Coal India Ltd v. Competition Commission: A Defeat Long In The Making

An unfortunate development

The Supreme Court of India in Coal India Ltd v. Competition Commission [2023] [KM Joseph, J. B.V. Nagarathna, J., A. Amanullah, J.] has decided against statutory monopoly (Coal India) by holding that Coal India is not exempted from the operation of the Competition Act (2002) [“the act”].

As a consequence, the Competition Commission of India [“CCI”] is now legally competent to investigate and take measures against statutory monopolies similar to Coal India, in those cases where their actions are found in violation of the mandate of the act. Although. In an earlier judgment [Union of India v. Competition Commission of India (2012)] [VipinSanghi, J.] pronounced by the Delhi High Court too held against another statutory monopoly, the Indian Railways, on similar lines by treating it as an enterprise for the purposes of the act. 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 sometimes-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 matter before the Supreme Court

1. The case presented by Coal India:

Coal India, a Government company, was created by the 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) (laying out the directive principle for the distribution of material resources of the community as best to subserve the common good)of the Constitution. The introductory statement of the Naturalisation Act reads as follows:

“or the acquisition and transfer of the right, … with a view to re-organising and reconstructing such 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 best to subserve the common good, and for matters connected therewith or incidental thereto.”

This “article 39 (b)” monopoly undoubtedly is a “State” for the purpose of Article 12 of the Constitution, also after the enactment, the Nationalisation Act (1973) was placed in the 9^th Schedule (under Article 31B of the Constitution) of the Constitution, to give protection from judicial review, furthermore as an additional measure coal was made an essential commodity under the Essential Commodity Act, 1955.

An important development that subdued the case of Coal India was that coal, once an essential commodity, was taken out from the essential commodity list in 2007, and the Nationalisation Act (1973) was repealed through the Repealing and Amending (Second) Act, 2017 along with its sister legislation The Coking Coal Mines (Nationalisation) Act, 1972.

In such light, the broader sum and substance of Coal India 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.

2. The case presented by the CCI:

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), it was a valid and highly forceful point raised by the CCI that Coal India does not enjoy any such express exemption by the Government which although is extended to rural regional banks.

Once such exemption is found non-existent to an enterprise, and in the absence of any other provision of the act, which gives any benefits to such type of statutory monopolies, it became logically clear that the provisions of the act would cover the Coal India as well.

3. The Judgment of the Court:

The court accepted the views of the CCI and decided against Coal India. The judgment fairly glanced through the development of economic policy by referring to the High-Level Committee/Raghvan Committee for suggesting reform to erstwhile the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act]. The committee made it abundantly clear that the new act, the Competition Act 2002, should also be made applicable to Government agencies with equal force. (Para 49/51)

The notable absence of enabling/exempting sections in the present new act, e.g., Section 3 of the erstwhile act which declared that the MRTP Act would not apply to Government Agencies unless it was otherwise notified, also gave credence to the views of the committee. As the act came into force at a later point in time (enforced in 2009) which again showcased the legislative intent to subject the Nationalisation Act (1973) to the operation of the act. The court proceeded on this and deferred to the lawgivers on the needs of the society as expressed by the act. (Para 96/97)

Nothing much remained of Coal India’s case. Coal India 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 judgment presented a rationale for earlier efforts of aggressive public/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 afterwards. The need for the public sector was a legitimate choice to achieve economic goals. Vices of licence raj, the need for liberal reforms, and the crisis of 1991 were cited as reasons for the evolution to the present legal regime:

“As far as the time dictated content of common good goes, it simply means that ‘economics’ itself 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 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.”

(Paragraph 96)

There remains much that deserves debate and discussion

Markets should allow fair competition amongst all the players is the rallying cry of the Competition Act (Also anti-trust legislation). Much is 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, their existence in abundance is a matter of concern for the experts, one noted economist Nouriel Roubini views such oligopolies as a potent plague that might hamper Indian growth prospects.

Equitable entry opportunities for other market entities, start-ups or small players, have vanished. It is true that the present anti-trust policy of the act does not go for the dominating status but only penalises prohibited abuse of such status. That however is just too clever a point to hide that our current anti-trust policy is at a complete loss to check what is an obvious abuse of the dominant position carried by private monopolies/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. 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 anti-trust 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. Still, apparent abuse of dominating position continues on these platforms, e.g., someone taken off Twitter without a valid explanation, which other option or platform can provide such a level of public communication as no one is there to 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 rule or in the case of good fortunes, duopolies rule.

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/duopolies would equally reveal that abuse of dominant position is a fairly common phenomenon.

A mature solution demands a change of attitudes

Coal India could have succeeded if the Government had opted for an exemption as done for other entities above mentioned. The act also has no saving sections/clauses for entities like Coal India. Hence, it is more of a question of attitude, which presently does not favour any special treatment of public-sector/state/legal monopolies that is also endorsed by the Government with its actions and policies.

Such attitudes require a change. Coal India is what legal scholars describe as a natural monopoly—a seller (producer) who 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. It is also a recognition of a stark choice that compels the State to force upon the market its apparent force for deciding the scales that accrue benefits to the state-owned entities to realise the greater good of the present at an affordable cost, the other option leaves too much in the “invisible hands” of market economy that is ruthlessly indifferent to the larger common good. (Take an example of Climate change—it cannot be remedied by market economics.)Therefore, the existence of public-sector/state/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, a high standard 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 Raghvan Committee consensus requires serious consideration.

Ministry of Coal says “Coal is the most important and abundant fossil fuel in India. It accounts for 55% of the country's energy needs. The country's industrial heritage was built upon indigenous coal.” The Coal India was a creation to fulfil such need, and in order to do so it needs ample “elbow room.”

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