The CCI should be more coherent and enterprising

By Deeksha Manchanda and Shruthi Rao, Chandhiok & Mahajan

The competition regime permits assessments of allegations of abuse of dominance against an enterprise under section 4 of the Competition Act, 2002 (act). An enterprise is liberally defined in the act to include a wide spectrum of entities. Under section 2(h), an enterprise includes any person or department of the government that is engaged in any activity relating to the production, storage, supply, distribution, acquisition or control of goods or provision of services. The provision recognizes a narrow exemption in relation to the sovereign functions of the government, or to government activity pertaining to atomic energy, currency, defence and space.

Deeksha Manchanda, Partner, Chandhiok & Mahajan
Deeksha Manchanda
Chandhiok & Mahajan

In interpreting Section 2(h) of the act, the Supreme Court in CCI v Co-Ordination Committee of Artist and Technicians observed that the concept of enterprise is relative and should be guided by a “functional approach”, that is by taking into consideration the functions and activity performed by an entity. Any entity, regardless of its form, is an enterprise if it is engaged in an economic activity. An activity can be considered economic if an entity is operating in some market, where there are buyers and sellers. As observed by the Competition Commission of India (CCI) in Hemant Sharma v All India Chess Federation and by the Competition Appellate Tribunal in Rajat Verma v Haryana Public Works Department, an entity interfacing with the market while carrying out an activity is considered an enterprise within the meaning of section 2(h). Profit making is not a relevant criterion for determining the economic nature of the activity.

The test of economic activity results in complications when the entity is an association, a government department or a regulator. Following this functional approach, the CCI found the Board of Control for Cricket in India, the Institute of Chartered Accountants and the Ghaziabad Development Authority to be enterprises, even though they undertook regulatory or non-commercial functions.

However, applying the same test the CCI held that the Department of Excise, which grants licences for the supply of liquor, and that the Department of Expenditure of the government in issuing a memorandum that required all government services to book their tickets through one travel agency only, were acting in the realm of public policy and were not enterprises.

Most recently, in Thupili Raveendra Babu v Bar Council of India (BCI) & Ors, the CCI concluded that the functions of the BCI in laying down the maximum age of 30 years for candidates to pursue legal education, are non-economic in nature. The CCI observed that regulatory functions discharged by a body are not in themselves amenable to the jurisdiction of the commission. By contrast, the European Court of Justice in the Wouters case found that a body with regulatory powers that governs the legal profession is subject to the jurisdiction of the ECJ.

Shruthi Rao, Associate, Chandhiok & Mahajan
Shruthi Rao
Chandhiok & Mahajan

The approach adopted by the CCI in these cases is inconsistent with the functional approach, which requires it to determine whether the entity is operating in some market where there are buyers and sellers, or if while carrying out the activity, the entity interfaces with the market. Section 2(h) of the act is broadly worded. Phrases like “department of the government” and “relating to” indicate that the legislature intends to cover all activities which may have an impact on the market even if they are regulatory in nature. The section provides no exemption for policy matters. The statute only recognizes an exemption for activities relating to atomic energy, currency, defence and space. The decisions of the CCI holding that government departments or self-regulatory professional bodies like the BCI are not enterprises, even when their decisions directly impact the availability of services in the market, appear misplaced.

These cases highlight the fact that the CCI has inconsistently applied the tests of “economic activity” or “functional activity”. The need in such cases is to analyse the functions to determine whether the entity is engaged in any economic or income generating activity. The CCI should urgently adopt a uniform standard to determine the economic nature of the functions that an entity carries out.

Deeksha Manchanda is a partner and Shruthi Rao is an associate at Chandhiok & Mahajan

competition law

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