Presumption under Section 3(3) Competition Act: Rebuttable or Irrebuttable?
Sections 3 and 4 of the Competition Act (India) relating to anti-competitive agreements and abuse of dominant postion, were recently brought into force on May 20, 2009.
Section 3 of the Act declares that anti-competitive agreements will be void and prohibits enterprises and persons from entering into agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services that causes or is likely to cause an appreciable adverse effect on competition in India.
Generally agreements are classified into horizontal and vertical agreements for the purpose of competition laws. However, the Indian law doesn't use this terminology. Nevertheless it can be seen that, in substance Section 3(3) covers horizontal agreements, whereas Section 3(4) covers vertical agreements. The importance of this distinction is that normally horizontal agreements relating to price fixing, market sharing etc. are considered to be "per se "anti-competitive and no defence is available.
Section 3( 3) reads -
Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
(a) directly or indirectly determines 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, shall be presumed to have an appreciable adverse effect on competition:
Provided that nothing contained in this sub-section shall apply 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.
Explanation.—For the purposes of this sub-section, "bid rigging" means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding
The use of the phrase " shall be presumed" in Section 3(3) raises considerable amount of doubt on the nature of the presumption raised. Is the presumption rebuttable or irrebuttable? One opinion says the presumption can be rebutted ( see here), while another opinion is that it cannot be rebutted (see here).
The importance of this question may be expalined by this example:
A particular agreement between enterprises engaged in identical trade of goods is say alleged to be one which shares markets by way of geographical allocation. Once this fact of market sharing is established, the enterprises will not be allowed to show how the agreement is not anti-competitive, if the presumption is irrebuttable. Whereas if it is rebuttable, then its only a matter of burden of proof. Once the requirements on Section 3(3) are met, the burden will be on the enterprises to show how their agreement does not have an appreciable adverse effect on competition.
My next post will consider the two arguments in detail.
Section 3 of the Act declares that anti-competitive agreements will be void and prohibits enterprises and persons from entering into agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services that causes or is likely to cause an appreciable adverse effect on competition in India.
Generally agreements are classified into horizontal and vertical agreements for the purpose of competition laws. However, the Indian law doesn't use this terminology. Nevertheless it can be seen that, in substance Section 3(3) covers horizontal agreements, whereas Section 3(4) covers vertical agreements. The importance of this distinction is that normally horizontal agreements relating to price fixing, market sharing etc. are considered to be "per se "anti-competitive and no defence is available.
Section 3( 3) reads -
Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
(a) directly or indirectly determines 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, shall be presumed to have an appreciable adverse effect on competition:
Provided that nothing contained in this sub-section shall apply 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.
Explanation.—For the purposes of this sub-section, "bid rigging" means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding
The use of the phrase " shall be presumed" in Section 3(3) raises considerable amount of doubt on the nature of the presumption raised. Is the presumption rebuttable or irrebuttable? One opinion says the presumption can be rebutted ( see here), while another opinion is that it cannot be rebutted (see here).
The importance of this question may be expalined by this example:
A particular agreement between enterprises engaged in identical trade of goods is say alleged to be one which shares markets by way of geographical allocation. Once this fact of market sharing is established, the enterprises will not be allowed to show how the agreement is not anti-competitive, if the presumption is irrebuttable. Whereas if it is rebuttable, then its only a matter of burden of proof. Once the requirements on Section 3(3) are met, the burden will be on the enterprises to show how their agreement does not have an appreciable adverse effect on competition.
My next post will consider the two arguments in detail.
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