ANB Module_1

MODULE 1

ANTI-COMPETITIVE AGREEMENTS

1.1 INTRODUCTION TO ANTI-COMPETITIVE AGREEMENTS

Markets are undoubtedly one of the most powerful entities that mankind has ever seen.
Historically, any other seat of power that has tried to compete with markets, has lost in face
of the reigning power of the latter. The flip side of this immense force of the market is that, if
left unchecked, it will lead to coercive monopolies and plethora of problems that arise due to
the concentration of unbridled power.

Regulation seems to be the panacea for this problem. Competition law in India, which is a
branch of economic law, is essentially a balanced compromise of capitalistic market ideas of
encouraging competitiveness with the need for the regulation of the same and State
intervention through such laws is, more often than not, a necessary evil in order to create and
maintain a level playing field in the Markets. The Competition Act, enacted in 2002 replaced
the Monopolistic and Restrictive Trade Practice Act, 1969, on the advice of the Raghavan
committee which opined that the latter was an outdated legislation and India must enact a new
law in order to equip itself to address the liberalization policy effectively and promote
competition in the Indian market. In the view of the then Finance Minister, “The MRTP Act
has become obsolete in certain areas in the light of international economic developments
relating to competition laws. We need to shift our focus from curbing monopolies to
promoting competition. The Government has decided to appoint a committee to examine this
range of issues and propose a modern competition law suitable for our conditions.” This led
to the formation of an expert committee, and finally in 2002, a legislation that solely sought to
address competition issues in the market was enacted.

While one end of the market spectrum has a situation of a monopoly, ( a state of market
wherein there is only person or entity that has access and control over all the market
resources), the other end of the spectrum is a situation of perfect competition ( a state wherein
there is a large number of buyers and sellers, who share perfect symmetry of information and
lack of barriers to enter into the market). Most competition law regimes, however, aim to
balance the market between both these extremes.

The regulation of anti-competitive agreements is one of the principal aims of most
competition law regimes across the globe. These agreements are undesirable as they seek to
artificially manipulate the market forces for individual profiteering. A perusal of competition
law regimes in most countries envisage the regulation/prevention of three major behaviours
by market players. Anti-Competitive agreements, Abuse of Dominance and Mergers. Anti-
Competitive Agreements under the Competition Act, 2002 seeks to address those agreements
which have a potential of restricting, distorting, supressing, reducing or lessening competition.

This Section module deals with the first kind of anti-competitive behaviour, i.e., anti-
competitive agreements as per Section 3 of the Competition Act, 2002. This module is
branched out into two major parts. Part 1.2 aims to lay down a statutory overview of the
provisions relating to Anti-Competitive Agreements as laid down in the Competition Act of
2002. This part also lists the three essential ingredients of an anti-competitive agreements and
discusses them in considerable depth. Part 1.3 of the module discusses the two broad
categories of Anti-competitive Agreements, i.e. horizontal and vertical. It further discusses
the various types of horizontal agreements and vertical agreements. It has also dealt with
issues of cartels and leniency at depth. The final part of this module, 1.4, shall address the
common penalties that are applicable in the cases of contravention of Section 3.

1.2 A STATUTORY OVERVIEW

Section 3(1) of the Competition Act, in trying to define anti-competitive agreements, states
that “No enterprise or association of enterprises or person or association of persons shall
enter into any agreement in respect of production, supply, distribution, storage, acquisition
or control of goods or provision of services, which causes or is likely to cause an appreciable
adverse effect on competition within India”

A plain examination of the above definition demonstrates that there are three major
requirements in order to establish the presence of an anti-competitive agreement. They are:

a) That there be there should be a person or enterprise involved.
b) That there must be an agreement between such enterprises and/or persons.
c) That such agreement must cause an appreciable adverse effect on competition.

1.2.1 Definitions of ‘Person’ and ‘Enterprise’

Section 2(l) of the Competition Act lays down the definition of ‘Person’ for the purposes of
this Act. As per 2(l) a person includes individual, a Hindu undivided family, a company/
firm; an association of persons or a body of individuals, statutory corporations, body
corporate incorporated by or under the laws of a country outside India, co-operative societies,
local authorities and other artificial juridical persons.1

Further Section 2(h) defines as “Enterprise” as a “person or a department of the
Government, who or which is, or has been, engaged in any activity, relating to the
production, storage, supply, distribution, acquisition or control of articles or goods, or the
provision of services, of any kind, or in investment, or in the business of acquiring, holding,
underwriting or dealing with shares, debentures or other securities of any other body
corporate, either directly or through one or more of its units or divisions or subsidiaries,
whether such unit or division or subsidiary is located at the same place where the enterprise
is located or at a different place or at different places, but does not include any activity of the
Government relatable to the sovereign functions of the Government including all activities
carried on by the departments of the Central Government dealing with atomic energy,
currency, defence and space”2

As per Section 3, any of the above-mentioned entities are capable of entering into anti-
competitive agreements and therefore can be parties to anti-competitive behaviour. The
entities include natural persons, firms, associations, body corporates that are incorporated
outside India, government bodies and other corporations. It has to be noted that Section 3 has
a very expansive understanding of who can be party to such an agreement, and that such an
expansive and inclusive definition is peculiar to Section 3. Therefore, it appears to be the

1Section 2(l) of the Competition Act, 2002. “person” includes— (i) an individual; (ii) a Hindu undivided
family; (iii) a company; (iv) a firm; (v) an association of persons or a body of individuals, whether incorporated
or not, in India or outside India; (vi) any corporation established by or under any Central, State or Provincial Act
or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956); (vii) any body
corporate incorporated by or under the laws of a country outside India; (viii) a co-operative society registered
under any law relating to co-operative societies; (ix) a local authority; (x) every artificial juridical person, not
falling within any of the preceding sub-clauses;

2 Section 2(h) of the Competition Act, 2002

statue’s intention to regulate every entity that has the capability of engaging in anti-
competitive behaviour through such agreements.

1.2.2 What is an ‘Agreement’ for the purposes of Section 3.

The meaning of Agreement as per Section 2(b),3 for the purposes of Section 3, has a very
wide scope. In order to construe an agreement, a behaviour that appears to be concerted on
the behalf of the alleged parties is a must. It is immaterial if the parties intended to create
mutual obligations or duties that are sought to be enforceable. Further, no written proof of
such agreement is necessary as mere informal understanding or arrangements would also be
construed as an agreement. Hence, the legislative intent and desire is quite apparent so as to
give a vast and sweeping coverage for concerted and collaborative anti-competitive practices,
even oral or written or formal or informal understanding would fall within the broad ambit of
'agreement' though the parties to such agreement do not have any intention to enforce it by
legal proceedings.

The agreement in the Competition Act is not in lines with Contract Law, in that there
wouldn’t be a written contract and such agreements will not be in writing especially in cases
where the parties intend to cause an Appreciable Adverse Effect on Competition. Therefore,
the Competition Commission of India looks at circumstantial evidence to justify the change
in market behaviour in cases where such anti-competitive agreements are suspected (e.g.: The
Cement Cartel Case). Simultaneous change in behaviour such as parallel pricing, similar bit
rates, similar mistakes in tender documents etc bear circumstantial evidence of the possibility
of an agreement. Once the presence of an agreement is established, one should examine if
such an agreement will result in Appreciable Adverse Effect on Competition.

In a landmark European Union case of Re Mileage Conference group of Tyre
Manufacturers4 the court held the definition of arrangement doesn’t stop at proving the
existence of a meeting. When mutuality is converted to arrangement is when an agreement is
said to be concluded. Mutuality is an indicator of collusion. In India, the courts rely on proof
of communication such as Forms of agreement, letter of intent, document signed by parties,

3 Section 2(b) of the Competition Act, 2002. “agreement” includes any arrangement or understanding or action
in concert, — (i) whether or not, such arrangement, understanding or action is formal or in writing; or (ii)
whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;
4 (1966) LR 6 RP 49

telex, canon of ethics and will move to circumstantial evidence if none of the above is
available.

1.2.3 Appreciable Adverse Effect on Competition

Under the Indian competition law, for an agreement to be declared anti-competitive the test
for determining the illegality is ‘appreciable adverse effect on competition’. The principle
underlying this is that the law musn’t concern itself with behaviours of competitors that have
a minimal effect but not an “appreciable” effect. This rule is called the de minimis rule.5 The
Competition Law in India does not particularly embody a per se rule and therefore every
situation must be tested for an Appreciable Adverse Effect on Competition on a case to case
basis. This term, has however not been defined in the Competition Act. However, Section
19(3) of the Competition Act lays down parameters against which are laid down in Article
19(3). These factors have to be cumulatively considered on a case-to-case basis in order
conclude whether there is an appreciable adverse effect on competition.

a. Negative factors
• 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;
b. Positive effects.
• Accrual of benefits to consumers;
• Improvements in production or distribution of goods or provision of services;
• Promotion of technical, scientific and economic development by means of production

or distribution of goods 6

Thus, in analysing whether an agreement has an appreciable adverse effect on competition,
both the positive and negative effects as envisaged in Section 19 (3) of the Competition Act,
2002 are to be considered. Such an impact-based assessment is not limited to activities or
agreements in India. Under the “Effects Doctrine” where the Supreme Court in the case of

5 It needs to be noted that the de minimis rule has not been codified in Indian Law. The Competition
Commission has relied on the same in a number of cases by borrowing the same from European Union
Jurisprudence.
6 Section 19(3), The Competition Act, 2002.

Haridas Exports vs All India Float glass Association7 has observed that “the effects doctrine
will clothe the Commission with jurisdiction to pass an appropriate order even though a
transaction say which results in exporting goods in to India at predatory price, which in
effect is a trade practice which has been carried outside, if the effect of that results in RTP in
India.”

Therefore, if the result of any arrangement or agreement hinders a healthy competition in the
market substantively, the competition authorities have been vested with broadly worded
statutory powers to examine them.

1.3 TYPES OF ANTI-COMPETITIVE AGREEMENTS

While the Competition Act does not specifically make a two-part bifurcation, a close reading
of Section 3 reveals that anti- competitive agreements under the Competition Act can be
classified under two broad heads. They are:

a. Horizontal Agreements
b. Vertical Agreements

1.3.1 Horizontal Agreements

Section 3(3) of the Competition Act lays down that “any agreement entered into between
enterprises or association of enterprises or persons or associations of persons or between
any person and enterprise or practice carried on or decision taken by, my association of
enterprises or association of persons of persons, including cartels engaged in identical or
similar trade or provision of services, which:

a. Directly or indirectly determines purchase or sale price
b. Limits or controls production, supply, markets, technical development,
c. Investment or Provision of services
d. Shares the market or source of' production or provision of services by way of

allocation of geographical area of market, or types of goods or services or number of
customers in the market or any other similar way.

7 2002 6 SCC 600 16

e. Directly or indirectly results in bid rigging or collusive bidding” 8 shall be presumed
to have appreciable adverse effect on Competition

Horizontal agreements are those agreements that are entered into by competitors operating at
the same level in the economic process, i.e., entities that are engaged in operating in broadly
the same activity. These are the agreements between producers or between whole sellers or
between retailers, dealing in similar kinds of products who share the same kind of market. As
per Section 3(3), these exists a presumption that horizontal agreements are anti-competitive.
Hence, such agreements are governed by the per se rule and are presumed to have an
Appreciable Adverse Effect on Competition. This presumption is however rebuttable and the
burden of proof therefore lies on entities that are parties to horizontal agreements. The major
reasons for entities to enter into horizontal agreements is price stability and protection from
recession, and to shield themselves from international competition.

However, exemptions have been given to joint ventures agreements promoting efficiency in
production, supply, distribution and export arrangements and reasonable restrictions forming
part of protection or exploitation of intellectual property rights.

Cartels

Cartels are one of the most notorious and popular examples of horizontal agreements that are
presumed to have an appreciable adverse effect on competition India. Cartels have also been
defined under the Competition Act as an arrangement which “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.” Evidently, the language of Section 3(3) suggests
that cartels are a type of horizontal agreements.

As discussed earlier, authorities rely on circumstantial evidence to establish the presence of
agreements and this applies more stringently in case of ‘Cartels’ and is largely done by
assessing behavioural patterns of the competitors. The standard of proof for circumstantial
evidence is one of preponderance of probabilities. Parallel conduct is the biggest indicator of
a cartel. Along with parallel conduct, factors such as cover bidding (also “complementary”,
“courtesy”, “token” or “symbolic” bidding), bid rotation, bid suppression, (all of these

8 Section 3(3) of the Competition Act, 2002

collectively amount to bid rigging9) market allocation and collective boycotts are indicia of
cartels. There is no conclusive test to determine the existence of a cartel as the weightage
given to different factors vary from case to case and is often specific to the nature of the
industry which has the suspected cartel.

Furthermore, parties that participate in cartels are usually fully aware of the unlawfulness of
their conduct. Therefore, they avoid the creation of incriminating documents that would be
discovered by a competition authority when their behaviour is under scrutiny a during any
inspections and raids. Therefore, meetings are often discreet and the agreements are usually
verbal or through codes or signs to ensure that no evidence is readily available to
investigating authorities

Even in the case of explicit agreements, the parties to such agreement are likely to be highly
secretive and mostly it would be a result of a covert meeting. This poses a great hurdle
becomes very difficult for the competition authority to compile evidence that will satisfy a
court to the required standard of proof to establish of cartelization. Therefore, most
competition law regimes around the world have provisions for leniency and whistle blowing
programmes that have proven to be salutary in busting cartels.

Section 46 of the Competition Act, 2002 contains leniency provisions,10 which provide for a
reduced penalty on a participant in a cartel, who makes a full and true disclosure to the
competition authorities. The logic behind the leniency provisions is that a cartel is a hard nut
to crack and such provisions would be helpful in motivating at least some parties to break
away from cartel by letting the lid off from it. The leniency provisions have found to be quite
effective in the United States of America and in the European Union in letting lid on cartels
and therefore, have been adopted in most of the countries having competition regimes.

9 The Act defines bid rigging as “any agreement, between enterprises or persons referred to in sub-Section (3)
engaged in identical or similar production or trading of goods or provision of services, which has the effect of
eliminating or reducing competition for bids or adversely affecting or manipulating the process for
bidding”
10 Section 46 of the Competition Act, 2002. “The Commission may, if it is satisfied that any producer, seller,
distributor, trader or service provider included in any cartel, which is alleged to have violated Section 3, has
made a full and true disclosure in respect of the alleged violations and such disclosure is vital, impose upon
such producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than leviable
under this Act or the rules or the regulations”

The principal reason for such provisions, that more often than not, cartels do not have a
formal or a written agreement. Hence, even on suspecting a cartel, it makes extremely
difficult to extract vital information regarding the same. Further, to incentivize the parties of a
cartel to blow the whistle, leniency programmes offer complete and partial waiver of
penalties depending on the time of disclosure and information given by them to the
authorities. Section 46 of the Competition Act embodies the provisions that lay down the
leniency procedure. Furthermore, to carry out the leniency provisions in the Act, Section 6411
vests power with the Commission to draft regulations for matters in respect of which
provisions is to be made by regulations. In due regard to the same, the Competition
Commission of India (Lesser Penalty) Regulations, 2009 were brought out in August 2009.
These Regulations provide the framework in which the Commission can give lower
punishments than statutorily provided in the case of cartel membership.

The following conditions need to be satisfied in order to be eligible for a leniency programme
as per Section 64.

• The applicant must provide vital information about the cartel before the commission
receives an investigation report as per Section 26 of the Act

11 Section 64 of the Competition Act, 2002

Power to make regulations.

(1) The Commission may, by notification, make regulations consistent with this Act and the rules made
thereunder to carry out the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing provisions, such regulations may
provide for all or any of the following matters, namely:— (a) the cost of production to be determined under
clause (b) of the Explanation to Section 4; (b) the form of notice as may be specified and the fee which maybe
determined under sub-Section(2) of Section 6; (c) the form in which details of the acquisition shall be filed
under subSection(5) of Section 6; 101[(d) the procedures to be followed for engaging the experts and
profession- als under sub-Section(3) of Section 17 (e) the fee which may be determined under clause (a) of sub-
Section(1) of Section 19; (f) the rules of procedure in regard to the transaction of business at the meetings of the
Commission under sub-Section(1) of Section 22; (g) the manner in which penalty shall be recovered under sub-
Section(1) of Section 39; (h) any other matter in respect of which provision is to be, or may be, made by
regulations.]

(3) Every regulation made under this Act shall be laid, as soon as may be after it is made, before each House of
Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in
two or more successive sessions, and if, before the expiry of the session immediately following the session or the
successive sessions aforesaid, both Houses agree in making any modification in the regulation, or both Houses
agree that the regulation should not be made, the regulation shall thereafter have effect only in such modified
form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be
without prejudice to the validity of anything previously done under that regulation.

• The applicant must cease co-operate with the cartel unless specifically directed by the
commission to do so in order to be able to collect circumstantial evidence

• The applicant must provide all information and evidence available at his disposal at
absolute good faith. he must not wilfully conceal, withhold or falsify any information
that is available to him.

• The amount of reduction of penalty is dependent on the following parameters:
- the extent of involvement of the applicant in the cartel and the apparent
motive behind his whistleblowing
- Timing of application, i.e., how long the applicant has already been a part of
the cartel
- the information already available to the Commission
- the extent of the information provided by the applicant
- other facts and circumstances such as estimated adverse effect on
competition, estimated losses to other competitors, nature of the good/service
involved and amount of time that the cartel has existed for.

The current structure for leniency for applicants who were formerly a part of the cartel is as
follows:

Informant/ Applicant Quantum of leniency

First Applicant who makes a vital disclosure Up to 100% deduction of penalty
consequently enabling the CCI to
effectively investigate a cartel.

Second applicant, on any other vital Up to 50% deduction of penalty
disclosure not made by the first applicant.

Third Applicant, on any other vital Up to 30% deduction of penalty
disclosures not made by the first or second
applicant.

1.3.2 Vertical Agreements

Vertical agreements are agreements between firms at different levels of a supply chain. Most
goods and services travel through a chain of production before a product actually reaches the

consumer, and these agreements operate between entities located at different positions on
such a chain. These agreements, indispensable to any economy, often create long term
relationships with various obligations paced on parties. The regulation of vertical agreements
under the Competition law regime has evoked substantial amount of controversy. While these
may many a time be beneficial to the market economy, problems arise in the context of
competition, if an agreement between a supplier and a buyer restrains either. Their impact on
competition is, by and large, mixed, and such agreements therefore have to be judged on the
basis of the reasonableness of the restraint created.

Vertical agreements affect competition most significantly in situations where the firm or
entity imposing the restraint has a sizable influence on the market. In these cases, there exists
negligible inter-brand competition, making it desirable that there exists enough competition
between the distributors and retailers of the same product - a phenomenon termed “intra-
brand competition.” Vertical restraints in such cases make it difficult for retailers to
distinguish themselves on price or quality of service, and can also lead to the creation of entry
barriers. Further, negative effects of vertical restraints are reinforced when multiple suppliers
and their buyers conduct business in a similar fashion, leading to “cumulative effects.” In
situations where there is strong inter-brand competition, however, such vertical agreements
may not have any sizable effect on the competition in the market. In such cases, vertical
agreements may actually enhance the efficiency of the market.

The agreements mentioned under Sec 3 (4), are five types of vertical agreements and the
same is not an exhaustive list. These are:

(a) Tie-in arrangement;

(b) Exclusive supply agreement;

(c) Exclusive distribution agreement;

(d) Refusal to deal;

(e) Resale Price maintenance

The following bears a brief discussion on the different types of vertical agreements.

a. Tying products through a tie-in agreement12

As defined in Explanation (a) to sub-Section (4) of Section 3, tie-in arrangement is a situation
where a consumer wishing to purchase a certain good (the tying product) is required to buy
some other distinct good (tied product) along with the good he wishes to purchase. Therefore,
the essence of a tie-in arrangement is the precondition of purchase of an undesirable good in
order to purchase the desired good. Example of a tie-in arrangement is when a Television set
would be sold to a consumer only on the pre-condition that the consumer will have to buy a
cell phone from a certain other brand is a tie-in agreement. On the other hand, some things
are expected to come as a package. They are not normally sold differently, at least on one
end. In such a case, not considered a prohibited bundling. For example, if shoes and laces are
sold together and not independently available with a seller, these are not considered tying in.
This sort of “combo” selling of related products, where both goods are essentially
complementary, is called bundling.

Therefore, the sin non quo of tying arrangements is that there two distinct and non-
complementary products, where one is sold only on the precondition of a purchase of the
other.

b. Exclusive supply agreements.13

Under the Competition Act, ‘exclusive supply agreement’ has been defined to include “any
agreement restricting in any manner the purchaser in the course of his trade from acquiring
or otherwise dealing in any goods other than those of the seller or any other person.” In such
agreements, the supplier of a particular good enters into agreements to exclusively supply
products to one buyer/retailer. Therefore, a manufacturer that seeks to harm his competitor
enters into exclusive supply agreements with a retailer/distributor such that the
retailer/distributor is induced to not distribute other manufacturer’s products and only
distributes the said manufacturer’s products. Repetitive agreements of this nature will result
in the possibility of a greater market share being unnaturally allotted to a certain

12 Section 3(4)(a) of the Competition Act. “tie-in arrangement includes any agreement requiring a purchaser of
goods, as a condition of such purchase, to purchase some other goods;”
13 Section 3(4)(b) of the Competition Act. ““exclusive supply agreement” includes any agreement restricting in
any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than
those of the seller or any other person;”

manufacturer and his goods. Therefore, this may result in the foreclosure of other competitors
of the manufacture and thereby distorting competition.

Therefore, exclusive supply agreement can be defined as those agreements that foreclose the
market to competitors, facilitates collusion between suppliers; and the relevant factors to
assess the same are market power, entry barriers at the supplier level, level of trade, and
nature of market.

c. Exclusive distribution agreement14

An agreement wherein a supplier grants an exclusive right to a distributor to distribute the
supplier’s goods is termed as an Exclusive supply agreement. Such arrangements are
geographically specific to make this arrangement profitable to both parties of the agreement.
The Competition Act understands exclusive distribution agreement as those which seek “to
limit, restrict or withhold the output or supply of any goods or allocate any area or market
for the disposal or sale of the goods.” Some argue that such agreements can in fact increase
efficiency as distributors through such agreements are able to their sales efforts on a
particular brand, leading to increased investments and an enhanced brand image. But such
agreements also have the tendency to reduce intra brand competition if major distributors are
a part of such agreement, thereby resulting in foreclosure of the market to other distributors.
Therefore, the effect such agreements may have should be tested against the standards
established for Appreciable Adverse Effect on competition in order to assess whether they are
anti-competitive in nature.

d. Refusal to deal15

Another form of vertical agreement which is considered anti-competitive is ‘refusal to deal’.
Refusal to deal includes agreements which restricts, or is likely to restrict, by any method the
persons or classes of persons to whom goods are sold or from whom goods are bought.
Refusal to deal has been defined under Section 3(4)(d) of the Competition Act as “any

14 Section 3(4)(c) of the Competition Act: “exclusive distribution agreement includes any agreement to limit,
restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of
the goods”
15 Section 3(4)(d) of the Competition Act: “refusal to deal includes any agreement which restricts, or is likely to
restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are
bought;”

agreement which restricts, or is likely to restrict, by any method the persons or classes of
persons to whom goods are sold or from whom goods are bought”. The possibility of such
agreements being classified as anti-competitive is greater if the entity that refuses to deal in a
dominant position. Therefore, instances of refusal to deal can be examined both under the
lens of Section 3(4)(d) and Section 4, which relates to abuse of dominance as was done in the
Shamsher Kataria case.16

e. Resale price maintenance17

The Competition Act lays down the definition of Resale Price Maintenance (RPM) under
Section 3(4) (e) of the Act as including any arrangement to sell products on the condition that
will allow the manufacturer to influence/dictate the prices to be charged on the resale by the
purchaser

In its classic formulation, Resale Price Maintenance is the act of directly controlling the retail
transaction price for the manufacturer's products, thereby impeding competition the market.
In a recent case involving Hyundai,18 the Competition Commission of India has broadened
the scope of resale price maintenance agreements to also include conducts by a manufacturer
that determines distribution margin, offer prices and discounts, rebates, shares the
promotional costs conditioned on confirming to a given price level, or uses threats,
intimidation, warnings, penalties, delay or suspension of deliveries as a means of fixing the
prices charged by the retailers.

Manufacturers often use vertical restraints to foreclose the market to potential or existing
rivals by raising the costs of distribution. This results in the softening of competition at both
levels: A reduction in intra-brand competition: resale price maintenance that removes price
competition between distributors; and reduction in inter-brand competition: use of selective
distribution by a manufacturer as a means to increase prices could encourage his rivals to
follow suit.

16 Shamsher Kataria Informant Vs Honda Siel Cars India Ltd, Case No. 03/2011.
17 Section 3(4)(e); “resale price maintenance includes any agreement to sell goods on condition that the prices
to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated
that prices lower than those prices may be charged.”
18 Hyundai Motor India Ltd. vs. Competition Commission of India, W.A.No.340 of 2015

1.4 PENALTIES APPLICABLE IN CASES OF CONTRAVENTION OF SECTION 3
As per Section 27 of the Competition Act, the Competition Commission may impose the
following penalties on entities if found in contravention of Section 3. Given the quasi-judicial
and quasi-nature of the Competition Commission, and in light of the nature of contraventions
envisaged in the Act, the penalties are largely monetary in nature. These monetary penalties
in the event of Section 3 contravention include:

• An order to cease and desist. This order essentially directs entities to discontinue or
withdraw from agreements that have an appreciable adverse effect on competition.

• Impose a fine which is not more than 10% of the average turnover19 of the previous
three financial years of the entity in question.

• In cases of cartels, it is three times the estimated profit or 10% of each year of pursuit
of such agreement, whichever is higher.

• Issue an order conveying that certain agreements between competitors must be
restructured in accordance with the order issued to avoid any appreciable harm
towards competition.

• Issue any other order as determined by the CCI.

19 Section 2 (y) of the Competition Act, 2002 “turnover includes value of sale of goods or services”