Agreement (Competition Law)

What is 'Agreement'?

Agreements in general refer to a harmony of opinion, an arrangement as to a course of action, or a contract duly executed. In Contract law, an agreement is defined as “Every promise and every set of promises, forming the consideration for each other, is an agreement.” An international agreement is defined as “an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation.” In Competition Law, the term "agreement" includes any arrangement, understanding, or action in concert, whether or not it is formal, in writing, or legally enforceable.

This definition is based on Agreement under Competition Law.

Official Definitions of Agreement

'Agreement' as defined in legislation(s)

The primary definition of "agreement" under Indian competition law is codified in Section 2(b) of the Competition Act, 2002, which states:

‘Agreement’ includes any arrangement or understanding or action in concert,

(i) whether or not such arrangement, understanding or action is formal or in writing; or

(ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.”

This provision adopts an intentionally broad and inclusive interpretation. It allows the Competition Commission of India (CCI) to act against cartels, collusive bidding, and other coordinated behavior, even in the absence of formal contracts or written agreements.

Legal provision(s) relating to 'Agreement'

Section 3 of the Competition Act prohibits 'anti-competitive agreements.' According to the section, no enterprise, person or association may enter into an agreement (on a variety of subjects) which is likely to cause an 'appreciable adverse effect on competition' within India.

Section 3(2) provides that any such agreement shall be void.

Section 3(3) further defines the term 'appreciable adverse effect on competition'—where it determines or controls sale or purchase prices, limits or controls production, supply or the market, shares or allocate a market in terms of geographical area or consumers, or results in bid rigging.

'Agreement' as defined in official document(s)

Advocacy Leaflet (2022)

In the CCI Advocacy Leaflet, CCI's official public education and advocacy leaflet, the CCI reiterates the legislative definition in simplified terms for easier public understanding:

“An agreement includes any arrangement, understanding or concerted action entered into between parties. It may or may not be in writing.”

The CCI affirms that any form of mutual coordination, even without documents or verbal confirmation, qualifies as an agreement if the conduct leads to Appreciable Adverse Effect on Competition (AAEC).

CCI Compliance Manual (2022)

The Compliance Manual for Enterprises, an official government-issued guidance document, also adopts the same expansive view:

“An ‘Agreement’ under the Act includes any arrangement or understanding or action in concert whether or not such an agreement is formal or in writing; whether or not it is intended to be enforceable by legal proceedings.”

This manual is used by businesses to self-assess compliance with Indian competition law. The wide definition of “agreement” is important in training corporate teams to avoid even informal collusion, which may invite regulatory action.

'Agreement' as defined in official government report(s)

Ministry of Company Affairs Competition (AMENDMENT) Bill, 2006, Forty-Fourth Report

Forty-Fourth Report Standing Committee On Finance (2006-2007) (FOURTEENTH LOK SABHA) Ministry of Company Affairs Competition (AMENDMENT) Bill, 2006 explicitly discussed the definition of “agreement” found in Section 2(b).

The Committee strongly felt that there was a need to bring about certain changes in the Principal Act also. The following paragraphs deal with the same:

(1) Section 2(b), 2(b)(i) and 2(b)(ii): Definitions

The Section reads as under:

(b) “agreement” includes any arrangement or understanding or action in concert,—

(i) whether or not, such arrangement, understanding or action is formal or in writing; or

(ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.

As the Committee felt that the words ‘between enterprises’ need to be inserted after the word ‘understanding’, the Ministry was asked to examine the same. In their reply, the Ministry stated as under:

“The existing provisions are wider in scope since they relate to ‘any arrangement or undertaking’, and not only to those between enterprises. Besides the words ‘in concert’ qualifies the act under Section 2(b). Therefore, no change is felt necessary.”

Though the Ministry have taken the stand that the existing provisions under Section 2(b), 2(b)(i) and 2(b)(ii) are wider in scope, the Committee still feel that the words ‘between enterprises’ are required so that the interpretation of the word could be made in the right perspective as it was noticed that the MRTPC had wrongly interpreted the word ‘understanding’ in several cases and applied it to a single enterprise. Hence, they desire that Government may consider carrying out the necessary changes in Section 2(b), 2(b)(i) and 2(b)(ii) of the principal Act while bringing in the revised amendment Bill.

'Agreement' as defined in case law(s)

DGS&D vs Puja Enterprises & Ors.

In the case of DGS&D vs Puja Enterprises & Ors., the CCI emphasized that the statutory definition of “agreement” under Section 2(b) of the Competition Act is inclusive and wide, encompassing arrangements, understandings, or concerted actions, whether the agreement is formal, in writing, enforceable, or tacit. The Commission recognized that coordination could occur through a “nod or a wink.” It held that, in cartel cases, direct evidence is rare and agreements may be inferred from circumstantial evidence on preponderance of probabilities.

Builders Association of India v. Cement Manufacturers’ Association

This Cement Cartel Case reaffirmed 2016 orders, the CCI imposed the country’s highest cartel penalty of approximately ₹6,317 crore. It relied heavily on price, dispatch, and production parallelism, and evidence of information exchange via the CMA platform. The Commission explicitly stated that direct evidence was not required, and established agreement based on the preponderance of probabilities plus multiple “plus-factors”

Types of Agreements

There are broadly two types of agreements in competition law: Horizontal agreements and Vertical agreements.

Horizontal Agreements

Horizontal agreements are agreements between enterprises at the same level in the production or distribution chain. For example, an agreement between several producers, several wholesalers, or several retailers. This includes agreements to fix prices, agreements to limit or control output, to share or divide markets, or to engage in bid rigging. This is defined in Section 3(3) of the Act.

Vertical Agreements

Vertical agreements are agreements between enterprises at different levels in production or distribution chain, such as between a producer and a wholesaler. Section 3(4) has given examples of vertical agreements. This includes tie-in arrangements (forcing consumers to buy goods from a different market as a tie-in), exclusive supply agreements (agreement making a distributor receive only from only one supplier), exclusive distribution agreement (agreement to sell to only one distributor), refusal to deal (restricting the class of persons to which a good or service is sold) and resale price maintenance (selling goods with a condition to resell at a certain price).

The Act treats horizontal and vertical agreements slightly differently. Horizontal agreements of the types mentioned above have a presumption that they have an adverse effect on competition. Vertical agreements do not have this same presumption. In other words, for horizontal agreements, the burden of proof is on the companies to prove that there was no adverse effect on competition, whereas for vertical agreements, an analysis of the positive and negative effects on competition have to be taken into account through a 'rule of reason analysis.'