Anti-Competitive Aspects Of Res Extra Commercium Business Like Lottery Can Be Investigated By CCI - SC
A two-judge Bench of the Supreme Court comprising Justice Sanjay Kishan Kaul and Justice MM Sundresh while holding that lotteries continued to be regulated under the Regulation Act has observed that if in their tendering process there is an element of anti-competition that would require investigation by the CCI then that cannot be prevented under the pretext of lottery of being res extra commercium, especially when the State Government decides to deal in the same.
The Bench in this context opined -
"The lottery business can continue to be regulated by the Regulation Act. However, if in the tendering process there is an element of anti-competition which would require investigation by the CCI, that cannot be prevented under the pretext of the lottery business being res extra commercium, more so when the State Government decides to deal in lotteries."
The Court further held that the purchaser of a lottery ticket is a potential user and a service is being made available by selling agents in the context of the Competition Act, 2002.
The Court noted, "The inclusive mentioning does not inhibit the larger expansive definition." Respondent no. 4 had filed a complaint before the Competition Commission of India seeking investigation under the Competition Act, 2002 in respect of State Lottery run by the State of Mizoram. The jurisdiction of the CCI was challenged by the successful bidders and by the State of Mizoram
Mr. Rajshekhar Rao, Senior Advocate appeared on behalf of CCI while Mr. Brijender Chahar, Senior Advocate along with other counsel advanced submissions on behalf of the respondents.
The State of Mizoram had issued an Expression of Interest (EOI) invitation for the appointment of lottery distributors and selling agents for State lotteries to be organized by the Government in terms of Mizoram Lotteries (Regulation) Rules, 2011 framed under the Lotteries (Regulation) Act, 1998.
Respondent no. 4 made a complaint to CCI under Section 3 and 4 r/w Section 19(1)(a) of the Competition Act. Respondent no. 4 alleged that the State of Mizoram had abused its dominant position as administrator of State lotteries by requiring distributors to furnish exorbitant sums of money towards security and advance payment.
The Court noted that the objective of the Competition Act and added, "To establish a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers, and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto".
The Court noted that CCI exercised powers under Section 26(1) of the Act as it found prima facie evidence of cartelization and bid-rigging by bidders. CCI required Director-General to conduct an investigation in the matter. The CCI opined that no case was made out against the State of Mizoram at the prima facie stage.
The DG came to the conclusion that Respondents 5 and 6 along with M/s. Teesta Distributors and M/s. E-Cool Gaming Solutions (P) Ltd. had colluded, formed a cartel, and indulged in bid-rigging. The DG opined that it was a case of collusive bidding but the case against respondent No.1 under Section 4 of the Competition Act was dropped.
Curiously, the State of Mizoram filed a writ before Gauhati High Court challenging both the report of the DG and the CCI's order to the effect that there were adverse observations made by DG in his report and CCI had forwarded DG report despite observations that R4 had failed to establish a prima facie case.
An interim order was passed directing no final order to be passed by CCI. Other writ petitions were also filed by Respondents. The operation of interim directions was continued. An SLP was filed but High Court was permitted to proceed with the matter in the meantime while notice was issued. High Court passed its final order.
The High Court opined that lotteries, being akin to gambling activities, came under the purview of the doctrine of res extra commercium. The Competition Act, it was opined, was applicable to legitimate trade and goods, and was promulgated to ensure competition in markets that are res commercium. Thus, lottery activity being in the nature of res extra commercium could not be covered by the Competition Act and consequently, the CCI did not have jurisdiction to entertain the complaint of respondent No. 4. Hence the appeals before the Apex Court.
The Supreme Court noted, "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."
The Court made the following observations:
"There was no conflict in the interplay of the two Acts that even needed reconciliation or prohibition against either one, as the limited scrutiny was to examine the mandate of Section 3(1) read with Section 3(3) of the Competition Act. Lotteries may be a regulated commodity and may even be res extra commercium. That would not take away the aspect of something which is anti-competition in the context of the business related to lotteries."
The Court noted the expansive definition of 'Service' U/s. 2(u) of the Competition Act. The Court noted that the purchaser of a lottery is a potential user and service is being made available by selling agents in the context of the Act. The Court held that inclusive mentioning does not inhibit the larger expansive definition.
The Court held that intervention by the High Court was extremely premature and it ought to have waited for CCI to come to a conclusion. The Court observed as follows:
"We are, thus, of the view that there was really no need for the High Court to proceed in the manner and in the direction it sought to proceed. The correct approach, more so once the statement was made on behalf of the CCI, would have been to close the proceedings filed by the State Government and let the private parties face the ultimate decision of the CCI. If they were aggrieved by any adverse decision of the CCI they were entitled to avail of the appellate remedy under Section 53B of the Competition Act."
The Court accordingly set aside the judgment of the High Court. The Court opined that a proper sequitur to the investigation would follow. The appeals were allowed.