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Anti-Competitive Agreements A Greater Awareness of Competition Law

Anti-Competitive Agreements� A Greater Awareness of Competition Law Helps and Prevent Practices Which Harm The Economy, Businesses and Consumers Alike.

This article focuses on the analyses of Anti-Competitive Agreements under the Competition Act, 2002 in Corporate environment. The focus is on the nature and meaning of Anti-Competitive Agreements and how they impact adversely the competitive process at the market and the consumer.

Competition is a process by which cost effective production can be achieved in a structure where entry and exit are easy, a reasonable number of players (producers and consumers) are existing which results in the presence of a close switch between products of altered players in a given industry. For the very purpose of bringing social justice, economic growth and allocation of resources under the directive principles of state policy under the constitution (Article 38), which got changed in 1991 due to liberation of policies and business crossing national boundaries the MRTP Act was established.

The keystone objectives sought to be achieved through the Act, as stated in the Preamble to the Act were:

  • To prevent concentration of economic power to the common disadvantage
  • Prohibition of anticompetitive trade practices,
  • Control of dominations and
  • Prohibition of limiting trade practices

Because of the essential desire in its own structure and composition of the MRTP Commission and the peculiar competition pertaining to (entry, pricing, scale of business, its location etc.) the MRTP Act was unable to effectuate as expected as they were also regulated by superfluous set of policies.

Objective of the Indian Competition Act 2002 is to ensure that there is fair competition in the Market and which would benefit the consumer. The Competition Act achieves this by either prohibiting or regulating (in the case of consolidations) certain agreements which it considers anti-competitive.
Salient provisions:

  • Prohibition of Anti-competitive agreements Section
  • Prohibition of Abuse of dominance Section
  • Regulation of combination among enterprises

The question we must ask today is that, Is the Competition law being broken by us?

Speaking to people from rival businesses in your industry may seem like a normal, everyday thing to do. And for most it's a perfectly innocent and necessary part of business life. Are we discussing something which is not innocuous to converse?

Business cartels occur when competitors get together and agree not to compete against each other - for example, by fixing prices, dividing and sharing markets between them or rigging bids for contracts so they decide who wins.

To Prevent such policies and practices which have an adverse effect on constructive competition in the economy, Promote and help sustain healthy competition in the market, look after the interest of the consumers, create awareness and advocate for fair competition practices, and finally, ensure freedom of trade in the market Competition Commission of India (CCI) was established and it came up with the above objectives. Cartels (lobbying / unfair associations) rip customers off and ultimately deprive them of a fair deal. They also make it extremely difficult for other competing businesses that aren’t part of the cartel to survive and grow.

The CCI ensure that the markets work for the benefits of the consumers, so the welfare of the consumers is the main priority , economic activities are promoting fair competition for the benefit of consumers which will result in their advancement and affluence, the act will facilitate and control competition practices and policies. The aim is the best possible utilization of resources by embracing these policies.

Study shows misapprehensions that:

  • While attending a meeting where contenders agree prices, forty-one percent are not aware that it is unlawful.
  • Agreeing to share customer's or to split up, fifty-nine percent are not aware that it is unlawful.
  • Bid-rigging - where rival auction-goers secretly decide who will win a contract and submit fake bids, forty-eight percent are not aware that it is unlawful.

Source : David Harper,
According to the study, civic should get awakened that breaking of law will result in the loss of business as well as an individual’s profession.

The consequences for breaking competition law?

  • Businesses can be fined heavily
  • Individuals can face personal fines
  • Directors can be disqualified from acting as directors
  • Imprisonment etc.

The regulating authorities of the state will be assisted and guided by the competition commission of India. It is to carry out advocacy about competition and competition laws. It objects to coach ministries, state governments, regulators, and other authorities about the modern theories of competition. The various training activities and consumer awareness advertisements in newspapers, electronic media, etc., will facilitate them to educate. There is bonding between good governance of a corporate and competitive business environment. The good corporate governance seeks to meet the challenges of the competitive business.

For Corporate, consumer is the king, and the welfare of consumer is the prime focus for conserving free and genuine competition as the mandate of corporate governance. The economic development is fail-safe with a healthy competition in the market with cross border trade and consumer welfare. The proof, although referring to experiences of developed countries, indicates substantial benefits from the strengthening of the application of competition policy principles in terms of "greater production, allocative and dynamic efficiency, welfare and growth."

The Competition Act, 2002 however lays down two exceptions to the applicability of the provisions relating to Anti-competitive agreements:

  • Intellectual Property Protection with Reasonable conditions:
    Patent pooling
    Tie-in arrangements
    Prohibiting licensees to use competing technology
  • Export Cartels:
    Export cartels are outside the purview of the Competition Act, 2002. A justification of this exemption is that most countries do not desire any shackles in their export efforts, as the problem lies elsewhere.

Types of Anti-Competitive Agreements are:

  1. Horizontal agreements:
    When there is same line of production there is an agreement between parties. Example – Manufactures have an agreement amongst them, Distributors have an agreement amongst them, which is having an appreciable adverse effect in the competition. 1. The purchases and sale prices is determined Directly or indirectly, 2. Regulate or Constraint output, technical improvement, services etc. 3. Share or divide markets 4. Indulge in rigging or collusive bidding.

    Cartels prohibited: Agreements Between Parties in the same line of production. Example - Agreement between Manufactures, Agreement between Distributors.
    1. Agree to limit, 2. Regulate or attempt to regulate production, distribution, sale or price.

    Types of Horizontal Agreements: 1) Price Fixing Agreement 2) Facilitating practices 3) Quiet Life Agreements 4) Group Boycotts 5) Trade Associations Agreements.
  2. Vertical Agreements
    The agreements which are at different levels of manufacturing and distribution process between Non-Competition undertaking are known as Vertical agreements.

    Example, The agreement between manufacturers of components, manufactures of products, between producers and whole- sellers or between producers, whole sellers and retailers. They are forbidden if such agreements cause or are likely to cause an appreciable adverse effect in the competition. Types of Vertical Agreements: 1. Tie-in arrangement 2. Exclusive supply arrangement 3. Exclusive distribution arrangement 4. Refusal to deal 5. Resale price maintenance

There has been increasingly global nature of the World economy and the thinning out of national economic boundaries. As the World economy becomes more globalized, an anti-competitive act of a firm may have effect not only in the country where it is situated but even in other countries, where it has business activities.

As countries integrate more and more into the global economy, they become more prone to the Anti-competitive practices operating on a global scale, or originating outside the shores of the country but having effects on their domestic economics. In recent years the international cartels have captivated much attention. Competition agencies in the European Union and the United States have successfully prosecuted over 40 such cartels that operated in their jurisdiction during the 1990s, and slapped heavy fines on several companies involved in such cartels.

Most countries exempt export cartels from their antitrust laws, as long as they do not have any Anti-competitive effect on the domestic market. In India, similar exceptions exist in both the outgoing MRTP Act, 1969 and the new Competition Act, 2002. Cross-border predatory pricing also led to market distortions. Due to some striking similarities, cross-border predatory pricing is very often equated with dumping. Therefore, an action is taken under anti-dumping which is different from that underlying Competition Law because under anti-dumping law it seeks to protect competitors and not competition.

Import cartels formed by domestic importers, or buyers and similar arrangements (such as boycotts of, or collective refusals to deal with, foreign competitors), may be a threat to maintaining competition in a market. In principle, a national competition law may generally be able to tackle such market access barriers to foreign supplies and suppliers.

Foreign Direct Investment may increase competition in local markets, particularly investment of Greenfield type. However, there is a possibility that takeovers of domestic firms may take the markets increasingly concentrated, to the extent of having one or a small number of dominant players. Moreover, a single instance of cross border acquisition may seem to have no effect on competition. But from a narrow national market perspective. it may lead to a lessening of effective competition in the market, if the acquirer has been a major exporter to the country.

Intellectual Property Rights may generate or contribute towards a position of market power. The IP holders typically engage in licensing agreements with firms in different countries. The territorial nature of property rights, in such agreements, means that frequently the national law enables them to be used by rights holders in order to prevent parallel imports. Around patent cross licensing schemes, it has been observed in many cases that cartels were formed.

Extraterritorial application of domestic competition law has created conflicts of jurisdictions and tensions among the nations concerned. Although there is a possibility of such conflicts and tensions with regard to the application of competition laws of other jurisdiction such as the European Community.

Conclusions Drawn:
Anti-Competition law helps prevent negative effect on consumers because their existence results in higher prices and restricted supply, there was a need to shift the focus from curbing monopolies to promoting competition both internal and external. The Organization for Economic Cooperation and Development (OECD) has made the detection and prosecution of lobbies one of its priority policy objectives.

Until now, there are no firmly established principles of international law that would effectively resolve the issues arising from extraterritorial application of competition law. Efforts will continue to establish jurisdictional principles. Anticompetitive agreements, particularly hardcore alliances, harm consumers in developed, as well as in developing countries. When there is a dearth in competition in the industrial sectors, it will definitely lessen competitiveness in the long run, which will not have a positive impact on the country’s economic growth.

Written By: Debbrat Banik
Email: [email protected]

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