What Is An “Agreement” Under The Competition Act, 2002

It is the duty of the Competition Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.

The main thrust of The Competition Act, 2002 is to promote and sustain competition in markets and to prevent practices having adverse effect on competition. The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India. The objectives of the Act are sought to be achieved through the Competition Commission of India (CCI), which has been established by the Central Government with effect from 14th October 2003.

It is the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India. Nowadays traders forms cartels by entering into agreements amongst themselves to limit, control, or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services which disturbs the equilibrium of healthy competition and ultimately hampers the economy. At the event of 4th Annual Day Inaugural Lecture organized by Competition Commission of India on 20th may 2013 the Hon’ble Union Finance Minister Mr.P.Chidambaram while speaking on the Conceptual basis of competition said that “innovations emerge from healthy competition, as does economic efficiency.

Non-competitive markets are characterized by a small number of producers or buyers controlling the market. In such a situation, these entities can act as price-setters so as to maximize profits at the expense of other market participants. Such a situation is not only unfair but also reduces economic efficiency, since it shrinks the available economic pie”. (emphasis supplied) To check anti-competitive practices a complaint can be made to the Commissioner who is the authority to enquire into such allegations.

Under the Act, a reference can be made by the Central or State Government. Also, the Commission may suo motu initiate an inquiry. The Act is fairly comprehensive to cover all type of collective agreements or combinations regulating trade terms and conditions between sellers or between the buyers. The most difficult thing while dealing with an allegation of anti-competitive agreements under the Act is interpretation of the term ‘agreement’. The definition of ‘agreement’ as given in Section 2 (b) of The Competition Act, 2002 requires inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings. This definition is an inclusive one and covers not only an agreement in the conventional sense under the Indian Contract Act, 1872 but also any arrangement, understanding or action in concert between two or more parties whether formal or in writing or whether enforceable by law or not.

The Competition Commission of India in Reference Case No.1 of 2012 by DG (S&D) against M/S Puja Enterprises & Ors on 06.08.2013 has held the definition of ‘agreement’ to be a wide one. The CCI was of the view that understanding may be tacit, and the definition covers situations where the parties act on the basis of a nod or a wink. There is rarely a direct evidence of action in concert and the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in co-operation with each other. In the light of the definition of the term ‘agreement’, the Commission has to find sufficiency of evidence on the basis of benchmark of ‘preponderance of probabilities’.

Since the prohibition on participating in anti-competitive agreements and the penalties the offenders may incur being well known, it is normal for the activities which those practices and those agreements entail to take place in a clandestine fashion, for meetings to be held in secret and for the associated documentation to be reduced to a minimum. Even if the Commission discovers evidence explicitly showing unlawful conduct between traders, such as the minutes of a meeting, it will normally be only fragmentary and sparse, so that it is often necessary to reconstitute certain details by deduction. In most cases, the existence of an anti-competitive practice or agreement must be inferred from a number of coincidences and indicia which, taken together, may, in the absence of another plausible explanation, constitute evidence of the existence of an agreement.

The author of this Article is Anupam Srivastava who can be reached at anupam@tcl-india.net