CCI v. State of Mizoram with M/S Tamarai Technologies Pvt. Ltd v. State of Mizoram

25th February, 2022 - 12:24 pm Categories: Legal Issues 0 Comments

Introduction
The objective of the Competition Act, 2002 [hereinafter the “2002 Act”] is simple i.e., to eliminate practices that hamper competition, to promote and sustain competition, to ensure the welfare of consumers, and to secure freedom of trade by eliminating cartelization. However, despite the objective being as simple as it is, the jurisdiction of the Competition Commission of India has often been at loggerheads with sectoral regulations (regulations that govern a specific sector e.g., SEBI governs the securities market, TRAI governs the telecom sector). Though the Supreme Court has on various instances outlined the jurisdiction of the CCI vis a vis statutory sectoral bodies, the issue still perturbs the apex judiciary as the Court’s door was knocked yet again pertaining to this issue in CCI v. State of Mizoram with M/S Tamarai Technologies Pvt. Ltd v. State of Mizoram[1] [hereinafter Tamarai Technologies case].

Herein the Supreme Court yet again expanded, rather clarified, the jurisdiction of the Competition Commission, even if the product/service involved was res extra commercium and governed by a specific regulation.

This piece attempts to decipher the reasoning of the Supreme Court in the aforementioned case and attempts to identify the cause behind this lingering issue, while suggesting a way forward.

2. Res Extra Commercium

Before analyzing the case at hand, it is pertinent to understand the doctrine of res extra commercium.  Simply put, this doctrine holds that certain activities owing to their propensity to be illegitimate are not subject to private trade or for the same reason are strictly regulated by the government, in comparison to other trading activity. For instance, in The State of Bombay v. R.M.D. Chamarbaugwala[2] the Supreme Court declared gambling as extra commercium on account of it being considered ‘sinful’ and held that the statute regulating gambling cannot be tested by Article 19 (6) in a manner like any other trading activity.  Simply put a res commercium activity will be subject to stricter regulatory control as compared to normal trading activity.

In the context of Competition Law, the question then arises whether the principles of free and fair trade and elimination of cartelization are applicable in res extra commercium activities? The Supreme Court answered this question in the Tamarai Technologies case.

3. Facts of the Case

The State of Mizoram had issued an Expression of Interest for appointment of lottery distributors and selling agents for state lotteries. As per the EOI, five bids were placed which surprisingly quoted identical rates, in compliance with the minimum rate fixed by the government. A complaint was made to the CCI under Sections 3 and 4 read with S. 19(1)(a) of the Competition Act, alleging cartelization on part of the identical bidders. Complaint was also made against the State of Mizoram, alleging abuse of dominant position by the state of Mizoram as it compelled the distributors to deposit a large sum in form of security and advance payment even before the lotteries were held.

The CCI prima facie found merit in the complaint and an investigation was conducted by the Director General. However, the complaint against the state was rejected, as it is not an ‘enterprise’ or a ‘group’ within the meaning of the Competition Act. The Director General in its report found a case of collusion and bid rigging in violation of S.3 of the Competition Act against the accused bidders.

The report of the DG was challenged before the Gauhati High Court and the same was set aside, primarily on the ground that since lottery comes under the ambit of res extra commercium, it is not amenable to the clutches of the Competition Act, hence the DG had no jurisdiction in this matter. The decision of the High Court was challenged before the Supreme Court.

4. Decision of the Supreme Court & Its Analysis

The Supreme Court found merit in the Appellant’s reliance upon CCI v Bharti Airtel[3], wherein it was held that notwithstanding the sectoral regulation, any agreement which facilitates dominant position and its abuse or has an adverse effect on free competition in the market comes within the clutches of the 2002 Act.

The Court thus overruled the High Court’s finding, that on account of being res extra commercium lotteries were not covered by the 2002 Act. The Supreme Court clarified that any agreement that shall be anti-competitive in nature would necessarily come under the purview of the 2002 Act, which would allow the CCI to have jurisdiction over the same without encroaching upon the specific sectoral regulations.

The question that arises now is: does lottery business despite being res extra commercium amount to a ‘service’ within the meaning of S. 2 (u) of the 2002 Act, to be brought within its purview?

The Supreme Court answered this question in the affirmative and took note of the expansive definition of ‘service’ under S. 2 (u) of the 2002 Act, which includes ‘service of any description’.  It held that one who purchases a lottery ticket is a potential user and the selling agents of the ticket tenders a service and by the virtue of this lottery tickets do come under the purview of Competition Act and the jurisdiction of the CCI of India cannot be oust on the mere pretext that lottery tickets are res extra commercium and are governed solely by the Regulation Act.

The Supreme Court here has once again outlined the jurisdiction of the CCI vis a vis sectoral regulations and has held that both operate independently without any conflict and proper application of both the legislations would not even warrant a harmony between them as both are self-contained codes operating in their respective field. Such a differentiation by the Supreme Court is very apt because sector-specific regulations by their very nature are ex ante i.e., they prescribe standards to be adopted, to prevent any potential issue, on the other hand the Competition Act is ex post in nature, as it addresses an issue after it has arisen e.g., cartelisation by certain players post their entry into the market of a specific sector.[4] Thus, by their very nature there is little or no possibility of one encroaching upon the field of another.

5. Conclusion & Recommendations

Such jurisdictional issues arise time and again mainly due to faulty and overreaching interpretations by the court and the lack of a specific coordination scheme between the authorities enforcing competition law and the sector regulatory authorities.

In the Tamarai case as well, the Supreme Court categorically noted:

“We find that a simple aspect of anti-competitive practices and cartelisation has got dragged on for almost ten years in what appears to be a mis-application by the High Court of the interplay of the two Acts, i.e., the Competition Act and the Regulation Act.”

To eliminate the misapplication between the two, a collaborative approach is suggested, wherein either of the authorities have the right to participate in proceedings before the other. At the policy level it is suggested that formal as well as informal exchanges between various sectoral regulators should be encouraged. Such consultation process should also be put in place at the individual case level.

Author: Chaitanya Acharya – a student of GNLU (Gandhinagar), in case of any queries please contact/write back to us via email vidushi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

References:

[1] Competition Commission of India v. State of Mizoram and Ors., 2022 SCC OnLine SC 63

[2] The State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699

[3] Competition Commission of India v Bharti Airtel, (2019) 2 SCC 521.

[4] Interface between Competition Commission of India and Sectoral Regulators, Competition Commission of India,