Coal India Ltd vs Competition Commission of India | Legal Reasoning for CLAT PDF Download

The Supreme Court has decided against Coal India Limited (CIL) in a dispute it had with the Competition Commission of India (CCI).

The judgment ostensibly espouses a pro-market stance, on the basis of the existing framework of the Competition Act, 2002.

However, in truth, it is an unfortunate stumbling block towards the realisation of the cherished principles of an egalitarian society.

Therefore, there is a need to have a thorough debate to reverse the potential damage this judgment might cause.

An unfortunate development

In the case under consideration, Coal India Ltd versus Competition Commission, the Supreme Court of India has decided against the statutory monopoly of the CIL by holding that the CIL is not exempted from the operation of the Competition Act.

As a consequence, the CCI is now legally competent to investigate and take measures against statutory monopolies similar to the CIL in those cases where their actions are found in violation of the mandate of the Act.

An earlier judgment, Union of India versus Competition Commission of India, pronounced by the Delhi High Court, held against another statutory monopoly (the Indian Railways) on similar lines by treating it as an enterprise for the purposes of the Act.

Coal used to be a darling commodity and the CIL a much-protected and much-vaunted entity. It occupied this throne for several decades.

These pronouncements come as an unfortunate development, especially in the present time where the arms of the private market with visible predatory, monopolistic behaviour get a free pass, with only occasional warnings.

On the other hand, the utilitarian arm of the welfare State is restricted to develop fair competition in the market.

Brief outline of the case before the Supreme Court

The CIL, a public sector undertaking under the Union government, was created under the Coal Mines (Nationalisation) Act, 1973 as a statutory monopoly to realise the deep convictions of the founding generation of this republic as the advancement of the socialistic nature of economic policy with a broader noble aim to achieve the vision of Article 39 (b) of the Constitution.

The introductory statement of the Naturalisation Act reads: “[F]or the acquisition and transfer of the right … with a view to reorganise and reconstruct coal mines so as to ensure the rational, co-ordinated and scientific development and utilisation of coal resources consistent with the growing requirements of the country, in order that the ownership and control of such resources are vested in the State and thereby so distributed as to best subserve the common good, and for matters connected therewith or incidental thereto.”

The CIL, an Article 39(b)-monopoly, is undoubtedly a ‘State’ for the purpose of Article 12 of the Constitution. After the enactment of the Nationalisation Act, 1973, it was placed in the Ninth Schedule (under Article 31B of the Constitution) of the Constitution to give protection from judicial review. 

As an additional measure, coal was made an essential commodity under the Essential Commodity Act, 1955.

These measures made coal a darling commodity and the CIL a much-protected and much-vaunted entity. It occupied this throne for several decades.

However, developments in recent decades have made the position of the CIL weaker and, in a sense, created the groundwork for the recent adverse judgment against the CIL.

Also read: To promote competition, CCI should not appear to punish better use of resources by a dominant enterprise 

In 2007, coal was removed from the essential commodities list. The Nationalisation Act, 1973, along with its sister legislation, The Coking Coal Mines (Nationalisation) Act, 1972, were repealed through the Repealing and Amending (Second) Act, 2017.

The judgment ostensibly espouses a pro-market stance, on the basis of the existing framework of the Competition Act, 2002.

In this context, the broader sum and substance of the CIL was that it would be unwise to treat it as an ordinary monopoly given the statutory nature of its creation and the express aim it was set up to achieve.

The case presented by the Competition Commision of India

During the proceedings of the case, the CCI persuasively brought the aims and object of the Act to serve its case. 

Especially in light of Section 54 (which gives the government power to exempt an enterprise from the application of the Act), the CCI raised the valid and forceful point that the CIL does not enjoy any express exemption.

Once such an exception is found non-applicable to an enterprise, and in the absence of any other provision of the Act providing such benefits to statutory monopolies, the provisions of the Competition Act would logically apply to the CIL as well.

The judgment of the court

The court accepted the views of the CCI and decided against the CIL. The judgment goes through the development of economic policy by referring to the Raghavan Committee for suggesting reform in the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act). 

The Raghav Committee made it abundantly clear that the Competition Act, 2002 should also be made applicable to government agencies with equal force (Para 49 and 51 of the Raghav Committee report).

There is a notable absence of enabling or exempting Sections in the Competition Act. For example, Section 3 of the MRTP Act, which declared that the Act would not apply to government agencies unless otherwise notified, does not have an equivalent in the Competition Act. This absence gives credence to the views of the committee.

As the Competition Act came into force at a later point in time (it was enforced in 2009) which again showcased the legislative intent to subject the Nationalisation Act, 1973 to the operation of the Competition Act.

The court proceeded on this and deferred to the lawgivers on the needs of the society as expressed by the Act. Nothing much remained of Coal India’s case.

The CIL did not present a plea of discharging sovereign functions to escape from the definition of “enterprise” under Section 2 of the Act.

The validity of any act was not under challenge; therefore, harmonious constructions were not called for. The court considered case laws on the topic but found them operating under different legal contexts.

The CCI is now legally competent to investigate and take measures against statutory monopolies similar to the CIL in those cases where their actions are found in violation of the mandate of the Act.

The judgment presented a rationale for earlier efforts of aggressive public or government sector leadership across economic sectors.

Justice Joseph appreciated the socialistic concerns that the economic conditions of the country at the time of independence were in ‘stark contrast’ with anytime afterward.

“As far as the time dictated content of common good goes, it simply means that ‘economics’ itself is not being bound in chains, but it is a dynamic concept. The attainment of common good would be dependent on the appreciation and understanding of a generation as to how economic common good is best achieved,” the Raghav Committee avers.

“The debate between the advantages and disadvantages of pursuing the policy of State intervention in economic policy which emasculates private enterprise and competition has almost reached its end. The advantages of a fearlessly competitive economy have been realized by the Nation,” it continues in Paragraph 96 of its report.

There remains much that deserves debate and discussion 

That markets should allow fair competition amongst all the players is the rallying cry of the Competition Act and other antitrust legislation. Much is left to be desired on this point alone.

A general survey would suffice that major enterprises in the dominating sectors of the current Indian economy are just too big to even let any other enterprise compete with them.

The existence of such dominating sectors in abundance is a matter of concern for experts. Nouriel Roubini, a noted economist,  views such oligopolies as a potent plague that might hamper India’s growth prospects. 

Equitable entry opportunities for other market entities, start-ups or small players, have vanished. It is true that the present antitrust policy of the Competition Act does not go for the dominating status but only penalises prohibited abuse of such status.

What is just too clever a point to hide is that our current antitrust policy is at a complete loss to check what is an obvious abuse of the dominant position carried by private monopolies or duopolies in a rather routine fashion.

Let us take an example of a recent ‘success’ of our competition policy, the CCI imposed a penalty on Google for abusing its dominating position and successfully defended its action in the Company Law Tribunal.

The CIL did not present a plea of discharging sovereign functions to escape from the definition of “enterprise” under Section 2 of the Act.

Not taking all the credit, which the CCI deserves, the action, however, is a clear-cut adoption of the European Union’s commendable measures against Google and other platforms.

In plain language, the antitrust action began in India when everyone in the world had already woken up to the realities of manifestly anti-competitive and exploitative practices of dominating big tech companies. Such practices have not stopped yet.

Apparent abuse of dominating positions continues on these platforms, take an example of someone who took off Twitter without a valid explanation. Which other option or platform can provide such a level of public communication and compete with Twitter?

Taking this reasoning forward, ordinary customers are often compelled to limit their exercise of choices because across sectors there are no good options, either a monopoly rules, or, in some more fortunate cases, a duopolies rules.

In addition, taking action against foreign monopolies becomes easier for regulators (the CCI) because it sits comfortably with local nationalistic attitudes, but a general study of domestic monopolies or duopolies would reveal that abuse of dominant position is a fairly common phenomenon among them as well. 

A mature solution demands a change of attitudes

The CIL could have succeeded if the government had opted for an exemption as done for other entities mentioned above. The Competition Act also has no saving Sections or clauses for entities such as the CIL.

It is more of a question of attitude, which presently does not favour any special treatment of public-sector, State or legal monopolies that are also endorsed by the government with its actions and policies. Such an attitude requires a change.

The CIL is what legal scholars describe as a natural monopoly, a seller and producer which can satisfy all the demands at the lowest possible cost. The purpose of a socialistic economy is not only limited to the vesting of ownership in the State. 

There is also a recognition of a stark choice that compels the State to force upon the market its apparent preferences for deciding the scales that accrue benefits to State-owned entities to realise the greater good at an affordable cost.

The other option leaves too much in the invisible hands of a market economy that is ruthlessly indifferent to the larger common good. Take an example of climate change, which cannot be remedied by market economics. 

Therefore, the existence of public-sector, State or legal monopolies is a negation of fair competition in that sector vis-à-vis other entities. 

If rules are the same for all similarly placed institutions, then a high standard is set for the State-owned enterprises, fashioned as an incompetent waste of public money.

If rules are the same for all similarly placed institutions, then a high standard is set for the State-owned enterprises, fashioned as an incompetent waste of public money. 

On the other hand, a free licence to private oligopolies to grow does not augur well. It is a frank admission, given the same reality of the lopsided nature of the private sector, that the Raghavan Committee consensus requires serious consideration.

The Ministry of Coal says, “Coal is the most important and abundant fossil fuel in India. It accounts for 55 percent of the country’s energy needs. The country’s industrial heritage was built upon indigenous coal.” 

The CIL was a creation to fulfill such requirements, and in order to do so it needs ample ‘elbow room’. 

The judgment, though fine on legal analysis, presents us with a development that has dented our noble quest for realising constitutional goals.