Coal India Limited v Competition Commission of India: State Monopoly and the Competition Act

Facts

The present appeal was filed by the Appellants (Coal India Ltd & Anr, hereinafter referred as CIL) against the Competition Appellate Tribunal, New Delhi. The tribunal affirmed the findings of the Competition Commission of India (i.e. CCI) and it was held that the appellants were abusing their dominant position, which is prohibited as a mandate under the Competition Act, 2002 (referred as to “the Act”, hereinafter). Later on, Appellants contended that CIL being a monopoly of the state is committed to achieving the goals outlined in the Directive Principles of State Policy (DPSP) as outlined in Article 39 (b) of the Indian Constitution. Thus, it is excluded from the purview of the Act.

After the arguments were presented through an application to introduce additional grounds, the case was referred to a Three-Judge Bench, and subsequently, the decision was pronounced.

Issue

Whether State Monopoly or Government Company or PSUs are excluded from the purview of the Competition Act?

Deciphering Predatory Pricing in India: A Legal Analysis Through Judicial Precedents

Arguments on behalf of the Appellants

Appellants argued that the coal mines which are under the control of the Appellants, get operated in accordance with the regulations set forth in the Coal Mines (Nationalization) Act of 1973. (referred to as the ‘Nationalization Act’ hereinafter) Hence, it would fall entirely beyond the scope of the said Competition Act. This is because the fundamental intention and principle behind the enactment of the Nationalization Act were to monopolize the control over coal mines and to put coal mining exclusively within the purview of the Central Government and its entities, such as those given to the Appellants in the present case. This is not an ordinary form of monopoly. Appellants further argued that to achieve these objectives the Nationalization Act was granted safeguard under Article 31B of the Indian Constitution. Further, it was included within the Ninth Schedule of the Constitution which provides it the immunity from being challenged.[1]

It was further pointed out that Section 28 of the Nationalization Act which is a non-obstante clause states that the provisions of the Nationalization Act would take precedence over any conflicting provisions in any other existing law.[3] (Reliance was placed on Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited[4]). It is also argued that, even if the appellants function as a monopoly, they are not free to make decisions independent of the Presidential Directives, which hold them to a binding commitment. They are obligated to adhere to the policy established by the Central Government.

It was also submitted that the Appellants are not to be guided solely by profit-seeking objectives. They are essentially the operational agents of the welfare State. Their operations are not typical commercial activities and should not be viewed as such when assessing allegations of the abuse of a dominant position under Section 4 of the Act.

The statute to govern coal mining was brought during the initial years when coal was added to Essential Commodity Act, of 1955 as a ‘material resource’. But gradually with the rise in production, it was taken out in 2007 and the Mineral Laws (Amendment) Act of 2020 repealed the Nationalization Act thus, eliminating the exclusive utilization of the resource by Schedule – I and Schedule – II. Moreover, the Appellants contended that because the contracts central to the dispute were executed prior to the removal of the Nationalization Act from the Ninth Schedule, this should not serve as grounds for dismissing the Petition.

Arguments on behalf of the Respondent

The Competition Act was enacted to keep up with the pace of development and to curtail the practice which causes adverse- effects over competition in the market. There are different sectoral regulators aimed to achieve different objectives and CCI is one such regulator which aims to promote fair competition. The Competition Act replaced the Monopolistic and Restrictive Trade Practises Act, 1969 which was enacted in furtherance of the report submitted by the High-Level Raghavan Committee. This act was enacted to uphold the fundamental right outlined in Article 19 (1) (g) of the Indian Constitution, and it aimed to foster and maintain competition within the markets, ensuring the freedom of trade for all market participants in India and safeguarding consumer interests.

This committee also examined the matter concerning State monopolies. A review of the Report suggests that it was recognized that the functioning of State monopolies did not serve the nation’s best interests. It further suggested that the State-run monopoly cannot be permitted to function inefficiently. It was imperative for it to improve its operations and become more competitive. The intention was clear that State monopolies should adapt and compete effectively in the market.

Respondent further argued that in light of the above-mentioned objectives of the Act despite the presence of Section 28 under the Nationalization Act, the Competition Act would still be applicable to the Appellant. It was submitted that there is three filter test to establish whether a body is abusing its dominant position or not. These are as follows-

1. whether a company/entity falls under the definition of enterprise which is given in Section 2(h) of the Competition Act?
2. Whether it is having a dominant position as per the requirements of Section 19(4) of the said Act?
3. Whether it is abusing its dominant position or not as per Section 4 of the Act?

The Respondent submitted that Appellants perfectly fit in this three-tier test, thus they are liable for all the penalties that are imposed in accordance with the Competition Act.

Decision of the Apex Court

The Apex Court concluded that the first Appellant (which is Coal India Ltd.) is a ‘government company’ and not a ‘Government Department’. It is the ‘Government Department’ carrying on a sovereign function that is excluded from the definition of ‘enterprise’ under Section 2(h) of the Competition Act and not the ‘government company’.[5] The court further added that engaging in mining activities cannot, under any reasonable interpretation, be categorized as a governmental function. So Coal India Ltd. clearly falls under the definition of enterprise which is performing non-sovereign functions. It is already established by the Appellants that they are a state monopoly and being in a monopolistic position according to Section 19 (4) (g) is essentially regarded as being par with a dominant position.[6]

The third criterion for determining if an enterprise holds a dominant position involves assessing its capacity to “influence competitors, consumers, or the relevant market to its advantage. The third phase is encompassed by Section 4(2) where the legislator has designated specific actions or failures in clauses (a) to (e) to constitute an abuse of dominant position.[7] Certainly, Section 3 & 5 of the Nationalization Act was intended to assume the role of the Central Government in overseeing, regulating, and administering mining operations. Court said that it was established that the first appellant company and its subsidiaries held both the exclusive right and privilege related to the mines and the authority to oversee and administer them.

Court said that the specific mention of monopolies under in Section 19(4) (g) of the Act,  established by law, as well as government-owned companies and public sector entities when assessing the presence of a dominant position, unquestionably signifies the Parliament’s intention to encompass state-owned monopolies, government entities, and public sector units under the scope of the Act. It finds no merit in the appeal and held that state monopolies are also covered under the Competition Act.

Analysis

There is a big difference between a government department/state/instrumentality of state (Article 12 of the Indian Constitution) and a government company. Any company where at least 51% of paid-up share capital is under the control of the government (either state or centre) is called a government company.[8] To call any company a state or government department some tests are developed by judicial practice which includes holding maximum share capital by the government, the company is a monopoly of the state, performing sovereign functions etc. [9] All these tests should be satisfied completely, to make it an instrumentality under Article 12.

In Hindustan Steel Works Construction Co. Ltd v State of Kerala[10] the Supreme Court held that notwithstanding all-pervasive control, a government company is neither a government department nor a government establishment under Article 12. Being a state monopoly does not raise the presumption that it is a government department. Further, the Competition Act only excludes ‘government department performing sovereign function’ outside its purview.

Additionally, the Hon’ble Court also operated under the aforementioned principle, which assumed that Parliament possesses knowledge of all pre-existing laws when enacting new legislation, and therefore, it was necessary to presume that the legislature was also cognizant of the Nationalization Act’s existence when passing the Competition Act. This presumption also ruled out the possibility of not recognizing the specific authority of the Competition Act to prevent the misuse of a dominant position.

This article is authored by Ms. Reena, 4th year student at National Law University Delhi. 

[1] Article 31 B, The Constitution of India, 1950

[2] https://indiankanoon.org/doc/1067949/

[3] Section 28, Coal Mines (Nationalization) Act of 1973

[4] https://indiankanoon.org/doc/1034344/

[5] Section 2(h), The Competition Act, 2002

[6] Section 19, The Competition Act, 2002

[7] Section 4(2), The Competition Act, 2002

[8] Section 2(45), The Companies Act, 2013

[9] https://indiankanoon.org/doc/1281050/ & https://indiankanoon.org/doc/1186368/

[10] https://indiankanoon.org/doc/448602/