Is BCCI an 'enterprise', did it abuse its regulatory powers?
Apurv Sardeshmukh (Partner, Legasis Partners)
The Competition Commission of India (“CCI”) vide its order in ‘Surinder Singh Barmi Vs. The Board of Control for Cricket in India’ has imposed a penalty of Rs. 52.24 Crores on the Board of Control for Cricket in India (“BCCI”) for abuse of dominant position under section 4(1) read with Section 4(2) (c) of the Competition Act, 2002 (“Act”) for imposing restrictions denying access to the market for organization of Professional Domestic Cricket League/ Events. CCI has found BCCI in contravention of the provisions of the Act for its assurance to the broadcasters of Indian Premier League (“IPL”) that BCCI shall not organize, sanction, recognize, or support another professional domestic Indian T20 competition that is competitive to IPL, for a sustained period of ten years.
The Commission has held that the representation and warranty given by BCCI to IPL vide the IPL Media Rights Agreement amounts to denial of market access for organization of professional domestic cricket leagues/ events in India, in contravention of Section 4(1) read with Section 4(2)(c) of the Act.
Abuse of Dominant Position-Section 4 of the Act
Section 4 of the Act prohibits an enterprise or group from abusing its dominant position. It must be noted that the prohibition is on abuse of dominant position and not being in a dominating position. Section 4 of the Act also lays down what constitutes a dominant position and also provides on what will be considered as an abuse of dominant position.
Based on the reading of section 4, it is clear that restriction of abusing a dominant position is on a group or an enterprise. The Act defines an enterprise 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, 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, defense and space."
A plain reading of this definition indicates that for an entity to be classified as an enterprise for the purpose of this act, it needs to be engaged in the activities mentioned in the section like production, storage, supply, distribution acquisition etc or it needs engaged in the provision of services or in the business of acquiring, holding or underwriting of shares. Hence from a reading of this definition it can be said that the emphasis of the definition is more on the nature of the activity carried out by an entity. The definition does not seem to provide importance to the nature and purpose of an entity i.e. whether it is carried out for commercial, profit making or any other purpose.
The Act defines the term group as "two or more enterprises which, directly or indirectly, are in a position to exercise twenty-six per cent or more of the voting rights in the other enterprise; or appoint more than fifty percent of the members of the board of directors in the other enterprise, or control the management or affairs of the other enterprise."
For the BCCI to be hit by section 4 of the Act it would have to be considered within the ambit of the definition of enterprise or a group. Logically the BCCI cannot be considered as a group and hence it can assume that the CCI considered the BCCI to be an ‘enterprise’.
Whether the BCCI can be considered as an enterprise
The BCCI is a society registered under Tamil Nadu Societies Registration Act, 1975. Its primary objective are of controlling the game of cricket in India, promoting the game in India, framing the laws of cricket in India, selecting teams to represent India in Test Matches, ODIs and Twenty 20 matches played in India or abroad. During the course of investigation for the purpose of this matter, it was contended by the BCCI that it is a ‘not-for-profit’ society for the promotion of sport of cricket and its activities are outside the purview of the Act, especially Section 3 and 4. It was also further submitted by the BCCI that its commitments are neither driven by nor conditional upon commercial considerations. Strictly going by the main objectives of the BCCI and its contentions above, it can be argued and established that the BCCI cannot be considered as an enterprise for the purpose of the Act.
However the CCI cited the matter of Hemant Sharma vs Union Of India (WP(C) 5770/2011), in which the Delhi High Court had held that the All India Chess Federation, a similar entity which was a regulator and organizer of a sport in the country, was to be considered as an ‘enterprise’ within the meaning of the Act. The CCI further observed that "The activities of BCCI centre both on ‘custodian and ‘organiser’ role. In this broad based objective, BCCI is involved in the selection of Team India to represent India in international events, to work for development of cricket by arranging training camps etc., as well as organizing the game. These activities fall under the custodian function of BCCI, however, the aspect of ‘organization’ brings in activities contributing to the revenues of BCCI such as grant of media rights, sale of tickets etc. The activities of ‘organising events’ are definitely economic activities as there is revenue dimension to the organizational activities of BCCI. Thus, it is conclusive that all Sports Associations are to be regarded as an enterprise in so far as their entrepreneurial conduct is concerned and treated at par with other business establishments." The CCI thus concluded that since BCCI is engaged in revenue generating activities, it had to be considered an enterprise for the purpose of the Act.
It is submitted that the classification of BCCI as an ‘enterprise’ can be disputed based on the reading of the term under the Act. While the CCI has clearly laid down its reasons for concluding that the BCCI is an enterprise, it must be noted that the plain reading of the definition of the term ‘enterprise’ indicates that for an entity to be considered as an enterprise, it is required to be engaged in the activities specified under the definition of the term or engaged in 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. It is evident that the BCCI is not engaged in any of the above mentioned activities.
The CCI has stressed on the commercial nature of the activities of the BCCI. It has observed that since the BCCI conducts activities that contribute to its revenue, it can be classified as enterprise. However it seems to have disregarded that the definition of the term ‘enterprise’ focuses on the functional aspects of an entity. The definition in its present form does not take into account factors regarding revenue generation and commercial purpose of an entity. The CCI has relied on the fact that there is revenue/economic dimension to the entity in this case (BCCI) and on that basis concluded that it is an enterprise.
Abuse of dominant position
Once it was established by the CCI that the BCCI was an enterprise for the purpose of the Act, the next question before it was whether the BCCI was abusing its dominant position in its relevant market.
The explanation to section 4 provides that an entity is in a dominant position if it enjoys a position of strength which allows it to operate independently of competitive forces prevailing in the relevant market or affect its competitors or consumers or the relevant market in its favor. As also indicated by the CCI in its order, in order to asses a dominant position, it is first important to identify the exact relevant market. The Act defines relevant market as "the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets."
Hence the Act has given the discretion to the CCI to determine in each case what constitutes a relevant market. For the purpose of this case, the CCI, after considering various factors concluded that the relevant market was the Organization of Private Professional Cricket Leagues/Events in India. Also in view of the fact that the BCCI is the organizer and regulator of cricket in India and also that any private profession league requires prior approval of BCCI as per the International Cricket Council regulations, the CCI concluded that the BCCI was in a dominant position in the relevant market.
The CCI held that the most significant source of dominance is the regulatory powers of the BCCI. Further the CCI contended that since most of the infrastructure with respect to cricket was owned by the BCCI, they were in a position to dominate. Dominance also stemmed from the role of BCCI as an organizer of First Class/International Cricket events. Thus, owing to regulatory role, monopoly status, control over infrastructure, control over players, ability to control entry of other leagues, historical evidences, BCCI was concluded to be in a dominant position in the market for organizing private professional league cricket events in India.
This is an interesting conclusion from the CCI. By the very nature of the functions that they perform, regulators need to be in a dominating position. It must be noted that the BCCI is the regulator in the country for the game of cricket. Some powers that they exercise like owning infrastructure, approvals of leagues, tournaments etc come with domain of being a regulator. In its order the CCI itself has admitted this by stating "The Commission takes cognizance of the pyramid structure and notes that monopoly of sports federations is a natural outcome of the structure". Also as per ICC regulations, any cricket match/tournament to be conducted in India requires the prior approval of the BCCI.
According to the CCI by explicitly agreeing not to sanction any competitive league during the currency of a media rights agreement that the BCCI had entered into, the BCCI has used its regulatory powers in restricting competition. This according to the CCI was violation of Section 4(2) (c) of the Act. It can however be argued that the BCCI refused to recognize a competing event since that can lead to the erosion of the authority of the BCCI as a regulator and promoter of the game of cricket in India. It can be argued that this is not an abuse of its position as a regulator but a step taken to protect the interest of the game of cricket.
Ramesh Sharma on December 8 2017