The Madhya Pradesh High Court dismissed writ petitions challenging the Competition Commission of India's (CCI) jurisdiction to investigate alleged bid-rigging in state liquor tenders, holding that the Commission cannot encroach upon the State's exclusive legislative domain over intoxicating liquors under Entries 8 & 51 of List II, and that reliance on an untabled CAG report violates Article 151(2) of the Constitution. The Court emphasized the existence of a specialized sectoral regulator (MP Excise Department) and procedural flaws in the CCI's investigation, including unilateral redaction of the Director General's report without statutory authority.
Background & Facts
The Dispute
The petitioners - Associated Alcohols and Breweries Limited, Great Galleon Ventures Limited, Oasis Distilleries Limited, Bapun AlcoBrew Private Limited, Agrawal Distilleries Private Limited, Vindhyachal Distilleries Private Limited, and DCR Distillery Private Limited - are manufacturing distilleries engaged in the production, rectification, bottling, and wholesale supply of country liquor exclusively within Madhya Pradesh. They supply liquor across the State's 51/52 administrative districts through annual or multi-year tender processes conducted by the Excise Department under the Madhya Pradesh Excise Act, 1915.
Key Facts
- The genesis of the impugned proceedings traces back to Audit Report No. 1 on the Revenue Sector of the Government of Madhya Pradesh for Financial Year 2016 - 17, prepared by the Comptroller and Auditor General of India (CAG).
- In the said audit observations, the CAG commented on the tender process conducted by the State Excise Department between 2012 - 13 and 2016 - 17, observing that the same distilleries were emerging as successful L-1 bidders in identical districts with narrow price variations, allegedly indicating collusive bidding or market allocation.
- On the strength of an un-tabled copy of the CAG Report for FY 2016 - 17, respondent No. 2 (CCI) registered Suo Motu Case No. 05/2020.
- 04.08.2020: Respondent No. 2 passed an order under Section 26(1) of the Competition Act, 2002, holding that a prima facie case of bid-rigging and horizontal market sharing existed under Section 3(3) read with Section 3(1) of the 2002 Act, and directed respondent No. 3/Director General to conduct an investigation.
- During investigation, the Director General summoned high-ranking State officials (Principal Secretary Excise, Excise Commissioner) and conducted search and seizure operations at distillery premises, seizing digital devices, emails, and physical records.
- 31.03.2023: Respondent No. 3 submitted a voluminous Investigation Report exceeding 1,200 pages. In paragraph 5.10, the Director General recorded that none of the opposite parties had claimed confidentiality over their pleadings or submissions.
- Notwithstanding this observation, the Director General suo motu bifurcated the report into a 'confidential version' and a 'non-confidential (redacted) version,' blacking out material portions of documents, analysis, and third-party communications.
- 28.07.2023: Respondent No. 2 took the Investigation Report on record and forwarded only the redacted, non-confidential version to the petitioners, inviting objections and suggestions.
- The petitioners raised preliminary objections asserting the initiation was void ab initio for want of jurisdiction, the CAG report could not be relied upon under Article 151(2), the MP Excise Department was the sole statutory sectoral regulator, and the unauthorized redaction severely prejudiced their right of defence.
- 20.03.2024: Respondent No. 2 declined to halt proceedings or refer the matter to the State Government under Section 21A, deciding to proceed with the inquiry.
- Consequently, the petitioners approached this Court under Article 226 of the Constitution, seeking ad-interim protection against coercive steps.
Procedural History
- The petitioners participated in proceedings on 21.9.2023, 15.11.2023, 03.1.2024, and 21.3.2024.
- Some opposite parties/petitioners filed interlocutory applications for extension of time, cross-examination, and supply of oral statements.
- The matter was heard on the question of maintainability and jurisdiction.
- Reserved on: 31.08.2026
- Pronounced on: 17.09.2026
Relief Sought
The petitioners sought quashing and setting aside of the CCI's order dated 04.08.2020 passed under Section 26(1) of the 2002 Act, which directed the Director General to conduct an investigation.
The Legal Issue
The central question was whether the Competition Commission of India had jurisdiction under Section 26(1) of the Competition Act, 2002 to initiate suo motu proceedings based solely on an untabled Comptroller and Auditor General report concerning tender processes in a sector exclusively regulated by State law under Entries 8 & 51 of List II of the Seventh Schedule, particularly when a specialized sectoral regulator (Madhya Pradesh Excise Department) existed and the report had not been laid before the State Legislature as required by Article 151(2) of the Constitution.
Arguments Presented
For the Petitioners
Learned senior counsel (Shri Piyush Mathur) argued that Entries 8 & 51 of List II grant the State Legislature exclusive and plenary legislative competence over intoxicating liquors, encompassing production, manufacture, possession, transport, purchase, and sale. He relied on the nine-Judge Constitution Bench judgment in State of U.P. v. Lalta Prasad Vaish, (2024) 17 SCC 1 to contend that Parliament lacks legislative competence to control the field of potable alcohol merely by a declaration under Entry 52 of List I read with Article 246. Consequently, a statutory authority created under an Act of Parliament (the CCI) cannot indirectly encroach upon, supervise, or penalize transactions within the exclusive State excise framework.
Counsel further submitted that country liquor is not an open-market commercial commodity but operates under a closed, rigidly monitored statutory framework via the M.P. Excise Act, 1915, M.P. Distilleries Rules, and M.P. Country Spirit Rules, with Assistant Excise Officers permanently posted at distilleries, statutory transit passes required for bottle movement, and State Government-prescribed labels, formulas, and alcohol content. The tender framework is an administered statutory process where distillers have no room to exploit consumers or alter prices, with the State Excise Department prefixing base and maximum selling prices, leaving a narrow margin of ₹1 to ₹5.
Counsel emphasized that the field of tender manipulation is already occupied by State statutory authorities under Rule 6 of the General Application Rules framed under Section 62 of the M.P. Excise Act, which empowers the District Collector to inspect bids and cancel tenders where collusion is suspected. Since an express statutory mechanism exists within State law to tackle bid-rigging, the CCI has no jurisdiction to supersede local authority.
Regarding the CAG report, counsel argued that under Article 151(2), CAG reports relating to State accounts must be submitted to the Governor, who shall cause them to be laid before the State Legislature. Until examined by the Public Accounts Committee, such reports remain privileged internal documents and cannot be relied upon by the CCI to initiate adverse proceedings. He relied on Centre for Public Interest Litigation v. Union of India, (2013) 7 SCC 1 to assert that CAG findings are subject to legislative debate and departmental replies, and courts/tribunals cannot treat them as gospel truth.
Counsel also contended that the CCI committed a fundamental economic error by equating parallel bidding behaviour with illegal cartelization. In an oligopsony market (one buyer - State Government - and few sellers under capacity caps), identical or near-identical bid pricing is the natural outcome of conscious parallelism and market interdependence, not proof of conspiracy under Section 3(3) of the 2002 Act, citing Rajasthan Cylinders and Containers Ltd. v. Union of India, (2020) 16 SCC 615.
Finally, counsel argued that under Regulation 35 of the CCI (General) Regulations, 2009 (as amended in 2022), confidentiality can only be granted upon a specific, reasoned application by a party demonstrating commercial injury. The Director General, having recorded in paragraph 5.10 that no party claimed confidentiality, acted wholly without jurisdiction in suo motu redacting the report, violating natural justice by depriving petitioners of actual evidence needed to file an effective reply under Section 26(8).
For the Respondent No. 2 (CCI)
The learned Additional Solicitor General (Shri Sunil Kumar Jain) submitted that the Competition Act, 2002 is traceable to Entry 21 of List III (Concurrent List) and does not conflict with the State's power to regulate/tax liquor under List II, Entries 8 & 51. The CCI is not challenging the State's excise policy, fixing duties, or regulating potable alcohol but is solely investigating independent horizontal anti-competitive conduct, collusive bid-rigging, and geographical market allocation amongst private bidders under Section 3(3) of the Act.
Counsel contended that while the State has constitutional privilege to prohibit trade in potable alcohol under Article 47 as res extra commercium, once the State permits private manufacture and sale under commercial licenses, such activity constitutes trade and commerce subject to the Competition Act, citing Khoday Distilleries Ltd. v. State of Karnataka, (1995) 1 SCC 574. Even government companies and statutory monopolies remain fully subject to the Competition Act when engaging in economic activity.
Regarding the CAG report, counsel argued that under Section 19(1) of the Competition Act, the Commission is empowered to inquire into contraventions suo motu based on its own knowledge or information received. The CAG report was not treated as a conclusive finding of guilt but merely as an informational trigger raising prima facie suspicion. He distinguished CPIL v. Union of India (ONGC's case) by noting that no penalty was imposed based on the CAG report; instead, it was used as a starting point to direct an investigation under Section 26(1).
Counsel further submitted that the Director General conducted a comprehensive, independent investigation spanning 1,200 pages, with findings based on independent primary evidence unearthed during search and seizure operations, including thousands of email exchanges demonstrating advance determination of tender rates, WhatsApp group communications among distillery representatives agreeing on district-wise quota allocations, and arrangements for surrogate bidding to ensure predetermined winners. This evidence of cartelization exists entirely outside and independent of the CAG report.
Counsel argued that reliance on Competition Commission of India v. Bharti Airtel Ltd. & Ors., (2019) 2 SCC 521 is misconceived because, unlike the telecom sector governed by TRAI, no independent authority exists in the liquor sector to examine adverse effects on competition. He further contended that Sections 21 and 21A of the Competition Act are purely directory, enabling consultation, and do not constitute a mandatory bar or jurisdictional condition precedent to an investigation under Section 26.
Finally, counsel submitted that the Director General bifurcated the report into confidential and non-confidential versions to protect commercially sensitive third-party business data, pricing compositions, and internal corporate secrets. If petitioners genuinely require access to redacted materials, the statutory framework under Regulation 35 permits them to apply to the Commission for a 'Confidentiality Ring,' and furnishing a non-confidential report does not violate natural justice when an established regulatory mechanism exists to inspect protected records upon appropriate undertakings.
The Court's Analysis
The Court began by noting that common questions of law were involved in the batch of writ petitions, justifying analogical hearing and a common order. It first addressed the petitioners' contention regarding exclusive State legislative competence over intoxicating liquors under Entries 8 & 51 of List II.
The Court held that Parliament lacks legislative competence to control the field of potable alcohol merely by making a declaration under Entry 52 of List I read with Article 246, as reaffirmed in State of U.P. v. Lalta Prasad Vaish, (2024) 17 SCC 1. Consequently, the subject of intoxicating liquor falls exclusively within the domain of the State Legislature, which also has the obligation to prevent industrial alcohol from being covered into intoxicating liquor as an abuse.
The Court then turned to the core issue of whether the CCI could initiate suo motu proceedings based on the CAG report. It held that under Article 151(2) of the Constitution, reports of the Comptroller and Auditor-General relating to the accounts of a State shall be submitted to the Governor of the State, who shall cause them to be laid before the State Legislature. Unless the CAG report is submitted to the Governor and placed before the Legislature, it cannot be relied upon by the CCI for the purpose of initiating enquiry under Sections 19 and 26 of the Competition Act, 2002.
The Court found support for this position in the Supreme Court's decision in Arun Kumar Agrawal v. Union of India and others, (2013) 7 SCC 1, which held that CAG reports are always subject to scrutiny by Parliamentary debates and that the Public Accounts Committee can accept or reject the Ministry's objections. The Court emphasized that the CAG is an independent constitutional functionary whose reports command respect and cannot be brushed aside, but their initiation of adverse proceedings requires legislative oversight.
In the present case, the Court noted that the CCI had not accepted the CAG report as is but had directed the Director General to conduct an enquiry. However, it held that the judgment in Arun Kumar Agrawal was of no help to the petitioner because, as of today, the CAG report had been taken as received information for the purpose of enquiry into alleged contravention of the Act's provisions. The Court observed that the Supreme Court in that case had also held that the CAG report is from a constitutional authority, but this did not validate the CCI's reliance on it for initiation.
The Court then examined the argument regarding the existence of a sectoral regulator. It held that where a sector is governed by an expert statutory sectoral regulator (here, the M.P. Excise Department), the market regulator (CCI) cannot usurp jurisdiction in the first instance. The Court relied on Competition Commission of India v. Bharti Airtel Ltd. & Ors., (2019) 2 SCC 521 to affirm the Bombay High Court's ruling that until the sectoral regulator returns findings on jurisdictional facts and regulatory breaches, the CCI is ill-equipped to intervene and its action is premature.
The Court further held that if the CCI harboured suspicion regarding tender conditions or price uniformity, it was statutorily mandated to make a reference to the State Government under Section 21A of the Competition Act, rather than initiating an adversarial investigation. It cited Competition Commission of India v. Steel Authority of India Ltd. (SAIL), (2010) 10 SCC 744 to note that while an order under Section 26(1) is administrative, the Commission is legally bound to record minimal independent reasons demonstrating the formation of a prima facie opinion. The order dated 04.08.2020 reflected a failure to apply its mind to the M.P. Excise Act, ignoring the presence of a sectoral regulator, and merely copying paragraphs of the CAG's report verbatim. A void prima facie order cannot be retrospectively validated by materials gathered subsequently during an investigation.
On the issue of natural justice, the Court held that under Regulation 35 of the CCI (General) Regulations, 2009 (as amended in 2022), confidentiality can only be granted upon a specific, reasoned application by a party demonstrating commercial injury. The Director General, having explicitly recorded in paragraph 5.10 of the Investigation Report that no party claimed confidentiality, acted wholly without jurisdiction in suo motu redacting the report. By serving a truncated non-confidential report, the CCI deprived the petitioners of the actual evidence, electronic data, and third-party communications relied upon, thereby crippling their ability to file an effective reply under Section 26(8) and violating principles of natural justice.
The Court concluded that the CCI's initiation order suffered from dual infirmities: lack of jurisdiction due to the State's exclusive legislative domain and violation of natural justice through unauthorized redaction of the Investigation Report. It emphasized that the Commission's proceedings were legally vulnerable in the absence of a Judicial Member, rendering its functioning susceptible to challenge.
The Verdict
The Court dismissed all writ petitions, vacated the interim order passed earlier, and directed the Competition Commission of India to complete the enquiry under Section 26 of the Competition Act, 2002 and pass a final order under Section 27 thereof. The petitioners were left to avail of the efficacious alternative statutory remedy under Section 53B (appeal to the National Company Law Appellate Tribunal) or the extraordinary writ jurisdiction under Article 226, though the Court noted they ought to have approached the Court immediately after the 04.08.2020 order rather than waiting until mid-proceedings. No specific monetary compensation, interest rates, or compliance timelines were granted or imposed in the operative disposition, as the relief sought was purely procedural - quashing of the initiation order and direction to complete the statutory inquiry.
What This Means For Similar Cases
Sectoral Regulator Doctrine Prevails in Exclusive State Subjects
The judgment establishes that in sectors where the State Legislature possesses exclusive legislative competence under Entries 8 & 51 of List II (such as intoxicating liquors), a central statutory regulator like the CCI cannot initiate proceedings without first consulting or seeking a reference from the State Government under Sections 21 and 21A of the Competition Act, 2002. The existence of a specialized sectoral regulator (e.g., State Excise Department) creates a jurisdictional barrier that the CCI must respect, and its failure to do so renders the initiation order void ab initio. Practitioners challenging CCI actions in State-exclusive fields must now lead with the constitutional distribution of legislative powers under the Seventh Schedule, citing State of U.P. v. Lalta Prasad Vaish as binding precedent on legislative incompetence of Parliament over potable alcohol.
Article 151(2) Mandates Legislative Scrutiny of CAG Reports
The Court clarified that CAG reports relating to State accounts cannot serve as the sole basis for initiating adverse proceedings by central tribunals or regulators unless they have been submitted to the Governor and laid before the State Legislature. Until examined by the Public Accounts Committee, such reports remain privileged internal documents, and reliance thereon violates Article 151(2). This principle extends beyond the Competition Act to all central statutory bodies: CAG findings require legislative debate and departmental replies before they can foundationally support quasi-judicial action. Regulators must now verify legislative laying of CAG reports before treating them as informational triggers under statutes like Section 19(1) of the 2002 Act.
Natural Justice Requires Party-Specific Confidentiality Claims
The judgment sets a clear boundary on the CCI's power to redact investigation reports: confidentiality under Regulation 35 of the CCI (General) Regulations can only be granted upon a specific, reasoned application by a party demonstrating commercial injury. Where parties have expressly stated they claim no confidentiality (as recorded in paragraph 5.10 of the DG Report), suo motu redaction constitutes a jurisdictional error and violates natural justice by denying access to material evidence needed for an effective defence. Regulators must now maintain a strict party-specific confidentiality log and refrain from unilateral redaction when no confidentiality claim is made, preserving the integrity of the reply process under Sections 26(8) and 27 of the Competition Act.
