Analysis of Coal India Ltd v. Competition Commission of India

[By Siddharth Chaturvedi]

The author is a student of Dharmashastra National Law, University.

 

Introduction

Indian Public Sector Units (PSUs) have enjoyed monopoly in different sectors for a long period of time. However, this is likely to change in the coming time as we analyse the findings of the Supreme Court in the case of Coal India Ltd. vs the Competition Commission of India (Coal India).. The judgement has paved the way to challenge the monopolies of the Public Sector Unit by holding that the Competition Act will be applicable to Coal India Ltd. This piece attempts to analyse the judgment’s findings and its significance. . In doing the same, the author briefly traces the history of the Nationalisation Act along with Schedule 9 of the Constitution, before proceeding to analyse the judgment. The author concludes that, though the judgment should be welcomed because of opening nationalised companies to competition and strengthening the powers of the CCI, however, the ratio decidendi of the judgement rests on a weaker foundation, due to a few wrong assumptions such as the mention of the Essential Commodities Act, which will be subsequently highlighted in the piece.

Coal Mines Nationalisation Act, 1973 and the 9th Schedule of the Constitution

The Coal Mines Nationalisation Act, of 1973 was introduced to ensure  that the ownership and control of resources are held with the State in order to serve the common good of people through the distribution of resources. In the 9th Schedule of the Constitution, one gets to see that Coal Mines Nationalisation Act, 1973 is mentioned as the 99th item. However, the Coal Nationalisation Act, of 1973 was repealed by the Repealing and Amending (Second) Act, of 2017, thus taking the Act outside the ambit of the 9th Schedule of the Constitution. Hence, the Coal Mines Nationalisation Act, of 1973 could be challenged on grounds of being ultra vires of the Constitution.

It is also important to note that prior to the judgment of Coal India Ltd. vs CCI, the Supreme Court had already stated in IR Coelho vs State of Tamil Nadu(IR Coelho) that any law which has been inserted in the 9th Schedule, has to be tested on the principles of the basic structure of the Constitution. Thus, there is no absolute bar on testing the validity of any law inserted under the Ninth Schedule. Against the backdrop of these two important developments, it is necessary to examine the judgement of the Supreme Court of India in Coal India vs CCI.

Analysis of the Judgement

Before arriving at its ruling, the Apex Court observed that Coal India Ltd is a Government Company. Further, the Court also stated that Nationalisation Act was passed in order to realise the goals of Article 39(b) of the Constitution, which states that ownership and control of the material resources of the country are to be distributed in order to subserve the common good. The Court also drew a lot of interesting analogies while arriving at its decision, amongst which was a reference to ‘slaughter mining’ and whether the same runs in violation of Section 4(2) (b) of the Competition Act. Section 4(2) (b) prohibits abuse of dominance if the enterprise limits or restricts the production of goods or provision of services or it restricts or limits the scientific development of the goods. However, the Court failed to provide any empirical evidence of Coal India Ltd indulging in slaughter mining, rather it proceeded on a hypothetical situation that Section 2(4)(b) of the Competition Act may be violated in the case of slaughter mining.

The Court also rightfully drew the attention of the parties to the report of the Raghavan Committee where it was stated that despite being a State monopoly, these state enterprises had to operate within the realm of competition law. Importantly, the Committee had noted, which also finds mention in the judgement that the public sector should be open to competition and not given any preferential treatment. Further, the Committee Report also pointed out various ills such as preference in bidding, state patronage, restrictive trade practices etc. . However, the Court then, in the humble opinion of the author, unnecessarily devoted pages to highlighting the transformation of economic policies from 1991 to the present date, which could have been explained keeping in mind brevity.  The Court also answered in the affirmative that Section 19(4) of the Competition Act, which gives CCI power to assess whether a particular enterprise enjoys a dominant position or not,  a single factor itself.

Moving ahead, the Court also proceeded to point out the importance of Section 19(4)(g) of the Competition Act, which gives the CCI the power to investigate whether an enterprise enjoys a dominant position or not, by taking into consideration whether the enterprise is a monopoly or in a dominant position due to being a Government Company or public sector unit. Thus, the Court effectively indicates that Coal India Ltd falls within the ambit of the purview of the Competition Act. The central argument of Coal India Limited, which was based on Article 39(b) of the Constitution, was also negated by the Court when it questioned how the Competition Act which provides for avoidance of anti-competitive agreements, abuse of dominance serves against ‘common good’? The Court’s central assumption behind the same premise was that while enacting the Competition Act, of 2002, the Parliament was aware of the Nationalisation Act and intended to regulate the competition of the State-owned companies or Public Sector Units. This certainly seems to be a correct argument, otherwise, in the author’s opinion, the Parliament could have carved an exception for State-run entities within the Competition Act itself.

However, the Court could have further proceeded to strengthen its ratio decidendi on other arguments, rather than relying on Coal being removed from the Essential Commodities Act. The  Court observed that  Coal was removed from Essential Commodities Act, and thus observations of the judgment of Ashok Smokeless Coal India Ltd vs The Union of India ( Ashok Smokeless)will not be applicable in relation to the present appeal. However, the Court failed to take into account the fact that Coal is a perishable commodity, and a situation may arise when reserves of coal deplete to a large extent, and the Government, may, at its discretion, bring back Coal into Essential Commodities Act. Thus, the author feels that reference to Essential Commodities Act, in relation to pointing out the fact that Coal India Limited will be governed by the Competition Act,2002 was not necessary and does not strengthen the judgement of the Court.

What is ahead for the CCI?

The judgement paves the way for the CCI to further investigate the allegations of abuse of dominance by Government owned companies and other public sector companies. It is also important to note that the judgement has clarified that CCI will be within its domain of powers under Section 28 of the Competition Act, to order the division of the company, irrespective of the fact whether it is a public sector company or government-owned company. However, there are still certain exemptions which will be available to the Government, such as the security of the state or public interest  to ensure that there is no division of the company. It is hoped that with the passage of this judgement, the competition amongst private players and state-owned entities will increase, which should eventually benefit the consumers and increase their choices.

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