Businesses routinely cooperate through supply contracts, distribution networks, joint projects and trade associations. Cooperation is not inherently unlawful. However, an arrangement can infringe competition law where it replaces independent competition with restrictive coordination.
Section 4 of the Competition Act, 2010 prohibits agreements and association decisions having the object or effect of preventing, restricting or reducing competition in the relevant market, subject to the statutory exemption framework. A dominant position is not a prerequisite.
“Agreement” Has a Broad Meaning
Under section 2, an agreement includes an arrangement, understanding or practice, whether or not it is written or intended to be legally enforceable.
A formal contract is therefore unnecessary. A sufficiently established understanding reached through meetings, correspondence or informal coordination may fall within the provision. Describing a decision as “voluntary” or “non-binding” does not necessarily resolve its legal character.
Section 4 also expressly addresses decisions of associations of undertakings. A trade association’s involvement does not place price coordination or market allocation outside the Act. In August 2026, the Supreme Court upheld the CCP’s finding that the Pakistan Vanaspati Manufacturers Association had contravened section 4 through collective price-fixing, together with a PKR 30 million penalty. The Court stressed that competing businesses must set their prices independently, whether coordination occurs directly or through an association, and that a lower agreed price does not justify abandoning independent pricing. (Dawn: Supreme Court judgment on PVMA price-fixing)
Horizontal Agreements: Restrictions Between Competitors
Agreements between existing or potential competitors can attract particular concern where they involve price fixing, output limits, market allocation or collusive bidding.
Price fixing can concern components of the commercial price, not merely the final invoice figure. Market allocation can involve territories, customer categories or an understanding that one party will not enter a market. Bid rigging can undermine procurement even where several apparently separate bids are submitted.
For compliance purposes, discussions about future prices, customer allocation, output reductions or who should win a tender should be treated as serious warning signs. A lawful industry meeting should not become a forum for coordinating decisions that members should make independently. (CCP: Section 4 guidelines)
An allegation nevertheless requires evidence of the prohibited arrangement or decision. Similar prices or responses to common market conditions should not be treated, without analysis, as conclusive proof of an agreement.
Vertical Agreements: Restrictions Within the Supply Chain
A vertical agreement operates between businesses at different levels, such as a manufacturer and distributor.
Potential restrictions include resale-price controls, territorial or customer restrictions, exclusive dealing and tying. The CCP’s guidance identifies these as areas requiring competition assessment; it does not follow that every exclusive distributorship or selective distribution system is unlawful. (CCP: Vertical agreements)
The assessment should address the agreement’s actual terms, commercial context, market effects and available justification. A restriction that supports investment in a genuine distribution system raises different questions from an arrangement designed simply to prevent price competition or exclude competing suppliers.
Commercial usefulness is relevant to the analysis, but it is not itself a statutory exemption.
A Reported Example: Payment to Keep a Potential Competitor Out
In the proceedings concerning International Brands (Private) Ltd. and United Distributors Pakistan Ltd., 2025 CLD 1673 (CCP), the Commission examined a paid non-compete arrangement concerning the distribution of human pharmaceutical products.
The CCP characterised the arrangement as a horizontal market-allocation arrangement that excluded a potential entrant, contrary to section 4, and imposed a penalty of PKR 20 million on each party. It also rejected the argument that a later exemption application, filed after show-cause notices, cured the already implemented arrangement. (2025 CLD 1673 (CCP))
The practical lesson is to examine what the agreement actually does. A standalone payment for non-entry cannot be assumed to receive the same treatment as a properly justified restriction ancillary to a legitimate transaction.
Individual Exemptions
Section 5 permits an exemption for a particular agreement where the statutory criteria are satisfied. An exemption may be limited in duration and subject to conditions or obligations.
Although the Act permits retrospective effect in appropriate cases, parties should not assume that implementing an agreement first and applying later makes the intervening conduct lawful. The exemption sought, its effective date and its conditions require an actual determination.
Under section 6, exemptions can be reconsidered or cancelled on the prescribed grounds, including material changes, misleading information and failure to comply with requirements. (CCP: Exemptions)
The Competition (Exemption) Regulations, 2020 also recognise template exemptions for qualifying vertical agreements between manufacturers and suppliers or distributors. This mechanism should not be confused with an unrestricted exemption for every contract used by the applicant. (Exemption Regulations, 2020)
Block Exemptions
A block exemption under section 7 concerns a category of agreements. Section 8 provides the procedure, including publication of the proposal and consideration of representations.
The 2020 Regulations prescribe criteria including a market share not exceeding 40%, absence of hardcore restrictions and non-compete clauses, and the relevant efficiency and benefit requirements. (Exemption Regulations, 2020)
A market share below 40% does not automatically exempt an agreement. The applicable block-exemption order, its scope, conditions and continued applicability must be identified. This 40% criterion should also not be confused with the separate dominance presumption under section 2.
The Exemption Criteria Under Section 9
Section 9 requires a substantial contribution to the statutory grounds concerning improved production or distribution; technical or economic progress with a fair consumer share of the benefit; or benefits clearly outweighing the adverse effect of absent or reduced competition.
The applicant carries the burden. Pakistan’s actual statutory wording and applicable regulations should be used rather than importing a foreign jurisdiction’s exemption test without adjustment. (CCP: Exemptions)
A persuasive application should explain the claimed improvement and support it with evidence. As practical preparation, identify the efficiencies, who receives the benefit, how it arises and why the particular restriction forms part of the proposed arrangement. General assertions about industry stability or higher profitability are not an adequate substitute.
Invalidity, Remedial Orders and Penalties
Section 4(3) declares an agreement made in contravention of section 4(1) void. Under section 31(b), the CCP may annul the agreement, require amendment and prohibit repetition or arrangements with a similar object or effect.
Section 38 provides the Chapter II penalty ceiling of PKR 75 million or 10% of annual turnover, as determined in the case. Additional consequences may arise from obstruction or non-compliance with Commission orders.
The Act separately makes failure to comply with a CCP order an offence capable of prosecution before a competent court. This should not be confused with the Commission itself exercising an unrestricted power to imprison parties during its administrative proceedings. (Competition Act, 2010 — official text)
Leniency Is Different from an Exemption
Section 39 provides conditional penalty relief for the first undertaking making the required full and true disclosure concerning a prohibited agreement.
Exemption concerns permission for a qualifying agreement; leniency concerns the consequences of participation in an alleged violation. The two mechanisms should not be treated as interchangeable. Leniency is subject to its requirements and can be withdrawn for specified failures or misleading disclosure. (Competition Act, 2010 — official text)
Conclusion
An agreement should be reviewed for competition compliance before implementation, particularly where it affects prices, market entry, customers, distribution territories or bidding behaviour.
Legum Law Firm’s Competition and Antitrust Law practice advises on commercial agreements, trade-association compliance, individual and block exemptions, and responses to cartel investigations in Pakistan.
This article provides general information. The agreement, market evidence, applicable exemption orders and current regulations require individual examination.
