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

Introduction

Date of the Judgment: 15 June 2023

Citation: 2023 INSC 580

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

Can a company, established as a statutory monopoly to achieve social welfare goals, be subjected to the Competition Act, 2002? The Supreme Court of India recently addressed this critical question in a case involving Coal India Limited (CIL). This judgment clarifies whether the Competition Act applies to CIL, despite its unique status and obligations under the Coal Mines (Nationalization) Act, 1973. The Court’s decision has significant implications for other public sector undertakings and their operations in a competitive market.

Case Background

The case originated when the second respondent provided information to the Competition Commission of India (CCI), alleging abuse of dominant position by Coal India Limited (CIL) and its subsidiary, Western Coalfields Limited (WCL). The CCI, after considering the information, found the appellants guilty of such abuse.

The appellants, CIL and WCL, then appealed the CCI’s decision. They also filed an interlocutory application (I.A. No. 66587 of 2017) seeking permission to raise additional grounds, which was allowed by the Supreme Court. The core argument of the appellants was that as a statutory monopoly created to achieve the goals of Article 39(b) of the Constitution of India, they should not be bound by the Competition Act, 2002.

Due to the important legal question raised, the Supreme Court also transferred other similar cases pending before the Commission/Tribunal to itself. However, the Court clarified that it would only rule on the applicability of the Competition Act to the appellants and not the merits of the individual cases.

Timeline:

Arguments

Submissions of the Appellants/Applicants:

• CIL argued that its coal mines, operated under the Coal Mines (Nationalization) Act, 1973, are outside the purview of the Competition Act, 2002. This is because the Nationalization Act created a monopoly for the Central Government and its agencies to ensure equitable distribution of coal, as mandated by Article 39(b) of the Constitution of India.

• CIL contended that it is not an ordinary monopoly but one created to achieve the goals of Article 39(b), making it unique and outside the scope of the Competition Act. They emphasized that the Nationalization Act was protected under Article 31B of the Constitution and inserted in the Ninth Schedule.

• CIL argued that the general superintendence, direction, control, and management of coal mines under the Nationalization Act should be interpreted widely, similar to the powers of the Election Commission under Article 324 of the Constitution. They also referred to Article 31C, stating that laws giving effect to Article 39(b) cannot be challenged for inconsistency with Articles 14 and 19.

• CIL highlighted the divergence between the Competition Act’s goal of ensuring freedom of trade and the Nationalization Act’s goal of vesting ownership and control of coal mines in the State for common good. They emphasized that CIL operates many loss-making mines to fulfill its constitutional responsibilities and cannot operate as a private player.

• CIL argued that the Competition Act’s provisions on price fixation and restrictions on production would conflict with its constitutional mandate and the need for differential pricing mechanisms to encourage captive coal production. They also pointed out that the CCI’s power to order cessation of abuse and division of enterprises under the Competition Act is inconsistent with CIL’s welfare policies and the prohibition on winding up mining companies under the Nationalization Act.

• CIL submitted that it is bound by Presidential Directives and government policies, which could clash with the requirements of the Competition Act. They argued that their activities are not ordinary commercial activities and should not be viewed as such under Section 4 of the Competition Act.

• CIL contended that its actions are subject to judicial review under Article 226 and that other forums, such as the Coal Controller, can address complaints about the quality of coal. Subjecting them to the Competition Act is therefore unjustified.

Submissions of the Respondents:

• The respondents argued that the Competition Act applies to CIL, despite the non-obstante clause in the Nationalization Act. They emphasized the need for a paradigm shift in the nation’s economic policy, ensuring the best economic interest of the nation.

• The respondents cited the Raghavan Committee Report, which concluded that state monopolies should not operate inefficiently and must be subject to market disciplines. They argued that CIL’s actions have been found to violate the Competition Act and that the appellants are trying to avoid accountability.

• The respondents contended that CIL cannot claim immunity from the laws of the land just because the Nationalization Act was placed in the Ninth Schedule. They also highlighted that the Nationalization Act itself was removed from the Ninth Schedule in 2017 and that CIL has private shareholders.

• The respondents pointed out that the Competition Act provides detailed procedures for inquiries, including investigation reports and expert opinions. They argued that the CCI is composed of experts and that complaints are thoroughly investigated before action is taken.

• The respondents emphasized that the Competition Act aims to protect consumers and that the concept of common good under Article 39(b) should be interpreted as the interest of the common man. They argued that the continuous supply of coal, prompt performance of contracts, and reasonable rates are essential for the common good.

• The respondents highlighted that the MRTP Act had a provision exempting government agencies, which is absent in the Competition Act. They also pointed out that the Competition Act allows for exemptions under Section 54, which CIL has not sought.

• The respondents argued that CIL is not carrying out sovereign functions and that its activities are commercial. They cited several judgments to support this argument.

• The respondents contended that the price of coal affects the Consumer Price Index and the Wholesale Price Index and that the CCI is the appropriate body to deal with complaints of abuse of dominant position.

Sub-Submissions Categorized by Main Submissions:

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 and its subsidiaries, considering their status as statutory monopolies created under the Coal Mines (Nationalization) Act, 1973, and their obligations under Article 39(b) of the Constitution of India?

Treatment of the Issue by the Court:

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

Authorities

Cases Relied Upon by the Court:

Legal Provisions Considered by the Court:

Judgment

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

How each authority was viewed by the Court?

• Ashoka Smokeless Coal India (P) Ltd. and Others v. Union of India and Others (2007) 2 SCC 640* The Court noted that the observations in this case were made when coal was an essential commodity, whichwas no longer the case after 2007.
• Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. and Another (1983) 1 SCC 147: The Court agreed that the Nationalization Act was enacted to give effect to Article 39(b), but this did not exempt CIL from the Competition Act.
• In Re Gujarat Assembly Election matter (2002) 8 SCC 237 and Election Commission of India v. Ashok Kumar and Others (2000) 8 SCC 216: These cases were used to interpret “superintendence, direction, and control,” but the Court found this interpretation not applicable to CIL’s case.
• Kasturi Lal Lakshmi Reddy and Others v. State of Jammu and Kashmir and Another (1980) 4 SCC 1: The Court agreed that actions inconsistent with Directive Principles may be unreasonable, but this did not exempt CIL from the Competition Act.
• 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: These cases were cited to discuss the interpretation of non-obstante clauses, but the Court found that the non-obstante clause in the Nationalization Act did not override the Competition Act.
• New Delhi Municipal Council v. State of Punjab & others (1997) 7 SCC 339: The Court relied on this case to conclude that when the State enters the commercial field, it cannot claim immunity from the laws of the land.
• Waman Rao and Others v. Union of India and Others (1981) 2 SCC 362: The Court accepted that laws passed to give effect to Article 39(b) and 39(c) could not be found violative of Article 14.
• I.R Coelho (dead) by LRs v. State of T.N. (2007) 2 SCC 1: The Court noted that the immunity of laws in the Ninth Schedule has been diluted.
• Khoday Distilleries Ltd. v. State of Karnataka & others (1995) 1 SCC 574: The Court agreed that Fundamental Rights are not absolute.
• Parag Ice & Oil Mills & another v. Union of India (1978) 3 SCC 459: The Court noted that an order passed under a law may not be entitled to the same immunity as the law itself.
• Ajaib Singh v. Sirhind Coop. Marketing -cum-Processing Service Society Ltd. and another (1999) 6 SCC 82: The Court agreed that it may place an interpretation as would advance the object of the law.
• Bangalore Water Supply & Sewerage Board v. A. Rajappa (1978) 2 SCC 213, N. Nagendra Rao & Co. v. State of A.P. (1994) 6 SCC 205, Chairman, Railway Board and others v. Chandrima Das (Mrs.) and others (2000) 2 SCC 465, and Agricultural Produce Market Committee v. Ashok Harikuni and another (2000) 8 SCC 61: These cases were relied upon to conclude that CIL is not carrying out sovereign functions.
• Hasan Murtza v. State of Haryana (2002) 3 SCC 1: The Court cited this case to support the CCI as an expert body.
• State of Tamil Nadu and Others v. L. Abu Kavur Bai and Others (1984 ) 1 SCC 515, Tara Prasad Singh and Others v. Union of India and Others 1980 (4) SCC 179, State of Karnataka and Another v. Shri Ranganatha Reddy and Another 1977 (4) SCC 471, and Samatha v. State of A.P. and others (1997) 8 SCC 191: These cases were cited to emphasize that the purpose of nationalization was to distribute resources for the common good, but this did not exempt CIL from the Competition Act.

Decision and Implications

The Supreme Court held that the Competition Act, 2002, applies to Coal India Limited (CIL) and its subsidiaries, despite their status as statutory monopolies created under the Coal Mines (Nationalization) Act, 1973. The Court reasoned that the Competition Act is a later law enacted to promote competition and explicitly includes monopolies and government companies within its purview. The Court also noted that the Nationalization Act was removed from the Ninth Schedule in 2017 and that CIL has private shareholders.

Implications:

• For Coal India Limited (CIL): CIL is now subject to the provisions of the Competition Act, meaning it must ensure its operations do not abuse its dominant position in the market. This includes price fixing, anti-competitive agreements, and other practices that could harm competition. CIL can raise its constitutional obligations under Article 39(b) as a defense before the CCI, but it is not exempt from the law.
• For other Public Sector Undertakings (PSUs): The judgment sets a precedent that PSUs, even those with statutory monopolies, are not exempt from the Competition Act. This means that other PSUs must also ensure their operations comply with the Act, promoting fair competition and protecting consumer interests.
• For the Competition Commission of India (CCI): The decision affirms the CCI’s jurisdiction over PSUs and reinforces its role in regulating market competition. The CCI can now investigate and take action against PSUs that are found to be abusing their dominant position.
• For the Market: The judgment is expected to promote a more competitive market environment, as even statutory monopolies are now subject to market disciplines. This could lead to better quality goods and services, reasonable pricing, and greater consumer choice.

Flowchart of the Decision-Making Process

Conclusion

The Supreme Court’s judgment in the Coal India Limited case is a significant step towards ensuring fair competition in the Indian market. By clarifying that even statutory monopolies are subject to the Competition Act, the Court has reinforced the importance of market discipline and consumer protection. This decision will likely have a far-reaching impact on the operations of public sector undertakings and contribute to a more competitive and efficient Indian economy.