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GLOBAL COMPETITION REVIEW
Vertical Agreements
The regulation of distribution practices
in 37 jurisdictions worldwide
2012
Contributing editor: Stephen Kinsella OBE
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J Sagar Associates
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India
Amit Kapur, Farhad Sorabjee and Amitabh Kumar
J Sagar Associates
Antitrust law
1 What are the legal sources that set out the antitrust law applicable to
vertical restraints?
The Antitrust law is codified in the Competition Act 2002 (CA02).
CA02 is the primary source of antitrust law in India and deals with
competition-related issues such as anti-competitive agreements,
abuse of dominance, mergers and acquisitions and so on. There
are sectoral regulatory laws such as the Electricity Act 2003, the
Petroleum and Natural Gas Regulatory Act 2007 and the Telecom
Regulatory Authority of India Act 1997, which deal with competition-related issues within the sectors to which they apply in addition
to entry and price regulation. Section 3(4) of CA02 prohibits any
agreement among enterprises or persons at different stages or levels
of the production and supply chain pertaining to production, supply,
distribution, storage, sale or price of, or trade in goods or provision
of services, which causes or is likely to cause an appreciable adverse
effect on competition in India.
Since India is a common law jurisdiction, in addition to the statute, judgments are an important source of law. Since the Competition
Commission of India (CCI), the statutory body constituted under
CA02, assumed its statutory role only in May 2009, the body of
precedent on CA02 is at a nascent stage.
CCI has notified certain regulations for the implementation of
CA02:
• the Competition Commission of India (General) Regulations
2009;
• the Competition Commission of India (Procedure for engagement of experts and professionals) Regulations 2009;
• the Competition Commission of India (Meeting for transaction
of business) Regulations 2009;
• the Competition Commission of India (Lesser Penalty) Regulations 2009; and
• the Competition Commission of India (Procedure in regard to
the transaction of business relating to combinations) Regulations
2011.
CCI has also brought out booklets on certain provisions of the law
as part of its advocacy initiative.
Types of vertical restraint
Any type of vertical restraint not contained in the list may also attract
the prohibition if found to cause or be likely to cause an appreciable
adverse effect on competition.
Legal objective
3 Is the only objective pursued by the law on vertical restraints
economic, or does it also seek to promote or protect other interests?
The stated objective of CA02 is to ‘prevent practices having adverse
effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of
trade carried on by other participants in markets, in India, and for
matters connected therewith or incidental thereto’ keeping in view
the economic development of the country. As such, besides the protection of competition, the other important objectives of CA02 are
the protection of consumer interests and the economic development
of the country – which may include employment, infrastructure and
diverse aspects of economic development. In this context, section
18 of CA02 clearly prescribes the duties of the CCI, which include
elimination of anti-competitive practices, promotion of competition,
protection of consumer interests and ensuring freedom of trade.
Responsible authorities
2 List and describe the types of vertical restraints that are subject
to antitrust law. Is the concept of vertical restraint defined in the
antitrust law?
Section 3(4) contains an illustrative list of agreements which constitute vertical restraints and covers any vertical agreement that causes
or is likely to cause appreciable adverse effects, namely:
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• t ie-in arrangement – includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase
some other goods;
• exclusive supply agreement – includes any agreement restricting in any manner the purchaser in the course of its trade from
acquiring or otherwise dealing in any goods other than those of
the seller or any other person;
• exclusive distribution agreement – includes any agreement to
limit, restrict or withhold the output or supply of any goods or
allocate any area or market for the disposal or sale of the goods;
• refusal to deal – includes any agreement which restricts, or is
likely to restrict, by any method the persons or classes of persons
to whom goods are sold or from whom goods are bought; and
• resale price maintenance – includes any agreement to sell goods
on condition that the prices to be charged on the resale by the
purchaser shall be the prices stipulated by the seller unless it is
clearly stated that prices lower than those prices may be charged.
4 Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible
authorities, how are cases allocated? Do governments or ministers
have a role?
CCI is the authority primarily responsible for enforcing prohibition
of anti-competitive practices, including vertical restraints. The Office
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of the Director General (DG) is the investigative authority responsible
for the investigation pursuant to directions of CCI which submits its
findings for decision-making to CCI. Appeals against orders of CCI
lie before the Competition Appellate Tribunal (CompAT). Appeals
against the orders of the CompAT lie to the Supreme Court of India.
CA02 bars the jurisdiction of civil courts in competition matters.
The central government retains the power to:
• grant exemption under section 54 of CA02 to:
•a class of enterprises for reasons of national security or public
interest;
•uphold commitments made under a treaty; and
•an enterprise discharging sovereign functions;
• issue binding directions to CCI on matters of policy under section
55 of CA02; and
• supersede CCI under certain circumstances under section 56 of
CA02.
Jurisdiction
5 What is the test for determining whether a vertical restraint will
be subject to antitrust law in your jurisdiction? Has the law in your
jurisdiction regarding vertical restraints been applied extraterritorially?
Has it been applied in a pure internet context and if so what factors
were deemed relevant when considering jurisdiction?
The test to determine whether a vertical restraint is anti-competitive
and attracts the jurisdiction of the CCI is whether the practice has
or is likely to cause ‘appreciable adverse effect on competition’ in
India. If the appreciable adverse effect of the said practice is in India,
whether the parties are situated in the country or outside is irrelevant
and the definition of ‘person’ in section 2(l) includes a body corporate incorporated outside India. Extraterritoriality of the jurisdiction
of CCI, that is, power to deal with enterprises, persons, combinations, agreements or any other practice or action arising out of such
agreements situated outside India but undermining competition in
India is confirmed by section 32 of CA02.
Agreements concluded by public entities
6 To what extent does antitrust law apply to vertical restraints in
agreements concluded by public entities?
The law applies to public entities and government departments
engaged in commercial activities and the exemption for sovereign
functions is strict, specific and limited. Indian law follows competitive neutrality in respect of ownership. The definition of enterprise
includes a government department not discharging sovereign functions; a person is defined to include natural and juridical persons,
statutory authorities, companies, trusts, et al. Only sovereign functions of the government including all activities carried on by the
departments of the Central Government dealing with atomic energy,
currency, defence and space are expressly excluded by law.
Sector-specific rules
7 Do particular laws or regulations apply to the assessment of vertical
restraints in specific sectors of industry (motor cars, insurance, etc)?
Please identify the rules and the sectors they cover.
CA02 does not provide sector-specific provisions nor are there any
rules or regulations to this effect. CA02 applies across sectors without any sector-specific regulations or rules. However, as mentioned
above, some sectoral laws like the Electricity Act 2003 empower the
sectoral regulator to deal with competition issues.
J Sagar Associates
General exceptions
8 Are there any general exceptions from antitrust law for certain types of
agreement containing vertical restraints? If so, please describe.
Under CA02, there are two exceptions to the general prohibition
against anti-competitive agreements, namely:
• reasonable restrictions as may be necessary for protecting intellectual property rights conferred by six Indian laws; and
• those exclusively for export of goods or services.
In addition, the central government has been empowered under section 54 of CA02 to exempt from the application of CA02:
• any class of enterprise if such exemption is necessary in the interest of security of the state or public interest;
• any practice or agreement arising out of and in accordance with
any obligation assumed by India under any treaty, agreement or
convention with any other country or countries; and
• any enterprise which performs a sovereign function on behalf of
the central government or a state government; such exemption
may be granted only in respect of activity relating to the sovereign function.
Agreements
9 Is there a definition of ‘agreement’ – or its equivalent – in the antitrust
law of your jurisdiction?
The term ‘agreement’ has been defined under section 2(b) of CA02
to include any arrangement or understanding or action in concert:
• whether or not such arrangement, understanding or action is
formal or in writing; or
• whether or not such arrangement, understanding or action is
intended to be enforceable by legal proceedings.
10 In order to engage the antitrust law in relation to vertical restraints,
is it necessary for there to be a formal written agreement or can the
relevant rules be engaged by an informal or unwritten understanding?
The definition of ‘agreement’ under section 2(b) of CA02 includes
formal written agreements as well as any informal arrangement or
understanding or action in concert irrespective of the same not being
in writing and not being intended to be enforced in law. Since no case
of infringement of section 3(4) of the Act has been decided by the
CCI as yet, there are no precedents to throw light on what kind of
informal agreements will invite its attention.
Parent and related-company agreements
11 In what circumstances do the vertical restraints rules apply to
agreements between a parent company and a related company (or
between related companies of the same parent company)?
Although ‘related company’ has not been defined under CA02, the
term ‘group’ in relation to undertakings has been defined to mean
two or more enterprises which, directly or indirectly, are in a position to:
• exercise 50 per cent or more of the voting rights in the other
enterprise (26 per cent substituted by 50 per cent by notification
No. S.O.481(E), dated 4 March 2011, which is valid for a period
of five years);
• appoint more than 50 per cent of the members of the board of
directors in the other enterprise; or
• control the management of the affairs of the other enterprise.
CA02 does not make any exception for related or group companies
and they are expected to operate at arm’s length as far as competition
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law in India is concerned. An anti-competitive agreement between a
parent company and a related company inter se would be subject to
inquiry under CA02.
Agent–principal agreements
12 In what circumstances does antitrust law on vertical restraints apply
to agent–principal agreements in which an undertaking agrees to
perform certain services on a supplier’s behalf for a sales-based
commission payment?
Section 3(4) of CA02 applies to an agreement between different entities operating at different levels in the production and supply chain,
and would apply to agent–principal agreements under the following
circumstances, which are inclusive:
• limitations on the territory in which the agent may sell goods or
services;
• limitation on the customers to whom the agent may sell the
goods or services;
• limitation on the number of customers in the market;
• prices and conditions at which the agent must sell or purchase
goods or services;
• provisions preventing the principal from appointing other agents
in respect of a given type of transaction, customer or territory;
and
• provisions preventing the agent from acting as an agent or distributor of undertakings which compete with the principal (-single branding provisions).
It is noteworthy that the Supreme Court of India, in a judgment
relating to the now repealed Monopolies and Restrictive Trade Practices Act 1969 (MRTP Act), the precursor to CA02, had applied the
rule-of-reason test to an exclusive distribution agreement involving
territorial limitation.
13 Where antitrust rules do not apply (or apply differently) to agent–
principal relationships, is there guidance (or are there recent authority
decisions) on what constitutes an agent–principal relationship for
these purposes?
There is no specific provision in CA02 dealing with this issue and
the judicial interpretation is yet to evolve. Under the current scheme
of CA02, the terms ‘enterprise’ and ‘person’ include more than one
entity. Generally, an agent and a principal are treated as two distinct
entities or persons under different laws, such as:
• under the Indian Contract Act 1872 (section 181):
•an agent is a person employed to do any act for another, or
to represent another in dealings with third person; and
•the person for whom such an act is done, or who is so represented, is called the ‘principal’;
• for the purposes of taxation, a principal and its agent are considered separate entities under tax laws. Thus, ordinarily the antitrust law on vertical restraints should apply to agent–principal
agreements unless they are merely a single economic entity.
To date, CCI has not delivered any order dealing with ‘agent principal’ relationships.
Intellectual property rights
14 Is antitrust law applied differently when the agreement containing the
vertical restraint also contains provisions granting intellectual property
rights (IPRs)?
protect his IPRs. A person has a right to impose reasonable restrictions as may be necessary to protect any of his rights conferred by
the following statutes:
• the Copyright Act 1957;
• the Patents Act 1970;
• the Trade and Merchandise Marks Act 1958;
• the Geographic Indications of Goods (Registration and -Protection) Act 1999;
• the Designs Act 2000; and
• the Semi-Conductor Integrated Circuits Layout-Design Act
2000.
Reasonable restrictions imposed to safeguard IPRs conferred by
six Indian laws are outside the purview of the agreement clauses in
the law. However, the exemption in section 3(5) of CA02 does not
extend to abuse of dominance provisions.
Analytical framework for assessment
15 Explain the analytical framework that applies when assessing vertical
restraints under antitrust law.
While Indian law presumes that certain specific horizontal agreements cause an adverse effect on competition, there is no such presumption in the case of vertical agreements. Such a presumption is
always rebuttable on facts although the burden is heavy on the person challenging it. Indian civil and commercial laws require evidentiary standard of the balance of probabilities, that is, the proposition
is more likely to be true than not true.
Vertical restraints, on the other hand, are subject to the rule-ofreason test. It is noteworthy that the Supreme Court, while interpreting the MRTP Act, acknowledged the persuasive value of US courts
in applying the rule of reason to anti-competitive agreements under
section 1 of the Sherman Act 1890. While assessing vertical agreements under the antitrust law, CA02 provides for an effects-based
analysis. While making such assessment, section 19(3) of CA02 provides for six factors all or any of which the CCI must look into while
determining whether an agreement is anti-competitive, namely:
• creation of barriers to new entrants in the market;
• driving existing competitors out of the market;
• foreclosure of competition by hindering entry into the market;
• accrual of benefits to consumers;
• improvements in production or distribution of goods or provision of services; and
• promotion of technical, scientific and economic development by
means of production or distribution of goods or provision of
services.
It is noteworthy that three factors are those which undermine competition and the other three factors are pro-competitive. Thus, on
balance, if the anti-competitive effects outweigh the pro-competitive
effects, the agreement is likely to be declared to be an infringement.
There are no guidelines to suggest what will constitute barriers to
entry. Whether the size of the parties to an agreement by itself would
be regarded as a barrier to entry cannot be answered today. The factors are not readily measurable or quantifiable and a lot will depend
on how the jurisprudence evolves. For example, whether benefit to
consumers, which is not immediate but can be expected after a time
lag, will be considered pro-competitive by the CCI is unclear.
The law does not mandate the delineation of the relevant market
for the assessing the effects of an anti-competitive agreement. Few
experts still believe that the effect must be seen in the relevant market.
In the absence of precedents or guidelines, it is not possible to predict
what view the competition authorities will adopt.
In CA02, the provisions with regard to anti-competitive agreements
do not restrict the right of any person to restrain any infringement of
his IPRs, or to impose reasonable conditions as may be necessary to
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16 To what extent are supplier market shares relevant when assessing
the legality of individual restraints? Are the market positions and
conduct of other suppliers relevant? Is it relevant whether certain
types of restriction are widely used by suppliers in the market?
In terms of sections 3 and 19(3) of CA02, relevant market and market shares have not been included as criteria to ascertain the legality
of agreements. However, to assess the legality of individual restraint,
concept of both relevant market and market shares of players/suppliers thereof may assume significance. Indian jurisprudence on
competition assessment on anti-competitive agreements is yet to
evolve.
17 To what extent are buyer market shares relevant when assessing the
legality of individual restraints? Are the market positions and conduct
of other buyers relevant? Is it relevant whether certain types of
restriction are widely agreed to by buyers in the market?
Although the law is silent about the impact of a buyer’s market share
on competition assessment, it may become a relevant consideration
since the ability of the supplier will be greatly reduced when confronted by a buyer with significant market power. A widely accepted
practice may not be relevant in determining whether it is in breach of
competition law, but it may perhaps be considered for determining
the quantum of penalty. The first Indian precedent is awaited. Hence
it would not be appropriate to give illustrations at this stage.
Block exemption and safe harbour
J Sagar Associates
20 Have the authorities considered in their decisions or guidelines resale
price maintenance restrictions that apply for a limited period to the
launch of a new product or brand, or to a specific promotion or sales
campaign; or specifically to prevent a retailer using a brand as a ‘loss
leader’?
Indian authorities have made no decisions on resale price maintenance nor are there any guidelines to this effect. It may be presumed
based on international precedents that any resale price maintenance
restrictions may pass muster if they apply:
• for a limited period to the launch of a new product or brand; or
• to a specific promotion or sales campaign; or
• specifically to prevent a retailer using a brand as a ‘loss leader’
if the same is for protecting intellectual property rights, more
specifically for protecting the brand or trademark.
21 Have decisions or guidelines relating to resale price maintenance
addressed the possible links between such conduct and other forms
of restraint?
The authorities have made no decisions nor are there any guidelines
to this effect.
22 Have decisions or guidelines relating to resale price maintenance
addressed the efficiencies that can arguably arise out of such
restrictions?
The authorities have made no decisions nor are there any guidelines
to this effect.
18 Is there a block exemption or safe harbour that provides certainty
to companies as to the legality of vertical restraints under certain
conditions? If so, please explain how this block exemption or safe
harbour functions.
The Indian law does not provide for block exemption and does
not have any safe harbours. The only exemptions recognised under
CA02 are:
• export-related agreements;
• protection of intellectual property rights; and
• power of central government under section 54 to exempt any
class of enterprise for reasons of:
•national security or public interest;
•any practice or agreements to uphold commitments made
under a treaty; or
•an enterprise discharging sovereign functions.
It is expected that safe harbours will evolve through matters that are
decided by the competition authorities.
Types of restraint
19 How is restricting the buyer’s ability to determine its resale price
23 How is restricting the territory into which a buyer may resell contract
products assessed? In what circumstances may a supplier require a
buyer of its products not to resell the products in certain territories?
Restricting the territory into which a buyer may resell contract
products is covered under section 3(4)(c), ‘exclusive distribution
agreements’, and would have to be assessed in the context of the
considerations provided in section 19(3). If any such agreement
is assessed to cause or to be likely to cause appreciable adverse
effects on the market, it would be seen as an anti-competitive
agreement.
24 Explain how restricting the customers to whom a buyer may resell
contract products is assessed. In what circumstances may a supplier
require a buyer not to resell products to certain resellers or endconsumers?
Restricting customers to whom a buyer may resell contract products
is an anti-competitive agreement if it causes an appreciably adverse
effect on competition, as provided under section 3(4)(c) of the Act,
subject to the exceptions regarding the protection of intellectual
property rights and for purposes of export.
assessed under antitrust law?
Under section 3(4) of CA02, resale price maintenance is a vertical
restraint subject to a rule-of-reason test and prohibited only when
the anti-competitive effects outweigh the pro-competitive effects on
the evaluation of the six factors provided in section 19(3). However,
suggesting a recommended retail or resale price should be acceptable
as long as the reseller is free to charge a higher or lower price.
25 How is restricting the uses to which a buyer puts the contract products
assessed?
As mentioned above, jurisprudence on the issue has yet to evolve in
India. A vertical agreement of this nature would be assessed on the
basis of the rule-of-reason test as per the criteria provided under section 19(3) of CA02, as explained above.
26 How is restricting the buyer’s ability to generate or effect sales via the
internet assessed?
Competition law in India is relatively nascent. CA02 does not have
any express prohibition or restriction on buyers using the internet for
advertising or selling. CCI has not issued any decisions or guidance
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to date in relation to restrictions on buyers using the internet for
advertising or selling.
27 Have decisions or guidelines on vertical restraints distinguished in any
way between different types of internet sales channel?
The authorities have made no decisions nor are there any guidelines
to this effect.
35 How is restricting the buyer’s ability to obtain the supplier’s products
from alternative sources assessed?
An agreement restricting the buyer’s ability to obtain the supplier’s
products from alternative sources, that is, an exclusive supply agreement, would be assessed on the basis of the rule-of-reason test as
provided under section 19(3) of CA02. If the supplier is found to
be a dominant player in the upstream market, it may be subject to
inquiry for abusing dominance by imposing unfair or discriminatory
condition in the sale of goods under section 4 of CA02.
28 Briefly explain how agreements establishing ‘selective’ distribution
systems are assessed. Must the criteria for selection be published?
Selective distribution systems being in the nature of vertical agreement under section 3(4)(d) would be assessed on the basis of the
rule-of-reason test as per the criteria provided under section 19(3)
of CA. Thus, if there is an objective criterion for selection which is
non-discriminatory, such a system may be permitted.
There is no order or guideline as to whether such criteria of selection should be published or not.
29 Are selective distribution systems more likely to be lawful where they
relate to certain types of product? If so, which types of product and
why?
A vertical agreement of this nature would be assessed on the basis
of the rule-of-reason test as per the criteria provided under section
19(3) of CA02. At times, the product may be such that it warrants a
selective distribution system, for example, pharmaceutical products.
30 In selective distribution systems, what kinds of restrictions on
internet sales by approved distributors are permitted and in what
circumstances? To what extent must internet sales criteria mirror
offline sales criteria?
CA02 does not have provisions specifically dealing with internet sales
in selective distribution systems. There are, at present, no decisions
or guidelines that have been issued on the issue.
31 Has the authority taken any decisions in relation to actions by
suppliers to enforce the terms of selective distribution agreements
where such actions are aimed at preventing sales by unauthorised
buyers or sales by authorised buyers in an unauthorised manner?
36 How is restricting the buyer’s ability to sell non-competing products
that the supplier deems ‘inappropriate’ assessed?
Restricting the buyer’s ability to sell non-competing products that the
supplier deems ‘inappropriate’ would be assessed on the basis of the
rule-of-reason test as per the criteria provided under section 19(3) of
CA02. In case the supplier is found to be a dominant player in the
upstream market, it may be subject to inquiry for abusing dominance
by imposing unfair or discriminatory condition in the sale of goods
under section 4 of CA02. In such a situation the supplier can also be
subject to inquiry for abuse of dominance by indulging in practices
resulting in denial of market access.
37 Explain how restricting the buyer’s ability to stock products competing
with those supplied by the supplier under the agreement is assessed.
Restricting the buyer’s ability to stock products competing with
those supplied by the supplier under the agreement, that is, an exclusive supply agreement, would be assessed on the basis of the ruleof-reason test as per the criteria under section 19(3) of CA02, as
explained above. If the supplier is found to be a dominant player in
the upstream market, it may be subject to inquiry for abusing dominance by imposing unfair or discriminatory conditions in the sale of
goods under section 4 of CA02.
38 How is requiring the buyer to purchase from the supplier a certain
amount or minimum percentage of the contract products or a full
range of the supplier’s products assessed?
Quantity forcing or full-line forcing would be assessed on the basis
of the rule-of-reason test as per the criteria under section 19(3) of
CA02, as explained above.
CCI has to date not issued any order in a case of this nature.
39 Explain how restricting the supplier’s ability to supply to other
32 Does the relevant authority take into account the possible cumulative
restrictive effects of multiple selective distribution systems operating
in the same market?
There are no precedents to suggest whether CCI would take into
account the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market. However,
nothing bars the CCI from doing so.
33 Has the authority taken decisions dealing with the possible links
between selective distribution systems and resale price maintenance
policies? If so, what are the key principles in such decisions?
CCI has to date not issued any order in a case of this nature.
34 Has the authority taken decisions (or is there guidance) concerning
distribution arrangements that combine selective distribution with
restrictions on the territory into which approved buyers may resell the
contract products?
resellers, or sell directly to consumers, is assessed.
Restriction of a supplier’s ability to supply to other resellers, or sell
directly to consumers, would be assessed on the basis of the ruleof-reason test as per the criteria under section 19(3) of CA02, as
explained above.
40 To what extent are franchise agreements incorporating licences of
IPRs relating to trademarks or signs and know-how for the use and
distribution of products assessed differently from ‘simple’ distribution
agreements?
CA02 recognises the imposition of reasonable restrictions to safeguard IPRs conferred by the statutes indicated in section 3(5). The
exception is only towards protecting the IPRs and is not applicable
to ‘simple’ distribution agreements, where the objective is neither to
restrain any infringement nor to protect any rights contained in the
six statutes indicated in section 3(5).
CCI has not dealt with the issue concerning distribution arrangements
in either of its orders nor issued any guidelines regarding the same.
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41 Explain how a supplier’s warranting to the buyer that it will supply the
contract products on the terms applied to the supplier’s most-favoured
customer or that it will not supply the contract products on more
favourable terms to other buyers is assessed.
An agreement giving such warranties may not be per se a vertical
restraint. If challenged, it would still be assessed on the basis of the
rule-of-reason test as per the criteria under section 19(3) of CA02,
as explained above.
J Sagar Associates
Enforcement
46 How frequently is antitrust law applied to vertical restraints by the
authority responsible for antitrust enforcement? What are the main
enforcement priorities regarding vertical restraints?
CA02 came into effect only in May 2009 and this aspect is yet to be
tested. It is too early to comment on the above question since CCI
has not delivered any order till date dealing with the issues of vertical restraints.
42 Explain how a buyer’s warranting to the supplier that it will purchase
the contract products on terms applied to the buyer’s most-favoured
supplier or that it will not purchase the contract products on more
favourable terms from other suppliers is assessed.
An agreement giving such warranties may not per se be a vertical
restraint. If challenged, it would still be assessed on the basis of the
rule-of-reason test as per the criteria under section 19(3) of CA02,
as explained above.
Notifying agreements
43 Outline any formal procedure for notifying agreements containing
vertical restraints to the authority responsible for antitrust
enforcement.
CA02 does not have any provisions for notifying agreements to CCI
or the Competition Appellate Tribunal. CCI would look into an
agreement only if it has information, either of its own or furnished
by any person that the agreement in question is causing or is likely
to cause an appreciable adverse effect on competition. Hence, it is
advisable that undertakings should get such agreements vetted by
legal counsel for possible violation of competition law.
Authority guidance
44 If there is no formal procedure for notification, is it possible to obtain
guidance from the authority responsible for antitrust enforcement
or a declaratory judgment from a court as to the assessment of a
particular agreement in certain circumstances?
No. There is no formal procedure for notification or obtaining guidance from the authorities or from courts in relation to the assessment
of a particular agreement in certain circumstances. It is the obligation
of the undertakings to ensure that the agreements that they enter
into do not violate the law. It is advisable that undertakings get their
agreements vetted by their lawyers for possible inconsistencies with
CA02.
Complaints procedure for private parties
45 Is there a procedure whereby private parties can complain to the
authority responsible for antitrust enforcement about alleged unlawful
vertical restraints?
CA02 does not restrict anybody from filing information under section 19 to the CCI. According to section 19(1) of CA02, CCI can
inquire into an alleged contravention of the law either on its own
motion or on receipt of any information from any person, consumer
or their association or trade association. It can also initiate an inquiry
on a reference made to it by the central government, a state government or a statutory authority.
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47 What are the consequences of an infringement of antitrust law for the
validity or enforceability of a contract containing prohibited vertical
restraints?
According to section 3(2) of CA02, an anti-competitive agreement is
void. Under the Indian Contract Act 1872, an agreement not enforceable by law is ‘void’ (section 2(g) of the Indian Contract Act). Thus
no rights per se would flow from a void contract. The doctrine of
severability has not been tested in such cases. However, to hold otherwise and enforce anti-competitive agreements would be tantamount
to enforcing a void agreement, which is impermissible under the
Contract Act.
48 May the authority responsible for antitrust enforcement directly
impose penalties or must it petition another entity? What sanctions
and remedies can the authorities impose? What notable sanctions
or remedies have been imposed? Can any trends be identified in this
regard?
As per section 27 of CA02, in case of a proved contravention of law,
CCI can pass any or all of the following orders:
• direct the concerned undertaking(s) to discontinue and not to
re-enter such agreement or discontinue such abuse of dominant
position, as the case may be;
• impose a penalty, which may be up to 10 per cent of the average
turnover for the three preceding financial years of the concerned
undertaking(s);
• direct that the agreement(s) shall stand modified to the extent
and in the manner as may be specified by CCI; and
• pass such other order or issue such directions as it may deem fit.
CCI also has the power to issue interim orders, temporarily restraining a party from carrying on an anti-competitive act, where CCI is
satisfied that such an anti-competitive act has been committed or that
it is about to be committed.
CCI has the power to impose a penalty for:
• contravention of its order;
• failure to comply with its directions;
• making false statements;
• omitting to furnish material information; and
• altering, suppressing or destroying a document which is required
to be furnished.
It is noteworthy that CCI does not have the power to grant compensation. Any individual or undertaking can make an application
to the Competition Appellate Tribunal to adjudicate on a claim for
compensation that may arise from the findings of the CCI or the
orders of the Competition Appellate Tribunal itself or from a failure
of a party to abide by the orders or directions of CCI or the Competition Appellate Tribunal.
Competition law in India is still at its nascent stage. There have
been few instances where penalties have been imposed:
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Update and trends
The government is considering certain amendments to CA02. It
is too early to provide any information on the amendments and
their impact. This will be possible once the amendment bill is
introduced in Parliament.
• a fine of 10 million rupees on a commercial airline for failure to
furnish information during the course of an inquiry, which was
challenged before the Competition Appellate Tribunal and the
matter was remanded back from Competition Appellate Tribunal to CCI. Subsequently, CCI reduced the penalty amount to
7.52 million rupees since it kept the notices in abeyance till the
matter was subjudiced before the Bombay High Court on the
issues of jurisdiction of CCI;
• a penalty of 555.5 million rupees has been imposed on a stock
exchange company for abusing its dominance in the relevant
market of currency derivative, which has been since challenged
before the Competition Appellate Tribunal and its enforcement
has been stayed; and
• a penalty of 6.3 billion rupees has been imposed on a real estate
company for abusing its dominance in the real estate market
residences in a particular suburban town. This penalty also has
been stayed by the Competition Appellate Tribunal.
Investigative powers of the authority
49 What investigative powers does the authority responsible for antitrust
enforcement have when enforcing the prohibition of vertical restraints?
CCI has the powers of a civil court for the purpose of discharging its
functions under CA02, including the function of enforcing prohibition of vertical restraints, in respect of the following matters:
• summoning and enforcing the attendance of any person and
examining them on oath;
• requiring the discovery and production of documents;
• receiving evidence on affidavit;
• issuing requests for examination of witnesses or documents;
• requisitioning any public record or document or copy of such of
record or document from any office.
Amit Kapur
Farhad Sorabjee Amitabh Kumar
CCI also has the power to call upon such experts as it deems necessary to assist it in the conduct of any inquiry.
Section 32 of the Act empowers the CCI to investigate and
restrain anti-competitive acts or agreements taking place outside
India but having ‘appreciable adverse effect’ on competition in India.
Hence, CCI has the power to demand information from enterprises
situated outside its jurisdiction. The efficacy of this power and how
it will be implemented with the reciprocal arrangements with foreign
competition authorities is yet to be tested.
The investigative arm of the CCI, the DG, has the power to conduct dawn raids.
Private enforcement
50 To what extent is private enforcement possible? Can non-parties
to agreements containing vertical restraints obtain declaratory
judgments or injunctions and bring damages claims? Can the parties
to agreements themselves bring damages claims? What remedies are
available? How long should a company expect a private enforcement
action to take?
CA02 provides for private enforcement. Non-parties to an agreement, including consumers and consumer bodies, can approach CCI
and obtain declaratory orders and injunctions. However, compensation claims have to be brought before the Competition Appellate
Tribunal. There is no maximum time limit for CCI to complete an
inquiry. The Supreme Court in a judgment has laid down that the
various provisions of CA02 and the General Regulations, particularly regulations 15 and 16, direct conclusion of the investigation/
inquiry or proceeding within a ‘reasonable time’. In this regard, the
Supreme Court has issued the following directions:
• all proceedings, including investigation and inquiry, should be
completed by CCI/DG most expeditiously and while ensuring
that the time taken in completion of such proceedings does not
adversely affect any of the parties as well as the open market in
purposeful implementation of the provisions of CA02;
• wherever during the course of inquiry CCI exercises its jurisdiction to pass interim orders, it should pass a final order in that
behalf as expeditiously as possible as and in any case not later
than 60 days. The regulations have been amended to permit the
CCI to pass an order within 90 days in such cases; and
• the DG in terms of regulation 20 is expected to submit his
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report within a reasonable time. No inquiry by CCI proceeds
any further in absence of the report by the DG in terms of section 26(2) of CA02. The reports by the DG should be submitted
within the time as directed by the CCI but in all cases not later
than 45 days from the date of passing of directions in terms of
section26(1) of CA02. The regulations have been amended to
provide 60 days to the DG to submit his report, which is extendable on a request made by him.
It may be mentioned that certain cases initiated in early 2009, when
enforcement powers were give to CCI, are still pending before it.
However, it is reiterated that CCI is still in its nascent stage and
with time the average time taken for inquiries may come down. In
some of the matters, the DG has taken up to one year to conclude
the investigation from issuance of CCI’s order to initiate the same.
Further, since no compensation claim has been adjudicated by
the Competition Appellate Tribunal to date, there is no way of assessing the time that it might take in adjudicating on such claims.
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J Sagar Associates
Other issues
51 Is there any unique point relating to the assessment of vertical
restraints in your jurisdiction that is not covered above?
Section 60 of CA02 provides that the provisions of the Act shall have
effect notwithstanding anything inconsistent therewith contained in
any other law for the time being in force. Further, in terms of section 61, no civil court shall have jurisdiction to entertain any suit or
proceeding in respect of any matter which the Commission or the
Appellate Tribunal is empowered by or under CA02 to determine
and no injunction shall be granted by any court or other authority in
respect of any action taken or to be taken in pursuance of any power
conferred by or under CA02.
In the early years of the CCI, the case law of other mature jurisdictions will have persuasive value. The CCI has referred in its orders
to many cases decided in the US, as well as in the EU.
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Vertical Agreements 2012
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