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Supreme Court: CCI can probe anti-competitive practices in res extra commercium activity like lottery

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A Supreme Court bench comprising Justices Sanjay Kishan Kaul and M.M. Sundresh on Wednesday (January 19) assailed the order of the Gauhati High Court and held that CCI can probe anti-competitive aspects of a regulated commodity like the lottery. The Court held that anti-competitive elements in business related to lotteries would continue to be governed by the Competition Act, 2002. Lotteries are legal only in a handful of states which primarily includes northeastern states like Mizoram.

The Apex Court further held that there was no bar on the Competition Commission of India (CCI) to investigate anti-competitive practices in a res extra commercium activity like the lottery. The Gauhati High Court had earlier set aside the preliminary order of the CCI and the report of the Director-General (DG) on the ground that CCI had no jurisdiction to inquire into allegations of bid-rigging, collusive bidding, and cartelisation in the tender process for appointment of selling agents and distributors for lotteries organised by the State of Mizoram.

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The High Court finally passed an order holding that the lottery business being gambling and falling within the purview of doctrine of res extra commercium would not fall within the purview of the Competition Act. This decision of the High Court was challenged in the appeal before the Supreme Court.

The case goes back to 2011, when the Government of Mizoram issued an Invitation for Expression of Interest (EoI) through the Director of Institutional Finance and State Lottery inviting bids to appoint lottery distributors and selling agents for State lotteries, which are organised in terms of Mizoram Lotteries (Regulation) Rules, 2011framed under the Lotteries (Regulation) Act, 1998 (Regulation Act).

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The successful bidders were supposed to organise, promote, conduct and market the lottery through the paper as well as online. The selected distributors/settlers were required to furnish security of Rs. 5 crores each for the lottery, Rs 1 crore as an advance payment for sale proceeds, and a sum of Rs. 1 crore for the prize pool. As per the EoI, the minimum rate fixed was Rs. 5 lakh per draw for Bumper draw and Rs. 10,000 per draw for others. Four bidders were declared successful in the bidding process.

Soon, a complaint was made to the CCI under Section 3 and 4 read with Section 19(1)(a) of the Competition Act seeking an investigation in respect of the State Lottery run by the Government of Mizoram. The CCI took a prima facie view that there was evidence of cartelisation and bid-rigging.

The CCI opined that the successful bidders had acted in contravention of Section 3(1) read with Section 3(3) of the Act and ordered the DG to conduct an investigation. The CCI found no prima facie case against the State and the allegation of abuse of dominant position exercised by the State was rejected. It was opined that the State under the Regulation Act had every right to impose financial, technical, and other conditions in their bid documents as they deemed fit.

In 2012, the DG concluded that the successful bidders had colluded, formed a cartel, and indulged in bid-rigging. The DG passed adverse observations on the conduct of the State Government and its officer. The report of the DG was forwarded by the CCI to the successful bidders and also the State seeking their response. The State of Mizoram filed a writ petition before the Gauhati High Court challenging the report of DG and the fact that the report was forwarded to the State even though the allegation of abuse of dominant power against it was dropped.

The High Court granted interim relief directing CCI not to pass final orders. Subsequently, writ petitions were filed by two successful bidders seeking quashing of the DG’s report and the proceedings before the CCI. The three petitions were taken up together and the CCI was restrained from passing final orders.

The High Court opined that the Competition Act 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.

The CCI, in appeal, argued that there is no overlap between the Competition Act and the Regulation Act. Referring to CCI v. Bharti Airtel, the CCI counsel argued that there is no bar on CCI in examining the particulars of the tender process, which might have anticompetitive elements under the scope of Sections 3(1) and 3(3) of the Competition Act. In CCI v. Bharti Airtel, after examining the Telecom Regulatory Authority of India Act, 1997 and the Competition Act, the Supreme Court held that the two enactments were distinct in function and determination of cartel or collusion would fall within the exclusive domain of CCI.

The Court held that:

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 Apex Court directed the CCI to proceed as per the law while noting that even if the contracts have come to an end, this investigation may have a future impact.

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