Economic, Commercial and Intellectual Property Laws · Competition Law

Anti-Competitive Agreements under Section 3 of the Competition Act

Updated 11 October 2026 · Fact-checked

An anti-competitive agreement is one about production, supply, distribution, storage, acquisition or control of goods or services that causes or is likely to cause an appreciable adverse effect on competition (AAEC) in India. Section 3 makes it void. Horizontal agreements like cartels are presumed to have AAEC. Vertical agreements must be proved to have it.

Understand Anti-Competitive Agreements

Section 3 protects the market from agreements that hurt competition. Section 3(1) is the base rule. No enterprise, association of enterprises, person or association of persons 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 within India. Under Section 3(2), such an agreement is void.

The Act splits agreements into two groups. Horizontal agreements are between parties in identical or similar trade, such as two rival cement makers. Section 3(3) covers them. Vertical agreements are between parties at different stages or levels of the production chain, such as a manufacturer and a distributor. Section 3(4) covers them.

The key difference is the burden. Under Section 3(3), four kinds of horizontal agreement are presumed to have AAEC: those that directly or indirectly determine purchase or sale prices; those that limit or control production, supply, markets, technical development, investment or provision of services; those that share the market or source of production by allocating geographical area, type of goods or services, or number of customers; and those that result in bid rigging or collusive bidding. The parties must rebut the presumption. Section 3(3) also covers practices carried on, or decisions taken by, an association of enterprises or persons, including cartels.

Vertical agreements get no presumption. Section 3(4) lists tie-in arrangement, exclusive dealing agreement, exclusive distribution agreement, refusal to deal and resale price maintenance. It also covers any other agreement among enterprises or persons at different stages or levels of the production chain in different markets. These are in contravention of Section 3(1) only if they cause or are likely to cause AAEC in India. The Commission has to examine the effect. An agreement between an enterprise and an end consumer is outside Section 3(4).

There are safeguards. The presumption does not apply to joint ventures if the agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or services. Section 3(5) allows reasonable conditions to protect rights under IP laws such as the Copyright Act, Patents Act and Trade Marks Act. It also protects the right to export goods to the extent the agreement relates exclusively to goods or services for export.

Key rules to remember

Base rule: Agreement causing or likely to cause AAEC in India → prohibited (Section 3(1)) → void (Section 3(2)); The test covers both actual and likely effect.
Horizontal agreements (Section 3(3)): Agreement between parties in identical or similar trade + price fixing / limiting supply / market sharing / bid rigging → AAEC is presumed; The presumption is rebuttable. The parties must show there is no AAEC.
Vertical agreements (Section 3(4)): Agreement between parties at different stages of the production chain → void only if AAEC is shown; No presumption. Does not apply to agreements between an enterprise and an end consumer.
Four horizontal heads: (a) prices; (b) limit production, supply, markets, technical development, investment, services; (c) market sharing; (d) bid rigging; Remember as P-L-M-B.
Listed vertical agreements: Tie-in; exclusive dealing; exclusive distribution; refusal to deal; resale price maintenance; The list uses 'including', so other vertical agreements can also be tested.
Joint venture proviso: Joint venture that increases efficiency → Section 3(3) presumption does not apply; Efficiency in production, supply, distribution, storage, acquisition or control of goods or services.
Hub-and-spoke proviso: Enterprise not in identical or similar trade but participating or intending to participate in furtherance of the agreement → presumed to be part of it; Inserted w.e.f. 18-5-2023.

How to solve Anti-Competitive Agreements questions

Use this method for any case or theory question on Section 3. Answer in ICSI style: provision, facts, conclusion.

1Identify the agreement. Note the parties, and what it covers: production, supply, distribution, storage, acquisition, control of goods or services.
2Classify it. Are the parties in identical or similar trade (horizontal, Section 3(3)) or at different stages of the production chain (vertical, Section 3(4))?
3For horizontal, check the four heads: price determination, limiting or controlling output or markets, market or customer sharing, bid rigging. If one fits, state that AAEC is presumed.
4Check the exceptions: joint venture that increases efficiency, Section 3(5) IP rights, and export-only agreements.
5For vertical, name the type: tie-in, exclusive dealing, exclusive distribution, refusal to deal or resale price maintenance. Then test AAEC on the facts, since nothing is presumed.
6Check whether the other party is an end consumer. If so, Section 3(4) does not apply.
7Conclude. State whether the agreement is in contravention of Section 3(1) and void under Section 3(2), or not.

Quickest way: Two-question filter

When to use it: Use for short case-law style questions with limited time.

Ask: same level of trade or different levels? Same level means Section 3(3). Different level means Section 3(4).
Same level: match the facts to price, output, market sharing or bid rigging. If matched, write 'AAEC presumed; parties may rebut'.
Different level: name the type of agreement and write 'AAEC must be shown; effect on competition decides'.
End with 'void under Section 3(2)' or 'not void', as the facts support.

Common mistakes in Anti-Competitive Agreements

Saying every horizontal agreement is presumed to have AAEC.
Students remember 'horizontal means presumption' and stop there.
Fix: The presumption applies only to agreements that fall in the four heads of Section 3(3): prices, limits on output or markets, market sharing and bid rigging.
Presuming AAEC for tie-in, exclusive dealing or resale price maintenance.
These sound as harmful as cartels.
Fix: Section 3(4) agreements are tested on effect. AAEC must be shown. Write this clearly.
Confusing exclusive dealing with exclusive distribution.
Both use the word 'exclusive'.
Fix: Exclusive dealing restricts the buyer or seller from dealing in other goods or services. Exclusive distribution limits or withholds output or supply, or allocates an area or market for sale.
Applying Section 3(4) to a contract with an end consumer.
Students forget the proviso added in 2023.
Fix: State that Section 3(4) does not apply to an agreement between an enterprise and an end consumer.
Forgetting the consequence.
Answers describe the type of agreement but never conclude.
Fix: End every answer with the effect: an agreement in contravention of Section 3(1) is void under Section 3(2).
Missing the exceptions in Section 3(5) and the joint venture proviso.
They are short and sit at the end of the section.
Fix: Scan the facts for a joint venture, an IP licence condition or an export-only arrangement before concluding.

Worked examples

Example 1

Four Indian manufacturers of steel pipes, A Ltd, B Ltd, C Ltd and D Ltd, meet and agree to raise their selling prices by the same percentage and to cut monthly production by a fixed quantity. Examine the legal position under the Competition Act, 2002.

Show the solution

Provision: Section 3(1) prohibits agreements that cause or are likely to cause AAEC in India. Section 3(3) presumes AAEC for horizontal agreements that directly or indirectly determine prices or limit or control production or supply.
Facts: the four are in identical trade, so the agreement is horizontal. They agree on a common price rise, which determines sale prices. They also agree to cut production, which limits production and supply.
Analysis: both clauses (a) and (b) of Section 3(3) are met. As the parties act together to fix prices and limit output, this is also a cartel arrangement. AAEC is presumed, and the parties would have to rebut it. No joint venture efficiency or Section 3(5) exception appears on the facts.
Conclusion: the agreement is in contravention of Section 3(1) and is void under Section 3(2).

Answer: The agreement is a horizontal cartel-type agreement. AAEC is presumed under Section 3(3)(a) and (b). It contravenes Section 3(1) and is void under Section 3(2).

Example 2

Sharma Motors, a car manufacturer, requires its dealer, Gupta Autos, to buy a set of accessories from Sharma Motors whenever it buys cars. The accessories are distinct goods that Gupta Autos could buy elsewhere. Is this agreement anti-competitive?

Show the solution

Provision: Section 3(4)(a) lists a tie-in arrangement. It includes any agreement requiring a purchaser of goods or services, as a condition of the purchase, to purchase some other distinct goods or services.
Facts: the manufacturer and dealer are at different levels of the production chain, so the agreement is vertical. Buying accessories is a condition of buying cars, and the accessories are distinct goods. This is a tie-in arrangement.
Analysis: there is no presumption of AAEC for Section 3(4) agreements. The Commission must find that the tie-in causes or is likely to cause AAEC in India. It would look at how far the tie forecloses other accessory sellers and at the manufacturer's market position. Gupta Autos is a dealer, not an end consumer, so the proviso does not exclude it.
Conclusion: the agreement is a tie-in arrangement. It is void under Section 3(2) only if it causes or is likely to cause AAEC in India. If no such effect is shown, it is not in contravention.

Answer: It is a vertical tie-in arrangement under Section 3(4)(a). It is anti-competitive and void only if AAEC is shown. There is no presumption.

Exam tips

Draw the horizontal versus vertical contrast in the first lines of any theory answer. Examiners look for the presumption versus proof distinction.
Learn the four heads of Section 3(3) and the five listed types in Section 3(4) by heart. Write each with its explanation from the Act.
In case-style questions, first classify the parties by level of trade. The rest of the answer follows from that.
Do not forget the 2023 changes: the hub-and-spoke proviso in Section 3(3) and the end-consumer proviso in Section 3(4).
Always give a clear conclusion, stating void or not void under Section 3(2).

Practice questions from Competition Law

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 the difference between horizontal and vertical agreements?

Horizontal agreements are between parties in identical or similar trade and are covered by Section 3(3). Vertical agreements are between parties at different stages or levels of the production chain and are covered by Section 3(4). Horizontal agreements on price, output, market sharing or bid rigging are presumed to have AAEC. Vertical ones must be proved to have it.

What is a cartel under the Competition Act, 2002?

Section 3(3) refers to agreements, practices or decisions of associations of enterprises or persons, including cartels, engaged in identical or similar trade. If a cartel determines prices, limits supply, shares markets or rigs bids, AAEC is presumed. The agreement is void.

What is bid rigging?

Under the Explanation to Section 3(3), bid rigging means any agreement between enterprises or persons in identical or similar production or trading, or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the bidding process.

What are the factors for deciding AAEC under Section 3?

The text supplied to you does not list factors for Section 3. The factor list in Section 20(4) applies to combinations. For Section 3, write that AAEC is presumed for the four horizontal heads and must be shown for vertical agreements. Use the Commission's assessment of market effect on the facts.

What is resale price maintenance?

It includes any direct or indirect restriction that the prices charged on resale by the purchaser shall be the prices stipulated by the seller, unless it is clearly stated that lower prices may be charged. It is a vertical agreement under Section 3(4)(e) and is tested on its effect on competition.