A Progressive Stance of the CCI in Ascertaining ‘Enterprise’

[Ashutosh Rajput and Anand Singh are 3rd year B.A.,L.L.B. (Hons.) student at Hidayatullah National University, Raipur]

The Competition Commission of India (CCI) in CJ Darcel Logistics Ltd. v. Dumper and Dumper Truck Union Lime Stone (7 February 2022) has issued a cease-and-desist order against the Dumper and Dumper Truck Union Lime Stone (DDTU) for contravening sections 3(3)(a) and 3(3)(b) read with section 3(1) of the Competition Act, 2002. Interestingly, the CCI did not delve into the allegation of abuse of dominant position by DDTU, by noting that since the Director General (DG) has received no response from the union and its members, it cannot conclusively be said to be an ‘enterprise’ within the meaning of the Act and hence cannot be scrutinized under section 4 thereof. The authors here contend that the DG has succinctly laid down a four-fold test to ascertain whether a society is an ‘enterprise’ within the meaning of the Act. The said test could be followed in subsequent cases of similar nature in ascertaining the abuse of dominance. The main contention put forth by the authors is that the CCI has shown progressiveness by recognizing economic criteria for adjudicating matters where the question of a ‘society’ being an ‘enterprise’ is raised.

Factual Matrix

The informant, CJ Darcel Logistics Ltd. (CJDL), a company registered under the Companies Act, 1956, was awarded a tender by JSW Energy (Barmer) Limited (JSW), for the transportation of lime stone from Sanu Mines, Jaisalmer to a plant site of JSW at Bhadresh. CJDL had levied allegations against the DDTU, which is a union of truckers and transporters in the Sanu Mines area of Jaisalmer, for restraining it from carrying out transportation work through its own vehicle and forcing it to use trucks of the DDTU and its members at a higher rate. As a result of such coercion by DDTU and the lack of a  favourable response from the JSW regarding the frustration of contract, CJDL had to provide transportation services at a rate of 500/MT, rather at a rate of 460/MT which was stipulated in the tender floated by the JSW. In its information, CJDL claimed the violation of section 3(3)(b) read with section 3(1) of the Competition Act. It further levied allegations against the DDTU for contravening sections 4(2)(a)(i) and 4(2)(a)(ii) of the Act.

Investigation by the DG

After forming a prima facie opinion under section 26(1) of the Competition Act, the DG was directed to cause investigation into the matter. With regard to the violation of section 3 of the Act, the DG found  that CJDL has been restrained from executing its contract with JSW by DDTU, and that the act of DDTU in directly or indirectly determining the price for providing services by CJDL is per se anti-competitive and is in violation of section 3 of the Act.

Regarding the violation of section 4 of the Act, the DG placed reliance on Shivam Enterprises and noted that though there is no conclusive proof that DDTU is an enterprise, assuming it to be an enterprise, it enjoys a dominant position in the relevant market i.e., “provisions of services of transportation of minerals/limestone by trucks operating in area of Sanu mines”. For ascertaining the abuse of dominance, the DG looked into the imposition of unfair conditions by DDTU upon the CJDL and concluded that the latter had no other option but to comply with conditions imposed by the former; hence, the former has abused its dominant position.

Analysis by the Commission

The CCI opined that the act of determining/fixing a higher rate of transportation by DDTU, which had caused CJDL a lose at a rate of 40/MT, and thereby limited the provisions of transportation services, has violated sections 3(3)(a) and 3(3)(b) of the Act. It goes on to conclude that since there is no conclusive proof of DDTU indulging in any economic activity and collecting consideration for such services, and that the CCI would not scrutinize whether it is an enterprise or not under section 2(h) of the Act. Therefore, the case against violating section 4 of the Act is not called out. However, the CCI refrained from imposing any penalty upon DDTU due to the lack of financial statements or income tax returns.

Analysis of the Judgment

As defined under section 2(h) of the Competition Act, the term ‘enterprise’ means a person or a department of Government who are engaged either directly or indirectly in any activity relating to storage, supply and distribution, among others, but does not include any governmental activity which partakes sovereign functions. The term ‘person’ used herein includes an association of persons or a body of individuals under section 2(l) of the Act. A comparative reading of sections 3(1) and 4(1) of the Act shall showcase that in the former, both ‘enterprise’ and ‘person’ is mentioned under the Act and can be scrutinized by the Commission for finding alleged anti-competitive activities, while in the latter, ‘enterprise’ or ‘group’ can be scrutinized by the CCI for finding the alleged abuse of dominance. Since the term ‘group’ has the same meaning as enshrined under clause (b) of the explanation to section 5 of the Act, an argument contending the application of ‘group’ for ascertaining the abuse of dominance in the present case could be nullified by the fact that the definition of ‘group’ is in relation to combinations while, in the present case, no such combination can be envisaged. For this reason, the CCI places prominence on the term ‘enterprise’ while dealing with the allegation of abuse of dominant position by society and associations.

In the present case, the DG has concisely delineated the ratio laid down in Shivam Enterprises and further laid down the criteria to adjudicate whether a society is an enterprise or not (paragraph 26.e). The four-fold criteria are hereby noted as:

  1. The society takes the contracts in its own name and gets them executed through its members;
  2. The society is being paid by its customers for providing services;
  3. A member of the society is obtaining a commission from the society for every ride taken by such a member;
  4. The members of the union are appointed by the society and the customer has no choice or control over such appointment.

Owing to the non-fulfilment of the second and third conditions in the present case, which talks about the economic nature of an activity, and due to the lack of a response from the opposite parties, the DG did not come to a vivid conclusion.

While the CCI did not delve into the contours of the DG’s report due to the lack of information in the hands of the DG, the DG has certainly laid down a prudent path for determining what could plausibly be an enterprise within the definition given in the Act. The authors herein contend that the CCI, in regard to scrutinizing ‘enterprises’, has shown progressiveness. In Swastik Stevedores Private Limited, which was relied on by the informant in the present case, the DG concluded that even though there were no monetary consideration for utilizing services of the Dumpers Owners’ Association (DOA) and there was no direct engagement of DOA and its members, it being engaged in the provision of services of allocation of dumpers, is an enterprise within the meaning of the Act (paragraph 4.2). Negativing the DG’s contention, the CCI noted that monetary consideration or an indulgence in economic activity is the sine qua non for concluding it to be an enterprise. Moreover, in TT Friendly Super League Association v. The Suburban Table Tennis Association, the CCI noted that the economic nature of the activities discharged by the entities concerned, irrespective of whether such economic activities were undertaken for philanthropic purpose or commercial purpose, would be an important criterion for determining whether an entity qualifies to be an ‘enterprise’ (paragraph 18). The four-fold test laid down by the DG, especially the second and third criteria, is hereby strengthened and could plausibly be referred to in the subsequent cases for determining whether an entity is an ‘enterprise’.

Ashutosh Rajput & Anand Singh

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