The antitrust law in India that is the Competition Act, 2002, ("Act") and rules and regulations made thereunder regulates businesses in India to ensure a level playing field and effective competition in the market. The intent of the Act is to promote competition, protect the interest of consumers, ensure freedom of trade and prevent practices having an appreciable adverse effect on competition ("AAEC"). The statutory body of the Government of India responsible for enforcing the Act and promoting competition throughout India and to prevent activities that have an AAEC on competition is the Competition Commission of India ("CCI").

The Act contains specific provisions for anti-competitive agreements (whether vertical or horizontal agreements), abuse of dominant position and combinations (which include acquisition, merger, amalgamation and joint venture). Thus, each agreement needs to be assessed separately basis the anti-trust laws and if it is likely to result in –

A. Being termed as "anti-competitive" in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an AAEC within India. The following agreements shall be presumed to have an AAEC, which -

(a) directly or indirectly determine 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,

Further, agreements 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 termed as anti-competitive only if such agreement causes or is likely to cause an AAEC in India.

(i) Applicability of section 3 (3) [Horizontal Arrangement] – Under the Indian anti-trust regime, the general rule is that horizontal arrangements / agreements are "per se" void, i.e., there is a presumption of AAEC in India.

The law, however, provides for an exemption from the above per se rule 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".

Such efficiency enhancing joint ventures are analysed under the "rule of reason" test (which is also applied in order to determine whether a vertical arrangement / agreement would result in an AAEC in India). As per this, the relevant parties to a joint venture are required to establish their efficiency enhancement claims and demonstrate how efficiencies and pro-competitive effects arising out of these arrangements outweigh any potential anti-competitive effects.

(ii) Applicability of section 3 (4) [Vertical Arrangement] – As opposed to horizontal arrangement / agreement, a vertical arrangement / agreement is invalid only if it causes, or is likely to cause, an AAEC in India. Accordingly, such arrangements / agreements are not per se void.

While determining whether a vertical arrangement / agreement will result in, or is likely to result in, an AAEC in India the relevant vertical arrangement / agreement is to be judged under the 'rule of reason' test. As per this, while making a determination, the CCI is required to take into account certain factors, such as whether the arrangement / agreement will result in:

a) creation of barriers to new entrants in the market,

b) driving out of existing competition, and/or

c) foreclosure of competition.

The above factors are then required to be weighed against:

a) potential benefit to the consumers,

b) improvements in production or distribution or the relevant good or provision of the relevant services (as the case may be), and/or

c) technical, scientific and economic development by means of production or distribution of the relevant goods or provision of the relevant services (as the case may be).

It is to be noted that the following arrangements / agreements are exempt under section 3 (5) from the ambit of anti-competitive activities:

a) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under:

(i) the Copyright Act, 1957,

(ii) the Patents Act, 1970,

(iii) the Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999,

(iv) the Geographical Indications of Goods (Registration and Protection) Act, 1999,

(v) the Designs Act, 2000, and/or

(vi) the Semi-conductor Integrated Circuits Layout-Design Act, 20001; and

b) the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export2.

Lastly, please note that there is no requirement for prior notification or approval (as is the case with respect to combinations which trigger section 5 of the Act in case any agreement / arrangement attracts section 3. Section 3 comes into play only if the CCI has taken suo moto action or has acted on a complaint.

B. Abuses its dominant position in the relevant market –

(a) by directly or indirectly imposing unfair or discriminatory conditions in the (i) purchase or sale of goods or (ii) price in purchase or sale of goods or service, or

(b) limits or restricts or (i) production of goods or provision of services or market or (ii) technical or scientific development relating to goods or services to the prejudice of consumers, or

(c) indulges in practice or practices resulting in denial of market access in any manner, or

(d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts, or

(e) uses its dominant position in one relevant market to enter into, or protect, other relevant market, or

C. Breaches the Government prescribed threshold limits (asset threshold and / or turnover threshold which is considered at enterprise level as well as group level) in terms of combinations.

The thresholds are revised from time to time by the Government of India, in consultation with the CCI. The current thresholds are as follows:

Jurisdiction

Assets Threshold

Turnover Threshold

Enterprise level (i.e., limited to specific parties to the arrangement)

India

more than INR 20 billion

OR

more than INR 60 billion

Worldwide (including India)

more than USD 1 billion with at least INR 10 billion in India

more than USD 3 billion with at least INR 30 billion in India

OR

At a group level

India

more than INR 80 billion

OR

more than INR 240 billion

Worldwide (including India)

more than USD 4 billion with at least INR 10 billion in India

more than USD 12 billion with at least INR 30 billion in India

If any one of the above mentioned financial thresholds is met, the transaction must be notified to the CCI.

However, a general exemption (by way of a notification dated 27 March 2017) from CCI notification requirement has been granted till 26 March 2022 to any combination (even if it meets the thresholds mentioned above) if:

(a) the value of assets being acquired, taken control of, merged or amalgamated is not more than INR 3.5 billion / INR 350 crores, or

(b) turnover is not more than INR 10 billion / INR 1,000 crores.

Conclusion

To sum up, only agreements / mergers / transactions which are likely to result in one of the above mentioned aspects will need to be assessed from an anti-trust standpoint and may require market studies to assess the triggers / breaches, if any. Other agreements, not triggering the above aspects, will not come under the ambit of the anti-trust laws in India and do not require an independent assessment. Further, while the first two instances (that is anti-competitive arrangements and abuse of dominance cases) are to be assessed in terms of the Indian market, the combination thresholds are to be assessed from an India as well as a group level.

Footnotes

1. Section 3 (5) (i).

2. Section 3 (5) (ii).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.