2023 (6) TMI 707 - SC - Companies Law

Anti-Competitive Agreements - Monopoly - abuse of dominant position - principal bone of contention of the appellants is that Coal India Limited, the first appellant (CIL) being a monopoly created by a statute and duty bound to achieve the objects declared in Article 39(b) of the Constitution of India - bound by the Competition Act, 2002 or not - HELD THAT - Section 19(4)(l). It declares the relative advantage by way of contribution to economic development having or likely to have an appreciable effect on competition to be a relevant factor. What we have deliberately omitted and now supply are the following words to be found in Section 19(4)(l). They are the words by the enterprise enjoying the dominant position . Therefore, being found in a dominant position under Section 19(4)(g) is only one of the factors. We do not intend to elaborate further on the scope and impact of the other factors. It would all depend upon the facts of the individual case. Equally, we may only indicate, that, in particular, countervailing buying power would be a relevant factor. Section 26 provides for the procedure for holding the inquiry employing the methods declared in Section 19(4) to find the presence or absence of dominant position. Section 26 contemplates that, in such conditions, if the CCI forms an opinion that a prima facie case exists, then, it should direct the Director General to cause an investigation into the matter. Under Section 26(2), the CCI may close the matter, if it finds that there exists no prima facie case. The Director General is obliged to submit a report on his findings. The CCI is to forward the report to the parties. The Director General may recommend that there is no contravention of the Act. In such an eventuality, the CCI is obliged to invite objections or suggestions on the said report - The orders which may be passed include a direction to discontinue abuse of dominant position as found in the case of abuse of dominant position. The CCI may impose penalty as provided therein. It can direct modification of the agreement. It can also direct the enterprise to abide by the orders that the CCI may pass. It has a residuary power to pass any other order as is deemed fit. Section 28, no doubt, contemplates a division. Section 31 deals with orders that may be passed on certain combinations. Chapter V deals with the duty of the Director General. The Director General is provided with powers available to the CCI under Section 36(2). There must be an enterprise as defined or a group as provided under Section 5. Once it is so found, then, it must be inquired as to whether the said enterprise or group enjoys a dominant position - The Act overrides all laws to the extent of their inconsistency with the Act. It is also contended that as far as the question relating to compliance with Presidential Directives is concerned, if there is a bona fide adherence to Presidential Directives, it may pass muster. The expression common good in Article 39(b) in a Benthamite sense involves achieving the highest good of the maximum number of people. The meaning of the words common good may depend upon the times, the felt necessities, the direction that the Nation wishes to take in the future, the socio-economic condition of the different classes, the legal and Fundamental Rights and also the Directive Principles themselves - 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. Now that the Nation was more than 50 years old after it became a Republic and it no longer was the infant it was, Parliament which best knows the needs of its people, felt that the time was ripe for ushering in the wholesome idea of fair competition. Distribution of coal is intended to subserve common good holds this Court in SAMATHA VERSUS STATE OF AP 1997 (7) TMI 600 - SUPREME COURT . The content of common good is itself not a static concept. It may take its hue from the context and the times in which the matter falls for consideration by the Court. If Parliament has intended that State monopolies even if it be in the matter of distribution must come under the anvil of the new economic regime, it cannot be found flawed by the Court on the ground that subjecting the State monopoly would detract from the common good which the earlier Nationalisation Act when it was enacted, undoubtedly, succeeded in subserving. We see no reason to hold that a State Monopoly being run through the medium of a Government Company, even for attaining the goals in the Directive Principles, will go outside the purview of the Act. It is true that the actions of the appellants can be challenged in proceedings in judicial review as contended by the appellants. Equally, the appellants are justified in pointing out as a matter of fact that there may be forums other than the CCI such as the Controller of Coal whereunder redress may be sought against action of the appellants. But that by itself, cannot result in denial of access to a party complaining of contravention of a law which is otherwise applicable. It must also be remembered that action can also be taken by the CCI suo motu. Such is the width of the power vouchsafed for the authority under the Act. The appellants cannot resist the imposition of standards of fairness and the duty to avoid discriminatory practices when a specialized forum has been created by Parliament under the Act where also apart from the CCI being an expert body, it can seek and receive valuable inputs from experts and what is more, the matter is preceded by the report of Director General of Investigation. Section 54 of the Act gives power to the Central Government to exempt from the application of the Act or any provision and for any period, which is specified in the Notification. The ground for exemption can be security of the State or even public interest. It is not as if the appellants, if there was a genuine case made out for being taken outside the purview of the Act in public interest, the Government would be powerless - there is no merit in the contention of the appellants that the Act will not apply to the appellants for the reason that the appellants are governed by the Nationalisation Act and that Nationalisation Act cannot be reconciled with the Act. This is subject to the appellants having all the rights to defend their actions under the law and as indicated hereinbefore. The transferred cases shall be sent back so that they may be dealt with on their own merits. Application disposed off.

Summary

Issues Involved:
1. Applicability of the Competition Act, 2002 to Coal India Limited (CIL) and its subsidiaries.
2. The conflict between the Competition Act, 2002, and the Coal Mines (Nationalization) Act, 1973.
3. The power of the Competition Commission of India (CCI) to order the division of an enterprise enjoying a dominant position.

Summary:

1. Applicability of the Competition Act, 2002 to Coal India Limited (CIL) and its subsidiaries

The appellants argued that CIL, being a monopoly created by the Coal Mines (Nationalization) Act, 1973, and geared towards achieving the objectives under Article 39(b) of the Constitution, should not be bound by the Competition Act, 2002. They contended that applying the Act would produce anomalous results and stultify the goal enshrined in Article 39(b). The respondents countered that the Act applies to all enterprises, including state monopolies, to ensure competition and efficiency.

The Supreme Court held that the Competition Act, 2002, applies to CIL and its subsidiaries. The definition of "enterprise" under Section 2(h) of the Act includes government companies, and the Act aims to prohibit anti-competitive agreements and abuse of dominant position. The Court noted that the Act provides for a detailed procedure and safeguards, ensuring fair and informed decision-making by the CCI.

2. The conflict between the Competition Act, 2002, and the Coal Mines (Nationalization) Act, 1973

The appellants argued that the Nationalization Act, which aims to distribute coal resources to subserve the common good, should prevail over the Competition Act. They contended that the Act's provisions, such as those prohibiting unfair pricing and limiting production, would conflict with the objectives of the Nationalization Act.

The Supreme Court held that there is no irreconcilable conflict between the two Acts. The Competition Act aims to promote competition and prevent abuse of dominant position, which aligns with the broader goal of common good. The Court emphasized that the Act's provisions must be interpreted harmoniously with the Nationalization Act, considering the evolving economic policies and the need for efficiency and competition.

3. The power of the Competition Commission of India (CCI) to order the division of an enterprise enjoying a dominant position

The appellants challenged the CCI's power to order the division of an enterprise under Section 28 of the Competition Act, arguing that it would conflict with the Nationalization Act's provisions.

The Supreme Court upheld the CCI's power to order the division of an enterprise enjoying a dominant position. The Court noted that Section 28 of the Act explicitly provides for such power, notwithstanding any other law. The Court emphasized that this power should be exercised cautiously and only to prevent abuse of dominant position, ensuring that it aligns with the objectives of both the Competition Act and the Nationalization Act.

Conclusion:
The Supreme Court concluded that the Competition Act, 2002, applies to CIL and its subsidiaries, and there is no irreconcilable conflict between the Competition Act and the Coal Mines (Nationalization) Act. The CCI has the power to order the division of an enterprise enjoying a dominant position, subject to careful exercise of this power to prevent abuse and align with the broader objectives of promoting competition and common good. The transferred cases and the appeal were directed to be dealt with on their own merits.