Written by Ankush Kalsule, The author is a Third year law student pursuing BA.LLB from National Law University Odisha.
Introduction
The question as to whether India needs a specific competitive neutrality framework has been a subject for discussion in the area of antitrust laws for a long time now. The Monopolies and Restrictive Trade Practice Act 1969 did not have a provision for the same and nor did The Competition Act 2002 (Act). However, changing circumstances in the field of trade and business require that no person or enterprise should use their dominant position to influence the market for their benefit as ultimately it will be the consumer who will be on the receiving end of such anti-competitive practices. Hence, the concept of “Competitive Neutrality” comes into the picture.
“Competitive Neutrality” as per the UNCTAD refers to ensuring a level playing field for every enterprise irrespective of it being a private or a government owned enterprise. Government enterprises like Coal India Limited exercise heavy monopoly in the Coal mining sector and even various sectors which do not have such monopolistic control are affected by the unwelcomed government interference ultimately impacting the competition policy. In sectors such as that of Coal mining the regulator performs dual roles such as that of a player in the sector along with acting as a regulator for that particular sector.
This dual role of regulator leads to conflict of interest and impacts the level playing field which is one of the foremost requirements for an effective competitive neutrality regime. The recent ruling in the case of Coal India Limited vs Competition Commission of India thus can be considered as a step in the right direction for ensuring competitive neutrality under the Indian antitrust setup as it settled the air around whether the Competition Commission of India (CCI) can scrutinize Public Sector Undertakings (PSU’s) for the purpose of ensuring effective competition in the market.
India's Stand on Competitive Neutrality
1. Distinction between “Sovereign Function” vs “Economic Activity”
Section 2(h) of the Act defines an “Enterprise” as a person or department of government which carries out economic activities such as production, storage, supply and distribution of goods but does not include any sovereign function of government such as that relating to atomic energy, currency or defence. In some cases, PSUs have tried to evade the scrutiny of the CCI by asserting the Defence of "Sovereign function." However, the Commission has taken pre-emptive measures, as seen in the Union of India vs Competition Commission of India case. In this instance, the Commission established the specific functions for which an enterprise can claim the Defence of sovereign function.
In the case of Arshiya Railway Infrastructure Limited vs Ministry of Railways , CCI rejected the claim of Indian Railways pertaining to its sovereign function and held that transportation fees for goods and the regulations governing access to railway platforms are regulated by tariffs periodically established by the Railways. Therefore, due to this arrangement, they fall outside the purview of the CCI. The Delhi High Court while entertaining an appeal filed by the Railways Ministry against the order of CCI upheld that the exemption provided in Section 2(h) with respect to sovereign function cannot be claimed when an enterprise is carrying out a commercial or welfare activity, further the court also stated that “In the premises, it is held that only primary, inalienable and non-delegable functions of a constitutional government should quality for exemption within the meaning of ‘sovereign functions’ of the government under section 2(h) of the Competition Act, 2002.”
2. Implications of anti-competitive practices by PSU’s and positive steps taken by India
The Competition Commission of India has majorly relied on the judgement in Union of India vs Competition Commission of India and section 2(h) of the Act to determine whether an enterprise is carrying out a sovereign function or a commercial activity but the need of a specific provision and set of guiding principles cannot be ruled out for an effective competition law framework.
India has always been a pioneer with respect to development of jurisprudence pertaining to competition law and this claim of the author can be strongly supported by the substantial work that it has carried out with respect to this particular subject area of law such as the vesting of authority in the hands of CCI, introduction of a Competitive assessment toolkit and various other efficient policies. The commission can also by virtue of power under Section 26 (1) of the Act direct the director general to investigate the issue on receiving a complaint from Central government, state government, statutory authority or on its own knowledge of the issue if they are of the opinion that there exists a prima facie case of dominance or anti-competitive practices.
The above policies and development were introduced with the sole objective of advocating for a fair competitive market. The Ministry of Corporate Affairs (MCA) did miss out on an opportunity to consolidate the concept pertaining to competitive neutrality in India by not including the same in the Competition (Amendment) Act 2023 but the same must be reconsidered in further amendments to the act for an effective competitive market. India as a country in terms of having an effective competitive policy is on the right track and the same can be substantiated by the UNCTAD report which identified seven key countries and only India stood apart in promoting and implementing the principle of Competitive neutrality.
3. PSU’s & International Trade
The need for a comprehensive competitive neutrality provision can be advocated by the severe implications that the lack of provision can have on the private entities not just in the domestic market but in the international market too. Since PSUs don’t act on a profit-making motive and on political consideration, they are more likely to disrupt competition in the market by usage of predatory pricing and bias in providing tenders to other government entities. This disruptive and anti-competitive practices carried out by PSU’s also disrupts international trade while engaging in anti-competitive practices as they are majorly funded by the government and are considered to be immune from bankruptcy.
The PSU’s can be used as a method by various countries for certain hidden non-commercial purposes and strategic gains which can possibly disrupt effective competition in the country by jeopardizing the interest of private competitors. For example, a PSU in one country may afford to export certain commodities at a price lower than at which the commodities were first acquired in an effort to favour entities who have some connection with PSU’s originating country or it can provide deal at such a low cost that the profit earned by private entity is diminished. Hence, the need to regulate the conduct of these PSUs is essential for the purpose of an effective trade mechanism among all the countries involved.
Takeaways from other jurisdictions.
Article 107-Article 109 of the Treaty on the Functioning of the European Union (TFEU) gives the power to scrutinize any form of “State Aid”. These provisions were included with the objective of probing state aid which might hamper competition in the market. A similar provision on the line of Article 107-109 can be considered in the Indian context as the current judgements pertaining to competitive neutrality do not provide with any clear distinction as to what functions are sovereign and what activities are commercial. Article 107 (2) provides a range of activities which shall be permissible even after the presence of state aid such as that of social character but without any sort of discrimination pertaining to the place of the origin of product or state aid for the purpose of recovering from damages which occurred as a result of any natural disaster.
Lessons can be drawn from Australia’s “National Competition Policy” which seeks to ensure that public owned businesses or enterprises should not exercise any dominance or advantage by reason of it being owned by the government. Through this policy a corporate structure was established which required this government owned business to pay regular taxes, other tax related charges and fees for debt guarantee for the purpose of neutralizing advantages that these businesses have by virtue of government guarantees. Furthermore, this corporate structure aims to subject these enterprises to the same regulations that are normally applied in the cases of privately owned businesses.
Free Trade Agreement (FTA) such as the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) has a similar goal as that of Competition law which is to regulate State owned entities (SOE). It is considered to be the most thorough and complete regulation in dealing with the interplay of FTA’s and SOE. Chapter 17 of the agreement contains rules which mention that an SOE should not divert themselves from their profit-making activity and disrupt the market in the country where they carry out trade by employing certain methods such as predatory pricing and undue advantage due to government affiliation. India is not part of the agreement but similar regulations can be employed in other India’s bilateral trade agreements for the purpose of protecting privately owned entities in the country.
Conclusion
In conclusion, the case of Coal India Limited vs Competition Commission of India represents a significant step in the journey towards achieving competitive neutrality in India's antitrust framework. The absence of certain specific provisions and guiding principles for competitive neutrality in the Competition Act 2002 has led to ambiguity in distinguishing sovereign functions from commercial activities and has advocated the need for a road map and comprehensive policy to achieve the goals of Competitive neutrality. Learning from international models like the European Union and Australia, India can benefit from introducing a dedicated framework to ensure fair competition across government-owned and private enterprises. Despite missed opportunities for inclusion in the Competition Act Amendment 2023, India's continuous efforts to develop jurisprudence in this area reflect its commitment to fostering a level playing field for all businesses, ultimately benefiting consumers and promoting economic fairness.
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