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ORDINARY MONOPOLY VERSUS STATE MONOPOLY: FEATHERS OF THE SAME BIRD

Updated: Jan 6

[Snigdha Dash, a 3rd-year B.A., LL.B. (Hons.) student at National Law University, Odisha & Shaswat Kashyap is a 3rd-year B.A., LL.B. (Hons.) student at Gujarat National Law University ]


What is said to be a major watershed moment for competition law jurisprudence, the Supreme Court of India has given a significant decision holding Coal India accountable under the ambit of the Competition Act 2002 (“Act”). This ruling resolves a critical dilemma regarding whether Public Sector Undertakings (“PSUs”) are exempted from responsibility for engaging in anti-competitive behaviour in India. The Court observed that allowing state monopolies, government companies, and PSUs to contravene the Act would undermine the very essence of the novel idea embodied in the legislation.


The Apex Court, in its ruling, established that Coal India falls within the scope of ‘enterprise’ as defined in section 2(h) of the Act. Furthermore, it determined that Coal India holds a dominant position, as outlined in Section 19(4) of the Act, and had engaged in the misuse of its dominant position. This ruling is expected to substantially impact other PSUs operating in India.


Facts and Decision:


Coal India Limited (“CIL”) lodged a civil appeal challenging the decision made by the Competition Appellate Tribunal, which had upheld the findings of the Competition Commission of India (“CCI”) regarding multiple instances of abuse of dominant position. The CCI had previously imposed a penalty of over Rs 1,773 crore on CIL for imposing unfair and discriminatory conditions in Fuel Supply Agreements with non-coking coal power producers, the first competition sanction imposed on a state-owned enterprise.


It was contended by the CIL that it being a monopoly created by a statute and bound to achieve the objects declared in Directive Principles of State Policy (DPSP) enshrined under Article 39 (b) of the Constitution of India, could not be bound by the Competition Act, 2002. Relying on Ashoka Smokeless Coal India (P) Ltd. v. Union of India, it contended that “unlike the ordinary monopoly as emphasized by the Act, the CIL is an ‘Article 39(b)’ monopoly” in para 7 of the judgment. It is not an ordinary monopoly, but a monopoly created by law.


However, the Supreme Court dismissed the appeal and adhered to the ruling of CCI and clarified that CIL, despite being a PSU, would fall under the purview of the Act. The case had been referred to CCI for deciding the issue on merit.


Critical Analysis:


CIL’s argument that it should be governed by the Nationalisation Act based on its claim of performing “common good” under Article 39(a) of the Constitution did not receive support from the CCI. In the past, during the protected era governed by the Monopolies and Restrictive Trade Practices Act, 1969 (“MRTP Act”), PSUs enjoyed immunity from challenges due to their dominant market position. However, the Raghavan Committee and the introduction of the Competition Act of 2002 expanded the definition of “Enterprise” under Section 2(h) to include government entities engaged in economic activities. Therefore, CIL falls within the purview of an enterprise as defined in Section 4 of the Act. The inclusion of government departments under the Act undermines the appellant’s argument for exemption from its provisions. Granting the appellants special status to resist action under the Act would contradict the provisions and principles of Article 39(b) of the Indian Constitution.


The concept of common good so heavily relied upon by the appellant, found in Article 39(b), must be interpreted as meaning the interest of the common man or the citizens. The Act’s objective of ensuring fair competition and regulating anti-competitive practices aligns with the notion of the common good. The Parliament intended to subject state monopolies to the new economic regime; it should not be seen as detracting from the common good previously served by the Nationalization Act.


Furthermore, Section 54 (c) of the Competition Law provides exemptions to the government entities from the regulations within the legislation, only if they perform the sovereign function. In this case, Coal India was not performing any sovereign function.


Adhering to Competitive Neutrality:


The principle of competitive neutrality was first introduced at the OECD World Forum in 2021. It aims to establish a level playing field for competition between private entities and public businesses. States play a dual role in the economy as rule makers and participants in the market. Unlike ordinary purchasers or suppliers, the state possesses unique competitive advantages that can negatively impact other participants. These advantages can result in subpar deals for consumers, hinder competitiveness for businesses that lack access to state-provided resources, and stifle overall competition as private enterprises avoid markets where the state is a competitor. To mitigate potential distortions to effective competition caused by the state's market presence, the concept of competitive neutrality is introduced.


- International Perspective:


Within the European Union (EU), the Treaty on the Functioning of the European Union (TFEU) contains Article 106, which grants the Commission the authority to address state measures that contravene or have the potential to contravene treaty provisions, including those pertaining to competition law. This encompasses issues such as anti-competitive agreements (Article 101) and abuse of dominance (Article 102). In 2020, the Lithuanian competition authority conducted an investigation that uncovered a concerning fact: out of the 43 intercity bus routes in Lithuania, only one had been awarded through a competitive process. Instead, the Lithuanian Transport Safety Administration (LTSA) extended the remaining 42 contracts in 2018, showing a preference for existing operators at the expense of new entrants. Recognizing that this practice violated competition law, the competition authority acted and imposed fines on the LTSA. Additionally, the authority mandated the termination of these contracts and the implementation of competitive procedures.


In 2008, China implemented the Anti-Monopoly Law (AML), a legislation based on competition laws to govern anti-competitive practices, merger control, and the regulation of administrative monopolies. Article 34 pertains to the promotion of competitive neutrality in public procurement. This provision explicitly prohibits the adoption of “protectionist bidding procedures” that employ discriminatory assessment criteria. Furthermore, Article 36 of the AML prohibits measures that induce companies to engage in monopolistic conduct, ensuring a fair and competitive market. Additionally, Article 37 of the AML bars the implementation of anti-competitive regulations.


Similarly, Japan has its own regulatory framework for combating anti-competitive behaviour, known as the Antimonopoly Act (AMA). The AMA applies to both private enterprises and government entities, including national and local governments, engaged in business activities. Article 3 of the AMA explicitly states that enterprises must refrain from engaging in private monopolization or unreasonable restraint of trade. This provision ensures that even government-operated business activities are subject to the same regulations as private enterprises, promoting fair competition in the market.


In the United States, government agencies and instrumentalities generally enjoy immunity from liability under federal antitrust laws, even when involved in commercial activities. However, the application of antitrust laws to federal government corporations can vary. A significant ruling by the U.S. Supreme Court in 2004 determined that the U.S. Postal Service (USPS) is exempt from federal antitrust laws. It is worth noting that the USPS was established by Congress as an independent establishment rather than a government corporation.


To foster competitive neutrality in postal markets and provide clarity regarding the USPS’s status, Congress enacted the Postal Accountability and Enhancement Act (PAEA). The PAEA subjects the USPS to federal antitrust laws for competitive products and market-dominant products outside the scope of the letter monopoly. This step ensures a fair competitive environment and establishes guidelines governing the relationship between the USPS and antitrust laws.


Conclusion:


Both the Nationalization Act and the Competition Act were designed with the aim of public interest, considering the evolving landscape of business in India. There is no apparent conflict between these two Acts, and the Court assumes that the Parliament is mindful of the existing laws while enacting new legislation, including the Competition Act. This presumption eliminates any ignorance regarding the Competition Act’s special authority to prevent the abuse of a dominant position of a PSU, including Coal India.


India is a mixed economy, comprising both private and public entities, and the pursuit of competitive neutrality is seen as a gradual and positive approach. The court’s ruling ensures a level playing field between government and private companies by affirming that the Competition Act applies to the government owned entities, without granting immunity, when engaging in economic activities. The Supreme Court’s decision emphasizes that no form of dominance should be exploited, whether natural or acquired. It is crucial to emphasize that the decision of the Hon’ble Court, which brings Coal India Limited (CIL) under the purview of the Competition Act, is both equitable and fair.

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