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Context:

The Supreme Court of India on the 15th of June 2023, said that there was “no merit” in Coal India Ltd (CIL) being excluded from the ambit of the Competition Act.

Background of the case

In March 2017 the Competition Commission of India (CCI) imposed a penalty of ₹591.01 crores on Coal India Ltd (CIL) for putting in place unfair or discriminatory terms and conditions while dealing with fuel supply agreements (FSAs) with the power producers for the supply of non-coking coal.
The CCI had accused Coal India of supplying lower-quality essential resources at higher prices and imposing non-transparent terms and conditions in their contracts.
The CCI had further alleged that Coal India and its subsidiaries undertook their operations independently of the market forces and enjoyed market dominance with respect to the production and supply of non-coking coal in the county.

Coal India Ltd (CIL)

Coal India Limited (CIL) is a state-owned coal mining company that was established in November 1975.
CIL, at present, has 8 subsidiaries namely Bharat Coking Coal Limited (BCCL), Central Coalfields Limited (CCL), Eastern Coalfields Limited (ECL), Western Coalfields Limited (WCL), South Eastern Coalfields Limited (SECL), Northern Coalfields Limited (NCL), Mahanadi Coalfields Limited (MCL) and Central Mine Planning and Design Institute (CMPDI).
CIL and its subsidiaries are incorporated under the Companies Act, 1956 and are wholly owned by the Union Government.
CIL works under the administrative control of the Ministry of Coal, Government of India.
CIL is a Maharatna company, which is a privileged status conferred by Indian Government to a few state-owned enterprises with an aim to empower them to expand their operations and emerge as global giants.
Headquarters: Kolkata, West Bengal
At present, CIL has become one of the largest producers of coal in the world and one of the largest corporate employers.

Coal India’s stand

Coal India Ltd (CIL) had argued that the PSU had operated in line with the “principles of common good” and had also ensured equitable distribution of the key natural resource.
With the above-mentioned objective, Coal India Ltd (CIL) was secured as a “monopoly” under the Nationalisation Act, 1973 or the Coal Mines (Nationalisation) Act, 1973.
The PSU accepted that it might have resorted to a differential pricing mechanism. However, the key objective of adopting such a mechanism was to encourage captive coal production.
Differential pricing, despite being inconsistent with market principles, helped ensure the viability of the larger operating ecosystem and also pursue various welfare objectives.
The PSU also said that it resorted to differential pricing mechanisms because the issue of coal supply has a bearing on larger national policies, for example, the government could promote growth in backward areas with the help of increased allocation.
The entity further argued by saying that it did not operate in the commercial sphere and highlighted the fact that about 345 out of its 462 mines had suffered cumulative losses amounting ₹9,878 crores in 2012-13.

CCI’s response

CCI tried to broaden the scope of the argument by quoting the Raghavan Committee (2020) report which held that “state monopolies are not conducive to the best interests of the nation. Hence such state monopolies must not be allowed to operate in a state of inefficiency and should instead, operate amid competition”.
CCI also pointed out the fact that coal ceased to be an “essential commodity” in February 2007 and the Nationalisation Act was also revoked from the Ninth Schedule of the Constitution in 2017.
Furthermore, CCI argued that Coal India Ltd (CIL) was a fully-government-owned entity until the disinvestment in 2010 after which the government’s shareholding was reduced to 67% with the rest held by private hands.
CCI also pointed out the fact that Coal India directed 80% of its supplies to power companies, who would then supply power generated using coal to distribution companies (discoms), who would further supply power to the end consumer.
CCI thus contended that the supply of coal, adherence to the contract, reasonableness in the prices and quality of coal also serve a common good.
CCI also argued that coal accounts for about 60 to 70% of the costs for power generation companies and hence irregular prices and supply could have a significant impact on the end users or consumers indirectly.

Supreme Court’s observations

The apex court observed that there was “no merit” in the argument that the Competition Act would not apply to CIL as it comes under the purview of the Nationalisation Act.
According to the court, the fundamental principle which permeates the Act would stand violated if the state monopolies, public sector entities and government companies are allowed to contravene the (competition) act.
The court further noted that entities cannot act with caprice, treat unfairly otherwise or similarly situated entities with discrimination.

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