Supreme Court: Competition Act is Applicable on Coal India Limited Despite being a Public Sector Undertaking

Supreme Court: Competition Act is Applicable on Coal India Limited Despite being a Public Sector Undertaking

The Supreme Court coram comprising of Justices KM Joseph, BV Nagarathna, and Ahsanuddin Amanullah have significantly observed that Coal India Limited (CIL) cannot seek an exemption from Competition Act, 2002 despite being a public sector undertaking under Coal Mines (Nationalization) Act, 1973.

In the present case the Court was hearing a group of appeals, wherein the CIL had filed an application contending that since it operates coal mines covered by the Coal Mines (Nationalisation) Act, 1973 it would not be in the purview of the Competition Act, 2002.

The Competition Commission of India (CCI) had opposed the plea and contended that there is no constitutional challenge to any provision of the Competition Act, 2002 (the Act).

CIL had filed an appeal against the order of Competition Appellate Tribunal (COMPAT) passed in December 2016 which had dismissed the appeal against CCI’s order.

The COMPAT in the first round of litigation had remanded the matter for a new judgement, reducing the penalty from the initial amount of Rs. 1733.05 crores to Rs. 591.01 crores.

The public coal business had been found guilty of violating the Competition Act by abusing its dominant position in the production and delivery of non-coking coal to thermal producers.

Several complaints were received from the West Bengal Power Development Corporation Limited, the Sponge Iron Manufacturers Association, the Gujarat State Electricity Corporation Limited, the Madhya Pradesh Power Generating Corporation Limited, and the Maharashtra Generating Company Limited.

The thermal firms claimed that while CIL had a monopoly, it had delayed the implementation of fuel sales agreements that it had forced them to sign.

Furthermore, it was argued that these agreements were anti-competitive because the immediate replies lacked any negotiation or bargaining leverage.

The thermal companies claimed that Coal India had unfairly charged customers by raising the price of coal from $1,631 per metric tonne to $2,177 per metric tonne without providing any rationale.

Senior Advocate and former Attorney General KK Venugopal argued on behalf of Coal India before the Supreme Court and contended that since it operates coal mines in accordance with the Coal Mines (Nationalisation) Act, the Competition Act does not apply to any aspect of its business.

Per contra, N Venkataraman, Additional Solicitor General (ASG) appearing for the CCI, disagreed with the claim and emphasised that none of the Competition Act’s provisions were subject to a constitutional challenge.

The ASG argued that Coal India had unilaterally regulated coal pricing and provided power firms with subpar coal.

The bench at the outset highlighted that Government Departments are also expressly covered within the expression ‘enterprise’ under the Competition Act, 2002.

The bench stated that undoubtedly, Departments discharging sovereign functions are excluded but save those Government departments which are excluded, the Government Departments being State, are equally obliged to bear in mind the Directive Principles. The radical nature of the law contained in the Act has made a perceptible departure from the erstwhile law contained in the Monopolistic and Restrictive Trade Practices (MRTP) Act.

The bench extensively had discussed the concept of ‘common good’ as mentioned in Article 39 of the Constitution, with the CCI arguing that Coal India cannot use the same as a shield in such cases.

The Court observed that the concept of common good is itself not a static concept. It may take its hue from the context and the times in which the matter falls for consideration by the Court.

The bench was of the view that if Parliament has intended that State monopolies even if it be in the matter of distribution must come under the anvil of the new economic regime, it cannot be found flawed by the Court on the ground that subjecting the State monopoly would detract from the common good which the earlier Nationalization Act when it was enacted, undoubtedly, succeeded in subserving.

Therefore, the bench held that there was no reason to hold that a State Monopoly being run through the medium of a Government Company, even for attaining the goals in the Directive Principles, would go outside the purview of the Competition Act, 2002.

The Supreme Court pertinently remarked that the economy has changed since independence, and the same cannot be perceived in isolation.

In this regard the bench stated, “No nation can remain unaffected by the changes in the state of the world economy. Policies, which are suitable at a given point of time, are not cast in stone. Each generation of people have the right as also the duty to revisit economic policies which found favor with the past. The present cannot put posterity in chains. Equally, the past cannot hold the present hostage to ideas which would then degenerate into what was once original and suitable into dogma which no longer can serve the people.”

The Court rejected the contention that Coal India had powers similar to the Election Commission of India with regard to superintendence over commercial coal operations.

Further, the Court opined that public sector company cannot be oblivious to its duty to bear in mind the sublime goal with regard to distribution so as to subserve the ‘common good’.

"The appellants may qualify as State for the purpose of Chapter IV if it fulfils the requirement of State under Article 12. We bear in mind in this regard the argument of the appellants that a remedy is open to a party against the appellant in proceedings under Article 226 or Article 32 of the Constitution. Thus, the appellants also, even if the appellants are Government Companies but being State, have a duty to keep uppermost, in their minds, the goal in Article 39(b),” affirmed the Court.

The Court clarified that it was open to the appellant as the State monopoly to take up all contentions to demonstrate that there is no abuse of the dominant position.

The bench stated that be it differential pricing or a decision to limit or restrict production, if it is part of national policy or based on Presidential Directives and the appellant raises such a contention after bona fide following the Directives or policy themselves, it may be a matter, which the CCI would have to consider in deciding whether there is abuse of dominant position.

Lastly, the bench held that there was no merit in the contention of the appellants and ordered that the transferred cases shall be sent back so that they may be dealt with on their own merits. The transferred cases were disposed of accordingly.

The interlocutory applications seeking interim relief in the pending appeals is listed in the second week of July 2023. The contempt petitions were further listed in July 2023.