CCI Treats Non-Commercial Economic Entity as “Enterprise”

[Saloni Neema is a 3rd Year law student at Damodaram Sanjivayya National Law University Visakhapatnam]

On June 3, 2022, the Competition Commission of India (“CCI”) passed a cease-and-desist order against the Amateur Baseball Federation of India (“ABFI”) for violating sections (4)(2)(a)(i), 4(2)(b)(i), and 4(2)(c) of the Competition Act, 2022 (“Act”). This post aims to critically analyze this order in light of the larger policy debate of whether competition law should also apply to non-commercial entities. 

Brief Facts of the Case 

The ABFI is a non-profit organization that promotes baseball and softball in India. It is a society formed under the Haryana Registration and Regulation of Societies Act, 2012. It is recognized as a National Sports Federation by the Ministry of Youth Affairs and Sports, Government of India. It promotes baseball and athletes in the sport. ABFI organizes zonal, national, and international baseball tournaments in India.

The ABFI sent a letter to its affiliated State Baseball Associations on July 1, 2021, requesting that they not entertain unrecognized entities and not allow their respective state players to compete in tournaments organized by such unrecognized bodies. The letter also urged players associated with its state baseball associations not to compete in events hosted by organizations that they did not recognize. In light of the preceding legal framework, it is impossible to deny that the ABFI is involved in governing the provision of services, as evidenced by its communication dated January 7, 2021, in which players affiliated with its State Baseball Associations were warned not to participate in tournaments organized by bodies that were not recognized by it. As a result, ABFI’s claim of being misled was dismissed. The CCI determined that ABFI is an “enterprise” within the meaning of the word as defined in section 2(h) of the Act and is thus subject to the discipline of section 4 of the Act, which forbids the misuse of a dominant position.

Issues Involved

Whether the ABFI falls within the ambit of “enterprise” under section 2(h) of Act?

Analysis 

The definition of “enterprise” emphasizes the economic character of the operations carried out by the entities. It makes no difference whether such economic operations are carried out for profit or commercial gain or for altruistic gain. As the Act does not discriminate between commercial and non-commercial economic activity, even non-commercial economic activities would be subject to the Act’s discipline. When determining whether or not an organization qualifies as an “enterprise”, the CCI takes a functional rather than a formal approach. It is determined that ABFI is an “enterprise” within the meaning of the word as defined in section 2(h) of the Act and is thus subject to the discipline of section 4 of the Act, which forbids the misuse of a dominating position.

In India, under the Act, an “enterprise” is defined as:

a person or a department of the government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, but does not include any activity of the government relatable to the sovereign functions of the government.” 

Broadly, to fall within the definition of “enterprise”, an essential element is that the entity has to engage in economic activity. In Sh. Surinder Singh Barmi v. Board of Control for Cricket in India (“BCCI”), it was held that the activity’s nature would determine whether or not the entity is an enterprise for purposes of the Act. As a result, it is irrefutable that all sports associations must be recognized as enterprises in terms of their entrepreneurial behaviour and handled on par with other businesses. The Director General (“DG”) concluded that although the BCCI is a society and is a non-profit organization, its activities related to the Indian Premier League, such as the grant of franchise rights, media rights, and other sponsorship rights, involve enormous revenue and are distinct from so-called non-profit activities. These activities lie within the realm of commerce, and the whole bidding procedure for such rights is motivated by financial gain. 

The DG also cited the European Commission (“EC”) ruling in the instance of Abuse of Dominance by FIFA (International Federation of Association Football). In their decision, the EC determined that the World Cup includes various economic activities, such as the sale of entrance tickets, the commercial exploitation of FIFA emblems, the conclusion of contracts for advertising on panels within the grounds and those relating to television broadcasting rights, and that FIFA is an “enterprise” for these purposes. It was determined that BCCI is an enterprise for purposes of the Act and consequently falls under CCI’s jurisdiction.

In another case, Hemant Sharma v. All India Chess Federation (“AICF”), it is stated that the AICF is a society established under the Tamil Nadu Societies Registration Act, 1975, and hence a “person” as defined in section 2(l) of the Act. The AICF was founded, among other things, to organize national and international competitions. The organization of chess events and tournaments is, among other things, a revenue-generating activity that comes within the scope of services under section 2(h). As a result, the fact that the AICF is mandated by its constitution to engage in the economic activity of arranging chess tournaments qualifies it as a business under the Act. All that is required is that the activity generates revenue. If an entity operates in a market with buyers and sellers, the activity might be classified as an economic activity. In light of the aforesaid, it may be inferred that the AICF has been organizing professional chess events and tournaments and other revenue-generating activities. The performance of these operations by AICF has been determined to be adequate for it to be classified as an enterprise under section 2(h) of the Act.

The CCI’s decision-making practice has been to treat sports federations as “enterprises” if they participate in activities described by section 2(h) of the Act. In this respect, the CCI’s rulings in Dhanraj Pillay v. Hockey India and Surinder Singh Barmi (above) should be considered. Subjecting sports federations’ economic activities to competition law is also in line with developed competition regimes such as the European Union. In Motosyklestistiki Omospondia Ellados NPID (MOTOE) v. Elliniko Dimosio, it was held that “a legal person whose activities consist not only in taking part in administrative decisions authorizing the organization of motorcycling events, but also in organizing such events themselves and entering, in that connection, into sponsorship, advertising, and insurance contracts, falls within the scope of Articles 82 EC and 86 EC.

It has been noticed that the notion of enterprise is not just based on profit motivation. The idea of “enterprise” is determined by the fact that it participates in economic activity within the scope of section 2(h) of the Act. Assume a person engages in any of these activities, whether for profit or not. In that case, it is considered an enterprise since it interacts with the market and other alternatives for the product or service in concern. A sports federation’s primary responsibility is to carry out regulatory operations such as framing regulations and implementing steps to protect the sport’s integrity. 

Conclusion 

In light of the preceding legal framework, it is not possible to deny that the ABFI oversees the provision of services, as evidenced by its communication dated January 7, 2021, in which players affiliated with its State Baseball Associations were warned not to participate in tournaments organized by bodies not recognized by it. Consequently, the ABFI’s allegation of being deceived is rejected. It was found that ABFI is an “enterprise” as defined by section 2(h) of the Act and was, therefore, subject to section 4 of the Act, which prohibits the abuse of a dominant position.

As a result, the ABFI was thus ordered to refrain from engaging in the activity that has been deemed to violate the Act in the future. In terms of monetary penalties, the CCI observed that the ABFI has already withdrawn the impugned letter, implying that the required market adjustment has already occurred. The CCI has also considered the informant’s statement that it successfully arranged the 1st Edition of the Club Nationals 2021 competition in Hyderabad from February 8 to February 13, 2022. In light of these considerations, the CCI refused to impose monetary penalties on ABFI.

Saloni Neema

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