Loopholes In 'Anti-Competitive Agreement' Under Competition Law

Section 3 of the Competition Act, 2002 deals with anti-competitive agreement between competitors. Section 3(1) disallows anti-competitive agreement between parties and the same is declared void under Section 3(2). Section 3(3) talks about horizontal agreement whereas Section 3(4) deals with vertical agreement between the parties. The two major requisites to declare any sort of arrangement to be violative of Section 3 are –

a) There should be an agreement between the parties.

b) The agreement should be in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services.

Both these requisites are very difficult to prove and this is why there exist only a handful of cases where the accused is found guilty.

A) AGREEMENT BETWEEN THE PARTIES

The term 'agreement' is defined under Section 2(b) of the Act as any arrangement or understanding or action in concert. It can be oral or written and need not be enforceable. Therefore, only the existence of an arrangement between the parties is necessary to prove collusion has taken place. Bid rigging and price-fixing are grave offences and the risk of parties entering into such agreement is high, but so are the profits. In order to avoid suspicion or to not come under the ambit of Competition Commission of India (CCI), the arrangements are mostly done in back-alleys and under table. Only in recent years the Court realized that direct evidence is not necessary to prove such collusion and circumstantial evidence is enough to prove such collusion. It becomes very difficult for the Director General (DG) to find evidence, even circumstantial, and this is the reason why the Courts are unable to punish the accused even if there existed an agreement between the parties. There is a need to reconsider and revise the law in this matter so that the parties cannot escape by concerting to under-the-table agreements and they are brought to justice.

B) AGREEMENTS 'IN RESPECT OF' PRODUCTION, SUPPLY, DISTRIBUTION, STORAGE, ACQUISITION OR CONTROL OF GOODS OR PROVISION OF SERVICES

The phrase 'in respect of' used in Section 3(1) is highly ambiguous. The phrase is followed by 'production, supply, distribution, storage, acquisition or control of goods or provision of services' which makes its meaning doubtful and it is often used by the accused to bend the case in his favour. The phrase 'in respect of', mentioned in Section 3(1) of the Act, should not be taken in literal sense and has a wide amplitude. Indian Judiciary has time and again defined the phrase to be of a much broader meaning than its literal sense. It is to be noted that the legislature has not used bare words 'production, supply, distribution, storage, acquisition or control of goods' but instead used 'in respect of' to provide the Commission wider powers to investigate into all the matters that are in respect of, or related to production, supply, distribution, storage, acquisition or control of goods.

In case there is a slump sale agreement, i.e. transfer of one or more undertaking for a lump sum consideration, and there existed a collusion between the parties concerning the slump sale, the accused can simply contend the slump sale can only be classified as acquisition of asset under Sections 2(a) and 5 of the Act. It is to be noted that in any activity relating to production, the factors of that combine therefore are land, labour, capital and enterprise. These are used in the production process to produce outputs, i.e., the finished goods and services. It is necessary to know that even though there is no direct sale of goods or provision of services in slump sale agreement, the plant and machinery and the land on which the undertaking is erected is acquired with a purpose to make them operational so that it may lead to production of goods.

The legislature needs to recognise these loopholes and make changes accordingly. Merely mentioning of the terms without defining it will eventually lead to havoc. Further, even if the Judiciary defines the term in future, multiple interpretation will exist which will depend on the circumstances of that particular case and will have different reasoning. The legislature needs to define such ambiguous term in the Act itself and it should be backed by the Judiciary.