Supreme Court Rules Competition Act Applicable to Government Companies, Rejects Exemption Claim

In a landmark judgment delivered on 15^th June, the Supreme Court of India ruled that the Competition Act, 2002 applies to government companies and rejected the claim for exemption put forth by such entities. The three-judge bench, comprising Justices K.M. Joseph, B.V. Nagarathna, and Ahsanuddin Amanullah, emphasized that government companies must adhere to the standards of fairness, avoid discrimination, and not act solely as profit-making engines. The court stated, "The Act cannot result in transforming the appellants into mere profit-making engines or require them to be oblivious to their obligations under the Constitution." The judgment settles a long-standing debate surrounding the applicability of the Competition Act to government companies and clarifies their obligations under the law.

The court's ruling came in response to a conflict between Section 28 of the Competition Act and Section 32 of the Nationalisation Act, which governs monopolies in the coal industry. Section 28 grants the Competition Commission of India (CCI) the power to order division of an enterprise enjoying a dominant position, ensuring prevention of abuse of such position. However, government companies argued that the Nationalisation Act, which vests rights and powers in them, was in conflict with the Competition Act, and therefore exempted them from its applicability.

Rejecting this claim, the court emphasized that the power to order division conferred on the CCI was intended to prevent abuse of dominant position and ensure fair competition. Justice Joseph remarked, "Parliament has intended, in order to ensure the proper implementation of the Act, to confer power to order division of an enterprise enjoying dominant power. This would include the appellants as well." The judgment clarified that while government companies should fulfill their objectives outlined in the Directive Principles of State Policy, they must also meet the standards of fairness and avoid discriminatory practices.

The court further highlighted that the Competition Act provides a specialized forum, the CCI, which is an expert body equipped to handle cases related to abuse of dominant position. It also underscored the significance of judicial review, where government companies are held accountable for their actions and must demonstrate fairness in their conduct.

The judgment sets a precedent by affirming the applicability of the Competition Act to government companies, ensuring fair competition and preventing abuse of dominant position in all sectors. This decision will have far-reaching implications for various industries and underscores the court's commitment to upholding the principles of fair competition in the country.

The case has now been remitted for further consideration on its merits, and related interlocutory applications and the contempt petition have been listed for hearing at a later date.

Date of Decision: June 15, 2023

COAL INDIA LIMITED AND ANR. VS COMPETITION COMMISSION OF INDIA AND ANR

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