Section 3(3) of The Competition Act, 2002, deals with anti-competitive agreements between enterprises that are engaged in the same trade. To satisfy this provision, all that needs to be proved is the existence of an agreement, a decision or a practice carried on, that would lead to any of the anti-competitive outcomes mentioned in clause (a) to (d) of the subsection, such as control on pricing, production, supply etc. In other words, these agreements must not hinder the competitive forces of the marketplace.

Once the existence of such agreement, decision or practice is established, the Competition Commission of India (CCI) declares that the enterprises have been in per-se violation of the competitive practices of India. This means that there is no requirement to prove that the actions of the enterprises result in an appreciable adverse effect on the competition in Indian markets. This anti-competitive effect is presumed under law, but such presumption however, is rebuttable at a later stage. The enterprises have an opportunity to show that their actions had more benefit to competition than adverse effect.

In its initial days, CCI required the evidence to prove ‘beyond reasonable doubt’, that the agreement, decision or practice undertaken was in the benefit of competition rather than affecting it adversely. It was thus treating anti-competitive practices at par with criminal law standards. The Hon’ble Supreme Court of India however clarified in subsequent decisions, that the rebuttal of such a presumption requires a ‘balance of probabilities’.[1] Prima facie evidence is often not available in such cases, which is why, the CCI has also maintained that there is no necessity of presenting direct evidence.[2]

To prove that the probability of the actions benefiting competition is higher than it being an adverse effect to it, two kinds of evidence can be used: economic evidence and conduct based evidence. Economic evidence includes parallel movement in prices and level of market concentration among other things. The Competition Commission of India looks at it as ‘parallelism’, i.e. parallel movement of price and parallel movement of dispatch. The commission however, rarely ever takes a decision based purely on economic evidence. The competition law regimes of the European Union and United States of America however, are better equipped to interpret situations in this manner due to their long standing jurisprudence in competition law matters.

Parallelism must be analysed in the light of market factors. The first question that the decision making authority needs to consider is if there is any parallel behaviour by the enterprises. If this answer to the aforesaid is in the affirmative, then they need to analyse the presence of any market justifications for such parallel behavior of the enterprises. There are some considerations required to be made in this process, that includes the kind of market the players were part of. In an oligopoly for instance, products are usually homogenous and price discovery is very easy. In such cases therefore, mere parallelism is not sufficient and the deciding authority needs to look beyond.

The Indian competition regime follows a system of ‘parallelism plus’, regardless of whether the economic evidence is sufficient to demonstrate balance of probabilities. A comparative example of how the CCI uses economic and conduct based evidence to show balance of probabilities can be seen from Builders Association of India vs Cement Manufacturing Association, 2012[3] (hereinafter referred to as the Cement Cartel case) and Shailesh Kumar vs Tata Chemicals Limited & Ors., 2013[4] (hereinafter referred to as the Soda Ash case) along with All India Tyre Federation vs Tyre Manufacturers[5] (hereinafter referred to as the Tyre Cartel Case).

In the Cement Cartel case, the Builder’s Association of India had filed a complaint against the Cement Manufacturer’s Association, blaming them of being involved in cartel like behavior by way of price collusion. In addition to the parallel pricing by the cement companies, which amounted for economic evidence, CCI also considered conduct-based evidence which included amendments to the constitution of the Cement Manufacturer’s Association, rapid change in prices after a meeting of the association and cement prices of cement competitors. Considering all the aforesaid, the Commission decided that the cement manufacturers were in fact involved in cartel-like behaviour, and therefore engaged in anti-competitive practices under Section 3(3) of the Act.

The Competition Commission of India however, failed to consider the nature of the market that cement manufacturing comprises, as well as the current situation of the market. Cement companies operate in a oligopolistic market, which makes price discovery as well as price matching very easy for the players in the market. Additionally, in this case, the Competition Commission of India did not consider that another reason for the price hike of cement, was also the increase in the price of certain raw materials. Further, they failed to recognise that market demand was fluctuating in that period, leading to reduction in produce and therefore increase in price.

The Competition Commission of India however, is a fairly new establishment and does not hesitate in learning from its mistakes. In the Soda Ash case, the informant had alleged that the companies, through the Alkali Manufacturers Association of India, were participating in cartel-like behaviour and manipulating the prices and production of soda ash by sharing confidential information. Similarly in the Tyre Cartel case, it was alleged that the domestic tyre industry through their meetings of the Automotive Tyre Manufacturers’ Association were undertaking anti-competitive conduct coupled with a long history of the existence of cartel like behaviour in the sector.

In these case however, the CCI accepted that evidence cannot be considered in isolation and must rather be examined with regard to extraneous market forces and the context of the market. In the Tyre Cartel case for example, it was highlighted that the market was highly concentrated with only five manufacturers, paired with entry barriers, cheaper imports and the existence of a homogenous product among other things. This made the situation complex to decide. CCI reached the conclusion that the decrease in prices was due to recession and not collusion. Similarly in the Soda Ash case, what appeared to be a collusion in pricing was in fact the effect of the dynamics of the oligopolistic markets, wherein firms due to the interdependence in the market, mimic each-others prices.

To conclude, while calculating the parallelism plus factors, the Competition Commission of India has also consistently used the ‘but for’ test to see whether the parallel behaviour of firms would have happened but for the agreement, decision or practices of the enterprises. If and only in the event, that the action of the enterprise has had undesired anti-competitive effects on the concerned market, does such action constitute to violation of Section 3(3). While the test and its interpretation is defined, the power to allude weightage to various factor is up to the discretion of the CCI. Needless to say, the Competition Act of 2002 and the Competition Commission of India established under the said Act, form an ever evolving system and is more volatile than any other law regime in India, owing to the unpredictable nature of Indian economy, Indian businesses and the Indian market.

[1] Vijay v Laxman & Anr, (2013) 3 SCC 86

[2] Builders Association of India v Cement Manufacturers Association, Case No. 29 of 2010

[3] Id.

[4] Shailesh Kumar vs Tata Chemicals Limited & Ors, Case No. 66 of 2011.

[5] All India Tyre Federation vs Tyre Manufacturers, RTPE No. 20 of 2008.

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ABOUT THE AUTHOR

Shruti Khaitan

Shruti is a final-year law student at Jindal Global Law School. She has her eyes set on pursuing a career in corporate law and has particular interest in the fields of Dispute Resolution and Competition Law.