CCI on cartels: Object outweighs the effect

By Avinash Amarnath and Shruthi Rao, Chandhiok & Mahajan

The Competition Commission of India (CCI) decides an allegation of cartelization using two factors. It decides whether the conduct amounts to an agreement under section 3(3) of the Competition Act, 2002 (act), and, if so, whether it is an anti-competitive agreement under section 3(1) of the act. Section 3(3) of the act provides that conduct amounting to an agreement raises a presumption that such an agreement has an appreciable adverse effect on competition (AAEC). The enterprise under inquiry must rebut this presumption to prove that the conduct is not anti-competitive.

Avinash Amarnath, Chandhiok & Mahajan
Avinash Amarnath
Chandhiok & Mahajan

Indian antitrust jurisprudence includes a variety of factors and principles to rebut the presumption of AAEC under section 3(3) sufficient to conclude that the conduct falls short of the requirement of section 3(1). These include the lack of implementation of an agreement, suo moto case number 01 of 2017; the nature of the product and market, Civil Appeal number 3546 of 2014; the lack of anti-competitive factors under section 19(3), and the existence of pro-competitive factors under section 19(3).

However, two recent decisions of the CCI, Ref. case number 03 of 2016 and suo moto case number 05 of 2017 have witnessed a change in the standard of rebutting the presumption raised by section 3(3). These decisions suggest that arguments regarding market realities or the lack of AAEC cannot be raised if there is tangible evidence regarding actual conduct. In these cases, the CCI did not accept the lack of AAEC as an argument in view of the language of section 3(1), which states that conduct likely to cause AAEC is also anti-competitive.

Shruthi Rao, Chandhiok & Mahajan
Shruthi Rao
Chandhiok & Mahajan

The CCI held that the parties must prove the pro-competitive effects of the agreement or conduct, relying on factors under sections 19(3)(d) to 19(3)(f)) to show that the conduct is not anti-competitive. These decisions indicate a stricter approach towards cartelization and a narrowing of the factors parties may use to rebut the presumption of AAEC.

The legal framework for assessing cartels broadly corresponds with the approach adopted in the European Union (EU). In the EU, cartels are regarded as restrictions of competition by object, that is those restrictions which “by their very nature have the potential to restrict competition within the meaning of article 101(1). It is not necessary to examine the actual or potential effects of an agreement on the market once its anti-competitive object has been established.” (Guidelines on horizontal cooperation agreements issued by the European Commission).

However, article 101(3) of the Treaty on the Functioning of the European Union (TFEU) allows parties to justify restrictions by object if they: contribute to improving the production or distribution of goods or to promoting technical or economic progress; allow consumers a fair share of the resulting benefit; do not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives, and do not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

While the broad framework of assessment of cartels is similar to that in the EU, the key difference is that in the EU there is a clear four-part test that determines when the presumption of AAEC may be rebutted. The recent decisions of the CCI reflect an evolving and stricter approach in analysing horizontal conduct. It seems that the CCI, similar to the EU, considers a cartel illegal by object. An enterprise must prove the existence of pro-competitive effects of the conduct to displace the presumption raised by section 3(3). However, this raises the question as to what exactly is the test for parties to rebut a presumption of AAEC. Simply stating that parties must prove the existence of pro-competitive effects to displace the presumption may be too broad or vague. The recent decisions of the CCI do not make clear the thresholds or tests that parties must satisfy to rebut the presumption of AAEC.

The CCI seems to have recognized this problem as it did not impose any penalties in these decisions. The CCI directed the parties to cease and desist from indulging in these practices observing that the “ends of justice would be met if the parties cease such cartel behaviour and desist from indulging in it in future”. In ref case number 03 of 2016, no penalty was imposed as the parties co-operated and admitted their role in the conduct; and they they were also facing economic hardship because of the covid-19 pandemic. These decisions demonstrate that the objectives of the act can be met without harming the enterprises in today’s difficult economic conditions.

Avinash Amarnath is a counsel and Shruthi Rao is an associate at Chandhiok & Mahajan.

competition law

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