It was in the year 1890 that the most famous Sherman Act 1890 came in existence. The effects of this law were that there was a ban on business arrangements that may lead to restraint in trade1, and followed by that it also prohibited the attempts to acquire monopoly2. This act was passed due to the ill practices of railway companies, which were exploiting their monopoly position which as a result had negative effects on the farmers, shippers and other traders. And many industries were conjointly having 'trusts' and were adopting measures to drive out the competitors out of the market. Therefore, Section 1 of the Sherman Act institutes that, any contract in the form of combinations or any trust or any otherwise, or any conspiracy, which may lead to restraint in trade ...... is to be declared illegal3. And followed by Section 24, it made it as an offence if any attempts are made to acquire monopoly in market.
The competition law in India came into existence as result of Article 38 and 39 of the Constitution of India which inter alia, construes that the state might endeavour to advance the welfare of the public and ensuring effectively, as it might be, a social request in which the equity, social financial and political, should advise all foundations of national life and State should, specifically, direct its strategy towards securing:5
- That the possession and the control of material assets of the group are so dispersed as best to sub serve the benefit of all
- That the operation of the monetary framework does not bring about the grouping of riches and method for creation to regular disadvantage.
The main aspects of competition law are, first, the 'rule of reason and second, is the 'per se rule'. These rules originated from the US - the "The Sherman Act 1890, and the famous case of "Northern Pacific Railway Co. v United States and Others"6. In India the dimensions of 'Rule of Reason' and 'Per se Rule' can be found in the case of Neeraj Malhotra v. Deustche Post Bank Home Finance ltd. and others7 also known as the payments loan case.
THE UNITED STATES
As mentioned earlier, the Sherman Act 1890, was the first anti-trust law in US. Section 1 of the Act declares all contracts, combination in the form of trust, conspiracy.... as unlawful. This section consists of two parts: a. "contract or the any combination or any conspiracy" b. "restraint of trade". Some interpretations were attempted by the US Courts for the second requirement i.e. restraint of trade. In the case of the United States v. Trans-Missouri Freight Association8 the court held that if the act clearly specifies that all contracts... that are in restraint of trade will be illegal, then it does not preclude only that type of contract will there which is given, but carries ambit towards all contracts, no limitation or any exclusion can be permitted unless defined in the act.
After some years, the court channelled new dimension for section 1 in its decision in the case Standard Oil Co. v. United States9. This is one of the greatest celebrated case in view of antitrust case under Sherman Act. To be sure the name "anti- trust" had been authored in light of trust, for example, Standard Oil. Setting the decided antitrust masters of the time against the money related premiums of John D. Rockefeller and other industrialists, the case denoted an end of antitrust's immaturity in more courses than one. At the end of the case, a standout amongst the broadest trust to rise up out of the late nineteenth century turned into a loss of the twentieth, dismantled into its more than thirty constituent parts. More critically for current purposes, the court did recommend as such in the wake of inferring a reasonable alteration to the wordings of section 1of the Act. Presently composing for the court's opinion of majority, Justice White actualized the approach he had initially laid out in his dissenting opinion in Trans Missouri10 - "the rule of reason". In this manner, the court always played Judas on the plain significance approach of Trans-Missouri, underlining rather the connection between the Sherman Act, the English and American common law in consonance with restraint of trade as it remained in 1890.
Again, "rule of reason" was discussed and explained in the case of Chicago Board of Trade v. United States11. It lays down that, the legitimateness of an agreement can't be dogged by a simple test, as to whether it limits rivalry/competition. Each agreement and regulation with respect to trade, restrains. To bind or to control, is their exceptional quintessence. The genuine test for legitimateness is whether the restrain forced i.e. it only directs and maybe along these lines, advances competition or regardless of whether it is, for example, may stifle or even demolish competition. To establish that question the court should usually consider the facts atypical to the business to which the restrain is adhered to; its condition previously, then after the fact the limitation was forced; the nature of the restriction and its impact, genuine or likely. The historical backdrop of the restraint, the insidiousness accepted to exist, the reason behind receiving the specific remedy, the purpose or end tried to be accomplished, are all relevant and applicable facts. This is not so that a good intent will shield an otherwise questionable regulation or the opposite of it, but also the mere knowledge of the intention may help in interpretation of facts and to predict consequences by the courts.
From the discussion above, some main points that determine the anti-competitive nature can summarised as:
- Due to the activity of collaborators, what are the possible harms caused as result?
- Is the object of their act or goal legitimate or not?
- Are there any other legitimate means to achieve their intention, goal or objective?
These three tests are comprehensive in nature, and in order to rectify these three tests, there is a need of detailed research and enquiry and also the determination of the reasonableness and what constitutes the unreasonableness would be of very broad context.
The Supreme Court of India, opined the cases Mahindra and Mahindra v. Union of India12and TELCO v. Registrar of RT13 that the rule of reason is supposed to be functional in these case because the term "Restricted trade Practices" is very vast and is of non-inclusive nature. Further in case of Sodhi Transport Co. v. State of U.P14 it was held that 'Shall be presumed' is taken as an assumption and not as an evidence itself, yet just characteristic on whom onus of proof lies. Vertical agreements identifying with exercises alluded to under Section 3(4) of the Competition Act then again must be dissected as per the 'rule of reason' investigation under the Competition Act.
CURRENT STATUS OF BOTH PER SE AND RULE OF REASON IN INDIA
Section 3 of the Competition Act, 2002, has been instituted with a specific end goal - to get the diverse sort of Agreements having anticompetitive nature and additionally the anti-trust nature. There are the two noteworthy categories of the agreement under Competition Act:
Horizontal Agreements will be arrangement/ agreement between at least two endeavours/ enterprises that are at a similar stage of the generation chain and, in a similar market16.The best illustration which can illustrate this kind of agreement are within two providers trading in similar items, in similar markets and both the items must be a substitute to each other. Being at a similar phase of the generation chain infers that the parties to the understanding/agreement are both (all) makers, or the retailers or the wholesalers. Under section 3(3) the accompanying agreements are dared as anti-competitive if:
- Agreements specifically or in a roundabout way decide buy or deal costs;
- Agreements on confinement or controls generation, supply, markets, specialized improvement, venture or of administrations;
- Agreements on sharing the market or wellspring of creation or arrangement of administrations by method for distribution of land territory of market, or sort of products or administrations, or number of clients in the showcase or some other comparative way;
- Agreements regarding directly or by implication decide buy or deal costs;
Vertical agreements are agreements between endeavours/enterprises that are at various stages or levels of the manufacturing chain, and accordingly, in various markets. A case of this would be an agreement between a manufacturer and wholesaler. Vertical limitations on competition include18:
- Tie-in agreement
- Agreement for Exclusive supply
- Agreement for Exclusive circulation/distribution
- Refusing to bargain
- Maintaining of resale price
Raghavan's board of trustees' report on competition law observes: On Horizontal Agreements: "Agreements are viewed as illicit just on the off chance that they result in irrational confinements on rivalry. In light of the U.S. law, this is tried on what is known as the "rule of reason" scrutiny. It is likewise required that the parties to the agreement are occupied with opponent rivalry exercises. A potential opponent is one who could be fit for participating in the same sort of activity."19 The board gave an illustrative rundown of understandings that must be liable to the "rule of reason"20:
- Agreements with regard to settling of procurement or offering costs;
- Agreements constraining amounts, markets, specialized advancement or speculation;
- Agreements with regards to domains/areas to be served and source of the supply;
- Agreements with regards to divergent treatment of equal exchanges amongst trading parties that place them off guard.
The accompanying sorts of horizontal agreements are frequently seen as anti-competitive21:
- Agreements with respect to settling costs. This would incorporate all agreements which specifically or by implication settle the purchase or selling price.
- Agreements with respect to quantities. This incorporates agreements meant for restricting or controlling generation/production and investment.
- Agreements with respect to offers or bids (tricky offering). This incorporates tenders submitted as an after effect of any joint agreement.
In India, the agreements which are not competing are secured under section 3(3) of the Competition Act 2002. According to the substance of the Act this can be considered as the denounced agreement according to the "per se rule". This is translated from the way that Section 3(3) covers understandings which are thought as anti-competitive in character. With regards to the agreements that are non-competitive, the assessment for the sensibility is of very significant nature and can't be disregarded. The purchaser has an honest enthusiasm from the precedent-based law to shield the preferred gain due to such procurement.
Subsequently, such an agreement ought not to be anti-competitive in nature; also, there must be legitimate test for sensibility. According to the Raghvan Committee report it can be expressed that the test for anti-competitiveness is according to per se determination. This appears to be clear from the substantial dependence by the Commission on the position in USA in reference to certain denounced showcase prohibitive agreements.22
There are many case laws in which it has been concluded that as such there is no provision of "per se rule" in India. The section 3(3) of the Act accommodates the provision of per se, yet the same can be disproved through Section19 (3) of the Act. This was held in the current instance of Neeraj Malhotra v Deustche Post Bank Home Fund Limited (Deustche Bank) and ors23, where the court plainly held that inspite of the fact that the per se rule is incorporated into the section 3(3) of the Act it is losing its hugeness with its elucidation with section 19(3) of the Act accordingly. Section 19(3) furnishes the indirect exemption to this rule24. Here the majority arrived at the conclusion that there was no infringement of section 3(3) of the act, in spite of the fact that there were two contradicting judges. The learned contradicting judge completely expressed that section 3(3) of the concerned Act sets out the rule of "per se". He arrived at the conclusion that the assumption under section 3(3) can be rebuttable. As per se was scrutinized by the contradicting judge as the "per se" in essence disallows the respondents from demonstrating the pro-competitiveness of their activities. He additionally expressed that the "assumption" just moves the weight of verification against the litigants. The respondents can be released with this burden by taking asylum under section 19(3) of the act25. Thus, we can express that as for the per se norms like United States, India has likewise limited the utilization of as such rule to an exceptionally constrained degree and in this manner this is utilized by the court just in the issues like value fixings, cartels and so forth where there is no need of point by point examination and no compelling reason to check the sensibility as the act in itself is invalid and can't be advocated at any cost. With regards to "Rule of reason", we can see that with the choices of the court, "Rule of reason" has secured far and has been broadly utilized by the courts. The "Rule of reason" has been gradually supplanting the essentially control or we can state that it has constrained the extent of "per se rule" to just a very few regions.
1 Sherman Act,15 U.S.C. Section 1(1890)
2 Sherman Act, 15 U.S.C. Section 2 (1890)
3 Supra note 1.
4 Supra note 2.
5 D.P. Mittal, Competition Law and Practice, 9-10(2nd ed. 2008).
6 356 U.S. 1(1958).
7 (2011) 106 SCL 62 (CCI).
8 166 U.S.290, 328 (1897)
9 221 U.S 1 (1911).
10 Supra note 8.
11 246 U.S. 231, 238-39 (1918).
12 (1979) 2 SCC 529.
13 (1977)2 SCC 55.
14 (1986)1 SCR 939.
15 Section 3(3) of The Competition Act, 2002, 12 of 2003; supra note. 17
16 Supra note 17,18
17 Id. 18 Id.; supra note. 5.
19 Id. 20 Id.
23 Supra note 7.
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