Is the per se approach by the CCI constitutional?

The Competition Act, 2002 was enacted to catalyse India’s economic development and to establish a robust regulatory framework aimed at fostering competitive markets.

Section 3 of the Act prohibits agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India.  These agreements are classified into (a) Horizontal agreements [under Section 3(3)]—between competitors, and (b) Vertical agreements [under Section 3(4)]—between enterprises at different levels of the supply chain. Section 3(3) of the Act presumes horizontal agreements such as price-fixing, market allocation, bid-rigging,and output restrictions to have an inherently anti-competitive effect, also known as the per se rule.

Once an agreement is established before the Competition Commission of India (CCI), the per se rule is applied, meaning thereby that the opposite parties cannot present any countervailing justifications to their conduct and can only either accept or deny the conduct. In contrast, Section 3(4) of the Act applies the rule of reason, wherein parties can justify their conduct by presenting any pro-competitive effects or technical development arising out of their alleged anti-competitive conduct.

In the cases of allegations raised under Section 3(3), the Act forces the CCI to use a rigid per se approach while inquiring into horizontal agreements, where the primary emphasis is on the collection of direct and indirect evidence rather than analysing it through its “effect” or “object”. The CCI considers even a “nod” or “wink of an eye” as an establishment of an “agreement”. Therefore, even a recipient of an email can be considered in an “agreement” for an inquiry initiated under Section 3(3) of the Act.

This rigid per se approach, which conclusively presumes horizontal agreements to be anti-competitive without requiring further analysis, raises important constitutional and legal concerns as it assumes the “parties to be guilty until proven innocent”, which is against the constitutionally established legal principles of reasonableness. This constitutional challenge to the per se rule is rooted in the principle of irrebuttable presumptions, which also in the case of inquiry against the individuals, conflicts with their fundamental rights.

The Supreme Court of India in Rajasthan Cylinders & Containers Ltd v. CCI (2018) in a case concerning “cartel” allegations demonstrated a departure from a strict per se approach by requiring corroborative evidence beyond mere price parallelism to establish a cartel. Similarly, US and European courts have questioned the rigidity of the per se rule, emphasising economic context and market realities.

Furthermore, a recent judicial pronouncement of the United States Courts of Appeals for the Fourth Circuit in United States of America v. Brent Brewbaker has emphasised that before applying a per se rule, courts must perform a rule of reason analysis unless there is demonstrable economic evidence warranting per se condemnation.

In this background, the present article critically examines the constitutional validity of the per se rule under the Indian Competition Act. It explores whether an absolute presumption of anti-competitiveness under Section 3(3) aligns with principles of due process and economic rationality or whether a more nuanced effects-based approach should be adopted to ensure fairness in competition law enforcement.

One of the primary distinctions in competition law analysis between the “per se” rule and the “rule of reason” is that the distinction shares affinities with the distinctions between “rules” and “standards,” as well as between “formalistic” and “effects-based” analysis. The per se prohibition of certain types of conduct is not juxtaposed to effect-based reasoning as widely applied in the rule of reason analysis because in the context of per se rules, the decision-makers are prevented from taking all considerations into account when determining whether some conduct is anti-competitive or in restraint of trade. Therefore, in the per se rule, the “purpose” or “intent” of the parties is irrelevant when an inquiry is ongoing.

The application of the per se rule is based on the premise that certain types of conduct are inherently anti-competitive and, therefore, presumed to be unlawful without the need for a detailed analysis of their actual effects on competition. This presumption creates administrative convenience for the antitrust regulator as it relieves them from the burden of proving the element of “unreasonable restraint”. If the CCI is confronted with a case concerning an allegation of naked horizontal price-fixing, it cannot but prohibit that conduct, even if it considers that the agreement has any positive effects. Therefore, the potential constitutional tension with the per se rule is based on the principle of “irrebuttable or conclusive presumptions”.

The judicial decisions in India, US and the European Union (EU) have shown that certain horizontal agreements may have pro-competitive justifications if analysed through their “form” and “substance” which may preclude the antitrust agencies in forming any opinion on contravention. The Supreme Court of India, in Rajasthan Cylinders & Containers Ltd considered the factors of an oligopolistic market and was of the view that mere price parallelism in an oligopolistic market is not conclusive proof of collusion and thus requires additional corroborative evidence to establish an anti-competitive agreement. By doing so, the Court moved away from a rigid per se approach and reinforced the necessity of considering plus factors -such as market conditions, bid patterns and circumstantial evidence -before inferring collusion. Instead of automatically presuming an AAEC solely on the basis of parallel conduct, the Court undertook a nuanced assessment of economic factors, including market structure and buyer power, before arriving at its conclusion.

Recently, in United States of America v. Brent Brewbaker, a US court addressed allegations of cartel conduct involving entities that participated in a bidding process while simultaneously maintaining a supplier relationship - a scenario commonly referred to as a “dual relationship.” Overturning the district court’s findings, the Fourth Circuit emphasised that courts must assess “the relationship of the parties” rather than solely the nature of the restriction imposed when determining whether a restraint is horizontal or vertical. Moreover, the Court clarified that before applying the per se rule to a new category of restraint, the presumption must favour the rule of reason, which can only be rebutted with demonstrable economic evidence. The Court observed that the agreement in question had potential inter-brand pro-competitive effects, suggesting that the indictment may not necessarily lead to the finding of anti-competitive harm.

In the famous US case of Broadcast Music v. Columbia Broadcasting System, the US Supreme Court instead of per se classifying all kind of horizontal agreements in pursuance to fixing prices to be violative of Section 1 of the Sherman Act, addressed the question as to which type of price-fixing falls outside the per se rule. The Court, focusing on the pro-competitive effects of the blanket license, classified certain agreements which did not constituted “horizontal price fixing”. This conclusion was based on the deviation from the per se rule.

Also, the European Commission (EC) in Société Technique Minière (LTM) v. Maschinenbau Ulm GmbH (MBU) observed that any restraint on competition through any agreement cannot be assessed or interpreted by introducing any kind of advance judgment with regard to a category of agreements determined by their legal nature and must be assessed in its economic context.

The European Court of Justice (ECJ) in Groupement des cartes bancaires (CB) v. European Commission observed that in order to assess whether coordination between undertakings is by nature harmful to the proper functioning of normal competition, it is necessary to take into consideration all relevant aspects. In particular, the nature of the services at issue, as well as the real conditions of the functioning and structure of the markets must be considered.

Thus, it is argued that certain horizontal agreements, which though “per se” appear to contravene the provisions of the anti-trust law, present a different picture that can preclude them from being classified as anti-competitive, after a rule of reason analysis. By assuming that certain agreements between competitors are inherently anti-competitive without examining their actual effects, the per se rule effectively presumes guilt from the outset. Additionally, it shifts the burden onto the accused to disprove liability, rather than requiring the regulator to establish anti-competitive effects through “effect” and “object”. Hence, “irrebuttable or conclusive presumptions” under the per se approach raises serious concerns about its adherence with the constitutional principles and natural justice.

In Vijay Madanlal Choudhary v. Union of India, the Supreme Court upheld the constitutional validity of the presumption under Section 24(b) of the Prevention of Money Laundering Act, 2002 (PMLA). It clarified that the phrase “may presume” in Section 24(b) does not create a “mandatory legal presumption”. In contrast, the Section 3(3) of the Competition Act employs the phrase “shall presume”, which imposes a mandatory presumption in favour of AAEC. This could be seen as arbitrary, as it places an undue burden on parties to disprove the presumed anti-competitive effect, even in cases where their actions may not necessarily be anti-competitive.  Such an approach potentially works against the settled principles of Constitution. Article 14 of the Constitution states that laws and regulatory actions must not be arbitrary. However, the per se rule, by failing to consider market realities, applies a blanket prohibition without room for exceptions.

The Supreme Court of Virginia in 1978 observed that for any presumption to be constitutional under the due process clause, even in a civil case, “the presumption must be rebuttable.” The per se rule, by imposing an absolute presumption of illegality, does not allow for a nuanced assessment of whether the conduct in question actually harms competition or serves legitimate business needs.

The Supreme Court of India in SG Jaisinghani v. Union of India, held the “absence of arbitrary power” as sine qua non to rule of law with confines and defined discretion, both of which are essential facets of Article 14 of the Constitution of India. In M/s Dwaraka Prasad Laxmi Naraian v. The State of Uttar Pradesh, Maneka Gandhi v. Union of lndia, EP Royappa v. State of Tamil Nadu and The State of Andhra Pradesh v. Nalla Raja Reddy, the Court has observed that any state action which is not reasonable and which is not right, just and fair and which is arbitrary, fanciful or oppressive could be violative of Article 14 of the Constitution.

The per se rule establishes an irrebuttable presumption of anti-competitiveness, disregarding potential justifications such as efficiency gains or necessity. In contrast, the rule of reason approach allows for a more nuanced assessment, potentially recognising pro-competitive effects. For instance, in bidding situations, firms may enter into dual distributor agreements, which, under a strict per se analysis, could be deemed anti-competitive as sub-contracting arrangements. However, under the rule of reason, such agreements may be necessary to fulfill tender requirements, especially when a single entity lacks the capacity to meet demand.

Rigid adherence to per se principles, without considering economic and market realities, can lead to unreasonable and unfair outcomes. This is particularly relevant in India, where Section 3(3) of the Competition Act, 2002 mandates a presumption of anti-competitiveness, in conflict with constitutional principles of reasonableness, proportionality and non-arbitrariness under Article 14 of the Constitution.

Ignoring specific market contexts and economic justifications makes the per se rule excessively rigid, risking arbitrary enforcement and undermining fairness in Indian competition law. This critique goes beyond the general use of presumptions by antitrust agencies; it specifically challenges the adverse presumption at the very outset of an inquiry. The per se rule conclusively presumes that a restraint is unreasonable, effectively relieving authorities of the burden of proving an essential element of the offence.

As Sir John H Wigmore aptly put it,

“Presumptions may be looked upon as the bats of the law, flitting in the twilight but disappearing in the sunshine of actual facts.”

In today’s dynamic markets, it is illogical to maintain a rigid, bifurcated framework where the rule of reason evolves with economic realities, while per se illegality remains static. A flexible, context-driven approach is essential to ensure that antitrust enforcement aligns with economic principles rather than outdated legal formalism.

Ankit Singh Rajput is an Associate at Vaish Associates Advocates. Views expressed are those of the author and not the firm.