Section 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 3(4) of the Competition Act, 2002 deals with agreements between businesses at different levels of the production chain, such as a manufacturer and its distributors. It lists five kinds of arrangement and treats them as contravening Section 3(1) only if they cause or are likely to cause an appreciable adverse effect on competition in India. Sub-section (5) preserves certain intellectual property rights and the right to export. The 2023 amendment widens sub-section (4) to services and to "any other agreement", and adds a proviso for agreements with an end consumer.
As per the consolidated text of the Act published by the Competition Commission of India (amendments shown up to the Finance Act, 2017), read with the Competition (Amendment) Act, 2023 as published in the Gazette of India on 11 April 2023. A vertical agreement is not presumed to be harmful: it contravenes Section 3(1) only if it causes or is likely to cause an appreciable adverse effect on competition in India. After the 2023 Act, the sub-section covers "any other agreement", exclusive dealing instead of exclusive supply, services as well as goods, and has a proviso that excludes agreements with an end consumer. The 2023 change applies from the date notified for that provision; the notification is not in the sources consulted and should be checked.
Section 3(4) as it reads after the 2023 Act
The consolidated text of Section 3(4) begins "Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including" five listed kinds. The 2023 Act (Section 4(b)) makes these changes:
- the opening words "Any agreement amongst enterprises or persons" become "Any other agreement amongst enterprises or persons including but not restricted to agreement amongst enterprises or persons";
- in clause (b), the word "supply" is replaced by "dealing", so that the list reads: (a) tie-in arrangement; (b) exclusive dealing agreement; (c) exclusive distribution agreement; (d) refusal to deal; (e) resale price maintenance;
- before the Explanation, a proviso is inserted: "Provided that nothing contained in this sub-section shall apply to an agreement entered into between an enterprise and an end consumer."
The sub-section still ends: such an agreement "shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India." The effect test is therefore the heart of the rule, and the Commission's factors for assessing it are in Section 19(3); see our article on factors for adverse effect.
A word on drafting. The text says "in India" in sub-section (4), whereas sub-section (1) says "within India". We have kept each as printed and add no meaning to the difference. If your dealer or distributor contracts carry any of the five terms below, a contract review and vetting before renewal is the practical first step.
The five kinds, as defined in the Explanation after 2023
The Explanation to sub-section (4) was amended by the 2023 Act. Read after the amendments it says:
| Term | Meaning as it reads after the 2023 Act |
|---|---|
| (a) Tie-in arrangement | Includes any agreement requiring a purchaser of goods or services, as a condition of such purchase, to purchase some other distinct goods or services |
| (b) Exclusive dealing agreement | Includes any agreement restricting in any manner the purchaser or the seller, as the case may be, in the course of his trade from acquiring or selling or otherwise dealing in any goods or services other than those of the seller or the purchaser or any other person, as the case may be |
| (c) Exclusive distribution agreement | Includes any agreement to limit, restrict or withhold the output or supply of any goods or services or allocate any area or market for the disposal or sale of the goods or services |
| (d) Refusal to deal | Includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods or services are sold or from whom goods or services are bought |
| (e) Resale price maintenance | Includes, in case of any agreement to sell goods or provide services, any direct or indirect restriction that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged |
Each definition begins "includes", which means the listed examples are not an exhaustive account of the term.
What the 2023 Amendment Act changed in clause (a) to (e)
| Clause | Before | After |
|---|---|---|
| (a) tie-in | "purchaser of goods ... purchase some other goods" | "purchaser of goods or services ... purchase some other distinct goods or services" |
| (b) | "exclusive supply agreement", restricting "the purchaser" from dealing in goods other than those of the seller or any other person | "exclusive dealing agreement", restricting "the purchaser or the seller, as the case may be", covering goods or services |
| (c) | "goods" | "goods or services" at both places |
| (d) | "goods" | "goods or services" at both places |
| (e) | "includes any agreement to sell goods on condition" that resale prices shall be those stipulated | "includes, in case of any agreement to sell goods or provide services, any direct or indirect restriction" that resale prices shall be those stipulated |
Example 1 (tie-in). Lakshya Office Systems sells a printer only to buyers who also agree to buy its toner and service plan from it. That is a purchase of one product on the condition of buying another distinct product or service, which fits the tie-in definition. Whether it contravenes Section 3(1) depends on its effect on competition.
Example 2 (resale price maintenance). Aashray Foods supplies packaged goods to retailers and requires that retailers sell at the printed price and not below it, with no statement that lower prices may be charged. That falls within the resale price maintenance definition, again subject to the effect test.
The end consumer proviso
The new proviso says that sub-section (4) does not apply to "an agreement entered into between an enterprise and an end consumer". The text does not define "end consumer" and we give no definition. Remember that the Act's own meaning of "consumer" in Section 2(f) includes a buyer for resale or a commercial purpose, so do not assume the two are the same; read the term in the proviso as printed and take advice where a buyer is also a business. Our article on enterprise, person and consumer explains the wider term.
Section 3(5): rights that are saved
Section 3(5) says "Nothing contained in this section shall restrict" two rights.
- The right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under: (a) the Copyright Act, 1957 (14 of 1957); (b) the Patents Act, 1970 (39 of 1970); (c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999); (d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999); (e) the Designs Act, 2000 (16 of 2000); (f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000).
- The right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.
The 2023 Act (Section 4(c)) adds a new sub-clause (g) to the first right: "any other law for the time being in force relating to the protection of other intellectual property rights." The laws are quoted as printed; check the current law for the corresponding provision of each. Our posts on the Copyright Act, the Patents Act and the Trade Marks Act cover those Acts. A licence with conditions should be read against both Section 3(4) and this saving.
The saving covers the reasonable conditions "as may be necessary" for protecting the right. The text does not say what conditions are reasonable, and we add no test.
| Point | Before | After |
|---|---|---|
| Sub-section (5) IP laws | Sub-clauses (a) to (f) | (a) to (f) plus (g), any other law relating to other intellectual property rights |
| Export right | As printed | Not changed |
Related reading
Franchise and distributorship contracts often carry exclusive territory, minimum price and tie-in terms. See our posts on franchise agreements in India and on internal competition compliance for how to organise a review, and the short guide on anti-competitive agreements under Section 3.
Need help with a distribution or licence agreement?
Terms such as exclusivity, minimum resale prices and bundled purchases can raise questions under Section 3(4). If you are drafting or renewing a distributor, dealer, franchise or licence contract, our contract review and vetting team can read it against the wording above.
Key takeaways
- Vertical agreements contravene Section 3(1) only if they cause or are likely to cause an appreciable adverse effect on competition in India.
- After the 2023 Act, sub-section (4) reaches "any other agreement" and covers services as well as goods.
- "Exclusive supply agreement" is now "exclusive dealing agreement", and resale price maintenance includes a direct or indirect restriction.
- Agreements between an enterprise and an end consumer are outside sub-section (4).
- Sub-section (5) saves listed IP rights, now including any other law on other intellectual property rights, and the right to export.
Read next
- Anti-competitive agreements, cartels and bid rigging
- Agreement, cartel, relevant market, settlement and commitment defined
- Factors for adverse effect, dominance and relevant market
- Franchise agreements in India: legal framework
Disclaimer: Based on the consolidated text of the Competition Act, 2002 published by the Competition Commission of India (amendments shown up to the Finance Act, 2017), read with the Competition (Amendment) Act, 2023 as published in the Gazette of India on 11 April 2023, and on the regulations and guidelines of the Commission as notified in 2024, as consulted on 2 October 2026. Commencement notifications, notified thresholds, rules and later amendments should be checked. This article is general information, not legal advice; check the official text before acting.