Competition Law and Sustainability: Why India Needs a Course Correction

[Anshika and Abhishek are students at Symbiosis Law School, Noida.]

The connection between competition law and sustainability is no longer a purely theoretical discussion within academic circles. Globally, regulators are starting to understand that competition standards can wrongly impede sustainable collaborative actions perceived to be pro-societal or long-term benefit to society. In contrast, India's competition law culture continues to reside under the aegis of the Competition Act 2002 (Act) within the narrow condition of consumer welfare framed in output, price and innovation terms. Like much of its regulated counterparts, India's competition law regime also does not take into consideration the long-term pro-societal gains in consumer welfare framework which sustainability agreements can result in, leaving the Indian competition landscape to deal with a vacuum of support for collaborative environmental action. 

Horizontal agreements in Section 3 of the Act presume that the action between competitors results in an appreciable adverse effect of competition (AAEC). Arising from the somewhat perverse notion that cooperative action amongst competitors is bad, is the practice of competition law by EU member states which has mostly become blunt tool when being used against sustainability based collaborative actions (or intentions). The present law carries the suspicion that most sustainable collaboration are highly anti-competitive in nature without any reasonable basis. The current doctrine effectively deters businesses in India from pursuing sustainability-based collaborations whenever it appears the actions might be interpreted as per se anti-competitive restriction of competition.

Why ‘Joint Ventures’ Need to be Separated from ‘Collaboration’ under Section 3

Some may argue that the current ‘joint venture’ exception in the Act provides a mechanism for this kind of collaboration. However, this exception is structurally inadequate. Joint ventures (JVs) are essentially formal, asset-heavy combinations that usually have profit-sharing and have no operational independence with respect to the market. Sustainability agreements, on the other hand, often rely on soft, voluntary, and possibly sector-wide commitments, voluntary codes of conduct, or cooperation do not involve the pooling of financial resources or a great deal of corporate integration. Sustainability commitments, while critical in helping achieve climate objectives, do not get the protection of the joint venture exception. 

The Indian competition law regime, particularly as laid out in the Act, traditionally struggles with a binary approach: collaborations between competitors are presumes illegal under Section 3(3) of the Act unless they can rebut the presumption through efficiencies. However, the Competition Commission of India (CCI) has, in practice, leaned towards reviewing certain JVs, even those between competitors under the combination review framework of Section 20(4) of the Act. This approach allows for greater flexibility and nuance particularly where sustainability is embedded in the collaboration. Unlike horizontal agreements, which are subject to a strict presumption of anti-competitive facts, combinations (mergers, acquisitions, and joint ventures that are notified under Section 6(2) of the Act) are evaluated for both negative and positive effects on competition, including benefits such as innovation, technical development, and consumer welfare - all of which are easy to align with sustainability efforts. 

In Andra Pradesh Gas Distribution Corporation Limited JV, the CCI directly engaged with sustainability elements under combination review, engaged in building greenfield infrastructure under the JV to supply liquefied natural gas in India. The CCI noted that India was in critical short supply of un-conventional natural gas supply, and this JV would assist with the build of sustainable energy supply chains. The JV was found to result in efficiencies by creating new source of liquefied natural gas supply to consumers, which the CCI positively noted under Section 20(4) of the Act. The JV was notified and reviewed under Section 6(2) as a combination, had it been assessed under Section 3 the presumption would be illegality. Section 3 focuses on price, output or market division, which can deter sustainability initiatives from taking place when collaboration is necessary between competitors.

Moreover, CCI’s approach of JV in the Association of Third-Party Administrators v. General Insurers (Public Sector) Association of India (HIPTA case), raises another fundamental limitation in current competition law framework i.e., the narrow commercial interpretation of ‘efficiencies’. The CCI recognized improvements to operational processes, customer service, and sector benchmark as sufficient rationales for the JVs yet, as with the examinations in regards to efficiencies, these only accounted for tangible, short-term, market efficiencies. The difficulty and also decline in potential –are that the existing framework cannot recognize efficiencies driven by sustainability that generated long-term systemic efficiencies, including impacts on the environment or advances in social welfare where they would not be spontaneously revealed as efficiencies associated with production or distribution. This commercial rigidity does a disservice to sustainability partnerships that may offer significant public value if the law evolves to incorporate broader considerations of consumers’ and society’s welfare.

A Global Overview on Sustainability-Competition Concerns

The insufficiency of the JVs exemptions in both the design of the law and the practical experience in India is apparent. Thus far, Indian jurisprudence has not considered sustainability as a legitimate counterfactual to potential anti-competitive effects. In other jurisdictions where regulators have applied the law, a process has introduced economic, environmental and social sustainability benefits in the assessment of competition. In India, the case law and regulatory imperatives do not lend themselves to such balancing, resulting in an absence of incentives for business to engage in industry-wide green initiatives that may lessen price-competition or output even temporarily.

The European Union Horizontal Guidelines 2023 acknowledge sustainability agreements if the sustainability and consumer benefits clearly outweigh short-term changes to competition, especially relative to how longstanding those restrictions might be. Japan’s Green Guidelines 2023 provide regulators with an approach to assess sustainability collaborations with a three-part test for legitimacy, necessity and proportionality. 

Real-world cases underline this global shift. In New Zealand's Refrigerant License Trust Board case, the regulator authorized a situation where refrigerant suppliers agreed to only sell their products to trained and licensed handlers, which was seen to be in the overall public interest considering environmental safety above strict adherence to competition laws. In another example, Australia approved Tyre Stewardship Scheme even though it had some exclusionary conditions on supply chain for the same reasons as above and because of the significant national impact the programme would have advancing tyre recycling nationally. These examples show that regulators in other countries are actively looking for ways to help enable the sustainability agenda even when collaboration amongst competitors is involved.

India continues to be unhelpfully silent on the issue. This raises a range of questions and concerns. The absence of a framework means that a company may without its knowledge be exposed to regulatory risk if it establishes sustainability-oriented collaborations even if it has the best intentions. More importantly, Indian industries are having now framed rules of the road to engage with fairly radical sustainability action or innovation that could potentially contribute to India's climate goals.

Need for a Guidance Note as a Corrective Measure

The path forward does not have to be a legislative change immediately. The first appropriate step would be to issue a Guidance Note, which then provides interpretative clarity on how sustainability agreements will be considered. The Guidance Note could follow both the European and Japanese frameworks and adopt a balancing test which would assess the anti-competitive effects of the agreement against the sustainability value of the agreement. India could contemplate applying the public benefit test adopted in Australia and New Zealand, which would facilitate the broader recognition of environmental and social benefits, even when competition would not be affected appreciably. Issuing a guidance note would send a signal to businesses that there will be no automatic sanctions under the Act for sustainable cooperative ventures. Furthermore, it would define competition policy not as an end unto itself, but meaningfully engaged with the public interest, and the critical imperative of addressing climate change.

The guidance note would have to be well-defined for that and should include following points:

• Elaborate on the conditions of the agreement that establish eligibility for sustainability benefits;

• What will constitute sustainability benefits or greenwashing including measurable benefits for the environment, public transparency;

• Requirement of independent audits or a regular reporting requirement as a form of protection from greenwashing; 

• It should set out the conditions under which voluntary sector-wide agreements, which are non-binding but have implications, would fall within the protective scope. 

Conclusion 

India is at a crossroads where other jurisdictions have moved rapidly to align competition law with sustainability commitments since 2023, India risks falling further behind by continuing the antithesis of sustainability and competition. By refusing to adapt sustainability and competition together, we not only do a disservice to future businesses contending with the challenge of making contributions to environmental targets, but also reflect regulatory inertia even when domestic constitutional commitments and global momentum may otherwise suggest the opposite. The CCI has the opportunity and the obligation to take meaningful action. Issuing a guidance note would not undermine competition policy, but rather modernize it. It would allow for the flexibility needed to support sustainability agreements, while monitoring for collusion.