Supreme Court: While adjudicating the dispute with regard to 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 the Division Bench of Sanjay Kishan Kaul* and M.M. Sundresh, JJ., concluded that,

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.”

Factual Backdrop

A complaint was made by the respondent 4-complainant under Sections 3 & 4 read with Section 19(1)(a) of the Competition Act, 2002 with regard to invitation of expression of interest (EOI) issued by State of Mizoram through respondent 2, the Director, Institutional Finance and State Lottery inviting bids for the appointment of lottery distributors and selling agents for state lotteries.

The complainant contended before the Competition Commission of India (CCI) that 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. The allegation was also made against the State that it had 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 which was in contravention to Section 4 of the Competition Act.

Action Taken by the CCI

The CCI found that prima facie, there were evidence of cartelisation and bid rigging in contravention of Section 3(1) read with Section 3(3) of the Competition Act. However, the CCI opined that no case was made out against respondent the State as it could not be considered as an ‘enterprise’ or a ‘group’ under the Competition Act. The CCI opined that the State’s role was to regulate and monitor the business of lotteries in the State of Mizoram in exercise of its powers and functions under the Mizoram Lotteries (Regulation) Rules, 2011 framed under the Lotteries (Regulation) Act, 1998. The CCI, thus, rejected the complaint under Section 4 of the Competition Act.

However, with regard to private respondents, CCI required the Director General (DG) to conduct an investigation into the matter. Pursuant to which the DG report revealed that the respondent 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 in violation of Sections 3(1) and 3(3) of the Competition Act. Consequently, the CCI by its order dated 12-02-2013 send copies of the DG report to the parties seeking objections/replies thereto.

Intervention by the High Court

The Bench observed that surprisingly the State had approached the Gauhati High Court challenging both the report of the DG and the CCI’s order for making adverse observations despite the fact that the complainant had failed to establish a prima facie case under Section 4 of the Competition Act. The Bench remarked,

“We say ‘surprisingly’, because if at all, the grievance could have been of respondent 2 qua the observations made, but could not have been of State… In fact, Section 4 proceedings against respondent 1 were already closed.”

The High Court, however, chose to pass an interim order to stay further proceedings before the CCI. Subsequently, by the impugned order the High Court relied on Union of India v. Martin Lotter Agencies Ltd., (2009) 12 SCC 209,  to hold that lotteries, being akin to gambling activities, came under the purview of the doctrine of res extra commercium. The High Court opined that since the Competition Act was applicable to legitimate trade and goods, and was promulgated to ensure competition in markets that are res commercium, the CCI did not have jurisdiction to entertain the complaint of respondent  4.

Whether distribution of lotteries amounts to “Service”?

With regard to the respondents’ claim that they were merely a distributor which did not provide any services to any potential user of lottery and such distribution did not constitute a service under Section 2(u) of the Competition Act, the Bench held that the expansive definition of ‘Service’ under Section 2(u) of the Competition Act means “service of any description”, which is to be made available to potential users. Holding that 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, the Bench concluded that the inclusive mentioning does not inhibit the larger expansive definition.

CCI’s Jurisdiction to entertain issues relating to lotteries

On the contention that Section 3(1) of the Competition Act would have no application as there was no “goods” or “provisions of services” which could give rise to the CCI’s jurisdiction, specifically because lottery tickets were not goods and there was no provision of any services, the Bench observed that 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. Hence, the Bench concluded,

The lottery business can continue to be regulated by the Lotteries (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.

Findings and Conclusion

Finding the conduct of the State “very non-appreciable” and intervention by the High Court “extremely premature”, the Bench stated that the State ought to have cooperated with the CCI and the High Court ought to have waited for the CCI to come to a conclusion but on the other hand what had happened was that the CCI proceedings had been brought to a standstill while the High Court opined on the basis of some aspects which may or may not arise. The Bench remarked,

“A simple aspect of anti-competitive practices and cartelisation had 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.”

Hence, holding that the proceedings before the CCI 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, the Bench set aside the impugned judgment and directed to close the proceedings in the case filed by the State while the proceedings against the other parties were directed to continue.

[CCI v. State of Mizoram, 2022 SCC OnLine SC 63, decided on 19-01-2022]

*Judgment by: Justice Sanjay Kishan Kaul

Appearance by:

For the CCI: Rajshekhar Rao, Senior Advocate

Kamini Sharma, Editorial Assistant has put this report together

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