INTRODUCTION

India was among the first developing countries to have a competition law in the form of the
erstwhile Monopolies and Restrictive Trade Practices (MRTP) Act, 1969. Anti-competitive
agreements were also covered under the erstwhile MRTP in India. MRTP Act used restrictive trade
practices (RTPs) as the nomenclature to define such type of practices. Under MRTP, restrictive trade
practice was defined as a trade practice which has or may have the effect of preventing, distorting or
restricting competition. Cartels which are pernicious form of horizontal agreements were not
defined under the MRTP Act. As decided by Supreme Court in a case discussed in detail below, no
extraterritorial jurisdiction was given to Monopolies and Restrictive Trade Practices Commission
(MRTPC), so it was unable to take action against cases which emerged outside India having an
adverse effect on competition in India. MRTPC was only empowered to pass and cease and desist
orders and it was not empowered to levy fines and penalties on the violators. MRTP Act was the law
depicting command and control regime in India as was evident from various provisions like
registration of agreements and dominance per se being considered bad. Section 35 of the MRTP Act,
1969 required every agreement relating to Restrictive Trade Practices falling within one or more of
the categories enumerated in Section 33(1) of the Act to be furnished for registration within 60 days
of the making of such agreement. The dawn of new competition law in India in 2003 has seen not
only the nomenclature change but change in the philosophy of the law which is in tune with the
times and international jurisprudence.

2. Anticompetitive Agreements under the Competition Act

The term ‘agreement’, has been defined broadly in the Competition Act. It extends to a mere
‘arrangement’, ‘understanding’ or ‘action in concert’, none of which need be in writing or
enforceable by law. In a case, the CCI said that agreement also includes anticompetitive practice
which in this case was the anticompetitive practice of not offering discounts on the maximum retail
price (MRP) of the drugs to the consumers. The necessity for a broad definition of the term
agreement has been aptly described by Lord Denning in an old case “People who combine together
to keep up prices do not shout it from the housetops. They keep it quiet. They make their own
arrangements in the cellar where no one can see. They will not put anything into writing nor even
into words. A nod or wink will do.” Section 3(1) of the Competition Act lays down 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.
The Act prohibits an anti-competitive agreement and declares that such an agreement shall be void.

3. Horizontal Agreements under the Competition Act

The earlier module briefly explained the distinction between horizontal and vertical agreements
which can have anticompetitive effects in the market. Though the Competition Act itself does not
explicitly classify agreements into horizontal and vertical agreements, the language used in clauses
(3) & (4) of section 3 of the Act clearly indicates this classification.

Section 3(3) of the Competition Act deals with the horizontal agreements as it covers the
agreements between entities engaged in identical or similar trade of goods or provision of services.
It also includes cartels which will be covered in detail below.

The section covers:

a. agreement entered into between enterprises or associations of enterprises or persons or

associations of persons or between any person and enterprise

b. practice carried on by any association of enterprises or association of persons

c. decision taken by any association of enterprises or association of persons

From the above it is clear that section 3(3) of the Act not only covers agreements entered into
between enterprises or associations of enterprises but also the practice carried on or decision taken
by any association of enterprises engaged in identical or similar trade of goods or provision of
services.

In Re Bengal Chemists and Druggists Association(BCDA) case, CCI held that all actions and
practices of BCDA including those relating to issues such as alleged fixation of trade margins, issuing
circulars directing its retailer members not to give discount on the MRP in the sale of medicines to
consumers, conducting raids in order to ensure strict compliance of its directives, carrying out
vigilance operations to identify the retailers defying the direction issued by it, forcing the defiant
members to shut their shops as a punishment measure etc. would fall squarely as ‘practice carried
on’ or ‘decision taken’ by an ‘association of enterprises’ under Section 3(3) of the Act.

4. Types of Horizontal Agreements under the Competition Act

The agreements between firms at the same level of production chain are called horizontal
agreements and are covered under section 3 (3) of the Act. Horizontal agreements are often due to
collusion which can be explicit or implicit. Collusion implies an attempt by competing firms to
recognise their interdependence and attempt to act together rather than compete and can be
viewed as a move towards joint profit maximisation, normally by controlling the supply of
commodities. Section 3(3) of the Competition Act enlists four broad classifications of horizontal
agreements which are presumed to cause an appreciable adverse effect on competition (AAEC) in

Fixing Trade Margins and other anticompetitive practices in distribution for

Drugs in India

In M/s Peeveear Medical Agencies, Kerala v. All India Organization of Chemists and Druggist
(AIOCD) and Ors., CCI found All India Organization of Chemists and Druggists (AIOCD) guilty for
fixing trade margins and limiting and controlling the supply of drugs in the market. CCI held that
AIOCD because of its position as an apex body of chemists and druggists is having full control
over the stockists / retailers of drugs and medicines all over the country and is able to
continuously engage in limiting and controlling the supply and market and influencing the prices
of the drugs and pharmaceutical products through anticompetitive practices like insisting upon
NOC for appointment of stockists, fixation of trade margins etc. In Re Bengal Chemists and
Druggists Association(BCDA) case,BCDA was alleged of issuing circulars which directed the
retailers not to give any discount to the consumers. The CCI observed that the activities of BCDA
inter alia to direct its members to sell drugs only at their MRP is a palpable anti-competitive
conduct and activities of the BCDA are in conflict with the objects of the competition law as they
cause restraint of trade, stifle competition and harm the consumers. CCI imposed a penalty of Rs
18.38 crores on BCDA and its office bearers and also directed the BCDA and its office bearers and
executive committee members to cease and desist from indulging in such anticompetitive
practices.
India. Further, this section will describe these four types of horizontal agreements in details with
relevant decided cases.

1)Agreements regarding pricing………. s (3 (3a))

2)Agreements regarding quantity and quality……s(3 (3b))

3)Agreements regarding market sharing………..s (3 (3c))

4)Agreements regarding bid rigging………..s (3(3d))

4.1 Agreements regarding Prices

A price fixing agreement occurs when competitors make written, informal or verbal agreements or
understandings on prices for selling or buying goods or services, minimum prices, a formula for
pricing or discounting goods and services, rebates, the magnitude of profit margins, the level of price
increases,and allowances or credit terms. Agreements related to fixing prices are called naked
restraints and are given harsh treatment by the competition authorities worldwide. As would be
discussed in detail below, the Competition Act also presumes that price fixing agreements have
adverse effect on competition.

4.2 Agreements regarding quantity and quality

There can be a scenario where competitors agree to restrict and control the production thereby
controlling the supply in the market. Output restrictions can take place through various forms
including agreements on production volumes and agreements on sales volumes. The objective of
controlling and limiting supplies is to create scarcity in the market and subsequently raise prices in
the market. Such output restriction agreements lead to dead weight loss in the society. For example,
in a US Lysine Cartel case , five competing Lysine producers met and allocated the annual ‘sales
volume’ quotas among themselves, they acknowledged the provision as being of ‘vital importance to
overall scheme to control the industry.
 Case Related to Films Distribution decided by CCI

CCI found North Indian Motion Pictures Association (NIMPA) guilty of anti-competitive
conduct of imposing compulsory registration of films before their release and refusing to
register films. The CCI held that the conduct of NIMPA in refusing to register the film in the
name of Eros International Ltd., and not allowing it to exhibit the film by instructing its
members was restrictive in nature. The Commission also ruled that the compulsory registration
of the film with the trade association was an inbuilt pressure on the distributor to register its
film with the concerned association as the film could not be released without registration. In
another case the CCI observed that film distribution associations like KFCC, NIMPA, CCCA,
MPA, FDA and Telangana Telugu Film Distributors Association insist for registration of films
before their release in their territories and holds that such act limit the supplies of films in
different territories and contravene the provisions of section 3(3)(b) of the Act. Such acts are
anticompetitive from the aspect that these actions restrict competition between members and
non members.

4.3 Market Allocation

Market sharing, or market allocation, is where competitors agree to divide up markets between
themselves. This could be by allocating customers, products or geographic regions to each other.
market allocating agreements are considered as one of the most restrictive anticompetitive
practices, as they do not leave any room for competition in the relevant market and are considered
per se illegal in most jurisdictions. Section 3(3)(c) enlist horizontal agreements which are aimed at
sharing the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the market or
any other similar way.

4.4 Bid Rigging

The Act provides a definition for bid rigging and it covers agreements having effect of eliminating or
reducing competition for bids or adversely affecting or manipulating the process for bidding .Bid
rigging can cause serious economic harm as it increases prices artificially, lowers quality and leads to
loss of taxpayers' money. There can be different forms of bid rigging:
 Subcontract bid-rigging: Under this type of bid-rigging the conspirators agree not to submit bids,
or to submit cover bids that are intended not to be successful, on the condition that some parts of
the successful bidder's contract will be subcontracted to them.

 Complementary bidding: It is also known as cover bidding or courtesy bidding. It involves a

situation where some of the bidders bid an amount which is too high or contains unacceptable
conditions. Thus, in essence, cover bidding might give the impression of competitive bidding. In
reality, suppliers agree to submit symbolic bids that are unreasonably high to succeed.

 Bid suppression occurs where some of the conspirators agree not to submit a bid so that another
conspirator can successfully win the contract.

 Bid rotation occurs where the bidders take turns being the designated successful bidder, for
example, each conspirator is designated to be the successful bidder on certain contracts, with
conspirators designated to win other contracts. This is a form of market allocation, where the
conspirators allocate or apportion markets, products, customers or geographic territories among
themselves, so that each will get a "fair share" of the total business, without having to truly compete
with the others for that business.

It has been seen generally seen that the above discussed forms of bid-rigging are not mutually
exclusive of one another. One can see two or more of these practices occurring at the same time in a
tender process. For example, if one member of the bidding rigging is designated to win a particular
contract, that bidder's conspirators could avoid winning either by not bidding (which will be bid
suppression), or by submitting a high bid (which implies cover bidding).
 Penalty on Suppliers of Food Preservatives to FCI

In Re: Aluminium Phosphide Tablets Manufacturers case related to the allegations of

anti-competitive acts and conduct in the tender for procurement of Aluminium
Phosphide Tablets (ALP) required for preservation of central pool food grains by Food
Corporation of India.In this case, CCI taking suo-motto cognizance from a letter sent by
the Chairman of Food Corporation of India (FCI), imposed a total penalty of317 crores
on three companies supplying aluminium phosphide tablets (used for storing food
grains) to the Food Corporation of India (FCI) for limiting the supply of the said product
in the relevant market under Section 3(3)(b) and for manipulating the bidding process
under Section 3(3)(d) of the Act.

5. Cartels under the Competition Act

Cartels are one of the egregious anticompetitive practices undertaken by market players. Fighting
cartels is on the priority list of competition authorities worldwide because of their nature and the
effects they have on the consumers and the economy. Unlike the erstwhile MRTP Act, the
Competition Act defines cartels. The main ingredients of the definition of the cartel provided under
the Act are:

i. an agreement which includes arrangement or understanding

ii. the agreement is amongst producers, sellers, distributors, traders or service providers i.e.
parties engaged in identical or similar trade of goods or provision of services, and
iii. iii. the agreement aims to limit, control or attempt to control the production, distribution,
sale or price of, or, trade in goods or provision of services.

Thus, cartel is one type of horizontal anticompetitive agreement provided under the Act and
is presumed to have an appreciable adverse effect on competition. A cartel is said to exist
when two or more enterprises enter into an explicit or implicit agreement to fix prices, to
limit production and supply, to allocate market share or sales quotas, or to engage in
collusive bidding or bid-rigging in one or more markets.
6. Exceptions & Exclusion Under the Competition Act,

There are certain provisions which provide for the exemptions and carve out exclusion from
the provisions of the horizontal agreements. These provisions are as follow:
a. Efficiency enhancing joint ventures are not treated as illegal. As per the proviso to
section 3(3) of the Act, the prohibition on horizontal agreements does not apply to joint
ventures if such joint ventures increase efficiencies in production, supply,distribution,
storage, acquisition or control of goods or provision of services
b. Section 54 of the Act states that by the Central Government’s notification, certain
classes of enterprises may be exempted from the purview of the Act. The government
can exempt any class of enterprise in public interest or security of State, any practice or
agreement arising out of international treaty and any enterprise performing sovereign
functions. For example, under this provision, the liner shipping agreements, which are
generally horizontal in nature and aim at fixing freight rates passenger fares over
different shipping routes also amongst other things, were given exemption for one year
in India in 2013.
c. Export cartels are exempted under the provisions of the Act . Since exports do not
impact markets in India, agreement between exporters, in spite of being horizontal, are
exempted. Such exemption to export cartels is provided in laws of various countries.
d. Section 3 (5) of the Act states that provisions of section 3 would not restrict the right of
any person to restrain any infringement of, or to impose reasonable conditions, as may
be necessary for protecting his rights conferred upon him under certain Acts. These
Acts are the Copyright Act, 1957, the Patents Act, 1970, the Trade Marks Act, 1999, the
Geographical Indications of Goods (Registration and Protection) Act, 1999, the Designs
Act, 2000 and the Semiconductor Integrated Circuits Layout Designs Act, 2000. Thus,
the law recognises the special position of intellectual property rights and in order to
facilitate their protection, it permits reasonable restrictions in the agreements imposed
by their owners for the protection of intellectual property rights under specified Indian
IP laws.
e. The activities of the Government of India relatable to “sovereign functions”, including
all activities carried on by departments of the Central Government dealing with
defence, space, atomic energy and currency, are outside the scope of the Competition
Act.
7. Joint Ventures

The proviso to section 3(3) states that “Provided that nothing contained in this sub-section shall
apply to any agreement entered into by way of joint ventures if such agreement increases efficiency
in production, supply , distribution, storage, acquisition or control of goods or provision of services.”
This gives an exemption for joint ventures. The term ‘joint venture’ implies a positive arrangement
which is aimed at increasing the synergies and efficiencies of the parties to the joint venture. Such
exemption to joint ventures is justifiable economically also and it is important for enterprises to
enter into arrangements which enhances their efficiencies and is beneficial to the enterprises. Such
efficiencies can lead to joint research & development, innovation, economies of scale & scope and
can ultimately be beneficial to the consumers.

8. Standard of Analysis

Horizontal Agreements are presumed to have an appreciable adverse effect on competition under
the Competition Act. The onus of proof is on the person or the enterprise concerned to prove that
the agreement does not fall under the prohibited category. The presumption contained in section
3(3) of the Act is rebuttable and the opposite parties may produce evidence to controvert the
presumption contained therein. It is pertinent here to mention the observations of CCI regarding the
burden of proof in a recent case dealing with fixing of prices of drugs.

The CCI observed :

“Once existence of the prohibited agreement, practice or decision enumerated under section 3(3) is
established, there is no further need to show an appreciable adverse effect on competition because
in such a case, a rebuttable presumption of law is drawn that such conduct has an appreciable
adverse effect on competition and is therefore anti-competitive. In effect, the onus of proof shifts on
to the opposite parties to show that the impugned conduct does not cause an appreciable adverse
effect on competition.”
Cartels, by their very nature are secretive and thus it is difficult to find the direct evidence of their
presence. The orders of the CCI clearly point that CCI relies on circumstantial evidence, both
economic and conduct-based, to reach its decision on the existence of a cartel agreement. It can be
seen with time CCI is adopting a more economics based analysis. In two of the early cases, the tyre
cartel case xiv and Deutsche Bank the CCI held that the existence of an agreement must be
established ‘unequivocally’. In these cases it appears that CCI was following the standard of ‘beyond
reasonable doubt’ for proving the existence of an agreement. Later, in the soda ash cartel and shoe
cartel case, the CCI observed that the standard of proof required for establishing the existence of an

Cement Cartel Case decided by CCI

In Builders Association of India v. Cement Manufactures case, CCI relied upon the settled
jurisprudence in other jurisdictions as well as on the guidelines of international agencies such as the
OECD in support of its decision that cartels can be prosecuted without direct evidence of agreement
and on the basis of circumstantial evidence alone.CCI directed the cement manufacturers to cease and
desist from indulging in activities relating to agreement, understanding or arrangement on prices,
production and supply of cement in the market. Further, CCI directed the Cement Manufacturers
Association (CMA) to disengage and disassociate itself from collecting wholesale and retail prices
through the member cement companies and also from circulating the details on production and
dispatches of cement companies to its members, as sharing of prices facilitates cartelisation. Besides
these directions, heavy monetary penalties have also been imposed on all the 11 major cement
manufacturers as well as on the CMA. The CCI imposed a penalty of over Rs 6,000 crore on 11 leading
cement producers after finding them guilty of forming cartels to control “prices, production and
supply” of cement in the market.

agreement is one of ‘balance of probabilities’. Circumstantial evidence concerning the market and
the conduct of market participants may also establish an anti-competitive agreement and suggest
concerted action.

From the decided cases till date, it can be seen that CCI examines conduct based as well as economic
evidence in cases related to horizontal agreements. Example of conduct based evidence examined
by CCI include evidence of meetings between competitors, doubtful sharing of documents, similar or
identical bidding prices, membership and role of trade associations and any history of cartelisation in
India or other jurisdictions. Example of economic evidence examined by CCI include the level of
market concentration, trends in capacity utilisation by the enterprises, parallel movement of prices,
and variations in cost-structures across firms.
9. Assessing Appreciable Adverse Effect on Competition

Section 19(3) of the Act states that the CCI shall while determining whether an agreement has an
appreciable adverse effect on competition under section 3, have due regard to all or any of the
following factors, namely: -

a) creation of barriers to new entrants in the market;

b) driving existing competitors out of the market;

c) foreclosure of competition by hindering entry into the market;

d) accrual of benefits to consumers;

e) improvements in production or distribution of goods or provision of services;

f) promotion of technical, scientific and economic development by means of production or

distribution of goods or provision of services.

As listed above, there are six different set of factors which are specifically mentioned in section
19(3) of the Act. These factors are worded generally and thus prescribe broad tests to be applied
while assessing AAEC. Broadly these set of factors can be divided into positive and negative factors.
The first three set of factors in this list can be classified as negative factors which mainly relate to the
concept of entry barriers. Entry barriers can be divided into structural entry barriers related to
economic nature of the industry and strategic entry barriers related to behaviour of the incumbent
firms in the market. The aim of considering the negative factors is that market players get a level
playing field. The rest of the three factors listed above can be classified as positive factors which aim
at promoting competition. It shows that Cement Cartel Case decided by CCI In Builders Association
of India v. Cement Manufactures case, CCI relied upon the settled jurisprudence in other
jurisdictions as well as on the guidelines of international agencies such as the OECD in support of its
decision that cartels can be prosecuted without direct evidence of agreement and on the basis of
circumstantial evidence alone . CCI directed the cement manufacturers to cease and desist from
indulging in activities relating to agreement, understanding or arrangement on prices, production
and supply of cement in the market. Further, CCI directed the Cement Manufacturers Association
(CMA) to disengage and disassociate itself from collecting wholesale and retail prices through the
member cement companies and also from circulating the details on production and dispatches of
cement companies to its members, as sharing of prices facilitates cartelisation. Besides these
directions, heavy monetary penalties have also been imposed on all the 11 major cement
manufacturers as well as on the CMA. The CCI imposed a penalty of over Rs 6,000 crore on 11
leading cement producers after finding them guilty of forming cartels to control “prices, production
and supply” of cement in the market. contemplate as to whether the action leads to benefit to
consumers, improvements in production or technical or scientific improvement leading to economic
development. Thus, both set of factors need to be taken in to consideration while determining the
appreciable adverse effect on competition. CCI tends to balance these factors to analyse whether
the conduct in question is anticompetitive by causing appreciable adverse effect on competition. As
earlier discussed, the rule of presumption regarding AAEC in section 3(3) of the Act shifts the onus
on the opposite party to rebut the said presumption. In FICCI Multiplex Association of India case,
CCI has held that the factors mentioned in section 19(3) may be considered by the Commission while
rebutting the presumption of anticompetitive agreements.

10 .Extraterritorial Jurisdiction

Section 32 of the Act grants the CCI extra-territorial jurisdiction over anticompetitive
conduct which has an appreciable adverse effect on competition within India. Any
anticompetitive activity taking place outside India but having an appreciable adverse effect
on competition within India shall be subject to the application of the Competition Act. The
CCI in such cases can pass such orders as it deems fit. An enabling provision has been
provided whereby the CCI, with the prior approval of the Central Government, may enter
into arrangements and memorandum of understanding with foreign agencies. CCI can enter
into cooperation agreements with competition authorities in other countries. It has entered
into agreements with jurisdictions like EU, US and Australia. Such cooperation arrangements
are very helpful as they help in mutual organisational learnings, good collaborations for
detection of anticompetitive practices and greater enforcement of competition laws. Such
cooperation and extra-territorial jurisdiction is pivotal in taking action against hard core
international cartels and in proper utilisation of cooperation agreements with agencies of
other jurisdictions.
11. Remedies

The Act gives wide discretion to CCI to frame the remedies to overcome the anticompetitive
situation due to horizontal anticompetitive agreements. Following orders can be passed by
CCI in case of anticompetitive agreements:
a) As per section 33 of the Act, during the course of inquiry, the CCI can pass interim order
restraining a party from continuing with anti-competitive agreement
b) CCI may direct a delinquent enterprise to discontinue and not to re-enter
anticompetitive agreement.
c) CCI may also direct modification of such anticompetitive agreement so as to remove
the anticompetitive effects.
d) CCI may impose a penalty up to 10% of the average turnover for the last three
preceding financial years of the enterprise.
e) Section 27 (b) of the Competition Act, 2002 distinguishes between cartel and other
anticompetitive agreements in terms of imposition of penalty. In case of a cartel, the
CCI can impose on each member of the cartel, a penalty of up to three times its profit
for each year of the continuance of such agreement or up to ten percent of its turnover
for each year of continuance of such agreement, whichever is higher.
f) Section 48 of the Act incorporates individual liability and provides for liability of
individuals who were actively and/or passively involved in the contravention of the
provisions of the Act by the company that they were in charge of, and were responsible
for the conduct of the business of the company.
g) CCI can direct the enterprises concerned to abide by such other orders as the
Commission may pass and comply with the directions, including payment of costs, if
any; and
h) CCI may pass such other order or issue such directions as it may deem fit. The
enforcement of cartels is a civil law process under the Act. The Act does not provide for
criminal liability other than for wilful default in implementing orders of the commission.
In case of searches and seizures, certain prior procedural permissions are required to be
taken from criminal courts. There is an element of personal liability under the Act.
Further, it is pertinent here to mention that new Companies Act provides for a bar on
directorship if found guilty under an offence under the Competition Act. In Re Bengal
Chemists and Druggists Association case, the office bearers and executive members of
the BCDA were found to be guilty of the contravention of section 3 and penalties were
levied on the BCDA and its those office bearers who were directly responsible for
running its affairs and play lead role in decision making @10% and on the executive
committee members @7%, of their respective turnover/income/receipts. From the
above, it is clear the CCI has got wide discretion in designing the remedies so that the
anticompetitive effects of the agreements are taken care of. Unlike erstwhile MRTPC,
the CCI can impose penalties and has got the discretion to pass any order as it deems fit
in the case.
 CONCLUSION

This project dealt with the provisions related to the horizontal agreements under the Competition
Act in India. Horizontal agreements are the agreements between the competitors at the same level
and can be in different forms like price fixing, controlling quantity or quality, market allocation and
bid rigging. Keeping in view their nature and effect on competition, such agreements are presumed
to have an appreciable adverse effect on competition. Cartels are also included in such agreements.
The Act rightly recognises and exempts situations where there can be cooperation agreements or
joint ventures which have efficiency enhancing effects. The Act also contains provisions for the
leniency which are in line with the international developments to devise an effective framework for
detecting cartels.