Competition Act Applicable To Coal India Ltd : Supreme Court

The Supreme Court today held that Coal India Ltd. would come under the purview of the Competition Act, 2002 despite being a Public Sector Undertaking.

A Bench of Justices KM Joseph, BV Nagarathna and Ahsanuddin Amanullah delivered the judgement today.

"We reject the appellant's contention that the Competition Act does not apply to them because of the Coal Mines (Nationalisation) Act....The Nationalisation Act cannot be reconciled with the [Competition] Act."

The Court also remanded the matter back to the Competition Commission of India for deciding the issue on merits. It also clarified that the IAs seeking interim relief as well as the contempt petitions would be listed in July.

“The transferred case shall be sent back so that they may be dealt with on their own merits. The transferred cases are disposed of. Equally, the appeal shall be posted for being dealt with on its own merits. The interlocutory applications seeking interim relief in the pending appeals shall be listed in the second week of July 2023. The contempt petitions shall be listed in July 2023."

The Bench was hearing petitions by Coal India contending that since it operates Coal Mines covered under the Coal Mines Nationalisation Act, it would not come under the Competition Act. The CCI had opposed the plea.

The competition watchdog had earlier, imposed a penalty of over Rs 1,773 crore on Coal India for imposing unfair/discriminatory conditions in Fuel Supply Agreements with the power of producers for supply of non-coking coal.

The bench was hearing Coal India’s plea challenging the Competition Appellate Tribunal order which affirmed the findings and conclusion of the Competition Commission of India alleging abuse of dominant position against the appellants. Former Attorney General for India KK Venugopal appeared for the CIL and Additional Solicitor General N Venkataraman appeared for the CCI.

Interplay Of The Two Legislations: Competition Act Vs Nationalisation Act

The Court firstly noted that working of the Monopolies and Restrictive Trade Practices Act, 1969 was found to be inadequate particularly in the context of changes which happened not only in the country but also on a larger scale. Subsequently, a high-level Committee-Raghavan Committee delved into various issues and formed a report, basis which the Competition Act, 2002 was enacted.

The Bench went ahead to note some of the relevant provisions keeping in mind the factual matrix.

Section 4 of the Act prohibits abuse of dominant position. Section 18 indicates CCI’s power to bring about the sweeping changes in the economy. Section 19 empowers the Commission to make inquiries into agreements which are anti-competitive within the meaning of Section 3. More importantly, Section 19(4) deals with inquiring into the question as to whether an enterprise enjoys a dominant position or not.

The Bench opined that coal continues to be an important and scarce natural resource. Nothing more is required to establish the same than the very lis over it, it said.

“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’.”

The Bench noted that 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 Preamble clearly indicates that the Law-Giver had in mind the goal in Article 39(b), viz., acquiring ownership over coal mines so that coal mined from the mines could be so distributed so that common good was best subserved. The Statement of Objects and Reasons of Act 67 of 1976, by which the Nationalisation Act was amended, indicated that after the nationalisation took place, persons holding mining leases took to unauthorized mining and in a most reckless and unscientific manner. This was noted to be without bearing in mind considerations of conservation, safety and the welfare of the workers. A valuable national asset was being destroyed. There were safety concerns. Large profits were being reaped but by paying very low wages to the workers. All privately held coal leases were brought under the umbrella of the Nationalisation Act except those held by privately owned steel companies”.

The Nationalisation Act came to be amended twice after and then the Coal Mines Nationalisation (Amendment) Act, 1976 prohibited carrying operation or leasing of a coal mine by any private party.

Does Coal India Carry Out Any Sovereign Functions?

The first appellant, the Court noted, is a Government Company, which was wholly owned by the Central Government and was the Company contemplated under Section 5 and, therefore, the general superintendence, direction, control and management of all the mines, ownership of which stood vested in the Central Government, vested with the first appellant. The first appellant is the holding Company and there are subsidiary companies.

However, the Bench said that “it may not be appropriate” to describe its powers fully akin to the powers that vests with the Election Commission of India under Article 324. The appellants cannot, however, seek immunity from the operation of laws, which otherwise bind them.

Next, the Court looked into whether the “enterprise” were involved with carrying out any of the sovereign functions.

“It is noteworthy that the Law-Giver has taken care to expressly include even Departments of the Government separately within the ambit of the word ‘enterprise’. Things could not be more clear. The only activity of the Government, which has been excluded from the scope of Section 2(h) and therefore, the definition of the word ‘enterprise’ is any activity relatable to the sovereign functions of the Government. Sovereign functions would include, undoubtedly, all activities carried on by the Departments of the Central Government, dealing with atomic energy, currency, defense and space”.

And, the Appellants had made it clear that they are not carrying any sovereign functions.

“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.”

Nationalisation Act Itself Was Intended To Achieve The Goals In Article 39(B)

The Bench highlighted that the Competition Act aimed at tabooing anti-competitive agreements and thereby promoting competition. Section 4(1) declares that no enterprise or group shall abuse ‘its’ dominant position. Section 4(2) defined dominant position as to be ‘a position of strength enjoyed by an enterprise in the relevant market in India’. The Act further expatiates and dwells on the method to find out dominant position. Section 19(4) enumerates the factors to be considered.

The appellants are Government Companies. They were brought into being in the context of Sections 3 and 5 of the Nationalisation Act. Undoubtedly, they were created to take the place of the Central Government in the matter of supervising control and managing the affairs of the mines, the Court said.

“Still further, and, more importantly, the Nationalisation Act itself was intended to achieve the goals in Article 39(b) of the Constitution. This means that the Nationalisation Act contemplated coal to be a material resource and it was to be distributed so as to subserve common good. The exclusive right in regard to the mines as also the power to manage and supervise the mines was vested with the first appellant company and its subsidiaries. The ambit of the power is unquestionably wide. We proceed on the basis that the appellants cannot be oblivious to its duty to bear in mind the sublime goal in the Directive Principle, viz., “distribution”, so as to subserve the ‘common good’.”

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). we proceed on the basis that Parliament was aware of the Nationalisation Act.

“In the context of Section 28 of the Nationalisation Act read with the object of the Act and bearing in mind the scheme of the Act and the language employed as it is, we would think that the later enactment (Competition Act) must prevail”, the Court said.

The Court further added,

"The novel idea, which permeates the Act, would stand frustrated, in fact, if State monopolies, Government Companies and Public Sector Units are left free to contravene the Act".

Relying on Tara Prasad Singh and Others v. Union of India and Others, the Court stated that the purpose of the vesting under the Nationalisation Act was to distribute the resource to subserve the common good. “We may, in fact, notice the concern of the Court about coal being not inexhaustible and the need for a wise and planned conservation of the resources being expressed in paragraph-39. No doubt, all this was at the time when the Nation was confronted with the condition of the mines being what it was as brought out in the Statement of Objects”.

The Bench also agreed with the appellants’ argument that their actions could have been challenged in proceedings in judicial review. Equally, the appellants are justified in pointing out as a matter of fact that there may be forums other than the CCI such as the Controller of Coal, the court said.

“But that by itself, cannot result in denial of access to a party complaining of contravention of a law which is otherwise applicable. It must also be remembered that action can also be taken by the CCI suo motu. Such is the width of the power vouchsafed for the authority under the Act”, the Court added.

Case Title : Coal India Ltd v Competition Commission of India

Citation.  : 2023 LiveLaw (SC) 484

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