light of the changing economic situation and initiation of economic reforms in the
country post 1991, the need was felt for a change in approach towards fostering competition. Against
this background, the Finance Minister of India in its budget speech in February, 1999 made the
following statement in the context of to the then existing MRTP Act.
“The MRTP Act has become obsolete in certain areas in the light of international economic
developments relating to competition laws. We need to shift our focus from curbing monopolies to
promoting competition. The Government has decided to appoint a committee to examine this range of
issues and propose a modern competition law suitable for our conditions.”
The Raghavan Committee was constituted to recommend a suitable legislative framework relating to
competition law for the country. It was felt that although the MRTP Act seemingly had provisions
regulating anti-competitive practices, in comparison with competition laws of many countries it was
inadequate for promoting competition in the market trade and for reducing, if not eliminating, anti-
competitive practices in the country’s domestic and international trade.
 One of the biggest failings of the MRTP Act was the inadequacy of MRTP Act to provide
adequate remedy to complainants.
 Secondly, it is a generally accepted principle that competition law has extraterritorial application
in all the cases where the overseas conduct of defendant distorts competition in the domestic
market. However the Supreme Court repeatedly refused to acknowledge this principle and had
held that the wording of MRTP Act did not provide for extra territorial jurisdiction.
 Thirdly, MRTP Act did not define certain key terms such as abuse of dominance, cartels,
collusion, pricefixing, bid rigging, boycotts, refusal to deal and predatory pricing. It is often
argued that lack of definition was immaterial. Because the general nature of MRTP Act could
have covered all anti-competitive practices e.g. RTP was defined in fairly general terms to
include all trade practice that prevents, distorts or restricts competition and therefore there was no
need for a new law. It is true that the generic nature of MRTP Act was very wide but this generic
nature caused ambiguities in the interpretation and application of the MRTP Act and ambiguities
resulted into atmosphere of general business uncertainty on key issues.
In pursuance of its mandate, the Raghavan Committee deliberated between amending the existing MRTP
Act and enacting a new competition law. In particular the Raghavan Committee was wary that
amendments to the MRTP Act to address the issues (discussed above) would have to be exhaustive and
would be tantamount to drafting a new legislation. Further the Raghavan Committee was also wary of
the fact that during the 30 years of its existence there had been a lot of binding jurisprudence on the
interpretation of various provisions of the MRTP Act and the wording of the existing law had been
considered inadequate by judicial pronouncements. Given the above, it was felt that drafting a new law
would be most beneficial. This led to the enactment of the Competition Act.
The validity of the Competition Act was challenged in the Supreme Court, even before it became fully
operational. A writ petition in case of Brahm Datt v. Union of India (2005) 2 SCC 431 filed in the
Supreme Court challenged the constitutional validity of the appointment of a retired bureaucrat as the
head of the Commission. The petitioner contended that the Commission envisaged by the Competition
Act is a judicial body having adjudicatory powers and in view of the doctrine of separation of powers
recognized under the Indian Constitution, the Chairman of the Commission had to be appointed by the
Chief Justice of India and not a bureaucrat chosen by the executive. The Supreme Court passed its order
on the said matter in January 2005, declining to grant relief sought by the Petitioner in view of the
Government offering to amend the Competition Act. As stated in the abovementioned petition, the
Competition (Amendment) Bill, 2007 was passed in September 2007 and the said amendment Act inter
alia divided the competition authority, as envisaged in the original Act, into two (a) CCI as an
administrative expert body; and COMPAT (now appeals are taken by NCLAT ) to carry out
adjudicatory functions. The CCI was established in October 2003. However the operative provisions of
the Competition Act sec 3 and sec 4 would be brought into force in two phases in May, 2009(Central
Government notification dated May 15, 2009, 20th May) and June, 2011 the provision relating to the
combination was also notified. (Central Government notification dated 4th March, 2011) respectively.

Articles 38 and 39 of the Constitution provide that the State shall strive to promote the welfare of the
people by securing and protecting as effectively, as it may, a social order in which justice – social,
economic and political – shall inform all the institutions of the national life, and the State shall, in
particular, direct its policy towards securing
(a) that the ownership and control of material resources of the community are so distributed as best to
subserve the common good; and
(b) that the operation of the economic system does not result in the concentration of wealth and means
of production to the common detriment.
Accordingly, the Competition Act was laid down to promote equitable distribution of wealth and
economic power. The Act is the creation of the union legislature and there is no corresponding law
enacted at the state/provincial level.
The Statement of the Objects and Reasons to the Act states the reason for enacting the new law in the
following words:
“In the pursuit of globalization, India has responded by opening up its economy, removing controls, and
restoring to liberalization”.
The objective of the Act can be further gathered from its preamble which states as follows –
‘An act to provide, keeping in view of the economic development of the country, for the establishment of
a Commission to prevent practices having adverse effect on competition, to promote and sustain
competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on
by other participants in markets, in India...’
The Act was drafted, as are most of the competition laws in the world, in fairly general terms and is not
limited to regulation of commercial acts of private parties. The Act prohibits or regulates
(A) Anticompetitive agreements (u/s 3 of the Act)
(B) Abuse of dominant position (u/s 4 of the Act)
(C) Combinations (u/s 5 &6 of the Act).

Section 27 of the Act lays down reliefs that may be granted or the violation of Section 3 and 4 of the
Act. The CCI may issue a ‘cease and desist’ order, or impose a penalty not exceeding 10 percent of the
average turnover during the preceding three years from the date of order. In cartel cases CCI could
impose a penalty that could be higher of either up to 10 percent of the turnover or three times the amount
of profit derived from the cartel agreement. In the cases of ‘contravention by companies’, CCI may
under the provision of Section 48 of the Competition Act proceed against and punish any person who, at
the time of the violation, was in charge of the company, unless that person can show that the violation
was committed ‘without his knowledge’ or that he had exercised ‘all due diligence to prevent the
violation’. Section 43 A provides that in case of a failure to notify a combination, the Commission shall
impose a penalty of 1% of the total assets or turnover of the combination. Section 42A of the Act
provides for the compensation in case of contravention of orders of the CCI. This section provides that a
person may make an application to COMPAT now NCLAT for recovery of compensation from an
enterprise for any loss or damage suffered by him for violating the directions of the CCI under sections
27, 28, 32, 33 and 41 of the Act.

The term ‘competition’ has not been defined in the Indian Competition Act, 2002. A broad definition of
Competition is “a situation in a market in which firms or sellers independently strive for the buyers’
patronage in order to achieve a particular business objective for example, profits, sales or market share”.
Free competition means total freedom to develop optimum size of business without any restrictions. The
limitation, if at all necessary, is not limitation of size but that of competitive constraints.
Government of India liberalized the economy in the early 1990s, which led to both the emergence of
new market players as well as entry of foreign players in the Indian market.

The main objective of competition law is to promote economic efficiency using competition as one of
the means of assisting the creation of market responsive to consumer preferences. The advantages of
perfect competition are three fold:
 allocative efficiency, which ensures the effective allocation of resources,
 productive efficiency, which ensures that costs of production are kept at a minimum and
 dynamic efficiency, which promotes innovative practices. These factors by and large have been
accepted all over the world as the guiding principles for effective implementation of competition
law.
The Indian Competition Act seeks to ensure fair competition in India by prohibiting trade practices,
which cause appreciable adverse effect on the competition in market within India and for this purpose
establishment of an expert body, was considered essential. Thus, the 'Competition Commission of India'
having the powers to curb anti-competitive practices was established. The Director General appointed
under Section 16(1) of the Act is an investigating arm of the Commission. The Competition Act of India,
basically, prohibits anticompetitive agreement and abuse of dominant position.

Jurisdiction of Authorities
CCI can initiate investigation: CC1 Director General (DG)for
 Suo motu  Appeal to investigation
 On receipt of any NCLAT  Summon/enforce
information  Supreme attendance
 Basis of a reference from Court  Examine him on
a central, state government oath
or a statutory authority  Receive evidence on
affidavit
 Commissions for
examination of
witnesses and
documents.
 If CCI finds a prima
facie case then he
directs DG to carry
out a detailed
investigation

Anti-competitive Agreements

Section 3 of the Competition Act states that: any agreement which causes or is likely to cause an
appreciable adverse effect (AAE) on competition in India is deemed anti-competitive.
Section 3 (1) of the act states that Competition Act prohibits any agreement with respect to
“production, supply, distribution, storage, and acquisition or control of goods or services which
causes or is likely to cause an appreciable adverse effect on competition within India”.
Although the Competition Act does not define AAEC and nor is there any thumb rule to
determine when an agreement causes or is likely to cause AAEC,
Section 19 (3) of the Act specifies certain factors for determining AAEC under Section 3:
i. creation of barriers to new entrants in the market;
ii. driving existing competitors out of the market;
iii. foreclosure of competition by hindering entry into the market;
iv. accrual of benefits to consumers;
v. improvements in production or distribution of goods or provision of services; promotion of
technical, scientific and economic development by means of production or distribution of goods
or provision of services.

The language in section 19(3) states that the CCI shall have ‘due regard to all or any’ of the
aforementioned factors. In a case of Automobiles Dealers Association v. Global Automobiles
Limited & Anr 2012 CCI held that it would be prudent to examine an action in the backdrop of
all the factors mentioned in Section 19(3).