ADVOCACY SERIES 2

Competition Act, 2002

PROVISIONS RELATING TO

Cartels

Fair Competition
for Greater Good

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COMPETITION COMMISSION OF INDIA
DISCLAIMER

This quick guide is published as part of the Competition Advocacy

and Awareness Programme of the Competition Commission of India
(the Commission). Its contents should, in no way, be treated as official
views of the Commission. Readers are advised to carefully study the
Competition Act, 2002, as amended by the Competition (Amendment)
Act, 2007 and the Competition (Amendment) Act, 2009, and seek legal
advice, wherever necessary.
 INTRODUCTION

The Competition Act, 2002 (as amended), [the Act], follows the
philosophy of modern competition laws and aims at fostering
competition and at protecting Indian markets against anti-
competitive practices by enterprises. The Act prohibits anti-
competitive agreements, abuse of dominant position by enterprises,
and regulates combinations (mergers, amalgamations and
acquisitions) with a view to ensure that there is no adverse effect
on competition in India.

The Act prohibits any agreement which causes, or is likely to cause,

appreciable adverse effect on competition in markets in India. Any
such agreement is void.

An agreement may be horizontal i.e. between enterprises, persons,

associations, etc. engaged in identical or similar trade of goods or
provision of services, or it may be vertical i.e. amongst enterprises
or persons at different stages or levels of the production chain in
different markets.

Cartelisation is one of the horizontal agreements that shall be

presumed to have appreciable adverse effect on competition under
Section 3 of the Act.

4 COMPETITION ACT 2002 - CARTELS

WHAT IS A CARTEL?

Cartel is defined in section 2, clause (c) of the Act:

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;

Cartels 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. The Act gives a detailed definition of an enterprise
in section 2 (h). The objective of a cartel is to raise price above
competitive levels, resulting in injury to consumers and to the
economy. For the consumers, cartelisation results in higher prices,
poor quality and less or no choice for goods or/and services.

A cartel is said to exist when two or more enterprises

enter into an explicit or implicit agreement to fix prices,
to limit production and supply, to allocate market share
or sales quotas, or to engage in collusive bidding or
bid-rigging in one or more markets. An important
dimension in the definition of a cartel is that it requires
an agreement between competing enterprises not to
compete or to restrict competition.

An international cartel is said to exist, when not all of the

enterprises in a cartel are based in the same country or when the
cartel affects markets of more than one country.

An import cartel comprises enterprises (including an association

of enterprises) that get together for the purpose of imports into the
country.

An export cartel is made up of enterprises based in one country

COMPETITION ACT 2002 - CARTELS 5

 with an agreement to cartelize markets in other countries. In the Act,
cartels meant exclusively for exports from India have been excluded
from the provisions relating to anti-competitive agreements.

EXTRA- TERRITORIAL REACH

Anti-competitive activities, including cartels, taking place

outside India but having effect on competition in India
would fall within the ambit of the Act and can be inquired
into by the Commission. The Act thus has extra territorial
reach (section 32).

CARTELS - PRESUMED INJURIOUS

Agreements between enterprises engaged in identical or similar

trade of goods or provision of services (commonly known as
horizontal agreements) including cartels, of four types specified
in the Act are presumed to have appreciable adverse effect on
competition and, therefore, are anti-competitive and void.

However, horizontal agreements of the above four types mentioned

in the preceding paragraphs, entered into by way of joint ventures
are not presumed to have appreciable adverse effect on competition
and are excluded from the above provisions of section 3, sub section
(3) of the Act if they increase efficiency in production, supply,
distribution, storage, acquisition or control of goods or provision
of services.

Agreements other than those covered by section 3, sub section (3)

of the Act, including

a tie-in arrangement
a exclusive supply arrangement
a exclusive distribution agreement
a refusal to deal
a resale price maintenance

6 COMPETITION ACT 2002 - CARTELS

are commonly known as vertical agreements and would not be
presumed to have appreciable adverse effect on competition, and
would be evaluated by the Commission based on facts using the
rule of reason approach.

COMMON CHARACTERISTICS OF CARTELS

a Usually cartels function in secrecy.
a The members of a cartel, by and large, seek to
camouflage their activities to avoid detection by the
Commission.
a Perpetuation of cartels is ensured through retaliation
threats. If any member cheats, the cartel members
retaliate through temporary price cuts to take business
away or can isolate the cheating member.
a Another method, known as compensation scheme,
is resorted to in order to discourage cheating. Under
this scheme, if a member of a cartel is found to have
sold more than its allocated share, it would have to
compensate the other members.

CONDITIONS CONDUCIVE TO FORMATION OF CARTELS

If there is effective competition in the market, cartels would find it

difficult to be formed and sustained. Some of the conditions that
are conducive to cartelization are:

a high concentration - few competitors

a high entry and exit barriers
a homogeneity of the products (similar products)
a similar production costs
a excess capacity
a high dependence of the consumers on the product
a history of collusion
a active trade association

COMPETITION ACT 2002 - CARTELS 7

 INQUIRY INTO CARTELS

In exercise of powers vested under section 19 of the Act, the

Commission may inquire into any alleged contravention of the
provisions of section 3 of the Act which inter-alia proscribes
cartels.

The Commission, on being satisfied that there exists

a prima facie case of cartel, shall direct the Director
General to cause an investigation and furnish a report.
The Commission has the powers vested in a Civil
Court under the Code of Civil Procedure in respect of
matters like summoning or enforcing attendance of any
person and examining him on oath, requiring discovery
and production of documents and receiving evidence
on affidavit. The Director General, for the purpose of
carrying out investigation, is vested with powers of civil
court besides powers to conduct search and seizure.

Note: For the details of the procedures related to inquiry and investigations
please refer to Regulation No. 2 of 2009 dated May 21, 2009(also available
on the CCI website www.cci.gov.in)

POWERS OF THE COMMISSION

The Commission is empowered to inquire into any cartel, and to

impose on each member of the cartel, a penalty of up to 3 times
of its profit for each year of the continuance of such agreement or
10% of its turnover for each year of continuance of such agreement,
whichever is higher. In case an enterprise is a company, its
directors/officials who are guilty are also liable to be proceeded
against.

In addition, the Commission has the power to pass inter alia any
or all of the following orders (section 27):

a direct the parties to a cartel agreement to discontinue

and not to re-enter such agreement;

8 COMPETITION ACT 2002 - CARTELS

 a direct the enterprises concerned to modify the
agreement.
a direct the enterprises concerned to abide by such other
orders as the Commission may pass and comply with
the directions, including payment of costs, if any; and
a pass such other order or issue such directions as it may
deem fit.

LENIENCY SCHEME

Section 46 of the Act empowers the Commission to grant

leniency by levying a lesser penalty on a member of
the cartel who provides full, true and vital information
regarding the cartel. The scheme is designed to induce
members to help in detection and investigation of cartels.
This scheme is grounded on the premise that successful
prosecution of cartels requires evidence supplied by a
member of the cartel. Similar leniency schemes have
proved very helpful to competition authorities of foreign
jurisdictions in successfully proceeding against cartels.

The Commission has notified the Competition Commission of India

(Lesser Penalty) Regulations, 2009 laying the process, procedure
and methodology for granting leniency to the cartel members who
break the ranks of the cartel and become helpful to the Commission
and instrumental in busting the alleged cartel.

Note: For the details of the conditions for lesser penalty please refer to
Regulation No. 4 of 2009 dated August 13, 2009 (also available on the CCI
website www.cci.gov.in)

INTERIM ORDER

Under section 33 of the Act, during the pendency of an inquiry the

Commission may temporarily restrain any party from continuing
with the alleged contravention, until conclusion of the inquiry or
until further orders, without giving notice to such party, where it
deems necessary.

COMPETITION ACT 2002 - CARTELS 9

 Note: For the details of the procedures related to interim orders please refer
to Regulation No. 2 of 2009 dated May 21, 2009(also available on the CCI
website www.cci.gov.in )

APPEALS

The Competition Appellate Tribunal (COMPAT) is established

under section 53A of the Act, to hear and dispose of appeals
against any direction issued or decision made or order passed by
the Commission under specified sections of the Act.

An appeal has to be filed within 60 days of receipt of the order/

direction/ decision of the Commission.

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10 COMPETITION ACT 2002 - CARTELS

Economic Division

Member
Combination Division

Anti-Trust Division

Member
Legal Division

Member
Investigation Division
Chairperson

Advocacy Division

Member
ORGANOGRAM

Capacity Building Division

Maximum 7 Members (including Chairperson)

Member

Secretariat

DG Office
Member
Regulations
notified by the Competition Commission of India

4
The Competition Commission of India (Procedure for
Engagement of Experts and Professionals) Regulations,
2009; (No. 1 of 2009)
4
The Competition Commission of India (General)
Regulations, 2009; (No. 2 of 2009)
4
The Competition Commission of India (Meeting for
Transaction of Business) Regulations, 2009;
(No. 3 of 2009)
4
The Competition Commission of India (Lesser Penalty)
Regulations, 2009; (No. 4 of 2009)
4
The Competition Commission of India (Determination of
Cost of Production) Regulations, 2009; (No. 5 of 2009)
4
The Competition Commission of India (General)
Amendment Regulations, 2009; (No. 6 of 2009)
4
The Competition Commission of India (Manner of
Recovery of Monetary Penalty) Regulations, 2011; (No. 1
of 2011)
4
The Competition Commission of India (Procedure in
regard to the Transaction of Business relating to
Combinations) Regulations, 2011

Above regulations
are available at
www.cci.gov.in
 Advocacy Booklets
by
Competition Commission of India

Above booklets are available at

www.cci.gov.in

COMPETITION COMMISSION OF INDIA

Hindustan Times House, 18-20, Kasturba Gandhi Marg,
New Delhi-110001, India
Fair Competition
Ph. +91-11-23473400 Fax +91-11-23704686
for Greater Good Website : www.cci.gov.in