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Coal India lost legal battle against CCI: Supreme Court verdict explained

Published: 22nd Jun, 2023

Context

The Supreme Court recently ruled that Coal India Ltd (CIL), a public sector undertaking, cannot be exempted from the Competition Act as it found no valid reasons for such exclusion. The court was addressing CIL's appeal against the Competition Appellate Tribunal's order, which accused the company of engaging in abusive practices.

Background

  • In 2017, the Competition Commission of India (CCI) fined Coal India Ltd (CIL), ?591.01 crore for imposing unfair conditions in fuel supply agreements (FSAs) with power producers.
  • CIL supplied lower quality coal at higher prices and included unclear conditions regarding supply parameters and quality.
  • The CCI argued that Coal India and its subsidiaries operated without competition and held a dominant position in the non-coking coal production and supply market in India.

Arguments

Points made by Coal India

Point made by CCI

  • Promoting common good: It operated based on the principles of promoting the "common good" and ensuring equitable distribution of a vital natural resource.
  • Established monopoly: Under the Nationalisation Act of 1973, specifically the Coal Mines (Nationalisation) Act, it was established as a "monopoly."
  • Differential pricing: To incentivize captive coal production, it may need to follow a pricing mechanism that varies based on circumstances.
  • o   The purpose of differential pricing was to ensure the sustainability of the broader operational ecosystem and pursue welfare objectives.
  • Attaining national objectives: Moreover, coal supply also has implications for broader national policies, such as promoting growth in economically disadvantaged regions through increased allocation.
  • The PSU clarified that its operations were not driven by commercial interests.
    • It highlighted that 345 out of its 462 mines incurred a combined loss of ?9,878 crore in 2012-13.
  • The Raghavan Committee (2020) report, cited by CCI, concluded that state monopolies were not in the best interests of the nation and should not be allowed to operate inefficiently without competition.
  • In addition, coal was no longer classified as an "essential commodity" after 2007, and the Nationalisation Act was removed from the Ninth Schedule (laws immune from court challenges) in 2017.
  • Disinvestment: Until the disinvestment in 2010, Coal India was entirely government-owned, and the government's ownership subsequently reduced to 67%, with the rest held by private entities.
  • Coal India directed 80% of its supplies to power companies, who would then transmit power generated from coal to distribution companies (discoms), ultimately reaching end consumers.
  • Coal accounts for approximately 60 to 70% of the expenses incurred by power generation companies, which means that irregular prices and supply would indirectly impact consumers significantly.

Observations made by the Supreme Court

  • The court dismissed the argument that the Competition Act does not apply to CIL due to its governance under the Nationalisation Act, stating that it cannot be reconciled with the Competition Act.
  • It emphasized that the essence of the Act would be undermined if state monopolies, government companies, and public sector units were allowed to violate the competition law.
  • Additionally, it stated that entities cannot act arbitrarily or discriminate against similar entities in an unfair manner.

Conclusion

The judgment upheld the concept of "competitive neutrality," affirming that the Competition Act applies equally to both public and private sector enterprises. It emphasized that government companies, regardless of their dominance in their respective sectors, must conduct business fairly and without discrimination to comply with antitrust principles. This ensures a fair competition between public sector and private enterprises in India.

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