top of page
  • Writer's pictureRitik Agrawal

APPRECIABLE ADVERSE EFFECT ON COMPETITION IN INDIA - CONTOURING THE ISSUE

Updated: Jan 16

Author: Riya Arora

Vivekananda Institute of Professional Studies


INTRODUCTION

India's efforts to liberalize the economy and pursue economic globalization led to the passage of the Competition Act of India in 2002. Although the Act aims to restrict such behaviors that significantly negatively impact consumers, it does not intend to outlaw market competition.

Appreciable Adverse Effect competition in India (AAEC). The legislation also encourages free and fair competition in the marketplace, safeguards the rights of consumers, and guarantees trade freedom in Indian marketplaces.

One of the key goals of the Competition Act is to control such actions that result in AAEC. The following are the possible causes of AAEC:

· Anti-competitive agreements

· Combinations

· Dominance abuse

Any arrangement, understanding, or joint action, whether formal, in writing, or intended to be enforced by legal action, falls under the term of "agreement" as stated in Section 2(b) of The Competition Act, 2002. This term is broad and covers not just an agreement in the traditional sense as defined by the Indian Contract Act of 1872, but also any arrangement, understanding, or coordinated activity between two or more parties, whether formal or in writing, whether or not it is enforceable by law, and any action taken alone or in concert with another.

COMPETITION ACT: ANTICOMPETITIVE AGREEMENTS

Any agreement regarding the manufacture, distribution, storage, purchase, or control of goods or the provision of services that has or is likely to have a materially adverse effect on competition inside India is considered an anti-competitive arrangement under Section 3(1).

Encouraging competition in order to advance the welfare and interests of consumers is the fundamental tenet of India's competition law, which includes a section addressing anti-competitive agreements. In addition, Section 3(2) specifies that any agreement entered into by a firm in violation of the Act's general prohibitions shall be regarded as null and void.

They are of two types according to the competition act (2002)

1. Horizontal Agreements - These are contracts that typically develop between two or more businesses that compete in the same market for production, supply, etc. Examples of horizontal anti-competitive agreements would be an agreement between producers of a particular commodity not to offer a given product at a cheaper price or to a particular market.

2. Vertical Agreements: According to section 3(4) of the act, vertical agreements are those that are made between businesses or individuals at various stages or levels of production in relation to the production, supply, distribution, storage, sale, or price of goods, among other things.

The judgement rendered by CCI on August 23, 2021, is a recent illustration of vertical agreement. Maruti Suzuki India Ltd. was fined Rs 200 crore by CCI for preventing dealers from providing discounts to customers. It was discovered that dealers had a "discount control policy" in place that prohibited them from giving consumers discounts or freebies in excess of what the Company had approved.[1]

APPLICABILITY OF CCI,2002

When assessing whether an agreement contains an AAEC under Section 3 of the Act, the CCI takes into account all or any of the elements listed under Section 19(3) of the Act:

i)creating obstacles for potential competitors to enter the market;

ii) preventing viable competitors from entering the market;

iii) eliminating competition by preventing entry into the market

iv) accruing customer compensation;

v) Fostering technological, scientific, and economic development through manufacturing;

vi) advances in building, giving out, or providing services

Section 19 states that the CCI must give no consideration to any of the aforementioned criteria (3). In numerous adjudications, the CCI has assessed the claims and evidence in light of the elements of section 19(3) as stated above. But the CCI decided in Automobiles Dealers Association v. Global Automobiles Limited & Another[2] that it would be prudent to carefully examine a course of action in the context of all the elements listed in Section 19. (3)

WHEN AAEC IS ALREADY ASSUMED

If the agreement complies with section 3(3) of the Competition Act, 2002, there is a presumption that the arrangement will have an appreciable adverse effect on competition. It is assumed that the agreement is having an appreciably unfavourable effect on competition under any provision of this section, according to sub-section 3 of section 3 of the Competition Act. The onus of proving otherwise will be placed on the businesses or parties that entered into the arrangement, shifting the responsibility from CCI to those who did. Even if there is no tangible proof demonstrating a significant harmful effect, it will be assumed to exist.

As a result, until opposing evidence is presented to disprove the fact, the courts are compelled to consider it proven, making this presumption rebuttable. However, this is insufficient because these agreements aren't regarded as conclusive evidence. If the parties to the agreement provide sufficient evidence to refute the presumption, the Competition Commission must take these factors into consideration and determine whether any or all of them are established. If the CCI evidence supports any or all of the factors listed in section 19(3), the agreement is once more assumed to have AAEC until proven otherwise.

The question before the Supreme Court of India in Excel Crop Care Limited v. Competition Commission of India[3] was whether the four manufacturers of Aluminium Phosphide Tablets had formed a cartel by entering into anti-competitive agreements among themselves because these manufacturers cited exact same prices for their products. The Apex Court relied on circumstantial evidence given the nature of these organisations in the absence of any concrete evidence of the agreement. The chemical sector has a very small number of manufacturers, and despite having various manufacturing costs, geographic locations, and profit margins, these manufacturers have given the exact same prices. The Court found the appellants guilty in accordance with Section 3 of the Competition Act as a result.

There is no presumption of AAEC in section 3(4), hence it is the responsibility of CCI to demonstrate that the competition has been adversely affected on the basis of the grounds listed in section 19(3) of the competition act.

CONCLUSION

The act intends to stop parties with AAEC in India from acting unethically.

Nevertheless, unless the parties conducting commerce uphold the act's principles, this goal will not be realized. It is imperative for parties to avoid including any anti-competitive language in their contracts when conducting business in India. There must be fair competition for the market to operate well. Businesses should take the initiative to address any anti-competitive provisions in their current agreements. Employees can be made aware of the negative effects of anti-competitive agreements as well as how to prevent them. Experts can always lead people and companies in the direction of a safer solution if they are needed.

REFERENCES

  1. Beverley, Lucy. "Stock market event studies and competition commission inquiries." (2008).

  2. Kovacic, William E., and Marc Winerman. "Competition Policy and the Application of Section 5 of the Federal Trade Commission Act." Antitrust Law Journal 76.3 (2010): 929-950.

  3. Graupner, Frances. "Commission decision-making on competition questions." Common Market L. Rev. 10 (1973): 291.

  4. Lang, John Temple. "Procedure of the Commission in Competition Cases, The." Common Market L. Rev. 14 (1977): 155.

  5. Inderst, Roman, and Marco Ottaviani. "Competition through commissions and kickbacks." American Economic Review 102.2 (2012): 780-809. [1] https://www.thehindu.com/business/cci-fines-maruti-suzuki-200-crore/article36067092.ece [2] https://indiankanoon.org/doc/118499818/ [3] https://indiankanoon.org/doc/156507507/

307 views0 comments

Comments


bottom of page