Competition Commission Can Probe Anti-Competitive Aspects Of Res Extra Commercium Businesses Like Lottery : Supreme Court

A bench comprising Justices Sanjay Kishan Kaul and M.M. Sundresh allowed an appeal assailing the order of the Gauahati High Court, which had set aside the preliminary order of the Competition Commission of India ("CCI") and the report of the Director General, primarily, on the ground that CCI had no jurisdiction to inquire into allegations of bid rigging, collusive bidding, and cartelisation in the tender process for appointment of selling agents and distributors for lotteries organised by State.

Factual Background

On 20.12.2011, the Government of Mizoram issued an Invitation for Expression of Interest ("EoI") through the Director of Institutional Finance and State Lottery inviting bids to appoint lottery distributors and selling agents for State lotteries, which are organised in terms of Mizoram Lotteries (Regulation) Rules, 2011 framed under the Lotteries (Regulation) Act, 1998. As per the EoI, the minimum rate fixed was Rs. 5 lakh per draw for Bumper draw and Rs. 10,000 per draw for others. The successful bidders were supposed to organise, promote, conduct and market the lottery through paper as well as online. The selected distributors/settlers were required to furnish security of Rs. 5 crore each for the lottery, Rs 1 crore as advance payment for sale proceeds and another Rs. 1 crore for the prize pool. The Mizoram Government selected four companies/partnership businesses. Thereafter on 16.05.2012, a complaint was made to the Competition Commission of India ("CCI") under Section 3 and 4 read with Section 19(1)(a) of the Competition Act ("Act") seeking investigation in respect of the State Lottery run by the Government of Mizoram. In exercise of powers under Section 26(1) of the Act, CCI took a view that prima facie there was evidence of cartelisation and bid rigging as -

1. Three bidders made identical bid of minimum rate for online lotteries;
2. Only one party made a bid for paper lottery and that too at the minimum rate;
3. Only one party made a bid for the bumper draw and that too at the minimum rate.

The CCI opined that on first blush the successful bidders had acted in violation of Section 3(1) read with Section 3(3) of the Act, but no prima facie case was made out against the State and the allegation of abuse of dominant position exercised by the State was rejected. By order dated 07.06.2012 direction was given to the Director General ("DG") to investigate the matter, who eventually concluded that the successful bidders had colluded, formed a cartel and indulged in bid rigging and passed adverse remarks on the conduct of the State Government and its officer. On 12.02.2013, the report of the DG was forwarded by the CCI to the successful bidders and also the State seeking their response. The State of Mizoram filed a writ petition before the Guwahati High Court challenging the report of ("DG") and the fact that the report was forwarded to the State even when the allegation of abuse of dominant power against it was dropped. The High Court granted interim relief directing CCI not to pass final orders. Subsequently, writ petitions were filed by two successful bidders seeking quashing of the DG's report and the proceedings before the CCI. The three petitions were taken up together and the CCI was restrained from passing final orders. Eventually, the High Court set aside the report of the DG and the CCI orders dated 07.06.2012 and 12.02.2013 on the finding that the lottery business being gambling and falling within the purview of doctrine of res extra commercium would not fall within the purview of the Competition Act.

Contentions raised by appellant

Senior Advocate, Mr. Rajshekar Rao appearing on behalf of CCI argued that CCI was not concerned with the regulation of prohibition of lottery business but only about the possibility of bid rigging in the tender process. It was clarified that as there is no overlap between the Competition Act and the Regulation Act, there is no bar on CCI in considering the particulars of the tender process, which might have anti-competitive elements under the scope of Sections 3(1) and 3(3) of the Competition Act. Reference was made to CCI v. Bharti Airtel  , wherein after scrutinising the contours of Telecom Regulatory Authority of India Act, 1997 and the Competition Act, the Apex Court held that the two were distinct in function and determination of cartel or collusion would fall within the exclusive domain of CCI. Placing reliance on the definition of "service" under section 2(u) of the Competition Act, it was argued that sale or distribution of lottery tickets to a buyer for a consideration ought to be considered as "service". Mr. Rao further contended that if the legislature intended to exclude any service from the ambit of the Competition Act then they would have specified the same or the Government would have notified accordingly. The judgments referred to in the impugned order pertained to tax laws, freedom of trade and the power of State to regulate and the same cannot be applied to the present case that focuses on the interplay between the Competition Act and the Regulation Act. It was urged that the petitions were not maintainable under Article 226/227 of the Constitution as the bidders and the State had approached the High Court at the stage of show cause notice.

Contentions raised by the respondents

As no adverse order was passed against the State of Mizoram, it prayed to be deleted from the array of parties. The successful bidders contended that Section 3(1) of the Competition Act would have no application as lottery tickets are not "goods'' as defined under the Competition Act. Referring to Sunrise Associates v. Govt. of NCT of Delhi (2006) 5 SCC 603, it was argued that lottery tickets being actionable claims cannot be a "good". Moreover, it was asserted that they were distributors and were not providing "service" as defined under Section 2(u) of the Competition Act. Emphasis was given to the submission that the Competition Act is not applicable to the lottery business which is regulated by the Government under a special statute.

Analysis of the Supreme Court

Interplay between Regulation Act and Competition Act

The Court expressed its dissatisfaction regarding the futility of the proceedings initiated by the State of Mizoram, when the CCI had dropped the allegation against it at the preliminary stage. With respect to the issue, if CCI had the authority to look into the complaint of cartelisation and collusive bidding, the Court agreed with the submissions made by Mr. Rao and opined that even if lotteries are regulated commodities, aspects of anti-competition in lottery related business cannot be taken out of the ambit of the Competition Act.

"There was no conflict in the interplay of the two Acts that even needed reconciliation or prohibition against either one, as the limited scrutiny was to examine the mandate of Section 3(1) read with Section 3(3) of the Competition Act. Lotteries may be a regulated commodity and may even be res extra commercium. That would not take away the aspect of something which is anti-competition in the context of the business related to lotteries."

The Court held:

"The lottery business can continue to be regulated by the Regulation Act. However, if in the tendering process there is an element of anti-competition which would require investigation by the CCI, that cannot be prevented under the pretext of the lottery business being res extra commercium, more so when the State Government decides to deal in lotteries."

Inclusive mentioning does not inhibit the larger expansive definition

On perusal of definition of "service" under Section 2(u) of the Competition Act, the Court observed that it means "service of any description" which is made available to potential users. It was of the view that the purchaser of lottery ticket is a potential user and the selling agents are indeed providing service. Section 2(u) reads as under -

"2(u) "service" means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising;"

The Court asserted that though the definition enumerates what would be included as services, the list is not exhaustive.

"Suffice for us to say the inclusive mentioning does not inhibit the larger expansive definition."

Premature intervention by High Court

The Court remarked that the High Court had not only intervened in the matter which had not yet reached finality but by passing an interim order it had brought the proceedings before the CCI to a standstill. It was clarified that once final order is passed by CCI, the private bidders could avail the appellate remedy as stipulated under Section 53B of the Competition Act.

Case Name: Competition Commission of India v. State of Mizoram And Ors.

Citation: 2022 LiveLaw (SC) 75

Case No. and Date: Civil Appeal No. 10820-10822 of 2014 | 19 Jan 2022

Corum: Justices Sanjay Kishan Kaul and M.M. Sundresh

Counsel for the Parties: Mr. Rajshekhar Rao, Sr. Adv., Mr. Arjun Krishnan, AOR, Ms. Khushboo Mittal, Adv., Mr. Sumit Srivastava, Adv., Mr. Brijender Chahar, Sr. Adv., Mr. Rajesh Kumar, AOR, Mr. Varun Mudgil, Adv., Mr. R. K. Srivastava, Adv., Dr. Pratyush Nandan, Adv., Mr. Arjun Garg, Adv., Mr. Aakash Nandolia, Adv., Mr. Sagun Srivastava, Adv. M/S. Parekh & Co., AOR, Mr. Kedar Nath Tripathy, AOR, Mr. Siddhesh Kotwal, Adv., Ms. Ana Upadhyay, Adv., Ms. Manya Hasija, Adv., Ms. Pragya Barsaiyan, Adv., Mr. Akash Singh, Adv., Mr. Nirnimesh Dube, AOR, Mr. Nikhilesh Krishnan, Adv. Mr. Pranav Malhotra, Adv. Mr. Shantanu Kumar, AOR

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