Many countries have enacted their own competition laws in order to prevent anti-competitive behavior and unfair trade practices. The competition law is primarily concerned with preventing specific market activities that harm businesses, customers, or both, as well as curbing market behaviors that violate market ethics.
The Competition Act, 2002 was created in India to maintain the long-term viability of market competition while also taking into account the interests of consumers and allowing market participants to trade freely. This rule encourages entrepreneurial competition and removes the market’s shackles from the manipulation of larger trading firms.
The main objectives of the act:
- To prevent practices having adverse effect on competition
- To promote and sustain competition in markets
- To protect the interests of consumers
- To ensure freedom of trade
Anti-Competitive Agreements are classified mainly into two types:
- Horizontal Agreements, Section 3(3) – cartel, bid-rigging etc.: between two or more enterprises operating at same level of business.
- Vertical Agreements, Section 3(4) – exclusive supply/distribution, tie-in arrangement, Resale price maintenance, refusal to deal etc.
- Setting the price of a purchase or a transaction, either directly or indirectly.
- Limit or regulate production, supply, market, technological progress, investment, or service provision.
- The market is divided into shares based on geographical location.
- Bid rigging.
- Horizontal Agreements are subject to the ‘shall presume’ rule.
- The person or business bears the burden of evidence.
- Penalty: Up to three times the contravening enterprise’s profit for each year of the agreement’s continuation, or 10% of its average turnover, whichever is greater.
Case No. 29/2010 (CCI order dated June 20, 2012 was remanded back to CCI due to a violation of natural justice principles by COMPAT order dated December 11, 2015): The Cement Manufacturers Association (CMA) and 11 cement manufacturers were found to have formed a cartel, regulated prices and limiting cement output and supply. The informant was the Indian Builders’ Association. The CCI’s rulings of 20.06.2012 and 31.08.2016, which levied a penalty of over Rs. 6,714 crores, are currently pending before the NCLAT.
Vertical agreements are agreements between different levels of the manufacturing and distribution chain, such as Manufacturer-Dealer, Dealer-Supplier, Wholesaler-Retailer, and so on.
Under the Competition Act, the following agreements are prohibited:
- Tie-in arrangements
- Exclusive supply agreement
- Agreement on exclusive distribution
- Refusal to make a deal
- Maintenance of the resale price
Honda Siel Cars ltd. vs. Shamsher Kataria (Case No.03/2011). CCI levied a penalty of over Rs.2500 crores on 14 major vehicle manufacturers for violating the Competition Act, 2002, in the first major order issued under section 3(4) of the Act. It was said that all major vehicle manufacturers forbade their spare parts and diagnostic instruments from being sold on the open market, forcing customers to purchase them from their authorised dealers. While passing the detailed order, the CCI relied on several judgements. Some automobile manufacturers have filed writ petitions in various High Courts in an attempt to halt the Commission’s and DG’s activities, but to no avail. On the merits, the Appellate Tribunal upheld the CCI’s decision. The case is currently ongoing in the Supreme Court.
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