India: Are You An "Enterprise"?

Last Updated: 26 May 2016
Article by Danish Khan and Anand Sree

No allegation of abuse of dominance can be made against an entity which is not an "enterprise". Talking Competition gives a low-down on whether your business qualifies as an "enterprise" for the purpose of Competition Law analysis.

Seldom does a new legislation hope to have the impact on business conduct in the manner the modern Competition Law regime has in India.

Even though the law has been in force for less than six years, the hefty fines imposed by the Competition Commission of India (CCI) have made the business community sit up and take notice. In the last three years alone the competition regulator has imposed penalties in excess of INR 12,000 Crores on 322 entities. Unsurprisingly, corporates have been rudely awakened to the need for competition compliance and are scrambling to set up systems to include Competition Law in their due diligence and compliance audits.

Evading this obvious hurdle requires the awareness of whether the law affects one's business or not. True to our ethos of demystifying this law, the Talking Competition team attempts to decipher at least one part of the hurdle through this post.

Broadly, there are three limbs of the law from which all infringements flow- Anti-competitive agreements, Abuse of Dominance and Mergers & Acquisitions (legally termed "Combinations").

Out of the three, the provisions relating to abuse of dominance is an area which is the most ambiguous. Considering the novelty of the law, businesses may not be aware when they may be found dominant in a particular market and the ensuing liabilities for violative conduct. For instance, in its order in the case of Super Cassettes, the CCI may have exposed All India Radio (AIR) to potential antitrust liabilities by indirectly holding them a monopolist in its own market. Understanding whether an entity is an "enterprise" can go a long way towards solving this riddle. We deal with the concept of "enterprise" under the Indian Competition Act, 2002 (Act).

ENTERPRISE AND DOMINANT POSITION

Section 4 of the Act is the substantive provision concerning an abuse of dominant position. The Act provides that "No enterprise. . . shall abuse its dominant position". As such, the concept of "enterprise" is paramount in so far as an entity which is not an enterprise shall not be scrutinised for any alleged abuse of dominance.

'Enterprise' has been defined under Section 2(h) of the Act and brings within its ambit any firm or person engaged in activities relating to production, storage, supply, distribution, acquisition etc of goods. Rendering services (of any kind) is also a critical inclusion in the definition.

The term 'services' has a particularly wide meaning within the Act, encompassing sectors such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, conveyancing of news or information and advertising, etc.[Section 2(u) of the Act].

In its simplest form, an 'enterprise' (with the exclusion of the sovereign functions of the government) is any entity engaged in an economic activity. Whereas some activities of a particular entity are considered a sovereign function, not all functions can be sovereign. The functional aspects of an entity take precedence over its institutional aspects. For example: An entity may be established by a statute; it may be working not-for-profit; but that will not exclude it from the purview of Section 4. It is the nature of the activity which qualifies or disqualifies the entity as an "enterprise". For instance, fixation of electricity tariff by regulatory commissions does not make the regulatory commission an enterprise; collection of taxes does not make the Govt. Department an "enterprise";however where the Railway Board issues rate circulars for haulage charges for carriage of goods by private operators on the Indian Railways Network, the same is covered as a commercial activity. Thus, for the purposes of Section 4 of the Act, generation and distribution of electricity, construction of residential apartments, manufacture of cars and providing after-sales services, mining and supply of coal, services of stock exchange, organisation of sports leagues, etc. all constitute economic activities and make an entity liable under Section 4.

Therefore, it is the functional aspects and not the institutional aspects that are paramount in determining whether an entity is an "enterprise". A critical inclusion in the definition of the term 'enterprise' is a Government Department. For instance, Indian Trade Promotion Organisation (ITPO) has a dual role of license issuer for trade fairs organised in Pragati Maidan as well as the competing event organiser for the trade fairs in Pragati Maidan. It has been held to be an 'enterprise'. It is interesting to note that while certain functions of regulating a public activity may fall within the exercise of sovereign powers, others like conducting business or being engaged in economic activities may bring it within the definition of enterprise. A Department of Government engaged in any activity relating to provision of service or control of services including activities with respect to grant of licenses may be an enterprise for the purposes of Competition Law analysis. Furthermore, acquisition of goods or services through a competitive procurement process can qualify an entity as an "enterprise".

Lastly we deal with another important facet of industry- Trade Associations. While the constituent members can be an 'enterprise', associations primarily are meant to provide a platform to their constituent members. If the sole objective of an association is to provide a platform for their members to discuss matters of common interest, the association themselves shall not be considered an enterprise and their conduct shall be exempt from scrutiny under Section 4.

However, it should NOT be understood that trade associations have a blanket exemption from purview of Section 4. The Commission recently issued its first decision penalising an association for abusing its dominant position. It may be noted that the concerned association of truck operators in Kiratpur (Punjab) was involved in an economic activity in so far as it acted as an agent for its constituent members and charged commission for allotting the work to its members.

Exceptions and Contradictions - It is important to mention that there exist inconstencies in the orders of the CCI on what constitutes an "enterprise" under the Act. In one case, issuance of rate circulars by the Railway Board for haulage charges for carriage of goods by private operators on the Indian Railways Network, the same is covered as a commercial activity. However, in a subsequent case, it has been held that where the Ministry of Railways/Railway Board issues rate circulars for transport of carriage of commodities, its in exercise of its statutory functions and isn't an enterprise. Again, Department of Industrial Policy and Promotion(DIPP)- primarily responsible for formulation, promotion, approval, and facilitation of Foreign Direct Investment (FDI) has been found to be prima-facie an 'enterprise' in its function of issuing FDI policies.

Similarly, Public Works Department has been prima-facie held as not an 'enterprise' in performing the function of calling bids for a tender to construct a rail-over-bridge. However, in an earlier case, public works department has been prima-facie held as an 'enterprise' while performing the function of calling tenders for annual repair and maintenance of public buildings.

The CCI has held that the activity of appointing agents for distribution and marketing of lotteries by the State Government is not a sovereign function and hence is covered under the ambit of "enterprise".However, contrary to this finding, the CCI in another case, observed in its investigation order that State of Mizoram was prima-facie not an "enterprise" for appointment of lottery distributors and selling agents for the lotteries . The investigation order was quashed by the Gauhati High Court.

CONCLUSION:

There is no doubting the fact that the interpretation of "enterprise" presents an extremely confusing understanding on the part of the CCI. One reason behind the same could be that a majority of the decisions of CCI are at the prima-facie stage and hence need to be taken with a pinch of salt. Nonetheless, based on the discussion above, we can draw the following conclusions:

  1. Enterprise- Any entity engaged in an activity relating to the manufacture, distribution, supply of goods or provision or services. Broadly speaking an entity engaged in an economic or commercial function is an "enterprise". It should be noted that "acquisition" of goods and services can also qualify as a commercial function.
  2. Government Departments- Yes, Government Departments qualify as an enterprise. However, exemptions do exist for performing sovereign functions such as collection of taxes, or for statutory functions such as determination of tariff by electricity commissions. However, the COMPAT recently ruled that the issuing of policy circular mandating co-operative societies to purchase from a particular seller did make the Government department an "enterprise" as the policy in question had the effect of regulating purchase of goods from a particular entity .
  3. Trade Associations- In most cases, NO. Associations generally provide a platform to its members to air its views and do not perform any commercial functions, hence are not an enterprise. Although, the constituent member of such associations may be enterprises. However, where a trade association performs a commercial function-such as charging commission from customers for distribution of work to its constituent members- such association does qualify as an "enterprise".
  4. Autonomous Bodies- Yes, such independent and autonomous bodies do qualify as "enterprise" if they perform an economic function. Sports organisation bodies like BCCI or Hockey India do qualify as an "enterprise" as they perform the dual role of a regulator as well as a commercial body.

This article was originally published on Talking Competition, 25 June 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions