CCI Can Scrutinise PSUs: A Stepping Stone Towards Competitive Neutrality

Competition neutrality ensures a fair, level playing field in markets, regardless of public or private ownership. The aim is to prevent unfair advantages given to SOEs, which distort markets and hinder private sector growth.

In CIL v. CCI, the Supreme Court had to determine whether CIL, a government-operated body governed by the Nationalisation Act, was still subject to competition law despite its historical origins in colonial India and subsequent nationalization post-independence for the public good under Article 31B and Article 39(b) of the Constitution of India.

CIL argued its nationalisation vide Nationalisation Act was for overseeing 80% of India's coal mines/production, citing Article 39(b) and Article 31B of the Constitution of India. CCI countered that CIL, a public sector monopoly, is squarely covered under the definition of enterprise as per section 2(h) of the Competition Act.

The Court noted that coal mine nationalisation aimed at the common good, curbing unauthorised mining, and safeguarding labour rights, in line with constitutional provisions. It pointed out that the section 54 of Competition Act allowed government exemptions for public interest or security, which hadn't been invoked for CIL. Therefore, the SC ruled that CIL, despite being a government nationalised entity, falls within CCI's jurisdiction. The case was remanded to CCI for a merit-based decision.

Some Reflections

There has been a long history of cases since the enactment of the Competition Act, wherein the CCI has to deal with one or the other PSU. The authors here have broadly classified the instances based upon the defences taken by PSUs which are as follows:

• Pretext of Sovereign Function

One of the earliest cases is titled as Jindal Steel & Power Ltd. v. Steel Authority of India Ltd., wherein the CCI’s commitment for neutrality was put to test for the very first time in 2011. Here, Jindal Steel & Power Ltd. alleged that Steel Authority of India Ltd. (“SAIL”), a PSU, by abusing its dominant position had entered into an agreement with the Indian Railways (“IR”) for the manufacture and supply of long rails. Both SAIL and IR contended that the CCI lacked jurisdiction as since both were Government entities there was no ground to label such agreement between the two as an anti-competitive one. Despite declaring SAIL and IR as enterprises for the purpose of Competition Act, the CCI closed the case as there were no offers made by private players even if the open tenders were issued, which was due to the late entry of private players into the sector. Subsequently, in Arshiya Railway Infrastructure Limited v. Ministry of Railways (2012), CCI again rejected the claim put forth by the Railways that it carries out a sovereign function. At the same time it held that the charges fixed for transportation of goods, access to railway terminals, rate of haulage, etc. were governed by the circulars for tariffs and other relevant rules issued by the Railways from time to time, thereby bringing them outside the purview of CCI’s jurisdiction. In an appeal filed by the Railways before the Delhi High Court, assailing the order passed by CCI, Delhi High Court upheld that the Competition Act states that only primary, inalienable, and non-delegable functions of a constitutional government qualify for exemption as ‘sovereign functions’ as envisaged under section 2(h) of the Competition Act. Welfare, commercial, and economic activities could not be covered under this exemption, making the State (and its instrumentalities), equally subject to the jurisdiction of the competition regulator as any private entity in such activities.

In Uttarakhand Agriculture Produce Marketing Board v. CCI, Delhi High Court ruled that procurement of goods and services from an open market involves commercial activities even though performed in discharge of statutory functions. The CCI had the jurisdiction to investigate the case where the Board denied market access by restricting the procurement of Indian Made Foreign Liquor, which was pursuant to a policy framed by the Board as it was not considered a sovereign function. It is noteworthy that in MaaMetakani Rice Industries v. Odisha State Civil SuppliesCorporation Ltd., the CCI concluded that a desist order under section 27 of the Competition Act would serve justice. Odisha State Civil Supplies Corporation Ltd. was found to have abused its dominant position (indirectly) by deliberately delaying payment to custom millers, qualifying as an abuse under section 4(2)(a)(i) of the Competition Act.

CCI has time and again followed the dictum laid down by section 2(h) of the Competition Act and the verdict of Delhi High Court in Union of India v. Competition Commission of India that Competition Act exempts only core, essential, and non-delegable functions of a constitutional government as ‘sovereign functions’. However, In Re: Kalpit Sultania and IREL (India) Ltd., the CCI was again presented with a similar question where a PSU specialising in mining and refining of rare earth metals was accused of abuse of dominant position as it engaged in discriminatory pricing and supply of quantity for sillimanite, harming the interests of MSMEs in India and favouring MNCs and foreign enterprises. IREL contended that as beach sand contained certain minerals having potential applications in different stages of the Indian Nuclear Power Programme. Hence, to prevent any pilferage of atomic minerals a policy was formulated and the Department of Atomic Energy, Government of India also prohibited the mining of any atomic mineral in any offshore areas of the country, except by the Government or a Government Company, thereby making the activities of IREL under the ambit of sovereign function as they relate to atomic energy. Therefore, the actions of IREL were not amenable to scrutiny by CCI. CCI, rejecting this contention ordered DG to conduct enquiry under section 26(1) of the Competition Act, held that sale of Sillimanite is purely commercial and has no link to atomic energy as Sillimanite being extracted and sold, both in the country and abroad which is used in production of refractories for use in metal and alloy industry alongside ceramic and foundry industry, makes it safe to conclude that IREL squarely falls under the definition of enterprise under section 2(h) of the Competition Act. Also, In Re: Beach Mineral Producers Association and IREL (India) Ltd., CCI relying upon Kalpit Sultania, again ordered an investigation by the DG under section 26(1) of the Competition Act, taking a prima facie view that IREL has abused its dominant position in mining and supply of beach sand ilmenite by apparently forcing local consumers to accept the extraneous conditions mentioned in the Standard Quantity Sales Contract. The authors believe that here also IREL was trying to camouflage its actions by relying on the contention that ilmenite mineral falls under the ambit of atomic minerals thereby immunising it from the scrutiny of CCI as atomic energy is considered as a sovereign function.

• Nationalisation by the virtue of Statute

In the Maharashtra State Power Generation Company Ltd. v. Coal IndiaLtd., complaints were filed against CIL and its subsidiaries for imposing one-sided terms in Fuel Supply Agreements (FSAs) for supply of non-coking coal. The CCI ordered CIL to consult all stakeholders, ensure parity between power producers, especially between private producers and PSUs, and issued a cease-and-desist order for violating section 4(2)(a) of the Competition Act.

Again, in 2015, CCI initiated a suo motu investigation into four public sector general insurance companies accused of forming a cartel and violating section 3 of the Competition Act, to raise premiums for the Rashtriya Swasthya Bima Yojna (RSBY) scheme in Kerala. The CCI confirmed the observation made in In Re: Dilip Modwil and Insurance Regulatory and DevelopmentAuthority that any entity engaged in economic or commercial activities qualifies as an ‘enterprise’ and the CCI observed that the actions of the companies violated section 3(1) r/w section 3(3)(d) of the Competition Act, by manipulating the bidding process, that too in public procurement for social welfare schemes aimed at BPL and poor families, which was an aggravating factor. The Insurance Companies, assailed the CCI decision before COMPAT, which upheld the order passed by CCI[i], also ruled that the said four companies were established under the General InsuranceBusiness (Nationalisation) Act, 1972 to promote competition and operate independently according to business principles in the insurance sector. The Department of Financial Services did not compromise their distinct competitive status. COMPAT recognised that the CCI's penalty on PSU companies, which would affect the public, and reduced it from 3% to 1% of the relevant turnover.

THE WAY FORWARD

Out of the seven countries studied in a 2014 UNCTAD report, which included China, India, Malaysia, Pakistan, Russia, Switzerland, and Vietnam, only India displayed a genuine commitment to implementing competitive neutrality policy reforms. Although India lacks specific legislation for competitive neutrality, it treats it as a crucial principle within its broader economic reforms. India aims to foster fair competition between government-owned and private enterprises to drive innovation, efficiency, and overall economic growth, thereby attracting private investment and promoting entrepreneurship.

In conclusion, competition neutrality is an integral component of India's competition law framework, encompassed within the Competition Act, 2002 and the authority vested in the CCI. The CCI has taken proactive steps, such as the State Resource Person Scheme and the Competition Assessment Toolkit, to train state procurement officials and evaluate policies for their impact on competition, reinforcing its commitment to promoting fair competition in the Indian market.

According to the authors, the Government of India's mandate to its undertakings to use BSNL and MTNL capacities may benefit the loss-making telecom firms and promote healthy competition without violating competition law, when interpreted in light of TFEU principles. For instance, the EU addresses concerns about state aid through policies governed by its laws on state aid and internal trade provisions outlined in the Treaty on theFunctioning of the European Union (TFEU). These policies prohibit the grant of state aids that distort competition in the internal market (Art. 107-109). Specific exemptions exist for aids declared compatible with the internal market, such as those of a social nature or for mitigating damage from natural disasters (Article 107(2)). Additionally, aids may be allowed to tackle significant disruptions in the economy of a Member State (Article 107(3)).

Devansh Malhotra  is an Advocate at Punjab & Haryana High Court  . Vaibhav Garg is a student  at University School of Law and Legal Studies, GGSIPU, New Delhi. Views are personal.