Anti-Competitive Agreements (Section 3 of the Competition Act)

In India, the Competition Act, 2002, is the primary legislation governing competition law in the country. Section
3 of the Competition Act deals with anti-competitive agreements. Here is an overview of Section 3 of the
Competition Act in India:
Section 3 - Anti-Competitive Agreements: Section 3 of the Competition Act, 2002, deals with agreements that
have an adverse impact on competition in India. It prohibits certain types of agreements that are likely to cause an
appreciable adverse effect on competition within the Indian market. These agreements are considered anti-
competitive and are subject to penalties If the agreement is anti-competitive it will be wholly void. Cartel is a
form of entering into anti-competitive agreements.
Types of Anti-Competitive Agreements
Horizontal Agreements - Horizontal agreements are arrangements between enterprises at the same stage of
production.
Such agreements includes cartels, engaged in identical or similar trade of goods or provision of services, which-
a) Directly or indirectly determines purchase or sale prices b) Limits or controls production, supply
c) Shares the market or source of production d) Directly or indirectly results in bid rigging or
collusive bidding
Vertical Agreements - Vertical agreements are those agreements which are entered into between two or more
enterprises operating at different levels of production
Examples of anti-competitive vertical agreements include: a) Exclusive supply agreement & refusal to deal
b) Resale price maintenance c) Tie-in-arrangements d) Exclusive distribution agreement
Exception:- 1. However, it has to be kept in mind that a person’s right to stop any infringement of his product
is not restricted under this section. A person can protect his rights which have been given to
him under –
a) Copyright Act, 1957 b) Patents Act, 1970 c) Designs Act, 2000
b) d) Geographical Indications of Goods (Registration and Protection) Act, 1999
e) Semi-conductor Integrated Circuits Layout-Design Act, 2000 f) Trade Marks Act, 1999, etc.
2. The export business in which the person exports any goods from India under an agreement to
fulfill the export contracts is not restricted under the Act.
When an agreement is said to have Appreciable Adverse Effect on Competition (AAEC) [section 19(3)]
For determining whether an agreement has appreciable adverse effect on competition, the Commission shall
consider the following 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; • 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 or provision of services.

Prohibition of abuse of dominant position – Section 4

A) Meaning of Dominant Position – A dominant position means a position at the top and has strength in the
market. Prohibition of abuse of dominant position means that a group is restricted (complete from abusing its
dominant position that is a position of strength.
A group is said to be in a dominant position when –
1) It can operate independently that means the competition cannot affect it’s market.
2) It can affect the consumers or it’s competitors or a relevant market in it’s own favour.
WHAT CONSTITUTES ABUSE OF DOMINANCE?
Dominance refers to a position of strength which enables an enterprise to operate independently of competitive
forces or to affect its competitors or consumers or the market in its favour. Abuse of dominant position impedes
fair competition between firms, exploits consumers and makes it difficult for the other players to compete with the
dominant undertaking on merit. Abuse of dominant position includes:
• imposing unfair conditions or price, • predatory pricing,• limiting production/market or technical evelopment,
• creating barriers to entry, • applying dissimilar conditions to similar transactions, • denying market access,
• using dominant position in one market to gain advantages in another market.
Note – One important thing to be kept in mind is that the Competition Commission of India has been given the
power to enquire and determine whether there is any dominant position of an enterprise or a group and whether
they are abusing the same. If an enterprise or group enjoys dominant position in the market but is not abusing it
then it cannot be said to have abused its dominant position.
When an enterprise will have Dominant position? [section 19(4)]
For determining whether an enterprise enjoys Dominant position or not under Section 4, the Commission shall
consider the following factors –
a) market share of the enterprise; b) size and resources of the enterprise; c) size and importance of the competitors;
d) economic power of the enterprise including commercial advantages over competitors;
e) vertical integration of the enterprises or sale or service network of such enterprises;
f) dependence of consumers on the enterprise;
g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government
company or a public sector undertaking or otherwise;
h) entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing
entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for
consumers;
i) countervailing buying power; j) market structure and size of market; k) social obligations and social costs;
l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a
dominant position having or likely to have an appreciable adverse effect on competition;
m) any other factor which the Commission may consider relevant for the inquiry.

Competition Commission of India

The CCI acts as the competition regulator in India. The CCI was established by the Vajpayee government, under
the provisions of the Competition Act 2002. The Commission was established in 2003, although it became fully
functional only by 2009. It aims at establishing a competitive environment in the Indian economy through
proactive engagement with all the stakeholders, the government, and international jurisdiction. The objectives of
the Commission are:
1. To prevent practices that harm the competition. 2. To promote and sustain competition in markets.
3. To protect the interests of consumers. 4. To ensure freedom of trade.
Competition Commission of India – Members Composition
The members of the CCI are appointed by the Central Government. The Competition Commission of India is
currently functional with a Chairperson and two members.
1. The Commission used to consist of one chairperson and a minimum of two members and a maximum of six
members.
2. This has further been reduced to three members and one chairperson by the Cabinet. This move was taken to
produce a faster turnaround in hearings and speedier approval, thereby stimulating the business processes of
corporates and resulting in greater employment opportunities in the country.
3. The chairperson and the members are usually full-time members.
The eligibility for the Commission: The Chairperson and every other Member shall be a person of ability,
integrity, and who, has been, or is qualified to be a judge of a High Court, or, has special knowledge of, and
professional experience of not less than fifteen years in international trade, economics, business, commerce, law,
finance, accountancy, management, industry, public affairs, administration or in any other matter which, in the
opinion of the Central Government, may be useful to the Commission.
Selection of Chairperson and members – Section 9 (5 members of panel)
The Chairperson and other Members of the Commission shall be appointed by the Central Government from a
panel of names recommended by a Selection Committee consisting of—
a. the Chief Justice of India or his nominee ------------------------------Chairperson;
b. the Secretary in the Ministry of Corporate Affairs---------------------Member;
c. the Secretary in the Ministry of Law and Justice------------------------Member;
d. two experts of repute who have special knowledge of, and professional experience in international trade,
economics, business, commerce, law, finance, accountancy, management, industry, public affairs or competition
matters including competition law and policy-------------------------------Members.
Term of office of Chairperson and other Members
The Chairperson and every other Member shall hold office as such for a term of 5 years up to the age of 65
years and shall be eligible for reappointment.
Competition Commission of India – Functions
The preamble of the Competition Act focuses on the development of the economy and the country by avoiding
unfair competition practices and promoting constructive competition. The functions of the CCI are:
1. Ensuring that the benefit and welfare of the customers are maintained in the Indian Market.
2. An accelerated and inclusive economic growth through ensuring fair and healthy competition in the economic
activities of the nation.
3. Ensuring the efficient utilization of the nation’s resources through the execution of competition policies.
4. The Commission also undertakes competition advocacy.
5. It is also the antitrust ombudsman for small organizations.
6. The CCI will also scrutinize any foreign company that enters the Indian market through a merger or acquisition
to ensure that it abides by India’s competition laws – the Competition Act, 2002.
7. CCI also ensures interaction and cooperation with the other regulating authorities in the economy. This will
ensure that the sectoral regulatory laws are agreeable with the competition laws.
8. It also acts as a business facilitator, by ensuring that a few firms do not establish dominance in the market and
that there is a peaceful co-existence between the small and the large enterprises.
Its duties and responsibilities: The Competition Commission of India (CCI) is a regulatory authority in India
responsible for promoting and ensuring fair competition in the market.
1. Preventing Anti-Competitive Practices: CCI is tasked with preventing and addressing anti competitive
agreements and abuse of dominant positions by businesses in the Indian market. It investigates complaints and
cases related to such practices.
2. Merger Control: CCI reviews and regulates mergers, acquisitions, and combinations of enterprises to ensure
that they do not lead to the substantial lessening of competition in the market. This process involves evaluating
whether proposed mergers would harm competition and, if so, imposing remedies.
3. Competition Advocacy: CCI plays an active role in promoting competition awareness and advocating pro-
competitive policies in India. This includes providing guidance to government bodies, businesses, and the public
on the benefits of competition.
4. Complaint Handling: CCI receives and reviews complaints related to anti-competitive behavior. It investigates
these complaints and, if violations are found, may impose fines or require corrective actions.
5. Market Studies and Research: CCI conducts market studies and research to identify areas where competition
might be hindered. This helps in proactively addressing issues that could lead to anti-competitive behavior.
6. Enforcement of Competition Laws: CCI enforces the provisions of the Competition Act, 2002, and ensures that
businesses comply with competition laws. It can take legal action against entities found in violation of these laws.
7. Imposing Penalties: When businesses are found guilty of anti-competitive practices, CCI has the authority to
impose penalties and fines on them. These penalties are intended to deter anticompetitive behavior
Power of CCI:- The powers of the Competition Commission of India (CCI), as established under the
Competition Act, 2002, are broad and significant to fulfill its mandate of promoting and ensuring fair competition
in the Indian market. Some of the key powers and functions of the CCI include:
1. Anti-Competitive Practices:
a) Investigating and addressing cases of anti-competitive agreements and abuse of dominant positions by
businesses.
b) Initiating inquiries into alleged violations of competition laws based on complaints or suo motu action.
2. Mergers and Acquisitions:
a) Regulating mergers, amalgamations, and acquisitions to ensure they do not result in adverse effects on
competition.
b) Approving or rejecting merger proposals, imposing conditions, or suggesting modifications to transactions.
3. Advocacy and Policy:
a) Advocating and promoting competition awareness and policy in India.
b) Providing recommendations and advice to the government on competition-related matters.
4. Penalties and Corrective Measures:
a) Imposing fines and penalties on businesses found to be in violation of competition laws.
b) Ordering corrective measures to address anti-competitive behavior, such as the modification of agreements
or practices.
5. Exemptions and Exclusions:
a) Granting exemptions from certain provisions of the Competition Act if they are deemed necessary for the
promotion of competition or public interest.
b) Determining and specifying excluded activities that are not subject to the provisions of the Act.
6. Information Gathering:
a) Compelling the production of information, documents, and records related to investigations.
b) Conducting searches and raids when there is a reasonable belief of a violation.
7. Interactions with Other Authorities:
a) Collaborating with other regulatory and enforcement authorities to ensure compliance with competition
laws.
b) Seeking opinions from sectoral regulators on competition issues in their respective industries.

Inquiry into certain agreements and dominant position of enterprise – Section 19

When commission will make inquiry? [section19(1)]
The Commission may inquire into any alleged contravention of the section 3 and 4 –
a) on its own motion; or
b) on receipt of any information from any person, consumer or their associations or trade association;or
c) on reference made to it by the Central Government or a State Government or a statutory authority.
Section 26– Procedure for inquiry under section 19
1. If the Commission, on receipt of information has an opinion that investigation is needed, it shall direct the
Director General to cause an investigation to be made into the matter.
2. The Director General shall investigate into the matter and submit a report of its findings within the period
as may be specified by the Commission.
3. It is not binding on the Commission to accept the report of the Director General.
4. Upon receipt of a report from the Director General, the Commission shall forward a copy thereof to
a) the parties concerned or b) Central Government or c) State Government or
 d) statutory authority as the case may be and shall invite their comments on the same.
5. If the Director General recommends that there is no contravention, an opportunity of being heard shall be
given to the informant by the Commission.
6. If the Commission agrees with the recommendation of the Director General, it shall dismiss the
information and if does not agree, it shall direct the enquiry to proceed further.
7. If any information or reference comes to the knowledge of the Commission regarding alleged violation of the
provisions of the Act, must be referred to the Director General for an investigation in the matter.
8. A copy of the report of the Director General is required to be sent to the information provider or to the
Central Government or State Government or a statutory authority, as the case may be, for their comments and
an opportunity of hearing is required to be given to the parties.
9. The Commission, after an inquiry into the matter shall pass a reasoned order.
10. It is not compulsory for the Commission to follow the recommendations of the Director General.
Orders by Commission after inquiry into agreements or abuse of dominant position – Section 27
The Commission after any inquiry into agreement or an inquiry into abuse of dominant position may pass all or
any of the following orders: -
• Direct to –
a) discontinue and not to re‐enter such agreement or
b) discontinue such abuse of dominant position, as the case may be (This order is called as “Cease &
Desist order”)
• Impose such penalty (for Non – Cartel) – not exceeding 10% of the average turnover for the last three
preceding financial years, upon each of such person or enterprises which are parties to such
agreements or abuse.
• Impose such penalty (for Cartel) – Higher of –
a. penalty of up to 3 times of its profit for each year of the continuance of such agreement or
b. 10% of its turnover for each year of the continuance of such agreement
• Direct that the agreements shall stand modified to the extent and in the manner as may be specified by the
Commission.
• may direct the enterprises concerned to comply with such other orders and directions, including payment of
cost, if any, as it deems fit.
Inquiry into Combination by Commission – Section 20
A) When commission will inquire into AAE caused on competition?
The Commission may inquire into the AAE caused or likely to be caused on competition in India as a result
of combination –
a) On suomotu; or
b) upon receipt of notice under relating to acquisition or acquiring of control or
c) merger or amalgamation referred in of the Act.
B) Period within which enquiry shall be made – An enquiry shall be initiated by the Commission within one
year from the date on which such combination has taken effect.
C) Factors to be considered –
While determining whether the combination would have the effect of or is likely to have an appreciable
adverse effect on competition in the relevant market, namely –
a) actual and potential level of competition through imports in the market;
b) extent of barriers to entry into the market;
c) level of combination in the market;
d) degree of power in the market;
 e) likelihood that the combination would result in the parties to the combination being able to
significantly and sustainably increase prices or profit margins;
f) extent of effective competition likely to sustain in a market;
g) extent to which substitutes are available or are likely to be available in the market;
h) market share, in the relevant market, of the persons or enterprise in a combination, individually and as
a combination;
i) likelihood that the combination would result in the removal of a vigorous and effective competitor or
competitors in the market;
j) nature and extent of vertical integration in the market;
k) possibility of a failing business;
l) nature and extent of innovation;
m) relative advantage, by way of the contribution to the economic development, by any combination having
or likely to have appreciable adverse effect on competition;
n) whether the benefits of the combination outweigh the adverse impact of the combination, ifany.
Procedure for investigation of combination – Section 29
1) If the Commission is of the opinion that the combination will cause or has caused an appreciable adverse
effect on competition within the relevant market in India.
2) Further, when the Commission has come to such a conclusion then it shall proceed to issue a notice to the
parties to the combination, calling upon them to show cause why an investigation in respect of such
combination should not be conducted;
3) After receipt of the response of the parties to the combination Commission may call for the report of the
Director General.
4) After the response, the Commission may call for the report of the Director General.
5) The Commission shall, if decides that, the Combination is likely to cause an appreciable adverse effect on
competition in relevant market, it shall, within 7 days direct the parties to the combination to publish within
10 working days, the details of the combination, in such manner as it directs so as to bring to the information
of public and persons likely to be affected by such combination.
6) The person affected can file his written objections within 15 working days of the publishing of the public
notice, with the Commission.
7) The Commission may, within 15 working days of the filing of written objections, call for such additional or
other information as it deem fit from the parties.
8) The information shall be furnished by the parties above referred within 15 daysfrom the expiry of the period
notified by the Commission.
9) After receipt of all the information and within 45 days from expiry of period for filing further information,
the Commission shall proceed to deal with the case
Orders of Commission on Certain Combinations – Section 31
The Commission may pass any of the following written orders:-
• Approve the combination - if–combination does not, or is not likely to, have an appreciable adverse
effect on the Competition in relevant market in India.
• Disapprove the combination - if–combination does, or is likely to, have an appreciable adverse effect
on the Competition in relevant market in India.
• If the Commission thinks that the adverse effect can be removed by modification -
a) it–shall direct the parties to carry out that modification and the parties shall carry out that
modification within the time limit prescribed.
b) The parties accepted the modification but did not carry out, such combination shall be deemed to
have an appreciable adverse effect on competition and shall be dealt with by the Commission.
 c) The parties did not accept the modification, the parties can submit their view within 30 days of the
modification proposed by the Commission.
d) If the Commission agrees with the view submitted by the parties it shall, by an order approve the
combination.
• If the Commission does not accept the amendment then - parties shall be allowed a further period of
thirty days for accepting the amendment proposed by the Commission.
• Where the partiesto the combination fail to accept the modification within thirty days - Thenitshall
be deemed that the combination has an appreciable adverse effect on Competition

PENALTIES
Competition Act, 2002 is an act that is provisioned keeping in view the economic development of the country and
establishes a commission to prevent the practices which have adverse effect on the competition In cases where the
compliance of the Competition Act is breached, the Commission have various reforms to levy a penalty of such
an entity both. Chapter IV and section 42-48 of the Act consists the provisions for penalties with respect to the
offences related to prohibited practices.Following are the various situations under Competition Act, 2002 where
the Commission can impose penalty on a person or entity: -

Penalties prescribed by the Competition Act, 2002 for contravention of orders of the CCI – section 42
1. The Competition Commission of India may cause an inquiry to be made into compliance of its orders or directions
made in exercise of its powers under the Act.
2. If any person, without reasonable clause, fails to comply with the orders or directions of the Commission issued
under sections 27, 28, 31,32, 33, 42A and 43A of the Competition Act, he shall be punishable with fine which may
extend to rupees one lakh for each day during which such non-compliance occurs, subject to a maximum of rupees
ten crore, as the Commission may determine.
3. If any person does not comply with the orders or directions issued, or fails to pay the fine imposed above, he shall,
without prejudice to any proceeding, be punishable with imprisonment for a term which may extend to three years,
or with fine which may extend to rupees twenty-five crore, or with both, as the Chief Metropolitan Magistrate,
Delhi may deem fit.
Penalty for failure to comply with directions of Commission and Director General – Section 43
if any person fails to comply, without reasonable cause, with a direction given by the Commission(section 36 (2) &(4)
or the Director General (section 41(1), such person shall be punishable with fine which may extend to rupees one
lakh for each day during which such failure continues subject to a maximum of rupees one crore, as may be
determined by the Commission
Power to impose penalty for non-furnishing of information on combination – section 43A
if any person or enterprise who fails to give notice to the Commission under sub section (2) of section 6, the
Commission shall impose on such person or enterprise a penalty which may extend to one per cent of the total
turnover or the assets, whichever is higher, of such a combination.
Penalty for making false statement – Section 44
If any person, being a party to a combination, makes a statement which is false in any material particular, or knowing
it to be false; or omits to state any material particular knowing it to be material, such person shall be liable to a
penalty which shall not be less than rupees fifty lakh but which may extend to rupees one crore, as may be
determined by the Commission.
Power to impose lesser penalty – section 46
When commission will impose lesser penalty?
 If 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 alleged violations and such a disclosure is vital, the
Commission may impose upon him a lesser penalty than as prescribed under the Act or rules or regulations.
Conditions –
a) The lesser penalty shall not be imposed where before making such disclosure, the report of Director General has been
received in the Commission.
b) the lesser penalty shall be imposed only in respect of the producer, seller, distributor, trader or service provider
included in the cartel, who has made a full, true and vital disclosures under this Section
c) Any producer, seller, trader or service provider included in the cartel shall also be liable to imposition of penalty, if in
the course of proceedings, had, –
i. not complied with the condition on which the lesser penalty was imposed by the Commission; or
ii. given false evidence; or
iii. the disclosure made is not vital.
d) The lesser penalty is for a member of a ring who breaks the rank.
e) There is no provision to provide any protection or incentive to a whistle blower, which is conferred upon Authorities
in contemporary legislations abroad.