Business Law

Anti-Competitive Agreements under Competition Law

By Aaron S John

Introduction

With the budget being presented by Nirmala Sitharaman for the year 2022 it is going to be very interesting to see which businesses will be promoted by the government and which sectors will receive subsidies. But in any case, there always has been competition regardless of the field and this competition usually helps both the customer and the seller. As the customer will have more options and a variety of products and the seller can learn from his competitors and improve his own business. But many a time the companies will try to become the sole producer and distributor of a product and in such situations, a Monopoly system is formed. This Monopoly system in long term will harm not only the customers of that particular country but also the government. As the company will be the sole producer and distributor they can easily influence the government to make decisions that favor them and to avoid such situations the Competition Act of 2002 was enacted.

What is the Competition Act of 2002?

The Competition Act of 2002 was enacted keeping in mind the sellers and to prevent the sellers from having the Monopoly in the market. To break this down, let’s understand the meaning of competition first; competition is any type of activity that is performed by the sellers in an individual capacity in order to acquire a monopoly in the market and achieve all the profits or gain all the market shares. This act was enacted by the parliament of India and had replaced the existing Monopolies and Restrictive Trade Practices Act of 1969. This act was also one of the first steps taken by the Government of India to govern the Indian competition law and build up a structure around it. This act was also amended twice, it happened in the year 2007- The Competition (Amendment) Act and in the year 2009 which was the Competition (Amendment) Act.

The two key features of this act were to provide a framework for the establishment of the much-needed competition commission along with certain tools that have been mentioned in the act to prevent anti-competitive practices and promote healthy and positive competition across the Indian market.

This act was enacted to provide a legal framework and ensure that there is healthy competition within the Indian market. This act also aims to prevent all the anti-competition practices and awards penalties and penalizes the company or the individual for performing such acts. The act focuses on protecting free and fair competition which overall protects the entire freedom of trade as no one shall be the sole producer or distributor for providing a service in a country that has its exceptions. This act overall seeks to prevent a Monopoly driven company along with the prevention of unnecessary intervention by the government. To understand the acts in a better way we must look at the objectives of the Competition Act of 2002.

The following are the objectives of the act

  1. The act aims to provide the basic framework that is required for the establishment of the competition commission.
  2. This act aims to prevent the formation of monopolies and try to promote the idea of clean competition in the entire Indian market.
  3. This act also aims to protect the freedom of trade which is quite essential for all the participating individuals and entities who are or have entered the Indian market.
  4. The act aims to protect the interest of all consumers.

Anti-Competitive Agreements

One of the key features of the Competition Act of 2002 is the anti-competitive agreements like the name suggests these are a certain agreement that has been signed by two or more companies which basically acts as a promise that the companies will work together and will not do anything or perform any such actions that will harm the other company. Anti-competitive agreements are the type of agreements that have been entered into by two or more parties for companies that are focusing and present in the same market. This is done to fix the prices, in other words, increase or reduce the stock prices or to influence and manipulate the market in such a way that will be favorable for all the companies involved in the competitive agreement. This agreement is not good news for the consumers as this harms them as after signing this agreement the companies will stop their competitiveness between them and this will lead to the consumer suffering as there will be a lack of options and overall the consumer will be in a lower position to bargain. The consumers will never have the upper hand as both the competitions are working together as a team.

The Competition Act of 2002 clearly defines the anti-competitive agreements under section 3 which states that “No enterprise or association of enterprises or individuals or association of individuals may agree to production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”.

this sort of agreement is termed an AAEC type of agreement. the term AAEC refers to the applicable adverse effect on competition agreements. This act clearly states that such agreements shall be deemed void. Furthermore, if the agreement fulfills a few essentials which are laid mentioned below then the agreement will be classified as an AAEC agreement.

  1. If there has been a clause that directly affects the purchasing or selling price of the commodity
  1. If there has been an agreement to indirectly change the purchase or sale price of the commodity.
  1. If the agreement was entered to limit the production supply technical development or service provisions in the market.
  1. If the agreement leads to a situation of bids that are rigged.
  1. If the agreement entered into mentions a situation of collusive bidding.

Illustration

  1. The first example is when a company (Company A) agrees with another company (Company T). The first company will sell its commodity only on the Northern side of Bangalore and the other company will only sell its commodity on the southern side of Bangalore. Here, both the companies have agreed and agreed and have no competitors in their respective areas. This is an example of market sharing or division of the market.
  2. Another example is a person buying medicine to reduce weight also has to buy a weighing machine. This is a common example of two products that have been grouped to attract more customers. This is an example of a tie-in agreement.

Difference between Anti-Competitive Agreements and the Dominant Company

To understand the difference between the parties it is necessary to understand what exactly is a dominant company. Many times, the companies which are in the dominant position have the unfair advantage to influence the other companies and Section 4 of the Competition Act defines the abuse of the dominant position. It states that the dominant position means that any company that has and enjoy a certain position and power in the Indian market that it helps it to do the following-

  1. Work and operate independently irrespective of its competition in a particular market.
  2. Can affect the competition in the current market for the consumers and their preferences.

One of the common examples under dominant position is predator pricing, this is a situation where a dormant company enters into an AAEC agreement. 

The main difference present here between the anti-competitive agreements and the dominant position is that in the former then have to be two or more companies and there need not be any dominant company to be involved. But in the latter, there has to be a dominant company in the world that is planning to take a dominant position in the market.

Remedies Provided by the Law

If the commission finds that the agreement in the picture falls under any of these categories then the commission can pass the following orders-

  • Advise the person, enterprise, or association that has agreed to stop and discontinue the current agreement and to re-enter into an agreement.
  • It can also impose penalties on any person or enterprise if it deems it to be fit and these penalties cannot exceed that 10% limit on the average turnover considering the preceding three financial years.
  • In a situation where the penalties mentioned above is extending to the producer, seller, distributor, and trader as they are a part of a common cartel. The penalty amount to be paid can be extended thrice the amount of the profit concerning each year of the continuance of the agreement or can be 10%, whichever is greater.
  • Direct for any modification that has to be performed and done in an agreement to such an extent and as maybe is specified by the commission.
  • It can also ask for the payment of all the costs to the enterprise and they will have to comply with the orders.
  • The commission can pass any order or direction as it may deem fit.

Case Laws

Vodafone India Limited v. Competition Commission of India

Reliance Jio had filed a complaint against Airtel, Idea, and Vodafone claiming that these companies were abusing their dominant positions. This issue was taken up by the competition commission of India and the same was filed under the Hon’ble Supreme court. The Hon’ble Supreme Court of India dismissed the plea. As the Hon’ble Supreme Court believes that Airtel, Vodafone, and Idea did not have a cartel system and were not in a dominant position in the market. The antitrust body of India early this year had approached the Hon’ble Supreme Court raced this issue and claimed that many telecommunication companies were practicing unfair trade and trying to use their dominant position.

21st September 2017 the Bombay High Court had stated that CCI had no authority and jurisdiction under them that will enable them to interpret the contract conditions or any other policies which are enacted by the companies in the telecommunication sector. As this was completely governed by the Telecom Regulatory Authority of India Act, 1997 (TRAI)

An order was passed after Idea Airtel and Vodafone approached the Cellular Operators Association of India (COAI) to quash the allegations which were put on them by Reliance Jio along with the CCI order to investigate for the so-called cartelization and abuse of dominant position. After the judgment Reliance, Jio had questioned whether Bombay High court had the complete jurisdiction of this case and claimed that this case should have been tried under the Delhi High court as the CCI order was passed in the union territory of Delhi. This was not entertained and rejected by the court and finally, the Hon’ble Supreme Court dismissed the CCI plea for any sort of investigation against Airtel, Idea, and Vodafone as there was no cartelization and abuse of dominant power.

Whatsapp Llc v. Competition Commission of India

This case was related to the updated privacy policy and terms of service of all the WhatsApp users and the user information that has been shared with Facebook.

WhatsApp came under controversy when its new policy was alleged of having anti-competitive behavior and hence the CCI was of the opinion that the new terms of conditions and privacy policy can lead to and user’s data collection that can be used for any illegal purposes like stalking its users and worse, changing the opinion of the users. Later on, WhatsApp and Facebook had separately filed a petition under the Delhi High court to dismiss the CCI orders that called for an investigation into the new policy of WhatsApp.

The CCI of India had to perform the hunt on WhatsApp especially focusing on the new privacy policy once it was proved that the new policy of WhatsApp was clearly against the Competition Act of 2002 the CCI considered and observed that the new privacy policy was not in accordance with the regulation 35 of the competition commission of India regulations 2009 further on the commission examined and under the prima facie investigation it was held that the parties had also violated the provisions of section 4 of the competition act. WhatsApp’s new sharing policy with Facebook clearly amounts to the degradation of non-price parameters of competition that is “quality” and leads to the consumers being harassed and damaged. Such policies amount to unfair terms and conditions and are quite evident that is violative of the provisions of section 4 clause 2(A) of the competition act.

The Delhi High court set aside the current orders which were filed against Facebook and WhatsApp along with the pleas that challenged the order of the CCI with respect to the privacy policy and an audit that has to be conducted for a hearing for a later date. Justice Navin Chawla stated that the court had heard both the petitions and challenged the order of CCI with respect to the new privacy policy and that the test had to be finished within 60 days. Both the parties, Facebook and WhatsApp had included under then arguments that since the Hon’ble Supreme Court is dealing with the issue there was no need for any intervention from any other government authorities including CCI.

Reprographic India v. Competition Commission of India and Others

The National Company Law Appellate Tribunal (NCLAT) supported the order that the CCI had put forth which refused to initiate the investigations against Hitachi systems micro private limited and IL&FS technologies limited. This appeal was filed by Reprographic India. This is also a secondary institution that was established under Bharat Heavy Electricals Limited. BHEL is responsible for manufacturing and finishing various systems along with the distribution of information technology services and products. It was alleged that the respondents had entered into a contract with BHEL for the installation and mounting of personal computers and other computer accessories. The reprographic alleged that the company (Hitachi) was awarded a heavy price and it was sure that this was performed by coating an even larger price. The decision did not find any proper claim on the allegations as there was no evidence of a meeting of the minds. As we all know meeting of the minds is essential to enter into a contract moreover the final price at which the contract was finalized fell within the already estimates of BHEL.

During this investigation, the NCLAT confirmed the idea that the reason why there was low participation in the tender was due to the rigid tender conditions and hence was not an indication of any malicious contracts. Due to lack of evidence, it was held that the appeal lacked any backing and accordingly was dismissed.

Conclusion

The market is known to be a very competitive field. And in order for a company to successfully survive and thrive, it has to have a take no prisoners attitude as any company which wants to be successful will try to be the dominant company in that field and will always be right to have the upper hand over all the other companies. As we all know India is a socialist country and all the policies which were formed kept the socialist idea in mind. That is why India does not follow capitalist ideologies and tried to promote aggressive companies. To achieve this, many companies use rather immoral techniques and this is where the anti-competitive agreements and the competition law of 2002 come into the picture. The anti-competitive agreements under the competition law is a very interesting document and it prevents the dominant companies from overpowering the other newly emerging companies. The anti-competitive agreements under the competition law is a very interesting document and it prevents the dominant companies from overpowering the other newly emerging companies.

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