Supreme Court expected ruling could be trend setter on application of competition law in public sector firms

All eyes are on the Supreme Court this week as it decides on a Coal India Limited (CIL) plea, which is likely to be a landmark in how socialist-era practices and statutes operate in the free market economy. CIL has approached the Apex Court arguing against applicability of the Competition Act 2002 to its operations citing Coal Nationalisation Act.

The CIL matter is being heard on a regular basis and will come up for resumed hearing on Wednesday when the order is likely to be reserved by the Supreme Court.

The verdict is likely to be a trend-setter on application of competition law to public sector firms, especially in the current setting of a free market economy that India has adopted over last three decades.

For the Apex Court, this could be sort of be a toss between the old socialistic economic policy thought process and the present day market-oriented economic policies driving new India, said experts.

Samir Gandhi, co-founder, Axiom5 Law Chambers, said the Supreme Court will carefully consider whether the conduct of PSUs should be beyond the scope of the Competition Commission of India’s review in the Coal India Case, despite their mandate to act in public interest.

The mandate for PSUs to act in public interest does not mean that their commercial conduct is beyond review by the CCI if they are abusing their position of dominance, said Gandhi. In fact, the CCI has previously also imposed penalties on national insurance PSUs for their anti-competitive conduct, he added.

If the government were to have decided to exclude Coal India’s conduct from the ambit of the CCI review, it will have exempted it under Section 54 of the Act, as it has done in the past for mergers among oil and gas PSUs, said Gandhi. The fact that the government has chosen not to exempt CIL despite having the power to do so, may make it difficult for CIL to suggest that its actions are not reviewable by the CCI, he added.

Nisha Kaur Uberoi, Partner & National Competition Head, Trilegal, said Central government has the power to exempt a class of enterprises from the applicability of competition law. Since Coal India has not been so exempted and given that the Competition Act inter alia provides that the CCI has jurisdiction to examine a dominant company whether such dominant position was acquired as a result of statute or by virtue of being a Government company, Coal India will not be exempt from CCI scrutiny merely because it is operating under the Coal Nationalisation Act.

She highlighted that the Delhi High Court had previously held that the Indian Railways too will not be exempt from the applicability of the Competition Act.

The test to be adopted is not whether a company is privately owned or a Government company, it is whether such a company is a dominant company or not. CCI’s mandate is to assess if such company has indulged in abuse of dominance, Kaur added.

Coal India’s appeal

CIL had filed an appeal against the final order dated December 9 2016 passed by the erstwhile Competition Appellate Tribunal (COMPAT). By the said order, COMPAT dismissed the appeal of CIL, upholding the order dated October 27, 2014 passed by the CCI - on an Information filed by Sai Wardha - which found CIL to be guilty of abuse of dominance violating the Competition Act. CIL was directed to cease such anti-competitive conduct.

Subsequent to the filing of the appeal in the Supreme Court, CIL filed an application arguing that the coal mines it operates – pursuant to the provisions of the Coal Mines (Nationalisation) Act, 1973 – would be wholly outside the purview of the Competition Act, 2002. CCI opposed the plea and contended that there is no constitutional challenge to any provision of the Competition Act.