Coal India and CCI

• 23 Jun 2023

For Prelims: Competition Commission of India, Supreme Court, Coal Mines (Nationalisation) Act, of 1973, Competition Act, 2002

For Mains: Significance of Competition Commission due to the changing dynamics of the market,

Why in News?

The Supreme Court of India has recently dismissed Coal India Ltd (CIL)’s appeal, which affirmed the Competition Commission of India (CCI)’s authority to examine CIL’s conduct under the Competition Act, 2002.

• The court found no merit in excluding CIL from the purview of the Competition Act, which was earlier accused of engaging in abusive practices.

What is the Case About?

• About:
  • In 2017, the CCI imposed a penalty of Rs. 591 crores on CIL for imposing unfair and discriminatory conditions in fuel supply agreements (FSAs) with power producers.
    • The company was found to be supplying lower quality coal at higher prices and placing opaque conditions in the contract regarding supply parameters and quality.
  • The CCI argued that Coal India and its subsidiaries operated independent of market forces and enjoyed market dominance in the production and supply of non-coking coal in India.

Note:

• Coal India Ltd (CIL) is a public sector undertaking that is the largest coal producer and supplier in India.
• It operates under the Coal Mines (Nationalisation) Act, of 1973, which gives it a monopoly over coal mining and distribution in the country.
• CIL was a fully government-owned entity until it's disinvestment in 2010. Currently, the government holds a majority shareholding with a share percentage of 67%.

• Arguments of CIL and CCI:
  • CIL’s Stance:
    • Principles of "Common Good":
      • CIL operates based on the principles of promoting the "common good" and ensuring equitable distribution of coal, a vital natural resource.
    • Monopoly Status:
      • CIL refers to the Nationalization Act of 1973 to assert its position as a "monopoly" established for efficient coal production and distribution.
    • Differential Pricing:
      • CIL implements differential pricing to incentivise captive coal production, aiming to sustain the larger operating ecosystem and pursue welfare objectives.
    • Implications for National Policies:
      • CIL's coal supply supports national policies, such as promoting growth in economically disadvantaged regions through increased allocation.
  • CCI’s Stance:
    • Raghavan Committee Report (2020):
      • The CCI referred to 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.
      • This highlights the need to promote competition and accountability in the market.
    • Non-Essential Commodity Classification:
      • The CCI emphasized that coal is no longer classified as an "essential commodity" since 2007.
        • The Nationalisation Act too was removed from the Ninth Schedule (laws that cannot be challenged in court) in 2017.
      • This indicates that coal is subject to market dynamics and should not be exempted from the Competition Act, 2002.
    • Impact on Consumers:
      • The CCI highlighted the significant impact of irregular prices and supply of coal on power generation companies, which indirectly affects consumers.
      • Unfair pricing or supply practices by CIL would directly impact consumers' interests.
    • Government Ownership and Supply Allocation:
      • CIL's significant coal supplies to power companies connect coal supply to the welfare of the nation.
      • The CCI argued that ensuring continuous coal supply, adherence to contracts, reasonable pricing, and quality serve the common good.
• Ruling of the Supreme Court:
  • The SC dismissed CIL's argument for exemption based on the Nationalization Act of 1973, ruled that it cannot be exempted from the Competition Act.
  • The court emphasized the need for fair competition and equality among entities, regardless of their sector and reinforced the principle of "competitive neutrality" and the need for a level playing field.
  • It highlights the importance of competition in fostering a vibrant and efficient economy.

What is the Coal Mines (Nationalisation) Act, of 1973?

• The Coal Mines (Nationalisation) Act, of 1973, was enacted by the Indian Parliament to ensure rational, coordinated, and scientific development of coal resources.
  • Under this act, coal mining was exclusively reserved for the public sector.
• Exceptions were introduced in 1976 for captive mining by private companies in iron and steel production and sub-leasing in isolated small pockets.
• In 1993, amendments allowed private sector participation in captive coal mining for power generation, coal washing, and other notified end uses.
  • Allotment of coal mines for captive use was based on recommendations from a high-powered committee.
  • Mining of coal for captive use in cement production was permitted by government notification.
• The Act established government control over coal mining in India, with limited provisions for private sector involvement in specific sectors and purposes.

What is the Competition Commission of India?

• About:
  • Statutory body responsible for enforcing the Competition Act, 2002.
  • Established in March 2009, replacing the Monopolies and Restrictive Trade Practices Act, of 1969.
  • Quasi-judicial body giving opinions and dealing with cases.
• Composition:
  • One Chairperson and six members appointed by the Central Government.
• Competition Act, 2002:
  • The Competition Act, initially passed in 2002 and later amended by the Competition (Amendment) Act of 2007, has been further modified by the Competition Amendment Act of 2023.
    • This latest amendment aims to regulate mergers and acquisitions based on transaction value, establish a framework for quicker resolution of investigations through settlement and commitment, and decriminalize specific offenses under the Act.
  • Prohibits anti-competitive agreements and abuse of dominant position.
  • Regulates combinations causing an adverse effect on competition within India.
  • In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal (COMPAT) have been established.
  • The government replaced the COMPAT with the National Company Law Appellate Tribunal (NCLAT) in 2017.
• Functions and Role of CCI:
  • Eliminating practices with adverse effects on competition and protecting consumer interests.
  • Giving opinions on competition issues referred by statutory authorities.
  • Undertaking competition advocacy, creating public awareness, and providing training on competition issues.
  • Ensuring consumer welfare and fair competition for economic growth and development.
  • Implementing competition policies for efficient utilization of economic resources.

What are the other Judgements Related to Market Monopoly in India?

• Competition Commission of India v. Steel Authority of India Ltd (SAIL) (2010):
  • The SC upheld the CCI’s order to investigate SAIL for anti-competitive practices in supplying rails to Indian Railways.
  • SC ruled that SAIL was not exempt from the Competition Act and that its order was not appealable at the initial stage.
  • The Court also said that the CCI was a necessary or proper party in any appeal before the COMPAT.
• Competition Commission of India v. Google LLC & Ors (2021):
  • CCI appealed against Karnataka HC's order, investigating alleged anti-competitive practices by Google in India's smart TV and Android app store markets.
  • The HC quashed CCI's order due to lack of jurisdiction and the absence of Google's opportunity to present its case.
  • The SC stayed CCI's investigation and issued notices to all parties involved.

Source: TH