What is the contention between Coal India and CCI?

Source: The post is based on the article “What is the contention between Coal India and CCI?” published in The Hindu on 21st June 2023

What is the News?

The Supreme Court has 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.

What is the case about?

In 2017, Competition Commission of India (CCI) had imposed a penalty of ₹591 crore on CIL for imposing unfair/discriminatory conditions in fuel supply agreements (FSAs) with the power producers for supply of non-coking coal.

In other words, CIL was found to be supplying lower quality of coal at higher prices and placing opaque conditions in the contract about supply parameters and quality. 

The CCI contended that Coal India and its subsidiaries operated independently of market forces and enjoyed market dominance in the relevant market with respect to production and supply of non-coking coal in India.

What were the arguments made by Coal India Ltd (CIL)?

Coal India Ltd argued that:

Firstly, it operated based on the principles of promoting the “common good” and ensuring equitable distribution of a vital natural resource.

Secondly, under the Nationalization Act of 1973, specifically the Coal Mines (Nationalization) Act, it was established as a “monopoly.”

Thirdly, to incentivize captive coal production, it may need to follow a pricing mechanism that varies based on circumstances.The purpose of differential pricing was to ensure the sustainability of the broader operational ecosystem and pursue welfare objectives.

Fourthly, coal supply also has implications for broader national policies, such as promoting growth in economically disadvantaged regions through increased allocation.

What are the points made by the Competition Commission of India (CCI)?

Firstly, CCI cited the Raghavan Committee (2020) report which concluded that state monopolies were not in the best interests of the nation and should not be allowed to operate inefficiently without competition.

Secondly, coal was no longer classified as an “essential commodity” after 2007, and the Nationalization Act was removed from the Ninth Schedule (laws immune from court challenges) in 2017.

Thirdly, 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.

What were the observations made by the Supreme Court on this?

The Supreme Court dismissed the argument that the Competition Act does not apply to CIL due to its governance under the Nationalization Act, stating that it cannot be reconciled with the Competition Act.

The court 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.

What is the significance of this judgement?

This judgement reinforced the principle of “competitive neutrality” — entailing that the Competition Act equally applies to public and private sector enterprises.