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Part 4: Competition Compliance in India - cartels

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This is part 4 of a ten part series - that was authored by AnantLaw and published by Lexology on 30 April 2020. All laws stated in this series were accurate on 24 February 2020.


Part4: Cartels

Cartel behaviour

What form must behaviour take to constitute a cartel?

‘Cartel’ is defined under section 2(c) of the Competition Act as ‘an association of producers, sellers, distributors, traders or service providers who, by agreement among themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services’.  Summarily, when a (secretive) association of competitors, enterprises or persons aims and agrees to reduce (or cease) competition while giving an impression of there being competition, it may be qualified as a cartel. Another common basis for calling out a cartel includes parallel behaviour in prices, dispatch, supply etc.

The Competition (Amendment) Bill 2020 (the Competition Bill), in addition to attempts to control, includes attempts to limit the production, distribution, sale or price of or trade in goods or the provision of services under the purview of cartel. The Competition Bill also takes into its ambit ‘buyer cartels’.

According to the present definition provided by the Competition Act, there are two essential constituents of a cartel: existence of an agreement and the aim to limit, control or attempt to control. Further, an ‘agreement’ is defined under section 2(b) of the Competition Act to include any arrangement or understanding or action in concert. The understanding or arrangement need not be formal or in writing, and it need not be intended to be enforceable by legal proceedings. Therefore, even a mere nod can constitute an agreement among the parties, and even a mere attempt to cartelise without actually giving effect to it can constitute an infringement of section 3(3) of the Competition Act. In the landmark cases- In Re: Alleged cartelisation in supply of LPG Cylinders procured through tenders by Hindustan Petroleum Corporation Ltd (HPCL) and In Re: Builders Association of India, the Competition Commission of India (CCI) held that the alleged parties cartelised even though there were no express written agreements among the parties to that effect.

In Indian Sugar Mills Association v Indian Jute Mills Association, the CCI found reduced production and capacity utilisation, even when there was a steep increase in the demand, to be an attempt to cartelise and considered it while imposing the penalty under section 27 of the Competition Act.


Avoiding sanctions

Under what circumstances can cartels be exempted from sanctions?

Under section 3(3) of the Competition Act, there is a rebuttable presumption of appreciable adverse effect on competition (AAEC). If a party is able to establish that a conduct has not caused any AAEC, then no violation of section 3(3) (covering cartels) can be established. The Competition Act provides for express exemptions for certain types of horizontal arrangements, as follows.

Horizontal agreement in form of a joint venture

As per the proviso to section 3(3) of the Competition Act, an agreement entered into by way of joint venture is generally considered to increase the efficiency in the production, supply, distribution, storage, acquisition or control of goods and the provision of services; therefore, the presumption of AAEC in the market is not extended to it. The burden of proof to show an AAEC lies on the person alleging that a particular joint venture results in or is likely to result in an AAEC. The CCI in Association of Third-Party Administrators v General Insurers’ Public Sector Insurance and Ors (Case No. 107/ 2013) found a jointly formed captive third-party administrator by all public sector insurance companies to be efficiency enhancing and, accordingly, permissible under the Competition Act. In Indian Glycols Ltd v Indian Sugar Mills Association (Case No. 21/2013), the CCI found joint tendering for ethanol by oil manufacturing companies to be permissible under the Competition Act, thus widening the scope of the joint venture exemption to include agreements with efficiency gains.

Agreements relating to export

Section 3(5)(ii) of the Competition Act exempts an agreement that relates exclusively to the production, supply, distribution or control of goods and services related to exports. In Nirmal Singh Mansahi v Ruchi Soya and Ors (Case No. 76/2012), the CCI found that since 95 per cent of the products were exported, no AAEC in India resulting from the cartel was proven to have been established between the parties.

Agreements entered into to protect IP rights

Section 3(5)(i) of the Competition Act upholds the right to impose reasonable conditions (by way of an agreement) as may be necessary for protecting any of the rights that have been or may be conferred under the Copyright Act 1957; the Patents Act; the Trade and Merchandise Marks Act 1958 or the Trade Marks Act 1999; the Geographical Indications of Goods (Registration and Protection) Act 1999 (48 of 1999); the Designs Act 2000; and the Semiconductor Integrated Circuits Layout Design Act 2000.

Sectoral exemption

The vessel sharing agreements in the liner shipping industry are also exempt from the purview of section 3 of the Competition Act until 3 July 2021.


Exchanging information

Can the company exchange information with its competitors?

There is no specific provision in the Competition Act that provides guidance on the exchange of information among competitors. Generally, companies can exchange information with their competitors provided that the information exchange does not result in the activities prohibited under section 3(3) of the Competition Act. Exchange of information between businesses can be done through various mediums ranging from information shared directly between competitors to information being shared indirectly through a common agency or a third party. Information exchange of commercially sensitive information, such as price-related information or information pertaining to offering discounts; fixing quantities, the production or development of goods or provision of services; marketing, distribution or the supply of goods or the provision of services; market or customer information relating to goods or the provision of services can be seen adversely by the CCI. Commercially sensitive information that is not historical and not anonymised should not be shared with competitors.

The decisional practice of the CCI considers information exchange between competitors that relates to pricing information or provides details of production and dispatch, and where the exchange is accompanied by an impact on prices or production, to be anticompetitive as it facilitates coordination (see Builders Association of India v Cement Manufacturers Association and Ors., Case No. 29/2010). The CCI has, however, in In re: Alleged Cartelisation in Flashlights Market in India (Suo-moto Case No. 01/2017) held that the mere exchange of commercially sensitive information without any impact on prices or production would not be in contravention of the Competition Act. Recently, in Ravi Pal v All India Sugar Trade Association (AISTA) and Ors (Case No. 25/2018), the CCI in relation to the exchange of price sensitive information, such as sugar prices, and forthcoming policy changes by the government on WhatsApp, noted that the information is unlikely to affect free play of the market forces with respect to prices of sugar as it was already available in the public domain.

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