Cartel and Anti-Competitive Agreement Compared

Every cartel is an anti-competitive agreement; not every anti-competitive agreement is a cartel. The wider expression covers everything prohibited by Section 3, horizontal and vertical alike. A cartel is a particular species: an arrangement among competitors, defined in Section 2(c), by which they limit or control production, distribution, sale or price. The distinction is not academic, because a good deal of the Act turns on it: leniency is available only for cartels, settlement and commitment are available only for everything else, and the penalty measure for a cartel is higher and computed differently.

1. The Definitions

Section 3(1) prohibits any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services which causes or is likely to cause an appreciable adverse effect on competition within India, and Section 3(2) makes such an agreement void. Agreement is defined widely in Section 2(b) to include any arrangement or understanding or action in concert, whether or not formal, in writing or enforceable.

Section 2(c) defines a cartel to include 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. Three things follow: the parties must be at the same level of the chain, the object must be to limit or control one of the listed matters, and an attempt suffices.

2. The Comparison

3. Why the Act Singles Out Cartels

1. There is no redeeming explanation. A vertical restraint often serves a purpose the law recognises, such as protecting a distributor's investment. An agreement among competitors to fix prices or divide markets produces nothing; its only function is to transfer money from buyers to the participants.
2. Detection is exceptionally difficult. A cartel leaves no contract because it could not be enforced in court, and its participants have every reason to conceal it, which is why a leniency programme exists for cartels and for nothing else.
3. The gain may exceed any percentage of turnover, particularly in bid rigging, which is why the profit-based alternative was provided.
4. Deterrence is the object. That is the reason cartels are excluded from settlement and commitment: allowing a member to buy closure would reduce the expected cost of cartelisation and undermine the incentive to be the first to defect.

4. Where the Line Is Drawn

• A vertical agreement is not a cartel, however restrictive, because the parties are not competitors. Resale price maintenance imposed by a supplier is examined under Section 3(4).
• A hub and spoke arrangement is a cartel once the rim exists, that is once the competitors have a common understanding, even though each deals only with the hub. After the amendment of 2023 the hub itself is presumed to be a party where it actively furthers the arrangement.
• A joint venture is not a cartel where the parties genuinely combine resources to do something neither does alone, and the proviso to Section 3(3) removes the presumption where the arrangement increases efficiency. A sham venture that only coordinates conduct is treated as what it is.
• A trade association decision is within Section 3(3), which applies expressly to a practice carried on or a decision taken by an association, so a resolution fixing rates is a cartel arrangement in substance.
• Buyers' cartels are cartels. Section 3(3)(a) covers agreements determining purchase prices as well as sale prices, and Section 2(c) covers those who control trade in goods.

5. Related Topics and Provisions