TMI Blog2018 (10) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... market. Hence, the factor that these suppliers are from different region having different cost of manufacture would lose its significance. It is a situation where prime condition is to quote the price at which a particular manufacturer can bag an order even when its manufacturing cost is more than the manufacturing cost of others. The main purpose for such a manufacuring would be to remain in the fray and not to lose out. Therefore, it would be ready to accept lesser margin. This would answer why there were near identical bids despite varying cost. Insofar as meeting of bidders in Mumbai just before the date of submission of tender is concerned, some aspects pointed out by the appellants are not considered by the CCI or the COMPAT at all. No doubt, the meeting took place a couple of days before the date of tender. No doubt, the absence of agenda coming on record would not make much difference. However, only 19 appellants had attended that meeting. Many others were not even members or did not attend the meeting. In spite thereof, even they quoted almost same rates as the one who attended the meeting. This would lead us to the inference that reason for quoting similar price was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no sufficient evidence to hold that there was any agreement between the appellants for bid rigging. Accordingly, we allow these appeals and set aside the order of the Authorities below. As a consequence, since no penalty is payable, appeals of the CCI are rendered infructuous and dismissed as such. All the pending applications stand disposed of. - CIVIL APPEAL NO. 3546 OF 2014 With CIVIL APPEAL NO. 4280 OF 2014 CIVIL APPEAL NO. 4346 OF 2014 And CIVIL APPEAL NO. 4649 OF 2014 - - - Dated:- 1-10-2018 - MR A.K. SIKRI AND MR ASHOK BHUSHAN, JJ. CIVIL APPEAL NO. 4879 OF 2014 CIVIL APPEAL NO. 4868 OF 2014 CIVIL APPEAL NO. 6033 OF 2014 CIVIL APPEAL NO. 5771 OF 2014 CIVIL APPEAL NO. 5772 OF 2014 CIVIL APPEAL NO. 5035 OF 2014 CIVIL APPEAL NO. 5773 OF 2014 CIVIL APPEAL NO. 5649 OF 2014 CIVIL APPEAL NO. 5650 OF 2014 CIVIL APPEAL NO. 5651 OF 2014 CIVIL APPEAL NO. 4972 OF 2014 CIVIL APPEAL NO. 6661 OF 2014 CIVIL APPEAL NO. 7102 OF 2014 CIVIL APPEAL NO. 6868 OF 2014 CIVIL APPEAL NO. 7214 OF 2014 CIVIL APPEAL NO. 6025 OF 2014 CIVIL APPEAL NO. 6365 OF 2014 CIVIL APPEAL NOS. 5993-5994 OF 2014 CIVIL APPEAL NO. 5774 OF 2014 CIVIL APPEAL NO. 5775 OF 2014 CIVIL APPEAL NO. 5776 OF 2014 CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed the instant appeals on the ground that there was no cartilisation and they have not contravened the provisions of the Act. On the other hand, CCI has also come up in appeal challenging latter part of the order whereby penalties inflicted on the suppliers stand reduced. For the sake of convenience these suppliers will be referred to as the appellants hereinafter. 2) We may point out at the outset that all these appellants are manufacturing gas cylinders of a particular specification having capacity of 14.2 kg which are needed for use by the three oil companies in India, namely, IOCL, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL) [all public sector companies]. It is also a matter of record that apart from the aforesaid three companies there are no other buyers for these cylinders manufactured by the appellants. Insofar as IOCL is concerned, it is a leading market player in LPG as its market share is 48%. Thus, in case a particular manufacturer is not able to supply its cylinders to the aforesaid three companies, there is no other market for these cylinders and it may force that company to exit from its operations. We may also poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is basis the CCI directed further investigation in the matter. The Director General after careful consideration submitted a detailed investigation report to the CCI. After the CCI considered the freshly ordered investigation report, it directed that a copy of the report be sent to the parties seeking their objections. In all, 44 opposite parties submitted their objections. After giving them the opportunity to be heard, the CCI passed the order in question. 6) As per the Director General s report, the process of bidding followed by the IOCL in the tender was as under :- i) The bidders would submit their quotations with the bid documents. ii) The existing bidders, who were existing suppliers, were required to submit the price bids and technical bids. iii) The bidders were to quote for supplies in different States of India in keeping with their installed capacity. iv) After price bids were opened the bidders were arranged according to the rates in the categories of L-1, L-2 and L-3. v) The rates for the supplies in different States were approved after negotiations with L-1 bidder. In case the L-1 bidder could not supply a required number of cylinders in a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the factors like market conditions and small number of companies were different, there was a large scale collusion amongst the bidding parties. He also arrived at a finding to the effect that the LPG Cylinder Manufacturers had formed an Association in the name of Indian LPG Cylinders Manufacturers Association and the members were interacting through this Association and were using the same as a platform. The date for submitting the bids in the case of the concerned tender was 3.3.2010 and just two days prior to it, two meetings were held on 1st and 2nd March, 2010 in Hotel Sahara Star in Mumbai. As many as 19 parties took part and discussed the tender and, in all probability, prices were fixed there in collusion with each other. The D.G. reported that the bidders had agreed for allocation of territories, e.g., the bidders who quoted the bids for Western India had not generally quoted for Eastern India and that largely the bidders who quoted the lowest in the group in Northern India, had not quoted generally in Southern India. The D.G. also concluded that this behavior created entry barrier and that there was no accrual of benefits of consumers nor were there any plus factors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a particular State, who may have appointed common agents. Due to this reason, cutting and over-writing in the price bids for the tender in question was noticed by the Director General. 12) It was further pointed out that there were only 62 qualified tenderers in the whole country, out of whom 12 bidders were classified as new parties, meaning thereby that they had not supplied Cylinders in last three years and were not required to bid in the tender. Out of the remaining 50 bidders, there were group companies controlled by single management. 13) The CCI in its detailed order began with considering the scope of constructed bid rigging agreement and cartel. In that the CCI also considered the 18 famous observations by Lord Denning in case of RRTA vs. W. H. Smith Sons Limited regarding the quiet and secret nature of the agreement between the parties. The CCI then went on to record its inference holding that there was element of agreement and considered the following factors in coming to the conclusion. They being:- 1. Market conditions 2. Small number of suppliers 3. Few new entrants 4. Active trade association 5. Repetitive bidding 6. Identical product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y came with the explanation as to what transpired in the meeting or gave any proof that prices were discussed. Minutes of the meeting were also not produced. (B) There is an association of the cylinder manufacturers. All the parties, except few competing with each other, stated that they were not the members of that association. A feeble argument was also raised by some appellants that though they were the members but they were not the active members thereof. Some of the appellants also argued that they had abandoned the membership by not contributing the subscription in the later years. However, the appellants could not deny the position that there was an association called Indian LPG Cylinder Manufacturers Association. It was a registered association, its Memorandum of Association provided that one of the objectives was to prtoect common interest and welfare of LPG cylinder manufacturers. According to COMPAT, there was a definite platform available for all cylinder manufacturers and practically all the appllants appear to be the members of that Association. (C) A common written reply was submitted by as many as 44 parties. Further, the appellants had nominated six agents f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties. All these factors would form a back drop, in the light of which, the further evidence about agreement would have to be appreciated. We have seen the comments of Director General as also the findings of the CCI. We are convinced that CCI has not committed any error in considering all these factors as plus factors to come to the conclusion that there was a concerted agreement between the parties on the basis of which the identical or near identical prices came to be quoted in tenders for the supply of cylinders to the 25 States. In view of this, we need not dilate on the individual claims by some of the appellants that they were not the members of the association or that they were only the dormant members or that they had abdicated their membership. We also need not go on the claim that while the meeting was attended by the 19 parties as held by the D.G. and confirmed by the CCI, it was not attended by the rest of the appellants because that would be of no consequence. Once there was a meeting, there was every opportunity to discuss or to communicate to each other whatever transpired in the meeting. 27. We have seen the order of the CCI and while commenting about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d this argument as well. In the process, it analysed the order of CCI, conclusion whereof was founded on the following factors: (1) The prevailing market conditions were such that there was a constant demand for cylinders not only by IOCL but by other two oil manufacutring companies as well. Therefore, there was a constant need for the cylinders which facilitated factor for the collusion. (2) There was small number of suppliers. Among the 50 participating companies, only 37 companies could be said to be independant bidding companies and there were seven groups consisting of 20 participating companies. This small number of suppliers should also be a facilitating factor. (3) There were very few new entrants. (4) The existence of an active trade association in which all the bidders, except seven companies, were members would be another facilitating factor. (5) Few other factors like repetitive bidding, identical products, few or no substitutes and no significant technological changes were the additional factors which persuaded the CCI to arrive at such a conclusion. (6) These manufacturing companies had their factories at different places in India, where the costs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciable adverse effect on competition on the mere proof of the agreement. Thus, onus shifts on the other side to prove otherwise which according to the COMPAT was not discharged by the appellants. The COMPAT thereafter took note of some arguments by certain counsel specific to their cases but did not find any substance in them. 21) Having examined the relevant provisions whereupon these appeals centre around, we proceed to take note of the arguments that were advanced by various counsel appearing for the appellants and the manner in which respondents endeavoured to meet the same. 22) Ms. Madhavi Divan, learned counsel appearing in the appeal filed by Rajasthan Cylinders and Containers Ltd., attacked the very basis and foundation on which CCI came to conclusion that there was an agreement or cartelisation by the appellants aimed at bid rigging. She premised her case on the following three propositions: (i) the inherent nature of the market of cylinder manufacturers itself precludes the possibility of competition; (ii) alternatively, there is no collusive agreement or bid-rigging in the present case; and (iii) further, in the alternative, even assuming that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery used to manufacture this product is special and will become obsolete and reduceable to scrap if IOCL and the aforesaid two players were to discontinue contracts for supply of 14.2 kg cylinders. She pointed out that this was accepted in the Expert Report of Dr. Rughvir K.S. Khemani. (v) The tender conditions state that it can be rejected without furnishing reasons. Therefore, the lowest price is not sacrosanct (clause 11 of the contract). (vi) L2 and L3 have also been granted contracts irrespective of the price they have quoted. (vii) Effective price has no sanctity since not only L2 and L3 also get contracts in addition to or in exclusion of L1 but further, the final negotiated price is determined on the basis of privately conducted negotiations with individual bidders for which the benchmark is not the price quoted by them but the internal estimates arrived on the basis of objective criteria. (viii) In most States, the final negotiated price was concluded at a rate lower than the internal estimate. The internal estimate had absolutely no correlation with the quoted rates by L1 or any other party. In this behalf, she pointed out that the IOCL had carried out the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not arise. 27) She also referred to LPG (Regulation of Supply and Distribution) Order, 2000 published vide Notification dated 26th April, 2000 as per which only Government oil companies can supply LPG to domestic consumer of 14.2 kg LPG cylinders with dimensions as specified therein. Predicated thereupon, her submission was that the LPG supply in 14.2 kg gas cylinders is an essential commodity; the distribution of such cylinders takes place only through Government oil companies; the price to the consumer is controlled by the Government; and parallel marketeers, supplier and distributor of LPG cylinders may do so only for cylinders and specifications other than 14.2 kg cylinders. This control of the Government, insofar as supply of 14.2 kg gas cylinders is concerned, would also show tight control over the pricing. In such a statutorily tight control price fixing mechanism there could not be bid rigging, was the submission of Ms. Divan. She supported this submission by drawing the attention of the Court to the following observations in Ashoka Smokeless Coal India (P) Ltd. v. Union of India (2007) 2 SCC 640 : 109. It may be true that prices are required to be fixed h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which becomes apparent from the behaviour of the participants. Although parallel behaviour may not itself be identified with a concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of competition which do not respond to the normal conditions of the market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. Such is the case especially where the parallel behaviour is such as to permit the parties to seek price equilibrium at a different level from that which would have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers. ( emphasis supplied) At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test: If the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken of the specific features of the products in question. 29) The learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, given the high degree of predictability of prices, bidders may take a business decision to mirror prices of competitiors in certain States, by adjusting or averaging prices in others. 34) The learned counsel pointed out that the CCI arrived at an inference of a collusive agreement based, inter alia , on the presence of circumstances which have acted as facilitating factors for collusion. These factors which describe the nature of the industry are: (i) Predictability of demand (ii) Small number of suppliers (iii) Few new entrants (iv) Active trade association (v) Repetitive bidding (vi) Identical products (vii) Few or no substitutes (viii) No significant technological changes, i.e, a standardised product in repsect of which there has been no change or alteration in design. 35) Her reply was that these are the characteristics which define the industry. Yet these very factors are relied upon to come to the consclusion that there is collusion and bid rigging . She submitted that if the very nature of the industry is such that there are very small numbers of suppliers, very few new entrants and a standard product being supplied to the same par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting that price was not discussed. These are Mr. Chandi Prasad Bhartia from Haldia Precision and Mr. Manvinder Singh of Bhiwadi Cylinders Ltd. 40) Her further submission on this aspect was that the inference drawn on the basis of six agents being nominated for depositing 44 bids was also misconceived. The CCI holds that this might have held to the possibility of copying and matching of the rates quoted in the price bids by many suppliers in a particular state. 41) The test as laid down in the case of Ahlstrom Osakeyhtio v. Commission 31.3.1993, ECJ (paragraph 115, Internal P.1611) ( Woodpulp ) is: Is the concertation the only plausible explaination for the conduct? 126. Following that analysis, it must be stated that, in this case, concertation is not the only plausible explanation for the parallel conduct. To begin with, the system of price announcements may be regarded as constituting a rational response to the fact that the pulp market constituted a long-term market and to the need felt by both buyers and sellers to limit commercial risks. Further, the similarity in the dates of price announcements may be regarded as a direct result of the high degree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t merely that it shall include - certain things or acts, the definition is a hard-and-fast definition, and no other meaning can be assigned to the expression than is put down in definition (per Esher, M.R., Gough v. Gough [(1891) 2 QB 665 : 65 LT 110] ). A definition is an explicit statement of the full connotation of a term. 44) Thus, according to him, for it to be a case of bid rigging, the agreement must be such which is defined in the Explanation to Section 3(3)(d) creating the effect of: a. Eliminating or reducing competition for bids or b. Adversely affecting the process for bidding or c. Manipulating the process for bidding. 45) He referred to the judgment in S. Sundaram Pillai vs. V.R. Pattabiraman (1985) 1 SCC 591 , on the purpose of an Explanation , viz.: 46. We have now to consider as to what is the impact of the Explanation on the proviso which deals with the question of willful default. Before, however, we embark on an inquiry into this difficult and delicate question, we must appreciate the intent, purpose and legal effect of an Explanation. It is now well settled that an Explanation added to a statutory provision is not a substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to analyse factors which attach to the general market conditions of the industry to infer the possibility of bid rigging and then concluded that the facilitating factors which may be considered conducive for cartelisation are present. The D.G. found that in all the probability, prices were fixed there at the meeting in Bombay in collusion with each other. Such an inference and assumption based on higher chances , probability , tendencies or likelihood by the CCI does not meet the requirement of the definition contained in Explanation to Section 3(3) and certainly does not constitute a finding of bid rigging as defined therein. The Tribunal has also proceeded on the basis that it is to be deduced....that these meetings did relate to the tender offers . There was, thus, not clearcut, precise and consistent evidence to support that the alleged bid rigging took place. 49) Next submission of Mr. Shergil was that apart from the complete absence of a finding of bid rigging, in the present IOCL tender, as a matter of fact there canot be any bid rigging as defined in Section 3(3). To take the first ingredient, i.e., eliminating or reducing competition for bids, the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the surrounding circumstances. In the instant case, initially the Tender Committee formed the opinion that the three big manufacturers formed a cartel on the ground that the price initially quoted by them was identical and was only a cartel price. This, in our view, was only a suspicion which of course got strengthened by post-tender attitude of the said manufacturers who quoted a much lesser price. As noticed above it cannot positively be concluded on the basis of these two circumstances alone. In the past these three big manufacturers also offered their own quotations and they were allotted quantities on the basis of the existing practice. However, a mere quotation of identical price and an offer of further reduction by themselves would not entitle them automatically to corner the entire market by way of monopoly since the final allotment of quantities vested in the authorities who in their discretion can distribute the same to all the manufacturers including these three big manufacturers on certain basis. No doubt there was an apprehension that if such predatory price has to be accepted the smaller manufacturers will not be in a position to compete and may result in elimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom anti-competitive activities would affect the cost of living for the common man, and has serious ramifications for the economy as a whole. 56) Mr. Khurshid referred to the findings of the CCI as approved by COMPAT and submitted that there was a strong economic evidence of collusion which is evident from the following aspects: (a) Identical or near-identical bidding by all 50 empaneled LPG vendors resulting in bid rigging. (b) Results of the tender revealed that these bids were made in such a way that all the bidders were awarded some portion of the tender and no bidder was left empty handed, i.e., Market Sharing Arrangement. (c) Geographical/Territorial allocation of market, i.e., the bids were placed in such a way that entities located in the northern parts of the country were awrded the tender in the northern States, entities located in the southern parts were awarded the tender in respect of southern States etc. (d) No plausible economic rationale or explanation was forthcoming for the identical bids, despite obvious difference in cost of production, location, input cost etc. (e) The overall effect of increase in price of procurement of LPG Cylinders over pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate. 59) Mr. Khurshid also refuted the submisison of the appellants that there was no competition and, therefore, Section 3 was not applicable. According to him, if the matters are examined on such basis most of the culprits will get away. The purpose of the Act was not only to eliminate cartelisation but also to promote competition. His submission was that once the findings of the CCI and COMPAT are accepted that there was an agreement, such an agreement was obviously for the purpose of curbing the competition. 60) Answering the argument of price parallelism which according to the appellants resulted in identical and near identical bids, Mr. Khurshid argued that legal submission in this respect was settled by this Court in Excel Crop Care case wherein such an argument was rejected in the following words: 48 It was argued that since dominant position is enjoyed by the buyer, it leads to parallel pricing and this conscious parallelism takes place leading to quoting the same price by the suppliers. The explanation, thus, given for quoting identical price was the aforesaid economic forces and not because of any agreement or arrangement between the parties. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to him, could be discerned from the following evidence emerging from record: Firstly, the economic evidence indicates that there was an understanding or arrangement or agreement by which each and every bidder would get some part of the allocation under the tender. This is clear from the fact that each and every one of the 50 bidders who submitted price bids received some part of the allocation in one or more states, and no one went empty handed. In other words, the purpose of quoting identical bids in many instances was to achieve the objective of sharing the market, i.e., the IOCL requirement across 25 states was shared by each of the 50 bidders, through concerted action and pre-decided understanding. 63) Mr. Khurshid also highlighed that in spite of there being difference in location of appellant s units and their input cost, the bids submitted by various tenderers were identical and there canot be any plausible economic rationale for such identical bidding. Therefore, the inference drawn by the CCI as well as COMPAT based on the aforesaid features and factors was justified and valid in law. He also referred to certain judgements of this Court as well as other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Explanation.-For the purposes of this sub-section, bid rigging means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. 67) Certain factors are mentioned in Section 19 of the Act which have to be kept in mind while determining whether an agreement has an appreciable adverse effect on competition under Section 3. We reproduce this Section hereinbelow: Section 19(3) in the Competition Act, 2002: ( 3) The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely:- ( a) creation of barriers to new e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bing anti-competitive agreements is to ensure level playing field for all market players that helps markets to be competitive. It sets rules of the game that protect the competition process itself, rather than competitors in the market. In this way, the pursuit of fair and effective competition can contribute to improvements in economic efficiency, economic growth and development of consumer welfare .. xxx xxx xxx 23. In fact, there is broad empirical evidence supporting the proposition that competition is beneficial for the economy. Economists agree that it has an important role to play in improving productivity and, therefore, the growth prospects of an economy .. 24. Productivity is increased through competition by putting pressure on firms to control costs as the producers strive to lower their production costs so that they can charge competitive prices. It also improves the quality of their goods and services so that they correspond to consumers' demands. xxx xxx xxx 26. When we recognise that competition has number of benefits, it clearly follows that cartels or anti-competitive agreements cause harm to consumers by fixing prices, limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on law. The main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are threefold: allocative efficiency, which ensures the effective allocation of resources, productive efficiency, which ensures that costs of production are kept at a minimum and dynamic efficiency, which promotes innovative practices. These factors by and large have been accepted all over the world as the guiding principles for effective implementation of competition law. 72) As mentioned above, one of the anti-competitive practices is cartelisation, the essential postulate whereof is agreement between enterprises or association of enterprises or persons or associations of persons in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of service, which causes or is likely to cause an appreciable adverse effect on competition within India. Such an agreement is treated as void. The types of agreement which may fall foul of Section 3 are mentioned in sub-section (3) thereof. These include sharing the market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants falling in clause (d) of sub-section (3) of Section 3, which talks of bid rigging or collusive bidding. Therefore, it would be necessary to understand the meaning of the expression bid rigging and collusive bidding . Explanation to Section 3, which is reproduced, assigns meaning to bid rigging and states : S. 3: Explanation.-For the purposes of this sub-section, bid rigging means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. 75) The necessary ingredients of bid rigging, thus, are: (a) agreement between the parties; (b) these parties are engaged in idential or similar production or trading of goods or provisions of services; and (c) the agreement has the effect of eliminating or reducing competition of bids or adversely affect or manipulating the process for bidding. 76) Though the expression collusive bidding is not defined in the Act, it appears that both bid rigging and collusive bidding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( b) OECD Glossary of Industrial Organisation Economics and Competition Law Bid rigging is a particular form of collusive price-fixing behaviour by which firms coordinate their bids on procurement or project contracts. There are two common forms of bid rigging. In the first, firms agree to submit common bids, thus eliminating price competition. In the second, firms agree on which firm will be the lowest bidder and rotate in such a way that each firm wins an agreed upon number or value of contracts. Since most (but not all) contracts open to bidding involve Governments, it is they who are most often the target of bid rigging. Bid rigging is one of the most widely prosecuted forms of collusion. Collusive bidding (tendering) - See bid rigging . ( This shows collusive bidding and bid rigging are treated as one and the same.) ( c) OECD Guidelines for fighting bid rigging Bid rigging (or collusive tendering) occurs when businesses, that would otherwise be expected to compete, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that of person in Section 2( l ) of the Act. The second part relates to the subject-matter of the agreement. Again it is very wide in its ambit and scope as it covers production, supply, distribution, storage, acquisition or control of goods or provision of services. The third part pertains to the effect of such an agreement, namely, appreciable adverse effect on competition , and if this is the effect, purpose behind this provision is not to allow that. Obvious purpose is to thwart any such agreements which are anti-competitive in nature and this salubrious provision aims at ensuring healthy competition. Sub-section (2) of Section 3 specifically makes such agreements as void. 41.2. Sub-section (3) mentions certain kinds of agreements which would be treated as ipso facto causing appreciable adverse effect on competition. It is in this backdrop and context that Explanation beneath sub-section (3), which uses the expression bid rigging , has to be understood and given an appropriate meaning. It could never be the intention of the legislature to exclude collusive bidding by construing the expression bid rigging narrowly. No doubt, clause ( d ) of sub-section (3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein objective behind the Act was highlighted in the following manner: 125. We have already noticed that the principal objects of the Act, in terms of its Preamble and the Statement of Objects and Reasons, are to eliminate practices having adverse effect on the competition, to promote and sustain competition in the market, to protect the interest of the consumers and ensure freedom of trade carried on by the participants in the market, in view of the economic developments in the country. In other words, the Act requires not only protection of free trade but also protection of consumer interest. The delay in disposal of cases, as well as undue continuation of interim restraint orders, can adversely and prejudicially affect the free economy of the country. Efforts to liberalise the Indian economy to bring it on a par with the best of the economies in this era of globalisation would be jeopardised if time-bound schedule and, in any case, expeditious disposal by the Commission is not adhered to. The scheme of various provisions of the Act which we have already referred to including Sections 26, 29, 30, 31, 53-B(5) and 53-T and Regulations 12, 15, 16, 22, 32, 48 and 31 clearly sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o establish such concert is one of probability and may be established if having regard to their relation etc., their conduct, and their common interest, that it may be inferred that they must be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon [ CIT v. East Coast Commercial Co. Ltd., (1967) 1 SCR 821 : AIR 1967 SC 768] . (SCR p. 829 H) 55. While deciding whether a company was one in which the public were substantially interested within the meaning of Section 23-A of the Income Tax Act, 1922 this Court said: The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts. [CIT v. Jubilee Mills Ltd., (1963) 48 ITR 9 (SC), p. 20] 56. In Guinness PLC and Distillers Co. PLC [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 - Reasons for decisions of the Panel.)] the question before the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proving cartel agreement, relevant portion thereof contained in para 2 of the said Policy is reproduced below: Available evidence for proving cartel agreements 2.1 Categories of evidence Evidence used to prove a cartel agreement can be classified into two types: direct and circumstantial. Circumstantial evidence, in turn, consists of communication evidence and economic evidence, which include firm conduct, market structure, and evidence of facilitating practices. Common types of direct evidence include: - A document or documents (including email messages) essentially embodying the agreement, or parts of it, and identifying the parties to it. - Oral or written statements by co-operative cartel participants describing the operation of the cartel and their participation in it. There are different types of circumstantial evidence. One is evidence that cartel operators met or otherwise communicated but does not describe the substance of their communications. It might be called communication evidence for purposes of this discussion. It includes: - Records of telephone conversations between competitors (but not their substance), or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l evidence can be limited, however. There can be highly concentrated industries selling homogeneous products in which all parties compete. Conversely, the absence of such evidence cannot be used to show that a cartel did not exist. Cartels are known to have existed in industries with numerous competitors and differentiated products. A specific kind of economic conduct evidence is facilitating practices practices that can make it easier for competitors to reach or sustain an agreement. It is important to note that conduct described as facilitating practices is not necessarily unlawful. But where a competition authority has found other circumstantial evidence pointing to the existence of a cartel agreement, the existence of facilitating practices can be an important complement. They can explain what kind of arrangements the parties set up to facilitate the formation of a cartel agreement, monitoring, detection of defection, and/or punishment, thus supporting the collusion story put together by the competition law enforcer. Facilitating practices include: - information exchanges; - price signalling; - freight equalisation; - price protection a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered, the size and number of the undertakings, and the volume of the said market. This precludes any direct or indirect contact between competitors, the object or effect of which is to influence conduct on the market of an actual or potential competitor, or to disclose to such competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market, thereby facilitating a collusive outcome on the market. Hence, information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion, that is to say, if the data exchanged is strategic. Consequently, sharing of strategic data between competitors amounts to concentration, because it reduces the independence of competitors conduct on the market and diminishes their incentives to compete. 62. A situation where only one undertaking discloses strategic information to its competitor(s) who accept(s) it can also constitute a concerted practice. Such disclosure could occur, for example, through contacts via mail, emails, phone calls, meetings etc. It is then irrelevant whether only one undertaking unilaterally informs its compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, there was no question of any competition and no possibility of adversely affecting that competition by entering into any contract. 86) The factors which have influenced the authorities below in coming to the conclusion that the appellants had colluded and formed a cartel which led to bid rigging have already been noted above. To recaptulate, the authorities below have been influenced by the following factors: 1. Market conditions 2. Small number of suppliers 3. Few new entrants 4. Active trade association 5. Repetitive bidding 6. Identical products 7. Few or no substitutes 8. No significant technological changes 9. Meeting of bidders in Mumbai and its agenda. 10. Appointing common agents 11. Identical bids despite varying cost. After deliberating on the aforesaid aspects, the CCI has concluded that there is an active trade association in which many of the appellants are members. That product in question, namely, gas cylinder is of a particular specification which is needed by IOCL in large numbers every year and there are very few manufacturers and suppliers of this product to IOCL and two other buyers. For this identical product wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers. (ii) There are only three buyers, it may not attract many to enter the field and manufacture these cylinders. It is because of limited number of buyers and for some reason if they do not purchase, the manufacturer would be nowhere. That may deter the persons to enter the field. (iii) The manner in which the tenders are floated by IOCL and the rates at which these are awarded, are an indicator that it is the IOCL which calls the shots insofar as price control is concerned. It has come in evidence that the IOCL undertakes the exercise of having its internal estimates about the cost of these cylinders. Their own expert arrived at a figue of ₹ 1106.61 paisa per cylinder. All the tenders which have been accepted are for a price lesser than the aforesaid estimate of IOCL itself. That apart, the modus adopted by the IOCL is that that final price is negotiated by it and the contract is not awarded at the rate quoted by bidder who turns out to be L-1. Negotiations are held with such a bidder who is L-1 which generaly leads to further reduction of price than the one quoted by L-1. Thereafter, the other bidders who may be L-2 or L-3 etc. are awarded the contract at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public distribution system defined under clause 2(1) of the Order as the system of distribution, marketing or selling of liquefied petroleum gas by a Government Oil Company at the Government controlled or declared price through a distribution system approved by the Central or State Government . * The price to the consumer is controlled by the Government. * The supply of LPG to domestic consumers shall be made only in 14.2 kg gas cylinders. * According to clauses 4 and 5 read with Schedule III of the LPG Order, parallel marketeers who supply and distribute LPG cylinders, may do so only for cylinders with size and specifications other than those specified in Schedule II. 89) The manner in which tendering process takes place would show that in such a competitive scenariao, the bid which the different bidder would be submitting becomes obvious. It has come on record that just a few days before the tender in question, another tender was floated by BPCL and on opening of the said tender the rates of L-1, L-2 etc. came to be known. In a scenario like this, that obviously becomes a guiding factor for the bidders to submit their bids. 90) When we keep in mind the aforesaid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t conditions leading to the situation of oligopsony that prevailed because of limited buyers and influence of buyers in the fixation of prices was all prevalent. This seems to be convincing in the given set of facts. The situation of oligopsony can be both ways. There may be a situation where the sellers are few and they may control the market and by their concerted action indulge into cartelization. It may also be, as in the present case, a situation where buyers are few and that results in the situation of oligopsony with the control of buyers. 93) To recapitulate, the two prime factors against the appellants, which are discussed by the CCI, are that there was a collusive tendering, which is inferred from the parallel behaviour of the appellants, namely, quoting almost the same rates in their bids. The parameters on the basis of which these aspects are to be judged are stated in Excel Crop Care Limited as follows: 50. It needs to be emphasised that collusive tendering is a practice whereby firms agree amongst themselves to collaborate over their response to invitations to tender. Main purpose for such collusive tendering is the need to concert their bargaining power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. Such is the case especially where the parallel behaviour is such as to permit the parties to seek price equilibrium at a different level from that which would have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers. ( emphasis supplied) At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test: If the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken of the specific features of the products in question. Having regard to the aforesaid principles in mind, we deal with the arugment on oligopsony raised by the appellants. 94) Monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. What is emphasised is that in such a situation a manufacturer with no b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduces non-competitive stability .. ...Oligopolists recognize their interdependence as well as their own self-interest. By matching each other s conduct they will be able to achieve and charge a profit-maximising price which will be set at a supra-competitive level, without actually communicating with one another. There does not need to be any communication: the structure of the market is such that, through interdependence and mutual self-awareness, prices will rise towards the monopolistic level . ..The logical conclusion of the case against oligopoly is that, since it is the market structure itself which produces the problem, structural measures should be taken to remedy it by deconcentrating the market. Unless this is done, there will be an area of consciously parallel action in pricing strategies which is beyond the reach of laws against cartels and yet which has serious implications for consumers welfare. xxx xxx xxx xxx xxx xxx (iii) A regulatory approach A different possibility would be to regulate the prices of undertakings that operate in an oligopolistic environment. This, however, would be a counsel of despair. As a matter of policy direct regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for a directed verdict, a plaintiff seeking damages for a violation of 1 must present evidence that tends to exclude the possibility that the alleged conspirators acted independently. 465 U.S., at 764 . ... petitioners had no motive to enter into the alleged conspiracy. To the contrary, as presumably rational businesses, petitioners had every incentive not to engage in the conduct with which they are charged, for its likely effect would be to generate losses for petitioners with no corresponding gains. Cf. Cities Service, 391 U.S., at 279 . The Court of Appeals did not take account of the absence of a plausible motive to enter into the alleged predatory pricing conspiracy. It focused instead on whether there was direct evidence of concert of action. 723 F.2d, at 304. The Court of Appeals erred in two respects: (i) the direct evidence on which the court relied had little, if any, relevance to the alleged predatory pricing conspiracy; and (ii) the court failed to consider the absence of a plausible motive to engage in predatory pricing .. xxx xxx xxx Lack of motive bears on the range of permissible conclusions that might be drawn from ambiguous evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, we have previously hedged against false inferences from identical behavior at a number of points in the trial sequence. An antitrust conspiracy plaintiff with evidence showing nothing beyond parallel conduct is not entitled to a directed verdict, see Theatre Enterprises, supra; proof of a 1 conspiracy must include evidence tending to exclude the possibility of independent action, see Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752 (1984); and at the summary judgment stage a 1 plaintiff s offer of conspiracy evidence must tend to rule out the possibility that the defendants were acting independently, see Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574(1986). 101) After taking note of the test that needs to be applied in such cases, which was laid down in Dyestuffs and accepted in Excel Crop Care Limited , we come to the conclusion that the inferences drawn by the CCI on the basis of evidence collected by it are duly rebutted by the appellants and the appellants have been able to discharge the onus that shifted upon them on the basis of factors pointed out by the CCI. However, at that stage, the CCI failed to carry the matter further by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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