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Indian Anti-Competitive Agreements: An analysis

Aravind Shivanagouda Biradar
Student of LL.M (Business and Corporate Law), School of Legal Studies, REVA University Bangalore

ABSTRACT
A legally binding agreement known as an anti-competitive agreement requires a party (often an
employee) to refrain from engaging in specific competitive activities for a predetermined amount of time
following the termination of their employment or business relationship. Anti-competitive agreements are
frequently used to safeguard a company's trade secrets, sensitive information, and other proprietary
information. The judicial system is frequently used to enforce anti-competitive agreements. A person who
violates the conditions of an anti-competitive agreement may be sued by the corporation in order to get an
injunction stopping them from carrying out the illegal conduct. The person will not be allowed to carry out
the designated activity until the injunction is removed or the anti-competitive agreement expires if it is
granted.

Anti-competitive agreements aren't always upheld, though. An anti-competitive agreement must be

reasonable in scope and duration, as well as necessary to safeguard the company's legitimate economic
interests, in order to be upheld in court. An anti-competitive agreement might not be upheld by a court if it
finds that it is too restrictive or is not required to safeguard the company's interests. Anti-competition
agreements can be a helpful tool for safeguarding a business's proprietary information and competitive
advantage overall, but it's critical to make sure they are reasonable and enforceable.

Keywords: Anti-competitive agreements, Protection of consumers, Appreciable adverse effect on

competition, E-commerce, Privacy

INTRODUCTION
The Monopolies and Restrictive Trade Practises Act, 1969 (the "MRTP Act") was repealed by the
Competition Act, which replaced it with a new framework for Indian competition law based on the
experience of competition law in some advanced jurisdictions, such as the European Union, and the
perceived shift in India's economic and business environment. The Competition Act gave the CCI a larger
role and more robust punitive powers than the former Monopolies and Restrictive Trade Practises
Commission, in addition to the fact that there were notable differences between the substantive prohibitions
of the MRTP Act and the Competition Act.

Due to a free and open market economy, the competition act prevents several discrepancies and
anomalies that could occur from unfair business practises. An example of this disparity is the use of anti-
competitive agreements. As the National Consumer Disputes redressel Commission has noted that
Exploitation of the borrower or debtor is illegal and is regarded as an unfair trading practise in all
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economies, free or otherwise. A free economy would not be an excuse to take advantage of debtors by
exploiting their basic requirements for survival. Any civilised society except perhaps one with a deregulated
free market economy cannot permit this. This article mainly focuses on Section 3 of the Competition Act
which sets out the substantive prohibitions on anti-competitive agreements, which also highlights certain
variations between its provisions and those of the Competition Act and examines a few significant CCI
rulings on matters pertaining to Section 3 of the Competition Act.

ANTI-COMPETATIVE AGREEMENTS:
Section 3 speaks about anti-competitive agreements. According to Section 3 (1), any agreements
pertaining to the manufacture, supply, distribution, storage, purchase, or control of goods or services that
have a noticeable unfavourable effect on the competition must be made within India. Section 3 (2) states that
the agreements shall be null and void with reference to this provision. The Act further differentiates the
anticompetitive agreements into two categories- The first category covers the agreements emanating from
the collective action of a group of persons engaged in the same line of business activity referred to as
‘Horizontal agreements’ Section 3 (3), second category covers the agreements emanating from actions
between enterprises or persons at different stages or levels called as ‘vertical agreements, Section 3 (4).

Horizontal agreements defined under Section 3 (3) are basically between or decision taken by any
person or association of persons or association of enterprise engaged in identical or similar trade of goods or
services. In other words, it is like cartels or concerted actions in nature, which envisages the uniformity or
harmonization of the market behaviour of a group of competing producers or suppliers. The common forms
are price-fixing, limiting production and supply, allocating share or sales quota, engage in an appreciable
adverse effect on competition. These agreements are per se anti-competitive. These agreements are always
subjected to the ‘Rule of reason1’.

For example, Uber and Ola, came up with agreements like minimum and a maximum charge of the
ride per kilometre or sharing the areas for riding cars, only Ola can cover the Koramangala and Uber can
cover the Tavarekere, or only from morning Ola and evening uber, these kinds of the agreements are the
perfect example for the horizontal agreements. Presumption of the illegality of horizontal agreements- for
certain kinds of agreements the presumption is often that they cannot serve any useful or procompetitive
purposes and therefore do not need to be subject to the ‘rule of reason test.

The following kinds are often presumed to be anti-competitive:

 Agreements regarding prices- this would include all agreements that directly or indirectly fix the
purchase or sale price.
 Agreement regarding quantities- this includes agreements aimed at limiting or controlling
production and investment.
 Agreement regarding bids- this includes tenders submitted as a result of any joint activity or
agreement.
 Agreement regarding market sharing- it includes agreements for sharing of markets by territory, type
or size or customer, or in any other way2.

1
Horizontal agreements and their types
http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/law/03._competition_law/10._horizontal_agreements_and_their_types/e
t/8133_et_et.pdf
2
Anti competitive agreements, https://www.cliffsnotes.com/file/188952886/Anti-Competitive-Agreementsdoc/
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Vertical agreements are defined under Section 3 (4) of the Act, which says that if an agreement is
entered between different levels or different stages of the chain of the products from different markets, in
respect of production, supply, distribution, storage, sale or price of or trade-in provision of services called
vertical agreements. The common forms of such agreements are:
 Tie-in arrangements,
 Exclusive supply,
 Exclusive distribution,
 Refusal to deal, and
 Resale price maintenance3.
If such an agreement causes or is likely to cause an appreciable adverse effect on the competition in
India, it shall be void. Under the ‘rule of reason’, vertical agreements are treated more leniently than
horizontal agreements. This is because vertical agreements can perform pro competitive functions. For
example, if Make My Trip leading online travel company, and Oyo online hotel booking entered into an
agreement that is working at different stages and in different markets. The confidential agreements said that,
Make My Trip will not be listing the Treebo and Fab hotels who are competitors to the Oyo in the Make My
Trip list. The Competition Commission of India in Rubtub Solutions Pvt. Ltd. And MakeMyTrip India Pvt.
Ltd. (MMT)4 held that this vertical agreement violates Section 3 (4) (d) which says that refusal to deal.

Appreciable adverse effects on the competition

The important essential aspect to call the agreement the anti-competitive agreement, it must cause an
appreciable adverse effect on the competition. Then what is the meaning of AAEC? The questions if facts
have to be decided;
 Whether there is competition
 Whether there is any adverse effect on competition and
 That adverse effect is ‘appreciable’5.

The elements that go necessary into deciding whether or not there is an appreciable adverse effect on
competition.

Anti-competitive agreements:
 Creation of barriers to new entrants in the market
 Driving existing competitors out of the market
 Foreclosure of competition by hindering entry into the market

Pro-competitive agreements:
 accrual of benefits to consumers
 Improvements in production or distribution of goods or provision of services; or
 Promotion of technical, scientific, and economic development using production or
distribution of goods or provision of services.

3
Competition Act, Section 3 (4), No.12, Act of Parliament, 2002 (India).
4
CCI Case No. 01 of 2020
5
ADI P. TALATI, NAHAR S. MAHALA, COMMERCIAL’S COMPETITION ACT, 2002 LAW, PRACTICE & PROCEDURE
42 (Commercial Law Publishers (India) Pvt. Ltd 2006).
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In Mohit Manglani v. Flipkart & ors 6 ., The Competition authority acknowledges the “pro-
competitive benefits of e-commerce platforms. E-commerce platforms, according to the Commission,
provide platforms those consumers with the ability to research costs, as well as the benefits and drawbacks
of products, and the option of having them delivered straight to their homes. Consumers can make the order
at their ease and do not have to wait for several hours to buy a product at a brick-and-mortar store. As a
result, it appears that the exclusive agreement between producers and e-commerce sites doesn't really
contribute to an Appreciable adverse effect on the market at present time.”

RULE OF REASON:
Under the Rule of Reason, the impact of competition is determined by the details of the
case, the marketplace, as well as the prevailing competition, as well as any current or potential limitation on
competition. Tata Engineering and Locomotive Co. Ltd v. Registrar of Restrictive Trade Agreement7 was
the case where the Supreme Court of India interpreted the rule of reason. It was decided that “three factors
should be considered to answer the question:
(a) What facts are unique to the business for which the restriction is imposed.
(b) What was the situation before and after the restraint was imposed,
(c) What is the essence of the limitation and what is its real and likely effect.

In the case of the rule of reason test, the pro-competitive effects are balanced with the anti-competitive
effects, and after that, if the pernicious effect is considered higher the activity is prevented by the
competitive agency of the respective jurisdiction8.

EXCLUSIVE AGREEMENTS:
Exclusive agreements are not necessarily anti-competitive because some of them have the ability to
provide value to customers, such as enhancements in service manufacturing, or the advancement of
technological, intellectual, and economic progress. However, it does not always lead to a positive outcome,
some of them raise significant issues to the competition, it is necessitating the attention of Competition
regulatory agencies.

The exclusive agreements may raise significant competition issues:

 When implemented as an exclusionary strategy to keep competitors out or obstruct entry. If there is
inadequate competitiveness either in the systems' marketplace or even the marketplace where
sellers/service providers compete would raise such concerns.
 Exclusive agreements may cause competing platforms to invest huge additional expenses to persuade
brands and service providers to drop their exclusive contracts with the big platform.
 When a platform lists only one brand/service provider in a certain product line, it can be difficult for
competitor brands/service suppliers to just get their items in front of consumers.

6
CCI Case No. 80 of 2014
7
(1977) 47 Comp Cas 520 SC
8
Dr. Souvik Chatterj, Indian Competition (Amendment) Act, 2007 Has Not Made Difference Between
Per Se Rule And Rule Of Reason 1 ICLR 60, 62-63 (2019), http://iclr.in/wpcontent/uploads/2019/08/Vol.1INDIAN-
COMPETITION-AMENDMENT-ACT-2007-HAS-NOTMADE-DIFFERENCE-BETWEEN-PER-SE-RULE-AND-RULE-OF-
REASON-.pd

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 Exclusive agreements compel users to buy things from these particular digital platforms’ websites
exclusively, regardless of the amount or availability of substitute items. it leads to limiting the
consumer’s opportunity to purchase the very same item on different digital platforms.

Mohit Manglani v. Flipkart & Ors9., various e-commerce companies alleging anti-competitive impact
arising out of the ‘exclusive agreements’ between ecommerce websites and sellers for selli selected products
exclusively on the selected portals to the exclusion of other e-portals or physical channels or through any
other physical channel. Informants alleged that such practice of entering into an exclusive agreement for the
sale and purchase of goods by way of e-commerce is violating the provisions of sections 3(1), 3(4) (b) & (c).
According to the competition commission, consumers get the alternative of purchasing the goods at their
free time and do not need to stand for a couple of hours at a stretch to buy through a brick-and-mortar retail
establishment. Consumers through e-commerce platforms get more opportunities to compare the price of the
products, the good and bad of the product, and finally get the delivery of the product at their home. As a
result, it appears that the exclusive agreement between manufacturers and e-commerce platforms does not
lead to an Appreciable adverse effect on the competition at present time.

Rubtub Solutions Pvt. Ltd. And MakeMyTrip India Pvt. Ltd. (MMT) 10 case, Treebo had been listing its
budget hotels on other OTAs platforms such as MMT, MMT asked the Treebo to enter into an ‘Exclusivity
Agreement’ with MMT.

DEEP DISCOUNTS:
Discounts result in cheaper costs and might be the result of a variety of cost reductions. Moreover,
digital platforms are well-known for prioritizing expansion of business above profitability by subsidizing
consumers through low price tactics. Platform discounts are often considered a way for platforms to build
network effects for customer engagement in the early years. Discounts, on the other hand, can be harmful to
competition if they are utilized as an exclusionary tactic by businesses with market dominance.

In an E-commerce market study conducted by the Competition Commission of India, there are three main
reasons why vendors, consumers, and providers are concerned about discounts given on or by digital
platforms:

1. Discounts are discriminative,

2. Discounts placed by platforms in the exercise of their own greater market power have a negative impact
on service providers' business,

3. Discounts drive prices below cost in some market segments, hampering the capacity of brick-and-mortar
and offline independent retailers to stay competitive.

Deep discounts may raise the significant competition issues like-

 The provider may lose the power to decide the final price to the consumers when intermediate digital
platforms give discounts beyond the price set by the service provider. According to reports, the

9
CCI Case No. 80 of 2014.
10
CCI Case No. 01 of 2020.
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platforms discounts are so large that service providers are unable to profitably match them in
traditional means of booking.
 This generates an artificial price discrepancy and pushes users to digital platforms, leading to a
greater reliance on these gateway channels by service suppliers.
 This could result in a lasting loss of value for their items, as well as a weakening of their market
position.
 Businesses commit to such schemes because they are reliant on platforms and fear a negative impact
on their search list if they do agree to such schemes.
 In certain product categories, such as cell phones and electronic/electrical equipment, e-commerce
platforms are selling products at below-cost prices, reducing brick-and-mortar merchants' ability to
compete in the market.

Meru Travel Solutions Pvt. Ltd. And M/s ANI Technologies Pvt. Ltd., M/s Uber India Systems Pvt.
Ltd11 informants alleged that opposition parties entered into agreements with drivers with deep discounting
and employed an incentive model business so that drivers are locked into one network. Further informants
alleged that such agreements aimed at foreclosing the competition,

CONCLUSION
The Competition Act of 2002, which is well-defined and specialised, replaced the MRTP Act, which
was ambiguous. This marks a number of improvements to India's competition law. The competitiveness Act
of 2002 is currently in place and has a solid base, despite being new and in its infancy. The legislation has
specifically addressed many technical issues and included them, eliminating any potential ambiguity or gaps.
The Act goes into great detail about the idea of an anticompetitive agreement. With such measures, the Act
seeks to safeguard consumer interests, promote a self-regulatory, healthy market economy, and improve the
environment for competition among market participants. As a result, the law's external aspects have been
given adequate and sound protection. Together, Sections 3(1), (3), and (4) and Section 19(3) define anti-
competitive agreements and the causes of AAEC. The act aims to define whether such agreements are to be
assumed illegal per se or whether the rule of reason is to be employed before declaring the agreement to be
illegal based on these factors.

The performance of the CCI could be improved in a number of areas, most notably in the area of
decision-making clarity and the justifications for rejecting opposing views, as is to be expected in the early
stages of any body of law. This is significant not only for the pertinent issue at hand but also to improve
public knowledge of the legal system given the early stages of development of competition law in India.

REFERENCE
1. TALATI ADI P, MAHALA NAHAR S. COMMERCIAL’S COMPETITION ACT, 2002 LAW,
PRACTICE & PROCEDURE 42 (Commercial Law Publishers (India) Pvt. Ltd 2006).

2. Dr. Souvik Chatterj, Indian Competition (Amendment) Act, 2007 Has Not Made Difference Between
Per Se Rule And Rule Of Reason 1 ICLR 60, 62-63 (2019), http://iclr.in/wp-
content/uploads/2019/08/Vol.1INDIAN-COMPETITION-AMENDMENT-ACT-2007-HAS-NOT-
MADE-DIFFERENCE-BETWEEN-PER-SE-RULE-AND-RULE-OF-REASON-.pdf

11
CCI Case No. 25-28 of 2017.
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3. Competition Commission of India, Market Study On E-Commerce In India Key Findings and
Observations,https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-study-on-e-
Commerce-in-India.pdf2
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laws/competition-law/anti-competitive-agreements/
5. Types of Anti-Competitive agreements, Horizontal, Vertical, and AAEC
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and-aaec/
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7. Anti-competitive agreements and the Competition Act, 2002
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competition-act-2002.html

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