[Shourya Mitra is a penultimate year law student at Jindal Global Law School, Sonipat]
On 2 June 2023, the Delhi High Court, in the case of Institute of Chartered Accountants of India (“ICAI”) v. CCI, held that the Competition Commission of India (“CCI”) lacks jurisdiction to assess grievances arising from a statutory regulator’s decisions. It held that the CCI could not compel or outsource functions of a statutory regulator, even if it involves “economic activity”. Although this is not the first case of a statutory regulator being excluded, the Court atypically deemed ICAI as an “enterprise” despite stating that the CCI could not scrutinize its regulatory decisions.
This post will analyse the jurisprudence regarding regulators and their treatment within the competition framework. Further, the post will attempt to demonstrate that despite the High Court reaching a fitting conclusion, the approach of holding ICAI as an “enterprise” and still ousting the CCI’s Jurisdiction was unconventional and may require further clarification.
The matter arose out of an investigation order under section 26(1) of the Competition Act, 2002 (“the Act”) passed by the CCI against the ICAI for prima facie contravening section 4 of the Act. The CCI observed that the ICAI had contravened the provisions of the Act by not allowing non-ICAI recognised bodies to conduct Continuing Professional Education (“CPE”) related learning activities, including seminars. It was alleged that “ICAI was abusing its dominant position as a regulator, to create a monopoly in the service of providing CPE seminars”. The remedy sought was that ICAI should recognise other professional bodies and organisations for conducting seminars that could be included within the learning programs to acquire CPE Credit hours.
The High Court perused the Chartered Accountants Act 1949 to understand the powers and functions performed by the ICAI. It then addressed whether ICAI was an “enterprise” under section 2(h) of the Act, as it is a pre-requisite for scrutinizing abuse of dominance under section 4. The ICAI argued that it was carrying out regulatory and not economic activities. Hence, it was not an “enterprise”. The Court determined that ICAI qualified as a “person” providing services related to education, thereby making it an “enterprise”. It further held that despite being formed for a non-economic purpose, ICAI engaged in economic activities, as evidenced by the revenue generated from its Structured Learning Activity program (including CPE).
With respect to the “sovereign function” – which is the only statutory exception to “enterprise”- the Court held that ICAI’s educational functions were not sovereign. These functions, even if related to the government’s sovereign functions, were not excluded from “enterprise”. The exclusion only applied to the government’s activities. ICAI, not being “the government”, could not be excluded.
The question of jurisdiction came down to whether the alleged abusive conduct could be subject to the CCI’s scrutiny. The High Court, holding in the negative, stated that the CCI could not address grievances arising out of the exercise of“regulatory powers” of the ICAI. Consequently, the ICAI not outsourcing its activities could not be considered an “abuse of dominance”.
It observed that ICAI’s decision to mandate its members to undertake structured learning programs offered by it and its affiliates pursuant to its regulatory duties was not reviewable by the CCI. In holding the same, it distinguished between decisions in the capacity of a “regulator” and that of a “service provider”. The informant wanted ICAI to recognize other organizations and bodies offering comparable learning programs for credit hours. The Court observed that this was not a relief within the capacity of the CCI, as it could not turn into an appellate court against such decisions “taken by other regulators, in the exercise of their statutory powers”.
The Court also observed that there are no other interchangeable learning activities with the CPE conducted by the ICAI. It held that the CCI had erred in delineating a relevant market “for organizing recognised CP Seminars/workshops/Conferences”. The ICAI, being the standard setter, could not be obliged to outsource its functions and create a market where other entities would be entitled to participate as market players.
The author agrees with the High Court’s conclusion as it prevents absurd outcomes such as the CCI adjudicating upon regulatory decisions of other statutory regulators. However, in arriving at the conclusion, the author believes that ICAI should have been exempted as an enterprise, as the same has been the norm for excluding CCI’s jurisdiction.
An “Enterprise” Not Subject to Scrutiny
The norm for excluding CCI’s jurisdiction under section 4 of the Act has been to remove the concerned body from the ambit of “enterprise” under section 2(h). This involves dwelling into the nature of the body’s duties and functions and contrasting its regulatory functions with its “economic/commercial function”, thereby excluding it from the definition of “enterprise”.
For instance, the Bar Council of India (BCI) was excluded as an enterprise due to its engagement in regulatory activities rather than economic/commercial activities. Similarly, the Insurance Regulatory and Development Authority(IRDA) was not held as an enterprise due to its engagement in non-economic/regulatory activities. However, in the present case, the ICAI has been held to discharge economic activities and has been held as an enterprise. This raises doubts about the strong emphasis on ICAI’s regulatory function.
Regulatory function: An Exclusion?
Emphasizing regulatory functions as a means of exclusion is not unheard of. However, this exclusion has been from the sweep of an “enterprise”. Statutory regulators like BCI and IRDA were excluded as they discharged regulatory and not economic or commercial functions. The High Court, for ICAI, could have applied the same rationale as the IRDA case, which recognized that regulatory actions are excluded from the ambit of “enterprise”. This would have provided stronger jurisprudential support for the ICAI decision.
Even in the Director General of Health Services(“DGHS”) case, the CCI had held that the functions of the DGHS were regulatory and non-economic in nature and hence could not be covered within “enterprise”. However, the COMPAT overturned this on the grounds that “enterprise” only has exceptions concerning “sovereign functions”, which provides for only “primary, inescapable, inalienable and non-delegable functions of a government”. The DGHS discharged functions as a service provider as well. Therefore, being a regulator by itself has not always ousted the jurisdiction of the CCI.
For instance, in the case of the Board of Control for Cricket in India (BCCI), the CCI observed that the BCCI had significant control and regulation over the sport of cricket. It emphasized the BCCI’s involvement in economic activity, regardless of its not-for-profit motive, and categorized it as an enterprise.
In the case of the All India Chess Federation (AICF), the federation had powers with respect to granting recognition to tournaments conducted by other organisations (akin to ICAI’s recognition powers). The AICF was effectively the sole and exclusive authority to govern the game of chess in India. The CCI noted that it was a “de facto regulator”. However, it went on to recognise it as an enterprise due to the economic activities it discharged despite its regulatory nature. Further, the pervasive control exercised by the AICF led CCI to hold that it was dominant.
Similarly, the Amateur Baseball Federation of India (ABFI) was held to be dominant owing to the similar recognition and powers it enjoyed as a regulator of baseball. It was held that its powers constituted regulatory barriers in the sport of baseball as no other body could parallel such pervasive powers. The CCI held that the definition of enterprise was wide enough to capture ABFI within the ambit, and it also carried out economic activities, making it an enterprise.
The cases of AICF and ABFI give us a situation wherein a regulator’s pervasive powers itself may lead to dominance. Both regulators used their powers to sabotage other organizations by not recognizing them or by excluding them, which was the abusive conduct. Being a standard setter does not preclude the existence of a market. Rather, the regulators have possibly prevented the formation of a contestable market. The High Court’s conclusion that ICAI lacks substitutable services in its seminars/workshops could be seen as a manifestation of dominance due to its regulatory powers of setting standards leading to absence of competition. This raises valid concerns about potential abuses of power by regulators, although further discussion is outside the scope of this piece.
The aforementioned cases indicate that the key factor for all regulators is “economic activity,” which is distinguished from their regulatory functions. However, specifically for a statutory body/regulator, its regulatory functions are directly contrasted with its economic/commercial activities such that its functions as a regulator precludes it from performing economic or commercial activities, which by extension excludes them from the ambit of “enterprise”.
The cases, when contrasted with the ICAI decision, present to us a situation wherein a regulatory authority carrying out economic activity, being an enterprise, can still be excluded from the purview of the CCI. As evidenced by the lines “this Court is unable to accept that the said powers extend to reviewing all decisions made by statutory bodies or a foreign government, which are not relatable to a sovereign function of the Government”. The case propounds that certain regulatory actions cannot be subjected to CCI’s scrutiny from the outset. Therefore, we now have a novel exclusion from the CCI’s scrutiny wherein one can be excluded as a regulator even if they are an enterprise. The author believes that the same may require clarification in future decisions.
– Shourya Mitra