The Supreme Court of India, vide an order dated 15th June 2023 has concluded that the provisions of the Competition Act, 2002, as amended (“Competition Act”) would apply to Coal India Limited (“CIL”). CIL is a Government Company, which came into being under the Coal Mines (Nationalisation) Act, 1973 (“Nationalisation Act”) and is tasked with the power and the duty to distribute coal. Western Coal Fields (“WCL”) is a subsidiary of CIL.
The principal bone of contention of CIL before the Supreme Court was that CIL is a monopoly created by the Nationalisation Act and is duty bound under the Directive Principles of State Policy of the Constitution of India (“Constitution”), in particular Article 39(b) of the Constitution, to direct its policy towards securing the ownership and control of the material resources of the community in a manner that best serves the common good. To achieve the goals and objectives under the Nationalisation Act as well as under Article 39(b), CIL and WCL would have to follow the policy of the Government of India in regard to coal, be it in the matter of pricing or any other matter and there may be necessity to resort to differential pricing so as to encourage captive coal production, which may be adversely affected if the provisions of the Act are applied as such actions would not survive on the anvil of Section 4(2)(b) of the Act which provides that there would be an abuse of dominant position, inter-alia, if the enterprise limits or restricts production of goods, provision of services or market thereof. Further, CIL contended that Section 3 of the Nationalisation Act vests the ownership of the coal mines in the Central Government. However, under Section 19 of the Act the CCI is obliged to take into consideration the monopoly position whether controlled by the Government or not, as a factor to determine the dominant position. Further, Section 27(a) of the Act empowers the CCI with the power to order cessation of an abuse. This, according to CIL, would be inconsistent with the appellants pursuing welfare policy in relation to pricing and distribution of coal.
Further, CIL submitted that under Section 28 of the Act, the CCI is empowered to divide enterprises abusing dominant position including adjustment of contracts, formation of winding up of enterprises among other things but to the contrast, as per Section 32 of the Nationalisation Act, mining companies cannot be wound up.
Based on the above, CIL argued that it cannot be bound and governed by the Act as it is governed by the Nationalisation Act and inconsistencies and consequent anomalous result would arise from the Act being applied to CIL.
Negating the contentions of CIL, the Supreme Court held that CIL and WCL would fall within the meaning of the term ‘enterprise’ as defined under Section 2(h) of the Act. The definition of the term ‘enterprise’ excludes only the sovereign functions carried on by the Departments of the Central Government like those dealing with atomic energy, currency, defence and space. As CIL is a government company which is engaged in the activity of the mining of coal, it will be covered under the definition of an enterprise as carrying on the business of mining of coal cannot be described by any stretch of imagination as performing a sovereign function. The Supreme Court observed that the expression ‘common good’ in Article 39(b) of the Constitution is a dynamic term and changes with time. ‘Common good’ includes ‘economic common good’ and the manner how to achieve such common good is best understood in a democratic form of Government by the representatives of the people.
The Supreme Court, while acknowledging that CIL was a monopoly created by the Nationalisation Act with large measure of power, observed that with the passage of time and the growth and maturity being achieved by the nation, the Parliament, which best knows the needs of its people, felt the need for ushering in the wholesome idea of fair competition. While stating the principle that when Parliament enacts laws, it is deemed to be aware of all the existing laws, the Supreme Court stressed upon the fact that Section 19 (4) (g) of the Act mentions “monopoly or dominant position whether acquired as a result of the Statute or by virtue of being a Government Company or a Public Sector undertaking or otherwise” as a factor to be considered by the CCI for determining whether an enterprise holds a dominant position and such inclusion is sufficient proof of the intention of the legislature to include public sector undertakings, bodies set up under Statutes and government companies under the purview of the Act. If Parliament has intended that State monopolies must come under the anvil of the new economic regime, it cannot be found flawed on the ground that subjecting the State monopoly would detract from the common good. CIL cannot resist the imposition of standards of fairness and the duty to avoid discriminatory practices when a specialized forum has been created by Parliament under the Act. It will be open to CIL to take up all contentions before the CCI to demonstrate that there is no abuse of the dominant position – be it differential pricing or a decision to limit or restrict production, if it is part of national policy or based on Presidential Directives it may be a matter which the CCI would have to consider in deciding whether there is abuse of dominant position.
With respect to CIL’s contention on Section 28 of the Act, the Supreme Court held that in order to ensure the proper implementation of the Act, the Parliament has conferred power to order division of enterprises enjoying dominant power, including CIL. It is a special power intended to ensure prevention of abuse of dominant position. Having regard to the observations made above, the Supreme Court found no merit in the contention made by CIL for escaping from the net of the Act.
The Supreme Court thus concluded that there is nothing in the law which excludes a State monopoly from the purview of the Act, unless specifically exempted by the Central Government under Section 54 of the Act and therefore CIL cannot seek immunity from the operation of laws and is not impervious to the operation of laws which would otherwise apply to it or bind it.
The conclusion was arrived by the Supreme Court without entering into the merits of the matter in the appeal filed by CIL and WCL. As of now, the Supreme Court has decided only the preliminary issues of law as discussed above with respect to the applicability of the Act on CIL. The main appeal is still pending before the Supreme Court. The appeal to the Supreme Court was made by CIL and WCL against the order dated 9th December, 2016 passed by the erstwhile Competition Appellate Tribunal (“CompAT”) whereby the CompAT had upheld the order dated 27th October, 2014 passed by the CCI whereby the CCI had held that CIL operates independently of the market forces and enjoys undisputed dominance in the relevant market of production and supply of non-coking coal to thermal power producers in India and that CIL had abused its dominant position against the Informants namely, Sai Vardha Power Limited, and was therefore in contravention of the Act.
By: Competition Team at Chitale & Chitale Partners
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