Case Analysis: Coal India Ltd. Vs. Competition Commission of India
Author: Zainab Akhtar
LJD Law College, University of Calcutta
FACTS OF THE CASE
The appellants had moved to Supreme Court of India, with an appeal against the order of the competition Appellate Tribunal, which upheld the CCI's order finding CIL to be liable for abusing their dominant position in the industry. It was contended by the Appellant that CIL, being a monopoly created by a statute and bound to achieve the objects declared in Directive Principles of State Policy (DPSP) enshrined under Article 39 (b) of the Constitution of India, could not be bound by the Competition Act, 2002.
Post such contention being raised by way of an application filed for taking additional grounds, the Hon'ble Two-Judge Bench Court referred the matter to a Three-Judge Bench, whereafter, the aforementioned decision was pronounced.
THE CASE OF THE APPELLANTS
The Nationalization Act was enacted to transfer and acquire the control of Coal Mines to the State, thereby establishing a complete monopoly over their operation. The design and background of the Act furthered the objective prescribed under Article 39 (b) of the Constitution of India, which specifies that the policies of the State shall be directed towards ensuring that “the ownership and control of the material resources of the community are so distributed as best to subserve the common good”. In furtherance of the need to achieve this goal, the Act was even added to the Ninth Schedule of the Constitution of India, amongst the list of the legislations, which were immune from being challenged and was further given a precedence over other laws, through the insertion of Section 28, which specified that the provisions of the Nationalization Act shall “have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force”.
This statute was brought into force during the initial years of Indian independence, when coal was considered to be a material resource and was even added as such under the Essential Commodities Act, 1955. However, with the gradual increase in the production of coal, the commodity was removed from the Act in 2007. Further to such removal, even the Nationalization Act was repealed through the promulgation of the Mineral Laws (Amendment) Act, 2020, whereafter the exclusivity of the usage of the resource by Schedule – I and Schedule – II was removed altogether.
As per the contention of the Appellants, such removal of coal from the Essential Commodities Act, or even the subsequent repealing of the Nationalization Act, did not render the resource to be immaterial and that it was necessary for coal to be distributed to achieve the common good. Reliance was also placed on the decision pronounced in the case of Ashoka Smokeless Coal India (P) Ltd. & Ors. vs Union of India & Ors.3, wherein the Hon'ble Supreme Court had observed that
“Coal being a scarce commodity, its utility for the purpose for which it is needed is essential. Although, technically, in view of the fact that no price is fixed for coal, there may not be any black marketing in the technical sense of the terms; but this Court cannot also encourage black marketing in general sense. Nobody should be allowed to take undue advantage while dealing with a scarce commodity. The very fact that despite best efforts of the Central Government, the coal companies failed to curb the menace of a section of people and to deal in coal excluding other general people therefrom or the linked consumers misusing their position of obtaining allotment of coal either wholly or in part, it is absolutely necessary that some mechanism should be found out for plugging the loopholes.”
Furthermore, the Appellants argued that provided by the fact that the contracts forming the subject matter of the dispute were executed well before the removal of the Nationalization Act from the Ninth Schedule took effect, it must not form a basis for the dismissal of the Petition.
Thus, an emphasis was made over the fact that the application of the Competition Act over the Appellant Body will lead to ‘such anomalous results as would stultify the sublime goal enshrined in Article 39(b) as also the statute under which CIL witnessed its birth'.
THE RESPONDENT SIDE OF THE CASE
The Competition Act was enacted to keep up with the economic development of the country and to prevent the practices which have an adverse effect on competition in markets. In furtherance of the fundamental right enshrined under Article 19 (1) (g) of the Constitution of India, the Act sought to promote and sustain competition in the markets to ensure the freedom of trade carried on by other participants in the market in India and to protect the interests of the consumers.
The statute was enacted in place of the Monopolistic and Restrictive Trade Practices Act, 1969, and was in furtherance of the High Level Report submitted by the Raghavan Committee, wherein the latter was appointed in the year 1999, to study the need for a competition law in the Nation.
Amongst the various recommendations made within the report, the committee had observed that, in consideration of the economic efficiency and competition policy, it was essential for the public sector to not enjoy monopoly and to be subjected to market disciplines through competition. The preferential treatment given to the public sector by the government was deeply condemned and a recommendation to the effect that the sector should be exposed to competition was also made. The primary objective for making such recommendations was provided to be the fact that “without significant privatization, the (sic) barriers to efficiency will remain” 4.
The Respondents, by highlighting the aforementioned objective of the Act and its preceding report, submitted that even with the presence of Section 28 in the Nationalization Act, the Competition Act would apply on the Appellants. Further emphasis was made on the ‘three filters', provided under the Act, which ascertained the rationality in the decision of a body being held liable for abusing their dominant position in the market. The said filters, were submitted to include the following stages:
Ascertaining the description of the enterprise as under Section 2(h) of the Competition Act;
Ascertaining whether such enterprise occupies a dominant position, as under Section 19 (4) of the Act; and
Ascertaining whether such enterprise has abused such a dominant position.
It was submitted that, in the present case, the Appellant Body effectually fitted in all the three aforementioned determinations and was thus, liable to the penalties imposed under the Act.
JUDGEMENT ANALYSIS
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.
Section 4(2) (b) of the Competition Act 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.
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.
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 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.