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Battle of Repugnancy: Examining the Fine Print of Coal India Ltd. V Competition Commission of India

- Anubhav Mishra

On 15 June 2023, the Supreme Court made a crucial interpretation of the powers of the Competition Commission of India (“CCI”) under the Competition Act, 2002 (“the Act”) vis-à-vis statutory state monopolies in Coal India Limited v Competition Commission of India. Dismissing an appeal by Coal India Limited (“CIL”), the SC extended the powers of the CCI to examine abuse of dominant position by state monopolies and Public Sector Enterprises (“PSE”). Ruling in favour of the CCI, the SC laid down several crucial propositions on the operational extent of the Act for determining ‘enterprises’ u/S 2(h) of the Act.

The paper argues that the ruling conflates the concept of a general PSE with a statutory monopoly, a distinct subset of PSE to treat the repugnancy[1] by not considering the latter’s special position within the wider set. The conflation creates an untenable proposition that the Act is universally applicable on all statutory monopolies. Further, it argues for exempting statutory monopolies from the application of the Act based on specific legislative intent and constitutional objectives and proposes alternative perspectives on reconciling the repugnancy. Lastly, it addresses the concerns on efficiency and remedies arising from the proposed alternate framework. However, this is not an outcome-based critique of the judgement, but an examination of the position of a statutory monopoly ­­in relation to the Act.

I. Facts and Holding

In 2017, CIL appealed to the SC against the Competition Appellate Tribunal’s affirmation of the CCI's decision that confirmed the abuse of dominant position by the company. CIL argued that the Act did not apply to them because it was a monopoly created by a statute, specifically to fulfil constitutional objectives under Article 39(b). Moreover, the impugned actions took place when the Nationalisation Act was operative before its repeal in 2017. CCI contrasted by showing that the Raghavan Committee Report from 2000, and the definition of 'enterprise' read with the non obstante clauses in CA, indicated legislative intent to cover such monopolies under its ambit.

The SC reviewed the Committee Report and accepted the CCI's arguments on jurisdiction. The SC further held that all PSEs, including state monopolies must necessarily comply with the Act as they were included in the definition of ‘enterprise’. Thus, the SC ascertained that the legislative intent to be in the CCI’s favour.

II. Unravelling Statutory Monopolies as a Subset of PSEs

Government undertakings or PSEs operate in various sectors on a mixed model of balancing social welfare with profit for state revenue. These can be created by statutes (statutory corporation) or directly registered under the Companies Act, 2013 (government company). Some of these companies hold dominant market position in their sectors either from their first mover advantage or being natural monopolies. For instance, CIL, Indian Railways, CONCOR, and BHEL are PSEs with dominant positions.

However, not all PSEs are set up with the express legislative intent to create a monopoly in the market. The PSEs that are statutorily set up as a monopoly are statutory corporations that operate to the partial or complete exclusion of the private sector in the relevant market. For instance, CIL and Indian Railways are legally established statutory monopolies under specific enactments, while CONCOR and BHEL have become monopolies over time without such express statutory designation. The key distinction lies in whether a PSE is created by a statute and if that statute grants the PSE monopoly power in the relevant market.

Figure: Determination of a statutory state monopoly

A plain reading of ‘enterprise’ does not embody the nuances and variegations among PSEs and embodies the risk of ignoring the special position of a statutory monopoly within the wider set of a PSE. Thus, the SC’s inclusion of state monopolies and PSEs in an identical manner leads to an untenable proposition of ignoring the underlying intent of creating the statutory monopoly. The legislative intent of creating a statutory monopoly is obvious to the extent that the legislature empowers the body to operate in exclusion of competition from similar businesses and enterprises. Further, though the Raghavan Committee Report stated for inclusion of all non-strategic state monopolies within the ambit of the Act, the Parliament made no express inclusions in the Act or specific amendments to the parent Acts of the statutory monopolies. There was also no legislative enactment undertaken to change the status of these statutory monopolies. Therefore, no repugnancy arises in the CCI’s examination of government corporations and those statutory corporations that do not embody the express provision of monopolisation. However, a repugnancy necessarily arises in interpreting the statutes that create a statutory monopoly and the Act. The conflict before us is of legislative intent of the Act which maintains free-markets and the monopolising statutes that foundationally supress market competition.

III. Examining Exemptions To Competition Law

Judicial and statutory exemptions to the application of competition law is not unknown globally and is followed even in typical free-market economies like the United States, European Union, Canada and New Zealand. The exemptions depend on the tailoring the globally accepted principles of competition law to the maturity of the domestic economy and to politico-economic needs. However, these determinations are either based on the general administrative policy on competition (EU, USA), consumer welfare and economic efficiency (USA, New Zealand, Canada) or social objectives (protection of collective bargaining of workers). While such exemptions are generally treated with suspicion, such provisions are not wholly absent and applied when deemed necessary.

In India, the paramount objectives of policy are laid out in the Directive Principles of State Policy and the limits to market freedom have to be examined with due regard to those goals. Further, the Directive Principles are of an increased value in absence of an applicable National Competition Policy (“NCP”) and the marked lack of economic efficiency goals in the Act. The Revised Draft NCP from 2011 recognises that circumstances may require a deviation from the general norms of competition law jurisprudence, albeit with restrictions and minimal application. Thus, the recognition in the draft policy and the constitutional goals provide sufficient bases for judicial exceptions to the general applicability of the Act to specific sectors when deemed necessary.

IV. Mistreating the Repugnancy

In this case, CIL was established as a statutory monopoly and thus the review of the now-repealed Nationalisation Act was imperative to check the repugnancy. The SC interpreted the statutes to include CIL under the CCI’s scope ab initio. However, CIL remained a monopoly and the sector continued to have restrictions on entry and operations of other economic entities to give CIL a dominant and advantageous position. Since the CIL had been clothed operating as a monopoly with non-profit goals, the logical corollary necessitates that it needs to engage in actions as a monopoly and fulfil the objectives under the statute. Consequently, the SC’s resolution of the repugnancy is unsatisfactory and untenable on the following grounds:

Firstly, all statutes aiming monopolisation or nationalisation necessarily intend to create an anti-competitive environment based on non-market considerations. The Nationalisation Act was passed for better capital investment and to scientifically develop the overexploited sector. Market considerations, if any, play a secondary role. Thus, the author submits that a statutory monopoly should not be adjudged solely based on stifling competition because its object is primarily social and such an object may operate at the cost of free-market competition when allowed by the legislature.

Secondly, free-market is not the paramount goal of Indian policy and is not a sacrosanct factor of consideration in the interpretation of Indian statutes. This position is different from the United States where constitutional inclusion of the Contracts Clause gives free-market a foremost consideration. Free-market is not a desired end of Indian constitutional policy, but rather is the currently preferred allocative means and is subject to both intertemporal and sector-specific changes.[2] Free-market competition has been the preferable post-liberalisation, but the institutional system warrants for the presence of exceptional market structures in certain sectors when the Parliament deems it necessary. This is supported by the presence of Article 19(6)(ii), which was specifically inserted to protect the statutory creation of monopolies from specific constitutional challenges.

Thirdly, the principles of interpretation are clear that in cases of repugnancy between a general law and a specific law, the provisions of the latter prevail. In cases of markets, the Act provides a general jurisdiction for inspecting all but strategic sectors for abuse of dominant position. However, monopolising statutes are sector-specific and outline the market structure (in form of a monopoly) for the said sector. Thus, with regard to market structures, the Act is a general legislation but the monopolising statutes are specific to the relevant market. Hence, in cases of conflict, the monopolising statute must prevail over the Act.

Fourthly, the ruling runs contrary to well-settled rules of interpretation on the repeal of legislations. Once established that the Nationalisation Act existed as a special law and remained applicable before 2017, it is clear that the actions taken during the operation of the Act cannot be invalidated because of the position of law after the repeal. This is supported by Section 6 of the General Clauses Act, 1897. Further, the Act could have been preferred over the older monopolising statutes based on the ‘implied repeal rule’. However, for the ‘implied repeal rule’ to allow a general law to supersede a previous special law, the general law must expressly create wholly irreconcilable provisions or contain similar specific provisions to deem the general law as special in that context. Such irreconcilable provisions are absent from the Act to prefer its application over a specific monopolising statute and the nature of the Act is to operate in addition to other laws, and not to their derogation.

Lastly, an argument presented by the CCI to tilt legislative intent in its favour was to show that the Act itself allows for exceptions under Section 54(a) and there exists a legislative mode to exempt class of enterprises from its ambit in ‘public interest’. Moreover, the provision has been exercised several times in the past. However, the mere presence of statutory exceptions through administrative actions is not sufficient to bar the creation of judicial or doctrinaire exceptions when deemed necessary. While no such exceptions have been created for the Act, they have been created when express statutory exceptions have existed both with regard to statutory interpretation (especially, with regards to Section 27 of the Indian Contracts Act, 1872) and constitutional interpretation.

V. Balancing Competition with Statutory monopolisation

Balancing the considerations of both competition and statutory monopolisation remains a crucial priority to maintain stability in the economic legal system and to allow the legislative usage of creating statutory monopolies. The following is a step-by-step standard to resolve the repugnancy and address the concerns of untenability:

1. Firstly, since the present legislative policy and the general law on competition is of preferring free-market in most sectors, there should be a rebuttable presumption of application of the Act on PSEs in all but strategic sectors.[3] The presumption may be rebutted when contrary statutory terms on market structure are shown by PSE. The presumption is supported by the definition of enterprise in Section 2(h) and the Raghavan Committee Report.

2. Secondly, if a PSE is a statutory monopoly, the Act should not apply ab initio on such monopolies. The latest legislative policy for that relevant market is crucial to check the applicability of the Act. If statutory instruments, including amendments and delegated legislations, favour a non-monopoly market, then the Act should be applicable from the point of time when non-monopolisation of the sector is initiated by the legislature. The determination of the point of initiating liberalisation is to be ascertained by the courts. The manner of ascertainment by the court should be based on a standard and not a rule because: firstly, it relates to issues and conduct that is an infrequent matter of determination; secondly, preferring standards limit the issues of under or over inclusivity in interpreting the critical issue of market structure.

3. Thirdly, if the statutory monopoly exists without any signs of sectoral liberalisation by the government, the courts must check whether the impugned anti-competitive practices are followed to achieve the objects under the monopolising statute. If the answer is in affirmative, then the Act should have no application on the actions of the statutory monopoly. If in negative, the Act must apply to effect the presumption in (1).

4. Fourthly and lastly, recognising that deviations should be based on specific social or constitutional objectives, there ought to be periodic reviews, sunset clauses and other minimising effects to the exemption of statutory corporations in possible circumstances. Such limitations from and minimality of the deviations from general constitutional law is supported by the Revised Draft NCP, the Raghavan Committee Report and commentators alike.

Had the present case been dealt under these considerations, the CIL would have been subject to the Act from 2017 (when the Parliament repealed the Nationalisation Act). However, the outcome would have been different because under the current legal position, CIL has been subject to the Act since its implementation in 2009. The interim period is crucial because it provides time to the government and the statutory monopoly to adjust its commercial management and follow competitive market practices.

VI. Consequential Effects on Remedies and Efficiency

The exemption of statutory monopolies from competition law does not render an aggrieved party remediless from any legal injury committed by the monopoly. The protection of monopolies does not translate into absolution from all legal obligations whatsoever. Undoubtedly, if and when a statutory monopoly is found to engage in discriminatory market practices, its justifiability can be adjudged through statutory frameworks (if any) or through the constitutional framework by challenging the practice under Article 32 or 226. However, applying the competition law regime on statutory monopolies illogical and unsatisfactory. It harms the legislative power of creating statutory corporations in exclusion of other citizens under Article 19(6)(ii) and affects the Parliament’s power to push for other non-market objectives enshrined in the Constitution.

Observers could argue that monopolisation creates economic outcomes where society is worse-off than in a free-market with its competitive efficiency. It is pertinent to note that exempting statutory monopolies does not necessarily create a wholly undesirable outcome. In many jurisdictions, non-competitive outcomes are permitted if they lead to improved consumer welfare and significantly greater economic efficiency (USA, UK and NZ). The marked lack of such provisions in the Indian law is case of under inclusiveness of the law. Moreover, the instances of en masse statutory monopolisation have been rare and generally disfavoured in Indian policy partly due to the court’s inclination to raise legislatively determined compensation for private owners.

The other efficiency argument that warrants serious consideration is on the overall legal system. Textualist efficiency arguments prefer that the courts stick the plain and literal interpretation of the statutory instruments to create outcomes of certainty of economic laws and lower transaction costs.However, it is pertinent to note that setting a complex standard is not always undesirable from a legal efficiency perspective. Complex standards are helpful commands to accommodate inclusiveness when the instances of determinations are few. Both creation of statutory monopolies and the consequent repugnancy question is scarce in Indian legal history. Moreover, there are obvious high costs on the legislature to monopolise sectors. Thus, the proposed alternative is desirable to effect the bona fide legislative intent for Directive Principles and to prevent derogation of monopolising statutes with the untenable propositions from the judgement.

[1] Repugnancy refers to legislative repugnancy, that is, a conflict between two legislations that produce different outcomes on the same set of facts. In this case, the repugnancy lies between the application of the Competition Act, 2002 and the Coal Mines (Nationalisation) Act 1973 on the working of the Coal India Limited. [2] The author submits that the desired ends of Indian constitutional policy are embodied in the Directive Principles of State Policy. [3] Strategic sectors pertain to the sovereign sectors excluded from the jurisdiction of CCI in Section 2(h) of the Competition Act, 2002.


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