Government, Public Sector Undertakings and Sovereign Functions

The Act binds the State when it trades. Enterprise in Section 2(h) expressly includes a department of the Government, and the only carve-out is for activities relatable to the sovereign functions of the Government. A public sector undertaking is therefore an enterprise like any other, and a statutory monopoly is not an exemption from the Act but a factor confirming dominance. The point was settled by the Supreme Court in Coal India Ltd. v. Competition Commission of India, decided on 15 June 2023, which rejected the argument that a company operating under a nationalisation statute stood outside the Commission's jurisdiction.

1. Enterprise in Relation to Government

Section 2(h) defines enterprise to mean a person or a department of the Government who or which is, or has been, engaged in any activity relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services of any kind. The proviso excludes any activity of the Government relatable to the sovereign functions of the Government, including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.

• The test is functional, not institutional. The question is not who is acting but what is being done. The same department may be an enterprise in respect of a commercial activity and outside the Act in respect of a sovereign one.
• A government company is a person. Section 2(l) includes a corporation established by or under any Central, State or Provincial Act and a body corporate, so a public sector undertaking is within the Act without needing the departmental limb of Section 2(h) at all.
• The four named fields are illustrative of sovereign function, not a closed list of exemptions. Atomic energy, currency, defence and space are named because they are the clearest cases; other activities may be sovereign in character, and conversely an activity carried on by a department in one of those fields may be commercial.

2. The Sovereign Functions Exception

Sovereign functions are those which only the State can perform in its character as a sovereign: legislation, the administration of justice, the maintenance of law and order, the conduct of foreign relations, defence, the issue of currency, and the levy and collection of taxes. The distinction between these and the commercial activities of the State is older than the Competition Act and is familiar from the law of tortious liability of the State and from service jurisprudence.

1. Purchasing for a sovereign function is not itself sovereign. A department procuring goods or services in the market is dealing commercially, whatever the ultimate use, which is why government procurement is within the Act and bid rigging in public tenders is the commonest cartel case in India.
2. Regulation is sovereign; supply is not. An authority granting licences acts sovereignly; the same authority supplying a service for a fee acts commercially.
3. The burden is on the party claiming the exception, and it is narrowly construed, because a wide construction would take a large part of the Indian economy outside a statute expressly drafted to include the State.

3. Statutory Monopoly and Dominance

Section 19(4)(e) requires the Commission, in assessing dominance, to have regard to a monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or a public sector undertaking or otherwise. The provision settles two things. A position conferred by law is dominance for the purposes of Section 4, so the enterprise cannot say that it did not acquire the position by competing. And the source of the position is irrelevant to the prohibition, which is directed at abuse and not at the holding of the position.

4. Exemptions under Section 54

Section 54 permits the Central Government, by notification, to exempt from the application of the Act or any provision of it, and for such period as it may specify, any class of enterprises if such exemption is necessary in the interest of security of the State or public interest; any practice or agreement arising out of and in accordance with any obligation assumed by India under any treaty, agreement or convention with any other country or countries; and any enterprise which performs a sovereign function on behalf of the Central Government or a State Government.

• It is the only route to exemption. Coal India establishes that an enterprise which considers itself unsuited to the Act must seek a notification under this section rather than ask the courts to imply an exclusion.
• It is exercised by the Government, not the Commission, and the Commission has no power to grant an exemption.
• It is time-bound. A notification specifies a period, and exemptions of the de minimis kind have been issued for stated terms and renewed or codified.
• The third limb repeats the sovereign function idea, and applies where a private or corporate body performs such a function on behalf of the Government; in that case, the exemption applies to the activity relatable to the sovereign function and not to any other activity of the enterprise.

5. Practical Consequences

1. Public procurement is fully within the Act. The State as a buyer is an enterprise, and bid rigging against it is a contravention of Section 3(3)(d).
2. Public sector undertakings are subject to Sections 3, 4, 5 and 6. Their mergers are notifiable if the thresholds are met, subject to any exemption for intra-group restructuring or for a specific notification.
3. A regulatory prescription is a defence, an ownership structure is not. Where conduct is compelled by a statute or by a regulator's determination the enterprise exercised no autonomy and there is no contravention; but the fact that the enterprise is State-owned gives it no protection where it acted on its own commercial judgment.
4. Competitive neutrality remains a policy question. Whether State enterprises should compete on the same terms as private ones in respect of financing, land, tax and regulatory treatment is a matter for competition policy under Section 49 and not for enforcement.

6. Related Topics and Provisions