Essence of Competition Law in India: Section 3 of the Competition Act

Before the enactment of the Competition Act, 2002, the arena of Competition Law was governed by the Monopolistic and Restrictive Trade Practice Act, 1969, during the post-independence period. It had become obsolete after a period of time and also, the MRTP Act was not equipped well enough to tackle with the aspects of Competition in the Indian economy at that point of time. With the establishment of the Competition Commission of India, efforts were made to expand the horizons of Competition Law in India and were also aimed at achieving new prospects in this area.

The whole Competition Law is basically governed by four sections of the Competition Act, 2002 i.e. from Section 3 to Section 6. Section 3 is concerned with Anti-competitive agreements, Section 4 is concerned with the prohibition of abuse of dominant position, and Section 5 and 6 are concerned with Combination and Regulation of Combination respectively. The main objective of the Competition Act is to prevent an “appreciable adverse effect on competition” within the territory of India.

Prohibition of Anti-Competitive agreements –

Section 3 of the Competition Act has provisions relating to anti-competitive agreements. Anti-competitive agreements are the type of agreements where an enterprise or association of enterprises or a person or an association of persons 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. For the purpose of entering into an anti-competitive agreement, an agreement should be present, whether express or implied, between the enterprises or persons. Hence, for the purpose of proving that competition is affected in a negative way, it has to be necessarily proved that there was an agreement between the persons or associations to do so. And, if any such agreement is found between the enterprises, then such an agreement will be void. The CCI has been given powers under the Competition Act to prohibit such agreements and also impose fines which the Commission deems to be necessary, after the inquiry. The CCI can initiate a suo moto inquiry under Section 19 of the Act on the basis of an information filed by any informant, a statutory authority or the Central or the State Government.

In the case of Ashish Gupta v. Panchsheel Buildtech Pvt. Ltd., it was held by the court that in order to prove an anti-competitive agreement as it was alleged by the informant, existence of an agreement between the parties is a prerequirsite. In the present case, the informant had placed no evidence on record which would even remotely suggest that there was an existence of any agreement between the opposite parties.

The definition of an agreement has been given under Section 2(e) of the Competition Act. It explicitly states that an agreement implies any arrangement or understanding between the parties to perform a certain set of promises made to each other.

After the existence of an agreement, it has to be proved that such an agreement between the parties is affecting competition in an appreciable adverse way and is directly or indirectly determining purchase or sale prices, or is limiting or controlling the production, supply, markets, technical development, investment or provision of services, or it is directly or indirectly resulting in bid rigging or collusive bidding. If any of the aforementioned factors are found to be present while investigating, it shall be presumed that there is an appreciable adverse effect on competition within India. All these factors are mentioned under Section 3(3) of the Competition Act. It is upon the Commission to establish that there was a “cartel” like behaviour between the enterprises and the enterprises acted in concert with each other.

WHAT IS A CARTEL?

A cartel is a concerted action or a type of tacit arrangement of understanding between the enterprises or persons in order to achieve a purpose, which has an appreciable adverse effect on competition within India. In the recent times, there have been various cases of bid rigging in which the parties enter into a cartel and rig the bidding process by quoting lower prices and procure items at a lower price hence inhibiting from realising the fair price of that item.

In the case of Varca Druggists v. Chemists and Druggists Association Goa, a cartel was formed by the association by not giving discount to the consumer and joined hands by forming a cartel.

These days, it has been really tough to figure out whether parties have entered into a cartel or not. The parties have been operating below the table and it has become really tough for the CCI to bust the parties.

There are certain factors which need to be taken into account as to prove that there was a cartel like arrangement between the parties. Quoting of identical prices merely does not amount to cartelisation between the two opposite parties. Circumstantial evidence should also be taken into consideration while proving.

HOW TO PROVE THAT A CARTEL LIKE ARRANGEMENT EXISTED?

The Competition Commission of India has to take into account various factors about the existence of the cartel between the parties. Firstly, the existence of an agreement between parties needs to be proven. Secondly, such an agreement should have an appreciable adverse effect on Competition. In the cases of bidding, quoting of identical or similar prices by the parties can also be taken as a cartel like arrangement. Then, it should also be checked whether the parties are controlling the market by prohibiting or creating barriers for new entrants into the market.

It also depends upon the number of sellers or buyers in that relevant market, if there a fewer number of sellers in that market, the conditions become more conducive for cartelisation. In Director General (Supplies & amp; Disposals) v. M/s Puja Enterprises Basti and Ors., it was mentioned that the fewer the number of sellers, and the more repetitive the bidding, the conditions become for conducive for reaching an arrangement to rig the bidding process.

After proving that a cartel existed, and after establishing that there was contravention of the provisions of Section 3(1) of the Competition Act, 2002, the CCI needs to give due regard to certain factors which have been listed out under Section 19(3) of the Act. The parties, with their acts should not crate barriers for new entrants into the market for business. The parties should not drive existing competitors out of the market. In the case of, In Re: Cartelisation in Sale of Sugar Mills by the Uttar Pradesh State Sugar Corporation Limited (UPSSCL) and the Uttar Pradesh Rajya Chini Evam Ganna Vikas Nigam Limited (UPRCGVNL), it was alleged by the Competition Commission of India that two parties had cartelised and drove the other bidders out of the bidding process. At first, there were around 80 participants which took part in the pre-bid meeting, but, ultimately, in the end, the number left was 10, out of which only three had submitted financial bids. There was no evidence which was found by the CCI that would suggest that the two parties had drove out the existing parties out of the bidding process.

CARTELS AND ITS EFFECT ON ECONOMY

Anti-competitive agreements, especially the cartels, harm the consumers in numerous ways. Industries which are affected by cartelisation lack competition which reduces competitiveness between the parties and also may have a negative impact on the economy of a country. By entering into a cartel, the parties prevent other parties from entering into that specific market, by which competition is affected grievously. Forming of a cartel is also an economic crime. The consumers are deprived of their rights to certain things such as the products in the market. As mentioned earlier, the drug stores had entered into a cartel and deprived the customers from taking discounts on the medicines.

Thus, the CCI has been making efforts to take down these cartels and other anti-competitive practices by the enterprises. Various judicial pronouncements have been given by the CCI in relation to the anti-competitive practices, and the CCI is aiming at removing all the malpractices and ensure competition within the territory of India.​