Key Points:

  • Heavily regulated, state-sponsored enterprises not immune from competition laws.
  • Competition authority will consider evidence in complaints—even against its own state-owned enterprises—to determine whether company abused dominant position in violation of competition laws.

India’s competition authority, the Competition Commission of India (“the Commission”), imposed a fine of 17.7 billion rupees (or $290 million) on state-run coal mining company Coal India Ltd. (“CIL”) and three of its subsidiaries on December 10, 2013. In its one-hundred-plus-page Order, the Commission found that CIL had abused its dominant position as the country’s largest supplier of thermal coal—an input that is important to the continued growth of the Indian economy—by leveraging its power to enter into unfair supply agreements. See Case Nos. 03, 11 & 59 of 2012, Order under Section 27 of the Competition Act, 2002 (“the Order”).1 Thermal coal is India’s main fuel for electricity and is expected to continue playing this crucial role for the foreseeable future. Notably, the Order is one of the first pronouncements of the Commission and is the first order penalizing a state-owned company. Parties who engage in business dealings with state sponsored enterprises—in India and perhaps elsewhere in the region—should view the Order as a powerful reminder that state-sponsored enterprises must comply with competition laws.

The Commission launched a probe into CIL’s activities following complaints from state utility companies Maharashtra State Power Generation Company and Gujarat State Electricity Corporation. The Director General (“DG”), pursuant to the Commission’s orders, conducted an investigation in 2012. In a report filed on February 8, 2013, the DG opined that CIL had abused its dominant position. After considering the DG’s report, the parties’ replies and objections to the report, and oral arguments, the Commission concluded on December 9, 2013 that CIL had, in fact, abused its dominant position and ought to be penalized.

The decision to fine and restrict the conduct of CIL—a heavily regulated, state-owned enterprise—is noteworthy. Many competition authorities in the past have hesitated (or outright refused) to regulate state-sponsored entities. Here, conversely, the Commission stated explicitly that the Competition Act applies to regulated sectors, implying that this will not be the last time the Commission scrutinizes the conduct of a state-sponsored entity. Order ¶ 124. Moreover, even in the European Union, where state-sponsored enterprises have, indeed, been subject to investigation, the process for investigating and determining liability—if any—typically takes much longer than it did in this case, perhaps a reflection of the diligence necessary to impose liability on a state-owned enterprise. The average length of an antitrust investigation in the EU is three-to-four years, whereas here, the Commission issued its decision less than two years after ordering the DG to investigate.

The Commission rejected CIL’s contention that it was not liable under the Competition Act because its conduct was heavily regulated by the government. CIL argued at length that it cannot be considered “dominant” because it lacks freedom over even the most basic commercial decisions and, further, that any power that CIL possesses is vested to it by statute. Remarkably, notwithstanding findings that CIL does not have freedom to choose its customers, the quantity of coal it may supply, or the prices it sets, Order ¶ 259, the Commission found that “CIL has sufficient flexibility and functional independence in carrying out its commercial and contractual affairs.” Order ¶ 260. Accordingly, the Commission determined that CIL was “dominant” under the Competition Act and any abuse of that dominant position was unlawful.

The Commission found that CIL abused its dominant position because it imposed unfair and discriminatory conditions in its supply agreements and engaged in unfair and discriminatory conduct towards its customers. The Commission focused primarily on customer complaints discovered during the DG’s investigation of CIL’s conduct. Critically, the Commission found that CIL drafted supply contracts “on its own and without any meaningful consultation with other stakeholders,” suggesting that CIL may have evaded regulation and exceeded its authority by failing to keep governmental decision-makers informed. Order ¶ 151. As evidence of abuse of its dominant position, the Commission pointed to CIL giving itself the right to terminate contracts unilaterally at any time, failing to offer a sufficient process for handling disputes, and favoring state-run electricity producers over private ones. To remedy this unlawful conduct, the Commission ordered CIL to cease and desist from taking such actions, and to modify the contracts at issue in accordance with the Order. The Commission also imposed a fine of 17.7 billion rupees (or $290 million),2 which is 3% of CIL’s average turnover for the last three years. CIL has stated that it plans to appeal the penalty to the Competition Appellate Tribunal.

The Commission’s ruling is a powerful reminder that parties who engage in business dealings with state-sponsored enterprises in India—and elsewhere in Asia—must comply with the relevant competition laws. The Order in this case demonstrates that even a heavily regulated, state-owned entity, whose most basic decisions are dictated by the government, is not outside the reach of the competition laws.