CORPORATE LAW

Class XV
Distance Education Program
National Law School of India University

Aditya Kamath, BA. LLM

Agenda- 03/05/2025
 Cartels- More Examples
 Anticompetitive agreements
 Vertical and Horizontal Agreements
 Abuse of Dominant Position
 Combinations
What Constitutes a Cartel
 The three ingredients to constitute “Cartel” are:—
(i)An agreement which includes arrangement or understanding;
(ii)Agreement amongst producers, sellers, distributors, traders or service
providers, i.e., parties engaged in identical or similar trade of goods or
provision of service; and
(iii)Agreement aims to limit, control or attempt to control the production,
distribution, and sale or price of, or, trade in goods or provision of services.
 The Commission, in the Tyres Cartel case, stressed on the importance of circumstantial evidence in
prosecuting cartels. The Commission noted that parallel behaviour in prices, dispatch, supply accompanied
with some other factors indicating coordinated behaviour among the firms may become a basis for finding
contravention or otherwise of the provisions relating to anti-competitive agreement of the Competition Act,
2002.

 It also noted that circumstantial evidences have been used in other jurisdictions in cases like the News Paper
Cartel case (1999) of Brazil, High Fructose Corn Syrup Antitrust Litigation of US, Atlantic Sugar Refineries
case of Canada, and Hen’s eggs case in Latvia.

 The Commission, however, taking into consideration the act and conduct of the Tyre companies/Automotive
Tyre Manufacturers’ Association (ATMA), held that on a superficial basis the industry displayed some
characteristics of a cartel but there was no substantive evidence of the existence of a cartel. The Commission
found signs of parallelism in terms of prices, capacity utilisation and dispatch but did not conclude that the
parallelism was a result of collusion and noted extraneous factors which could explain such parallelism.
 However, in the Cement Cartel case, the Commission noted that parallelism in prices, production and
dispatch was a result of a cartel agreement.
 The Commission found that the prices, capacity utilisation and dispatch of cement of various manufacturers
moved in parallel. The Commission considered such parallelism to be a result of conscious co-ordination
amongst the cement manufacturers and not a reflection of non-collusive oligopolistic market conditions. The
Commission observed that parallel behaviour in prices, dispatch, supply, accompanied with some other
factors indicating coordinated behaviour among the firms may become a basis for finding contravention or
otherwise, of the provisions relating to Anti-competitive Agreement of the Competition Act, 2002.

 This approach to establishing collusive price-fixing without direct evidence of an agreement is known
internationally as the doctrine of “parallelism-plus”. The Commission found several “plus factors”
documented in the DG’s report to be persuasive.
 The Cement Manufacturer’s Association (CMA) member-firms had been collecting and sharing information
on wholesale and retail prices all over the country, which would have facilitated price coordination between
them. Also, prices had increased soon after two CMA meetings. Capacity utilisation had fallen, and the
growth rates of cement production and dispatches had been much less than that of the construction industry,
the major user of cement.
 These facts indicated that the firms had been limiting supplies in order to create scarcity and increase prices.
The Commission held that all these factors, in conjunction with the high correlation between firms’ prices,
production and dispatch in each region, were adequate to establish that the cement companies had “acted in
concert” and formed a cartel.
 In Indian Sugar Mills Association (ISMA) v Indian Jute Mills Association (IJMA), the movement of Gunny Trade
Association (GTA) Daily Price Bulletin (DPB) was found “not to be governed by the market price, but controlled
manually by the GTA and its members in a concerted manner, by meeting and applying their minds, publishing and
disseminating to the interested parties”.
 The Commission was of the opinion that acts/conduct of IJMA and GTA were in contravention of the provisions of
section 3(1) read with section 3(3)(a) or 3(3) (b) of the Competition Act, 2002. Further, the impugned activities were
also held to fall within the meaning of “cartel” in terms of section 2(c) of the Act in as much as they were found to be
controlling the price of A-Twill jute bags.
 The Tribunal however, in July 2016 set aside the order of the Commission and held that there was no evidence on
record to prove that there was an agreement between GTA and IJMA about fixation of price of A-Twill jute bags or
that the price of such bags was fixed by GTA after discussion with IJMA. The COMPAT held that the finding of
violation of sections 3(3)(a) and 3(3)(b) were unsustainable and deserved to be set aside. The COMPAT noted:
“A careful scrutiny of the record shows that neither the informants produced nor the DG could collect any substantive
evidence to prove that there was an agreement between GTA and IJMA about fixation of price of A-Twill jute bags or
that the price of such jute bags was fixed by GTA after discussing the matter with the members of IJMA or non-
members jute mills or that there was a meeting between the representatives of the two entities. Rather, the facts
brought on record to show that none of the 30 members of IJMA, who are also the members of GTA, was on the sub-
committee constituted by GTA for DPB. The material produced by the informants or collected by the DG unmistakably
show that neither there was any meeting between the representatives of the two entities, namely, IJMA and GTA and no
deliberation had taken place between their members on the issue of fixation of price of A-Twill jute bags.”
 In Indian Broadcasting Foundation, there was allegation of formation of cartel formation by the members of
Indian Broadcasting Foundation as the members wanted to shift from practice of gross billing basis to a net
billing to advertising agencies and were forcing advertising agencies to agree to the new mechanism. It was
further alleged that they collectively boycotted and did not broadcast advertisements on their channels for two
days. The Commission while noting that there was collective action observed:
 ... primarily, trade associations are for building consensus among members on policy/other issues affecting
industry and to promote these policy interests with Government and with other public/private players.
 Such activities may not necessarily lead to competition law violation. To perceive otherwise will render trade
association bodies as completely redundant, being opposed to competition law.
 The trade association provides a forum for entities working in same industry to meet and discuss common
issues. They carry out many valuable and lawful functions which provide a public benefit e.g. setting common
technical standards for products or interfaces; setting standards for admission to membership of a profession;
arranging education and training for those wishing to join industry; paying for and encouraging research into
new techniques or developing a common response to changing government policy.
 Therefore, membership and participation in collective activities of a trade association cannot by itself amount
to violation of competition law as such. However, when these trade associations transgress their legal contours
and facilitate collusive or collective decision making with intention of limiting or controlling production,
distribution, sale, price or trade in goods or provision of services as defined in section 2(c) of Act, by its
members, it will amount to violation of the provisions of Act.
 The Commission in November 2015, imposed a fine of Rs 258 crore on three leading
airlines — Jet Airways, IndiGo and Spice Jet, after finding them guilty of cartel-like
behaviour in overcharging cargo freight in the garb of fuel surcharge. It, essentially, found
that the three airlines had fixed a fuel surcharge at a uniform rate on the very same date
and they all increased the surcharge at the same time without any analogous rise in fuel
prices.
 Such conduct was found to have resulted in indirectly determining the rates of air cargo
transport and thereby contravening section 3 of the Competition Act, 2002. Linking the
fine to the airlines’ turnover, the Commission asked Jet to pay Rs 151.7 crore, IndiGo Rs 63.7
crore and Spice Jet Rs 42.5 crore, within 60 days.
 The Commission held that fixing and revising fuel surcharge on cargo and courier parcels
undermined economic development of the country and ultimately acted to the detriment
of end-consumers.
 The complaint filed by Express Industry Council of India also named Air India and GoAir,
apart from the three airlines, but the Commission did not find them guilty.
 The COMPAT, however, in 2016 set aside the order of the Commission on grounds of violation of
principles of natural justice.
 The order noted that the commission’s failure to cite reasons for disagreement with DG report and
lack of an effective opportunity to the airline companies to show that they had not formed any
cartel for jacking up fuel surcharge from time to time not only resulted in gross violation of
principles of natural justice but has also caused prejudice.
 The case was referred back to Commission for probing suspected cartelisation by airlines in fixing
fuel surcharges.
 The Commission in its order of March 2018 has again held that the opposite parties acted in
parallel and the only plausible reason for increment of FSC rates by the airlines was collusion
amongst them. Such a conduct resulted into indirectly determining the rates of air cargo
transport in terms of the provisions contained in section 3(3)(a) of the Competition Act, 2002.
However, taking into account the losses incurred by the airlines at the relevant time and the fact
that FSC constituted about 20% to 30% of domestic cargo revenue of the Airlines, the
Commission decided to impose a penalty of at the rate of 3 % of their average turnover earned
from levy of FSC on the volume of cargo handled during the last three financial years based on
the financial statements filed by them. Consequently, penalties of 39.81 crore, 9.45 crore, 5.10
crore was imposed upon Jet Airways (India) Ltd, InterGlobe Aviation Ltd and Spice Jet Ltd
respectively.
 Not enough circumstantial evidence to prove cartel
 The Maharashtra State Warehousing Corporation invited online tenders for transportation of food
grains. The tenders of all the petitioners were rejected on the ground that they had formed a cartel.
In the writ petitions filed by the tendering companies, it was claimed that the opinion of formation
of cartel in the minds of Maharashtra State warehousing corporation was based on flimsy grounds
like similar IP address of the tenderers and similar timing of submission of tenders. Further, it was
claimed that the commercial/financial bids were never opened and they were disqualified at the
time of opening of technical bid.
 The High Court observed that the Corporation should have arrived at subjective satisfaction based
on objective assessment of the circumstances present before it.
 Similar IP address was noted not to be evidence enough to assume cartel formation. Thus, the said
decision of the Maharashtra Warehousing Corporation was set aside by the court for being decided
on shaky ground
Anti-competitive agreements [s 3]
(1)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.
(2)Any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void.
(3)Any agreement entered into between enterprises or associations of enterprises or persons or associations of
persons or between any person and enterprise or practice 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, which—
(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
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, shall be presumed to have an
appreciable adverse effect on competition.
(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
an appreciable adverse effect on competition in India.
 Explanation.—For the purposes of this sub-section,—
(a)“tie-in arrangements” includes any agreement requiring a purchaser of goods, as a condition of
such purchase, to purchase some other goods;
(b)“exclusive supply agreement” includes any 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;
(c)“exclusive distribution agreement” includes any agreement to limit, restrict or withhold the output
or supply of any goods or allocate any area or market for the disposal or sale of the goods;
(d)“refusal to deal” includes 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;
(e)“resale price maintenance” includes any agreement to sell goods on condition that the prices to be
charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly
stated that prices lower than those prices may be charged;
 What is important is whether the agreement is capable of constituting a threat, direct or indirect, actual or
potential, to the competition in the market
 Appreciable Adverse Effect On Competition
Section 19(3) of the Act lays down the factors to be considered while determining this. However, there is no
parameter provided for appreciable factor under Section 3.
Some of the factors that are likely to be taken into account by the Commission to check appreciable effect on
competition are:
(a) percentage of business controlled,
(b) the strength of the remaining competition;
(c) whether the action springs from business requirements or purpose to monopolise;
(d) the probable development of the industry, consumer demands and other characteristics of the market.
In the case of Ghanshyam Dass Vij v Bajaj Corp Ltd, the Commission observed that that the doctrine of de
minimis can be used as a factor to militate against appreciable adverse effect on competition. Accordingly, in light
of the market structure of FMCG products and particularly the hair oil segment in India, it was observed that
Bajaj Corp did not have a position of strength in the sector in comparison with other brands. Accordingly, the
arrangement with its distributors regarding territorial demarcations, in the presence of several competitors and
considering the dynamic nature of the sector was unlikely to affect the inter-brand competition in the market. As
such, the impact of restrictions imposed by Bajaj Corp would be negligible. The Commission therefore, disagreed
with the Director General’s conclusion that the vertical restraints imposed by Bajaj on its distributors caused
appreciable adverse effect on competition
 The Act deals with following kind of agreements.
a) Horizontal Agreements:
Horizontal agreements between two or more enterprises that are at the same stage of
production chain and in the same market. Such agreements are often between the
same manufacturers or producers of goods or suppliers of same services and are
presumed to have appreciable adverse effect on competition
 including cartels, which:
 -fix (determine) prices
 -limit or control production, supply, technical development etc.
 -allocate areas or customers
 -bid rigging or collusive bidding These type of agreements are presumed to cause
appreciable adverse effect on competition.
VOID AB INITIO
b) Vertical Agreements :
Vertical agreements between enterprises which are at different stages or levels of
production chain. Most prominent amongst the vertical agreements are between the
manufacturer of goods and its dealers approached to market the product. Such
agreements are not per se void and are not presumed to be anti-competitive.
 The Act frowns upon Vertical Agreements, which are:
 (a) Tie-in arrangement;
 (b) Exclusive supply agreement;
 (c) Exclusive distribution agreement;
 (d) Refusal to deal;
 (e) Resale price maintenance.
 Horizontal agreements other than those mentioned above and the vertical
agreements including those mentioned above are dealt with on rule of reason
basis.
In the case of Varca Druggist & Chemist v Chemist & Druggists Association, Goa
(CDAG), the Commission imposed a penalty of Rs 2 lakhs on CDAG holding that
the guidelines issued by it that lay down the margins for wholesalers and retailers,
as anti-competitive and against the interests of the consumers. As part of these
guidelines, the CDAG had prescribed a cap on the amount of the discount a
wholesaler can give to the retailer and prohibited the retailer from giving any
discounts to the consumers. Apart from fixing margin on drugs, the Association
also determined the amount of discounts to be extended by the wholesalers and
retailers that had the impact of ultimate determination of price of drugs. The
Commission observed:

When efforts are being made to ensure supply of drugs to the common man at a
cheaper rate, the restrictive guidelines of Chemists and Druggist Association work
as stumbling block. Such guidelines of CDAG do not appear to be in line with the
government plans to provide medicines to common man at an affordable rate.
Sec 4. Abuse of Dominant Position:

 Dominant position held by an enterprise or a group per se is not prohibited.

 The Act, however, prohibits abuse of dominance by an enterprise or a group.

 The Commission is empowered to inquire whether an enterprise or a group has the

dominant position and whether it has abused such position on the basis of:

(a) Its own motion, or

(b) Information received from any person, consumer or their association or any trade
association, or

(c) On a reference received from the central government, state government or a

statutory authority.
 Dominant position has been defined to mean a position of strength, enjoyed by an
enterprise, in the relevant market in India which enables it to:

 (a) Operate independently of competitive forces prevailing in the relevant market; or

 (b) Affect its competitors or consumers or the relevant market in its favour.

While determining/inquiring whether an enterprise has a dominant position or not,

the Commission has give due regard to the following:

(a) Market share of the enterprise;

(b) Size and resources of the enterprise;

(c) Size and importance of the competitors;

(d) Economic power of the enterprise including commercial advantages over competitors;

(e) Vertical integration of the enterprise including commercial advantages over competitors
(f) Dependence of the consumers on the enterprise;

(g) Monopoly or dominant position whether acquired as a result of any statute or by virtue of being a
Government company or a public sector undertaking or otherwise;

(h) Entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of
entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable
goods or service for consumers;

(i) Countervailing buying power;

(j) Market structure and size of market;

(k) Social obligations and social costs;

(l) Relative advantage, by way of the contribution to the economic development, by the enterprise
enjoying a dominant position having or likely to have an appreciable adverse effect on competition;

(m) Any other factor which the Commission may consider relevant for inquiry.
 The Act enumerates the following practices which if found to be conducted by an enterprise or a
group will lead to the inference of abuse of dominant position by that enterprise/group; provided
that the enterprise/ group is found to be dominant:

(a) Unfair or discriminatory condition on pricing including predatory pricing

(b) Limiting or restricting production of goods or provision of services;

(c) Limiting or restricting technical or scientific development relating to goods or services to the
prejudice of consumers;

(d) Denying market access in any manner;

(e) Making conclusion of contracts subject to acceptance by other parties of supplementary

obligations which, by their nature or commercial usage, have no connection with the subject of such
contracts;

(f) Using its dominant position in one relevant market to enter into or protect, other relevant market.
 Cases:
 Google
 Flipkart
 Whatsapp

 High Market share alone is not abuse

Assignments
 Write a note on Cartels
 Write a note on Abuse of Dominant position

Thank you