COMPETITION COMMISSION OF INDIA (CCI) V. STATE OF MIZORAM & ORS.

 

COMPETITION COMMISSION OF INDIA (CCI) V. STATE OF MIZORAM & ORS.

CIVIL APPEAL NO 10820-10822 of 2014

With

M/S TAMARAI TECHNOLOGIES PVT. LTD. V. STATE OF MIZORAM & ORS.

CIVIL APPEAL NO 1797 OF 2015

Before the Supreme Court of India

Citation- Competition Commission of India v. State of Mizoram &Ors. (2022) SCC OnLine SC 63

Bench-

1.     Justice Sanjay Kishan Kaul

2.     Justice MM Sundresh

FACTS

1.     The CCI, in 2012, received information under Section 19(1) of the Competition Act, 2002 (the Act),regardingbid-rigging, collusive bidding and cartelization by certain enterprises in a tender organized by the State of Mizoram (the State) for appointment of Selling Agents and Distributors for a State Lottery.

2.     The State, through the Director of Institutional Finance and State Lottery, invited bids to appoint lottery distributors and selling agents to organize and promote the State Lottery. The minimum bid for Bumper lotteries was fixed at Rs. 5,00,000 per draw and for Online and Paper-based lotteries it was Rs 10,000 per draw

3.     Four bidders were selected, and were required to furnish security, advance payment and contribute to the prize pool.

4.     One of the bidders approached the CCI under Section 19(1)(a) of the Act, 2002, alleging violation of Sections 3 and 4 of the Act by the winning bidders and the State of Mizoram respectively. The bidders were accused ofmaking identical offers of the same amount in all four bids, thereby acting in contravention of Sections 3(3) read with 3(1) of the Act, which provide that agreements for bid rigging and collusive bidding in tenders, to manipulate the tender process, are presumed to be anti-competitive in nature and are therefore, void. 

5.     The State of Mizoram was accused of abusing its dominant positionunder Section 4 of the Act, by stipulating deposit of large amounts of money for security, advance payment and the prize pool even before the lottery.

6.     The CCIprima facie concluded that there was cartelization and bid rigging by the winning bidders, asthey made identical bids for the online lotteries and only one bidder made an offer for the paper lottery and the bumper draw, thereby violating Section 3(1) and 3(3) of the Act, and directed the Director General (DG) to conduct investigation. However, it rejected the contention of violation of Section 4 of the Act by the State. The DG, after investigation, found that the successful bidders actually acted in violation of Sections 3(3) read with 3(1) of the Act.

7.     The DG, in its report, noted thatthe State and Director of Institutional Finance and State Lottery should have been more vigilant of the anti-competitive practices of the bidding enterprises in the tender process. The DG’s report was submitted to the CCI, a copy of which was shared with all the concerned parties, and the date for oral hearing was fixed.

8.     During this time, the State of Mizoramfiled a writ petition before the Gauhati High Court(HC) challenging the DG’s observations regarding the State, and the fact that the CCI sent a copy of the DG’s report to the State even though there was no case against it under Section 4 of the Act. The HCissued an interim order directing the CCI not to pass any final orders.

9.     Two successful bidders- Summit Online Trade Solution Pvt. Ltd. and M/s NV International, also filed writ petitions, challenging the DG’s report and CCI the proceedings. The HC allowed all the three Writ Petitions and also issued directions to the CCI restraining it from passing any final order.

10.  Regarding CCI’s jurisdiction to entertain the complaint of alleged anti-competitive practices by the successful bidders, the HC opined that-

Ø  lotteries don’t come under the purview of trade and commerce and they only confer an actionable claim on the holder- therefore, they cannot be deemed as ‘goods’ under the Sale of Goods Act, 1930.

Ø  since lotteries are similar to gambling activities, the doctrine of res extra commercium would apply, implying that it is out of the purview of commerce, and therefore would not be covered by the Competition Act.

11.  The CCI then approached the Supreme Court challenging the order of the HC.

ISSUES

Ø  Can lotteries be examined by the CCI, even though they are res extra commercium?

Ø  Was the State correct in approaching the HC, seeking intervention in the matter before the CCI?

CONTENTIONS OF PARTIES

Ø  CCI

It was argued on behalf of CCI that-

·       the CCI was not concerned with the regulation or legality of the lottery business, but rather about the alleged bid rigging and collusive bidding in the concerned tendering process.

·       CCI’s jurisdiction to look into violation of Section 3(3) read with 3(1) of the Act in the tender process was not excluded, even if lotteries are a regulated commodity. Its mandate is to look into the anti-competitive agreements that have an appreciable adverse effect on competition.

·       ‘service’ under Section 2(u) of the Act has been defined inclusively, to include a service of any type provided to aprospective user

·       Section 54 of the Act empowers the Central Government to provide for any exemption from the application of the Act or any provision thereof, and the same has not been done in respect of lotteries.

·       the res extra commercium doctrine would apply where the question is whether certain trades can be regulated by a State Government, through taxes or other restrictions- this doctrine does not cover distribution or selling of lotteries.

·       the HC should not have entertained the Writ Petitions, as the CCI had just issued a direction to the DG to begin investigation, which was an administrative order.Even the DG’s investigative report does not tantamount to a final decision, and the stage of final hearing before the CCI had not even taken place at that point of time.

·       if the respondents were aggrieved by the proceedings or any direction, they could have invoked the appellate jurisdiction under the Act.

Ø  STATE OF MIZORAM

The State argued that it just wanted to challenge the continuation of the CCI proceedings against it, and never requested the HC to set aside the CCI proceedings involving the bidders. It also expressed its willingness to co-operate with the CCI in its proceedings.

Ø  SUMMIT ONLINE TRADE SOLUTION PVT. LTD.

One successful bidder argued that-

·       lottery tickets are neither goods, nor services, and therefore Sections 3(3) and 3(1) of the Act would not apply

·       since the business of lottery comes under the purview of res extra commercium, it would strictly be regulated bythe Lotteries (Regulation) Act

·       a lottery ticket is only an actionable claim, and actionable claims have been especially excluded from the definition of ‘goods’ under Section 2(7) of the Sale of Goods Act, 1930

COURT’S DECISION

The Supreme Court observed that the regulation or prohibition of lotteries was not in question before the CCI- it was merelylooking into alleged bid-rigging and collusive bidding in the tender process under Sections 3(1) and 3(3) of the Act.

It was further opined that lotteries can be a regulated commodity, while also being res extra commercium- they can still be inquired into if there is any anti-competitive practice involved. Furthermore, ‘service’ as under Section 2(u) of the Act, being inclusive in nature, includes selling agents and distributors selling lottery tickets to prospective consumers. If there is any anti-competitive practice in the tender process, then the CCI has jurisdiction to look into the same.

Furthermore, when the CCI observed that there was no case made out against the State for violation of Section 4 of the Act, the matter should have ended there, and the State shouldn’t have approached the HC. If the State was aggrieved by the proceedings before the CCI or the DG’s comments, it could have approached the CCI. The State approaching the HC gave an opportunity to the two winning bidders to file writ petitions in order to delay the CCI proceedings.The HC should have waited for the CCI to complete the final hearing and decide the matter. As a result of the HC’s intervention, the matter before the CCI was stalled, creating unnecessary delay.

CONCLUSION

The SC allowed the appeal, setting aside the impugned judgement of the Gauhati HC, and allowed the CCI to proceed with the inquiry into the matter in accordance with law. The Writ Petitions filed by the successful bidders were also ordered to be dismissed and the Court ordered closure of the writ proceedings instituted before the HC by the State of Mizoram.

PRECEDENTS

1.     Black Diamond Beverages v. Commercial Tax Officer (1998)

2.     Competition Commission of India v. SAIL &Anr. (2010)

3.     Competition Commission of India v. Bharti Airtel (2019)