"STANDARD OF PROOF FOR HORIZONTAL

AGREEMENTS: AN ANALYSIS "

SUBMITTED BY: SUBMITTED TO:

NAME: ADITI BHAWSAR MS. SANCHITA TIWARI
ROLL NO.: 728
SEMESTER: VII
SECTION: A

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW, RANCHI

 TABLE OF CONTENTS

INTRODUCTION .....................................................................................................3

HORZONTAL AGREEMENTS ...............................................................................4

STANDARD OF PROOF ..........................................................................................7

CONCLUDING REMARKS..................................................................................10

BIBIOGRAPHY......................................................................................................11

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 INTRODUCTION

Competition law has been growing at a phenomenal rate in recent years. Many countries of the
world have formulated their own competition laws so as to curb anti-competitive etiquette or
unfair trade practices. The competition law mainly focuses on avoiding certain activities in the
market that hurt the business or consumers or both the sectors and curb the practices violating the
ethical behaviour of the market. In India, The Competition Act, 2002 has been enacted to ensure
the sustainability of competition in the market and also consider the interests of the consumers
and also allow the participants of Indian market to trade with freedom. This law promotes the
competition between enterprises and leaves the market unbound by the manipulation of stronger
trading enterprises. Articles 38 and 39 of the Constitution provide that the State shall strive to
promote the welfare of the people by securing and protecting as effectively, as it may, a social
order in which justice – social, economic and political – shall inform all the institutions of the
national life, and the State shall, in particular, direct its policy towards securing (a) that the
ownership and control of material resources of the community are so distributed as best to
subserve the common good; and (b) that the operation of the economic system does not result in
the concentration of wealth and means of production to the common detriment. Accordingly,
Parliament had first enacted the MRTP Act thereafter, for the reasons discussed above, the
Competition Act to promote equitable distribution of wealth and economic power.

According to Fali S Nariman, competition law is all about economics and economic behaviour 1.
Economics provides a theoretical basis for the law and the tools to analyse market and have
competition within it2. An agreement includes any arrangement or understanding or action in
concert formal or informal, written or oral agreements which may not be meant to be legally
enforceable. The existence of an agreement must be established unequivocally3. While doing
business in India, parties are prohibited from executing anti-competitive agreements. Generally,
the agreements which cause or are likely to cause appreciable adverse effect on competition
("AAEC") are anti-competitive agreements. Such agreements may be horizontal or vertical. Anti-

1
Fali S Nariman, 'Law and Economics', in Vinod Dhall (edn), Competition Law Today: Concepts, Issues and Law
in Practice v (New Delhi: Oxford University Press, 2007).
2
Generally see Doern G Bruce and Stephen Wilks, Comparative Competition Policy—National Institutions in a
Global Market (Oxford: Clarendon Press, 2001).
3
In re All India Tyre Dealers Federation v Tyre Manufacturer (Case RTPE No. 20 of 2008).

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Competitive Agreements are those agreements that have their object in furtherance of or prevent,
restrict or distort competition in India.

Although the Competition Act, 2002 does not recognize the categorisation of anti-competitive
agreements into vertical and horizontal type, the language of Sub – Section (3) and (4) states that
the former deals with horizontal agreement whereas the latter involve vertical agreements.
Competition law usually places anti-competitive agreements in two categories of horizontal and
vertical agreements. The horizontal agreements are viewed more seriously than vertical
agreements. The Act doesn’t specifically use the terms horizontal agreement and vertical
agreement. However, the agreements referred in section 3(3) are horizontal while those referred
in section 3(4) are vertical agreement.

Horizontal type of agreements is that where two rival enterprises at any same stage of production
either fix prices or limit the extent of production or share markets. It is assumed that such
agreements would cause a situation of AAEC. Section 3(3) of the Competition Act provides that
certain horizontal agreements are presumed to cause an appreciable adverse effect on
competition, including cartels.

HORZONTAL AGREEMENTS

Horizontal agreements are those between competitors, i.e., entities at the same level of
distribution. Vertical agreements are those between parties on different levels of the chain of
distribution, such as between a manufacturer and a distributor, or between a wholesaler and a
retailer. Agreements through which restraints are imposed between competitors have
traditionally been denominated as horizontal agreements, and those imposed by agreement
between firms at different levels of distribution as vertical agreements. Horizontal agreements
can prompt violations of competition law because such agreements may include clauses which
restrict competition. Agreements between enterprises engaged in trade of identical or similar
products (including cartel) are presumed to have AAEC if they :

 Price Fixing: Agreements through which the companies mutually set the prices that they
want to charge in the market are called price fixing agreements. Imagine a market where four

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 firms manufacturing cement agree to sell their products at a fixed price. Although, sometimes
a slight increase in the price of each product hardly matters to a consumer; such price fixing
will ultimately generate huge profits for the colluders. Other types of price-fixing agreements
include agreements that jointly predetermine the size of profit margins, the extent of
discounts and the level of price increases.

 Limit output: There can be a scenario where competitors agree to restrict and control the
production thereby controlling the supply in the market. Output restrictions can take place
through various forms including agreements on production volumes and agreements on sales
volumes. The objective of controlling and limiting supplies is to create scarcity in the market
and subsequently raise prices in the market. Such output restriction agreements lead to dead
weight loss in the society. For example, in a US Lysine Cartel case4 , five competing Lysine
producers met and allocated the annual ‘sales volume’ quotas among themselves, they
acknowledged the provision as being of ‘vital importance to overall scheme to control the
industry.

 Share markets: Another common horizontal agreement amongst competitors is market

sharing. These are also called market allocation and market division agreements. Under such
agreements, the competitors agree to divide amongst themselves specific territories,
customers, or products. Such market allocating actions are restrictive in nature because they
leave no room for competition in the market. For example, an agreement amongst
competitors to allot certain customers to particular sellers and to allocate or divide sale
territories would be anticompetitive.

 Indulge in bid-rigging or collusive bidding: Bid rigging takes place when bidders collude
and keep the bid amount at a pre-determined level. Such pre-determination is by way of
intentional manipulation by the members of the bidding group. Bidders could be actual or
potential ones but they collude and act in concert. Bid rigging is the way that conspiring
competitors effectively raise prices where purchasers often various departments and
authorities of the Government acquire goods or services by soliciting competing bids. In Re,

4
US v. Andreas, 216 F.3d. 645, 668 (7th Circuit 2000).

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 Aluminium Phosphide Tablets Manufacturers5, the CCI recognized that collusive tendering
takes many forms. At its simplest, the firms simply agree to quote identical prices, the hope
being that in the end, each will receive its fair share of orders. This kind of tendering is
normally not resorted to because it is extremely suspicious and is most likely to attract the
attention of competition authorities. This is also the crudest form of bid-rigging

In the case of Builders Association of India v. Cement Manufacturers' Association & Ors.6
(the "Cement case") the CCI found that 11 cement manufacturers had colluded to control and
limit production and supply of cement in India, and had acted in concert to maintain prices of
cement at a high level, and that the actions of the cement manufacturers, together with the
Cement Manufacturers Association ("CMA"), satisfied the definition of a "cartel" under the
Competition Act. The CCI based its finding upon the parallel movement of prices of cement in
different geographical zones in India (despite a difference in the cost of production for each
company), collection and distribution of data regarding production and capacity by the CMA to
its members, and evidence of a concerted restriction in supply of cement at given points in time.
Based upon the statements of executives from certain smaller cement companies who stated that
they followed price trends set by the larger cement companies, the CCI found that the cement
manufactures had indulged in price signalling practices resulting in coordination in prices across
cement manufacturers.

The CCI imposed a fine of an aggregate amount of about Rs. 6300 crores (approximately US$1.2
billion at an exchange rate of US$1= Rs. 50) upon the cement manufacturers in question, which
amounted to 50% of their profits for the duration of the cartel after 2009, when the Competition
Act came into effect.

5
Re, Aluminium Phosphide Tablets Manufacturers, 2012 Comp LR 753(CCI).
6
Cement Cartel Case, CompLR 629 (CCI).

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 STANDARD OF PROOF

Generally, horizontal agreements are dealt more sternly than the vertical agreements as, prima
facie, a horizontal agreement is more likely to affect competition than a vertical agreement. The
presumption is that anticompetitive horizontal agreements do not serve any pro-competitive
purposes and hence are per se illegal. Horizontal agreements are presumed to have adverse effect
on competition. In many jurisdictions, hard core cartel conduct is per se illegal because of its
pernicious effect on competition and lack of redeeming economic value. This provision of per se
illegality is rooted in the provisions of the U.S. law and has a parallel in most of the modern
legislations on the subject. This means that no argument can justify a cartel agreement and no
proof of harm is required. Harm is presumed, because this type of agreement always raises prices
and never provides any significant benefits to consumers.

The existence of a cartel may be proved by direct evidence, indirect (circumstantial) evidence, or
a combination of both. Direct evidence includes written agreement among cartel members,
statement of a cartel member who attended meeting and reached an agreement with competitors,
a memorandum written within a company to report a meeting with competitors where an
agreement was reached, records of telephone conversations with competitors, an electronic mail
conversation or a statement of a person who was approached by the cartel to join it. Generally,
direct evidence is scarcely found. Cartel members tend to conceal their activities and agree orally
instead of entering into an agreement.

Circumstantial evidence may be useful in supporting direct evidence. It may also prove the
existence of a cartel by itself, but it is important to be careful in interpreting indirect evidence. A
Standard of Proof is a credible circumstantial evidence in the absence of direct evidence.
Standard of Proof simply means, Beyond reasonable doubt, or Preponderance of probabilities, or
Some standard falling in between.

Finding evidence in cartel cases is tough and most of the times the investigation begins with a
‘smoking gun’ and has to end establishing a case knitting circumstantial evidences together to
prove the existence of cartel. There can be cases where coordinated behaviour of the companies
may impede competition even without any explicit agreement. For instance, conscious price
parallelism implies a practice whereby sellers in a given market raise their prices within a short

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time without any explicit agreement amongst each other. Some jurisdictions have adopted a
''parallelism plus'' approach in cases of price parallelism. This implies that the existence of ''plus
factors'' beyond merely the firms’ parallel behaviour needs to be shown in order to prove the
anticompetitive conduct The CCI, in cartel cases, heavily relies on circumstantial evidence to
prove its case since obtaining direct evidence has proved to be challenging.

To prove the existence of a cartel on the balance of probabilities, the CCI would merely have had
to show that it is more likely than not that such an agreement exists. In comparison, if the CCI
adopted the relatively higher (beyond reasonable doubt) standard of proof, it would have had to
ensure that its decision leaves no reasonable doubt as to the existence of such an agreement. A
review of CCI’s decisions in cartel related cases indicates that, it started its enforcement
endeavours by adopting the relatively higher ''beyond reasonable doubt'' standard of proof but
over the years it seems to have veered towards the ''balance of probabilities'' test. Balance of
probabilities and liaison of intention test – can be established with the help of indirect and
circumstantial evidence7.

In two of the early cases8, the CCI categorically stated that existence of an agreement must be
established 'unequivocally', mirroring the beyond reasonable doubt standard. Immediately
thereafter, the CCI advocated that the applicable standard of proof for establishing the existence
of an 'agreement' is on the balance of probabilities9. In both sets of decisions though, in the
absence of direct evidence, the CCI has relied on circumstantial evidence- economic and
conduct-based, to reach its decision on the existence of a cartel agreement.

The CCI often examines economic evidence, such as the nature of the industry, the number of
players in the market, the level of market concentration, parallel movement of prices, trends in
production and dispatch, capacity utilization, cost structures, and variations in profit margins
across firms, while carrying out cartel inquiries. CCI also relies on conduct based evidence,
including evidence of meetings between competitors, similar or identical bidding prices,
membership of trade associations, history of cartelization, and information exchange.

7
Re: suo‐motu case against LPG cylinder manufacturers, 2012 CompLR 197(CCI).
8
In re All India Tyre Dealers Federation v Tyre Manufacturers, MRTP Case: RTPE No. 20 of 2008. And Neeraj
Malhotra v Deutsche Post Bank Home Finance Limited & Ors, Case No. 5/2009.
9
Shailesh Kumar v M/s Tata Chemicals Ltd & Ors, Case No. 66 of 2011., Reference Case No. 01 of 2012. & In Re
Alleged Cartelization of steel producers, Case No. RTPE 09/2008.

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In the case of In Re High Fructose Corn Syrup10, Judge Posner set out the standard of proof
requirement under the Sherman Act as under:

The evidence upon which a plaintiff will rely upon will usually be and in this case of
two types, economic evidence suggesting that the defendants were not in fact
competing, and noneconomic evidence suggesting that they were not competing
because they had agreed not to compete. The economic evidence will in turn
generally be of two types, and is in this case: evidence that the structure of the
market was such as to make secret price fixing feasible (almost any market can be
cartelized if the law permits sellers to establish formal, overt mechanisms for
colluding, such as exclusive sales agencies); and evidence that the market behaved in
a non-competitive manner.

In most of the jurisdictions horizontal agreements are presumed to have an adverse effect on
competition. Due to this presumption, the focus of the competition authority is on proving the
existence of the anticompetitive arrangement itself rather than demonstrating the anticompetitive
impact of the cartel on the market. As per ICN report11, the fight against cartels is a legally and
practically demanding task due to the following reasons:

a) Cartels are secretive about their illicit behaviour, and therefore agencies have to undertake
great efforts to detect concealed cartels.
b) Competition authorities need extraordinary powers and skills to collect sufficient evidence to
mount a viable case against sometimes uncooperative defendants.
c) In the cartel area competition authorities operate sophisticated leniency programmes to
destabilise such conspiracies, which is practically difficult to implement.
d) The investigation of international cartels tests the limits of competition authority
jurisdictional reach.
e) Last but not least, the growing trend to criminalise cartel behaviour obliges many agencies to
work to a particularly high standard of procedure and proof.

10
In re High Fructose Corn Syrup Antitrust Litigation., 295 F.3d 651 (7th Cir. 2002).
11
International Competition Network, ‘Defining Hard Core Cartel Conduct Effective Institutions Effective Penalties’
Building Blocks for Effective Anti-Cartel Regimes, Vol.1 (2005).

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 CONCLUDING REMARKS

Competition law is the main tool in the hands of government to create competition in the market
and to eliminate practices which have an anti competitive effect. However the achievement of
such objectives is not an easy task. Therefore in order to ensure the effectiveness of competition
law and to achieve its objectives, criminalization of competition law is suggested. The criminal
law tries to establish that a criminal act will not end as a profitable enterprise but it would be an
ill bargain to the offender. The criminal law by imposing an adequate penalty on the offender as
a consequence of his crime, seeks to create an artificial counter motive to avoid the path of
crime. To this end it inflicts physical evils on the offender, which vary in proportion to the
gravity of the offence or magnitude of its temptation. Such evils are imprisonment, fine and
confiscation of property etc. In order to ensure an effective criminal law framework for
competition law enforcement, it is necessary to address the practical concerns discussed above.

With respect to the proof of anti competitive practices. This is because the standard of proof
required in a criminal case is very high compared to the proof required in a civil case. In a civil
case the penalty can be imposed on a violator on the basis of balance of probability; however in
criminal case in order to impose sanction the case has to be proved beyond any reasonable doubt.
Hence in order to impose a criminal sanction in a competition law case, the guilt of the accused
should be proved beyond any reasonable doubt. However it is a herculean task to prove the guilt
of the accused in a competition law case12. This is because compared to a traditional crime the
competition law crimes are carried out by business experts in the four walls of their business
house and therefore does not leave any evidence against them. Moreover in competition law
cases investigation is done by either commission itself or an agency like director general 13
appointed by the commission. It is to be noted that the members of the commission or such other
agency engaged in investigation generally are not trained in investigation of crimes. Thus it can
be argued that the collection of evidence and proving the guilt of an accused in a criminal
competition case is very difficult.

12
Dr. Péter Mezei, “Wanted: Antitrust Criminals”: Criminalization of Cartel Law with A Special View to Hungary
available at www.bpugyvedikamara.hu/download.php?id 120560 (last visited September 30, 2013) 29 See §16
Competition Act, 2002.
13
See Section16 Competition Act, 2002

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 BIBIOGRAPHY

A. STATUTES

1. MRTP act,1969.
2. Sherman Antitrust Act of 1890
3. The Competition Act, 2002.

B. BOOKS

1. Singh Avtar, Competition Law, 2020.

2. Vahini Versha, Textbook on Indian Competition Law, 2020.

C. CASE LAWS
1. Builders Association of India v. Cement Manufacturers' Association & Ors. (the "Cement
case"), CompLR 629 (CCI).
2. In re All India Tyre Dealers Federation v Tyre Manufacturer (Case RTPE No. 20 of 2008).
3. In re All India Tyre Dealers Federation v Tyre Manufacturers, MRTP Case: RTPE No. 20 of
2008.
4. In Re Alleged Cartelization of steel producers, Case No. RTPE 09/2008.
5. In re High Fructose Corn Syrup Antitrust Litigation., 295 F.3d 651 (7th Cir. 2002).
6. Neeraj Malhotra v Deutsche Post Bank Home Finance Limited & Ors, Case No. 5/2009.
7. Re, Aluminium Phosphide Tablets Manufacturers, 2012 Comp LR 753(CCI).
8. Re: suo‐motu case against LPG cylinder manufacturers, 2012 CompLR 197(CCI).
9. Shailesh Kumar v M/s Tata Chemicals Ltd & Ors, Case No. 66 of 2011., Reference Case
No. 01 of 2012.
10. US v. Andreas, 216 F.3d. 645, 668 (7th Circuit 2000).

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D. ARTICLES

1. Dr. Péter Mezei, “Wanted: Antitrust Criminals”: Criminalization of Cartel Law with A
Special View to Hungary available at www.bpugyvedikamara.hu/download.php?id 120560
(last visited September 30, 2013) 29 See §16 Competition Act, 2002.
2. Fali S Nariman, 'Law and Economics', in Vinod Dhall (edn), Competition Law Today:
Concepts, Issues and Law in Practice v (New Delhi: Oxford University Press, 2007).
3. Generally see Doern G Bruce and Stephen Wilks, Comparative Competition Policy—
National Institutions in a Global Market (Oxford: Clarendon Press, 2001).
4. International Competition Network, ‘Defining Hard Core Cartel Conduct Effective
Institutions Effective Penalties’ Building Blocks for Effective Anti-Cartel Regimes, Vol.1
(2005).

E. WEBLIOGRAPGY

1. Manupatra.com
2. Scconline.com
3. https://www.cci.gov.in/sites/default/files/presentation_document/PKSinghPresen041011.pdf?
download=1
4. https://www.dlapiper.com/en/us/insights/publications/2013/11/indias-competition-act-takes-
shape-with-enforcem__/

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