The Indian legislature has made amendments to the Competition Act, 2002 (Act) vide the Competition (Amendment) Act, 2023. An explanation proviso has been added to Section 3(3) of the Act as a part of these amendments. This proviso expressly recognises hybrid anti-competitive agreements, such as hub-and-spoke cartels. It also recognises parties such as intermediaries/facilitators who are not engaged in identical businesses. These parties are presumed to be a part of such anti-competitive agreements if they “participate or intend to participate in the furtherance of such agreement”.
Competition Commission of India (CCI) recognises two types of anti-competitive agreements: The first type is horizontal agreements, which fall under Section 3(3) of the Act. These agreements are presumed to have an appreciable adverse effect on competition (AAEC)1. The second one is vertical agreements, which fall under Section 3(4) of the Act. These agreements are considered to be anti-competitive only if they cause or are likely to cause AAEC and must be scrutinised as per the rule of reason.2 The definition of “agreement” in the Act3 is broad, encompassing not only legal and formal agreements but also any “arrangement” or “understanding” or “action in concert” between the parties. CCI has decided in several decisions that the definition of agreement is wide4 and extensive, wherein understanding could be tacit, including situations when parties act based on a nod or a wink. As discussed, the definition of “agreement” is inclusive rather than exclusive and might include agreements where collusion between the parties is indirect, such as hub-and-spoke agreements.
Evolution of hub-and-spoke cartel legislation in India
The contention related to the hub-and-spoke cartel was raised for the first time in 2017 in Fx Enterprise Solutions (India) (P) Ltd. v. Hyundai Motor (India) Ltd.5, but the CCI gave no opinion on the existence of the hub-and-spoke cartel in it. Later, in 2018, in Samir Agrawal v. ANI Technologies (P) Ltd.6, the question of the existence of the hub-and-spoke cartel was raised again. CCI attempted to find collusion between the hub and spokes by investigating factors such as spokes using the hub to exchange sensitive information and if there existed any conspiracy in relation to price fixing. However, CCI dismissed the complaint because no hub-and-spoke cartel was discovered, as it was held that there was no collusion between the opposing parties. Moreover, it is interesting to note that in this case, neither the CCI, the National Company Law Appellate Tribunal, nor the Supreme Court observed that the existing law was insufficient to cover hub-and-spoke cartel as an anti-competitive agreement.
The Ministry of Corporate Affairs published a report7 in 2019 in which the Committee recommended adding an Explanation in Section 3(3) of the Act to expressly attribute the liability of the hub based on the rebuttable presumption rule already mentioned in Section 3(3) of the Act. It is pertinent to mention that in the said report, the inclusion of hub-and-spoke cartels is discussed as “expressly including hub-and-spoke cartel in Section 3(3)”, implying that the recommendation intends to provide additional explanation to the existing provision. This explanation is intended to impute the parties who are not in the same or identical business i.e. they can be held under the rebuttable presumption rule even if they are at different levels. However, the report states that no ingredients of “knowledge” or “intention” are required in the explanation. Following that, in the draft of the Competition (Amendment) Bill, 2020, the following explanation was proposed:
“Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it actively participates in the furtherance of such agreement.”
Later, the same explanation was proposed to be added in the Competition (Amendment) Bill, 2022, wherein a lot of discussions centred on “active participation”, because it was unclear as to what constituted “active participation”. As previously stated, no “intention” or “knowledge” on the part of the hub is required because the proposed amendment is based on the rebuttable presumption rule under Section 3(3) of the Act. Even in the Ministry of Corporate Affairs 52nd Report8, there is a specific discussion regarding the terms “actively participates” wherein stakeholders like Federation of Indian Chambers of Commerce & Industry( FICCI )/ Associated Chambers of Commerce & Industry of India (ASSOCHAM ) tendered the recommendations that the proposed explanation could have a negative effect on certain parties as the terms “actively participates” are dubious and that a provision must be implemented on the basis of the “material or document inspected” and not the presumption rule. The report also threw light on the concerns regarding digital economy intermediaries and consortiums. As a result, it proposed the following modification:
“Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall be presumed to be part of the agreement under this sub-section if it is proved that such person intended to actively participate in the furtherance of such agreement.“
However, following the Competition (Amendment) Act, 2023, the Explanation now reads as follows:
“Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it participates or intends to participate in the furtherance of such agreement.“
Analysis of the new proviso
In the 2023 Amendment, it seems like legislators did not consider the recommendations made in the 52nd Report. They modified the explanation that imputes the hybrid anti-competitive agreements, replacing the terms “actively participates” with “participates or intends to participate in the furtherance of such agreement”, perhaps leaving room for the detrimental implementation of the provision for intermediaries/facilitators in the digital economy as their fundamental business models differ from that in the traditional economy.
Application in digital economy
The dynamics of digital markets differ significantly from those of traditional markets. As data is one of the most essential components for most digital players, it can also provide a competitive advantage.9 Furthermore, the digital economy exhibits characteristics such as a multi-sided market with cross-platform network effects. Cross-market effects imply that a company’s strategic choices in one market, such as pricing decisions, can affect demand for its products or services in another market. The presence of network effects can lead to market power acquisition and exacerbate the effects of anti-competitive behaviour. However, it is essential to note that these effects may have significant consumer benefits, such as facilitating cross-subsidisation.10
On the other hand, the prevalence of digital ecosystems comprising interconnected products has significantly impacted conglomerate business models in digital markets.11 The competitive dynamics within ecosystems are determined by how open they are to third-party involvement and the possibility of inter-ecosystem competition. In cases where the intra-ecosystem network effects are particularly strong, there is a risk that the central platform and its associated markets will become monopolistic.12 As a result, when it comes to market competition rather than competition within the market, it is critical to conduct case-by-case analysis that considers issues of investment and innovation.
So, in a digital market, where the entity is a pivot of business operations due to its economic model, its primary role is communicating information. For example, intermediaries such as online e-commerce platforms with a multifaceted business model. In this case, the amended explanation of Section 3(3) of the Act could be problematic in certain instances. It simply mentions “participates” or “intends to participate” to impute the entity being a part of these hybrid anti-competitive agreement/cartel. This language is vague, and as a result, the potential outcome could be a significant increase in the number of frivolous complaints filed with the CCI against said entities. These complaints would allege their involvement in facilitating a cartel without substantial proof of anti-competitive practice.
Characteristics of hub-and-spoke cartel
To establish a hub-and-spoke cartel, evidence of anti-competitive behaviour i.e. an explicit collusive element, is required.13 To establish the hub’s liability, the plaintiffs must show evidence of a horizontal agreement between spokes, participation by the vertical player i.e. hub, and active facilitation of the scheme. Besides, it is essential to note that multiple communications between the hub and each spoke are typically required to reach an agreement.14 This evidence-based jurisprudence was developed in cases such as Toys “R” US15 and Apple e-book16, wherein the US Court held that these hub-and-spoke cartel agreements are essentially horizontal and thus, must be evaluated under the per se rule.
Furthermore, based on the evaluation of cases in the United States17 and the United Kingdom18 in which hub-and-spoke agreements were proven, it is established that the primary purpose of the stated agreements is to facilitate horizontal coordination. This coordination is to be carried out among the spokes, who are generally competitors operating at the same level. The coordination will be facilitated via the hub, which operates at a different level. However, explicit collision is proved among the spokes through indirect communication via the hub. Hence, hub-and-spoke agreements are essentially considered horizontal agreements and evaluated under the per se rule.
Rebuttable presumption framework under Section 3(3) of the Act
In the Indian scenario, the aforementioned proviso explanation is added under Section 3(3) of the Act, in which the agreement is presumed to have AAEC, which differs from the per se rule adopted in the US. The presumption rule pertains to the rule of procedure concerning the burden of proof for presenting evidence rather than a rule of illegality.19 The mere existence of the horizontal agreement does not render it illegal. Upon the establishment of the horizontal agreement, the defendants shall bear the burden of proof and may assert three potential defences. The first defence is the non-existence of said agreement. Secondly, the lack of AAEC and the demonstration of pro-competitive effects.20
The rise of digitalisation has spawned various competition concerns, for which intervention by regulatory authorities is necessary. However, ambiguous legislation has the potential to dissuade genuine collaboration and cooperation among intermediaries, even in situations where it would be beneficial for efficiency or innovation. It is possible that legislation of this nature may be excessive. This could lead to legal inconsistencies and protracted litigation. As a result, valuable resources may be diverted from more productive endeavours, such as innovation. Although the current amendment has been implemented and notified21, no cases pertaining to the aforementioned issues have been filed with CCI as of yet. The implementation of the aforementioned amended explanation remains unexplored, and it shall be intriguing to witness how the CCI shall adjudicate such cases. Will the CCI maintain their current approach, as demonstrated in Samir Agrawal case22, or will they adopt an alternative strategy?
†Advocate is a practicing counsel at the Supreme Court of India, LLM in Comparative Criminal Law from McGill University, Canada and MSc, Criminology and Criminal Justice from University of Oxford. He is serving as a counsel/special counsel and consultant for several law enforcement and public sector institutions.
††Judicial Clerk to Justice Yogesh Khanna
7. Government of India, Ministry of Corporate Affairs, Report of Competition Law Review Committee (July 2019).
8. Government of India, Ministry of Corporate Affairs, 52nd Report of the Competition (Amendment) Bill, 2022, 13-12-2022.
9. OECD Handbook on Competition Policy in the Digital Age, OECD, 2022 <https://www.oecd.org/daf/competition/oecd-handbook-on-competition-policy-in-the-digital-age.pdf>. )
10. OECD Handbook on Competition Policy in the Digital Age, OECD, 2022 <https://www.oecd.org/daf/competition/oecd-handbook-on-competition-policy-in-the-digital-age.pdf>.
11. OECD Handbook on Competition Policy in the Digital Age, OECD, 2022 <https://www.oecd.org/daf/competition/oecd-handbook-on-competition-policy-in-the-digital-age.pdf>.
12. OECD Handbook on Competition Policy in the Digital Age, OECD, 2022 <https://www.oecd.org/daf/competition/oecd-handbook-on-competition-policy-in-the-digital-age.pdf>
13. Barak Orbach, Hub-and-Spoke Conspiracies, Arizona Legal Studies, Discussion Paper No. 16-11, 18-4-2016.
14. Toys “R” US Inc. v. Federal Trade Commission, 221 F 3d 928 (7th Cir 2000) or United States v. Apple Inc., 791 F 3d 290 (2d Cir 2015).
15. Toys “R” US Inc. v. Federal Trade Commission, 221 F 3d 928 (7th Cir 2000).
16. United States v. Apple Inc., 791 F 3d 290 (2d Cir 2015).
17. Toys “R” US Inc. v. Federal Trade Commission, 221 F 3d 928 (7th Cir 2000) or United States v. Apple Inc., 791 F 3d 290 (2d Cir 2015).
18. Argos Limited/Littlewoods Limited v. Office of Fair Trading, 1014 and 1015/1/1/03,  CAT 24.
19. Versha Vahini, Indian Competition Law (LexisNexis, 1st Edn. Rp, 2022).
20. Versha Vahini, Indian Competition Law (LexisNexis, 1st Edn. Rp, 2022).
21. Ministry of Corporate Affairs, Competition (Amendment) Act, 2023 notified on 19-5-2023.