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CARTELISATION AND COMPETITION

INVESTMENT SECURITIES AND COMPETITION LAW

Submitted by:
ADITYA TIWARI
(2013008)
SEMESTER IX
Submitted to
SURYA
DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY
Visakhapatnam
October 2017

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TABLE OF CONTENTS
INTRODUCTION ..................................................................................................................... 4

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ACKNOWLEDGEMENT
I have endeavored to attempt this project. However, it would not have been feasible without
the valuable support and guidance of Surya Sir. I would like to extend my sincere thanks to
him.

I am also highly indebted to Damodaram Sanjivayya National Law University Library Staff,
for their patient co-operation as well as for providing necessary information & also for their
support in completing this project.

My thanks and appreciations also go to my classmates who gave their valuable insight and help
in developing this project.

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INTRODUCTION
The object of the competition policy, which is adopted in India, is to create a business
environment where the firm can compete with each other and there should be always enough
opportunities for the new firm to join the competition with the existing firms. Such kind of
policy always promotes efficiency, means it gives an opportunity to the firms to increase their
efficiency to do better business and earn better profit and also maximize the welfare of the
people of the society because in such type of market position the people have enough choice
in their hand in buying goods or services.

The main problem of a competition friendly market is some activities of the existing firms of
the market. Very often these firms started to collude to their competitor or forcing the
competitors to go out of the market or buying out the competitors. We can find all these
activities of the firms in our Competition Act 2002. Section 3, 4 and 5 of this Act says about
the anti-competitive agreement, abuse of dominance and combination and merger respectively.

I have divided project into six parts, like introduction with hypothesis and issue, historical
background, what is cartel under Indian Law, examples of cartels in India, provisions in Indian
Law to detect cartels and at last the suggestion and conclusion of my project.

HISTORICAL BACKGROUND
Before the present Competition Act 2002, The Monopolistic Trade Practice Act 1969 was
there. The MRTP Act 1696 was enacted in pursuant of a report submitted by Monopolies
Inquiry Commission", which was setup by the Govt. of India to review the economic condition
of India with regard to the concentration of the economic power to some private entities and
also to examine the effect of the monopolistic and restrictive trade practice in India. With the
changing of time it is felt that some change should be to the MRTP Act, because many new
concepts, like globalization, liberalization etc, are coming, for which India has to change its
business policy within and also outside of its jurisdiction. So the Competition Act 2002 is come
into force. This new law mainly came into force by the recommendation of the Raghaban
Committee report, a committee set up by the Govt. of India, headed by S.V.S Rghaban.

A committee, called Competition Committee of India (CCI) is also constituted under the
present Competition Act 2002. The main functions of this committee are as follows:

To eliminate practices having appreciable adverse effect on the competition.


To encourage and sustain competition.

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Preserve consumer welfare.
Maintain freedom of trade carried on by the other traders in Indian market.

WHAT IS CARTEL UNDER INDIAN COMPETITION LAW?


I have restricted myself in section 3 of the Competition Act, because it deals with the anti-
competitive agreement and cartel is a special kind of the anti-competitive agreement. The word
anti-competitive agreement" means an agreement entered by two or more firms of the market
to prevent either directly or indirectly other firms from entering into the market or even try to
exclude them. The effect of such kind of agreement is always to curve out the competition from
the market. There are two categories of the anti-competitive agreement, horizontal and vertical.

Horizontal agreement: It is an agreement entered between competitors operating at the same


level of the production process i.e., enterprises engaged broadly in the same type of activity,
for example agreement between producers or sellers or retailers dealing with same kind of
goods. In this kind of anti-competition agreement, there shall be a presumption of Appreciable
Adverse Effect on Competition (AAEC). Means it shall presume that whenever there is such
type of agreement, there will always be an adverse effect on the competition. The burden of
disproving is upon the defendant. These types of agreements include the followings:

Agreement regarding price fixation.


Agreement relating to market allocation.
Agreement relating to bid rigging.
Agreement relating to limiting or controlling the product and supply market, technical
developments, investments etc.
Vertical agreement: It is an agreement between non-competing undertakings operating
at different level of manufacturing and distribution process, for example, agreement
between producers and whole sellers or between producers, wholesalers and retailers.
Here the irrebuttable presumption of the AAEC cannot be taken to be account; the rule
of reason" comes into play for determining the nature of the agreement of this kind.
Means you have to apply your reason to determine the adverse effect of such agreement
upon competition, it is also true that for vertical agreements, the test differ in case to
case.

As cartels are a kind of horizontal agreement, so to examine cartels, first we have to know
about the characteristics of the horizontal agreements.

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No particular form is required for such kind of agreements, but results should be as such which
is not permitted under the Act. So, the circumstances of the agreement and word exchanged
between the parties, telephones, messages etc are considered as evidence of the conspiracy.

Whether the means used to accomplish the agreement is lawful or unlawful is not matter at all,
the thing is to be taken into consideration is the object of the agreement should be unlawful,
means it should prevent or restrict the competition in the market.

Cause or likely to cause adverse effect is important for anti-competitive agreements. Two
things are important in this regard, one is adverse effect, means the consequence of the said
agreement should be adversely affect the competition (U.S v. Griffith) and second thing is the
intention of the parties to the agreement, but alone intention is not enough, there should be
some overt act to give effect to that specific intention (Ashton v. CIR).

Effect doctrine" is the other characteristic of anti-competitive agreement in Indian competition


law. It means the anti-competitive agreement should have some adverse effect in India. In
Haridas export v. All India float gas manufacturers the commission says that It is immaterial
in this regard that where the agreement is interred into by or who are the parties of the said
agreement, if that particular agreement has some adverse effect on the Indian market that is
enough for considering that agreement as anti-competitive.

An anti-competitive agreement may be entered between the parties by concerted practises",


such type of practise exists when there is a informal cooperation without having any formal
agreement. In this regard one case called ICI Vs. Commission is really has great importance,
which says about the difference between the parallel behaviour and the concerted practice. It
also says that parallel behaviour is not amount to concerted practice, but it may act as a good
evidence of the concerted practice. If there are some conditions in any competition, which,
after giving due consideration to the nature of the market, considered as against the normal
rules of the market, then it may presume the presence of the concerted practise".

Section 2 (c) of this Act define cartel", it says that cartel includes an association of producers,
sellers, distributers, traders or service providers who, by agreement amongst themselves, limit,
control or attempts to control the production, distribution, sale or price of, or, sale in goods or
provision of services."

The main features of cartel are given below:

There should be an agreement, including arrangement and understanding.

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The parties to this agreement should be engaged in trade of same or identical goods or services.

The agreement should be aimed at to limit or control or attempt to control the production,
distribution, sale or price of goods or services.

Cartel is nothing but a formal association of manufacturers or producers, who tries to limit the
competition or to impose restriction on trade or business. The definition of cartel given under
this Act is very wide in nature; it includes both trade and competition, which have some anti-
competitive effects upon the market. Cartels may form for any or all of these given purposes:

To share an agreed or uniform price of the goods or services in the market.

For the market sharing arrangement.

Both of these above-mentioned objects.

The main thing is that a cartel is always aiming at in improving the position of the profit of the
members of it.

Cartels are per se bad. It not only includes acts preventing or restraining the trade or
competition, but also any attempt to do such type of restrains. To include attempts" in the
category of cartels, there are some conditions to be fulfilled,

There should be some intention to commit such type of offences.

Some over act should be done to accomplice that intention.

The overt act must have some direct relation to the act intended.