Anti-Competitive Agreements Under Section 3 of the Competition Act (2026)
What Section 3 of the Competition Act, 2002 prohibits: cartels and horizontal agreements, vertical restraints, the role of the CCI, and the penalties. Last verified October 2026.
Explainer · Competition Law · Statute
Section 3 of the Competition Act, 2002 bans agreements that harm competition in India. The clearest example is a cartel: rivals who fix prices, rig bids or share markets. An agreement that causes or is likely to cause an appreciable adverse effect on competition is prohibited and is void. The Competition Commission of India (CCI) enforces the ban. This explainer sets out what Section 3 covers, the difference between horizontal and vertical agreements, and the penalties. Last verified October 2026.
- What it bans: Section 3 of the Competition Act, 2002 prohibits agreements that cause an appreciable adverse effect on competition in India, and makes them void.
- Cartels: under Section 3(3), price fixing, output limits, market sharing and bid rigging are presumed to harm competition.
- Vertical restraints: under Section 3(4), tie-ins, exclusive supply or distribution, refusal to deal and resale price maintenance are judged on their actual effect.
- Enforcement: the CCI can stop the agreement and impose penalties under Section 27; appeals go to the NCLAT (Section 53B) and the Supreme Court (Section 53T).
01Why Section 3 matters
Competition keeps prices fair and choice wide. When rivals quietly agree to fix prices, split territories or rig tenders, buyers pay more and better products are kept out. Section 3 of the Competition Act, 2002 exists to stop exactly this.
For businesses the risk is real. A trade association circular, a distributor contract with a resale price clause, or a chat between competitors can all draw scrutiny. The penalties are heavy, and a finding can follow the company for years. Understanding what Section 3 catches is basic compliance.
Appreciable adverse effect on competition
The test under Section 3 is whether the agreement causes or is likely to cause an "appreciable adverse effect on competition" (AAEC) in India. Section 19(3) lists the factors the CCI weighs, such as barriers to entry, driving rivals out, and foreclosing competition, against benefits like improvements in production or distribution.
02What Section 3 prohibits
Section 3(1) sets the general rule: no enterprise or person shall enter into an agreement in respect of production, supply, distribution, storage, acquisition or control of goods or services which causes or is likely to cause an appreciable adverse effect on competition in India. Section 3(2) makes any such agreement void.
The section then splits agreements into two kinds, which are treated very differently:
- Horizontal agreements (Section 3(3)): between competitors at the same level of the chain, such as two manufacturers or two bidders.
- Vertical agreements (Section 3(4)): between parties at different levels, such as a manufacturer and its distributor.
The distinction matters because the law presumes harm for the worst horizontal agreements, but tests vertical ones on their actual effect.
03Horizontal agreements and cartels
Section 3(3) targets agreements between competitors. Four kinds are singled out: directly or indirectly fixing prices, limiting or controlling production or supply, sharing markets or sources, and bid rigging or collusive bidding.
For these four, the law raises a presumption that the agreement has an appreciable adverse effect on competition. In plain terms, once the CCI shows the agreement exists, the burden shifts to the parties to prove it did not harm competition. This is why cartels are the most serious category under the Act.
For the four classic cartel conducts under Section 3(3), harm to competition is presumed. The parties must then prove the agreement did not hurt the market.
04Vertical agreements
Section 3(4) covers agreements between parties at different levels of the supply chain. Examples listed include tie-in arrangements, exclusive supply, exclusive distribution, refusal to deal, and resale price maintenance.
Unlike cartels, vertical agreements are not presumed harmful. They are prohibited only if they actually cause or are likely to cause an appreciable adverse effect on competition, judged on the facts. A common supplier-distributor arrangement is usually fine; it becomes a problem when it forecloses the market or props up prices.
05Exceptions
Section 3(5) carves out two main areas. First, reasonable conditions imposed to protect intellectual property rights (such as patents, copyrights, trade marks and designs) are not caught, so long as they are reasonable. Second, the right of an exporter to enter agreements that relate exclusively to exports from India is protected.
These are narrow exceptions. An IPR holder cannot use the exception as cover for a term that goes beyond protecting the right and instead harms competition.
06Enforcement and penalties
The Competition Commission of India enforces Section 3. It can act on information filed by any person, on a reference from the government, or on its own motion. If it finds a contravention, Section 27 lets it order the agreement to stop, impose penalties, and pass other directions.
The penalty under Section 27 can be up to ten per cent of turnover. For a cartel, the CCI can impose up to three times the profit for each year of the cartel, or ten per cent of turnover for each year, whichever is higher. The Competition (Amendment) Act, 2023 changed the base to global turnover for the penalty calculation.
An order of the CCI can be appealed to the National Company Law Appellate Tribunal (NCLAT) under Section 53B within 60 days, and from there to the Supreme Court under Section 53T. For how a complaint starts, see how to file a complaint with the CCI. The sister ban on abuse of market power is explained in abuse of dominant position under Section 4.
07Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
A Section 3 matter passes through the CCI, a Director General investigation, and often an appeal to the NCLAT and the Supreme Court, and how the AAEC factors, cartel conduct or a vertical restraint have been read is spread across many orders and judgments. Claw gathers that reasoning for you: 30 crore+ judgments, from the Supreme Court since 1950 and the High Courts since 1990, searchable by party or advocate name in under 5 seconds. For a live case it tracks the cases, orders and hearings across 9,102 courts, benches and forums.
Claw does not use customer case documents to train its AI models, so an investigation file stays confidential. Open a free Claw account to research how similar agreements were judged and to track a running competition matter. For the wider body of law, see case search across Indian courts.
08Sources and further reading
- Competition Commission of India (legal framework and orders): cci.gov.in
- India Code (Competition Act, 2002): indiacode.nic.in
- Claw: clawlaw.in
This explainer is general information, not legal advice. The Competition Act has been amended, including by the 2023 amendment, so check the current text and take advice from counsel before you act.
09Frequently asked questions
What does Section 3 of the Competition Act prohibit?
Section 3 prohibits agreements in respect of goods or services that cause or are likely to cause an appreciable adverse effect on competition in India. Such agreements are void. It covers both horizontal agreements between competitors and vertical agreements between different levels of the supply chain.
What is the difference between a horizontal and a vertical agreement?
A horizontal agreement is between competitors at the same level, such as two manufacturers. A vertical agreement is between parties at different levels, such as a manufacturer and a distributor. Horizontal cartel conduct under Section 3(3) is presumed harmful, while vertical agreements under Section 3(4) are judged on their actual effect.
Are cartels automatically illegal?
For the four classic cartel conducts under Section 3(3), price fixing, output control, market sharing and bid rigging, the law presumes an appreciable adverse effect on competition. The agreement is not automatically illegal, but the parties must then prove it did not harm competition, which is hard to do.
What is the penalty under Section 3?
Under Section 27, the CCI can impose a penalty of up to ten per cent of turnover. For a cartel it can be up to three times the profit for each year of the cartel, or ten per cent of turnover for each year, whichever is higher. The 2023 amendment moved the base to global turnover.
Can I appeal a CCI order under Section 3?
Yes. An order of the CCI can be appealed to the National Company Law Appellate Tribunal under Section 53B within 60 days of the order, and from there a further appeal lies to the Supreme Court under Section 53T, also within 60 days.
Can I track a competition case in Claw?
Yes. Claw searches 30 crore+ judgments in under 5 seconds, reaching the Supreme Court from 1950 and the High Courts from 1990, and tracks cases, orders and hearings by party or advocate name across 9,102 courts, benches and forums. It tracks and researches the matter but does not give legal advice.