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The author is Siddhant Shinde, a third-year student at Maharashtra National Law University, Mumbai.
Part I of the article can be accessed here.
Part II of this article analyses the differences in the subjective application of the laws, and draws a similar conclusion after analysing specific examples from the 2023 EU Horizontal Guidelines. It argues that while SSAs satisfy the threshold under Art. 101 TFEU, they do not always necessarily stand the test of Section 3, and may thus be deemed anti-competitive under the Indian framework. The author illustrates this to make a case for expanding the ambit of the exemption clause of Section 3 to accommodate SSAs, and make the Indian competition framework more sustainability-focused. Having established that SSAs are ipso facto anti-competitive under the CA, the author now seeks to analyse the illustrations given in the 2023 EU Horizontal Guidelines, to understand the differences in the subjective application of competition law regime between the EU and India, and argue that situations that might be perceived as pro-competitive in the EU, are likely to be deemed anti-competitive in India.
Divergence in Competition Law and Differential Application
Both Art. 101 TFEU and Section 3 CA are similar in their overall approach and prohibit agreements that directly or indirectly fix purchase or sale prices, and agreements that share markets or sources of supply. Additionally, both provisions presume that certain agreements or practices ipso facto have an adverse effect on competition, and find agreements that are in violation of the provision, void. However, they diverge significantly in terms of the exceptions they offer. While the TFEU exception clause has a broader scope, applying to agreements contributing to improving production or distribution of goods or promoting technical or economic progress, the CA 's exception clause focuses solely on joint venture agreements and their potential to increase efficiency in specific aspects of business operations.
Example 4 under para 9.6 of the EU 2023 Horizontal Guidelines specifically describes a situation where an agreement restricting competition under Article 101(1) satisfies the conditions of the safe-harbour in the EU- one where several major manufacturers of processed foods in a member State agree to set recommended fat levels following research by a government-funded think tank, collectively representing 70% of sales. This initiative is to be bolstered by a national advertising campaign funded by the think tank. The analysis that follows says that the agreement is unlikely to restrict competition under Art. 101(1) TFEU. However, when analysed from the lens of the CA, the agreement may be deemed to be anti-competitive, since this is a case of an explicit agreement to impose uniform standards across the industry, which is likely to become a de facto maximum fat level in processed foods, and given the market share of the participating manufacturers and the wide publicity; this can effectively reduce consumer choice. Moreover, it could restrict competition by creating barriers to entry for new competitors who may not be able to meet the agreed-upon standards. The CCI has also previously held that agreements among competitors aimed at standardizing terms can violate Section 3(1) CA. Thus, prima facie the situation creates a rebuttable presumption, warranting action by the CCI.
Example 5 too paints a similar picture. In this example, producers of washing machines agree to phase out older, less efficient models to comply with EU regulations. This agreement covers almost 100% of the market. For the average purchaser who was previously buying a washing machine in categories F to H, the price of a machine will increase at least by between EUR 40 and EUR 70. The analysis cites two reasons for this agreement not being anti-competitive; firstly, an average buyer recoups the initial price increase within one to four years through lower electricity and water costs; and secondly, the collective reduction in electricity and water usage leads to environmental benefits, which “could not have been achieved with a less restrictive agreement”,[1] and thus fulfils conditions under Art. 101(3). However, this move would differentially affect different producers, which is likely to affect competition, despite the fact that all producers already produce some models in categories A to E. Further, it also reduces consumer choice, and substantially increases purchase cost for a consumer using models in categories F-H (EUR 40 to EUR 70). Given that this agreement directly affects sales price, and limits production, it acutely falls under the ambit of Section 3(3)(a) and (b) CA, thus creating a rebuttable presumption of anti-competitive behaviour. Further, it could also attract action under Section 4(b) CA i.e. abuse of dominant position by limiting production of goods in the market.
Thus, in the absence of explicit recognition of SSAs in the Indian competition law regime, Section 3 doesn’t even implicitly accommodate SSAs through the already existing provisions.
Proposed Amendments to Accommodate SSAs in Indian Competition Law
Having illustrated the failure of the Indian competition regime to accommodate SSAs, the author emphasizes the necessity for explicit provisions regarding SSAs. The author argues that this can be done in two ways; firstly, by expanding the ambit of the exception clause of Section 3 of the CA, and secondly, by issuing guidelines and/or circulars explicitly acknowledging and regulating SSAs.
As stated above,[2] the exemption clause in Section 3(d) CA is very narrow in its ambit, and only takes into account financial considerations such as efficiency in production, supply, distribution, etc. This is unlike the TFEU which takes non-economic factors like public policy in consideration to interpret Article 101. Making a case for including non-financial considerations such as sustainability within its scope necessitates a wider interpretation of the object of the CA, to ascertain the intention of the legislature.
Interestingly, the preamble of the CA mentions vague phrases such as “economic development” and “to protect the interests of consumers”, leaving room for interpretation. Following international precedent, India has seen a shift towards sustainability, which extends beyond direct environmental legislation like the Plastic Waste Management (Amendment) Rules 2022, aimed to align India with global efforts to reduce single-use plastics. It also encompasses amendments to other laws that indirectly impact overall sustainability. In light of these developments, it is intriguing to note the momentum that ESG Investments have gained in India, evident through investors moving beyond conventional norms and placing more emphasis on ESG investments. Its acknowledgement by the SEBI with the introduction of mandatory filing of Business Responsibility and Sustainability Reporting (‘BRSR’) for top 1000 listed companies from 2022-23, shows a change in not only regulatory attitude, but also a shift in investor preferences, and their developmental priorities. Considering substantial shifts towards sustainability witnessed across legislative, judicial, and financial domains in India, the author argues that it is only logical that India's competition law regime evolves in tandem with the prevailing momentum towards sustainability. The author asserts the need for a broad interpretation of the CA's object clause to include non-financial factors, which aligns with India’s shift towards sustainability, and the interpretive flexibility that the preamble of the Competition Act offers.
Secondly, SSAs can be accommodated by issuing independent guidelines explicitly acknowledging, and regulating SSAs. The CCI has the power to make regulations to “carry out the purposes of this Act.” In fact, the CCI only recently notified the Competition Commission of India (Commitment) Regulations, 2024 to lay out the procedure to be followed during commitment proceedings, according to the enabling provisions in the CA. Thus, similar to the 2023 EU Horizontal Guidelines, the CCI may issue relevant guidelines to regulate SSAs.
Conclusion
SSAs are noted to have multiple positive economic effects. They help in harmonising unsynchronised technical specifications, and may also help in increasing overall product quality.[3] SSAs also empower consumers to make informed purchase decisions, and can level the playing field between producers that are subject to different regulatory requirements. Though PSS offer similar benefits, they are secondary in nature – as they aren’t developed by players in the market, but by external entities. Because SSAs are generally deemed anti-competitive, market players do not have a platform to standardize practices. This may discourage individual market players from pursuing sustainability initiatives due to potential increased costs and uncertainty in market perception. While industries like the telecommunication sector, regulated by TRAI, have regulations to standardize interconnection arrangements between telecom operators and may not require SSAs, nascent sectors like electric batteries, which are unregulated and consequently involve high costs, stand to significantly benefit from SSAs. This article thus tries to analyse the feasibility of the Competition Regime in India to accommodate SSAs, and highlights the importance of its inclusion within the Indian Competition framework.
[1] SM Duggar, supra Note 17, pg. 561.
[2] see supra-Part II on “Art. 101’s exemption clause being wide enough to accommodate most SSAs”
[3] Supra Note 1, Cl. 9.3.2.2.