Element of anti-competition in tendering process of lotteries can be investigated by CCI: Supreme Court

The Supreme Court on Wednesday held that if in the tendering process of lotteries, there is an element of anti-competition which would require investigation by the Competition Commission of India (CCI), the same cannot be prevented on the ground that lottery business is 'res extra commercium' (things outside of commercial intercourse) [Competition Commission of India vs State of Mizoram]. .A Bench of Justices Sanjay Kishan Kaul and MM Sundresh held that while 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-competitive in the context of the business related to lotteries."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 Court ruled. The Court was dealing with a challenge to a Gauhati High Court judgment which had halted the final orders of the CCI with regard to a complaint concerning cartelisation and bid rigging in the tender process for appointment of selling agents and distributors for lotteries organised in the State of Mizoram. .By way of background, the State of Mizoram had issued an Expression of Interest (EoI) inviting bids for the appointment of lottery distributors and selling agents for State lotteries regulated by the Mizoram Lotteries (Regulation) Rules, 2011 (Regulation Rules) framed under the Lotteries (Regulation) Act, 1998 (Regulation Act).The EoI specified that the minimum rate fixed by the Government of India is ₹5 lakh per draw for bumper and ₹10,000 per draw for others – bids less than these rates would be summarily rejected.Five bids were received and out of which four bids, which quoted identical amount of ₹10,000, were selected. The State had also asked the successful bidders to furnish a security and deposit amount. Respondent no. 4, a private company, complained against the same to the CCI pointing out that identical offers of ₹10,000 per draw were made in all four bids (one for paper and three for online) and a single bid of ₹5 lakh per draw was made for the bumper draw. These amounts were the minimum rates fixed under the EoI and the bidders had cartelised and entered into an agreement that had an appreciable adverse effect on competition in the lottery business in Mizoram, it was alleged.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 respondent contended.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.The CCI's Director General (DG) found prima facie evidence on cartelisation and big rigging against the the bidder companies, but the case against State was dropped by the DG. It, however, observed that "bidding committee" allowed bidding to happen and that "it was a case of collusive bidding."The State moved the High Court by way of a writ petition challenging the adverse remarks made against it by the CCI. The High Court by an interim order halted the CCI final orders. Later bidder companies too filed petitions before the High Court which by its order dated August 16, 2014 ruled that the CCI could not have investigated the case since lottery does not fall under the purview of Competition Act. The Competition Act, the High Court 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 ruled. .The CCI then moved the Supreme Court in appeal against the order. The Supreme Court noted that the State despite not being proceeded against by the CCI, had approached the High Court possibly in an endeavour to defend one of its officers (respondent no.2) against whom the CCI had made some unfavourable remarks."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," the Court said.The interdict post the investigation report by the DG and prohibiting the CCI from carrying out its mandate under the Competition Act is unsustainable, the Court held.The Court agreed with the contention of the CCI that the concern of the competition watchdog 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."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," the Court ruled..The top court also took note of the expansive definition of 'service’ under Section 2(u) of the Competition Act which means “service of any description”, which is to be made available to potential users. Thus, 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 top court reasoned. Thus, though lottery business is regulated by Regulation Act, it will not prevent CCI from examining elements of anti-competition in connection with the tendering process related to lottery business, the Court made it clear. .The top court, therefore, set aside the High Court order and allowed the CCI to continue with its investigation against the private parties. .[Read Judgment]