We have a guest post here by Tilak Dangi. Tilak is law student pursuing B. A. LLB. (Hons.) from the NALSAR University of Law and is currently in his 4th Year.
Introduction
Section 3 of the Competition Act (hereinafter the Act)[1] prohibits anti-competitive agreement(s) which cause or are likely to cause an Appreciable Adverse effect on Competition within India. Currently, Section 3 has two limbs. Firstly, horizontal agreements which are prohibited under Section 3(3) of the act and are presumed to be anti-competitive unless the presumption is rebutted. Secondly, vertical agreements are prohibited under Section 3(4) and are determined based on the ‘rule of reason’ approach. Also, section 3 does not mandatorily require the determination of the relevant market. The Competition Law Review committee (hereinafter CLRC) [2] deliberated the issue of making it mandatory and came to the conclusion that such a mandate will make a Section 3(3) enforcement too rigorous since the CCI has to delineate the relevant market for dealing with all the alleged contravention in this provision and thus the term ‘relevant market’ should not be introduced in section 3(3) of the act.
In this article, the author argues as to why the determination of the relevant market should be mandatory in cases concerning horizontal agreements under section 3(3) as well.
Analysis
In the case of CCI v Coordination Committee of Artists and Technicians of West Bengal Film and Television Industry[3], the case concerning Section 3(3), the apex court said that the primary step is to find out what constitutes the ‘relevant market’? Moreover, the court also mentioned that the factors mentioned under Section 19(7) to determine the relevant market that includes physical characteristics or end-use of goods, classification of industrial products price of goods and services, etc [4] are supposed to be taken into consideration while determining the same.
Thereafter, the CCI approached the apex court for a clarification as it was concerned that the judgment in respect of the “relevant market” may looks like that there is also a necessity to delineate the relevant market in all such cases of Section 3(3). The court clarified the same by mentioning that the determination of the “relevant market” is not a mandatory pre-condition for assessing the alleged violation Under Section 3 of the Act.
Now Section 3(3) states that:
“Any agreement entered into between.…xxx…..including cartels, engaged in identical or similar trade of goods or provision of services, which–…”
Thus, the wordings of the section makes it clear that the essential condition of Section 3(3) is that the opposing parties must be engaged in similar or identical trade.
To counter such allegations, the parties in the case can argue that they do not deal in a similar market and hence Section 3(3) wouldn’t apply to them. Therefore, the Commission has to establish that the entities are engaged under the same relevant market which has to be ascertained by taking factors mentioned under Section 19(7) [5] into consideration.
Factors under Section 19(7) assist to establish that the commodities provided by the different opposing parties are substitutes to each other and therefore both the parties deal with similar or identical trade. It is the question of fact and the CCI cannot presume that the opposing parties deal within a similar trade but have to establish the same. Therefore, only after determining relevant market by factors mentioned under Section 19(7), will the entities will be considered as dealing under the same relevant market.
The CCI has also consistently determined the market in the cases of horizontal agreements. The EPS systems market was mentioned in a suo motu case.[6] In another case,[7] the CCI took note that the market for the supply of such commodity was conducive for cartelisation wherein the DG also mentioned that other companies were market players involved in the cartel. In another case,[8] the Commission analysed anti-competitive conduct in the Dry-Cell Batteries Market in India.
The word ‘market’ in the above cases shall only have meaning of ‘relevant market’ and nothing else[9] which shows the determination of relevant market in terms of the wording ‘similar and identical trade’ of clause of Section 3(3) is mandatory. Therefore, to prove the allegations under section 3(3), it has to be established that the parties deal in the same trade i.e., deal in the same relevant market. This in turn has to be ascertained according to the factors mentioned under Section 19(7).
The reason for the determination of the relevant market being non-mandatory in cases of Section 3(3) as given by the CCI to the apex court is that the AAEC is presumed in such cases. [10] However, it is a settled position of law that the presumption is rebuttable as these agreements are not considered as conclusive proof of the fact that it would result in AAEC. [11] In case such evidence is led, which rebuts the presumption, then the CCI has to take into consideration the factors mentioned in Section 19(3) of the Act and see as to whether all or any of these factors are established.
Therefore, when an agreement under Section 3(3) has been established, the parties can rebut the presumption, and thus, the commission has to show that the presumption has not been rebutted. Before doing so, the parties will have to establish the relevant market to determine the AAEC and the same cannot be escaped.
The clarification of Supreme Court [12] and report of the CLRC with this aspect is per se problematic because a plain reading of Section 19(3) would show that the factors mentioned thereunder have to be taken into consideration to rebut and re-establish the presumption of the AAEC, which makes the determination of relevant market mandatory. Therefore, to determine AAEC which is inevitable, the requirement of the relevant market has to be necessary as the apex court has noted that the word ‘market’ used in Section 19(3) has reference to ‘relevant market’.
In case of Nagrik Chetna Manch v SAAR IT resource Pvt Ltd. and Ors, [13] the Commission considered the factors of Section 19(3) while dealing with the submission of rebuttal of presumption by the opposing party. The CCI observed that the argument of no entry barriers does not stand as the bidding process itself thwarts provision of goods and services by credible players, who lose out in the absence of conditions which foster competition. Therefore, commission observed anti-competitive effects in the case but ironically did not determine the relevant market.
In another case,[14] the Commission went on to mention that by mandating certain requirements, the distributors have been discouraged in entering the distribution channel, their entry may be restricted even if they are otherwise satisfying the requisite criteria. Further, such a restrictive practice does not accrue any benefits to end consumers in as much as the availability of products to the consumers can be adversely affected both in terms of quantity as well as its availability at competitive prices. The contravening trade association and company had failed to exhibit that such practice is in any manner beneficial in terms of factors laid down under clauses (d), (e), and (f) of Section 19(3) of the Act.
The abovementioned cases show the factors mentioned under Section 19(3) were taken into consideration but the irony being that these factors were considered without delineating the relevant market which is the prima facie condition under Section 19(3).
Conclusion
The CLRC report mentions that making determination of the relevant market under Section 3(3) will make it rigorous but at the same time the Commission can’t evade essential requirements mentioned under the Act itself. The pre-requisite mentioned under Section 3(3) itself requires entities entering into such agreements to be dealing in the same relevant market. Moreover, since the presumption is rebuttable and the practice of the Commission in dealing with AAEC arguments also shows the requirement of determination of relevant market. Therefore, the judgment by the apex court as well as the report with this aspect requires reconsideration as determination of relevant market in Section 3(3) is inevitable.
Endnotes:
[1] The Competition Act, 2002, No. 12, Acts of Parliament, 2002.
[2] Ministry of Corporate Affairs, Report of the Competition Law Review Committee, (2019)
[3] Competition Commission of India Vs. Co-ordination Committee of Artists and Ors., AIR 2017 SC 1449.
[4] The Competition Act, 2002, No. 12, Acts of Parliament, 2002.
[5] id.
[6] In Re: NSK Limited and Ors., MANU/CO/0041/2019.
[7] Hindustan Petroleum Corporation Ltd. vs. Allampally Brothers Ltd. and Ors., MANU/CO/0038/2019
[8] Cartelisation in respect of zinc carbon dry cell batteries market in India Vs. Eveready Industries India Ltd. and Ors., 2018 CompLR 467 (CCI).
[9] Competition Commission of India Vs. Co-ordination Committee of Artists and Ors., AIR 2017 SC 1449.
[10] Competition Commission of India Vs. Coordination Committee of Artists and Technicians of West Bengal Film and Television Industry, [2018] 144 CLA 403(SC).
[11] Rajasthan Cylinders and Containers Limited Vs. Respondent: Union of India (UOI) and Ors., [2018]150SCL1(SC)
[12] Competition Commission of India Vs. Coordination Committee of Artists and Technicians of West Bengal Film and Television Industry, [2018] 144 CLA 403(SC).
[13] Nagrik Chetna Manch Vs. SAAR IT Resources Private Limited and Ors., MANU/CO/0033/2019.
[14] Madhya Pradesh Chemists and Distributors Federation Vs. Respondent: Madhya Pradesh Chemists and Druggist Association and Ors., MANU/CO/0021/2019.
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