India: CCI Empowered To Look Into Anti-Trust Matters Involving Business Or Services Related To Lotteries: Supreme Court Of India

The Hon'ble Supreme Court in a recent decision in Competition Commission of India v. State of Mizoram & Ors.¹ held that while lotteries may be a regulated commodity and res extra commercium, the same would not take away the jurisdiction of Competition Commission of India (CCI) to look into allegations of anti-competitive activities in business or services related to lotteries. In this article, we briefly navigate through the facts and findings of the aforementioned decision.

Brief Facts

The present dispute arose pursuant to a complaint that was received by the CCI from a private company (Respondent No. 4), seeking investigation under the Competition Act, 2002 (Competition Act) in respect of a state lottery run by the State of Mizoram (State of Mizoram/ Respondent No. 1).

The State of Mizoram had issued an Invitation for Expression of Interest (EoI) through the Director, Institutional Finance and State Lottery (Respondent No. 2) on 20 December 2011. The EoI invited bids for the appointment of lottery distributors and selling agents for state lotteries to be organized by the Government of Mizoram (Government) in terms of the Mizoram Lotteries (Regulation) Rules, 2011 (Regulation Rules) framed under the Lotteries (Regulation) Act, 1988 (Regulation Act). The EoI specified that the minimum rate fixed by the Government is INR 5 lakh per draw for Bumper and INR 10,000 per draw for others - bids less than these rates would have been summarily rejected. In pursuance of the EoI, five bids were received which quoted identical rates matching the minimum rate fixed by the Government. Four companies/ partnerships that had quoted identical rates were selected as distributors to operate the lotteries as per the Regulation Rules and the Regulation Act. In accordance with the EoI, the selected distributors/ selling agents were inter alia required to furnish INR 5 crore each as security, a sum of INR 1 crore as an advance payment of the sale proceeds, and a sum of INR 1 crore each towards the prize pool.

Respondent No. 4 made a complaint to the CCI on 16 May 2012 under Section 3 and 4 read with Section 19(1)(a) of the Competition Act. The substratum of the complaint raised by Respondent No.4 was that identical offers of INR 10,000 per draw were made in all four bids and a single bid of INR 5 Lacs per draw was made for the Bumper draw. These amounts were the minimum rates fixed under the EoI. The allegation made by Respondent No. 4 was that the bidders had cartelised and entered into an agreement that had an appreciable adverse effect on competition in the lottery business in Mizoram. Accordingly, Respondent No. 4 submitted that there was big rigging and collusive bidding which violated Section 3(1) read Section 3(3) of the Competition Act and also caused grave financial loss to the State of Mizoram.

Respondent No. 4 also alleged that the State of Mizoram abused its dominant position as administrator of the lotteries in state by requiring the distributors to furnish exorbitant sums of money towards security, advance payment, and prize pool even before the lotteries were held. This was alleged to be unfair, discriminatory practice that effectively restricted the supply of the service of lotteries. The consequent allegation against the state was that it violated Section 4 of the Competition Act. The prayer made by Respondent No. 4 was that the EoI should be quashed and set aside, and Respondent No. 1 be restrained from abusing its dominant position. The Respondent No. 4 also sought a restraint order against the tender awarded to the selected bidder and an order banning the selected bidders from carrying out business in the State of Mizoram.

In pursuance of the complaint received from Respondent No. 4, the CCI found prima facie evidence of cartelization and bid rigging by the bidders. Accordingly, the CCI required the Director General (DG) to conduct an investigation into the matter. However, the CCI opined that there was no prima facie case made out against Respondent No. 1 as it could not be considered an enterprise or a group under the Competition Act. Thus, CCI rejected the complaint of Respondent No. 4 insofar as it concerned Respondent No. 1.

The DG in pursuance of the direction of CCI, issued a report dated 14 January 2013 whereby it concluded that respondents Nos. 5 and 6 along with two of the successful bidders had colluded to form a cartel and indulged in bid rigging. Thus, they were in violation of the provisions contained in Section 3(1) read with Section 3(3) of the Competition Act. However, no order was passed against the State of Mizoram.

The DG's report was placed before the CCI and the parties by an order dated 12 February 2013 were instructed to file their objections to the report prior to the oral hearing. However, Respondent No. 1 filed a writ petition before the Gauhati High Court (High Court) challenging both the DG report and CCI's order dated 12 February 2013. This was followed by two more writ petitions being filed before the High Court. The writ petitions broadly questioned the jurisdiction of CCI to conduct an inquiry under Section 26(1) of the Competition Act. It was argued that lotteries could not be considered trade and commerce within the meaning of Articles 301 to 303 of Constitution of India. The High Court held that the lottery activity being akin to gambling activity came under the purview of the doctrine of res extra commercium. Consequently, the lottery activity could not be covered by the Competition Act and CCI did not have the jurisdiction to entertain the complaint of Respondent No. 4.

Aggrieved by the decision of the High Court, CCI filed special leave petitions before the Hon'ble Supreme Court of India challenging the orders passed in the three writ petitions. The Apex Court granted leave to CCI and tagged all matters together.

Held

The Hon'ble Supreme Court opined that a simple matter of anti-competitive practices and cartelization was dragged for almost ten years in what appeared to be a mis-application of interplay of Competition Act and the Regulation Act by the High Court. The Hon'ble Supreme Court held that CCI, in the instant matter, was not at all concerned with carrying out regulation or prohibition of lottery business as was governed under the Regulation Act. Rather, the concern was limited to the role assigned to CCI under the Competition Act, and in the context of EoI, to examining any perceived bid rigging in the tendering process for appointment of selling agents and distributors for the lottery business.

The Hon'ble Supreme Court held that the limited scrutiny in the present matter was to examine the mandate of Section 3(1) read with Section 3(3) of the Competition Act. The Apex Court observed that lotteries may be a regulated commodity and may even be 'res extra commercium'. That would not take away the jurisdiction of CCI on something which is anti-competitive in the context of the business related to lotteries.

The Apex Court took note of the expansive definition of 'Service' under Section 2(u) of the Competition Act. The word 'Service' meant and included 'service of any description', which was to be made available to potential users. The Apex Court opined that purchaser of a lottery ticket is a potential user and a service was made available by the selling agents in the context of the Competition Act. The lottery business could continue to be regulated by the Regulation Act. However, if in the tendering process there was an anti-competitive element which would require investigation by the CCI, that could not be prevented under the pretext of the lottery business being res extra commercium more so when a government of state decided to deal in lotteries.

The Apex Court observed that the intervention by the High Court was extremely premature and that the High Court ought to have waited for the CCI to come to a conclusion. On the other hand, what had happened is that the CCI proceedings were brought to a standstill while the High Court adjudicated upon the matter.

The Hon'ble Supreme Court was of the view that there was really no need for the High Court to proceed in the present matter. The correct approach would have been to close the proceedings filed by the Government and let the private parties face the ultimate decision of the CCI. If they were aggrieved by any adverse decision of CCI, they were entitled to avail the appellate remedy under Section 53B of the Competition Act. Thus, the impugned judgment of the High Court was set aside and the appeal of CCI was allowed.

Comment

The term 'Service' under the Competition Act has rightly been accorded an expansive interpretation by the Hon'ble Supreme Court to include business or services conducted in relation to lotteries. Another factor that adds strength to the Apex Court's decision in the present matter is the fact that a government of state itself had decided to deal in lotteries. This decision augments the evolving jurisprudence of anti-trust law in India where more sectors are being brought under the coverage of anti-trust regulation.

Footnote

1. Competition Commission of India v. State of Mizoram & Ors., Civil Appeal No. 10820 - 10822 of 2014.

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