Supreme Court Clarifies Jurisdiction of Competition Commission in Lottery Tender Case: Competition Commission of India vs. State of Mizoram & Ors. (2022) INSC 31

Date of the Judgment: 19 January 2022

Citation: (2022) INSC 31

Judges: Sanjay Kishan Kaul, J., M.M. Sundresh, J.

Can the Competition Commission of India (CCI) investigate potential bid rigging in the tender process for lottery distribution, even though lotteries are considered outside the realm of normal commerce? The Supreme Court of India recently addressed this question, clarifying the jurisdiction of the CCI in the context of state-run lotteries. This case arose from a complaint alleging that lottery distributors colluded to submit identical bids, thereby stifling competition. The Court had to decide whether the CCI’s mandate to ensure fair competition extends to the lottery sector, which is heavily regulated and often deemed ‘res extra commercium’. The judgment was authored by Justice Sanjay Kishan Kaul, with Justice M.M. Sundresh concurring.

Case Background

The State of Mizoram, through its Institutional Finance and State Lottery (IF&SL) department, issued an Invitation for Expression of Interest (EoI) on 20 December 2011. This EoI sought bids for the appointment of lottery distributors and selling agents for both conventional paper and online lotteries. The minimum bid rates were set at ₹5 lakh per draw for Bumper lotteries and ₹10,000 per draw for other lotteries. In response, five bids were received, with four being accepted. These four bids quoted identical rates: ₹10,000 per draw for online and paper lotteries, and ₹5 lakh for bumper lotteries. The selected distributors were required to furnish substantial security deposits and advance payments.

On 16 May 2012, a complaint was filed with the Competition Commission of India (CCI) by a private company (respondent No. 4). The complaint alleged that the identical bids indicated cartelization and bid rigging among the bidders, violating the Competition Act, 2002. It was also alleged that the State of Mizoram abused its dominant position by imposing exorbitant financial conditions. The complainant sought to quash the EoI, restrain the State from abusing its position, and ban the selected bidders from operating in Mizoram.

Timeline

Course of Proceedings

Following the complaint, the CCI found prima facie evidence of cartelization and bid rigging. It directed the Director General (DG) to investigate the matter. The DG’s report, submitted on 17 January 2013, concluded that the bidders had indeed colluded and engaged in bid rigging, violating Section 3 of the Competition Act. The DG also made observations against the State of Mizoram and its officials for not being vigilant in preventing unfair practices. The CCI decided to share the DG’s report with the parties and scheduled an oral hearing.

Surprisingly, the State of Mizoram filed a writ petition in the Gauhati High Court, challenging the DG’s report and the CCI’s order. The High Court issued an interim order restraining the CCI from passing a final order. Subsequently, other bidders also filed writ petitions seeking to quash the DG’s report and the CCI proceedings. The High Court admitted these petitions and continued the interim restraint on the CCI.

The CCI then appealed to the Supreme Court against the interim order, but the High Court passed its final order on 16 August 2014, holding that the Competition Act does not apply to lotteries as they are ‘res extra commercium’. The Supreme Court then heard the appeals against this final order of the High Court.

Legal Framework

The Competition Act, 2002 aims to prevent practices that have an adverse effect on competition, promote and sustain competition, protect consumer interests, and ensure freedom of trade. Section 3 of the Competition Act prohibits anti-competitive agreements, including cartels and bid rigging. Specifically, Section 3(1) states that “No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.”

Section 3(3) of the Competition Act further specifies that agreements that directly or indirectly determine purchase or sale prices, limit or control production, share markets, or result in bid rigging are presumed to have an appreciable adverse effect on competition. The explanation to Section 3(3) defines “bid rigging” as “any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”

Section 4 of the Competition Act prohibits the abuse of dominant position by an enterprise or group. Section 4(2)(a) states that “There shall be an abuse of dominant position if an enterprise or a group directly or indirectly, imposes unfair or discriminatory condition in purchase or sale of goods or service; or price in purchase or sale of goods or service.”

The term ‘goods’ is defined under Section 2(i) of the Competition Act as having the same meaning as in the Sale of Goods Act, 1930. Section 2(7) of the Sale of Goods Act, 1930, defines goods as “every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.” This definition specifically excludes actionable claims, such as lottery tickets, from the ambit of ‘goods’.

Section 2(u) of the Competition Act defines ‘service’ as “service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising.”

Arguments

Appellant (Competition Commission of India – CCI) Arguments:

• The CCI argued that its concern was not with the regulation of the lottery business itself, but with the potential bid rigging in the tender process for appointing lottery distributors.
• It was contended that there is no conflict between the Competition Act and the Lotteries (Regulation) Act, 1998, and that the CCI has jurisdiction over competition law aspects of regulated commodities.
• The CCI argued that the sale or distribution of lottery tickets constitutes a “service” under Section 2(u) of the Competition Act, as it is a service made available to potential users.
• The definition of ‘service’ is expansive and inclusive and the ‘includes’ part does not narrow down the width of the ‘means’ part.
• The CCI emphasized that if Parliament intended to exclude any service from the application of the Competition Act, it would have specifically stated so under Section 2(h) or Section 54 of the Act.
• The CCI argued that the doctrine of ‘res extra commercium’ does not apply in this context, as it is relevant only when the State seeks to regulate certain trades through taxation or other means.
• The CCI also argued that the High Court should not have entertained a petition under Article 226/227 of the Constitution of India as an order passed under Section 26(1) of the Competition Act was in the nature of an administrative direction.

Respondent No. 1 (State of Mizoram) Arguments:

• The State of Mizoram initially sought to be deleted as a party, claiming the appeal had become infructuous.
• The State contended that it had never prayed for quashing of the proceedings against the private parties, but only against the continuation of proceedings against the State.
• The State surprisingly submitted that it was a victim of cartelization and would cooperate with the CCI.

Respondent No. 5 (M/s. Summit Online Trade Solution Pvt. Ltd.) Arguments:

• Respondent No. 5 argued that Section 3(1) of the Competition Act does not apply because there are no “goods” or “provisions of services” involved.
• It was contended that lottery tickets are not “goods” as they are actionable claims, which are specifically excluded from the definition of goods under the Sale of Goods Act, 1930.
• Respondent No. 5 argued that it is merely a distributor and does not provide any services to potential users of lotteries.
• The lottery business is res extra commercium and is strictly regulated by the State. Therefore, the Competition Act does not apply.

Innovativeness of the argument: The CCI’s argument that the definition of service under the Competition Act is expansive and includes the distribution of lottery tickets was innovative, as it sought to bring the lottery business within the ambit of the Act. On the other hand, the respondents sought to rely on the traditional view of lottery as res extra commercium and actionable claim to argue that the Competition Act does not apply.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court considered the following key issues:

1. Whether the Competition Commission of India (CCI) has jurisdiction to inquire into allegations of bid rigging and cartelization in the tender process for appointment of selling agents and distributors for lotteries organised by the State of Mizoram.
2. Whether the lottery business can be considered as a service under the Competition Act, 2002.
3. Whether the lottery business is res extra commercium and therefore, outside the purview of the Competition Act, 2002.

Treatment of the Issue by the Court

Authorities

Cases Cited by the Court:

• B.R. Enterprises v. State of UP, (1999) 9 SCC 700, Supreme Court of India: This case was cited by the High Court to support its view that lotteries are not considered trade and commerce under Articles 301-303 of the Constitution of India. However, the Supreme Court distinguished this case by stating that it was in the context of tax laws, and not competition law.

• Sunrise Associates v. Government of NCT of Delhi, (2006) 5 SCC 603, Supreme Court of India: This case was cited by the High Court and the respondents to argue that lottery tickets have no value in themselves and are merely actionable claims. The Supreme Court acknowledged this but clarified that it does not exclude lottery distribution from being a service.

• Union of India v. Martin Lotter Agencies Ltd., (2009) 12 SCC 209, Supreme Court of India: The High Court used this case to argue that lotteries are akin to gambling and fall under the doctrine of ‘res extra commercium’. The Supreme Court distinguished this case by stating that the doctrine is applicable when the State regulates certain trades, but does not prevent the CCI from examining anti-competitive practices.

• CCI v. Bharti Airtel, (2019) 2 SCC 521, Supreme Court of India: The Supreme Court referred to this case to emphasize that the function of the CCI is distinct from that of other regulatory bodies, and that the CCI’s role is to examine anti-competitive agreements and practices.

• Black Diamond Beverages v. Commercial Tax Officer, (1998) 1 SCC 458, Supreme Court of India: This case was cited by the CCI to support its argument that the inclusive definition of ‘service’ in the Competition Act does not narrow down the width of the ‘means’ part of the definition.

• State of Punjab v. Devans Modern Breweries, (2004) 11 SCC 26, Supreme Court of India: This case was cited by the CCI to argue that the business of acting as distributors/selling agents cannot be said to come within the purview of the doctrine of ‘res extra commercium’.

• Competition Commission of India v. Steel Authority of India & Anr., (2010) 10 SCC 744, Supreme Court of India: This case was cited by the CCI to emphasize the nature of proceedings under Section 26(1) of the Competition Act.

• R.D. Goyal & Anr. V . Reliance Industries Ltd., (2003) 1 SCC 81, Supreme Court of India: This case was cited by the respondents to argue that debentures were not included in the definition of goods under the Monopolies and Restrictive Trade Practices Act, 1969.

Legal Provisions Considered by the Court:

• Section 3 of the Competition Act, 2002: Prohibits anti-competitive agreements, including cartels and bid rigging.
• Section 4 of the Competition Act, 2002: Prohibits abuse of dominant position.
• Section 2(i) of the Competition Act, 2002: Defines ‘goods’ with reference to the Sale of Goods Act, 1930.
• Section 2(u) of the Competition Act, 2002: Defines ‘service’ expansively.
• Section 2(7) of the Sale of Goods Act, 1930: Defines ‘goods’ and excludes actionable claims.
• Section 19 of the Competition Act, 2002: Provides that the Commission “may” inquire into certain agreements and dominant position of enterprise.
• Section 26 of the Competition Act, 2002: Provides for the procedure for an inquiry under Section 19.
• Section 53B of the Competition Act, 2002: Provides for an appellate remedy.
• Section 54 of the Competition Act, 2002: Empowers the Central Government to exempt from the application of the Act.
• Articles 301-303 of the Constitution of India: Relate to trade and commerce.

Authorities Considered by the Court

Judgment

The Supreme Court set aside the Gauhati High Court’s judgment, holding that the CCI does have jurisdiction to investigate allegations of bid rigging in the lottery tender process. The Court emphasized that the CCI’s concern was with anti-competitive practices, not with the regulation of lotteries, and that the definition of ‘service’ under the Competition Act is expansive enough to include the distribution of lottery tickets.

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

How each authority was viewed by the Court?

• The Court distinguished B.R. Enterprises v. State of UP, stating that it was in the context of tax laws and not competition law.
• The Court acknowledged Sunrise Associates v. Government of NCT of Delhi, that lottery tickets are actionable claims, but clarified that this does not exclude lottery distribution from being a service.
• The Court distinguished Union of India v. Martin Lotter Agencies Ltd., stating that the doctrine of ‘res extra commercium’ does not prevent the CCI from investigating anti-competitive practices.
• The Court referred to CCI v. Bharti Airtel, to emphasize that the function of the CCI is distinct from other regulatory bodies.
• The Court referred to Black Diamond Beverages v. Commercial Tax Officer, to support the argument that the inclusive definition of ‘service’ in the Competition Act does not narrow down the width of the ‘means’ part of the definition.
• The Court referred to State of Punjab v. Devans Modern Breweries, to argue that the business of acting as distributors/selling agents cannot be said to come within the purview of the doctrine of ‘res extra commercium’.
• The Court referred to Competition Commission of India v. Steel Authority of India & Anr., to emphasize the nature of proceedings under Section 26(1) of the Competition Act.
• The Court distinguished R.D. Goyal & Anr. V . Reliance Industries Ltd., to show that debentures were not included in the definition of goods under the Monopolies and Restrictive Trade Practices Act, 1969.

The Court stated, “Lotteries may be a regulated commodity and may even be res extra commercium. That would not take away the aspect of something which is anti-competition in the context of the business related to lotteries.” The Court also noted, “We must take note of the expansive definition of ‘Service’ under Section 2(u) of the Competition Act. It means “service of any description”, which is to be made available to potential users.” The Court further clarified, “The purchaser of a lottery ticket is a potential user and a service is being made available by the selling agents in the context of the Competition Act.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure fair competition in the market, even in sectors that are heavily regulated. The Court emphasized that the Competition Act aims to prevent anti-competitive practices, and this mandate extends to the lottery business when it comes to tendering processes. The Court also highlighted the expansive definition of ‘service’ under the Competition Act, which includes any service made available to potential users, thereby encompassing lottery distribution. The Court was also critical of the High Court’s intervention, which it deemed premature, and stressed that the CCI should be allowed to complete its proceedings.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio

Logical Reasoning:

Key Takeaways

• The Competition Commission of India (CCI) has jurisdiction to investigate allegations of bid rigging and cartelization in the tender process for appointment of selling agents and distributors for lotteries.
• The definition of “service” under the Competition Act is expansive and includes the distribution of lottery tickets.
• The doctrine of ‘res extra commercium’ does not prevent the CCI from investigating anti-competitive practices in the lottery sector.
• High Courts should refrain from premature intervention in CCI proceedings.
• The judgment clarifies the interplay between the Competition Act and other regulatory statutes.

Directions

The Supreme Court set aside the judgment of the Gauhati High Court and directed the Competition Commission of India (CCI) to proceed with the investigation and pass a final order in accordance with the law. The Court clarified that the CCI has jurisdiction to inquire into allegations of bid rigging and cartelization in the tender process for appointment of selling agents and distributors for lotteries organised by the State of Mizoram. Further, the Court directed that the proceedings against the State of Mizoram be closed, in view of the statement made by the CCI that it would not proceed against the State.