Tuesday, January 1, 2013

Presumption under Section 3 of the Competition Act, 2002

First things first, I wish all readers of the blog a Happy New Year! May we learn more this year, and may we get opportunities to apply what we learn!

The first post of this year will be on Competition law since it is an area I am interested in, and which is expected to feature more in IP disputes in the near future (I have earlier written a few posts on the subject).

Last January, I had written two posts on legality of collective bargaining arrangements in light of Section 3(3) of the Competition Act. Interpreting Section 3(3), I had written as follows:

(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment or provision of services;
(c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding;

shall be presumed to have an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by
way of joint ventures if such agreement increases efficiency in production, supply, distribution,
storage, acquisition or control of goods or provision of services.

The provision deals with cartel-like conduct. Like most provisions of the Competition Act, 2002, it raises rebuttable presumptions of anti-competitive conduct. This is clear from the phraseology of Section 3(3) which says “shall be presumed to have an appreciable adverse effect on competition in India”.

Precisely because the presumption is rebuttable, a strict “per se” approach to the behaviour of a party under Section 3(3) would be wrong in law. Stated otherwise, a narrow view of an allegedly anti-competitive action/agreement would run counter to legislative intent.”

I’d like to re-visit the above underscored conclusion. Section 3(3) of the Act says if any agreement has any of the effects enumerated thereunder, it “shall be presumed to have an appreciable adverse effect on competition”. I had earlier taken the view that the presumption is rebuttable and hence a “per se” view under Section 3(3) may be wrong in law. However, on comparison with the language in Section 3(4), it is possible to arrive at a different conclusion.

Section 3(4) reads as follows:

(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including-
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,

Shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India.

What is evident is that unlike sub-section 3, there is no “shall be presumed” in sub-section 4. This could mean that the standard of proof required under sub-section 4 to prove violation of sub-section 1 is higher than under sub-section 3.

Further, it could also be said that the presumption under sub-section 3 is not meant to be rebuttable, and that upon establishment of any of the effects enumerated thereunder, the appreciable adverse effect on competition shall be presumed. This probably is the basis for the association of the “per se” rule with sub-section 3.

The Proviso to sub-section 3 also seems to support this line of interpretation since it is meant to be an exception to the presumption under sub-section 3. In other words, the two possible defenses to the allegation of cartelization could be to prove that the agreement does not attract any of the effects enumerated under the sub-section, or that the agreement is covered by the Proviso.

Comments and corrections are welcome!

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