IN CA 2845 OF 2017- SC- PSU Coal India Limited is under ambit of Competition Commission of India (CCI) which has power to take suo motu action under the Competition Act : Supreme Court
Justices K.M. Joseph, B.V. Navarathna & Ahsanuddin Amanullah [15-06-2023]

Read Order: Coal India Limited v Competition Commission of India

Simran Singh

New Delhi, June 16, 2023: The Supreme Court, in a detailed judgement, held that Coal India Limited comes within the ambit of the Competition Act, 2002  despite being a Public Sector Undertaking and observed that State monopolies, government companies and Public Sector Units cannot be allowed to indulge in anti-competitive practices in violation of the Competition Act. The Top Court rejected the PSU’s contention that the Competition Act did not apply to it because coal mines were operated under the Coal Mines (Nationalisation) Act, 1973  and was, thus, wholly outside the purview of the Competition Act.

A Bench of Justice K.M. Joseph, Justice B.V. Navarathna and Justice Ahsanuddin Amanullah stated that “We would hold that there is no merit in the contention of the appellants that the Act will not apply to the appellants for the reason that the appellants are governed by the Nationalisation Act and that Nationalisation Act cannot be reconciled with the Act.”

The Bench further stated that “Section 54 of the (Competition) Act gives power to the Central Government to exempt from the application of the Act or any provision and for any period, which is specified in the Notification. The ground for exemption can be security of the State or even public interest. It is not as if the appellants, if there was a genuine case made out for being taken outside the purview of the Act in public interest, the Government would be powerless. We say no more.”

However, the Court remanded the matter back to Competition Commission of India (Commission) for deciding the issue on merits. “The transferred cases shall be sent back so that they may be dealt with on their own merits. The transferred cases are disposed of…The interlocutory applications seeking interim relief in the pending Appeal shall be listed in the second week of July, 2023. The contempt petition shall stand listed in the second week of July, 2023.”

In the matter at hand, the appellant questioned the order passed by the Competition Appellate Tribunal, New Delhi (Tribunal) which had affirmed the findings of the (Commission) on various facets of abuse of dominant position which was ascribed to the appellants.

The Commission had found the appellant guilty of abuse of dominance in terms of the production and supply of non-coking coal to thermal producers which was in violation of the Competition Act, thus the Commission had directed the appellant to cease such anti-competitive conduct. While it had initially imposed a penalty of ₹1773.05 crore, the same was reduced to ₹591.01 crore after the Tribunal remanded the matter for fresh decision.

It was alleged that the appellant had delayed the execution of Fuel Supply Agreements and had effectively enjoyed a monopoly. The said agreements were anti-competitive as they had no bargaining or negotiating power. Further, the appellant had increased the coal prices without any justification and had imposed discriminatory pricing on the buyers

The Additional Solicitor General (ASG) appearing on behalf of the respondents had contended that there was no constitutional challenge to any provision of the Competition Act and that the appellant had unilaterally fixed prices of coal, and supplied substandard coal to power companies.

“…the State has been charged with the duty to bear in mind the principles of ‘common good’ being secured by the ‘distribution of scarce resources’; coal, with which mineral we are concerned with, is, indeed, a mineral of the highest importance in the economic life of the nation; its equitable distribution in the manner so as to secure the common good which is the directive contained in Article 39(b) led to the creation of a statutorily mandated monopoly…”

The Mesh between Nationalisation Act and Competition Act

The Bench navigated through the provisions of Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) which was found to be inadequate particularly in the context of changes which happened not only in the country but also on a larger scale. Subsequently, a high-level Committee-Raghavan Committee delved into various issues and formed a report, basis which the Competition Act was enacted.

The Bench perused Section 4 of the Competition Act which prohibited abuse of dominant position,  Section 18 of the Competition Act indicated Commission’s power to bring about the sweeping changes in the economy, Section 19 empowered the Commission to make inquiries into agreements which were anti-competitive within the meaning of Section 3. More importantly, Section 19(4) dealt with inquiring into the question as to whether an enterprise enjoyed a dominant position etc

The Bench stated that “It (Coal) forms an important raw material in the production of vital final products. Also, it forms a kind of fuel, which drives power plants. A monopoly, undoubtedly, stood created by the Nationalisation Act. The mines, which were the subject matter of the Act, stood vested with the Central Government. The first appellant is a Government Company, which came into being, as contemplated under Section 5 of the Nationalisation Act. The appellant- Company operates the mines. It is tasked with the power and the duty to distribute coal. This attracts the Directive Principle enshrined in Article 39(b). The said Directive Principle contemplates that the ‘State’ should direct its policy towards securing that the ownership and control of the ‘material resources’ are so ‘distributed’ so as to ‘subserve the common good’.

The Bench noted that the Nationalisation Act was enacted to vest in the Central Government, the rights of the lessees in the coal mines so that they could be operated so as to ensure the rational, coordinated and scientific development and utilisation of the coal resources consistent with the growing requirements of the country.

“The Preamble clearly indicates that the Law-Giver had in mind the goal in Article 39(b), viz., acquiring ownership over coal mines so that coal mined from the mines could be so distributed so that common good was best subserved. The Statement of Objects and Reasons of Act 67 of 1976, by which the Nationalisation Act was amended, indicated that after the nationalisation took place, persons holding mining leases took to unauthorized mining and in a most reckless and unscientific manner. This was noted to be without bearing in mind considerations of conservation, safety and the welfare of the workers. A valuable national asset was being destroyed. There were safety concerns. Large profits were being reaped but by paying very low wages to the workers. All privately held coal leases were brought under the umbrella of the Nationalisation Act except those held by privately owned steel companies.”

The Nationalisation Act came to be amended twice after and then the Coal Mines Nationalisation (Amendment) Act, 1976 prohibited carrying operation or leasing of a coal mine by any private party

Coal India Limited is not a sovereign entity vis-a-vis Election Commission of India

The Court noted that the appellant was a Government Company, which was wholly owned by the Central Government under Section 5 of the Nationalisation Act and, therefore, the general superintendence, direction, control and management of all the mines, ownership of which stood vested in the Central Government, vested with the appellant. However, the Bench stated that it would not be appropriate to describe its powers fully akin to the powers that vested with the Election Commission of India (ECI) under Article 324 of the Constitution of India. Thus, the appellants could not seek immunity from the operation of laws, which otherwise bind them.

The Bench noted that the appellant being a government company would come within the ambit of the definition of ‘enterprise’ under Section 2(h) of the Competition Acts, since it was engaged in activity relating to production, storage, supply, distribution and control of goods. The bench also noted that the Act separately and specifically included a ‘government department’ also within the definition of enterprise. The only activity of the Government, which had been excluded from the scope of Section 2(h) and therefore, the definition of the word ‘enterprise’ was any activity relatable to the sovereign functions of the Government.

It was noted that the appellant conceded that to the fact that it was not performing any sovereign functions. “what is excluded from the definition of the expression ‘enterprise’, is a Government Department carrying on Government functions. Carrying on business in mining, cannot, by any stretch of imagination, be described as a sovereign function. There is nothing in the definition which excludes a State monopoly which is even set up to achieve the goals in Article 39(b) of the Constitution”.

The Bench referred to Section 19(4), and stated that “this is a clear indication that far from excluding governmental bodies like a government company, a public sector undertaking or a body under a Statute from the purview of the Act, the lawgiver has evinced its intention to include government companies, public sector companies and bodies acquired under a Statute within the ambit of the Act”.

While navigating through the question whether the ‘enterprise’ was involved with carrying out any of the sovereign functions, the Bench stated that “It is noteworthy that the Law-Giver has taken care to expressly include even Departments of the Government separately within the ambit of the word ‘enterprise’. Things could not be more clear. The only activity of the Government, which has been excluded from the scope of Section 2(h) and therefore, the definition of the word ‘enterprise’ is any activity relatable to the sovereign functions of the Government. Sovereign functions would include, undoubtedly, all activities carried on by the Departments of the Central Government, dealing with atomic energy, currency, defense and space”.

Nationalisation Act and the intended goals to achieve contained in Article 39 (B) of Constitution

The Supreme Court emphasised on the fact that the economy had changed since independence and the same could not be perceived in isolation. “No nation can remain unaffected by the changes in the state of the world economy. Policies, which are suitable at a given point of time, are not cast in stone. Each generation of people have the right as also the duty to revisit economic policies which found favour with the past. The present cannot put posterity in chains. Equally, the past cannot hold the present hostage to ideas which would then degenerate into what was once original and suitable into dogma which no longer can serve the people.”

The Court stated that “The appellants may qualify as State for the purpose of Chapter IV if it fulfills the requirement of State under Article 12. We bear in mind in this regard the argument of the appellants that a remedy is open to a party against the appellant in proceedings under Article 226 or Article 32 of the Constitution. Thus, the appellants also, even if the appellants are Government Companies but being State, have a duty to keep uppermost, in their minds, the goal in Article 39(b).”

The Bench highlighted that the Competition Act aimed at tabooing anti-competitive agreements and thereby promoting competition. Section 4(1) of the Competition Act declared that no enterprise or group could abuse its dominant position. “The Act further expatiates and dwells on the method to find out dominant position. Section 19(4) enumerates the factors to be considered.”

The Bench was of the view that the appellant was a Government Company which were brought into being in the context of Sections 3 and 5 of the Nationalisation Act and were created to take the place of the Central Government in the matter of supervising control and managing the affairs of the mines. “Still further, and, more importantly, the Nationalisation Act itself was intended to achieve the goals in Article 39(b) of the Constitution. This means that the Nationalisation Act contemplated coal to be a material resource and it was to be distributed so as to subserve common good. The exclusive right in regard to the mines as also the power to manage and supervise the mines was vested with the first appellant company and its subsidiaries. The ambit of the power is unquestionably wide. We proceed on the basis that the appellants cannot be oblivious to its duty to bear in mind the sublime goal in the Directive Principle, viz., “distribution”, so as to subserve the ‘common good’.”

The Bench stated that despite of the fact that the appellants were Government Companies but since they were State, they had a duty to achieve the goal in Article 39(b). “In the context of Section 28 of the Nationalisation Act read with the object of the Act and bearing in mind the scheme of the Act and the language employed as it is, we would think that the later enactment (Competition Act) must prevail”

The Court further added, “The novel idea, which permeates the Act, would stand frustrated, in fact, if State monopolies, Government Companies and Public Sector Units are left free to contravene the Act”.

The Bench referred to the case of Tara Prasad Singh v. Union of India and stated that the purpose of the vesting under the Nationalisation Act was to distribute the resource to subserve the common good. “We may, in fact, notice the concern of the Court about coal being not inexhaustible and the need for a wise and planned conservation of the resources being expressed in paragraph-39. No doubt, all this was at the time when the Nation was confronted with the condition of the mines being what it was as brought out in the Statement of Objects”.

The Bench however, agreed with the appellants’ argument that their actions could have been challenged in proceedings in judicial review. Future, the appellants were justified in pointing out that there were forums other than the Commission such as the Controller of Coal. “But that by itself, cannot result in denial of access to a party complaining of contravention of a law which is otherwise applicable. It must also be remembered that action can also be taken by the CCI suo motu. Such is the width of the power vouchsafed for the authority under the Act”.

The Court further stated that the Competition Act was enacted with the intent of facilitating faster economic growth in the backdrop of the paradigm shift in the economic policies post-1991 liberalisation. “The role which was envisaged for the public sector company could not permit them to outlive their utility or abuse their unique position. Disinvestment done in a proper manner was perceived as a solution. However, sans disinvestment, State Monopolies, Public Sector Companies and Government Companies were expected to imbibe the new economic philosophy. The novel idea, which permeates the Act, would stand frustrated, in fact, if State monopolies, Government Companies and Public Sector Units are left free to contravene the Act”

In this regard, the Bench noted that the Competition Act had made a deviation from its predecessor, the MRTP Act, which sought to protect government departments. The Competition Act could not result in transforming government companies into mere profit-making engines, or require of them to be oblivious to their Constitutional obligations. But that could not equally mean that they could act with caprice, or unfairly or treat otherwise similarly situated persons or things with discrimination.

The Court further observed that the concept of ‘common good’- with which the State monopolies were created to ensure equitable distribution of wealth as envisaged under Article 39(b) - was not repugnant to the idea of ‘free competition. “Can it be said that free competition as envisaged under the Act which involves avoidance of anti-competitive agreements, abuse of dominant position and regulation of combinations are against the common good? As to how common good is best served is best understood by the representatives of the people in the democratic form of Government. We must bear in mind the wholesome principle that when Parliament enacts laws, it is deemed to be aware of all the existing laws. Properly construed and operated fairly, the ‘Act’ would, in other words, harmonise with common good being its goal as well.”