Important Definitions under Section 2

The definitions in Section 2 are not preliminary matter to be skimmed. Four of them decide most cases: agreement, because it is defined so widely that an unwritten understanding is caught; enterprise, because it determines whom the Act binds; relevant market, because every question of effect is asked within it; and control, because it decides whether a transaction is a combination requiring notification. The amendment of 2023 changed two of these, the definition of turnover and the definition of control, and both changes matter in practice.

1. Agreement: Section 2(b)

Three features of the definition should be noted. It is inclusive, so the ordinary meaning of agreement survives alongside the extensions. It covers an arrangement, an understanding and an action in concert, which means that a meeting of minds is enough and no offer, acceptance or consideration need be shown. And it expressly dispenses with writing and with legal enforceability, which is essential in cartel cases, since a cartel is by its nature unrecorded and unenforceable. The practical consequence is that proof proceeds by circumstantial evidence: parallel pricing, opportunities to meet, simultaneous and identical bids, and conduct that is against the individual commercial interest of each participant unless the others behave in the same way.

2. Cartel: Section 2(c)

Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or trade in, goods or provision of services. Two points follow. The definition covers an attempt to control, so an unsuccessful cartel is still a cartel. And it is the definition that Section 46 uses for leniency, so an applicant seeking a lesser penalty must be a member of a cartel as so defined.

3. Enterprise and Person: Sections 2(h) and 2(l)

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 or at a different place. The exclusion is narrow and important: the definition 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.

Person in Section 2(l) is wider still and includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals whether incorporated or not, in India or outside India, a corporation established by or under any Central, State or Provincial Act, a body corporate incorporated by or under the laws of a country outside India, a cooperative society, a local authority and every artificial juridical person. The inclusion of bodies incorporated outside India is what makes Section 32 workable.

4. Goods, Service, Price, Trade and Consumer

• Goods, Section 2(i). Goods as defined in the Sale of Goods Act, 1930, and including products manufactured, processed or mined, debentures, shares and stocks after allotment, and goods imported into India.
• Service, Section 2(u). Service of any description made available to potential users, with an inclusive list covering banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising.
• Price, Section 2(o). In relation to the sale of goods or the performance of services, every valuable consideration whether direct or indirect or deferred, and includes any consideration which in effect relates to the sale of goods or performance of services although ostensibly relating to another matter. This is the provision that catches a discount, a rebate or a bundled benefit used to disguise a price agreement.
• Trade, Section 2(x). Any trade, business, industry, profession or occupation relating to the production, supply, distribution, storage or control of goods, and includes the provision of any services. The inclusion of profession is what brings professional bodies within the Act.
• Consumer, Section 2(f). A person who buys goods or hires or avails services for consideration, whether for personal use or for resale or for any commercial purpose. The words for any commercial purpose are the point of difference from the consumer protection legislation, which excludes commercial purchase; in competition law a business buyer is a consumer.

5. Relevant Market: Sections 2(r), 2(s) and 2(t)

Relevant market in Section 2(r) means 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 relevant geographic market in Section 2(s) comprises the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighbouring areas. The relevant product market in Section 2(t) comprises all those products or services which are regarded as interchangeable or substitutable by the consumer by reason of characteristics of the products or services, their prices and intended use; the amendment of 2023 added the supplier's perspective, so that products whose production or supply are regarded as interchangeable or substitutable by the supplier are also included.

The factors by which these markets are determined are in Section 19, not in Section 2. Section 19(6) lists the factors for the geographic market, including regulatory trade barriers, local specification requirements, national procurement policies, adequate distribution facilities, transport costs, language, consumer preferences and the need for secure or regular supplies. Section 19(7) lists the factors for the product market, including physical characteristics or end use, price, consumer preferences, exclusion of in-house production, existence of specialised producers and classification of industrial products. Section 19(5) requires the Commission to have due regard to both in determining the relevant market.

6. Turnover: Section 2(y)

Before the amendment of 2023, turnover was defined by reference to the value of sale of goods or services, and the question of which turnover, total or relevant, was decided in Excel Crop Care Ltd. v. Competition Commission of India, (2017) 8 SCC 47, where the Supreme Court held that in the case of a multi-product enterprise the penalty must be computed on the turnover of the product to which the contravention relates. The amendment substituted a definition under which turnover means global turnover derived from all products and services by a person or an enterprise. Two consequences follow: the statutory ceiling is now larger, and the proportionality that Excel Crop Care insisted on is preserved not by the definition but by the penalty guidelines the Commission has issued, which begin from the turnover of the products or services to which the contravention relates and then adjust for aggravating and mitigating factors.

7. Acquisition, Control and Group

These three expressions decide the reach of the combination provisions, and they are found in Section 2(a) and in the Explanation to Section 5.

1. Acquisition, Section 2(a). Directly or indirectly acquiring or agreeing to acquire shares, voting rights or assets of any enterprise, or control over management or control over assets of any enterprise. The definition is wide enough to cover an acquisition through a chain of intermediate holdings, which is the meaning of the word indirectly.
2. Control, before 2023. The Explanation to Section 5 defined control as including controlling the affairs or management by one or more enterprises, either jointly or singly, over another enterprise or group. The Commission nevertheless developed the concept of material influence as the lowest level of control, holding in its decisions on minority acquisitions that rights such as board representation, veto over the business plan or access to commercially sensitive information may confer control even without a majority shareholding.
3. Control, after 2023. The amendment wrote that jurisprudence into the statute: control now means the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions of an enterprise. The standard is therefore lower than decisive influence and considerably lower than majority ownership, and more minority acquisitions require notification than before.
4. Group. The Explanation to Section 5 defines a 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 to appoint more than fifty per cent of the members of the board of directors, or to control the management or affairs of the other enterprise. The threshold of twenty-six per cent has been raised to fifty per cent for the purposes of the combination provisions by notification, and that exemption should be checked in its current form, since it has been issued for limited periods and renewed.

7.1 Sole, joint and negative control

• Sole control exists where one enterprise alone can determine the strategic commercial decisions of another, whether through a majority of voting rights, the power to appoint the board, or contractual arrangements producing the same result.
• Joint control exists where two or more enterprises must agree before a strategic decision can be taken, so that each can block. It commonly arises from an equal shareholding, from a shareholders agreement requiring the consent of both, or from a deadlock provision.
• Negative control, sometimes called veto control, exists where a shareholder cannot determine what the enterprise does but can prevent it from doing certain things, through veto rights over the business plan, the budget, the appointment of senior management or material investment. Whether a veto confers control depends on what it covers: a veto protecting an investor's financial interest, such as over amendment of the articles or the issue of further shares, is ordinarily a protective right and not control; a veto over the business plan or the appointment of key management goes to strategic commercial decisions and is.
• Material influence is the lowest rung and now the statutory standard. It is established by an accumulation of factors: shareholding, special rights, board representation, structural or financial arrangements, and rights of access to sensitive information.

8. Shares, Voting Rights, Statutory Authority and the Parties to a Combination

• Shares, Section 2(v). Shares in the share capital of a company carrying voting rights, and includes any security which entitles the holder to receive shares with voting rights, but not preference shares. The exclusion of preference shares matters because an instrument carrying no vote does not by itself confer control.
• Voting rights. Not separately defined, and read in its ordinary sense; what matters under Sections 5 and 6 is the ability to exercise the vote, whether directly or through another.
• Statutory authority, Section 2(w). Any authority, board, corporation, council, institute, university or any other body corporate established by or under any Central, State or Provincial Act for the purposes of regulating the production or supply of goods or the provision of services or markets therefor. This is the definition that Sections 21 and 21A use for references between the Commission and a sectoral regulator.
• Party to a combination. The expression is used in Sections 6, 20, 29 and 31 and covers the enterprises whose merger, amalgamation or acquisition constitutes the combination: in an acquisition, the acquirer and the target; in a merger or amalgamation, each of the merging enterprises. The obligation to notify under Section 6(2) falls on the acquirer in an acquisition and on the parties jointly in a merger or amalgamation.

9. Related Topics and Provisions