V JURISDICTION OVER LOTTERY BUSINESS: THE SUPREME COURT PAVES

WAY FOR CCI

1. Introduction

Indian sectoral regulators were given competition-related powers as a result of an economic

wisdom that favors regulation, but these powers have begun to fade in relevance since the
inception of the competition law system. To remedy this, Indian Courts have avoided
jurisdictional overlap by giving preference to the sector regulators at the first instance rather
than the competition authority. However recently, in the case of CCI v. State of Mizoram, the
Hon’ble Supreme Court (hereinafter “the Court”) held that even though the lottery is a
regulated commodity under the Regulation Act, anti-competitive characteristics in the lottery
business will continue to be governed by the Competition Act, 2002 (hereinafter “the Act”).
Through this post, the authors attempt to analyze the judgment, by referring to judicial
precedents relevant to the matter.

2. Brief Facts

On 20 December 2011, the State of Mizoram issued an invitation for Expression of Interest
('EoI') inviting bids for the appointment of lottery distributors and selling agents for state
lotteries. This was to be governed under the Mizoram Lotteries (Regulation) Rules, 2011,
which was issued under the Lotteries (Regulation) Act, 1998. The EoI sought lottery
distributors/selling agents to organize, promote, operate, and advertise the Mizoram State
Lottery using both traditional paper-based and online systems. In response, five bids were
obtained, out of which four were accepted. Subsequently, a private company filed a
complaint with the Competition Commission of India (“CCI”) under Sections 3 and Section
4 of the Act, as well as Section 19(1)(a) of the Act, against the chosen bidders and the State
of Mizoram (“State”).

Later, the CCI found that the successful bidders had violated Section 3(1) read with Section
3(3) of the Act. However, no prima facie evidence was brought out against the State, and the
accusation of abuse of dominant position by the State was accordingly dismissed. By order
dated 7th June 2012, the Director-General ("DG") was directed to examine the situation, and
similar conclusions were drawn in his report. Following that, two chosen bidders filed writs
seeking to overturn the DG's findings and the CCI proceedings. Finally, the High Court while
hearing the pleas simultaneously overturned the DG's report and the CCI rulings, concluding
that the lottery industry, being gambling and coming under the doctrine of res extra
commercium, would not fall within the jurisdiction of the Act. Dissatisfied with the High
Court's ruling, CCI filed a special leave petition before the Apex Court.

3. Regulatory Overlap:

The CCI is empowered under Section 18 of the Act to eradicate activities that are likely to
harm competition, protect consumers' interests, and ensure free trade in Indian markets. The
CCI's mandate, on the other hand, intersects with antitrust-related authorities granted to other
sectoral regulators in India since the adoption of the Act. Competition law attempts to protect
competition by prohibiting anti-competitive behavior and making structural changes, whereas
sectoral regulation aims to promote competition by only implementing structural changes. i
The existence of such divergences could signal that firms' adherence to regulations may not
always protect them from competition scrutiny, causing market uncertainty and increasing
their risk of liability.

a) Global Approach:

Globally, there are three different models for dealing with the issue of jurisdictional
duplication. Firstly, the exclusivity model, in which one of the organizations is given sole
authority to handle competition issues. Secondly, the concurrency model, in which both
organizations have the capability and use a consultative procedure to decide whether or not to
exercise it. Thirdly, collaboration entails the allocation of competition law enforcement
between the two bodies, as well as the development of consultation procedures to address any
problems. Depending on their legal precedents, competition aims, institutional culture,
political climate, and other factors, different governments have adopted different models.ii

b) Indian Approach:

In the Indian scenario, the CCI and the Court have taken opposing positions on this issue.
Dish TV disputed the CCI's jurisdiction in Consumer Online Foundation v. Tata Sky,
claiming that the matter was already before the Telecom Disputes Settlement and Appellate
Tribunal and the Telecom Regulatory Authority of India ("TRAI"). The CCI stated that,
while TRAI is the market regulator, the field of market competition is solely under the
competence of the CCI. On the other hand, the CCI's authority to examine anti-competitive
behavior in industries subject to competition legislation has been revoked by the Indian High
Courts. Recently, in the case of CCI vs Bharti Airtel, the Hon’ble Supreme Court resolved the
jurisdictional conflict and clarified functions of the CCI and TRAIthe Telecom Regulatory
Authority of India. The Court observed that the CCI is not a sector-based institution, but
rather has authority that extends beyond sectoral boundaries, encompassing all industries.

4. Lottery business being res extra commercium

Res Extra Commercium is a legal maxim used in India that denotes things beyond commerce,
i.e., which cannot be transported or sold, such as public highways, rivers, titles of owners,
and so on. The Supreme Court while examining the doctrine of res extra commercium,
broadened its scope by upholding the validity of the Maharashtra Debt Relief Act, 1976
holding that any systematic, profit-oriented activity, no matter how sinister, suppressive, or
socially diabolic, cannot ipso facto exalt itself into a trade. Moreover, in the judgment of
Union of India v. Martin Lotter Agencies Ltd, the Apex Court has opined that lottery, being
similar to gambling activities, fell under the ambit of the res extra commercium doctrine.

5. Analysis

In the present case, CCI argued that even if lotteries are a regulated commodity under the
Regulation Act, the CCI would retain jurisdiction over the competition law component of
such regulated commodities. Reliance was placed upon the judgment of CCI vs Bharti Airtel
where the intersection of Telecom Regulatory Authority of India Act, 1997 ( 'TRAI Act') and
the Act were scrutinized. On the other hand, it was argued by the opposite party that the
lottery business falls within the purview of the doctrine of res extra commercium and was
stringently regulated by the state. Hence, it was contended that the Act shall not apply as
there was special legislation to regulate the lottery business.

Rejecting the State’s of Mizoram’s argument, the Court noted that the EoI was limited to
assessing any suspected bid-rigging in the tendering process for appointment of selling agents
and distributors for the lottery company, thereby limiting the responsibility allocated to the
CCI under the Act. It was further noted that as the limited scrutiny was to examine the
mandate of Section 3(1) read with Section 3(3) of the Act, there was no conflict in the
interplay of the Lottery Regulation Act 1998 and the Competition Act 2002 that required
reconciliation or prohibition against either one. The lotteries could be considered a regulated
commodity or even res extra commercium. That does not negate the fact that there is
anything anti-competitive about the lottery business. Hence the Court held that the CCI
would retain jurisdiction over the competition law component of such regulated commodities.

On the issue of lottery falling within the definition of “services” or “goods” under Section
3(1) of the Act. It was asserted, based on Sunrise Associates v. Government of the NCT  of
Delhi, that lottery tickets, as actionable claims, cannot be a "goods". It was also claimed that
the selected bidders were distributors rather than service providers. On the other hand, CCI
argued that the sale or distribution of lottery tickets on behalf of the State to a potential buyer
for consideration should fall within the term "service" given under Section 2(u) of the Act.

The Court while dealing with this issue noted that Section 2(u) of the Act provides for a
broad definition of "service." It refers to "service of any description" that will be made
accessible to prospective customers. In the framework of the Act, the purchaser of a lottery
ticket is a prospective user, and the selling agents are providing a service. Enough to claim
that the inclusive mentioning has no bearing on the broader expansive definition. Further, it
noted that the Regulation Act may continue to control the lottery business. However, if there
is an element of anti-competition in the bidding process that requires inquiry by the CCI, this
cannot be prohibited under the guise of the lottery company being res extra commercium,
especially if the State Government chooses to engage in lotteries.

6. Conclusion

It is opined that the Court has taken reference from the dictum of the case of Bharti Airtel and
allowed CCI to maintain its jurisdiction over the antitrust aspect of the lottery business. The
word "service" under the Act has been given a broad meaning by the Court, which includes
business or services related to lotteries. The Court concluded that the High Court's actions
were particularly premature, and they should have waited for the decision of the CCI, before
providing an opinion on some aspects which could not have arisen. The Court provided the
correct approach by stating that if the parties would have been aggrieved by the decision of
CCI, they would have approached the Court following Section 53B of the Act. This judgment
adds to India's growing antitrust jurisprudence, which is bringing more sectors under antitrust
regulation.
i
Maher M. Dabbah, ‘The Relationship between Competition Authorities and Sector Regulators’ (2011) 70 CLJ 115.
ii
Id