Context

With the signing of the Treaty of Rome, the competition law became an important chapter of the Treaty. This was a significant step since major European economies like Germany were largely cartelized. The Treaty of Rome was subsequently amended by the Treaty of Maastricht in 1993 and then by the Treaty of Amsterdam in 1997. The Amsterdam Treaty re-numbered the Treaty of Rome, which effectively meant that the provisions relating to competition were also re-numbered. Thus, Articles 81–89 embodied the entire European competition law (hereinafter called the EU competition law). The Treaty of Rome has been further amended and re-numbered by the Treaty of Lisbon, signed on December 13, 2007 in Lisbon.

Accordingly, the EU competition law, in its entirety, is embodied in Chapter I of Title VII of the Treaty of Lisbon. Furthermore, the Articles 81–89 have been re-numbered as Articles 101–109. As in this book we are concerned with cartels, our focus will be on the relevant provisions relating to cartels. The interpretation of the relevant provisions by EU institutions will be analysed in this chapter. This analysis will help us understand the theoretical response of the EU to cartels. The questions that are sought to be addressed in the process are: which approach, viz., the per se or the rule of reason, best accommodates the consumer interest (both intermediary and end consumer), and how is the objective of an agreement assessed for the purpose of categorizing it as a cartel conduct? As the role of EU institutions in both framing and implementing the anti-cartel law is of paramount importance, the chapter will begin with a review of the structural schema of these institutions. It is herein important to note that the Treaty of Lisbon has not brought about any structural changes within the EU institutions.

EU institutions: An overview

The EU comprises the European Parliament, the European Council, the Council of the European Union, the Commission, the Court of Justice of the EU, the European Central Bank and the Court of Auditors. However, it is the European Parliament, the Council of the European Union and the European Commission which produces the policies and the law that are applicable across the EU.

Appendix 2

Scope

This book is focused primarily on the interpretation and application of the anti-cartel provisions within the Competition Act, 2002. Although India had started on the path to industrialization and modernization soon after its independence from the British rule in 1947, to begin with and for quite some time it adopted and followed the so-called ‘mixed economic policy’ under which the state was the major player in industrialization and trade. Under this policy, very limited and restricted scope existed for the non-state actors to participate effectively and decisively in industrialization or international trade. In fact, the borders were not open for international investment or trade. Consequently, little or limited scope existed for free competition among private enterprises. Even then, precautions were taken in the Monopolies and Restrictive Trade Practices Act, 1969, against the misuse of freedom of trade by private actors. Nonetheless, the Monopolies and Restrictive Trade Practices Act was not geared to deal stringently with cartels. The reason was that the focus of the Act was to curb monopolies and dominant undertakings.

Accordingly, the anti-cartel provisions within the Monopolies and Restrictive Trade Practices Act were weak. Cartels were not prohibited per se; they were declared void only if they harmed public interest. Further, there was no mechanism for the detection of cartels. This was a major lacuna within the Monopolies and Restrictive Trade Practices Act, since cartels are usually secretive in nature. In the absence of any deterring substantive as well as procedural provisions, cartels thrived within the Indian economy. This is amply substantiated by the surveys conducted by CUTS (Consumer Unity and Trust Society). Moreover, writers have extensively analysed the provisions of the Monopolies and Restrictive Trade Practices Act and highlighted the weaknesses within the Act. Specifically, it is evident from their writings that the Monopolies and Restrictive Trade Practices Commission had failed to take any concrete steps against cartels. At the beginning of the last decade of the last millennium, specifically in 1991, India changed its path by introducing the so-called ‘new economic policy’.

The new economic policy, which replaced the mixed economy by a market economy, opened up and encouraged participation in industrialization and trade not only to domestic enterprises but also to foreign ones. India also opened its international borders for cross-border trade.

This book is the outcome of sustained research conducted over a period of five years. Cartels provided the opportunity to explore and produce something uniquely Indian, but sprinkled with international flavours. The subject proved challenging, more so because of the kind of extensive scholarship on the topic available in advanced jurisdictions. It was indeed an arduous task to deliver a work good enough to further the cause of critical authorship in the field of competition law in India.

The book tries to give a detailed account of the Indian anti-cartel provisions that were brought into force in the year 2009. The critique is based on a comparative account of the anti-cartel provisions of the EU and the US. The idea is to suggest accommodation of Indian interest as well as incorporation of efficient structures from the jurisdictions under review. The thrust is also on the core idea of balancing the interest of a wider consumer base and not just the end consumer.

The book has benefitted a lot from the writings of Indian economist, Professor Dr Aditya Bhattacharjea, whose critique of the Indian competition law is remarkable. There are others too who have, through their criticisms and negative comments, helped spur new thought processes. One should also thank Cambridge University Press for not only agreeing to publish but also encouraging writing of the book.

The book deals with law as it prevailed up to October 28, 2013.

Context

In order to understand why cartels are bad for consumer interests, it is important to first understand the concept of cartels. The conceptual analysis will also give an overview of the socio-political context in which cartels operate. The distinction between cartels and other horizontal agreements needs to be understood. The common law doctrine of restraint of trade is also to be analysed in order to understand the nature of restraint that cartels impose on their members. This will also help in recognizing the difference between freedom to trade versus freedom to contract. However, cartels challenge the efficacy of this doctrine. In addition, the doctrine is also inadequate to protect the consumer from the harm caused by cartels. The mapping of the drawbacks in the doctrine of restraint of trade vis-à-vis cartel conduct will help explain the same. The question of ancillary restraint as distinguished from naked restraint also gets addressed in the process. The argument that the co-conspirator is in pari delicto, i.e., both the parties to the agreement are equally guilty, has also been dealt with. Furthermore, the difficulty that a consumer faces in overcoming the problem of privity of contract while challenging a cartel activity is nuanced herein. In this context, the chapter highlights the arguments that justify a pro-consumer approach in anti-cartel regulation. By doing so, the chapter looks into both the legal and economic understanding of cartels.

Concept of cartels

The conceptual analysis of a cartel needs to be first done at the definitional level. This will help in distinguishing between cartels and other types of cooperative arrangements. Oxford's Advanced Learner's Dictionary defines cartel as:

Black's Law Dictionary defines a cartel as:

Harding and Joshua state:

THE COMPETITION ACT, 2002

No. 12 OF 2003

[13th January, 2003.]

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, 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.

BE it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:—

Chapter I

Preliminary

Short title, extent and commencement

• 1. (1) This Act may be called the Competition Act, 2002.

• (2) It extends to the whole of India except the State of Jammu and Kashmir.

• (3) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint:

• Provided that different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision.

Definitions

• 2. In this Act, unless the context otherwise requires,—

• (a) “acquisition” means, directly or indirectly, acquiring or agreeing to acquire—

• (i) shares, voting rights or assets of any enterprise; or

• (ii) control over management or control over assets of any enterprise;

• (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;

• [(ba)“Appellate Tribunal” means the Competition Appellate Tribunal established under sub-section (1) of Section 53A”]

• (c) “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;

• (d) “Chairperson” means the Chairperson of the Commission appointed under sub-section (1) of section 8;

• (e) “Commission” means the Competition Commission of India established under sub-section(1) of section 7;

Context

From the review of the MRTP Act, 1969 in the previous chapter, it is evident that cartels have been a low priority area of concern in India's first competition law. The preamble of the MRTP Act states that the object of enacting the MRTP Act is to ensure

The concern of the times was definitely not consumer interests, nor was there per se prohibition of cartels. The incorporation of exemption clauses under section 38 substantiates this line of argument. It was admittedly the idea that cartels per se were not void and would be considered bad only when they fail to justify their conduct through the rule of reason analysis involving the determination of the question, viz., whether the conduct is prejudicial to public interest. The ambiguous term ‘public interest’ failed to explain whether it includes consumer interest or only interest of the industry. In the absence of expertise and resources, the Commission was accused of failing to effectively enforce the anti-cartel provisions. Growing criticism of the Commission was accompanied by change in the economic policies of the country which consequently led the government of India to re-look into the MRTP Act. The outcome was the enactment of the Competition Act 2002. The following is an analyses of the anti-cartel provision of the Act. The discussion however begins with the context which shaped the anti-cartel provisions of the Act. Thereafter, specific provisions will be analysed to understand the changes in approach adopted towards cartels under the Act. Finally the implementation and interpretation of the anti-cartel provisions will be analysed. In the process, the following questions will be answered : (a) Does the Act accommodate the consumer interests in devising its response towards cartels?; b) What approach has been adopted towards cartels, viz., rule of reason or per se; (c) Has the Act distinguished between hard core restraints and ancillary restraints and (d) Will the anti-cartel provisions in the Act have a deterrent effect on cartels?

Context

This chapter is an evaluation of the theoretical framework that has developed in the US for the purpose of dealing with cartels. The examination begins by outlining the debate that preceded the passage of the Sherman Act. This would help in identifying the approach of the legislators towards cartels. Thereafter, the interpretation of the Sherman Act by the US Supreme Court will be evaluated in order to cull out the various approaches developed towards cartels. This is important in understanding the reasons that led to the development of the different approaches. It will also highlight the method used to distinguish between legitimate horizontal cooperation and cartels. Further, it will also be educative in understanding how far the interest of different stake holders, like the small and medium enterprises and the end consumers got factored in while developing the appropriate response towards cartels. Finally, the approaches of various enforcement agencies against cartels will be evaluated to find out how much importance consumer interest receives. In the process, the chapter answers the following questions: does the application of the ancillary restraint concept helps in distinguishing a cartel from other cooperative horizontal agreements? which approach, viz., the per se or the rule of reason, best accommodates consumer interest?

The Sherman Act and cartels: The beginning of the story

The consumer movement forced legal intervention in the US against trusts which were the cartels of America. The legislation that epitomizes this intervention is the Sherman Act (hereinafter called the Act). The Sherman bill, as envisioned and mentored by Senator John Sherman of Ohio, had the following operative language:

This anti-trust bill, after several sessions of debate in the US Congress, was referred to a committee for further deliberations. The outcome was a new bill substituting Senator Sherman's bill. The language of this new bill was completely different from the original.

Context

The discussion on cartels in India has to begin with the analyses of the Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter called the MRTP). More specifically, the treatment of cartels under the MRTP will be analysed to understand India's initial response to cartels. The first step will be to analyse the socio-political context in which the MRTP was enacted. Reference to the Monopolies Inquiry Commission report will further help in establishing the context of the MRTP. The next step would be to analyse the MRTP to understand the substantive law on cartels. Finally, the efficacy of the MRTP will be better understood by evaluating the extent to which cartelization continues to be a reality in India. The questions that get addressed in the process are: (a) how effective was the anti-cartel provision in the MRTP Act in deterring cartels? and (b) how far did consumer interests govern the enactment and enforcement of the anti-cartel provision of the MRTP?

MRTP and anti-cartel measures: Poles apart?

The response of the government of India to the cartel problem was not specific—rather the attempt was to tackle certain anti-competitive issues afflicting the Indian economy at that time. It was for this reason that the government of India enacted the MRTP. The genesis of the MRTP was a concern for the growing income inequalities, with the economic wealth accumulating in the hands of a few large enterprises. The government of India, at the time, followed a command and control regime wherein it determined the manner in which the economic actors functioned. The government controlled, at least to some extent, the allocation of raw material and production, as well as the distribution and pricing of the finished products. The predominant economic philosophy that underlined such a government controlled system was the curbing of monopoly. In real terms, it meant that legislative devices had to be used to prevent dominance of large industrial houses and prevent them from maximizing their profits at the cost of small enterprises and the public sector.

The Industries (Development and Regulation) Act, 1951 (hereinafter called IDRA), for example, was enacted by the government of India for regulating private investment through the licencing procedure. The government of India set the criteria for issuing the industrial licences, thereby ensuring absolute control over the pattern of private investment.

The discussion in Chapter 2 revealed that cartels fall within the spectrum of horizontal cooperation. However, cartels are formed to avoid the cost of competition and not for any other purpose. The idea of such a cooperative arrangement is always to benefit the producer or the cartelists. The loss inevitably has to be borne by the consumer. Irrespective of all socio-political justifications for promoting cartels, it has hardly ever been benevolent to the consumer. Cartels essentially feed on the weaker bargaining power of the consumer. Therefore, in dealing with cartels, a pro-consumer approach is justified. This is more so in the context of India where the law itself recognizes a broader definition of consumers, the focal point of the competition law. From the Indian perspective, both the intermediaries as well as the end consumers are included within the concept of a consumer. The common link between these wide spectra of consumers is the lack of bargaining power vis-à-vis the corporate bodies that form the cartels. As cartels resemble contracts, they are equally susceptible to the contractual doctrine of restraint of trade. The doctrine of restraint of trade was developed essentially with the idea of preventing oppressive contracts.

Accordingly, all contracts which imposed naked restraints without any just cause were declared to be void. Under the common law, the only criterion to assess the justness of the restraint is the test of reasonableness. The courts in England therefore assess whether the restraint is necessary to protect the interest of the party in whose favour it was given and whether the restraint interferes with public interest. Be that as it may, under the Indian law, the doctrine renders all clauses in restraint of trade as per se void. Therefore, analysis on the basis of ancillary or naked restraint is not permitted under Indian law. This difference though does not affect the utility of the doctrine in dealing with cartel cases. Theoretically, the doctrine can be used by a party to a cartel agreement to challenge the validity of the agreement. But as cartels are prohibited under the Competition Act, 2002, any person challenging the cartel agreement on the ground of restraint of trade will be faced with the challenge of in pari delicto. Consequently, the party may be denied any relief unless the party is able to show inequality of bargaining power.