Anti Competitive Agreements and whether Consumers can be a Party to such Agreements?
The ideal market is the one in which various market participants are independent and act as competitive restrain on each other. This economic liberty of market participants is sine qua non for preserving free and unfettered competition in any market. Some time the market participants with an objective to make more money instead of competing with each other on merits may enter into agreements to restrict competition. The words of Adam Smith that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices” are still applicable and to some extent true even today. Section 3 of the Competition Act, 2002 (hereinafter referred as the Act) seeks to prohibit such agreements.
This article attempts to study and analyze various provisions related to anti competitive agreements contained under the Act. The author also deals with the issue as to whether consumers can be a party to anti competitive agreements.
2. Anti Competitive Agreements
Section 3 of the Act prohibits and also declares the agreements between two or more enterprise or person or association of persons, which have an appreciable adverse impact on the competition as void. The section, further categorizes agreements into two categories, namely –
2.1 Horizontal Agreements
These kinds of agreements are known as horizontal agreements because the parties to the agreement are at the same level of production in the same market. According to Section 3(3) certain agreements between enterprises, decisions by associations of enterprise including cartels engaged in identical or similar trade of goods or provision of services are presumed to have an appreciable effect on the competition, 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,
These kinds of agreements are per se illegal and it is not necessary to show that the agreement in the issue is anti-competitive or not. A typical example of anti competitive horizontal agreement would be agreement between two manufacturers of coal that they will not compete on price with each other.
2.2 Vertical Agreements
Vertical agreements are those agreements which are amongst enterprises or persons at different stages or levels of the production chain in different markets. These agreements are not per se illegal and in order to establish that they are anti-competitive it must proved that such agreement causes or is likely to cause an appreciable adverse effect on competition in India.
The judicial pronouncements in US have evolved the “rule of reason” approach to ascertain whether a vertical agreement has adverse effect of competition. The rule of reason demands a proper inquiry whether the challenged agreement is one that promotes or the one that suppresses the competition. Agreements are considered illegal only if they result in unreasonable restrictions on competition. The Act on the other hand as such does not define the term appreciable effect on competition but under Section 19 (3) provides some factors all or any of which may be considered while determining whether an agreement has an appreciable adverse effect on competition. These factors are -
a) creation of barriers to new entrants in the market;
b) driving existing competitors out of the market;
c) foreclosure of competition by hindering entry into the market;
d) accrual of benefits to consumers;
e) improvements in production or distribution of goods or provision of services;
f) promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services.
A careful reading of Section 19 (3) reveals that this sub-section performs the same function as performed by “rule of reason” approach while analyzing the effect of an agreement on the competition. Under section 19 (3) clause (a) to (c) analyses the anti-competitive effects and clause (d) to (f) on the other hand analyze the pro-competitive effects of an agreement on the competition within India.
3. Whether Consumers can be party to Anti Competitive Agreements
The Section 3(1) of the Act inter alia prohibits an agreement between an enterprise and a person causing or is likely to cause an appreciable effect on competition within India. As the definition of person under the Act includes an individual, it leads to possible interpretation that consumers can be a party to anti-competitive. This proposition contradicts with the whole philosophy of competition law behind prohibiting anti competitive agreements, but still the Act nowhere negates this proposition on the other hand seems to support it.
If this preposition is answered in affirmative, it may have multi dimensional adverse implications on contractual relations. For instance a consumer will be able to avoid a contract if subsequently such contract is proved to be anti competitive. This not something which the Competition Commission doesn’t the power to do, in fact the Commission in the case of Belarie Owners Association v. DLF Ltd. & HUDA has directed DLF to modify unfair conditions in a properly entered contract. However the rationale behind this decision was that by imposing such unfair terms the DLF has abused its Dominance and not on the ground of such agreement being anti-competitive.
The issue as to whether consumers can be party to anti competitive agreements was raised before Competition Commission in the case of Yashoda Hospital and Research Centre Ltd. v. India Bulls Financial Services Ltd. (IFSL). The Commission held that for application of Section 3 there must be two or more enterprises and there must be an agreement between them. While adjudging the same issue the Gujarat High Court in case of Jai Balaji Industries Ltd. & Ans. v. Union of India has observed that the Consumers have no role to play in anti-competitive agreements. Thus, after these judicial pronouncements it is well established that a consumer can’t be party to any anti competitive agreement as prohibited under Section 3 of the Act.
The regulation of anti competitive agreements by the Act has perceptible loopholes and could be strengthened further. Moreover, the Act has some inherent ambiguities which must be rectified. However, if taken as a whole the Act is good step in the direction of preserving free and fair trade in India and efforts of Government for creating a effective legal framework through which anti competitive behaviour of firms can be easily detected and prevented from hindering the competition certainly deserves appreciation.
# See Adam Smith, “The Wealth of Nations” (1776)
# 2011 CompLR 0239 (CCI)
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