The Supreme Court of India’s Respite to the State of Mizoram from Competition Law Proceedings

My article, ‘The Meld Model’, argues that a synthesis of ‘exclusive legal positivism’ and ‘law-and-economics’ offers a workable model of Indian corporate jurisprudence. In another iteration of the utility of ‘The Meld Model’, this post uses the Indian Supreme Court’s judgment of 19 January 2022 in Competition Commission of India v State of Mizoram (CCI v Mizoram) as a test suite. It posits that the Supreme Court misses an opportunity to determine the meaning of certain fundamental concepts (such as an ‘enterprise’ and ‘sovereign function’) in terms of the Indian Competition Act 2002 (Competition Act). Instead, the Supreme Court hands over a Hail Mary pass to the state of Mizoram.

At issue in CCI v Mizoram is an ongoing allegation (and, consequently, a Competition Commission investigation) of bid rigging in the lottery market. Interestingly, the case does not involve a mere conscious parallelism—identical prices were quoted in the bids invited by the state of Mizoram. The Competition Commission found a prima facie (or tentative) violation of the Competition Act. This view spurred the Commission to order an investigation by its investigating arm, the Director General’s office.

The Director General’s investigation report found evidence against the bidding entities. This report contained a few adverse remarks on the role played by an official of the state of Mizoram’s—the Director, Institutional Finance and State Lottery. Based upon these adverse remarks, the state of Mizoram approached the Aizawl bench of the Gauhati High Court in a judicial review, writ challenge.

The High Court found the lottery business to be res extra commercium. It also held that the Competition Commission lacked jurisdiction. On appeal, the Supreme Court restored the Competition Commission’s role in investigating bid rigging in the lottery business. Accordingly, the Competition Commission’s proceedings against bidding entities will continue. However, the Supreme Court ordered that the proceedings against the state of Mizoram will be dropped.

In order to drop the proceedings against the state of Mizoram, the Supreme Court relied upon the Competition Commission’s submissions at the High Court. In this submission, the Commission had stated that in spite of the Director General’s adverse remarks at the investigation stage, it did not intend to proceed against the state of Mizoram.

Intriguingly, the Supreme Court remains leery of the overall role played by the state of Mizoram. The judgment states:

‘We may note that surprisingly [the State of Mizoram] filed a writ petition…in the Gauhati High Court, Aizwal Bench challenging both the report of the DG and the CCI’s order dated 12 February 2013. The grievance of [State of Mizoram] 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 [i.e. the informant at the Competition Commission] had failed to establish a prima facie case under §4 of the Competition Act. We say “surprisingly”, because if at all, the grievance could not have been of [the State of Mizoram]. That too respondent no. 2 [The Director, Institutional Finance and State Lottery] could have filed a response and it was open to the CCI to close the proceedings both against [the State of Mizoram] and respondent no. 2 [The Director, Institutional Finance and State Lottery].’ [14]. (emphasis added)

This chariness did not dissuade the Supreme Court from ensuring that the Competition Commission’s proceedings against the state of Mizoram is dropped. Even so, the Supreme Court’s decision has descriptive, positive (exclusive legal positivism) and prescriptive, normative (law-and-economics) implications as delineated in ‘The Meld Model’ and as set out below.  

An exclusive legal-positivism-based analysis, which would privilege the text and the context of the statute indicates that the Supreme Court, ends up handing over a Hail Mary pass to the state of Mizoram.

In particular, the Supreme Court does not determine the meaning of certain fundamental concepts such as ‘enterprise’ and ‘sovereign function’. The concept of ‘enterprise’ is central to the Competition Act as it is intended to apply to all enterprises (which, by definition, includes a department of a government). A possible exception to this jurisdictional question would be that of a ‘sovereign function’. Yet the Supreme Court does not engage in any analysis of the meaning of these jurisdictional concepts of ‘enterprise’ or ‘sovereign function’. In any event, the rationale behind the Supreme Court’s deferential approach to the Competition Commission’s statement that there was no intent to proceed against the state of Mizoram remains unclear. This engenders transaction costs related to the Competition Act’s certainty and predictability: for instance, does the Competition Commission retain a ‘prosecutorial discretion’ to selectively proceed against certain entities? 

Beyond such transaction costs, from a law-and-economics perspective, CCI v Mizoram marks another miss: a meaningful analysis of the Chadwick-Demsetz scheme.

This scheme distinguishes between competition ‘within the field’ and ‘competition for the field’. As an alternative to the absence of competition in the context of a natural monopoly, the scheme speaks about using competition for the entitlement to be a natural monopolist. One instance of the application of the scheme is an auction of the entitlement (eg lottery business or an airport) to the highest bidder. While it is unclear whether the lottery business (unlike an airport) could be characterized as a ‘natural monopoly’, in order to fully appreciate the role played by the state, the consequences and transaction costs as understood through the Chadwick-Demsetz scheme ought to be analyzed.

In sum, an analytical toolkit of ‘The Meld Model’ (ie a synthesis of ‘exclusive legal positivism’ and ‘law-and-economics’) shows that in CCI v Mizoram, the Supreme Court has handed over a Hail Mary pass (or lottery!) to the state of Mizoram. The Supreme Court ought to have engaged with fundamental concepts such as that of an ‘enterprise’ and ‘sovereign function’ in the context of competition law. And the court’s reasoning would have benefited from a law-and-economics analysis.

Rahul Singh is an associate professor of law at the National Law School of India University.