Supreme Court of India: “Cloak of trade unionism” won’t aid trade associations anymore

Sections 3 and 4 of the Indian Competition Act, 2002,[1] (“Act”) deal with two of the most important issues of competition law which are “anti-competitive agreements” and “abuse of dominant position” respectively. In order to be made liable for abuse of dominance under Section 4, the violator has to be “either an enterprise or a group”. In order to be made liable under Section 3, the violator has to be “an enterprise or association of enterprise or persons or association of persons”. Section 2(h) of the Act defines an “enterprise”.[2] In a number of cases, trade associations and other professional organizations have taken the defense that they cannot be covered under the definition of “enterprise” as they are not engaged in any economic activity or are not a profit-making entity and hence cannot be held to violate Section 3 or 4 of the Act. In this article, the author will discuss the cases where the Competition Commission of India has held trade or other association to be either an “enterprise” or an “association of enterprises” and how the Hon’ble Supreme Court of India in  Competition Commission of India (‘CCI’) v. Coordination Committee of Artists and Technicians of WB Film and Television and Others,[3] (“Co-ordination Committee”) has dealt with this issue.

In the Co-ordination Committee case,[4] the Hon’ble Supreme Court had to decide whether banning of dubbed serial under the pressure of certain trade association is anti-competitive or not. In this case, the State of West Bengal, Heart Video (“Informant”) was assigned the rights to telecast the Bengali dubbed version of serial Maharashtra. Informant entered into agreement with two TV channels to telecast the serial. Two associations, Committee of Artists and Technicians of West Bengal Film and Television Investors (“Coordination Committee”) and Eastern India Motion Picture Association (“EIMPA”), collectively opposing parties (“OPs”), opposed screening of the dubbed version on the ground that it would affect the artists and technicians working in that market in West Bengal. Pressure from the OPs in form of multiple letters, threat to strike, stoppage of work, etc made both the channels reconsider their decision to air this serial and one of them even stopped the telecast and other one informed the informant that it will have to stop the telecast. This situation forced the Informant to file a complaint with the Competition Commission of India (“CCI”) against the OPs.

In the current case, the Director General in his report found the OPs liable under Sections 3 and 4. The question which arose here was whether  the OPs can be made liable under Sections 3 and 4 of the Act even though they were trade unions which were not engaged in any economic activity, hence, did not satisfy the criteria to be an enterprise.

CCI in its majority order in Reliance Big Entertainment Ltd. v. Karnataka Film Chamber of Commerce,[6] held that even though the film association itself was not engaged in any economic activity of business of production, distribution or exhibition of films, but its members were comprised of producers, distributors or exhibitors of motion pictures which were engaged in economic activities and hence were enterprises. As the film association comprised of enterprises, it was held to be an “association of enterprises”. In a number of drug association cases like M/s Santuka Associates v. All India Organization of Chemists and Druggists and others,[7] M/s Sandhya Drug Agency v. Assam Drug Dealers Association and others,[8] In Re: Bengal Chemist and Druggist Association, [9] this principle has been followed. In all these cases as the CCI regarded the association itself not to be engaged in any economic activity, they couldn’t be covered under the definition of “enterprise”.

In Shivam Enterprises v. Kiratpur Sahib Truck Operators and others,[10] CCI relied on the functional aspects of the association. The association comprised of members who were truck service providers. The functioning of this association was different from those discussed as this association used to get contracts from the consumers in its own name and then got it performed through its members. The members never dealt directly with the customers. Even the payment for the service was made by the customers directly to the association and after deducting its commission, the association used to transfer the payment to the members. On the basis of these facts, the CCI held that the association was engaged in economic activity of providing the transport services and hence was an “enterprise” as per Section 2(h) of the Act.

In a number of cases dealing with professional sports organizations, the functional approach has been followed. In Hemant Sharma v. Union of India,[11] the Hon’ble Delhi Court held that the All India Chess Federation was an enterprise under Section 2(h) of the Act, as it was providing services to its member chess players for a registration fee and hence was involved in an economic activity. In Sh. Dhanraj Pillay v. M/s Hockey India,[12] relying on the Hemant Sharma case, the Commission held Hockey India to be an “enterprise” as it was generating revenue by franchisee, media, sponsorship and television rights. The same functional approach has been followed in Surinder Singh Barmi v. The Board of Control for Cricket in India,[13] where the CCI held BCCI to be an enterprise due to its engagement in economic activities.

In the current case,[14] the CCI held that Coordination Committee itself was not engaged in any economic activity but it was a committee of five different bodies (including EIMPA) which comprised members engaged in production, distribution and exhibition of films, and hence were enterprises. Therefore, the majority members of CCI held Coordination Committee and EIMPA to be “association of enterprises”. Now that they could be covered under Section 3, on the basis of their action of limiting and controlling the distribution and exhibition of dubbed TV serials in the area of their operation, the CCI held that their action violated Section 3(3)(b) read with Section 3(1) of the Act. The Competition Appellate Tribunal by adopting the reasoning of a dissenting member of the CCI revered the decision and held that they were not liable.

The Hon’ble Supreme Court defined enterprise under Section 2(h) as any entity engaged in any economic activity. On the basis of reasoning as followed by the CCI, it noted “When some of the members are found to be in the production, distribution or exhibition line, the matter could not have been brushed aside by merely giving it a cloak of trade unionism”. Therefore, it held that OPs were “association of enterprises” and hence covered under Section 3 and held them to be liable under Section 3(3)(b) read with Section 3 of the Act.[15] The apex court very correctly adopted the functional approach and held that it is not the form but the activity of the entity which needs to be focused on. It also held that “an economic activity includes any activity, whether or not profit making, that involves economic trade”. The reasoning of the Supreme Court in this judgment has been followed by the CCI in a very recent case of Shri Vipul A. Shah v. All India Film Employee Confederation and others.[16]

The functional approach that reflects an activity over form approach is required in order to deal with associations which might want to avoid application of the Competition Act under the guise of status of a trade association. The current case being one of the few cases where the Supreme Court of India has dealt with the competition law issues, it will set the correct precedent for the upcoming cases.

[1] Section 3 and 4, Indian Competition Act, 2002.

[2] Section 2(h), Indian Competition Act, 2002.

[3] Competition Commission of India (‘CCI’) v. Coordination Committee of Artists and Technicians of WB Film and Television and Others, Judgment in Civil Appeal No. 6691 of 2014 (Decided on 07.03.2017).

[4] Competition Commission of India (‘CCI’) v. Coordination Committee of Artists and Technicians of WB Film and Television and Others, Judgment in Civil Appeal No. 6691 of 2014 (Decided on 07.03.2017).

[5] Mr. Sajjan Khaitan v. Eastern India Motion Picture Association, Case No. 16 of 2011 (Decided on 09.08.2012).

[6] Reliance Big Entertainment Ltd. v. Karnataka Film Chamber of Commerce, 2012 Comp LR 269.

[7] M/s Santuka Associates v. All India Organization of Chemists and Druggists and others, Case No. 20 of 2011 (Decided on 19.02.2013).

[8] M/s Sandhya Drug Agency v. Assam Drug Dealers Association and others, Case No. 41 of 2011 (Decided on 09.12.2013).

[9] In Re: Bengal Chemist and Druggist Association, Suo Moto Case No. 02 of 2012 (Decided on 11.03.2014).

[10] Shivam Enterprises v. Kiratpur Sahib Truck Operators and others, Case No. 43 of 2013 (Decided on 04.02.2015).

[11] Hemant Sharma v. Union of India, 2011 SCC OnLine Del 4642 : 2012 Comp LR 1.

[12] Dhanraj Pillai and others v. M/S Hockey India, Case No. 73 of 2011 (Decided on 31.05.2013).

[13] Surinder Singh Barmi v. The Board of Control for Cricket in India, Case No. 61 of 2010 (Decided on 29.11. 29, 2017).

[14] Mr. Sajjan Khaitan v. Eastern India Motion Picture Association, Case No. 16 of 2011 (Decided on 09.08.2012).

[15] Competition Commission of India (‘CCI’) v. Coordination Committee of Artists and Technicians of WB Film and Television and Others, Judgment in Civil Appeal No. 6691 of 2014 (Decided on 07.03.2017).

[16] Shri Vipul A. Shah v. All India Film Employee Confederation and others, Case No. 19 of 2014 (Decided on 31.10.2017).

This post has been authored by Adwiteeya Sharma, a fifth year student of the National Law School of India University (NLSIU), Bangalore.