The Competition Act, 2002 was established to promote and sustain an enabling competition culture through engagement and enforcement that would inspire business to be fair, competitive and innovative; enhance consumer welfare; and support economic growth.
The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (mergers, amalgamations and acquisitions) with a view to ensure that there is no adverse effect on competition in India.
An agreement may be horizontal that is between enterprises, persons, associations, etc. engaged in identical or similar trade of goods and services, or the agreement may be vertical such as amongst enterprises or persons at different stages or levels of the production chain in different markets.
Cartelization is a type of horizontal agreement that shall be presumed to have appreciable adverse effect on competition under Section 3 of the Act.
The Act under section 2(c) defines Cartel as- “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
The agreements between enterprises (including a person, a government department and association of persons/ enterprises) to not to compete on price, product including goods and services or customers are known are Cartels. The objective behind cartel is to raise price above competitive levels, resulting in injury to consumers and to the economy as it results in higher prices, poor quality and less or no choice for goods and services.
Existence of an agreement is necessary for cartelization. The agreement can be explicit or implicit for fixing prices, limiting production and supply, or to engage in collusive bidding or bid-rigging in or more markets. In the Rajasthan Cylinders case, the Supreme Court held that, despite identical prices by bidders and a contemporaneous trade association meeting, there was no collusive bidding. The cause for parallel pricing was the nature of the market and not the collusion.
Conditions for formation of Cartels:
- High concentration- few competitors
- High entry and exit barriers
- Homogeneity of products
- Similar production costs
- Excess capacity
- High dependence of the consumers on the product
- Active trade association
In Flashlight sou motu Case, the Court held that there was no violation of Section 3 of the act even when the information had been exchanged between the competitors. The commission in this case noted that as there is no fixation of prices in their agreement, thus, the presumption of appreciable adverse effect on competition (AAEC) did not apply.
How does cartelization work:
Cartels usually works in secrecy. The members of cartel, by and large, seek to camouflage their activities to avoid detection by the Commission. If any member of cartel agreement cheats they temporarily cuts the price to take the business away or can isolate the cheating member.
If a member of a cartel is found to have sold more than its allocated share, it would have to compensate the other members.
Inquiry into Cartels by Commission:
Section 19 of the Act gives power to Commission to inquire into any alleged contravention of the provision to section 3 of the Act, which inter alia proscribes cartels. If the Commission is satisfied that there exists a prima facie case of cartel then it shall direct the Director General to cause an investigation and furnish a report. The Director General, for the purpose of carrying out investigation, is vested with powers of civil court besides powers to conduct ‘search and seizure’. The Commission also has the powers vested in a Civil Court under the Code of Civil Procedure in respect of matters like summoning or enforcing attendance of any person and examining him on oath, requiring discovery and production of documents and receiving evidence on affidavit.
Extraterritorial Jurisdiction of Commission:
Section 32 read with the Section 19(1) of the Act, empowers the Competition Commission of India (CCI) to deal with the extraterritorial jurisdiction, thereby giving the power to inquire to any cartel which operates outside India or any foreign company forming a cartel within India.
Powers of the Commission:
The Competition Commission is empowered to inquire into any cartel, and to impose on each member of the cartel. It can impose a penalty of up to three times of its profit for each year of the continuance of such agreement or 10% of its turnover for each year of continuance of such agreement, whichever is higher. In case an enterprise is a ‘company’, its directors/officials who are guilty are also liable to be proceeded against.
Moreover, the Commission has the power to pass inter alia any or all of the following order under Section 27 of the Act:
- The commission can direct the enterprises concerned to modify the agreement.
- It can also direct the enterprise to abide by such order as the commission may pass and comply with directions, including payment of costs, if any.
- It can direct the parties to a cartel agreement to discontinue and not to re-enter such agreement;
- The Commission can pass such order and directions as it may deem fit.
Interim Order by Commission:
The Section 33 of the Act says that during the pendency of an inquiry the Commission may temporarily restrain any party from continuing with the alleged contravention, until conclusion of the inquiry or until further orders without giving notice to such party, where it deems necessary.
To appeal an order or decision of the Commission or the National Company Law Appellate Tribunal (NCLAT), the act prescribes a period of 60 days from the date of receipt of the impugned order.
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