The Coal Mines (Nationalization) Act of 1973 grants exclusive control over the production and distribution of coal to the Central Government. Consequently, the Central Government has vested Coal India Limited (CIL) and its subsidiary companies with monopolistic power in India’s coal production and distribution. This dominant or monopolistic position of CIL has been established through government policy and the transfer of ownership of private mines to CIL. This position of CIL has been affirmed by the Competition Commission of India (CCI) and the Supreme Court of India.
The Competition Commission of India (CCI) extensively examined this issue in Case Nos. 03, 11 & 59 of 2012. CIL holds an absolute monopoly in the production and distribution of both coking and non-coking coal. The barriers to entry imposed by the Government of India’s policy measures and the Coal Mines (Nationalization) Act of 1973 eliminate the possibility of supply-side substitution.
According to the explanation (a) to Section 4 of the Competition Act, “dominant position” refers to a position of strength enjoyed by an enterprise in the relevant Indian market, which allows it to operate independently of competitive forces or influence its competitors, consumers, or the market in its favor. Despite CIL accounting for only 6.5% of global coal production in 2011, it is argued that CIL’s market share of approximately 7% does not render it dominant or capable of influencing its customers or competitors.
However, the Chairman of CIL stated in the Annual Report 2011-12 that CIL is the largest coal producing company globally and the largest corporate employer in India. This statement contradicts the aforementioned arguments.
CIL’s claim that a substantial part of power producers’ demand is fulfilled by “other sources,” it was asserted that this assertion is inaccurate because power producers in India rely on CIL and its subsidiaries for around 70% of their coal needs. The term “other sources” used by CIL and its subsidiaries mainly refers to coal imports, which cannot serve as replacements for domestic coal due to several crucial factors.
Although the Standing Linkage Committee (Long Term) [SLC (LT)], which includes representatives from the Ministry of Coal, Central Electricity Authority (CEA), and the Ministry of Power, plays a significant role in determining linkages under the New Coal Distribution Policy 2007 (NCDP), CIL unilaterally determines the terms and conditions of coal supply through Fuel Supply Agreements (FSAs) based on its commercial interests.
While the NCDP indeed establishes the guidelines for supplying and pricing coal to regulated sectors such as power, fertilizers, railways, and defense, it does not explicitly specify or control the terms and conditions of supply in a way that restricts the independence of CIL. CIL retains the freedom to determine the coal quantity, prices, and terms based on its commercial interests, as long as it adheres to the framework outlined in the NCDP and the prevailing market conditions.
The Memorandum of Association (MOA) of CIL defines its role as acting as an entrepreneur on behalf of the state in the coal industry. It is suggested that CIL’s supply of coal to thermal power utilities under the FSAs is driven by commercial interests, as reflected in the terms of the FSAs drafted by CIL.
Furthermore, the Ministry of Coal communicated to CIL, through a Presidential Directive dated 04.04.2012, that it was free to include suitable conditions in the FSAs to protect its commercial interests. This further underscores CIL’s dominance in the relevant market, despite the unfair provisions in the FSAs.
Although CIL and its subsidiaries are registered under the Companies Act, 1956, and have their respective Boards of Directors, all policy decisions are made by the CIL Board, and the coal subsidiaries implement these decisions. CIL’s website also states that the coal companies are wholly owned subsidiaries of CIL.
In summary, due to the provisions of the Coal Mines (Nationalization) Act of 1973, the Central Government holds control over coal production and distribution. Consequently, CIL and its subsidiary companies possess monopolistic power in the Indian coal market. The dominant position of CIL is established through government policy and the creation of a public sector undertaking, with private mine ownership transferred to CIL. The Supreme Court of India has also recognized the coal companies as monopolies in the case of Ashoka Smokeless Coal India (P) Ltd. v. Union of India. CIL appealed the CCI’s decision to the Competition Appellate Tribunal (COMPAT), which upheld the CCI’s.
INVOLVEMENT OF CCI
With regards to the second part of the topic the Supreme Court of India has settled the law regarding the involvement of the CCI on June 15, 2023. Through a December 9, 2016 order, the COMPAT upheld a CCI order against Coal India Limited and Western Coalfields Limited for engaging in anti-competitive behavior and holding a dominant position in the non-coking coal market for thermal producers, thus violating the Competition Act. The COMPAT dismissed Coal India Limited’s appeal and affirmed the CCI’s order, which found the company guilty of abuse of dominance. Coal India Limited was directed to cease such anti-competitive conduct.
It was based on the complaint by Sai Wardha Power Limited allegeing that CIL had abused its dominant position by deliberately delaying the execution of fuel sales agreements. Additionally, the complainant claimed that CIL had coerced them into entering into an unfair and one-sided anti-competitive fuel sale agreement, leaving them with no bargaining power or ability to negotiate terms set by CIL. Furthermore, it was alleged that the provisions concerning coal quality, including the sampling and testing processes, were unjust and discriminatory.
CIL then appealed the COMPAT’s final order to the Supreme Court of India, challenging the applicability of the Competition Act to the company. The Supreme Court in Coal India Limited v. CCI (SC), CIVIL APPEAL NO. 2845 of 2017, June 15, 2023 categorically held that the Competition Act does apply to Coal India Limited, providing the rationale for its decision.
The Supreme Court before discussing the Competition Act, examined the repealed law it replaced, the Monopolies and Restrictive Trade Practices (MRTP) Act of 1969. The MRTP Act clearly stated that it did not apply to government-owned or controlled undertakings, unless expressly notified otherwise.
The court reiterated that a monopoly was indeed created by the Coal Mines (Nationalization) Act of 1973. The mines, subject to the Act, became vested in the Central Government. Coal India Limited is a government company established under Section 5 of the Nationalisation Act, which aimed to ensure the rational, coordinated, and scientific development and utilization of coal resources in line with the country’s growing requirements. According to Section 11 of the Nationalisation Act, the general superintendence, direction, control, and management of a coal mine vested in the government company specified by the Central Government under Section 5, which is Coal India Limited. While the court acknowledged the significant powers held by Coal India Limited, it emphasized that the company cannot seek immunity from the laws that otherwise bind them.
Under the Competition Act, an “enterprise” is defined as a person or a government department. The word ‘person’ has been defined in Section 2(l) as including a company, a corporation established by or under any Central, State or Provincial or a Government Company, as defined in Section 617 of the Companies Act, 1956. Coal India Limited is a government company under Section 617 of the Companies Act, 1956, and thus considered a person under Section 2(h) of the Competition Act. There is no doubt that Coal India Limited, as an enterprise, is engaged in activities related to the production, storage, supply, distribution, and control of goods as defined in the Act. Additionally, it may also fall within the ambit of Section 2(h) concerning the services it provides. The only activities excluded from the definition of “enterprise” are those related to the sovereign functions of the government, such as atomic energy, currency, defense, and space. Coal India Limited is not a government department but a government company, and engaging in mining business cannot be considered a sovereign function.
Section 19(4)(g) of the Competition Act explicitly includes monopolies or dominant positions, whether created by statute or by virtue of being a government company or a public sector undertaking, as relevant factors for determining the existence of dominance. This indicates the intention of Parliament to bring state monopolies, government companies, and public sector units within the purview of the Act.
The constitutional immunity provided by Articles 31B and 31C is meant to protect laws covered by them from being challenged on the grounds of violating fundamental rights. However, even when the state and its instrumentalities are obliged to follow Directive Principles, they cannot act unfairly or discriminatorily.
Another principle of statutory interpretation is that if two special enactments contain provisions that override other provisions, the court must consider the purpose, policy, and language of the relevant provisions. If Parliament intended for state monopolies, even in distribution matters, to come under the scope of the new economic regime, the court cannot find fault in subjecting state monopolies to the Act, as it serves the common good. A state monopoly operated through a government company, even to achieve the goals of Directive Principles, falls within the purview of the Competition Act.
The court concluded that the actions of CIL can be challenged through judicial review, and the company can point to other forums, such as the Controller of Coal, for seeking redress against its actions. However, this does not deny access to parties complaining of violations of applicable laws. It should be noted that the CCI also has the power to take action suo motu, demonstrating the broad authority granted under the Act.
If CIL wishes to be exempted from the Act, Section 54 provides a lawful way. Section 54 of the Act grants the Central Government the authority to exempt the Act or any of its provisions for a specified period through a Notification. Such exemptions can be granted on grounds of national security or public interest. As long as there is no exemption, the Competition Act applies to Coal India Limited.
Ultimately, the convergence of legal frameworks, the establishment of a public-sector endeavor, and the involvement of the CCI in addressing antitrust practices unequivocally demonstrate CIL’s prevailing status in the Indian coal industry.
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