By Rupin Chopra and Apalka Bareja
In a landmark judgment in the case of Coal India Limited v/s Competition Commission of India , the Supreme Court of India ruled that Coal India Limited (CIL) and its subsidiary Western Coalfields Limited are subject to the provisions of the Competition Act, 2002, rejecting their claim of exemption based on the Coal Mines (Nationalization) Act, 1973. This decision has significant implications for state monopolies and government entities engaged in commercial activities, raising questions about government subsidies that create an uneven playing field in the market.
This article examines the key aspects of the judgment and explores its potential effects on the coal industry and competition in India. Moreover, it delves into the broader implications of applying the Competition Act to state-owned enterprises (SOEs) and the challenges and opportunities it presents for India’s economic landscape.
Dominance of Coal India
The Coal Mines (Nationalization) Act of 1972 vested the Central Government with control over coal resources, leading to the creation of a state monopoly in the form of CIL. This dominant position was further strengthened through the transfer of private mine ownership to CIL, cementing its role as the primary player in coal production and distribution.
CIL’s monopoly in both coking and non-coking coal production was made evident by the Director General Report in CCI’s order in the case of M/s Maharashtra State Power Generation Company Limited and M/s Mahanadi Coalfields Limited and M/s Coal India Limited, where it was found that CIL has absolute control of approximately 70% of the thermal power producers’ coal needs in India. Despite accounting for only 6.5% of global coal production, CIL’s market share of around 7% does not undermine its monopolistic position in the Indian coal market, the CCI order held and imposed a penalty of Rs. 591 crores on CIL.
The Judgment and its Rationale
The aforementioned order of CCI was challenged by CIL but the Supreme Court’s ruling is a clear statement that subjecting state monopolies to the Competition Act (“Act”) aligns with the nation’s broader economic goals. While acknowledging the historical role of the Nationalization Act in serving the common good, the court emphasizes that the new economic regime under the Act aims to promote competition, consumer welfare, and efficiency, as underlined in the Raghavan Committee report (2020) , which concluded that state monopolies like CIL are not in the best interests of the nation and should not operate without competition.. The court’s decision rejects the notion that state monopolies operated through government companies or public sector undertakings should be exempt from competition law.
In the words of Hon’ble Court, “What is prohibited is, however, abuse of dominant position by an enterprise or a group. A group has been defined in the context of Section 5 deals with regulation of combination. The appellant (Coal India Limited) answers the description of an enterprise as defined”. Further, the Hon’ble Court held that, “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 Principle will go outside the purview of the Act”.
Furthermore, the judgment clarifies that while state monopolies’ actions can be challenged through judicial review or other forums, this does not negate the applicability of the Competition Act. The Act empowers the Competition Commission of India (CCI) to take suo-motu action against entities engaging in anticompetitive practices, including state monopolies. The CCI also has the authority to consider factors such as dominance acquired through a statute or government control.
Applicability to Government Departments and Sovereign Functions
The ruling not only addresses state monopolies’ applicability under the Act but also deals with its impact on government departments. Sovereign functions remain excluded from the Act, but commercial activities conducted by government departments are explicitly covered. The Court dismisses the argument that state monopolies, established to achieve constitutional goals, should be exempt based on Article 39(b ) of the Constitution. It emphasizes that the Act does not elevate state monopolies above government departments and mandates them to adhere to fairness and avoid discriminatory practices.
Effects of the Judgment
• Enhanced Competition in the Coal Industry:
By bringing CIL and its subsidiary under the Act’s purview, the judgment is expected to promote competition in the coal industry. These entities have historically held dominant positions, leading to limited competition. With the CCI now scrutinizing its conduct and taking action against anticompetitive practices, new players are likely to enter the market, fostering innovation and efficiency.
• Improved Consumer Welfare:
Competition drives businesses to offer better products and services at competitive prices. The CCI’s oversight in the coal industry could result in improved quality, greater choices, and fairer prices for consumers. This will benefit various industries relying on coal as an input, creating positive ripple effects on the overall economy.
• Transparency and Accountability:
The inclusion of state monopolies under the Act promotes greater transparency and accountability. The Act mandates adherence to fair business practices and non-discriminatory behaviour, creating a level playing field for both large and small players in the market.
• Impact on Government Policies:
The judgment underscores the need for state monopolies to align their actions with national policies and directives. Differential pricing and production decisions must be justified based on national policy objectives. This could lead to a more transparent decision-making process, with government policies subject to scrutiny for their economic impact.
• Legal and Compliance Challenges:
CIL and its subsidiary will now need to ensure compliance with the Act, potentially requiring significant changes in their business practices and internal policies. They may face legal challenges and scrutiny from the CCI, impacting their operations and reputation.
• Broad Implications for India’s Economic Landscape:
The ruling has wider implications beyond the coal industry. It opens up discussions about the differential treatment of state-owned enterprises across various sectors of the economy. Several sectors are dominated by state monopolies, and while this may sometimes benefit consumers in terms of lower prices, it can hinder service quality and burden taxpayers.
• Promote Competitive Neutrality:
The judgment upholds the principle of competitive neutrality, advocating equal treatment of public and private enterprises under the law, aligning with Organisation for Economic Co-operation and Development principles , so that firms in the market compete based on merits and not take undue benefits/advantages from state.
• Re-evaluate Government’s Role in Commercial Activities:
The ruling calls for a careful examination of the government’s involvement as a player in commercial activities, encouraging alternative mechanisms to achieve welfare objectives without undermining competition.
The Supreme Court’s ruling to apply the Competition Act to CIL and its subsidiary marks a significant step towards promoting competition, consumer welfare, and efficiency in the coal industry. It challenges the traditional notion of state monopolies and underscores the importance of competitive markets in a modern economy. Policymakers must now carefully consider the impact of state-owned enterprises on private players and overall market dynamics, striking a balance between welfare objectives and market efficiency.
As the Competition Act’s application to state-owned enterprises sets a crucial precedent, it calls for a more inclusive and competitive economy. The Competition Commission of India must play a proactive role in regulating markets to ensure a level playing field for all participants. By doing so, India can embrace a more competitive economic landscape that benefits both consumers and businesses alike.
Shantam Sharma, Assessment Intern at S.S. Rana & Co. has assisted in the research of this Article.
 CIVIL APPEAL NO.2845 of 2017; Available at: https://main.sci.gov.in/supremecourt/2017/5094/5094_2017_6_1501_44710_Judgement_15-Jun-2023.pdf
 Available at: https://www.indiacode.nic.in/repealed-act/repealed_act_documents/A1972-36.pdf
 As per the Director General Report cited in the CCI Order (Case No. 03 of 2012); Available at: https://www.cci.gov.in/images/antitrustorder/en/032012-112012-and-5920121652439568.pdf
 Available at: https://www.ies.gov.in/pdfs/Report-Competition-CLRC.pdf
 Combination- The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises; Available at: https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf
 (b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;
 Available at: https://www.oecd.org/competition/competitive-neutrality.htm