Corporate and Economic Laws · The Competition Act, 2002

Anti-Competitive Agreements under Section 3 of the Competition Act

Updated 11 October 2026 · Fact-checked

Section 3 of the Competition Act, 2002 bans agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India, and such agreements are void. Horizontal agreements such as cartels are presumed to have AAEC. Vertical agreements are tested on their actual effect. To solve a question, classify the agreement first, then apply the presumption or the factors.

Understand Anti-Competitive Agreements

Competition law protects the market process. Firms should win customers on price, quality and service, not by agreeing among themselves. Section 3 targets agreements that damage this process. The core rule in Section 3(1) says no enterprise, person, or association of either may enter into an agreement on 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 (AAEC) within India. Under Section 3(2), such an agreement is void.

The Act deals with agreements in two groups, commonly labelled horizontal and vertical. Horizontal agreements are between parties engaged in identical or similar trade, such as two cement makers or members of a trade association. Section 3(3) covers these, including cartels. It also covers a practice carried on, or a decision taken by, an association of enterprises. If the agreement (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 by allocating area, type of goods or services, or number of customers, or (d) results in bid rigging or collusive bidding, it is presumed to have AAEC. The Act's word is only 'presumed'. The accepted reading is that the parties can try to rebut the presumption, but the text does not spell out how.

There are two points about Section 3(3) many students miss. First, a proviso says the presumption does not apply to a joint venture agreement if it increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Second, a further proviso (added in 2023) says an enterprise or person that is not in identical or similar trade is also presumed to be part of the agreement if it participates or intends to participate in furthering it. So Section 3(3) is not limited to parties in the same trade. It reaches a facilitator, such as a consultant who runs a cartel.

Vertical agreements are between parties at different stages or levels of the production chain, such as manufacturer and distributor. Section 3(4) lists tie-in arrangements, exclusive dealing agreements, exclusive distribution agreements, refusal to deal and resale price maintenance. The list is inclusive: other agreements amongst enterprises or persons are also covered. These are not presumed bad. They contravene Section 3(1) only if they cause or are likely to cause AAEC in India. AAEC is assessed on the Section 19(3) factors, which include both benefits and harm. This effect-based approach is commonly called the rule of reason, but that label is not in the Act. The proviso to Section 3(4) says it does not apply to an agreement between an enterprise and an end consumer.

To judge AAEC, Section 19(3) lists factors the Commission must have due regard to: creation of barriers to new entrants, driving existing competitors out, foreclosure of competition, benefits or harm to consumers, improvements in production or distribution, and promotion of technical, scientific and economic development. Section 3(5) protects the right to restrain infringement of, or impose reasonable conditions to protect, rights under IP laws such as the Copyright Act, Patents Act and Trade Marks Act, and the right to export goods to the extent the agreement relates exclusively to production, supply, distribution or control of goods or services for export.

Key rules to remember

General prohibition: Agreement on production, supply, distribution, storage, acquisition or control of goods/services + AAEC in India (caused or likely) → prohibited and void; Section 3(1) and 3(2). The effect must be on competition within India.
Horizontal agreements (presumption): Agreement between parties in identical or similar trade (or a person outside that trade who participates or intends to participate in furthering it) that (a) fixes prices, (b) limits production/supply/markets/technical development/investment/services, (c) shares markets, or (d) rigs bids → AAEC presumed; Section 3(3). The Act says 'presumed'; the accepted reading is that the presumption can be rebutted. Joint venture proviso applies if the agreement increases efficiency.
Vertical agreements (effect test): Tie-in, exclusive dealing, exclusive distribution, refusal to deal, resale price maintenance, or any other vertical agreement → contravention only if AAEC is caused or likely; Section 3(4). No presumption of AAEC; it is assessed using the Section 19(3) factors. Agreements with an end consumer are outside this sub-section.
Factors for AAEC: Barriers to entry; driving out competitors; foreclosure; benefit or harm to consumers; improvements in production or distribution; technical, scientific and economic development; Section 19(3). Commission has due regard to all or any of these.
Limitation for information or reference: Filing within 3 years from the date the cause of action arose; later only if sufficient cause for delay is shown and reasons recorded; Section 19(1) provisos.

How to solve Anti-Competitive Agreements questions

Use this order for any scenario question on anti-competitive agreements. It keeps your answer structured and gets you the marks for each stage.

1Identify the parties and whether they are in identical or similar trade (horizontal) or at different stages of the production chain (vertical).
2Find the conduct: price fixing, output limits, market sharing, bid rigging, or a tie-in, exclusive dealing, exclusive distribution, refusal to deal, or resale price maintenance.
3State the right sub-section: Section 3(3) for horizontal, Section 3(4) for vertical.
4For horizontal conduct, state that AAEC is presumed under Section 3(3). On the accepted reading, the parties can try to rebut it. Check the joint venture proviso for efficiency gains, and remember that a person outside the trade who furthers the agreement is presumed to be part of it.
5For vertical conduct, state that AAEC is not presumed and assess it using the Section 19(3) factors, applying them to the facts given.
6Check exceptions: agreement with an end consumer, IP rights protection, or export-only agreement under Section 3(5).
7Conclude: if prohibited, the agreement is void under Section 3(2). Mention the three-year limit under Section 19(1) if timing is in the facts.

Quickest way: Horizontal or vertical, presumed or tested

When to use it: Use this in 2-mark MCQs and when you have under two minutes for a short case.

Ask: same level of trade or different levels? Same means horizontal, different means vertical.
Horizontal with price, output, market or bid element: answer is AAEC presumed.
Vertical (tie-in, exclusive, refusal, resale price): AAEC is not presumed; it is assessed on the facts.
Look for exceptions: joint venture efficiency, end consumer, IP rights, export.
Finish with void under Section 3(2).

Common mistakes in Anti-Competitive Agreements

Saying all anti-competitive agreements are presumed to have AAEC.
Students remember the presumption in the cartel rule and apply it everywhere.
Fix: The presumption is only in Section 3(3) for horizontal agreements. For vertical agreements under Section 3(4), AAEC is not presumed; it is assessed on the Section 19(3) factors.
Calling a vertical agreement horizontal because both parties are in the same industry.
Students look at industry instead of the level in the production chain.
Fix: Ask whether the parties are at the same stage or different stages. A manufacturer and its dealer are vertical even in the same industry.
Treating the presumption as final and not allowing rebuttal.
The word 'presumed' is read as 'proved'.
Fix: Write that the Act says 'presumed' and that, on the accepted reading, the parties can try to rebut it by showing the agreement does not cause AAEC. Also check the joint venture proviso, which is in the text.
Assuming a facilitator outside the same trade is not liable under Section 3(3).
Students read 'identical or similar trade' strictly.
Fix: The further proviso presumes such a person is part of the agreement if it participates or intends to participate in furthering it.
Applying Section 3(4) to a sale to an end consumer.
Students miss the proviso added in 2023.
Fix: Section 3(4) does not apply to an agreement between an enterprise and an end consumer. Check the buyer first.
Forgetting the consequence of a breach.
Focus stays on classification and the answer ends early.
Fix: Close with Section 3(2): an agreement in contravention of Section 3(1) is void.

Worked examples

Example 1

Five tyre manufacturers meet through their trade association and agree to cut monthly output by a fixed percentage so that prices rise. One of them argues there is no proof of harm to consumers. Advise on the legal position.

Show the solution

The parties are in identical trade, so this is a horizontal agreement under Section 3(3).
Conduct: limiting production and supply, covered by Section 3(3)(b). Since the aim is to raise prices, it also indirectly determines prices under Section 3(3)(a).
Under Section 3(3), the agreement is presumed to have AAEC. The Commission need not first prove harm.
On the accepted reading of 'presumed', it is for the manufacturers to try to rebut the presumption. The joint venture proviso does not help because this is not an efficiency-enhancing joint venture.
Under Section 3(2), an agreement in contravention of Section 3(1) is void.

Answer: The argument fails. The agreement is a horizontal output-limiting arrangement presumed to have AAEC under Section 3(3). The manufacturers can only succeed by rebutting the presumption, which the facts do not support, and the agreement is void under Section 3(2).

Example 2

A mobile handset maker sells through authorised distributors. A distributor must buy a bundle of chargers and cases as a condition of buying phones, and must not sell below the maker's stipulated resale price. Examine under Section 3.

Show the solution

The parties are at different levels of the chain, so this is vertical and governed by Section 3(4).
Buying the bundle as a condition of buying phones is a tie-in arrangement, requiring purchase of other distinct goods.
A restriction that the resale price shall be the price stipulated by the seller is resale price maintenance. The definition includes direct or indirect restriction, unless it is clearly stated that lower prices may be charged.
AAEC is not presumed. It is assessed on whether the arrangements cause or are likely to cause AAEC.
Apply the Section 19(3) factors: barriers to new entrants (rival accessory makers foreclosed), driving out competitors, harm to consumers, and any improvements in distribution.
If AAEC is found, the agreement contravenes Section 3(1) and is void under Section 3(2).

Answer: The tie-in and resale price maintenance are vertical restraints under Section 3(4). They are prohibited only if they cause or are likely to cause AAEC, judged on the Section 19(3) factors. If so, they are void.

Exam tips

Always start by labelling the agreement horizontal or vertical. That label decides whether you write presumption or effect test.
In MCQs, watch for the word 'presumed'. It points to Section 3(3) and not to vertical agreements.
Learn the four heads of Section 3(3) and the five named vertical types of Section 3(4) as lists, and recall the 2023 additions: facilitator proviso and end consumer proviso.
In case answers, apply Section 19(3) factors to the given facts rather than just listing them.
End with the consequence: void under Section 3(2). Add the limitation point only if the facts mention delay.

Practice questions from The Competition Act, 2002

Anti-Competitive Agreements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Anti-Competitive Agreements: frequently asked questions

What is appreciable adverse effect on competition?

The Act does not define it in one line. The Commission decides it using the factors in Section 19(3), such as barriers to new entrants, driving out competitors, foreclosure, benefits or harm to consumers and improvements in production or distribution. Horizontal agreements under Section 3(3) are presumed to have it.

What is the difference between horizontal and vertical agreements?

Horizontal agreements are between parties in identical or similar trade, such as competitors. They are covered by Section 3(3) with a presumption of AAEC, and a person outside the trade who furthers the agreement can also be caught. Vertical agreements are between parties at different stages of the production chain and are covered by Section 3(4), where AAEC is not presumed and is assessed on the Section 19(3) factors.

What is a cartel under the Competition Act?

The Act's Section 3(3) covers agreements between enterprises in identical or similar trade, including cartels, that fix prices, limit supply, share markets or rig bids. Such agreements are presumed to have AAEC and, if in contravention of Section 3(1), are void.

Is a joint venture agreement always safe from Section 3(3)?

No. The presumption does not apply to a joint venture agreement only if it increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. The efficiency condition must be met.