Case: COMPETITION COMMISSION OF INDIA &amp; ORS Vs. STATE OF MIZORAM &amp; ORS

1. A complaint received by the Competition Commission of India (for short appellant/CCI) from respondent No.4 seeking investigation under the Competition Act, 2002 (hereinafter referred to as the Competition Act) in respect of State Lottery run by the State of Mizoram (respondent No.1) has given rise to the present dispute. The jurisdiction of CCI 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 in the State of Mizoram has been challenged in the present proceedings by the successful bidders, and to a much lesser extent, by the State of Mizoram.2. The State of Mizoram issued an Invitation for Expression of Interest (for short EoI) through respondent No.2, the Director, Institutional Finance and State Lottery (IF&SL) on 20.12.2011 inviting bids for the appointment of lottery distributors and selling agents for state lotteries to be organised by the Government of Mizoram in terms of the Mizoram Lotteries (Regulation) Rules, 2011 (hereinafter referred to as the Regulation Rules) framed under the Lotteries (Regulation) Act, 1998 (hereinafter referred to as the Regulation Act). The EoI was for appointment of lottery distributors/selling agents to organise, promote, conduct, and market the Mizoram State Lottery through both conventional paper type and online system. The EoI specified that the minimum rate fixed by the Government of India is Rs.5 lakh per draw for Bumper and Rs.10,000 per draw for others – bids less than these rates would be summarily rejected. In pursuance of the EoI, five bids were received of which four were accepted. The accepted bids quoted identical rates as per the following table:									Rate per draw            													S.No.            									Name            									Paper            									Online            									Bumper            													1.            									E-Cool Gaming Solutions            									-            									10,000            									-            													2.            									Summit Online Trade Solution Pvt. Ltd. (R5)            									-            									10,000            									-            													3.            									M/s. NV International (R6)            									-            									10,000            									-            													4.            									Teesta Distributors            									10,000            									-            									5,00,000            						These four companies/partnerships were selected as distributors to operate the lotteries as per the Regulation Rules and the Regulation Act. In accordance with the EoI, selected distributors/selling agents were inter alia required to furnish Rs. 5 crore each for paper and online lottery as security, a sum of Rs.1 crore each as advance payment of the sale proceeds, and a sum of Rs.1 crore each towards the prize pool.3. Respondent No.4 made a complaint to the CCI on 16.05.2012 under Sections 3 & 4 read with Section 19(1)(a) of the Competition Act and the complaint was registered as Case No. 24 of 2012. In order to complete the array of parties defined as per Civil Appeal No.10820/2014, we may note that respondent No. 3 is the Director General of CCI and both respondent Nos. 4 & 5 are private companies while respondent No. 6 is a partnership firm.4. The substratum of the complaint by respondent No. 4 was that identical offers of Rs.10,000 per draw were made in all four bids (one for paper and three for online) and a single bid of Rs.5 lakh 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. There was bid rigging and a collusive bidding process which violated Section 3(1) read with Section 3(3) of the Competition Act, and also caused grave financial loss to the State of Mizoram.5. Respondent No. 4 also alleged that the State of Mizoram abused its dominant position as administrator of State lotteries, by requiring 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 and illegal and effectively restricted the supply of 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 be quashed and set aside, respondent No.1 be restrained from abusing their dominant position, a restraint be passed from awarding the tender to the selected bidders, and selected bidders be banned from carrying out business in the State of Mizoram.9. In pursuance of the complaint received from respondent No. 4, the CCI exercised its powers under Section 26(1) of the Competition Act, as it found prima facie evidence of cartelisation and bid rigging by the bidders and gave three reasons for the same:a. Three bidders made identical bids of the minimum rate of Rs.10,000/- per draw for online lotteries;b. Only one party made a bid for the paper lottery segment and they quoted the minimum rate for the same.c. Only one party made a bid for the bumper draw and also quoted the minimum rate for the same.10. In the aforesaid circumstances, the CCI expressed a prima facie view that there appears to be contravention of the provisions of Section 3(1) read with Section 3(3) of the Competition Act by respondent Nos. 5 & 6 and other successful bidders. Accordingly, the CCI required the Director General (for short DG) to conduct an investigation into the matter. However, the CCI opined that no prima facie case was made out against respondent No.1/State of Mizoram as it could not be considered as an enterprise or a group under the Competition Act. Respondent No. 1s role was to regulate and monitor the business of lotteries in the State of Mizoram in exercise of its powers and functions under the Regulation Act and the Regulation Rules. It was, thus, opined that they have every right to impose financial, technical and other conditions in their bid documents as they deemed fit. The CCI, thus, rejected the complaint of respondent No. 4 under Section 4 of the Competition Act.11. The DG in pursuance of the said order of the CCI, a report dated 14.01.2013 was submitted on 17.01.2013 whereby it came to the conclusion that respondent Nos. 5 & 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. Thus, they were in violation of the provisions of Section 3(1) read with Section 3(3) of the Competition Act. However, no order was passed against the State of Mizoram.12. What is relevant to note is that the DG did make some observations against respondent No.2 and the State of Mizoram to the effect that they ought to have been more vigilant in stopping unfair trade practices and their lapses raised suspicions of favouritism and collusion. The bidding committee had received the complaint of respondent No. 4 on 18.05.2012 when the Committee recommended that the successful bidders be appointed as selling agents. Thus, the DG opined that the Committee allowed rigging to happen and respondent No.2 was also instrumental in calling all four bidders together for the renegotiation of bid prices on 22.05.2012. The DG, thus, 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.13. The aforesaid report was placed before the CCI in its ordinary meeting on 12.02.2013 when it was decided to send copies of the report to the parties so that they could file their objections/replies thereto. The parties were instructed to file profit & loss accounts, balance sheets, and turnover of their enterprise for the past three financial years along with their objections to the DGs report and a date was fixed of 20.03.2013 for an oral hearing.14. We may note that surprisingly respondent No.1 filed a writ petition, being WP(C) No.24/2013, in the Gauhati High Court, Aizwal Bench challenging both the report of the DG and the CCIs order dated 12.02.2013. The grievance of respondent No.1 was actually with the adverse observations made by the DG in his report and the fact that the CCI had forwarded the DG report to them despite observations that respondent No. 4 had failed to establish a prima facie case under Section 4 of the Competition Act. We say surprisingly, because if at all, the grievance could have been of respondent No.2 qua the observations made, but could not have been of respondent No.1/State. That too respondent No.2 could have filed a response and it was open to the CCI to close the proceedings both against respondent Nos.1 & 2. In fact, Section 4 proceedings against respondent No.1 were already closed. The Gauhati High Court, however, chose to pass an interim order on 18.03.2013 in the writ petition directing that no final order be passed by the CCI. On the said order being passed, the CCI vide its order dated 11.06.2013, authorised its representative to inform the High Court that it did not intend to pass an order against the State of Mizoram, and to pray that the High Courts injunction against passing a final order be lifted. In any case, that ought to have put the matter to rest.15. It, thus, does appear to us that the respondent No.1 lent its shoulder to assist the other private parties and respondent No. 6 filed a writ petition, being WP(C) No.76/2013, praying for quashing of the DG report and all proceedings pending before the CCI. Respondent No. 6 sought to raise a plea that they had struck an agreement with respondent No.1 on 22.07.2010 as per which they were formally assured of at least 25% of the total number of draws held per day once lotteries were reopened. An agreement was struck to settle an amount of Rs.2.89 crore stated to be owed by respondent No.1 to respondent No. 6 and, thus, it was pleaded that the very question of forming a cartel or indulging in bid rigging did not arise. Respondent No. 5 also sought to take advantage of the proceedings initiated by respondent No.1 and filed a writ petition, being WP(C) No.90/2013 seeking similar relief. Among the pleas raised by respondent No. 5 was that lotteries were not covered by the Competition Act and, thus, the CCI did not have jurisdiction to conduct an inquiry under Section 26(1) of the Competition Act.16. The three writ petitions were taken up together and admitted by the Gauhati High Court vide its order dated 29.10.2013 and the operation of interim directions issued on 18.03.2013 were continued, restraining the CCI from delivering the final order.17. The CCI aggrieved by the same moved this Court against the said interim direction dated 29.10.2013. Notice was issued in the SLP(C) No. 4438-4441/2014 on 10.03.2014 and the High Court was permitted to proceed with the matter in the mean time. The High Court, thus, passed its final order in the three writ petitions on 16.08.2014, which made those SLPs infructuous and were consequently dismissed as withdrawn on 25.08.2014.The Impugned Order:18. The final order dated 16.08.2014 sought to be impugned in the present proceedings shows that the merits of the case were not really urged but the arguments were confined to the show cause notice issued by the CCI. Thus, what the High Court examined was whether the Competition Act would be applicable entitling the CCI to entertain the complaint/information given by respondent No. 4.19. The High Court went into the question of the nature of the business sought to be carried out, i.e., of lotteries. In this behalf relying on the judgment of this Court in B.R. Enterprises v. State of UP (1999) 9 SCC 700  it was held that lotteries cannot be considered to be trade and commerce within the meaning of Articles 301-303 of the Constitution of India. The High Court also observed that the lottery tickets have no value in and of themselves (Sunrise Associates v. Government of NCT of Delhi) (2006) 5 SCC 603 . The right covered by a lottery ticket is nothing but an actionable claim and, therefore, it was concluded from the definition of goods under the Sale of Goods Act, 1930 that they were excluded from such definition and other tax statutes. Lastly, relying upon the judgment of this Court in Union of India v. Martin Lotter Agencies Ltd (2009) 12 SCC 209 . it was 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. The High Court also took note of the stand of the CCI, which found no contravention of Section 4 of the Competition Act by the State of Mizoram and, thus, there was no question of any further proceedings being allowed by the CCI against the State of Mizoram.20. We may place at this stage itself our caveat to the manner in which the High Court proceeded. On the statement of the CCI indicating its intent not to proceed against the State of Mizoram, that petition could have been put to rest. In fact, even earlier there was no intent to take out any proceedings against the State of Mizoram and only some observations had been made against respondent No.2 in the manner in which they proceeded to carry out the allotment pursuant to the EoI. The lis really was between the private parties and whether their conduct could have been inquired into by the CCI.21. The Special Leave Petitions were filed by the CCI and respondent No. 4 against the orders passed in the three petitions and leave was granted with all the matters being tagged together.

Court's reasoning:
36. In the conspectus of the arguments, we find that 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. We have already observed that respondent No. 1 seems to have played a very non-appreciable role in our opinion. What ought to have weighed with respondent No.1/State is what is sought to contend now, i.e., it is a victim of cartelisation and it is in its interests to cooperate with the CCI.37. The complaint of respondent No.4 may have been also under Section 4 of the Competition Act but it had not even referred that aspect to the DG and had decided not to proceed against the State. That should have been the end of the matter so far as the State is concerned. Yet the State, in our view, under a misconception, approached the High Court, possibly in an endeavour to defend one of its officers, respondent No. 2, whose conduct has not been very favourably commented on by the DG. Even if the State felt that these comments of the DG were not sustainable, such an aspect could have been pleaded with the CCI in pursuance of its notice and possibly the matter would have been closed at that stage. In fact, the CCI had opined, both before and after the filing of the writ petition, that it was not proceeding against respondent No.1/State under Section 4 of the Competition Act. The aforesaid gave an opportunity to respondent Nos. 5 & 6 also to approach the Court and interdict the proceedings which ought to have been concluded a long time ago. It would, in our view, have been beneficial even to the State to have come to a conclusion one way or the other. The interdict post the investigation report by the DG and prohibiting the CCI from carrying out its mandate under the Competition Act is unsustainable.38. We are in agreement with the line of arguments advanced by Mr. Rajshekhar Rao, learned senior counsel for the CCI where he has succinctly sought to point out that the concern of the CCI was not at all with the carrying out, regulation or prohibition of the lottery business as was governed by the Regulation Act. Rather, the concern was limited to the role assigned to the CCI under the Competition Act, and in the context of the EoI was limited to examining any perceived bid rigging in the tendering process for appointment of selling agents and distributors for the lottery business. 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.39. We must take note of the expansive definition of Service under Section 2(u) of the Competition Act. It means service of any description, which is to be made available to potential users. The purchaser of a lottery ticket is a potential user and a service is being made available by the selling agents in the context of the Competition Act. Suffice for us to say the inclusive mentioning does not inhibit the larger expansive definition. 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.40. We would like to say that the intervention by the High Court was extremely premature. It ought to have waited for the CCI to come to a conclusion but on the other hand what has happened is that the CCI proceedings have been brought to a standstill while the High Court opined on the basis of some aspects which may or may not arise.41. 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.42. The complaint having been made by respondent No.4 under Section 19 of the Competition Act, which provides that the Commission may inquire into certain agreements and dominant position of enterprise as envisaged under sub-section (1) of Section 3 and sub- section (1) of Section 4 of the Competition Act. The CCI found out a prima facie case for investigation by the DG under Section 3(1) of the Competition Act, the DG opined adversely, and the CCI issued notice giving an opportunity to the affected parties to place their stand before it. This process ought to have been permitted to conclude with the right available to the affected parties to avail of the appellate remedy under Section 53B of the Competition Act.