State Monopolies, Govt Companies & PSUs Can't Violate Competition Act : Supreme Court

The Supreme Court has observed that State Monopolies, Government Companies and Public Sector Units cannot be allowed to indulge in anti-competitive practices in violation of the Competition Act 2002.

A bench of Justices KM Joseph, BV Nagarathna and Ahsanuddin Amanullah made this observation while holding that the Competition Act is applicable to Coal India Ltd. The primary argument of CIL was that the coal mines were nationalised as per the Coal Mines (Nationalisation) Act 1973 and that since it is a state monopoly acting as per the statute.

At the outset, the bench noted that the CIL, being a government company, will answer the definition of "person" and hence would come within the ambit of the definition of "enterprise" under Section 2(h) of the Competition Act, being a person  engaged in activity relating to production, storage, supply, distribution and control of goods. The bench also noted that the Act separately and specifically includes a "government department" also within the definition of enterprise.

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.  CIL conceded that it is not performing any sovereign functions.

"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", the judgment authored by Justice Joseph observed.

The judgment also noted that as per Section 19(4), the CCI, while inquiring into dominant position of an enterprise, should also take into account whether monopoly or dominant position acquired was a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise.

Referring to Section 19(4), the Court said that "this is a clear indication that far from excluding governmental bodies like a government company, a public sector undertaking or a body under a Statute from the purview of the Act, the lawgiver has evinced its intention to include government companies, public sector companies and bodies acquired under a Statute within the ambit of the Act".

The Court further stated that the Competition Act was enacted with the intent of facilitating faster economic growth in the backdrop of the paradigm shift in the economic policies post-1991 liberalisation.

"The role which was envisaged for the public sector company could not permit them to outlive their utility or abuse their unique position. Disinvestment done in a proper manner was perceived as a solution. However, sans disinvestment, State Monopolies, Public Sector Companies and Government Companies were expected to imbibe the new economic philosophy. 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", the Court said. 

In this regard, it was noted that the Competition Act had made a deviation from its predecessor the Monopolies and Restrictive Trade Practices Act, which sought to protect government departments. 

The Court further stated that the Competition Act cannot result in transforming government companies into mere profit-making engines, or require of them to be oblivious to their Constitutional obligations. But that cannot equally mean that they can act with caprice, or unfairly or treat otherwise similarly situated persons or things with discrimination.

The Court further observed that the concept of "common good"- with which the State monopolies were created to ensure equitable distribution of wealth as envisaged under Article 39(b) - was not repugnant to the idea of "free competition".

"Can it be said that free competition as envisaged under the Act which involves avoidance of anti-competitive agreements, abuse of dominant position and regulation of combinations are against the common good?  As to how common good is best served is best understood by the representatives of the people in the democratic form of Government. We must bear in mind the wholesome principle that when Parliament enacts laws, it is deemed to be aware of all the existing laws.Properly construed and operated fairly, the ‘Act’ would, in other words, harmonise with common good being its goal as well," the judgment stated.

For detailed report on the judgment, read this report.

Case Title : Coal India Ltd v Competition Commission of India

Citation. : 2023 LiveLaw (SC) 484

Click here to read the judgment