Wednesday, March 15, 2017

Supreme Court’s decision on the Competition Act raises concerns

[Guest post by Varun Thakur, BA.LL.B fourth year student at National Law University, Jodhpur.]

The Supreme Court of India (‘SC’ or ‘the Apex Court’) has for the first time ruled on the substantive provisions under the Competition Act, 2002 (‘Competition Act’ or ‘the Act’) in the case of Competition Commission of India (‘CCI’) v. Coordination Committee of Artists and Technicians of WB Film and Television and Others on March 7, 2017. It is important to critically analyse and understand this case since this gives us the first instance of jurisprudence in competition law that will act as binding and far reaching precedent in an aspect of competition law that has regular relevance and application.

Facts of the Case:

In the State of West Bengal, M/s Hart Video (‘Hart Video’) was assigned the rights to telecast the T.V Serial ‘Mahabharata’ (‘serial’) dubbed in Bengali Language. For this purpose, Hart Video entered into an agreement to telecast it on two TV channels viz., ‘Channel 10’ and ‘CTVN+’. Two associations, namely Eastern India Motion Picture Association (‘EIMPA’) and Committee of Artists and Technicians of West Bengal Film and Television Investors (‘Coordination Committee’) (together used as ‘associations’ or “OP”), opposed such screening of an originally Hindi Serial to one that was dubbed in Bangla. According to them, serials produced and shown in TV Channels after dubbing them would adversely affect the artists and technicians working in West Bengal. Through written letters, both these associations threatened non-cooperation to the two TV channels if they telecast the serial Mahabharata. Under a lot of pressure, both TV Channels decided to call off the telecasting. Thereafter, Hart Video filed a complaint with the CCI alleging collusion amongst the associations which had lead to the foreclosure in telecasting the serial.

Proceedings before the CCI:

On reference, the Competition Commission of India (“the CCI”) formed a prima facie opinion that there exists an anti-competitive concern and accordingly directed the Director General (‘DG’) to investigate the claim. The DG focused on defining the relevant market as the market for ‘film and television industry of West Bengal’ and held that the acts of the Coordination Committee and EIMPA threatening non-cooperation in the telecast of such serial amounted to foreclosure of competition by hindering entry into the market and thus they were in violation of Section 3(3) (b) of the Act. The OP argued before the DG that the associations were not engaged in any economic function and that these associations were merely a forum for opposition and such right of opposition is a part of their fundamental right. The DG however found them liable and accordingly submitted such report to the CCI. The majority order of the CCI agreed with the findings of the DG and held that the collusion of the association has led to the TV channels not broadcasting the TV Serial and as a result violated Section 3(3)(b) of the Act. They also held that such associations did not fit into the definition of an ‘enterprise’ and accordingly could not be subject to claims of abuse of dominance. However, they were subjected to the provisions of Section 3 since that applies to associations of enterprises. In a dissenting note, one CCI member disagreed with the majority. First, the learned member held that the DG did not rightly identify the relevant market as it should have been restricted to ‘broadcast of dubbed TV Serials in West Bengal’ and not ‘the Film and TV Industry of West Bengal’. The learned member opined that the association members were not representing the interests of broadcast of TV serials and they acted only for the interests of the distribution of films and in the absence of any nexus thus there was no question of any violation of Section 3. Secondly, the member described the actions of such associations as acting similar to a ‘trade union’ and not an economic pressure and thus outside the scope of the Act. The member further upheld the rights of such associations to engage in dharna, strikes, etc. as it was their fundamental right to do so. Since the activities of the association were not a part of the same ‘relevant market’, there was no question of any anti-competitive activities of the associations.

COMPAT decision:

The Coordination Committee appealed to the Competition Appellate Tribunal (‘COMPAT’) against the majority order of the CCI. The COMPAT affirmed the opinion of the dissenting member and disagreed with the findings of the majority. It agreed with a narrower definition of relevant market as defined by the dissenting member. Second, it held that the activities of the Coordination Committee were as a protest against that specific situation and since they did not act in that relevant market of ‘telecasting of dubbed serial on television in the State of West Bengal’, they could not be scrutinized under Section 3 and its activities were beyond the scope of the Act. As a result, the COMPAT allowed the appeal. Thereafter, the CCI appealed the COMPAT order to the SC.

Supreme Court’s ruling:

A major argument put forth by the CCI before the SC was that the relevant market in question should be broader (as defined by the CCI and DG) to include the film and television industry as the intended effect of such boycott was not just restricted to the telecasting of dubbed serial on TV in West Bengal. The SC identified two issues for determination: i. What is the exact relevant market for the purposes of inquiry into the impugned activity of the Coordinated Committee? and ii. Whether the action and conduct of the Coordination Committee is covered by the provisions of Section 3 of the Act?

Interestingly, the Supreme Court held that the word ‘market’ in Section 3 referred to ‘relevant market’ and accordingly sought to delineate the relevant market according to the provisions of the Act. The Court held that the COMPAT erred in taking a myopic view of the market since the intended effect of such boycott extended to the entire Film and TV Industry of West Bengal. Thus, the SC defined the relevant market as that of the whole Film and TV Industry of West Bengal.

On the issue of the term ‘enterprise’ and ‘person’, the SC held that there was a broad interpretation intended by the legislature as evidenced by the inclusive definition and the scheme of the Act. Likewise, a broad interpretation was also to be accorded to the term ‘agreement’. The SC looked at the functionality of these associations acting in the economic interest of its members and accordingly held such association to be enterprises.  Thus, it held that the Coordination Committee by itself may not have economic functions but since it was acting as an association of the members engaged in the production, distribution and exhibition of films, they are within the rigours of the Act. The SC held that the acts of the associations in hindering the release of the TV serial were anticompetitive. Quoting the SC:

“42) When the lenses of the reasoning process are duly adjusted with their focus on their picture, the picture gets sharpened and haziness disappears. One can clearly view that prohibition on the exhibition of dubbed serial on the television prevented the competing parties in pursuing their commercial activities. Thus, the CCI rightly observed that the protection in the name of the language goes against the interest of the competition, depriving the consumers of exercising their choice.” 

As a result, the appeal of CCI was allowed and the acts of the association were held to be in violation of Section 3(3) (b) of the Act.

Analysis of the ruling:

The above ruling is the first interpretation of the substantive provisions of the Act by the Supreme Court. As a result, its interpretation and procedure adopted will create a binding precedent to be adhered by the DG, CCI and the COMPAT. Thus, a detailed scrutiny of the findings of the SC is important.

As to the broad interpretation of ‘enterprise’, ‘persons’ and ‘association of persons’, the author opines that the substance over form test was very necessary and relevant. Since the statute in question is a welfare legislation and the definition itself is an inclusive one, a broad interpretation was, it is respectfully submitted, the correct approach as taken by the Hon’ble Supreme Court. Following the COMPAT interpretation in defining the activities of the associations as non-economic ones and in the capacity such as a trade union would have created a narrower precedent not in consonance with the intent and scheme of the Act.

A major concern, however, in the judgement of the Hon’ble Court is the discussion and reliance of the term ‘relevant market’. At all stages, the CCI, the COMPAT and the SC, there was a discussion on how broad/narrow the relevant market was. The SC went on further and held that the term ‘market’ in Section 3 of the Act has reference to the term ‘relevant market’ and then accordingly analysed the market from the threshold requirements of relevant product market and relevant geographic market. In fact, the SC further held that “the first and foremost aspect that needs determination is: What is the relevant market in which competition is effected”. The author respectfully submits that this approach taken by the SC of equating ‘market’ in Section 3 to ‘relevant market’ in Section 2(r) of the Act is unwarranted in the scheme of the law. Firstly, the term market is used in the context of horizontal and vertical agreements in Sections 3(3) and 3(4) respectively. On the other hand, the term relevant market is used in the context of abuse of dominance (Section 4) and merger review (Section 29) so as to assess dominance in a specific market for further analysis. Practically, it means that the CCI does not have to necessarily define the ‘relevant market’ for an investigation under sections 3(3) or 3(4) of the Act. This is particularly important for horizontal agreements since they are presumed to cause an appreciable adverse effect on competition and accordingly the CCI does not have to define a relevant market, assess the effect of collusion in the relevant market so defined and thereafter find enterprises liable. All that is required is for it to be satisfied that there existed a horizontal agreement which falls within any of the agreements as defined under Section 3(3).

Had the legislature intended to have a comprehensive definition of relevant market for investigating anti-competitive agreements, it would have specifically used the term ‘relevant market’ instead of the generic word ‘market’. Clearly, it is submitted, the legislature intended a different interpretation for these two terms depending on the context in which they are used. The effect of such ruling will place a burden on the CCI to delineate the relevant market even in cases of analysis of the anti-competitiveness of horizontal agreements. This will create two problems. First, it will go against the interpretation of the general term ‘market’ as used in the context of anti-competitive agreements and the term ‘relevant market’ used in the context of dominance and merger review. Secondly, this would require the CCI to define a comprehensive relevant market definition in all cases of investigation under Section 3. This would cause unnecessary burden on the CCI, especially where the words of the statute do not intend so. The CCI has held in the Cement Cartel Case[1] that determination of relevant market is not a pre-requisite to analysis and that such distinction between ‘market’ and ‘relevant market’ was intentional by the legislature. In addition, having such a pre-requisite could possibly put a question mark on all cartel investigations done so far, since the CCI has not defined/analysed the relevant market in these cases.

From now on, whenever the CCI investigates anti-competitive agreements, it would have to necessarily determine the relevant market. If they do not do so, the matter would be appealed to the COMPAT which would be bound by the holding of the SC.

The Supreme Court thus has, it is respectfully submitted, erroneously interpreted the term ‘market’ to mean ‘relevant market’ in context of these provisions. This holding of the requirement of defining a relevant market can cause significant delays in the working of the CCI. This requirement of determining relevant market could also intentionally or otherwise result in causing lengthy delays and possibly slow down the already slow enforcement by the CCI. Needless to emphasise, since it is a ruling of the SC, it will have to be adhered by the CCI and COMPAT.

[1] In re: Alleged Cartelization by Cement Manufacturers v. Shree Cement Limited and Others, RTPE No. 52 of 2006.


Lagna said...

Section 3(4) of the Competition Act, 2002 deals with vertical restraints. Vertical restraints can only be imposed by an enterprise having 'market power', and market power cannot be gauged without defining the relevant market. So to say that Section 3(4) does not require delineation of a relevant market, would not be right.

Varun Thakur said...

@Lagna: I do agree to your statement. In fact, I have specifically stated that this will create a larger problem for horizontal agreements rather than vertical agreements. In addition, vertical agreements do not pre-suppose anti-competitive effect and the same has to be proved before the CCI to it's satisfaction. For example, a tying agreement may only be anti-competitive if the enterprises in question together hold substantial market power. Neverthless, neither the act nor the interpretation of the Act requires the delineation of a relevant market even for vertical agreements. Practically, such cases involve a contention of 3(4) violation along with Section 4 violation.Thus, a relevant market may in any case be defined.

Varun Thakur