The story so far: On June 15, the Supreme Court held that there was “no merit” in Coal India Ltd (CIL), a public sector undertaking, being excluded from the purview of the Competition Act. The Court was hearing the PSU’s appeal against the Competition Appellate Tribunal’s order which alleged the former of abusing its position.
What was the case about?
The chain of events goes back to March 2017 when the Competition Commission of India (CCI) had imposed a penalty of ₹591.01 crore on CIL for “imposing unfair/discriminatory conditions in fuel supply agreements (FSAs) with the power producers for supply of non-coking coal.” In other words, CIL was found to be supplying lower quality of the essential resource at higher prices and placing opaque conditions in the contract about supply parameters and quality. The regulator contended that Coal India and its subsidiaries operated independently of market forces and enjoyed market dominance in the relevant market with respect to production and supply of non-coking coal in India.
What did the PSU argue in court?
Coal India argued that it operated with the principles of ‘common good’ and ensuring equitable distribution of the essential natural resource. With this objective, it was secured as a ‘monopoly’ under the Nationalisation Act, 1973 (more specifically, the Coal Mines (Nationalisation) Act, 1973).
The entity said that it may have to adhere to a differential pricing mechanism to encourage captive coal production (referring to mines that are handed over to companies for specific and exclusive use through lease or any other route). Differential pricing, which may be inconsistent with market principles, was to ensure the viability of the larger operating ecosystem as well as for pursuing welfare objectives. Furthermore, coal supply also has a bearing on larger national policies, for example, if the government were to encourage growth in backward areas through increased allocation.
The PSU stated that it did not operate in the commercial sphere. It specifically pointed to 345 out of its 462 mines having suffered cumulative losses totalling ₹9,878 crore in 2012-13. About 51% of its manpower too were engaged in these mines, adding separately that they could not lay-off employees unlike private players.
How did the CCI respond?
The respondents broadened the scope of the arguments. The Raghavan Committee (2020) report, put up for perusal by the respondents, had observed that state monopolies were not conducive to the best interests of the nation. They could not be allowed to operate in a state of inefficiency and should instead, operate amid competition. Furthermore, coal ceased to be an ‘essential commodity’ in February 2007 and the Nationalisation Act too was removed from the Ninth Schedule (laws that cannot be challenged in court) in 2017. It was also pointed out that Coal India was a fully-government owned entity until the disinvestment in 2010. The government’s shareholding reduced to 67% with the rest held by private hands. Moreover, it was stated that the CIL directed 80% of its supplies to power companies. The latter would then pass power generated using coal to discoms (distribution companies), who, in turn, would supply power to the final consumer. The continual supply of coal, adherence to the contract, reasonableness in the rates and quality of coal also serve a common good, the respondents contended. Coal constitutes about 60 to 70% of the costs for power generation companies. Thus, irregular prices and supply will have a significant bearing indirectly on consumers.
What were the SC’s observations?
The court said there was “no merit” in the argument that the Competition Act would not apply to CIL because they are governed by the Nationalisation Act, and it cannot be reconciled with the Competition Act. “The novel idea which permeates the Act, would stand frustrated, in fact, if the state monopolies, the government companies and public sector units are left free to contravene the (competition) act,” it stated. Separately, it said that entities cannot act with caprice, treat unfairly otherwise or similarly situated entities with discrimination.
According to Anshuman Sakle, partner at law-firm Khaitan & Co, the judgment reinforced the principle of “competitive neutrality” — entailing that the Competition Act equally applies to public and private sector enterprises. “Government companies, across sectors, which may be dominant in their sector of operation, would have to conduct business in a fair and non-discriminatory manner so as to not fall foul of the principles of antitrust law. This allows for a level playing field between public sector and private enterprises operating in India,” he states.