Summary: The Supreme Court’s judgment in Coal India Ltd vs Competition Commission of India (2023) focuses on whether Coal India Ltd (CIL), a state-controlled monopoly, is subject to the Competition Act. The appellants argued that CIL, created by statute and operating under the Nationalization Act, should be exempt from the Competition Act. They emphasized CIL’s role in fulfilling public policy goals under Article 39(b) of the Constitution. However, the Court ruled that CIL is not a “government department” exercising sovereign functions, and as such, is subject to the Competition Act’s provisions. This landmark decision brings state monopolies like CIL under scrutiny for anti-competitive behavior. While the Court acknowledged the historical context of coal nationalization, it determined that such monopolies must adhere to competition laws to prevent market abuse and promote consumer welfare. The ruling aligns with broader efforts to enhance the competitiveness of public sector undertakings (PSUs) and is seen as an important step in regulating state-owned entities within market frameworks. Despite the judgment’s potential for fostering accountability, the analysis critiques certain legal reasoning, particularly regarding the Essential Commodities Act and its application in this context.
“Coal India Vs. Competition Commission of India: Case Analysis” contains clear and detailed information about Supreme Court’s decision connected with the application of the Competition Act to CIL. It makes an outline of historical background of Indian PSUs and their dominative control initially through Nationalization Act 1973. It suggests that this judgment is a useful application of Sections 4 and 6 to foster competition amongst the nationalised companies and for strengthening the CCI but the author finds fault with the rationale that the Supreme Court offered and especially with regard to the Essential Commodities Act.
The case centers on an appeal by CIL in relation to a decision by the Competition Appellate Tribunal under Section 26(1) of the Competition Act that CIL had engaged in abuse of a dominant market position. The appellants argued that since CIL is a state monopoly established by statute it should be outside the operation of the Competition Act, a feature consistent with its obligations under Article 39(b) of the Constitution. This paper presents both parties’ cases with the appellants focusing on their adherence to the Nationalization Act and Articles 31B and the respondents focusing on the rationale for applying competition laws to foster competition practices.
In the end, the Supreme Court disagreed on the contention that CIL cannot be covered under the Competition Act since being a government company it does not fall under the category of the government department exercising sovereign functions. This ruling enables more interpretational claws on state monopolies and is expected to improve competition in markets that were earlier in the dominates of PSUs.
Therefore, the judgment is considered as a move towards this goal of bringing accountability into government owned enterprises and thus more competition and hence more choices to the consumers in the future. The analysis re-emphasizes the importance of continued assessment of the manner in which PSUs engage with competitive structures.
Keywords: Coal India, Competition Commission of India, Nationalization Act, public sector units, Supreme Court ruling, monopolistic control.
State Monopolies Under Scrutiny: The Supreme Court’s Stand in Coal India Ltd v. CCI (2021) 6 SCC 1, decided on [15th June, 2023]: Case Analysis
Introduction:
Indian Public Sector Units (PSUs) have dominated much arenas dealing with competition law several years, and have been recognized as important in several fields for quite some time now. But as we shall discover in the next discussion on the Supreme Court decision in the case of Coal India Ltd vs Competition Commission of India (Coal India)[1], this is about to change significantly. This sets out the application of Competition Act to Coal India Ltd, a step ahead in being able to question the PSU’s monopolies. It undertakes the evaluation of judgments’ conclusions and impacts that may arise therefrom. For better clarity of thought processes, it has referred the reader briefly to a chronology of the historical setting within which Constitutional Schedule 9 and Nationalisation Act existed.
The author sums up that the judgment is to be appreciated for making nationalized companies open itself to competition and for enhancing the powers of another CCI. But the ratio decidendi of the judgment seems to be a little weak one, as some wrong postulations have been made herein, like mentioning the Essential Commodities Act, to which importance is going to be given subsequently in the article.
The Nationalization of Coal Mines Act of 1973 and the Ninth Schedule to the Constitution:
It had aimed at resource distribution, meant for people benefitting. The Act of Nationalisation of Coal Mines of 1973 resulted in ownership and control of resources to be passed into the hands of the state. The act which nationalised the coal mines bore the proud identity of the Coal Mines Nationalisation Act in the statutory schedule in 1973 as a 99th item in the 9th schedule of the Constitution. Afterwards, the Coal Nationalisation Act of 1973 has been repealed by the Repealing and Amending (Second) Act of 2017 by delisting it from the Schedule 9th of the Constitution. The same would suggest that there are some grounds to speak about the 1973 Coal Mines Nationalisation Act as unconstitutional on the bases of its excessive character.
Further, in IR Coelho vs, State of Tamil Nadu[2] before coming to the CIL vs CCI judgment the Supreme Court of India held that for the modification of any law which is enacted and added to the 9th Schedule of the Constitution of India, operation of the same has to be in consonance with the standard of fundamental structure of the Constitution of India.
Facts of the case:
The appellants had filed an appeal with the Supreme Court of India against the order of the Competition Appellate Tribunal that upheld the decision of the CCI that CIL was held liable for abusing its dominant position in the market. The Appellant submitted that it was not possible to impose the Competition Act, 2002[3] on CIL, which was a statutorily created monopoly and compelled by statute to achieve goals specified under the Directive Principles of State Policy (DPSP) incorporated under Article 39(b) of the Constitution of India[4].
The Hon’ble Two-Judge Bench Court directed the matter to a Three-Judge Bench after the above submission was made by raising an application for making additional grounds. Thereafter, the above judgment was pronounced.
Issue:
Is there scope for the application of Competition Act when it comes to the state monopolies, government companies, and PSUs?
Arguments in support of the Appellants:
The appellants contended that the coal mines over which the erstwhile appellants had operational control operated in compliance with the restraints in the Coal Mines (Nationalization) Act of 1973. (Hereinafter referred to as the ‘Nationalization Act.’) Consequently, it would be entirely outside the provisions of the abovementioned Competition Act.
The purpose for which the Nationalization Act was issued and the principle on which it was launched was to exercise monopolistic control over mines of coal and all coal mining to be under the direct control of the Central Government as well as its instrumentalities as in this case with regard to the Appellants. This is a rather rare form of monopoly.
The appellants urged that to achieve the aforementioned objectives, the Nationalization Act was covered by protection under Article 31B of the Indian Constitution[5]. In addition, it was placed in the Ninth Schedule of the Constitution which, as is well known, has immunized it from legal attack[6].
It was further observed that Section 28 of the Nationalization Act[7], a non-obstante clause, declares that the provisions of the Nationalization Act shall have effect notwithstanding anything inconsistent therewith contained in any other existing law[8]. Reliance was placed on Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited[9]. It is also submitted that, even assuming that the appellants work as a monopoly, they are under no disability to act differently than as the Presidential Directives provide, which imposed on them a binding duty. They are bound by the policy laid down by the Central Government.
The Appellants urge that the exclusion of coal from the Essential Commodities Act and, thereafter, the repeal of the Nationalization Act did not make the resource insignificant; rather, it was imperative for the distribution of resources for the advantage of all. In addition; reliance was placed on the judgment in Ashoka Smokeless Coal India (P) Ltd. & Ors. versus Union of India & Ors[10]., wherein the Hon’ble Supreme Court observed:
“Coal, being a scarce commodity, is vital for its purpose.” Although there is no fixed price for coal, which may exclude the existence of black marketing in a technical sense, this Court cannot condone black marketing in a broader context. No one should be allowed to exploit a scarce commodity. Despite the efforts taken by the Central Government, various coal companies have been ineffectual in their response to some individuals misusing a part of their coal allotments at its whole level to the prejudice of the general public. So this is imperative to establish some mechanisms to remove these loopholes[11].”
The Respondent’s Position on the Issue – Abuse of Dominant Position:
The Competition Act was initiated to be in tandem with the developmental progress and to neutralize practices that negatively affect market competition. There are several sectoral regulators catering to different purposes, one such being the Competition Commission of India (CCI) that works towards promoting fair competition. The Competition Act replaced the Monopolistic and Restrictive Trade Practices Act of 1969, which was enacted in consonance with the suggestions put forth by the High-Level Raghavan Committee. The primary object behind this act is the establishment of basic rights described under Article 19 (1) (g) of the Indian Constitution[12] for developing and continuing competition in the markets, upholding the freedom to trade in relation to all trading in India, and ensuring protection for the interests of consumers.
It had also looked into the State monopoly issue. A review of the Report shows that operating State monopolies was said to be against the national interest. It further argued that the state-run monopoly cannot be allowed to run unproductive. It had to better itself and become more competitive. The message was clear and straightforward: State monopolies needed to adapt and compete better in the market.
The respondent argued that having regard to the above aims of the Act, it was not of any moment that section 28 exists in the Nationalization Act and still, the Competition Act governs the present appellant. It was urged that three filter tests can be invoked for determining that an enterprise is abusing its dominant position. These include:
- Does the company or organization conform to the definition of ‘enterprise’ as specified in Section 2(h) of the Competition Act?
- Does it have a dominant position within the meaning of Section 19(4) of the said Act?
- Is it engaging in the abuse of its dominating position as contemplated under Section 4 of the Act?
The Respondent argued that the Appellants clearly meet the three-tier standard, hence rendering them liable for all fines imposed under the Competition Act.
The Supreme Court’s Ruling:
Coal is a precious and scarce commodity, which happens to be the essential raw material for the production of critical commodities. The Nationalization Act was passed in light of the significance and associated abuse of the commodity. However, the Hon’ble Court observed that the Appellant Body could not claim immunity on the aforesaid basis to avoid the relevant laws that would otherwise apply to it.
The Supreme Court decided that the first Appellant, Coal India Ltd, is a ‘government firm’ and not a ‘Government Department’. The exclusion from the definition of ‘business’ in Section 2 (h) of the Competition Act is the ‘Government Department’ exercising a sovereign function and not the ‘government corporation’[13]. The court also said that engaging in mining work cannot, on any imaginable construction, be considered a governmental activity. Coal India Ltd. undoubtedly falls into the category of an undertaking involved in non-sovereign activities. The Appellants have established themselves as a state monopoly and their monopoly status under Section 19 (4) (g) is also substantively equivalent to holding a dominant position[14].
The third test of determining whether an enterprise holds a dominant position is by ascertaining whether it has the “power to influence competitors, consumers, or the relevant market to its advantage.” Here, the legislature has identified specific acts or omissions within clauses (a) to (e) to amount to an abuse of a dominant position that falls under Section 4(2)[15]. This is the third phase. Surely, Sections 3 and 5 of the Nationalization Act had been enacted to assume the roles of the Central Government over the supervision, regulation, and administration of mining operations. The court held that the first appellant company, as well as its subsidiaries, had the exclusive right and privilege to supervise and administer the mines, and further, to have the right to do so.
It stated that the intention of Parliament to bring state-owned monopolies, government undertakings, and public sector units within the purview of the Act is clearly demonstrated by the specific inclusion of monopolies established by law and government-owned companies and public sector units in Section 19(4) (g) of the Act, in determining the existence of a dominant position. The appeal concludes that the appeal is meritless and sustains the view that the Competition Act also does apply to state monopolies.
Examining the Decision:
The Nationalisation Act as well as the Competition Act was enacted towards ensuring further support to the country’s requirements for the economics of the nation and moving with time. Hence, as could be inferred here, no disagreement or disharmony could be gauged between the two Acts vis-a-vis Appellants’ submission. Moreover, Hon’ble Court rightly applied the same rule while interpreting that for enacting any new law the Parliament is always aware of all such existing laws. Therefore, it became mandatory to assume that the legislature was well aware of Nationalization Act too when the Competition Act was enacted.
This distinction exists between a department or even an instrumentality or agency of the state or body corporates of a state and a government company as outlined in Article 12 of the Indian Constitution. In this regard, the Government Enterprise[16] refers to any concern which shares has owned fully or partially by the state authority with a minimum of 51% of the paid-up capital at the state and Centre. The court established the criteria for declaration as a state or governmental department of a firm, which involved: ownership of the majority share capital by the government; a company as a state monopoly, and the performance of sovereign functions[17]. All these factors should be met fully to qualify an entity under Article 12.
In Hindustan Steel Works Construction Co Ltd v State of Kerala[18], it was held that although exercising widespread control, a governmental undertaking does not come within Article 12. The term government or establishment has not been given the connotation of ‘department’ by any usage of state monopoly. Only those are exempted under the Competition Act that ‘are government departments exercising sovereign powers’.
To that end, it goes without saying that the recent decision of the Hon’ble Court holding the CIL liable under the provisions of the later statute was a fair one.
The Way Forward:
In essence, through this judgment, accusations against government-owned firms and other public sector units can be subjected to further investigations by CCI. Most notably, the judgment established that, in the Competition Act, as provided for in Section 28, the CCI could pass an order for separating any company, whether public sector or a government-owned entity. However, the government may still utilize exclusions like state security or public interest to bar the corporation from division. Increased rivalry between private and state-owned companies is likely to bring about increased choices and better services to consumers, which is what is expected from this judgment.
Notes:-
[1] Coal India Ltd v Competition Commission of India (2021) 6 SCC 1.
[2] I.R. Coelho (Dead) by LRs v State of Tamil Nadu (2007) 2 SCC 1; AIR 2007 SC 861.
[3] Competition Act 2002 (Act No. 12 of 2003).
[4] Constitution of India 1950, art 39(b).
[5] Constitution of India 1950, art 31(b).
[6] Article 31 B, The Constitution of India, 1950.
[7] Coal Mines (Nationalisation) Act 1973, s 28.
[8] Section 28, Coal Mines (Nationalization) Act of 1973.
[9] Employees Provident Fund Commissioner v Official Liquidator of Esskay Pharmaceuticals Limited (2011) 10 SCC 727.
[10] Ashoka Smokeless Coal India (P) Ltd. & Ors v Union of India & Ors (2006) 12 SCC 34.
[11] Ibid.
[12] Constitution of India 1950, art 19(1)(g).
[13] Competition Act 2002, s 2(h).
[14] Competition Act 2002, s 19.
[15] Competition Act 2002, s 4(2).
[16] Companies Act 2013, s 2(45).
[17] Ramana Dayaram Shetty v The International Airport Authority of India (1979) AIR 1628; (1979) SCR (3) 1014; (1979) SCC (3) 489.
[18] Hindustan Steel Works Construction Co Ltd v State of Kerala (1998) 5 SCC 1.
Author: Ansh Priy Srivastava, Second-Year Law Student, Chanakya National Law University (CNLU)
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