Appreciable Adverse Effects on Competition and Circumstantial Evidence in Anti-Trust Investigations

Introduction:

A significant element for the creation of an efficacious business ecosystem is the existence of free and fair competition. Competition implies a phenomenon wherein in order to solicit customers there is a rivalry that is economic in nature that exists in the market among its players so as to attain their business goals. Monopolies and Restrictive Trade Practices Act,1969 was the foremost competition law to be ratified in India. However, in order to promote competition and prohibit those practices which have an adverse effect on competition instead of concentrating on restraining monopolies, the Competition Act of 2002 (the Act) was enacted.

Appreciable Adverse Effects on Competition (AAEC)

S. 3(1) of the Act forbids any agreement agreed upon that is likely to have an appreciable adverse effect on competition. Such an agreement is held to be void u/s 3(2). Thus, to put it lucidly any practice that restrains competition in the market can be said to have an AAEC.

AAEC can be practiced by three means:

A. Anti-Competitive Agreements

U/s 3(1) of the Act, any agreement that is agreed upon and is likely to have an appreciable adverse effect on competition is forbidden. Such an agreement is held to be void u/s 3(2).

U/s 3(3), an agreement among enterprises or persons or association of enterprises and association of persons (including cartels) involved in similar business is assumed to have an appreciable adverse effect on competition if:

1. Sale price is (directly or indirectly) regulated by it;
2. Markets, production, supply, investment, technological development, offering of services are restricted and swayed;
3. Market or factors of production or services offered are divided by geographical location of the market or division of customers or kinds of goods in the market;
4. Leads to bid or collusive rigging.

However, this sub-section will be inapplicable to agreements wherein the efficacy of production, storage, and supply of goods and services was enhanced and entered into through joint ventures.

U/s 3(4), An agreement among persons and enterprises who are at distinct levels of production and supply of goods or offering services inclusive of exclusionary supply and distribution agreements, tie- in deals, denial of dealing and preserving resale price if they amount to appreciable adverse effects on competition, will be violative of sub-section (1).

B. Misuse of Dominant Status

U/s 4(1), enterprises have been forbidden from misusing their position of dominance.

U/s 4(2), abuse of dominant position is ascertained if the enterprise:

1. Enforces inequitable buying and selling stipulations of goods or services.
2. Restrains the market by constraining the manufacture of goods and offering of services or in order to prejudice the consumer restrains the advancement of goods and services. (both technical and scientific).
3. Engages in practices leading to renunciation of market access.
4. Enters into a contract contingent on supplementary obligations.

C. Combination

A combination comprises of amalgamations, mergers, obtaining shares, and procurement of control. (U/s 5)

U/s 6(2), In a period that extends to not more than 30 days from the day on which the proposal of the merger or amalgamation was ratified by the board of directors, a notice regarding the details of the combination that has been proposed as well as fees has to be issued to the Competition Commission of India (CCI).

U/s 6(2A), a period of not less than 210 days from the date on which the notice was given to CCI is the time period within which the combination will be operative.

U/s 6(4), exceptions to this section have been enumerated. In furtherance of any covenant of a loan or investment agreement, a share subscription or other acquisition by banks, public financial institutions, and foreign institutional investors will not be within the ambit of this section.

 U/s 19(3), the factors to be considered while determining AAEC are disallowing new players from joining the market by formulating impediments, already existing competitors have driven away, preventing competition by formulating impediments from joining the market, advantages accrued by consumers and advancement in the manufacture and supply of goods and services.

Circumstantial Evidence in Anti-Trust Investigations

A major change in the market’s framework is caused when enterprises or persons connive and share information amongst each other by forming cartels. U/s 2(c) of the act, where an endeavor is made to restrain the prices, production, distribution, and sale of goods or offering of services by any organization of sellers, traders, and producers it constitutes a cartel. The majority of the market power rests in their hands when they connive to decide prices, production, supply, and distribution levels.

If prima- facie proof indicates anti-competitive agreements and cartels, then the CCI u/s 26 can direct the Director General (DG) to carry out a probe in the matter. Owing to the decisions given in Neeraj Malhotra v. Deutsche Post Bank Home Finance Limited[1] and in Re: Glass Manufactures[2], it can be concluded that initially, the CCI was of the opinion that in order to prove any violation of the provisions of the act direct evidence was mandatory.

However, ordinarily it is not possible to obtain direct evidence since enterprises or persons that form cartels or enter into anti- competitive agreements do not enter into written agreements. In such situations, it becomes essential to rely on circumstantial evidence. U/r 41 of the CCI (General) Regulations, 2009, the DG and the CCI have been empowered to ascertain the mode in which evidence is adduced which would include both direct and circumstantial evidence or a blend of both.

Evidences wherein the clauses of or parties to the agreement are not expressly stated constitute circumstantial evidence. Some instances of the same are proof of communication between cartels that are suspected to be involved in anti-competitive agreements as well as various bills such as credit card or restaurant or cell phone or even details regarding travel.

Case Laws

Automobiles Association, Hathras, UP v. Global Automobiles Ltd. and Pooja Expo India Ltd.[3]

In this case, to determine the presence of AAEC the CCI opined that the presence of all the factors which have been enumerated in S.3(4) is necessary. The agreement would be assumed to be competitive if there was a possibility that the factors enumerated u/s 3(4) would cause AAEC. Therefore, the defendants must prove that the practices that they are engaged in will not lead to AAEC both in the present as well as the future. (that is the burden of proof is on them)

Builders Association of India v. Cement Manufacturers Association[4]

In this case, it was held that the cement manufacturers were guilty of breaching Ss.3(3)(a) and (b) of the act. It was also opined that the intention of the parties can indicate the presence of an anti-competition agreement. Therefore, in the present case, it was decided that the circumstantial evidence of there being a corresponding change in production and prices of goods suggested that there was a cement cartel that existed and that it was adequate proof for initiation of legal proceedings.

Excel Crop Care Limited v. Competition Commission of India[5]

In this case, the manufacturers of Aluminium Phosphide Tablets had stated an identical price for their product and thus were suspected to have entered into an anti-competition agreement and thereby formed a cartel. Circumstantial evidence was depended upon owing to lack of direct evidence by the Supreme Court. It was opined that although all the manufacturers had independent and distinct production costs and profit margins, they were selling their products at the same price. Thus, they were held to be guilty of breaching S.3 of the act by the court.

Conclusion

The Competition Act, 2009 was enacted to promote competition in the market so as to make available to the consumers a wide range of products at a reasonable price and give them the option to choose amongst them. Factors such as disallowing new players from joining the market by formulating impediments, already existing competitors have driven away, and preventing competition by formulating impediments from joining the market must be considered while determining AAEC. It can be observed that circumstantial evidence is of substantial significance when it comes to cases that are filed u/s 3 of the act. In India, the test of adverse effect is the principal test utilized and circumstantial evidence is also relied upon in competition law. Its advantage is that in cases where there is no direct evidence of anti-competition agreements (which is often the case), circumstantial evidence plays a pivotal role in punishing the guilty.

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[1] Neeraj Malhotra v. Deutsche Post Bank Home Finance Limited, Dec. 2, 2010 (India).

[2] Re: Glass Manufactures, Jan. 24^th ,2012 (India).

[3] Automobiles Association, Hathras, UP v. Global Automobiles Ltd. and Pooja Expo India Ltd., 3^rd Jul.,2012 (India).

[4] Builders Association of India v. Cement Manufacturers Association,31^st Aug.,2016 (India).

[5] Excel Crop Care Limited v. Competition Commission of India, 8^th May,2017 (India).