Competition Act Applies To PSUs: SC Rejects Coal India Ltd’s Challenge As It Runs Business, Not A Sovereign Function

“We would hold that there is no merit in the contention of the appellants that the Act will not apply to the appellants for the reason that the appellants are governed by the Nationalisation Act and that Nationalisation Act cannot be reconciled with the Act. This is subject to the appellants having all the rights to defend their actions under the law and as indicated hereinbefore. The transferred cases shall be sent back so that they may be dealt with on their own merits. The transferred cases are disposed of”, a bench of Justice K.M. Joseph, Justice B.V. Nagarathna and Justice Ahsanuddin Amanullah observed in the matter.

Senior Advocates K.K. Venugopal, and Maninder Singh appeared for the appellant, Additional Solicitor General N. Venkataraman appeared on behalf of CCI and Senior Advocate Ranjit Kumar appeared on behalf of the second respondent.

The appeal challenged an order passed by the Competition Appellate Tribunal, New Delhi by which the Tribunal affirmed the findings and conclusion recorded by the Competition Commission of India on various facets of abuse of dominant position. The abuse of dominant position was ascribed to the appellants. The appeal was dismissed.

Therefore, when the matter came up on September 16, 2022, before a two-judge, the Court felt that since modification of the order dated August 3, 2017, was sought, it would be appropriate that the matters be heard by a bench of three learned Judges.

On finding pending proceedings with a similar question, the bench allowed the transfer petitions, without going into the merits of the individual cases but while confining itself to the question of law raised by the appellants.

Now in the pertinent matter, the primary contention of the appellants was that Coal India Limited, being a monopoly created by a statute and duty bound to achieve the objects declared in Article 39(b) of the Constitution of India and the second appellant, Western Coalfields Limited, a subsidiary company of the first appellant cannot be bound by the Competition Act, 2002.

The alleged ground or the contention was that applying the Act would produce such anomalous results as would stultify the sublime goal enshrined in Article 39(b) as also the statute under which the appellant.

Therefore, the applicability of the Competition Act, 2002 to the appellant was challenged.

Contentions of the Appellants:

It was submitted that the coal mines operated by the appellants pursuant to the provisions of the Coal Mines (Nationalization) Act, 1973 would be wholly outside the purview of the Act. As the very purpose and policy underlying the Nationalization Act, was to monopolise the operation of the coal mines and coal mining in the hands of the Central Government and its agencies such as the appellants.

Further it was argued that the monopoly was not an ordinary monopoly, realizing the need to immunize it from challenge, protection of Article 31B of the Constitution of India was sanctioned.

Highlighting the importance of coal, it was contended that its place in the Ninth Schedule to the Constitution and Article 39(b) of the Constitution of India takes it out of the category of ordinary monopoly, to abide by the principles of ‘common good’ being secured by the ‘distribution of scarce resources.

It was also submitted inter alia that Section 27(a) of the Competition Act, clothes the CCI with the power to order the cessation of abuse, which would be inconsistent with the appellants pursuing welfare policy in relation to pricing and distribution of coal.

Also, argued that under Section 32 of the Nationalisation Act, the mining companies cannot be wound up which stands in contrast to Section 28 of the Competition Act which empowers the CCI to divide enterprises abusing dominant position including adjustment of contracts, formation of winding up of enterprises among other things.

Contentions of the Respondent:

Contending that the balance of shareholdings is in private hands, the reposnent inter alia highlighted that the first appellant was fully owned by the Central Government in terms of its shareholding, after 2010, however following disinvestment, the Government shareholding has declined to nearly 67 per cent.

Reliance was placed on the judgments of Waman Rao and Others v. Union of India and Others (1981) 2 SCC 362. While the I.R Coelho (dead) by LRs v. State of T.N. (2007) 2 SCC 1 was referred to lay emphasis on the proposition that the immunity, laws enjoyed on their insertion in the Ninth Schedule and the laws, which may be placed in the Ninth Schedule, stands considerably diluted.

On the contention of “common good”, the respondent submitted that the Nationalisation Act was an expropriatory legislation.

It was further argued while referring to the predecessor enactment, viz., the Monopolies and Restrictive Trade Practices Act, 1969 which stood repealed by the Act of 2022, underlined Section 3 of the earlier Act which had clearly declared that, unless it was otherwise notified, the MRTP Act would not apply to Government Agencies. However, there is no such provision in the Act.

Further submitted that if the appellants legitimately wished to be taken out of the purview of the Act, Section 54 holds the key and there is a lawful way. As long as there is no exemption, the Act applies to the appellants.

Senior Advocate M. Mishra, appearing on behalf of the Maharashtra Power Generation company , in the Transferred Cases would submitted that the complaint against the appellants is being voiced only by private players like the second respondent in the Appeal. The acts and omissions of the appellants is being objected to even by public sector units such as his client. Further that the price of coal has a bearing on both the Consumer Price Index as also the Wholesale Price Index.

The bench firstly, while underlining the importance of coal observed, It forms an important raw material in the production of vital final products. Also, it forms a kind of fuel, which drives power plants. A monopoly, undoubtedly, stood created by the Nationalisation Act. The mines, which were the subject matter of the Act, stood vested with the Central Government. The first appellant is a Government Company, which came into being, as contemplated under Section 5 of the Nationalisation Act. The appellant Company operates the mines. It is tasked with the power and the duty to distribute coal. This attracts the Directive Principle enshrined in Article 39(b). The said Directive Principle contemplates that the ‘State’ should direct its policy towards securing that the ownership and control of the ‘material resources’ are so ‘distributed’ so as to ‘subserve the common good’”.

However, while referring to Ashoka Smokeless Coal India (P) Ltd. v. Union (2007) 2 SCC 640, where the Court held that holding of e-auction did not amount to price fixation, the bench without undermining the importance of coal, noted that observations were made on December 1, 2006, at the time when coal was an essential commodity. While it has ceased to be an essential commodity after the date of the Judgment in February, 2007.

Further noted, “Here we are not dealing with a plea to overturn the Nationalisation Act on the score that it is violative of any of the Fundamental Rights. The Nationalisation Act was enacted to vest in the Central Government, the rights of the lessees in the coal mines so that they could be operated so as to ensure the rational, coordinated and scientific development and utilization of the coal resources consistent with the growing requirements of the country”.

The bench also noted that the appellants could not seek immunity from the operation of laws, which otherwise binds them.

“As we have noted earlier on, in answer to a specific query, as to whether the appellants are carrying on any sovereign functions, both Shri K.K. Venugopal and Shri Yaman Verma, would contend that they are not carrying on any sovereign functions. This relieves the Court of undertaking a discussion, which, even otherwise, may be unnecessary, having regard to the nature of the function. The first appellant is not a Department of the Government. It is a Government Company. In fact, what is excluded from the definition of the expression ‘enterprise’, is a Government Department carrying on Government functions. Carrying on business in mining, cannot, by any stretch of imagination, be described as a sovereign function. There is nothing in the definition which excludes a State monopoly which is even set up to achieve the goals in Article 39(b) of the Constitution”, the judgment further read.

Accordingly, the bench posted the appeal for being dealt with on its own merits. The interlocutory applications seeking interim relief in the pending appeal was thus listed in the second week of July 2023. The contempt petition was listed in the second week of July 2023.

Cause Title: Coal India Limited And Anr. v. Competition Commission Of India And Anr.