TMI Blog2016 (4) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) read with Sections 3(3)(a) and 3(3)(d) of the Act - the findings and conclusions recorded by the DG and the Commission that the appellants had indulged in collusive bidding/bid-rigging and thereby violated Section 3(1) read with Section 3(3)(a) and 3(3)(d) of the Act are legally unsustainable and the impugned order is liable to be set aside. Whether in exercise of powers vested in it under Section 27(b) of the Act, the Commission could impose penalty on the total turnover of the appellants for the three preceding financial years? - Held that:- The Commission committed grave illegality by imposing penalty @5% of the average turnover of the appellants in respect of all the products manufactured by them for the last three preceding financial years. The respondents have not disputed that all the appellants are multi-product companies and the Jungle Boots is only one of the products manufactured by them - the Commission is not entitled to impose penalty on the defaulting enterprise/person by taking into consideration its total turnover for the preceding three financial years. The impugned order is set aside and the penalty imposed by the Commission on the appellants is quashed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bber Sole and Ground Sheets. II) M/s. M.B. Rubber Pvt. Ltd. (Appellant in Appeal No. 35 of 2013) M/s. M.B. Rubber Pvt. Ltd. was incorporated on 21st July, 1988 and is engaged in the manufacturing of Footwear, Rain coats and Capes. Ground sheets etc. in its SSI unit located at Sahibabad Industrial Area, Ghaziabad, U.P. The company started production of Hawai-Chappals in the year 1990-91. After two years, it commenced manufacturing of canvas shoes. The company is registered with NSIC, DGS D, DGQA, Indian Navy and Ministry of Defence for various items being manufactured by it. As per the DGS D Registration Certificates, the company is registered for supply of various Footwear Items, Ground Sheets, Coats and Capes, Mosquito Nets etc. which it supplies to various Government Departments such as Railways, Paramilitary forces etc. III) M/s. Tirupati Footwear Pvt. Ltd. (Appellant in Appeal No. 36 of 2013) M/s. Tirupati Footwears Pvt. Ltd. is a SSI Unit located at Basti Bawa Khel, Kapurthala Road, Jalandhar. As per the DGS D Registration Certificate, the company is registered for supply of various footwear items and Ground Sheets. The company is also registered with NSIC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant in Appeal No. 42 of 2013) M/s. Derpa Industrial Polymers (P) Ltd. was incorporated in 1983. It is engaged in the manufacturing of various types of Footwear and other Rubberized items such as Rain Capes, Ground Sheets etc. in its SSI unit located at Rural Industrial Estate, Loni, Ghaziabad, U.P. As per the DGS D Registration Certificate, the company is registered for supply of Rain Capes, Footwears, Synthetic Web Equipment, Sleeping Bags, Mosquito Nets etc. X) M/s. R.S. Industries (Appellant in Appeal No. 43 of 2013) M/s. R.S. Industries is a Sole Proprietorship firm which was established in 1992. It is engaged in manufacturing different textile, jute and rubber items including Rain Coats, Ground Sheets, Mosquito Nets, Bags, Footwears, Hospital Rubber Sheeting etc. in its SSI unit located at Chingrighata Lane, Kolkata. XI) M/s. Puja Enterprises (Appellant in Appeal No. 08 of 2014) M/s. Puja Enterprises is a registered partnership firm. It is engaged in the manufacture of footwear items in its SSI Unit located at Basti Bawa Khel, Kapurthala Road, Jalandhar. The company is registered with DGS D for supply of various footwear items such as Boot Combat Rubber i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DGS D for conclusion of Rate Contracts of the product in question under a collusive agreement. ii) Direct and indirect evidences have established the existence of an agreement between OPs for quoting identical/near identical prices and not competitively. iii) The collusive behaviour of the OPs has defeated the price discovery mechanism of a competitive market, to the detriment of the consumers who are government agencies in the instant case. The OPs have thus been instrumental in determining prices of the product under an agreement that violates the provisions of the Act. iv) The OPs have been engaged in bid rigging under an agreement for manipulating the process of bidding. v) The investigation has clearly brought out through direct and indirect evidences that the quantity restrictions imposed by the OPs was a result of concerted action of the OPs. vi) The OPs have under an agreement controlled the supply of the product in question and shared the market amongst themselves through mutual allocation. 7. As a sequel to the above, the DG recorded the following conclusion: The investigation has established that the Opposite Parties have violated the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who are registered with DGS D, and who have been awarded Rate Contracts for the product. As such the Relevant Product Market has been identified as the market of Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/Tex/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) manufactured by DGS D registered Rate Contract holders under Section 2(t) of the Act. 5.5 As aforementioned the product is procured mainly by various government agencies from DGS D registered suppliers against the Rate Contracts awarded to them and that these procurers are geographically located across India. As such, the Relevant Geographic Market has been identified as the market of Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/Tex/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) manufactured by DGS D registered Rate Contract holders across India under Section 2(s) of the Act. 5.6 Thus the Relevant market has been identified as the market across India of Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/Tex/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. iii) To the extent possible Rate Contract holders should be located in different geographical areas to help the DDOs spread all over India for getting supplies. iv) When Rate Contracts are awarded, some of the past suppliers should also be included to the extent possible, instead of having only new entrants as the performance of new entrants may not be known before hand and DDOs may have to face problems in getting the supplies. 10. In Chapter 7 of his report, the DG noticed the replies/clarifications and documents submitted by the DGS D and summarised the same in paragraphs 7.1 to 7.8, which are reproduced below: 7.1 In response to the Notice sent, DGS D has submitted its reply, clarifications and various documents vide its letter dated 02.08.2012, 10.10.2012 and 18.12.2012 DGS D has explained in detail about the instrument of Rate Contract, features of items generally brought on Rate Contract, methodology of approving an item for conclusion of Rate Contract, preparation of specifications of the item of Rate Contract, tendering procedure of DGS D and factors considered for conclusion of Rate Contracts including determination of Reasonable Rates. List of DGS D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The price bid details of all the bidders during the above periods have been furnished by DGS D. However, details regarding time and date of submission of the offers have been informed to be not available on DGS D server as the service provider for e-bidding at that time was no longer associated with DGS D. 7.4 During 2010-11 and 2011-12 manual tendering was followed and copies of the tender offers have been furnished. As per the information submitted, against the Rate Contract of the product for the period 2010-11, offers from 11 parties were reportedly received on 11.08.2010 and from one party on 09.08.2010. Regarding Rate Contract for the period 2011-12, offers from 09 parties were reportedly received on 29.07.2011 and from two parties on 27.07.2011. 7.5 DGS D has also furnished details of Supply Orders for the product placed by DDO's on the Rate contract holders for the Rate Contract periods 2008-09, 2009-10 2010-11 and has informed that due to certain digital certificate problems, server problems etc. there could be minor discrepancies in the data furnished. 7.6 DGS D has furnished clarification regarding basis of its allegations of total estimated demand bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Rate Contracts periods 2008-09, 2009-10 and 2010-11 (about 4,50,000 pairs of Polyester Blended Duck Ankle Boot Rubber Sole) leaving little scope for other competitors to step in; that there is no substitute of the product which is required to be manufactured as per the specifications prescribed by the DGS D and there are no other buyers of the same except the Government Agencies; that the Rate Contract is essentially a mechanism for fixing the price for a specified period with no assurance of firm orders for the Rate Contract holders and repeatedly conjectured that all these factors are conducive to collusive bidding. In order to show that the DG has been extremely casual in making observations suggesting that the appellants had indulged in collusive bidding, paragraphs 8.8 to 8.14 of the report are reproduced below: 8.8 Investigation has revealed that the OPs are registered suppliers of DGS D for the past several years and have repeatedly been bidding over the years against the tenders of DGS D floated for awarding Rate Contracts for the product as well as for other items for which they are registered with DGS D. The OPs have been consistently bidding against the Tender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifications of DGS D make the product in question distinct as the boots manufactured as per differing specifications cannot be considered substitutable. As such the product being the same, the probabilities of bidders reaching an agreement on a common price structure are high. 8.12 In addition to the above conditions, investigation has revealed that the instrument of Rate Contract has certain features that are inherently conducive for collusive action. 8.13 Rate Contract being merely an agreement whereby the Supplier(s) agrees to supply to the Purchaser, specified stores at specified prices during the period covered by the Contract and there being no assured minimum purchase quantity, the Rate Contract holders do not have any incentive to quote rates competitively. 8.14 Rate Contracts being essentially a mechanism of fixing prices for a specified period with no assurance of firm orders for the Rate Contract holders, there is no incentive for competitive bidding of rates which only results in lowering the Rate Contract Rates for all without any consequential benefits in the form of assured orders. The above scenario is thus conducive for collusive bidding. [Emphasis s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs. It has been observed that as per the DGS D Registration Certificates of the OPs, not only the product range varies between different OPs but their production capacities of different items for which they are registered, too are different. Even with respect to the specific product, the installed capacity of the OPs ranges from 48,000 pairs per annum to 2,40,000 pairs per annum. Further, these OPs are also located in different geographical regions. 8.32 During the record of statements the OPs had informed that raw material cost was a major component of the total cost of the product and that Rubber and Latex constitute a substantial cost component in the total cost of the raw materials. It has been observed that the rates of Rubber and Latex are prone to significant fluctuations over a given period of time as per the data of prices posted on the website of Rubber Board. As such identical/near identical estimation of average cost of raw materials (including cost of a major raw material whose prices are subject to significant fluctuations) over the Rate Contract period by different OPs is improbable. 8.33 Considering all the aforementioned factors, it is concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in contravention of Section 3(1) read with Section 3(3)(a) and Section 3(3)(d) of the Act by determining the prices and bid-rigging. Paragraphs 8.44 to 8.54, which contain discussion on this issue, are extracted below: 8.44 During recording of statement in case of M/s. H.B. Rubber Pvt. Ltd., it was asked whether the company or its Directors discussed or shared information regarding prices, market etc. or had dealings with its competitors. The relevant extract of the statement is reproduced below: Q.8 Who are your main competitors for this product? Ans. The parallel R.C. holders are our competitors. Q.9. Does the company or its Directors discuss or share information regarding prices, market etc. or have dealings with these competitors? Ans. No, we do not share information regarding prices, market etc. nor have any dealings/meetings with these competitors. 8.45 However, it has been observed that two of the directors on the board of M/s. H.B. Rubber Pvt. Ltd. are sons of two directors on the board of M/s. M.B. Rubber Pvt. Ltd. Further, as per the audited Annual Accounts submitted by these OPs for the year ended 31.03.2011, not only are there financial transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting held on 20.10.2009 at Delhi, which was attended by the representatives of the few appellants, could have been used for fixing the price for execution of the Rate Contract for 2011-12). 8.48 In the matter of sharing of information between competitors which has consistently been denied by the OPs, it has been observed during examination of various documents submitted by the OPs that against the Notices sent to them, one of the OPs, namely M/s. Preet Enterprises, had submitted copies of certain documents being Performance Statements pertaining to other OPs, namely, M/s. Shiva Rubber Industries, M/s. R.S. Industries, M/s. S.S. Rubber, M/s. Puja Enterprises, M/s. MKU Private Limited (Group company of M/s. A.R. Polymers Pvt. Ltd., one of the OPs), M/s. M.B. Rubber Pvt. Ltd. and M/s. Derpa Industrial Polymer Pvt. Ltd. It may be mentioned that Performance Statements contain details of total value of orders received, value of orders due to supply by the cut of date, value of orders supplied upto cut of date etc. pertaining to the party concerned and forms part of the bid documents submitted by the bidders. The competitors are thus not privy to the information contained in the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes are invited from registered suppliers of any items and for assessment of the quotations received, Reasonable Rates are worked out by DGS D based on previous RC rates adjusted by various price indices. These Reasonable Rates are the ceiling Rates based on which counter offers, if required, are made to the bidders. As such, the Reasonable Rates are in the nature of benchmark defining the upper limit of rates. In the event of rates being received by DGS D below the Reasonable/Ceiling Rates, no counter offer is resorted to and Rate Contracts can be concluded at rates below the Reasonable/Ceiling Rates. The OPs being well conversant with the DGS D methodology quote identical/near identical in collusion and not competitively since in the event of lower rates being quoted by the bidders which may be below the Reasonable/Ceiling Rates worked by DGS D, the implication of the same would be lowering of the Rate Contract rates for all the bidders. As such, the OPs indirectly determine the prices since in a situation where quoted rates are higher than the Reasonable/Ceiling Rates, DGS D is constrained to counter offer the Ceiling Rates which are not the best rates/competitive rates and defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them have been able to substantiate their so called claim on account of late delivery charges. Further, in view of the contention of some OPs regarding same production facilities being used for manufacture of other footwear items as one of the reasons for imposing quantity restrictions, clarification in the matter was sought from DGS D. In this respect DGS D has vide its letter dated 20.12.2012 clarified that the assessed capacities of different footwear items as per the Registration Certificates are standalone capacities individually assessed for each footwear item. As such, the above contention of the OPs is also not tenable. Copy of the reply of DGS D dated 26.12.2012 is enclosed at Annexure-65. 8.65 Investigation has revealed that imposition of quantity restrictions by the OPs with the exception of M/s. R.S. Industries had commenced only from the RC period 2010-11 and that no such restrictions were being imposed during earlier RC periods. As such, it is evident that unless taken in collusion, the decision of the OPs to impose quantity restrictions that too simultaneously from the RC period 2010-11 would have been based on factors prevailing during earlier RC periods of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act Period Total Supply Orders in pairs 1. 01.09.2008 to 31.08.2009 4,53,320 2. 01.09.2009 to 31.08.2010 4,51,401 3. 01.09.2010 to 31.08.2011 4,43,623 8.72 The figures of Supply Orders are derived from the copies of supply orders/performance statements furnished by OPs and information furnished by DGS D and may be subject to minor variations. 8.73 The figures indicate that the demand for the product during the last few years has remained static and is much lower than the total installed capacity of the various manufacturers. The demand having remained static at levels much below the total installed capacity and some of the OPs being unable to get adequate Supply Orders, have under an agreement/arrangement with a view to equitably distribute the total demand amongst themselves, imposed total quantity restrictions as well as restrictions per DDO. 17. The DG also took cognisance of the meeting held on 13.03.2009 under the aegis of the Federation of Industries of India and hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for these agencies, DGS D has been constrained to conclude Rate Contract with the OPs inspite of the quantity restrictions imposed by them. Investigation has clearly established through direct and indirect evidences that imposition of quantity restrictions by the OPs was an act of collusion aimed at distribution of total demand of the product amongst themselves. The OPs by imposing quantity restrictions for the RC period as well as per DDO have thus controlled the supply of the product in question and shared the market of the product amongst themselves under an agreement/arrangement and by bid rigging thereby contravening the provisions of Section 3(1) with Sections 3(3)(b) and 3(3)(d) of the Act. 20. The report of the DG was considered by the Commission in its ordinary meeting held on 09.01.2013 and it was decided that copies thereof be forwarded to the informant i.e. DGS D and the Opposite Parties (Appellants herein) to enable them to file their replies/objections. 21. The appellants filed separate detailed replies to controvert the findings recorded by the DG. They generally pleaded that the findings recorded by the DG on the issue of bid-rigging/collusive bidding/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms. 23. Along with the replies, the appellants submitted documents to support their stand of various issues and finally pleaded that it was not a case of conscious price parallelism and in the absence of any plus-factor, the quoting of identical or near identical price cannot lead to a logical inference that they had indulged in collusive- bidding and thereby contravened the provisions of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act. 24. The Commission gave opportunity of hearing to the parties and passed the impugned order whereby it approved the findings and conclusions recorded by the DG and imposed penalty on the appellants under Section 27(b) @5% of the average of the turnover for the last three preceding financial years. 25. In paragraphs 21 and 22, the Commission noted the facts relating to the reference made by the DGS D, the rates quoted by the appellants and observed: 23. From the above, it is noticed that each of the opposite parties had quoted six rates depending upon the colour/print and the size slab of the product. Within each category, the bidders quoted almost similar rates with a price differential in rates in the range of only abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... size of operations of the different opposite parties in terms of their turnover which ranges from about ₹ 284 lakhs to ₹ 3971 lakhs. Further, from the DG S D Registration Certificates of the opposite parties, it was observed by the DG that not only the product range varies between different opposite parties but their production capacities of different items for which they are registered, too are different. Even with respect to the specific product, the installed capacity of the opposite parties ranges from 48,000 pairs per annum to 2,40,000 pairs per annum. Moreover, these opposite parties are also located in different geographical regions. 29. The Commission also agrees with the conclusion of the DG that the raw material cost was a major component of the total cost of the product and that Rubber and Latex constitute a substantial cost component in the total cost of the raw materials. As observed by the DG the rates of Rubber and Latex were prone to significant fluctuations over a given period of time as per the data of prices posted on the website of Rubber Board and, as such, identical/near identical estimation of average cost of raw materials (including cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tenders of DG S D. While estimation of cost has been taken as the basis by some of the opposite parties, some have stated to have quoted rates based either on the prevailing prices of raw materials and their estimation of future trend while others have stated to have quoted on the basis of previous quoted rates or the rates finalized in the previous Rate Contract adjusted to account for variation in prices of raw materials and other cost components. 33. From the DG report, it appears that certain opposite parties were either presently members, or had in the past been members of a trade federation viz. Federation of Industries of India (FII), Delhi. Some of the opposite parties, in their statements before the DG, maintained that the Federation did not provide a common platform for its members and that various issues were taken up by the members, as and when they arose, on an individual basis and not collectively. The DG, however, observed that a meeting of the opposite parties (members as well as non-members) had in the past been convened by FII on 20.10.2009 at PSK, Laxmi Nagar, District Centre, Delhi for eliciting views regarding various problems to be discussed with DG S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered quantity in spite of having higher installed capacity, had limited the production and supply and shared the market through mutual allocation. It has been alleged that by restricting the total quantity to be supplied during the Rate Contract period as well as restricting the maximum quantity to be supplied to a DDO, there was an agreement between the competing enterprises not to compete or to restrict the competition thereby violating the provisions of the Act. 38. As noted by the DG, the quantity restrictions imposed by the opposite parties against the Tender Enquiry dated 14.06.2011 vis- -vis their installed capacities for the product as per DG S D Registration Certificates were as under: 39. It is evident that nine opposite parties had restricted their total quantity for the RC period to 50000 pairs and the remaining two had restricted the same to 100000 and 150000 pairs respectively for the Rate Contract period 01.12.2011 to 30.11.2012. Further, six opposite parties had restricted their commitment per DDO to 10000 pairs, two opposite parties to 20000 pairs and one opposite party to 30000 pairs. 40. From DG S D Registration Certificates, it was noted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition. 43. Thus, in case of agreements as listed in section 3(3) of the Act, once it is established that such an agreement exists, it will be presumed that the agreement has an appreciable adverse effect on competition; the onus to rebut the presumption would lie upon the opposite parties. 44. In the present case, the opposite parties could not rebut the said presumption. It has not been shown by the opposite parties how the impugned conduct resulted into accrual of benefits to consumers or made improvements in production or distribution of goods in question. Neither, the opposite parties could explain as to how the said conduct did not foreclose competition. 27. The Commission distinguished the judgement of the Supreme Court in Union of India v. Hindustan Development Corporation (1993) 3 SCC 499 relied upon by the appellants by observing that apart from conscious price parallelism, there is overwhelming circumstantial evidence to infer the anti-competitive nature of the impugned actions. 28. As a sequel to its finding that the appellants have contravened the provisions of Section 3(1) read with Section 3(3)(a) and 3(3)(d) of the Act, the Commission imposed penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o meetings nor any decision was taken in that regard. Shri M.M. Sharma, learned counsel representing some of the appellants pointed out that many of the appellants were not even members of the Federation of Industries of India and had not participated in either of the two meetings. He also emphasised that the meetings held in 2009 had no nexus with the bids given by the appellants and others in response to Tender Enquiry dated 14.06.2011 issued by the DGS D. Learned counsel further argued that the finding recorded by the DG and the Commission on the issue of sharing of confidential information by the appellants is ex facie perverse and is liable to be ignored. They pointed out that the statistics supplied by M/s. Preet Footwears (Appellant in Appeal No. 39/2013) to the DG were nothing but copies of the consolidated performance statements dated 17.08.2006, 07.09.2007 and 01.08.2008 in respect of the Rate Contracts executed in 2006-07, 2007-08 and 2008-09 and they were very much available in public domain on the website of the DGS D and any bidder could download the same for the purpose of bidding in the subsequent Tender Enquires. Learned counsel submitted that the performance state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Care Limited v. Competition Commission of India and others and two connected appeals bearing Nos. 80/2012 and 81/2012. 32. Learned counsel for the respondents supported the impugned order and argued that the findings and conclusions recorded by the Commission on the issue of price parallelism and formation of cartel are based on correct analysis of the material collected by the DG during investigation and in exercise of its appellate power under Section 53-B(2) of the Act, the Tribunal cannot interfere with the concurrent findings recorded by the DG and the Commission. Shri Avinash Sharma submitted that the appellants had deliberately quoted identical or near identical price for Jungle Boots with a view to compel the DGS D to execute Rate contracts with them at a higher price resulting in loss to the public exchequer. He laid considerable emphasis on the plus-factors relied upon by the Commission for holding that the appellants had violated Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act and argued that the explanation given by the appellants for sharing the information regarding bids and quantity restriction are illusory and the same should not be made basis fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mukand that they could supply bogies at a reduced rate. Advisor (Finance), Member (Mechanical), Financial Commissioner and Minister for Railways recorded their independent views. They, by and large, agreed with the view of the Tender Committee that the three suppliers had formed a cartel. However, all of them, except the Minister for Railways, suggested that the recommendations of the Tender Committee may be accepted else the public interest would suffer. The Minister accepted the recommendations subject to reduction in the quantum of bogies for which contracts were to be awarded to three bidders. The Authorities also decided that the price should be reduced and a counter offer be given to the three bidders to supply bogies @ ₹ 65,000/- per bogie and to nine other manufacturers to supply bogies @ ₹ 76,000/- per bogie. M/s. H.D.C. and Mukand filed writ petitions in the Delhi High Court to challenge the counter offer. The High Court passed the interim order and directed the Railways to accept the allocation of bogies recommended by the Tender Committee and pay the price @ ₹ 67,000/- per bogie subject to the final decision. In the Special Leave Petition filed agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his ultimate decision has made some variations taking into consideration the recommendations of the Financial Commissioner and other authorities. He has however not accepted these recommendations fully. In making these variations, the Minister accepting ultimately reduced the allotment of quota to the said three tenderers substantially by way of reprisal. In view of our finding that the formation of an opinion that cartel was formed had no firm factual foundation; such a reduction of quota by way of reprisal cannot be justified. We are, however, not inclined to accept the contention made on behalf of M/s. H.D.C., Mukand and Bhartiya that no departure from the recommendations of the Tender committee is permissible in the absence of any established policy which was also known by the tenderers. From the records it appears that in the past also there have been such variations. In our view, the Minister of Railways as the final authority, after considering various relevant factors, may be justified in taking a particular decision in the matter of allotment of quota but such decision must be taken on objective basis. But, in this case. It appears to us that all the smaller manufacturers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cartel- A combination of producers of any product joined together to control its production, sale, and price, and to obtain a monopoly in any particular industry or commodity .... Also, an association by agreement of companies or sections of companies having common interests, designed to prevent extreme or unfair competition and allocate markets, and to promote the interchange of knowledge resulting from scientific and technical research, exchange of patent rights, and standardization of products. In American Jurisprudence 2d Vol. 54, page 677 it is mentioned thus: A cartel is an association by agreement of companies or sections of companies having common interests, designed to prevent extreme or unfair competition and to allocate markets, and perhaps also to exchange scientific or technical knowledge or patent rights and to standardize products, with competition regulated but not eliminated by substituting competition in quality, efficiency, and service for price-cutting. An international cartel arrangement providing for a worldwide division of a market has been held a per se violation of 15 USC S 1. An American corporation violates the Sherman Act by entering into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar activity constitutes a per se violation is whether the activity on its face seems to be such that it would always or almost always restrict competition and decrease output instead of being designed to increase economic efficiency and make the market more rather than less competitive. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corpn. 9 L Ed 2d 538 is a case where American manufacturers of consumer electronic products brought suit against a group of their Japanese competitors in the United States District Court alleging that these competitors had violated Sections 1 and 2 of the Sherman Act and other federal statutes. It was alleged that the Japanese companies had conspired since 1950 to drive domestic firms from the American market, by maintaining artificially high prices for these products in Japan while selling them at a loss in the United States. The District Court after excluding bulk of evidence, finally granted the Japanese companies' motion for summary judgment dismissing the claims. The United States Court of Appeal reversed and remanded for further proceedings. On a certiorari, the United States Supreme Court while considering the standards supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits that free competition would offer them. It was also held therein as under: To survive a motion for a summary judgment, a plaintiff seeking damages for a violation of Section 1 of the Sherman Act must present evidence 'that tends to exclude the possibility' that the alleged conspirators acted independently. Thus, respondents here must show that the inference of a conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed respondents. Therefore mere offering of a lower price by itself, though appears to be predatory, cannot be a factor for inferring formation of a cartel unless an agreement amounting to conspiracy is also proved. (emphasis supplied) A mere offer of a lower price by itself does not manifest the requisite intent to gain monopoly and in the absence of a specific agreement by way of a concerted action suggesting conspiracy, the formation of a cartel among the producers who offered such lower price cannot readily be inferred..... ......... In the instant case, initially the Tender Committee formed the opinion that the three big manufacturers formed a cartel on the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntering the market. (d) The system of awarding contracts by the Railways is conducive to collusive bidding. (e) The product specifications approved by RDSO makes cartelisation very probable. (f) When the products or services sold or rendered are identical or very similar and there are few or no substitutes, it is easier for the bidders to reach an agreement on a common price structure and probability of the appellants reaching an agreement on a common price is very high. (g) Respondent No. 2, who complained of cartel formation, had placed order on FTRTIL to supply 34 more feed-valves @ ₹ 12,855.47 in addition to the purchase order dated 11.11.2011 and, at the same time, had entered into negotiation with SIL and ultimately placed order for 67 feed-valves @ ₹ 16499.99. This was indicative of faulty procurement system adopted by the Railways resulting in financial loss. (h) The three bidders had quoted identical price by manipulating the figures in as much as EL, Faridabad quoted base price of ₹ 17147.54. The other two bidders quoted ₹ 14534.52 (FTRTIL, Hosur) and ₹ 14,674.28 (SIL, Kolkata) as base price and added the elements of Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Central Railway, where the price quoted by the bidders was ₹ 16,833.16. Out of the remaining bids, similar price was quoted by SIL and FTRTIL in response to tenders dated 20.07.2009 issued by Southern Railway, 24.09.2010 issued by Southern Railway and 08.11.2011 issued by N F Railway. It is thus clear that only in two to three percent of the total tenders invited by various Zonal Railways, the price quoted by the appellants or two of them were identical. 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. 23. The calculation made by the DG and the Commission on the price formula indicated in the offer of SIL is also erroneous because the DG proceeded on an erroneous assumption that the rate of Central Sales Tax was 5% whereas, in fact, it was 4%. The DG and the Commission also committed an error in presuming that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants are multi-product companies and the Jungle Boots is only one of the products manufactured by them. 39. The question whether the word 'turnover' appearing in Section 27(b) can be construed as total turnover of the person found guilty of acting in contravention of Section 3 or 4 of the Act by was decided the Tribunal in Appeals Nos. 47 and 57 of 2015M/s. ECP Industries Ltd. and SKN Industries Ltd. v. Competition Commission of India, on 01.03.2016. After noticing the definitions of the terms, 'cartel', 'enterprise', 'goods', 'relevant market', 'relevant geographic market', 'relevant product market', 'service', 'trade' and 'turnover' contained in Section 2 (c), (h), (i), (r), (s), (t), (u), (x) and (y) and the provisions of Sections 3, 4 and 27 of the Act, the Tribunal referred to well-recognised rules of interpretation, some judicial precedents and held that the Commission is not entitled to impose penalty on the defaulting enterprise/person by taking into consideration its total turnover for the preceding three financial years. Paragraphs 14 to 30 of order dated 01.03.2016, which have di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance and Investment Company Limited [1987] 2 SCR 1, it was observed, that interpretation is best which makes the textual interpretation match the contextual. Speaking for the Court, Chinappa Reddy, J. noted the importance of rule of contextual interpretation and held: Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps. In 1960, the Planning Commission appointed Mahalanabis Committee on Distribution of Income and Levels of Living. In its report, the Committee expressed the view that concentration of economic power in the private sector is more than what could be justified as necessary on functional grounds and that this situation exists both in generalised and in specific forms. The Committee suggested that the Government should setup a machinery for collection, examination and analysis of all relevant statistics on the subject and formulate a policy, which will combine industrialization with social justice and economic development with dispersal of economic power. In April 1964, the Government of India appointed a five-member Monopolies Inquiry Commission. The Commission submitted report dated 31.10.1965, some of the salient features of which were: (i) Industrywise or productwise concentration existed in so far as a limited number of producers had a comparatively large share of the market. In 65 out of 100 selected products, a high degree of concentration existed in the sense that the share of the top producers was more than 75 per cent of the total production. (ii) As regards country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obalization, India has responded to opening up its economy, removing controls and resorting to liberalization. The natural corollary of this is that the Indian market should be geared to face competition from within the country and outside. The Monopolies and Restrictive Trade Practices Act, 1969 has become obsolete in certain respects in the light of international economic developments relating more particularly to competition laws and there is a need to shift our focus from curbing monopolies to promoting competition. 2. The Central Government constituted a High Level Committee on Competition Policy and Law. The Committee submitted its report on the 22nd May, 2000 to the Central Government. The Central Government consulted all concerned including the trade and industry associations and the general public decided to enact a law on Competition. 3. The Competition Bill, 2001 seeks to ensure fair competition in India by prohibiting trade practices, which cause appreciable adverse effect on competition in markets within India and, for this purpose, provides for the establishment of a quasi-judicial body to be called the Competition Commission of India (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and Restrictive Trade Practices Act, 1969 and the dissolution of the Monopolies and Restrictive Trade Practices Commission. The Bill provides that the cases pending before the Monopolies and Restrictive Trade Practices Commission will be transferred to the CCI except those relating to unfair trade practices which are proposed to be transferred to the relevant flora established under the Consumer Protection Act, 1986. 18. The preamble of the new Act reads thus: An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. 19. Keeping in view the rule of contextual interpretation and the background in which the Act was enacted as also the objectives sought to be achieved by it, we shall now analyse the provisions extracted hereinabove. The term 'cartel' as defined in Section 2(c) includes an association of producers, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void. Sub-section (3) contains a presumption that any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which, directly or indirectly, determines purchase or sale prices, limits or controls production, supply, markets, technical development, investment or provision of services etc. shall be presumed to have an appreciable adverse effect on competition. Proviso to this section contains an exception which includes the agreement which increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Sub-section (4) deals with tie-in arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, resale price maintenance and declares that any agreement among the enterprises or persons at different stages or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or service provider qua which there is no allegation of such breach and finding on the issue of violation of Section 3 and/or Section 4 will have to be confined to the particular product or service or activity. 22. At the end of the investigation, the DG is required to submit report with the finding whether or not the accusation/allegation is factually correct and there is violation of Section 3 and/or Section 4. On receipt of the report of the investigation, the Commission is required to give an opportunity to the informant and also the enterprise(s)/person(s) investigated by the DG to file reply/objections and then pass an appropriate orders. The Commission may approve the finding recorded by the investigating officer but that exercise will also have to be restricted to the particular product, goods or service qua which the allegation of violation of Section 3 and/or Section 4 is made and which is subjected to an investigation. Therefore, the term 'turnover' used in Section 27(b) and its proviso will necessarily relate to the goods, products or services qua which finding of violation of Section 3 and/or Section 4 is recorded and while imposing penalty, the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants, namely, United Phosphorous Ltd. and M/s. Excel Corp Care Ltd. were multi-product companies, but argued that their total turnover was rightly taken into consideration by the Commission for the purpose of imposing penalty under Section 27(b). By an order dated 29.10.2013, the Tribunal upheld the findings recorded by the Commission on the issue of violation of Section 3(3)(b) and 3(3)(d) read with Section 3(1) of the Act but set aside the penalty. Paragraphs 60 to 62 of that order, which have bearing on these cases, are extracted below: 60. The arguments put forward by Shri Ravinder Narain, Shri Ramji Srinivasan as also by Dr. V.K. Aggarwal are more or the less correct when they point out the total absence of reasons as to why the CCI decided to inflict the penalty @ 9% of the average turn over. Time and again we have been reiterating the necessity of the reasons while ordering the penalty. We hope that the CCI take serious note of that factor. This is particularly true as the CCI is an adjudicatory body as declared by two Supreme Court judgments. The role as an adjudicatory body would cover all the aspects of hearing and deciding. 61. There can be no dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the relevant turn over in the peculiar circumstances of this case where the two appellant companies have clearly indicated that the other products of those companies have no connection and do not depend upon the product involved in this matter, that is ALP Tablets. We, therefore reject the argument of Shri Balaji Subramanian. [Emphasis supplied] 25. In L.H. Hiranandani Hospital v. Competition Commission of India and Another [Appeal No. 19 of 2014] decided on 18.12.2015, the Tribunal considered whether average of the total turnover of the appellant for the last three preceding financial years could be taken into consideration for the purpose of imposing penalty under Section 27(b) on the ground of violation of Section 3(1) in respect of one service i.e. stem cell banking by ignoring that the appellant was a multi-speciality hospital and was providing various services including stem cell banking. After noticing the relevant facts and statutory provisions, the Tribunal observed: (ii) It is not in dispute that the appellant is a multi-speciality hospital and its total annual turnover is the income derived from the services provided in different specialities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cannot be made applicable to agreements entered into between the enterprise and another person in respect of other products, goods or services qua there is no allegation of anti-competitive agreements or abuse of dominant position and the turnover of other products and services cannot be clubbed with the one qua which a finding of violation of the provisions of the Act is recorded. 39. At the cost of repetition, it deserves to be emphasised that the appellant has been providing multiple healthcare services, maternity service being one of them and stem cell banking which is being provided by a third party (Cryobanks), can at best be considered as a small part of the maternity services provided to those who are desirous of availing such services. Therefore, even if the finding of the majority of the Commission that the agreement entered into between the appellant and Cryobanks is violative of Section 3(1) of the Act is to be upheld, the turnover of the appellant with reference to stem cell banking services only could be taken into consideration for the purpose of imposing penalty and not the turnover with reference to other services or income derived from other sources. 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1) of section 271 categorically states that the penalty would be leviable if the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. By reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this court, inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective. [Emphasis supplied] 29. In Hindustan Steel Ltd. v. State of Orissa [1970] SC 253, the Supreme Court made the following observations on the issue of imposing penalty: An order imposing penalty for failure to carry out a statutory obligation is the result of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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