CCI’s (in)consistent view

Section 3 of the Competition Act, 2002, prohibits and declares void an agreement which causes or is likely to cause an appreciable adverse effect on competition in India (i.e. an anti-competitive agreement). The sine qua non for a violation under section 3 is the existence of an “agreement” between two or more enterprises.

In terms of the internationally accepted doctrine of single economic entity, entities in the common control of an ultimate parent, i.e. group companies, are regarded as a single enterprise; and an agreement or understanding among group entities is not prohibited under competition law. The Competition Commission of India (CCI) and the Competition Appellate Tribunal (COMPAT) have recognized the doctrine of single economic entity in their precedents, however in a recent case the CCI appears to have departed from its earlier position.

Previous rulings

In Case No. 52/2012 (decided in November 2012), the CCI dealt with the issue of whether an indirect subsidiary (based on shareholding) was part of the same group and could be classified as a single economic entity.

In that case, the CCI stated that, firstly, to establish a contravention under section 3, an agreement between two or more enterprises must be proved. Secondly, enterprises forming part of the same “group” will be considered as a single economic entity for the purpose of the Competition Act (i.e. not two enterprises but one). “Group” under the Competition Act means two or more enterprises which, directly or indirectly, are in a position to: (i) exercise 26% or more of the voting rights in the other enterprise (increased to 50% from 4 March 2011 for five years); or (ii) appoint more than 50% of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise. Thirdly, an (internal) agreement between two group enterprises will not be considered as an “agreement” for the purpose of section 3 of the Competition Act.

Based on the above, the CCI held that an indirect subsidiary (by virtue of shareholding) was part of the same group, and an agreement between enterprises within the same group to either determine prices or exclusive supply could not be considered as an anti-competitive agreement under section 3 of the Competition Act.

Kunal Chandra is a partner at Trilegal and Gautam Chawla is a senior associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.