Supreme Court Clarifies Jurisdiction of Competition Commission in Lottery Tender Cases: Competition Commission of India vs. State of Mizoram (2022) INSC 64 (19 January 2022)

Date of the Judgment: 19 January 2022
Citation: (2022) INSC 64
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 state lotteries? This was the core question before the Supreme Court. The Court clarified that the CCI’s jurisdiction extends to examining anti-competitive practices in lottery-related businesses, even though lotteries are regulated. The bench, consisting of Justices Sanjay Kishan Kaul and M.M. Sundresh, delivered the judgment.

Case Background

The case originated from a complaint filed by a private company (Respondent No. 4) with the Competition Commission of India (CCI). The complaint alleged bid rigging and cartelization in the tender process for appointing lottery distributors and selling agents for the State of Mizoram. The State of Mizoram had issued an Invitation for Expression of Interest (EoI) on 20.12.2011, seeking bids for the appointment of lottery distributors and selling agents for state lotteries. The EoI specified minimum rates for bids, which were Rs. 5 lakh per draw for Bumper lotteries and Rs. 10,000 per draw for other lotteries.

Five bids were received, and four were accepted. The accepted bids quoted identical rates, which were the minimum rates fixed in the EoI. The complaint alleged that the bidders had formed a cartel and entered into an agreement that had an adverse effect on competition in the lottery business in Mizoram. It was also alleged that the State of Mizoram abused its dominant position by requiring distributors to furnish large sums of money towards security, advance payment, and prize pool.

Timeline

Course of Proceedings

The CCI, after receiving the complaint, found a prima facie case of cartelization and bid rigging. It directed the Director General (DG) to investigate the matter. The DG submitted a report concluding that the bidders had colluded and engaged in bid rigging. The CCI then decided to send copies of the report to the parties for their objections.

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 passed an interim order directing that no final order be passed by the CCI. Subsequently, other private parties also filed writ petitions seeking to quash the DG report and the proceedings before the CCI. The High Court admitted the writ petitions and restrained the CCI from passing a final order.

The CCI then moved the Supreme Court against the interim direction. The Supreme Court allowed the High Court to proceed with the matter. The High Court then passed its final order, holding that the Competition Act was not applicable to lottery business, as it was considered res extra commercium.

Legal Framework

The Competition Act, 2002 aims to prevent practices that have an adverse effect on competition, promote and sustain competition in markets, protect the interests of consumers, and ensure freedom of trade.

Section 3 of the Competition Act prohibits anti-competitive agreements. Specifically, Section 3(1) states:

“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 presumes that certain agreements, including those that directly or indirectly result in bid rigging or collusive bidding, have an appreciable adverse effect on competition. The explanation to this subsection defines “bid rigging” as any agreement between enterprises engaged in similar production or trading of goods or services, which has the effect of eliminating or reducing competition for bids or adversely affecting the bidding process.

Section 4 of the Competition Act prohibits the abuse of dominant position. It states that an enterprise or a group shall not abuse its dominant position by directly or indirectly imposing unfair or discriminatory conditions in the purchase or sale of goods or services.

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;”

Section 2(i) of the Competition Act defines “goods” as goods defined in the Sale of Goods Act, 1930. Section 2(7) of the Sale of Goods Act, 1930, excludes actionable claims from the definition of goods.

Section 26 of the Competition Act outlines the procedure for an inquiry under Section 19. It states that if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director-General to cause an investigation to be made into the matter.

Arguments

Arguments of the Appellant (Competition Commission of India)

• The CCI argued that its concern was not with the regulation of lottery business, but with potential bid rigging in the tender process for appointing selling agents and distributors.
• There is no conflict between the Competition Act and the Lotteries (Regulation) Act, 1998.
• The CCI has jurisdiction over the competition law aspect of regulated commodities.
• The definition of ‘service’ under Section 2(u) of the Competition Act is expansive and includes the sale or distribution of lottery tickets.
• If Parliament intended to exclude any service from the application of the Competition Act, it would have stated so under Section 2(h) or Section 54.
• The present activity of lottery distribution is not a sovereign function.
• 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.
• The respondents had an alternative efficacious remedy of an appeal under Section 53B of the Competition Act.

Arguments of Respondent No. 1 (State of Mizoram)

• The State of Mizoram initially challenged the proceedings but later sought to be deleted as a party, stating that the appeal had become infructuous.
• The State claimed that it had never prayed for quashing of the proceedings against the private parties and was a victim of cartelisation.
• The State volunteered to cooperate with the CCI.

Arguments of Respondent No. 5 (M/s. Tamarai Technologies Pvt. Ltd.)

• Section 3(1) of the Competition Act would have no application as there were no “goods” or “provisions of services” which could give rise to the CCI’s jurisdiction.
• Lottery tickets are not goods, as they are actionable claims and there is no provision of any services.
• Lottery business is res extra commercium and is strictly regulated by the State.
• The definition of “goods” under Section 2(i) of the Competition Act refers to the definition under the Sale of Goods Act, 1930, which specifically excludes actionable claims.
• Respondent No. 5 is merely a distributor and does not provide any services to any potential user of lottery.
• The Competition Act will not apply as there was a special act promulgated for conduct of lotteries.

Submissions of Parties

Issues Framed by the Supreme Court

1. Whether the Competition Act, 2002 is applicable to the lottery business?
2. Whether the Competition Commission of India (CCI) has the jurisdiction to inquire into allegations of bid rigging and cartelisation in the tender process for appointment of selling agents and distributors for lotteries organised by the State of Mizoram?

Treatment of the Issue by the Court

Authorities

Judgment

The Court considered the following authorities:

• CCI v. Bharti Airtel [(2019) 2 SCC 521]: The Court relied on this case to emphasize the distinct functions of the CCI and other regulatory bodies. The CCI’s role is to investigate anti-competitive practices, while other bodies regulate specific sectors.
• Black Diamond Beverages v. Commercial Tax Officer [(1998) 1 SCC 458]: The Court used this case to interpret the definition of “service” in the Competition Act, noting that the inclusive part of the definition does not narrow the wider meaning of the term.
• State of Punjab v. Devans Modern Breweries [(2004) 11 SCC 26]: The Court used this case to clarify that the doctrine of res extra commercium applies to state regulation of certain trades, not to anti-competitive practices within those trades.
• Competition Commission of India v. Steel Authority of India & Anr. [(2010) 10 SCC 744]: The Court relied on this case to emphasize that the CCI is expected to form an opinion about the existence of a prima facie case for contravention of the Competition Act and then passes a direction for the DG to cause an investigation.

The Court distinguished the following authorities:

• B.R. Enterprises v. State of UP [(1999) 9 SCC 700]: The Court distinguished this case, which held that lotteries are not trade and commerce under Articles 301-303 of the Constitution, stating that the present case was about the interplay of the Competition Act and the Regulation Act.
• Sunrise Associates v. Government of NCT of Delhi [(2006) 5 SCC 603]: The Court distinguished this case, which held that lottery tickets are actionable claims, stating that the definition of “service” under the Competition Act is expansive.
• Union of India v. Martin Lotter Agencies Ltd. [(2009) 12 SCC 209]: The Court distinguished this case, which held that lotteries are res extra commercium, stating that this doctrine does not prevent the CCI from investigating anti-competitive practices.

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 regulated sectors like lotteries. The Court emphasized that the Competition Act’s objective is to prevent anti-competitive practices, and this objective cannot be undermined by the fact that a particular activity is regulated or considered res extra commercium. The Court was also critical of the High Court’s premature intervention and the State of Mizoram’s initial opposition to the CCI’s investigation.

The Court’s reasoning for each issue is outlined below:

The Court rejected the argument that lottery business being res extra commercium excludes it from the purview of the Competition Act. 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 emphasized 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 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.”

The Court noted the premature intervention of the High Court:

“We would like to say that the intervention by the High Court was extremely premature. It ought to have waited for the CCI to come to a conclusion but on the other hand what has happened is that the CCI proceedings have been brought to a standstill while the High Court opined on the basis of some aspects which may or may not arise.”

Key Takeaways

• The Competition Commission of India (CCI) has jurisdiction to investigate anti-competitive practices, such as bid rigging, in the tender process for lottery distribution.
• The definition of “service” under the Competition Act is broad and includes the distribution of lottery tickets.
• The doctrine of res extra commercium does not exempt lottery businesses from the purview of the Competition Act.
• High Courts should avoid premature intervention in CCI proceedings and allow the CCI to complete its investigation.

Directions

The Supreme Court set aside the impugned judgment of the High Court. The Court directed that the proceedings filed by the State of Mizoram would stand closed. The proceedings against the other parties would continue.

Development of Law

The ratio decidendi of this case is that the Competition Act, 2002 applies to the lottery business, specifically to the tender process for appointing distributors, as it involves “service” under the Act. The Court clarified that the doctrine of res extra commercium does not exempt lottery businesses from the purview of the Competition Act when it comes to anti-competitive practices. This judgment clarifies the jurisdiction of the CCI in regulated sectors and reinforces the importance of fair competition. This case clarifies that the Competition Act would apply to the lottery business, thus changing the previous position of law.

Conclusion

The Supreme Court’s judgment in Competition Commission of India vs. State of Mizoram clarifies that the Competition Commission of India (CCI) has the jurisdiction to investigate anti-competitive practices in the lottery business, specifically bid rigging in the tender process for appointing distributors. The Court emphasized that the definition of “service” under the Competition Act is broad enough to include lottery ticket distribution and that the doctrine of res extra commercium does not exempt lottery businesses from the purview of the Competition Act. The judgment underscores the importance of fair competition in all sectors, including those that are regulated.

Category

Parent Category: Competition Law
Child Categories:

• Competition Act, 2002
• Section 3, Competition Act, 2002
• Section 4, Competition Act, 2002
• Section 2(u), Competition Act, 2002
• Section 26, Competition Act, 2002
• Bid Rigging
• Cartelization
• Res Extra Commercium
• Lottery Regulation

Parent Category: Lotteries (Regulation) Act, 1998
Child Categories:

• Lotteries (Regulation) Act, 1998

FAQ

Q: Does the Competition Commission of India (CCI) have the power to investigate lottery businesses?
A: Yes, the Supreme Court has clarified that the CCI has the jurisdiction to investigate anti-competitive practices in the lottery business, such as bid rigging in the tender process for appointing distributors.

Q: What does “bid rigging” mean in the context of lottery tenders?
A: Bid rigging refers to an agreement between bidders to manipulate the tender process, such as submitting identical bids to eliminate competition.

Q: Does the Competition Act apply to lottery businesses even if they are regulated by the state?
A: Yes, the Supreme Court has stated that the Competition Act applies to lottery businesses, especially when it comes to anti-competitive practices, even if they are regulated by the state.

Q: What is the meaning of res extra commercium?
A: Res extra commercium refers to things that are outside the realm of commerce and are not subject to trade. The Supreme Court has clarified that this doctrine does not exempt lottery businesses from the purview of the Competition Act when it comes to anti-competitive practices.

Q: What should lottery distributors do to avoid issues with the Competition Act?
A: Lottery distributors should avoid engaging in any anti-competitive practices, such as bid rigging or cartelization. They should ensure fair and transparent bidding processes.