The Competition Act, 2002, was enacted to promote economic development in India by establishing a robust regulatory framework to foster competitive markets. Central to this framework is Section 3 of the Act, which prohibits agreements that cause or are likely to cause an “appreciable adverse effect on competition” (AAEC). These agreements are categorized into two types: (a) horizontal agreements under Section 3(3), which occur between competitors, and (b) vertical agreements under Section 3(4), which occur between enterprises at different levels of the supply chain. Section 3(3) presumes that horizontal agreements—such as price-fixing, market allocation, bid-rigging, and output restrictions—are inherently anti-competitive, a principle known as the per se rule.
Under the per se rule, once an agreement is established before the Competition Commission of India (CCI), the parties involved cannot justify their conduct. They can only accept or deny the allegations. In contrast, Section 3(4) applies the rule of reason, allowing parties to present pro-competitive justifications or evidence of technical advancements resulting from their conduct.
The per se approach under Section 3(3) imposes a rigid framework on the CCI, emphasizing the collection of direct or indirect evidence rather than analyzing the actual effects or intent of the agreement. For instance, even a mere “nod” or “wink of an eye” can be construed as evidence of an agreement, and recipients of emails can be implicated in anti-competitive inquiries. This approach raises significant constitutional and legal concerns, as it presumes guilt without allowing for rebuttal, conflicting with the constitutional principle of “innocent until proven guilty” and the doctrine of reasonableness.
Judicial Departures from the Per Se Rule
The Supreme Court of India, in Rajasthan Cylinders & Containers Ltd v. CCI (2018), signaled a shift away from the strict per se approach. The Court ruled that mere price parallelism in an oligopolistic market is insufficient to prove collusion and required additional corroborative evidence to establish an anti-competitive agreement. This decision underscored the importance of considering market realities and economic factors, such as market structure and buyer power, before inferring anti-competitive behavior.
Similarly, U.S. and European courts have questioned the rigidity of the per se rule. In United States of America v. Brent Brewbaker, the U.S. Court of Appeals for the Fourth Circuit emphasized that courts must perform a rule of reason analysis before applying the per se rule, unless there is demonstrable economic evidence warranting per se condemnation. This approach aligns with the European Union’s emphasis on assessing agreements in their economic context, as seen in cases like Société Technique Minière v. Maschinenbau Ulm GmbH and Groupement des cartes bancaires v. European Commission.
Constitutional Validity of the Per Se Rule
The per se rule’s constitutional validity is increasingly under scrutiny. The rule creates an irrebuttable presumption of anti-competitiveness, which conflicts with the principles of due process and natural justice. Unlike the rule of reason, which allows for a nuanced assessment of an agreement’s effects, the per se rule prohibits certain conduct outright, regardless of its actual impact on competition.
In Vijay Madanlal Choudhary v. Union of India, the Supreme Court upheld the constitutional validity of presumptions under Section 24(b) of the Prevention of Money Laundering Act, 2002, clarifying that the phrase “may presume” does not create a mandatory presumption. In contrast, Section 3(3) of the Competition Act uses the phrase “shall presume,” imposing a mandatory presumption of AAEC. This places an undue burden on parties to disprove anti-competitive effects, even when their actions may have legitimate pro-competitive justifications.
The per se rule’s rigidity also raises concerns under Article 14 of the Indian Constitution, which prohibits arbitrary state action. In cases like Maneka Gandhi v. Union of India and EP Royappa v. State of Tamil Nadu, the Supreme Court has emphasized that state actions must be reasonable, just, and non-arbitrary. By failing to consider market realities and economic context, the per se rule risks violating these constitutional principles.
Economic Rationality and the Need for Flexibility
The per se rule’s inflexibility is particularly problematic in dynamic markets. For instance, certain horizontal agreements, such as dual distributor arrangements in bidding processes, may be necessary to fulfill tender requirements or achieve efficiency gains. Under a strict per se analysis, such agreements could be deemed anti-competitive, even if they serve legitimate business needs.
The U.S. Supreme Court’s decision in Broadcast Music v. Columbia Broadcasting System illustrates the importance of flexibility. The Court ruled that not all price-fixing agreements fall under the per se rule, emphasizing the need to consider pro-competitive effects. Similarly, the European Court of Justice in Groupement des cartes bancaires v. European Commission highlighted the importance of assessing agreements in their economic context, rather than relying on rigid legal categorizations.
Conclusion
The per se rule under Section 3(3) of the Competition Act, 2002, establishes an irrebuttable presumption of anti-competitiveness, disregarding potential pro-competitive justifications and economic realities. This rigid approach conflicts with constitutional principles of reasonableness, proportionality, and non-arbitrariness under Article 14 of the Constitution. It also risks undermining fairness in competition law enforcement by presuming guilt without allowing for a nuanced assessment of market conditions.
As Sir John H. Wigmore aptly observed, “Presumptions may be looked upon as the bats of the law, flitting in the twilight but disappearing in the sunshine of actual facts.” In today’s dynamic markets, a flexible, context-driven approach—grounded in economic principles rather than outdated legal formalism—is essential to ensure that antitrust enforcement aligns with the goals of fostering competitive markets and delivering substantive justice.