l

DAMODARAM SANJIVAYYA

NATIONAL LAW UNIVERSITY

SABBAVARAM, VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE: APPLICATION OF SINGLE ECONOMIC ENTITY DOCTRINE

SUBJECT: COMPETITION LAW

NAME OF THE FACULTY: VARSHITA MANGAMOORI

Name of the Candidate: G SUNAND

Roll No: 2017031

Semester: 8th
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to teacher Varshita Mangamoori who
gave me the golden opportunity to do project on APPLICATION OF SINGLE ECONOMIC
ENTITY DOCTRINE which also helped me in doing a lot of research and I came to know
about so many new things I am really thankful to Her.
 TABLE OF CONTENTS

INTRODUCTION

DEFINITION OF ENTERPRISE

GOVERNMENT ENTERPRISES UNDER COMPETITION LAW

COMPETITION LAW POLICY BEHIND TREATMENT OF PUBLIC SECTOR

APPLICATION OF SINGLE ECONOMIC ENTITY DOCTRINE IN INDIA

CONCLUSION
INTRODUCTION

The core principle or goal of competition laws around the world is to protect customers and
discourage activities that affect regular market practises between independent parties fighting
for a greater piece of the pie. The Single Economic Doctrine states that two or more
businesses should be considered a single entity for the purposes of competition law,
regardless of their legal status. The European Commission enumerated the definition of the
Single Economic Theory in the 1960s, and it is now recognised in India as well. The main
reason for the Doctrine's evolution is that a subsidiary does not make decisions of its own,
and when the parent company is involved in a particular business, it is normal for them to
make decisions together; in fact, it is the parent company that makes the decision, and the
subsidiary follows; therefore, when they all agree, they should not be treated differently. On
09.12.2016, In the case of Public Insurers, the Competition Appellate Tribunal [CAT]
released its decision. The four insurance firms (National Insurance, New India Assurance,
Oriental Insurance, and United India Insurance) were accused of manipulating bids in
response to tenders issued by the Kerala government for choosing an insurance service
provider for the Rashtriya SwasthyaBima Yojana. The insurance companies argued before
the Competition Commission of India [“CCI”) that since they were incorporated under the
General Insurance Companies Act, 2002, which placed them under the supervision and
direction of the Department of Financial Services [“DFS”), all four companies, along with the
DFS, formed a Single Economic Entity and hence could not have cartelized. The application
was not accepted. The CCI decided that the four insurance firms cartelized and rigged the
procurement process, and placed a penalty of Rs. 671 crores on them. An appeal to the CAT
was favoured by the insurance providers. They revised their submissions before the CAT. By
arguing that, as in other countries, the Competition Act of 2002 contains a concept of
‘enterprise,' and that if it can be shown that the four entities, along with DFS, form one
enterprise as defined, the doctrine of Single Economic Entity [“SEE”] does not apply because
an enterprise cannot cartelize with itself. The appellants' attorneys, Krishnan Venugopal and
Ramji Srinivasan, argued that the Indian constitution, by defining the term "enterprise,"
conceptualises a wider meaning than the SEE doctrine as applied in American and European
courts. As a consequence, if the concept of "enterprise" is met, the control and path test
cannot be used to assess if the organisations constitute a single SEE. Despite the fact that this
was the insurance firms' key claim, which the attorneys pleaded for three days, the CAT only
dealt with the issue slightly in its final order, ignoring the submissions. As a result, the
purpose of this paper is to examine the veracity of the claim that the addition of the concept
of business eliminates the need to prove the existence of a single economic organisation.
There are four sections of the document. The first section delves into the meaning of the term
"enterprise." The appellants' lawyers had strongly relied on the drafting history of both the
Competition Act and its ancestor, the Monopolies and Restrictive Trade Practices Act of
1969 [“MRTP Act”), in their claims. In this section, I'll also look at how the MRTP Act treats
the terms "enterprise" and "undertaking.

DEFINITION OF ‘ENTERPRISE’

S. 2(h) provides for the definition of ‘enterprise’. “It reads as follows: S.2(h) enterprise
means 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, either directly or through one or more of its units or divisions or
subsidiaries, whether such unit or division or subsidiary is located at the same place where
the enterprise is located or at a different place or at different places, but does not include any
activity of the Government relatable to the sovereign functions of the Government including
all activities carried on by the departments of the Central Government dealing with atomic
energy, currency, defence and space.

Explanation:- For the purposes of this clause,

(a) activity includes profession or occupation;

(b) article includes a new article and service includes a new service;

(c) unit or division, in relation to an enterprise, includes

(i) a plant or factory established for the production, storage, supply, distribution, acquisition
or control of any article or goods;

(ii) any branch or office established for the provision of any service1”

1
Competition Act, §. 2(h) (2002).
The Indian law is unusual in that it defines what constitutes an enterprise. The highlighted
part of the description provision specifies that an enterprise operates directly or implicitly
through its constituent entities, branches, or subsidiaries. It goes beyond the definition of a
corporation having separate legal personality in company law and recognises that various
juristic individuals can act and behave as one in some circumstances. This narrows the scope
of the SEE doctrine, which forbids anti-trust legislation from being applicable to companies
that constitute a single undertaking. Antitrust policies, such as anticompetitive arrangements,
should be scrutinised only where they are entered into by independent undertakings. The SEE
theory, on the other hand, needs proof of the parent company's "decisive authority" over the
subsidiaries. While some courts compare "decisive authority" with "control of share capital,"
others want proof of direct power on crucial decisions or day-to-day operations. In the public
insurers case, the issue raised was whether the inclusion of definition of enterprise in the Act
excludes the application of SEE doctrine? That is, if the definition's conditions are met in a
specific situation, the path and control test is not needed. The SEE doctrine has been used by
Indian officials for a long time. The argument that the doctrine's implementation should be
barred by section 2(h) (definition of an enterprise) was presented for the first time in this
case. The argument that the doctrine's implementation should be barred by section 2(h)
(definition of an enterprise) was presented for the first time in this case.
The MRTP Act's original enacted text described the term "undertaking" as follows: S. 2 (v)
An undertaking is one that is involved in the manufacture, supply, delivery, or management
of goods of some sort or the providing of any kind of service. In 1973, soon after the passage
of the MRTP Act, a lawsuit reached the Supreme Court in which a public limited corporation
(appellant) was barred from controlling 100 percent of a privately held company. 2 The
appellant was simply floating the privately-owned company as its own subsidiary in order to
move one of its plants to the new private company to collect money. At the time, the MRTP
Act stipulated that the merger or amalgamation of one undertaking with another needed the
approval of the central government. According to S. 2(v), an undertaking should only be one
that is currently engaged in the manufacture, delivery, sale, or management of products at the
material date, not one that plans to be engaged in such action in the future, according to the
Supreme Court, quoting an earlier published decision. The Supreme Court further observed
that the appellant was merely purchasing ownership and controlling rights of the proposed
business by the 100 percent sale of shares, and that it did not equate to the acquisition of an
undertaking. The court ruled that passing 100 percent equity to the appellant corporation
2
Carew and Co. v. Union of India AIR 1975 SC 2260.
merely made the appellant a shareholder, not the owner of the undertaking, relying on
existing company law rules that the company has a distinct legal identity and that it is the
company, not its owners, who may legally own the company. The decision in Carew and Co.
v. Union of India necessitated a re-examination of the undertaking concept. 3 The definition
was revised and adopted in 1984, as follows: The following was added to the concept of
undertaking in 1984: S.2(v) “undertaking” means an enterprise that is, or has been, or is
proposed to be, engaged in the production, storage, supply, distribution, acquisition, or
control of articles or goods, or the provision of services of some kind, either directly or by
one or more of its units or divisions, whether such unit or division is located at the same
location as the undertaking or at a different location.

Explanation I: “In this clause, – (a) article includes a new article and service includes a new
service; (b) unit of division, in relation to an undertaking includes, –

(i) a plant or factory established for the production, storage, supply, distribution, acquisition
or control of any article or goods;

(ii) any branch or office established for the provision of any service.

Explanation II: For the purposes of this clause, a body corporate, which is, or has been,
engaged only in the business of acquiring holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate shall be deemed to be an
undertaking

Explanation III: For the removal of doubts, it is hereby declared that an investment company
shall be deemed, for the purposes of this Act, to be an undertaking.”

Competition Act 2002: S.2(h) “enterprise means 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, either directly or
through one or more of its units or divisions or subsidiaries, whether such unit or division or
subsidiary is located at the same place where the enterprise is located or at a different place or
at different places, but does not include any activity of the Government relatable to the

3
Report of High-Powered Expert Committee on Companies and MRTP Acts at ¶19.21 (Ministry of Law, Justice
& Company affairs, 1978)
sovereign functions of the Government including all activities carried on by the departments
of the Central Government dealing with atomic energy, currency, defence and space.

Explanation: - For the purposes of this clause –

(a) activity includes profession or occupation; (b) article includes a new article and service
includes a new service; (c)unit or division, in relation to an enterprise, includes (i) a plant or
factory established for the production, storage, supply, distribution, acquisition or control of
any article or goods; (ii) any branch or office established for the provision of any service.

The absence of the phrase or is proposed to be engaged in any activity in the latter is worthy
to take note of. While this phrase was part of Competition Bill 2001, it eventually got deleted
because its presence was found to be confusing.4 It could not be assumed that the drafters
were unaware about the reason for inclusion of this term. Nor could it be assumed that the
legislative intent is now to be understood as to exclude the firms which would go into
production in future. The ratio in Carew and Co. v. Union of India, could not be understood
to have been discarded. Plausibly, what could be inferred is, that the drafters and the
Parliament by not focusing upon the text of the definition, intended to prize the substance
over the form, ie, what the definition of enterprise implies is to be valued over what it
literally says.”

GOVERNMENT ENTERPRISES UNDER COMPETITION LAW

A secondary issue which arose in this case was whether a government department could have
a subsidiary? The Competition Act refers to the Companies Act, 1956 to define the term
subsidiary.5 The insurance counsels were asked this question by the bench, as it is recognised
that only a body corporate can have a subsidiary in the form of a corporation. The lawyers
were attempting to demonstrate how the government's Department of Financial Services,
along with four insurance companies (as its subsidiaries), formed a single entity. To
comprehend the principle of subsidiary, a foray into the jurisprudence of corporate law is
needed. Simultaneously, it is necessary to consult the Competition Act's drafting notes in
order to clarify how a government department was intended to be handled in relation to other
legal entities, especially for the purposes of S. 2 of the Act (h). The nature of reference made
by Competition Act to the Companies Act is also unclear. S. 2(z) states that terms and
phrases used but not specified in this Act but defined in the Companies Act, 1956 (1 of 1956)
4
Department-Related Parliamentary Standing Committee on Home Affairs, Ninety Third Report on the
Competition Bill, 2001 (2002)
5
Competition Act, §. 2(z) (2002).
shall have the same definitions given to them in that Act. The Companies Act of 1956 has
since been repealed by the Companies Act of 2013, but the Competition Act has not been
revised to reflect this. The bench asked the lawyer for public insurance providers if the
government agency should have its own subsidiary. This question was unanswered. The
unspecified terminology in the Competition Act was referred to the Companies Act of 1956.
But first, whether the Competition Act aims to regulate public-sector companies differently
than private-sector enterprises must be explained.

COMPETITION LAW POLICY BEHIND TREATMENT OF PUBLIC SECTOR

The Competition Bill's intended intent was laid out in the SVS Raghavan Committee Report
(2000). The Committee observed that in recent years, many historically public-sector-only
markets have been opened to private competition. In terms of these trends, it did not think it
was necessary to give public sector companies preferential treatment. It states that the
regulator does not differentiate between public and private businesses. This distinct care,
however, was abolished in 1991 as a result of a government order. The Madras High Court
observed in a case involving a breach of the MRTP Act's rules that However, by a
Notification G.S.R. No. 605(E) dated 27.09.1991, (published in the Gazette of India
Exceptional, Part II Section 3, Sub-section (1)), the public sector undertakings, whether
owned by the Government or by Government Companies (except those excluded), statutory
organisations, undertakings under the supervision of an authorised controller appointed under
any statute, and Co-operative Societies have been exempted. As a result, there is no longer
any difference of treatment between public sector undertakings (except those excluded) and
private sector firms, and public sector undertakings are subject to the same monopolistic,
discriminatory, and unjust trading practises as private sector corporations.6 During the early
years of the development of competition law policy, the Indian government expressed its
intention to put public-sector enterprises under the purview of competition law and to
regulate public-sector enterprises no differently than private-sector enterprises in a
correspondence to the WTO. The Indian government claimed in the same letter of
communication that the MRTP Act protected all trading activities of government-owned
companies (except those in strategic sectors such as defence). 7 It was unclear if government
agencies were subject to the same regulations as other types of organisations under the Act.
Will a federal entity be handled any differently than a government corporation? The fallacy
6
Tamil Nadu Co-op Mil Producers’ Federation v. Triad Trading Services (2010) 4 LW 289.
7
World Trade Organisation, “Working Group Interaction between Trade and Competition Policy”
Communication from India, (WT/WGTCP/W/110, Nov. 16, 1998).
of relying on the entity's legal type was shown by the MRTP Commission's example—We
may take up an illustration to adjudicate on this problem. Mahanagar Telecom Nigam
Limited, a government-owned corporation, provides telephone services to residents of Delhi.
Outside of Delhi's borders, the Department of Telecommunications provides a related service.
The Mahanagar Telephone Nigam Limited and the Department of Telecommunications also
have related services. The Mahanagar Telephone Nigam Limited is responsible for service
disruptions and any error in carrying out its obligations, but the Department of
Telecommunications is not. Dr. Aggarwal, lawyer for the petitioner, emphasised this
invidious prejudice and argued that there is little reason for having one person within the
Act's ambit while removing another as all are providing the same service. 8 This decision,
however, does not create a solid legal position. In this situation, it was said that the Uttar
Pradesh government's Department of Irrigation had engaged in restrictive trading practises,
which the MRTP Commission should investigate. The MRTP Commission found the
Department of Irrigation guilty of restrictive commercial policies after clearing its authority
over it and treating it on par with government corporations. The case was appealed to the
Supreme Court, and the MRTP Commission's decision was overturned when no restrictive
commercial activity was found.9 Even if one were to presume that the State was an
undertaking as specified in Section 2(V) and that the operation of arranging for the provision
of water is a service as defined under the Act, the Commission could not have considered that
there was any restrictive commercial practise in the absence of this crucial aspect of
competition.10 It did not address the question of authority in any way. The supreme court
tossed out the MRTP Commission's decision in the case by putting it aside, but it does not
seem to have thrown out the reasoning for treating government agencies as "undertakings" on
par with government and private-sector firms.

APPLYING THE SEE DOCTRINE IN INDIA

As evidenced in Public Insurers case, the competition law authorities interpret the direction
and control test required to establish that different corporate entities/persons constitute a
Single Economic Entity, entails finding answer to one question-whether the parent body
exercises such control over the subsidiary/unit/division that it directs the latter on how to
conduct itself in day-to-day operations in the market? Justice G.S. Singhvi in Public Insurers
case discarded the application of SEE doctrine, because of one of the finding being- In the
8
Gir Prasad v. Government of Uttar Pradesh [1996] 87 CompCas 623 [Para 59].
9
State of Uttar Pradesh v. Gir Prasad AIR 2004 SC 1756.
10
State of Uttar Pradesh v. Gir Prasad AIR 2004 SC 1756 [¶8]
present case, the Appellants are Board managed companies, with autonomy in operational
matters and cannot be aggregated with DFS, which is not engaged in any activities relating to
good or services.11 The path and control test, on the other hand, has not always been applied
consistently. COMPAT considered it easy to find the two entities belonging to the same
Single Economic Group merely by depending on their share-capital arrangement in another
situation where the plaintiff required the exclusive sales deal entered into between two
wholly-owned subsidiary companies of Volkswagen AG to be deemed anti-competitive. The
amount of power exerted by the parent company was not considered necessary or
significant.12 These two cases, which were resolved within two years of each other, show how
perplexed Indian competition law authorities are when it comes to knowing and applying the
SEE doctrine. Given the inconsistency and ambiguity surrounding the SEE doctrine, it
remains to be seen in which cases the SEE doctrine should be applied, what is meant by the
guidance and control test, and the degree to which the parent body should be noted as
affecting the subsidiary's decisions in order for them to be protected by the SEE doctrine.

CONCLUSION

The appellants in the public insurance case made a convincing argument by relying on the
literal law of interpretation, but Justice G.S. Singhvi did not do justice to the claims made in
his decision. Perhaps he didn't give the submission to replace the SEE doctrine provisions as
much thought because he was considering both the main issue and the less convincing
secondary issue (whether government departments should have subsidiaries?) at the same
time. True, the weight given to factual considerations in proving the SEE doctrine isn't
needed. Focusing on the commonality of object would be more fitting and in line with the
principle of understanding that through numerous incorporations, there can be substantive
economic solidarity.

In view of the public insurer’s situation, the secondary issue of whether the Act has to be
amended to recognise that government departments may have branches does not need to be
addressed. The requirements of the SEE doctrine should not be replaced entirely by the
requirements of enterprise description, since this would be tantamount to prioritising type
over content. Thanks to the commonality of object as well as the substantive facts provided
by the appellants, the factual framework of the public insurers case offers quite a compelling
submission that there was a single economic organisation. Nonetheless, the Hon'ble tribunal
11
Public Insurers case
12
Exclusive Motors Pvt. Ltd.v. Automobili Lamborghini SPA(2014) 121 CLA 230 (CAT), ¶ 8-11, 14
considered CCI's argument to be more convincing. Although the secondary issue does not
need to be revisited in light of this case, the other case, Gir Prasad v. State of Uttar Pradesh, 13,
whose status is still uncertain, should be considered; therefore, in light of that case, the need
for the amendment should be considered by the PSC; therefore, in light of that case, that the
non-inclusion of such amendment could lead to unequal treatment of private and public
enterprises, the PSC should consider the need for the amendment.

13
Ibid