Horizontal Agreements

& its legal implications under

the Competition Act

Group 2

J001-PRANESH BHAVNANI
J003-SHIVAM VARSHNEY
J008-YASHASVI GUPTA
J016-JOTIKA MAHESHWARI
J027-IPSITA DEBNATH
J035- RAJARSHI RAGHAV
J048-TATSAT CHOPRA
 INTRODUCTION
● Competition laws are introduced to regulate the manner in which businesses are
conducted, so as to create a level playing field with effective competition in the
market

● The underlying intent for this statute is for businesses to compete on merit, and not
with the aid of anti- competitive agreements or conduct

● The Competition Act, 2002 was enacted by the Parliament of India and governs
Indian competition law

● This act extends to whole of India except the State of Jammu and Kashmir
 THE COMPETITION ACT, 2002

An Act to provide, keeping in view of the economic development of the country, for the
establishment of a Commission to:

● prevent practices having adverse effect on competition

● promote and sustain competition in markets

● protect the interests of consumers

● ensure freedom of trade carried on by other participants in markets, in India and for matters
connected therewith or incidental thereto
 PURPOSE OF THE ACT
• To prohibit the agreements or practices that have or are
likely to have an appreciable adverse effect on
competition in a market in India, (horizontal and
vertical agreements / conduct);

• To prohibit the abuse of dominance in a market;

• To prohibit acquisitions, mergers, amalgamations etc.

between enterprises which have or are likely to have
an appreciable adverse effect on competition in
market(s) in India
 ANTI-COMPETITIVE ARRANGEMENTS

• Anti-competitive arrangements are those that have as their object to, or actually effect in
preventing, restricting or distorting competition in any market in India

• Such arrangements cover not only agreements, but also decisions made by association of persons /
enterprises, as well as the conduct of parties acting in collusion

• Adverse effect on competition refers not to a particular list of agreements, but to particular
economic consequences which may be produced by quite different sorts of agreements in varying
time and circumstances
 POINTS TO PONDER

In this Act, unless the context otherwise requires,

(a)“cartel” includes an association of producers, sellers, distributors, traders or service providers who,
by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale
or price of, or, trade in goods or provision of services;

(b) “agreement” includes any arrangement or understanding or action in concert,—

(i) whether or not, such arrangement, understanding or action is formal or in

writing; or
(ii) whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings;
 Horizontal Agreements (Cartels)
These are agreements between enterprises (including a person, a
Government department and association of persons/enterprises)
not to compete on price, product (including goods and services) or
customers.
Horizontal Agreements (Cartels)

These are agreements

between enterprises
(including a person, a
Government department
and association of
persons/enterprises) not to
compete on price, product
(including goods and
services) or customers.
 Types of Horizontal Agreements:

Determine Purchase / Sharing/Allocation of

Sale Price market based on
geography or markets

Control Production,
Supply, Tech
Bid rigging
Developments,
investments etc
 CASE 1:

Bid Rigging In Tender Floated By

IOCL For LPG Cylinders
 STRUCTURE

CCI
APPELANTS’ SUPREME
INTRODUCTION OBSERVATION
ARGUMENT COURT RULING
S
 CASE INTRODUCTION
• The Hon'ble Supreme Court emphasized the need to evaluate the market structure and market
conditions to arrive at a finding of cartel

• This judgment is a trend setter and is likely to bring a change in the manner of evaluation of
evidence on cartels by the antitrust regulator in future

• There was no sufficient evidence to establish an "agreement" amongst the suppliers of LPG
cylinders ("Appellants") for bid rigging/collusive bidding in the tender floated by IOCL
thereby setting aside the orders passed by COMPAT dated 20.12.2013 which had upheld the
findings of CCI vide order dated 24.2 2012 in Suo Moto Case No. 03/2011 

• Appellants - manufacturers of gas cylinders to be procured by OMCs

 OBSERVATIONS

1
Identical or near
identical bids

Active trade
2 association of
appellants

Entry Barriers
3 for new bidders
 APPELLANTS’ CONTENTIONS:

● The Ld. Counsel appearing for Rajasthan Cylinders and Containers (Ms. Madhavi
Divan) attacked the very foundation on which CCI/COMPAT concluded that there
was a cartel for bid rigging

●  The Counsel based her case on three main propositions,

○ The inherent nature of the market for sale of LPG cylinders which precludes
possibility of competition

○ No collusive agreement or bid rigging existed and

○ Even if a collusive agreement is presumed, there was no appreciable adverse

effect on competition (AAEC)
 REBUTTALS BY CCI
● In rebuttal, the Ld. Senior Counsel for CCI (Mr. Salman Khurshid), also relying upon the
Supreme Court judgment submitted that  Market Sharing Arrangement, resulting in
Geographical/Territorial allocation of market in such a way that entities located in the northern
parts of the country were awarded the tender in the northern States, entities located in the
southern parts were awarded the tender in respect of southern States, No plausible economic
rationale or explanation was forthcoming for the identical bids, despite obvious difference in cost
of production, location, input cost etc., the overall effect of increase in price of procurement of
LPG Cylinders over previous years

● The Ld. Counsel, refuted the first legal contention of Ms. Divan that Section 3 was not applicable
since there was no competition in the first place and stressed that if the matters are examined on
such basis most of the culprits will get away. The purpose of the Act was not only to eliminate
cartelization but also to promote competition
 ..CONTINUED

● Answering the argument of 'price parallelism' which according to the appellants

resulted in identical and near identical bids, Mr. Khurshid argued that legal
submission in this respect was settled by this Court in Excel Crop Care7 case wherein
such an argument was rejected (... argument of parallelism is not applicable in bid
cases and it fits in the realm of market economy..)

● Further, as per the Ld. Counsel , the analysis of bids revealed that there was a market
sharing and territorial allocation of bids, which was evidenced from the fact that each
and every bidder got some part of allocation under the tender in one or more states
and that no one went empty handed
 SUPREME COURT’S TAKE
The Court noted the "attendant circumstances" which prevailed, such as

● There are only three buyers. Among them, IOCL is the biggest buyer with 48% market share

● Limited number of buyers and for some reason if they do not purchase, the manufacturer may deter
new entrants from entering the market,

● Evidence was received which showed that IOCL's internal estimate arrived at a figure of Rs.1106.61
per cylinder and all the orders were placed on each bidder at a price lesser than the aforesaid
estimated price of IOCL. After this, negotiations were undertaken with the L1 bidder which lead to
further reduction of prices quoted by L1 bidder and thereafter L2 and L3 bidders were awarded
contract at the rate at which it was awarded to L1, the only difference being the quantity. Ultimately,
all the bidders supply the goods at the same rate which is fixed by the IOCL after negotiating with
L-1 bidder,
 ..CONTINUED
● There were 12 new entrants, which cannot be treated as less. Therefore, the conclusion of CCI that
the appellants ensured that there should not be entry of new entrant may not be correct,

● Since there are not many manufacturers and supplies needed by the three buyers on regular
basis, IOCL ensures that all those manufacturers whose bids are technically viable, are given some
order for the supply of specific cylinder, so that the supply of this essential product is always
maintained for the benefit of the general public, since it was necessary to keep all parties afloat and
this explains why all 50 parties obtained order along with 12 new entrants,

● The governmental control which is regulated by law. 14.2 kg LPG cylinders as mandated in the
LPG (Regulation and Distribution) Order, 2000 , issued under the provisions of Essential
Commodities Act, 1955, ensures that even the price at which the LPG cylinder is to be supplied to
the consumer is controlled by the Government
 THE FINAL JUDGEMENT

● The Hon'ble court held that "we come to the conclusion that the inferences drawn by
the CCI on the basis of evidence collected by it are duly rebutted by the appellants and
the appellants have been able to discharge the onus that shifted upon them on the basis
of factors pointed out by the CCI. However, at that stage, the CCI failed to carry the
matter further by having required and necessary inquiry that was needed in the instant
case

● The Supreme Court while concluding with its order also emphasized that in such a
watertight tender policy by IOCL which gave it full control, it was necessary to
summon IOCL which would have cleared many aspects which are shrouded in
mystery and the dust has not been cleared
 CASE 2:
Horizontal Agreements in the Cement and Tyre
Industry in India and the impact of their Judgements
 A BACKGROUND OF SECTION 3

● Anti-competitive agreements are prohibited under Section 3 of the Act, providing that
any agreement in its contravention shall be void

● The term ‘agreement’ has been clarified in Section 2(b)

● Offers competition authorities a degree of ease in prosecuting anti-competitive

behavior
 CARTELIZATION

● The Act defines the term ‘cartel’ as follows:

“cartel” includes 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

● Application of Section 3 involves the determination of whether an agreement has an

appreciable adverse effect on competition, a term that is not defined in the Act
 THE CEMENT CASE

THE CASE AND REPERCU-

INTRODUCTION CONCLUSION
RULING SSIONS
 INTRODUCTION
• In Builders Association of India, decided in June 2012, the Commission came to the
conclusion that a group of cement manufacturers under the umbrella organization of the
Cement Manufacturers Association had indulged in cartelization, in contravention of Section
3(3) of the Act

• Since the cement industry was de-controlled in 1989, and the subsequent consolidation of
cement manufacturers during 2001-02, the cement industry has been widely characterized as
an oligopolistic market, operating through anti-competitive collusion.

• Attempts have been made since 1991 to hold liable cement manufacturers for collusive price
setting under the MRTP Act. However, these efforts were largely unsuccessful
 THE CASE AND RULING:

• In 2012, the DG inter alia found that there had been a significant rise in cement prices over the
time period under investigation, and such price increases were attributed to more than just
natural reasons, such as rise in cost of raw materials

• Relying heavily on circumstantial evidence, it concluded that market forces alone did not
determine price, with prices moving “in the same manner and same direction” pursuant to
regular meetings held by members of the CMA. Consequently, the Commission imposed a
hefty cumulative fine of Rs. 6,300 crore on the parties
 … Continued :

• In the Cement case specifically, the Commission found that in addition to likeness in pricing

due to prior consultations between the parties, there was also capacity underutilization and
production and dispatch parallelism amongst them

• Relying heavily on In the cement manufacturers were guilty for their post meeting conduct in
price fixing
THE REPERCUSSIONS :
In case of contraventions by cartels - A maximum
penalty of three times the profit or 10% of the
turnover, whichever is higher, for every year of such
contravention

Imposition of a Rs. 6,300 Crore fine in the Cement

case had raised its own concerns

Benchmark under the legislative mandate with

respect to the ceiling of the penalty on the basis
of profits
 CONCLUSION :

Communication The Commission

evidence and response to such
Market forces and
determination of prices inadequate communication with
circumstantial respect to the Cement
evidence case
 THE TYRES CASE

COMPARISON
KEY FACTORS CASE AND
INTRODUCTION TO CEMENT
AND FINDINGS JUDGEMENT
CASE
 INTRODUCTION :

• In October 2012, in All India Tyre Dealers’ Federation case, the Commission found that since
the tyre manufacturing market is highly concentrated and oligopolistic in nature (thereby
making it ordinary for each party to know what the other is doing) meetings held by the
manufacturers did not amount to cartelization under Section 3(3) of the Act

• It is settled law in a variety of jurisdictions, including India, that price parallelism between

parties is not enough to prove a claim for cartelization. Indian law, like the law of the
European Union and the United States, requires “plus factors” in addition to just similarity in
pricing to be punishable for cartelization under Section 3(3) of the Act
 FACTORS TAKEN IN FOR JUDGEMENT:
• Highly concentrated market

• The nature of demand for tyres;

• Homogenous products;

• Competitive constraints of re-treaded tyres and imports;

• Entry barriers;

• Existence of an active trade association

 KEY FINDINGS
• Price-cost trend;

• Implications of the price parallelism methodology;

• Capacity utilization trends;

• Margin trends and ranges;

• Market share dynamics;

• The activities of the trade association did not contravene the Act
 CASE AND RULINGS

• Evidence was, by itself, not enough to infer guilt

• India’s open door policy of tyre imports

• HENCE, THE CCI RULED THAT THE TYRE MANUFACTURERS HAD NOT
INDULGED IN COLLUSION AND HENCE VINIDICATED THEM!
 COMPARISON TO CEMENT CASE

The judgement of the cement case was exactly the opposite of that of the tyres
case. Hence, several analysts voiced their concern that circumstantial evidence is
hard to prove even when two cases are of a similar nature hence not leading to a
similar judgement
 OECD REPORT CONCLUSIONS

• Use the circumstantial evidence: “holistically, giving its cumulative effect, rather than on an
item-by-item basis”

• Risk associated with the subjective application of circumstantial evidence is not in itself
enough to prove “agreement” between parties

• Circumstantial evidence may be relied on, but has to conclusively exclude the possibility that
the acts were independent decisions of competitors
THUS, THESE CASES GO ON TO PROVE THAT HORIZONTAL
AGREEMENTS ARE UNFAIR PRACTICES. IN A FREE MARKET,
COMPANIES HAVE TO BE GIVEN A FAIR OPPORTUNTY TO THRIVE
THANK YOU