2015 (12) TMI 1773 - AT - Law of Competition

Anti-competitive Activities - bid rigging - Cartel - contract for supply of feed valves by Respondent No. 2 - suppression of material facts - it was alleged that the appellants have indulged in bid- rigging/collusive bidding and thereby contravened the provisions of Section 3(1) read Section 3(3)(a) and 3(3)(d) of the Act - penalty imposed on average turnover - case of appellant is that findings recorded by the DG and the Commission on the issues of formation of cartel and bid rigging/ collusive bidding is perverse. Held that - The cartel is an association of producers who by agreement among themselves attempt to control production sale and prices of the product to obtain a monopoly in any particular industry or commodity. Analysing the object of formation of a cartel in other words it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. The observation made by the Commission that the appellants had adopted a strategy which involved supplementary/complementary bidding by EL and FTRTIL is based on pure conjectures and is liable to be rejected because before making this observation the Commission did not give any opportunity to the two appellants to have their say. Similarly the observation made by the Commission that the Tender Committee committed an illegality in overlooking the bids of EL and FTRTIL is ex facie erroneous. Once the competent authority had laid down particular conditions required to be fulfilled by the tenderer and the two of the three tenderers failed to comply with the same the Tender Committee and Respondent No. 2 cannot be said to have committed any illegality by not acting upon their tenders. The Tender Committee could have recommended for fresh tendering and Respondent No. 2 could have accepted that recommendation but their failure to do so cannot lead to an inference that they have acted with ulterior motive or that the Tender Committee ought to have waived the defects/deficiencies and allowed the two appellants i.e. EL and FTRTIL to participate in the bid or called them for negotiations. The variation in the quantum of price quoted by the appellants is also evident from the statement furnished by the learned counsel for Respondent No. 2. Therefore it must be held that both the DG and the Commission committed grave error by relying upon the so-called past conduct of the appellants in quoting identical price as a plus-factor for arriving at a conclusion that they had formed a cartel. The findings and conclusions recorded by the DG and the Commission that the appellants are guilty of cartel formation and bid-rigging are legally unsustainable - also the penalty imposed by the Commission is based on erroneous interpretation of Section 27(b) and is liable to be set aside. The impugned order is set aside and the penalty imposed on the appellants by the Commission is quashed - Appeal allowed.

Summary

Issues Involved:
1. Cartel formation and bid rigging/collusive bidding.
2. Evaluation of identical pricing in bids.
3. Faulty procurement system and tendering policy.
4. Role of RDSO and restricted entry of new vendors.
5. Calculation of penalties based on turnover.

Detailed Analysis:

Issue 1: Cartel Formation and Bid Rigging/Collusive Bidding
The DG and the Commission concluded that the appellants formed a cartel and engaged in bid rigging. This conclusion was based on the identical prices quoted by the three appellants in response to the tender and the static demand for feed valves with no new entrants in the market. The Commission observed that the identical pricing could not have been coincidental given the different geographical locations and production costs of the appellants. The Commission also noted that the appellants had a history of quoting nearly identical prices in response to tenders from various Zonal Railways, suggesting a pattern of collusive bidding.

Issue 2: Evaluation of Identical Pricing in Bids
The appellants argued that the identical pricing was based on previous purchase orders and market conditions. The DG and the Commission, however, found these explanations unconvincing. They noted that the appellants manipulated the figures to arrive at an identical final price, despite quoting different base prices. The Commission emphasized that the identical pricing, especially to the last paisa, was a strong indicator of collusion. The appellants' argument that the identical pricing was due to the public availability of previous purchase prices was rejected, as it did not explain why they did not quote a lower price to win the bid.

Issue 3: Faulty Procurement System and Tendering Policy
The DG's report criticized the procurement system of the Railways, stating that it was conducive to collusive bidding. The report highlighted that the Tender Committee's decision to negotiate only with SIL, despite identical bids from three vendors, indicated a faulty procurement process. The Commission agreed with this assessment, noting that the procurement system allowed for the possibility of collusion by not adequately addressing identical bids.

Issue 4: Role of RDSO and Restricted Entry of New Vendors
The DG and the Commission noted that the RDSO had approved only three vendors for feed valves and had not allowed new entrants, which limited competition. This restriction was seen as creating conditions conducive to cartel formation. The appellants argued that they had no role in RDSO's approval process and that the restricted entry of new vendors was beyond their control. The Commission, however, held that the limited number of approved vendors facilitated collusion.

Issue 5: Calculation of Penalties Based on Turnover
The Commission imposed penalties on the appellants at the rate of 2% of their average turnover. The appellants argued that the penalties should be based only on the turnover related to feed valves, not their total turnover from all products. The Tribunal agreed with the appellants, citing its previous decision in M/s. Excel Corp Care Limited v. Competition Commission of India, which held that penalties should be based on the turnover related to the specific product involved in the violation. The Tribunal found that the Commission's calculation of penalties was legally unsustainable and set aside the penalties.

Conclusion:
The Tribunal set aside the findings and conclusions of the DG and the Commission regarding cartel formation and bid rigging. It held that the identical pricing alone was insufficient to prove collusion without additional plus factors. The Tribunal also found that the penalties imposed were based on an erroneous interpretation of Section 27(b) and should have been calculated based on the turnover related to feed valves, not the total turnover from all products. The appeals were allowed, and the penalties were quashed.