Competition Act Applicability: Supreme Court Rules on Coal India’s Monopoly (2023)

Introduction

Date of the Judgment: 15 June 2023

Citation: 2023 INSC 547

Judges: K.M. Joseph, J., B.V. Nagarathna, J., Ahsanuddin Amanullah, J.

Can a company created by statute, with a mandate to serve public good, be subject to the same competition laws as private entities? The Supreme Court of India recently addressed this crucial question in a case involving Coal India Limited (CIL), a state-owned monopoly. The core issue was whether the Competition Act, 2002 applies to CIL, given its statutory mandate and role in distributing a vital national resource. The Supreme Court, in this judgment, clarified the applicability of the Competition Act to CIL, emphasizing that even statutory monopolies must adhere to competition law principles. The judgment was authored by Justice K.M. Joseph, with Justices B.V. Nagarathna and Ahsanuddin Amanullah concurring.

Case Background

The case originated from a complaint filed with the Competition Commission of India (CCI) against Coal India Limited (CIL) and its subsidiary, Western Coalfields Limited (WCL). The complainant alleged that CIL and WCL were abusing their dominant position in the coal market. CIL, created under the Coal Mines (Nationalization) Act, 1973, holds a monopoly over coal mining in India. The CCI found merit in the complaint and ruled against CIL, which led to CIL appealing to the Competition Appellate Tribunal. The Tribunal upheld the CCI’s decision, prompting CIL to approach the Supreme Court.

CIL argued that as a statutory monopoly created to fulfill the objectives of Article 39(b) of the Constitution, which mandates equitable distribution of resources for the common good, it should be exempt from the Competition Act. The company contended that applying the Act would hinder its ability to achieve these constitutional goals and would create anomalous results.

The core of the dispute was whether a state-owned entity, created to serve a public purpose, could be subjected to the same competitive market regulations as private entities. CIL sought a declaration that the Competition Act does not apply to them, given their unique status and mandate.

Timeline

Course of Proceedings

The Competition Commission of India (CCI) initially found Coal India Limited (CIL) and its subsidiary, Western Coalfields Limited (WCL), guilty of abusing their dominant position based on a complaint. CIL appealed to the Competition Appellate Tribunal, which upheld the CCI’s decision. Subsequently, CIL appealed to the Supreme Court. A two-judge bench of the Supreme Court, noting the importance of the legal questions raised, referred the matter to a three-judge bench. This was done because the case involved a request for modification of an earlier order and raised a significant question about the applicability of the Competition Act to statutory monopolies.

Additionally, recognizing that similar questions were pending before the Commission/Tribunal, the Supreme Court transferred those cases to itself. The Court clarified that it would not delve into the merits of individual cases but would focus solely on the legal question of whether the Competition Act applies to CIL and similar entities.

Legal Framework

The case revolves around the interplay between the following key legislations:

• The Coal Mines (Nationalization) Act, 1973: This Act nationalized coal mines, vesting ownership and control with the Central Government and its agencies like Coal India Limited (CIL). Section 3(1) states:
  
  “On the appointed day, the right, title and interest of the owners in relation to the coal mines specified in the Schedule shall stand transferred to, and shall vest absolutely in, the Central Government free from all incumbrances.”
  
  Section 11 of the Coal Mines (Nationalisation) Act, 1973 specifies that the management of coal mines vests with the Government company.
  
  Section 28 of the Coal Mines (Nationalisation) Act, 1973 states that the provisions of the said Act would prevail notwithstanding anything inconsistent therewith contained in any other law in force.
• The Competition Act, 2002: This Act aims to prevent practices that have an adverse effect on competition, promote and sustain competition in markets, protect consumer interests, and ensure freedom of trade. Section 4(1) states:
  
  “No enterprise or group shall abuse its dominant position.”
  
  Section 19(4)(g) of the Competition Act, 2002 states that the monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise, is a factor to be considered while determining dominant position.
  
  Section 60 of the Competition Act, 2002 states that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
• Article 39(b) of the Constitution of India: This Directive Principle mandates that the State should direct its policy towards securing that the ownership and control of material resources are so distributed as best to subserve the common good.
• Article 31B of the Constitution of India: This Article protects laws placed in the Ninth Schedule from being challenged on the ground that they violate fundamental rights.
• Article 31C of the Constitution of India: This Article protects laws giving effect to the policy of the State towards securing the principles laid down in Part IV from being challenged on the ground that it is inconsistent with Articles 14 or 19.

Arguments

Submissions of the Appellants (Coal India Limited):

• CIL is a statutory monopoly created by the Coal Mines (Nationalization) Act, 1973, to achieve the goals of Article 39(b) of the Constitution, which mandates equitable distribution of resources for the common good. Therefore, it should be outside the purview of the Competition Act, 2002.
• The Nationalization Act was enacted to monopolize coal mining in the hands of the Central Government and its agencies. This monopoly is not ordinary but is protected by Article 31B of the Constitution, having been inserted in the Ninth Schedule.
• CIL is charged with the duty to distribute coal to serve the common good, and this mandate is inconsistent with the market principles underlying the Competition Act.
• The superintendence of the mines vests with the Central Government or with a corporate body or the company, which it may create, as contemplated under the Nationalisation Act.
• CIL is a State within the meaning of Article 12 of the Constitution and is guided by the Directive Principles in Article 39(b).
• The Competition Act does not deal with a company like CIL, which is an ‘Article 39(b)’ monopoly, unlike an ordinary monopoly.
• Price fixation of coal by CIL is based on the constitutional mandate under Article 39(b) and may be inconsistent with market principles.
• CIL may have to follow differential pricing mechanisms to encourage captive coal production, which could be viewed as discriminatory under the Competition Act.
• Section 4(2)(b) of the Competition Act, which prohibits limiting production, could clash with policy decisions by the Ministry of Coal to encourage certain industries through coal supply mechanisms.
• Section 27(a) of the Competition Act, which empowers the CCI to order cessation of abuse, would be inconsistent with CIL’s welfare policies.
• Section 28 of the Competition Act, which empowers the CCI to divide enterprises, contradicts Section 32 of the Nationalisation Act, which prevents the winding up of mining companies.
• Section 28 of the Nationalisation Act declares that its provisions prevail over other laws.
• CIL is bound by Presidential Directives and cannot act independently, leading to a clash with the requirements of the Competition Act.
• CIL is not driven by a profit motive but is an extended arm of the welfare state, and its activities should not be viewed as ordinary commercial activities.
• CIL’s actions are subject to judicial review under Article 226 and Article 32, and there are other forums like the Coal Controller where complaints can be addressed.

Submissions of the Respondents (Competition Commission of India and Complainant):

• The Competition Act applies to CIL despite the non-obstante clause in Section 28 of the Nationalisation Act.
• The Act aims to bring about a paradigm shift in the economic policy of the nation.
• The operation of State monopolies did not serve the best interests of the nation, and they need to operate in a competitive environment.
• There is no challenge to the vires of the Act, and there is no scope for reading down the law in the absence of such a challenge.
• When a state instrumentality enters the commercial field, it cannot claim immunity from the laws of the land.
• The CCI is composed of experts, and its procedures provide sufficient safeguards for fair decision-making.
• CIL is a government company under Section 617 of the Companies Act and cannot claim immunity simply because the Nationalisation Act was in the Ninth Schedule.
• The Competition Act provides three filters: the entity must be an enterprise, occupy a dominant position, and abuse that position.
• The Nationalisation Act was removed from the Ninth Schedule in 2017 and stands repealed.
• After disinvestment, the government’s shareholding in CIL has declined to nearly 67%, with the balance in private hands.
• Fundamental Rights are not absolute, and laws giving effect to Article 39(b) or (c) cannot be inconsistent with Articles 14 and 19.
• The concept of common good in Article 39(b) must be interpreted as the interest of the common man or citizens.
• The MRTP Act had a provision excluding government agencies, but the Competition Act has no such provision.
• The Act’s focus is on the consumer, and common good must be associated with the good of the consumer.
• Section 54 of the Act provides for exemptions, and if CIL wanted to be taken out of the purview of the Act, it could have sought an exemption.
• CIL is not carrying out sovereign functions and is engaged in commercial activities.
• The price of coal affects both the Consumer Price Index and the Wholesale Price Index.
• The cases may involve facts best dealt with by a body like the CCI.

Sub-Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether the Competition Act, 2002, applies to Coal India Limited (CIL) and its subsidiaries, given their statutory monopoly status and their mandate to achieve the goals of Article 39(b) of the Constitution?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court analyzed each authority to determine its relevance to the current case. The authorities relied upon by the appellants were distinguished by the court on the basis of the facts of the case and the legal issue involved in the present case. The court held that the authorities relied upon by the respondents were more applicable to the present case.

• Ashoka Smokeless Coal India (P) Ltd. and Others v. Union of India and Others [ (2007) 2 SCC 640 ]: The Court distinguished this case, noting that it was decided when coal was an essential commodity, which is not the case now.
• Employees Provident Fund Commissioner v. Official Liquidator of Esskay Pharmaceuticals Limited [(2011) 10 SCC 727] and Sanwarmal Kejriwal v. Vishwa Coop. Housing Society Ltd. and Others [(1990) 2 SCC 288]: The Court distinguished these cases, holding that the non-obstante clause in the Competition Act prevails over the non-obstante clause in the Nationalisation Act.
• Other cases cited by the respondents were used to support the argument that State entities in commercial activities cannot claim immunity from the laws of the land and that the concept of common good must be interpreted as the interest of the common man or citizens.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure fair competition and consumer protection in the market, even when dealing with statutory monopolies. The Court emphasized that the Competition Act, 2002, is a later law designed to bring about a paradigm shift in the economic policy of the nation. The Court was also influenced by the fact that the Nationalisation Act, 1973, was removed from the Ninth Schedule of the Constitution in 2017, indicating a change in the policy environment.

The Court acknowledged the constitutional mandate under Article 39(b) to distribute resources for the common good but held that this does not exempt CIL from the requirements of the Competition Act. The Court emphasized that the Act’s focus is on the consumer and that the concept of common good must be interpreted as the interest of the common man or citizens.

The Court also considered the fact that CIL is a government company under Section 617 of the Companies Act and that the government’s shareholding in CIL has declined to nearly 67%, with the balance in private hands. This indicated that CIL is now operating more like a commercial entity than a purely governmental body.

The Court did not delve into the merits of individual cases but focused solely on the legal question of whether the Competition Act applies to CIL. The Court clarified that CIL could raise arguments based on its constitutional obligations and adherence to Presidential Directives before the CCI.

Final Orders and Directions of the Supreme Court

The Supreme Court issued the following final orders and directions:

• The Supreme Court held that the Competition Act, 2002, applies to Coal India Limited (CIL) and its subsidiaries, despite their statutory monopoly status and their mandate to achieve the goals of Article 39(b) of the Constitution.
• The Court clarified that CIL can raise arguments based on its constitutional obligations and adherence to Presidential Directives before the Competition Commission of India (CCI).
• The Court directed that the cases transferred to the Supreme Court be remitted to the CCI to be decided on their merits.
• The Court observed that all other connected cases, if any, pending before the CCI/Tribunal shall also be decided in accordance with the law, and in the light of the principles laid down by the Court in the present case.

Legal Consequences:

• Coal India Limited (CIL) and its subsidiaries are now subject to the provisions of the Competition Act, 2002. This means that they can be investigated by the CCI for anti-competitive practices such as abuse of dominant position.
• CIL must now ensure that its business practices comply with competition law principles. This may require changes in pricing, production, and distribution strategies.
• Other statutory monopolies and government-owned enterprises may also be impacted by this judgment, as it clarifies that even entities created to serve public good must adhere to competition law.
• The judgment has a binding effect on all lower courts and tribunals, ensuring uniformity in the application of the Competition Act.

Implications of the Judgment

The Supreme Court’s judgment has significant implications for the coal industry, other statutory monopolies, and the enforcement of competition law in India:

• Coal Industry: The judgment is likely to bring more competition to the coal sector. CIL will have to operate more efficiently and competitively. This may lead to better pricing and availability of coal for consumers.
• Other Statutory Monopolies: The judgment clarifies that even statutory monopolies created to serve public good are subject to the Competition Act. This will impact other public sector enterprises and statutory bodies that operate in monopolistic or dominant positions.
• Competition Law Enforcement: The judgment strengthens the enforcement of competition law in India. It sends a clear message that no entity, whether public or private, is exempt from the provisions of the Competition Act.
• Consumer Welfare: The judgment is expected to benefit consumers by promoting competition and preventing anti-competitive practices. This may lead to better prices, quality, and availability of goods and services.
• Policy Implications: The judgment may prompt the government to review the regulatory framework for statutory monopolies and public sector enterprises. It may also lead to greater emphasis on promoting competition and efficiency in the public sector.
• Future Litigation: It is likely that there will be more litigation involving statutory monopolies and their obligations under the Competition Act. This judgment provides a clear framework for resolving such disputes.

Flowchart of the Case

Summary

The Supreme Court’s judgment in the case of Coal India Limited and Anr. vs. Competition Commission of India and Anr. is a landmark decision that clarifies the applicability of the Competition Act, 2002, to statutory monopolies in India. The Court held that Coal India Limited (CIL), despite being a statutory monopoly created to achieve the goals of Article 39(b) of the Constitution, is an “enterprise” under the Competition Act and is subject to its provisions. The Court emphasized that the Act is a later law and has an overriding effect. This judgment has significant implications for the coal industry, other statutory monopolies, and the enforcement of competition law in India. It sends a clear message that no entity, whether public or private, is exempt from the provisions of the Competition Act and that even entities created to serve public good must adhere to competition law principles. The judgment is expected to benefit consumers by promoting competition and preventing anti-competitive practices. The Court directed that the cases transferred to the Supreme Court be remitted to the CCI to be decided on their merits.