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TMI Blog2016 (4) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the Rate Contracts executed on annual basis, is the moot question which arises for consideration in these appeals filed against order dated 06.08.2013 passed by the Competition Commission of India (for short, 'the Commission'). An ancillary question which calls for the determination is 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. 2. All the appellants are multi-product companies. The details of their status and production activities are enumerated below: "I) M/s. A.R. Polymers Pvt. Ltd. (Appellant in Appeal No. 34 of 2013) M/s. A.R. Polymers Pvt. Limited is engaged in the business of manufacturing of Wood Panels, Footwear and Fibre Reinforced Polymer Products (FRP). The appellant started operations in year 1997 as a Wood Panel manufacturer. It acquired the Footwear and FRP businesses in the year 2010 from its group company MKU Pvt. Ltd. The company has two SSI units located at Rooma, Kanpur and Malwan, Fatehpur in U.P. The company's facilities are certified and approved by Ministry of Commerce (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business of manufacturing of Rubber goods such as Hawai-Chappals, Canvas and other kind of shoes, Ground Sheets, etc. in its SSI units located at Sports and Surgical Complex, Basti Bawa Khel, Jalandhar and Una, Himachal Pradesh. As per the DGS&D Registration Certificate, the company is registered for supply of various Footwear items and Ground Sheets. VII) M/s. S.S. Rubbers (Appellant in Appeal No. 40 of 2013) M/s. S.S. Rubbers is a partnership firm and is engaged in manufacturing and supplying of different type of footwear items, Rain Capes etc., which are supplied to Para Military Forces and Indian Defence Services. These items are manufactured in the firm's SSI unit located at Sports & Surgical Complex, Basti Bawa Khel, Jalandhar. As per DGS&D Registration Certificate, the firm is registered for supply of various types of Footwear Items and Ground Sheets. VIII) M/s. Shiva Rubber Industries (Appellant in Appeal No. 41 of 2013) M/s. Shiva Rubber Industries is a Sole Proprietorship concern engaged in the manufacturing of Footwear, Rain Coats, Ground Sheets, Hospital Rubber sheeting etc. in its Micro SSI unit located at Kandra Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Commission under Section 19(1)(b) of the Act alleging that the appellants had indulged in bid-rigging/collusive bidding for determination of the price of the product and, thereby, caused loss to the public exchequer. The Commission felt prima facie satisfied that a case is made out for investigation. Accordingly, an order dated 08.05.2012 was passed under Section 26(1) and the Director General (DG) was directed to conduct an investigation into the matter. 6. The DG issued notices to the appellants under Section 41(2) read with Section 36(2) of the Act and called upon them to submit the specified information/documents. The appellants complied with the notices and furnished the required information and documents. Similar notices were issued to M/s. Bihar Rubber Company Limited, Kolkata; M/s. Joy Lakshmi Supply Corporation, Kolkata; M/s. M.K.U. Private Limited, Kanpur; M/s. Techno India, Jodhpur, Rajasthan; M/s. Trimurti Industries Limited, Kolkata; Federation of Industries of India, Delhi and M/s. C1 India Private Limited, Noida, and called upon them to supply certain information and documents. They too responded to the queries of the DG. He also recorded the statements of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake them distinct from each other. The specific product in the matter under reference is, "Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/TEX/Misc/55Boots Rubber (but with detachable sock thickness 5mm.)". The said governing specifications, prepared by DGS&D, makes boots confirming to the aforementioned governing specifications, distinct and different from boots manufactured with differing specifications, raw materials, and intended use etc. Boots confirming to the above mentioned governing specifications are manufactured to meet the specific requirements of Paramilitary Forces, State Police, Railways etc. The Relevant Market 5.3 As aforementioned, Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/TEX/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) is a distinct product meeting the specific requirements of Central Para Military forces, State Police, Railways etc. for patrolling purposes. The procurement of this item by various government agencies is reserved for the Small Scale Sector. 5.4 During the course of investigations it has emerged that the market of the product manufactured spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 2008-09 4,53,320 2. 2009-10 4,51,401 3. 2010-11 4,43,623 Note : The above details have been derived from copies of Supply Orders/Performance Statements furnished by the OPs, as well as details regarding Supply Orders furnished by DGS&D and there may be minor variations in the figures. 5.8 Detailed party-wise break up of each of the Supply Orders for the aforementioned Rate Contract periods is placed at Annexure-1, 2 & 3 respectively. The Supply Orders, Performance Statements furnished by the parties as well as details regarding Supply Orders furnished by DGS&D are being separately forwarded, in original, with the files to Secretary, CCI." 9. In Chapter 6 of the report, the DG discussed the methodology adopted by the DGS&D for award of Rate Contracts and placement of supply orders by different Drawing and Disbursing Officers (DDOs). He noted that the decision regarding conclusion of Rate Contracts are taken at different levels in DGS&D based on the estimated requirement for the particular period and while awarding Rate Contracts, the DGS&D takes into consideration the following factors: "i) Rate contract should be awarded to at least to two fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrive at Reasonable Rates and that no cost study was conducted in 2010-11 or at the time of concluding 2011-12 Rate Contract. It has also been informed that the specifications of the product were laid down by DGS&D w.e.f. 11.11.2003. Regarding the query about the basis of finalization of Rates for the first Rate Contract period after finalization of the specifications, it has been informed that records pertaining to the said period being not available, the required information was not available with DGS&D. It has further been informed that while concluding Rate Contracts for 2011-12, no increases was allowed over the 2010-11 Rate Contract Rates. 7.2 Further, with regard to the details/documents etc. with respect to the tenders opened on 29.07.2011 against the Tender Enquiry dated 14.06.2011, DGS&D has furnished copies of initial proposals. Brief and Minutes of Tender Purchase Committee Meetings held with respect to conclusion of Rate Contracts against the said tender enquiry along with copies of the tender enquiry and copies of offers received from various bidders. DGS&D has also furnished copies of Tender Enquiries floated by it for the product for earlier years starting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult of collusion amongst the OPs and whether there are any direct or indirect evidences in support of an agreement, formal or informal between OPs for bid rigging in violation of the provisions of Section 3(1) read with Section 3(3) of the Act as alleged by the IP. 3. Whether, the restriction of total quantity to be supplied during the R.C. period and the restriction of maximum quantity to be supplied per DDO was a result of collusion amongst the OPs and whether there are any direct or indirect evidences of collusive agreement amongst the manufacturers in violation of the provisions of Section 3(1) read with Section 3(3) of the Act as alleged by the IP. 4. Whether there is any violation of the Act under Section 3(4) as alleged by the Informant." 12. In paragraphs 8.8 to 8.14 of his report, the DG noted that the appellants are registered suppliers of DGS&D for past several years in respect of various products and have been repeatedly bidding against the tenders floated for award of the Rate Contracts; that they are regionally located in close proximity to each other (four in Jalandhar, three in Ghaziabad, two in Kolkata and one each in Dhanbad and Kanpur); that in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yers in the market for the product. Further, the demand having remained almost static during previous few years and the high installed capacity of the product of the existing Rate Contract holders acts as a deterrent for new entrants. As such, due to the stagnating demand during the last few years and the already available high installed capacity of the OPs, there have been no significant new entrants nor likely to enter the market in the future and the existing suppliers are protected from competitive pressure of new entrants. The conditions prevailing are thus conducive for an agreement amongst the existing players for collusion. 3. Significant changes in demand or supply conditions are generally not conducive for collusive agreements. 8.10 Investigation has revealed that the demand of the product in question has been stagnating at almost the same level during the past three years as per the figures of Supply Orders placed by the various procurers. As per the data regarding Supply Orders placed during the Rate Contract period 2008-09, 2009-10 and 2010-11 the demand has been stagnant at about 4,50,000 pairs during each of the aforementioned RC periods. As such, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, in the matter of exactly identical prices quoted by the OPs during the aforementioned Rate Contract periods, none of the OPs has been able to give any reasonable explanation as to how the rates quoted were identical. 8.29 In view of the above, it can be stated that the identical prices quoted by the OPs(including group company of one of the OPs) during the RC periods 2008-09 and 2009-10 and thereafter identical/near identical prices quoted during subsequent years was a result of collusive agreement amongst the OPs. 8.30 Investigation has thus examined whether there are any direct or indirect evidences that conclusively establish the existence of such an agreement. The evidences gathered in this respect are detailed below: Identical Cost 8.31 In view of the stand taken by all the OPs with respect to the identical/near identical rates quoted by them against tender opened on 29.07.2011 and 11.08.2010, that since the raw material and other costs for all the manufacturers were more or less same, as such, their quoted prices were also almost same, it has been observed from the information gathered during investigation that as per the copies of Annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements, it has been observed that the approximate profit component/margins have been stated by the OPs to vary from 2% to around 15% as under: 8.35 Thus, it is evident that the profit component/margins of some of the OPs in the quoted prices being at variance, the cost component too, have to be different, if the final Rates quoted by the OPs are to remain identical/near identical. The differences in the cost are thus contrary to the contention of the OPs that the costs between various manufactures being similar, the rates quoted are identical. This confirms that the identical/near identical prices are a result of collusion amongst the bidders. The break up of quoted prices given by the parties at Sl. No. 1 to 5 of the above table are enclosed as Annexure -53 and in respect of parties at Sl. No. 6 to 9, the details are as per their statements enclosed as Annexures - 55, 54, 52 & 51 respectively." 14. The DG also took cognisance of the reasons put forward by the appellants for quoting identical or near identical prices in response to the different tender enquiries and observed that even though they had been adopting different criteria for quoting the rates, the same culminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained that the Federation did not provide a common platform for its members and that various issues are taken up by the members, as and when they arise, on an individual basis and not collectively. It has however been observed from the information gathered from FII that a meeting of the OPs (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 DGS&D in its forthcoming meeting. Copies of the letter dated 14.10.2009 issued by FII for convening the meeting and clarifications given by FII vide letter dated 23.11.2012 with regard to the agenda of the meeting, its minutes and the participants are enclosed as Annexure -61 & 42 respectively wherein FII has informed that there was no formal agenda for discussion nor any formal minutes of the meeting and that only few parties had attended the meeting. 8.47 The above is contradictory to the above statement of some of the OPs to the effect that issues are taken up individually and FII does not provide a common platform. The possibility of discussion of prices etc. amongst competitors in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by other bidders as the same are password protected and are also not shared between competitors prior to or after the bids are opened. Q.16 I am showing you certain document submitted by you vide your letter dated 30/07/2012 as enclosures of your bid submitted on 29/07/2009 through e bidding against DGS&D enquiry for the item in question for the RC period 01.09.2009 to 31.08.2010. Please reconfirm that these documents have been submitted by you. Ans. Yes these documents which are performance statements have been submitted by us. Q.17 Please explain how these documents, which are performance statements of some of your competitors, in your possession? Ans. I am unable to recollect how these documents came in my possession. 8.50 The documents submitted by M/s. Preet Footwears are enclosed as Annexure -62. 8.51 It is evident that though the OPs have consistently been denying that there is any meeting of minds between competitors or sharing of information between them, the possession of certain documents of various competitors with one of the OPs, which by its own admission are otherwise not accessible to others, conclusively proves that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of information by competitors, is thus, possible only if the rates quoted were of result of concerted action of the OPs. 8.54 Based on the above analysis and direct and indirect evidences, it can be conclusively stated that the OPs have contravened the provisions of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act by determining prices and bid rigging respectively." [Underlining is mine] 16. The DG finally considered whether the restriction of maximum quantity to be supplied to various DDOs was justified, took cognisance of the replies given by the appellants and observed as under: "8.64 As per the statements given by OPs, it has been observed that the OPs have given different reasons for imposing quantity restrictions such as manufacturing other footwear items other than the product using the same facilities, problems arising out of simultaneous placement of orders such as late delivery charges as well as untenable reasons such as to secure more orders, to limit commitment to installed capacity etc. Further, one of the OPs namely M/s. Preet Footwears when asked to substantiate with documentary evidences, its contention regarding late deli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in line with the quantity restrictions of others. Had the contentions of these parties been true, the restriction of quantity would have been in sync with the Supply Orders being received by them and not in tandem with the others. It has also been observed that one of the OPs had imposed quantity restriction at a level which was even higher than its installed capacity and as such the self imposed restriction had no justification except that the same, under the agreement amongst the OPs had to be in line with the quantity restrictions of the other OPs. The detailed break up of Supply Orders is placed as Annexure - 1 & 2. 8.68 The above can be easily appreciated from the following: 8.69 On the basis of the above, it can be concluded that the OPs inspite of having adequate installed capacity and inspite of some of the OPs securing low quantity orders had imposed restrictions at similar levels under an agreement/arrangement for sharing the market. 8.70 Since, the OPs had imposed quantity restrictions against the RC period 2011-12, the details of Supply Orders during RC Period 2010-11 were also gathered and are tabulated below: Supply Orders for RC period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tenders of DGS&D and that direct and indirect evidences have established that the identical/near identical rates are a result of collusion amongst the bidders. These bidders being well conversant with the DGS&D methodology of awarding Rate Contract, by not bidding competitively, and by quoting identical/near identical rates, have, indirectly determined prices/rates in the Rate Contracts finalized by DGS&D and indulged in bid rigging or collusive bidding thereby contravening the provisions of Section 3(1) read with Section 3(3)(a) & 3(3)(d) of the Act. 9.4 Further, the OPs being the Rate Contract holders of the product are the only source of procurement for the product in question by various DDOs. These OPs have imposed quantity restrictions in terms of total quantity to be supplied by them individually during the Rate Contract period as well as the maximum quantity to be supplied to a particular DDO during the said period. The imposition of quantity restrictions had been started by all the OPs simultaneously from the RC period 2010-11, and no such restrictions were being imposed by them in prior periods. The product in question being an essential item of procurement for P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs: i) The rates received in the tender. ii) The rates of direct purchases made by the Central Government/State Government/PSUs/autonomous bodies for the item or similar items. iii) Cost break up collected from the tenderers. iv) Cost study conducted by DGS&D. v) Variation in the price indices and raw material prices if such information is available." 22. The appellants also justified the quantity restrictions on the following grounds: "(i) The DGS&D had assessed the capacity of the manufacturers in respect of only one product whereas the bidders were multiproduct companies. (ii) After determination of the Rate Contract, the concerned purchasing authority used to place orders specifying the time for supply and in case of delay, late supply charges were levied @ 2% of the total contract price for every month or a part thereof during which the supply may be delayed. In order to avoid levy of late supply charges, the bidders quoted rates for limited quantity. (iii) The appellants and other manufacturers used to bid for award of contract in respect of other products for which tenders were issued by other Government Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onse thereto, the opposite parties maintained that since raw material and other costs for all the manufacturers were more or less the same, as such, their quoted prices were also almost same. Besides, some of the opposite parties were unable to give a reasonable explanation as to how the rates quoted were so similar. Some simply feigned ignorance, some termed it as co-incidence and yet some could not recollect." 26. The Commission then adverted to the definition of the term 'agreement' and made general observations as to how the suppliers indulged into collusive bidding, discussed the factual matrix of the case and agreed with the DG on each and every aspect of his findings. This is evident from paragraphs 27 to 49 of the impugned order, which are reproduced below: "27. In the present case, indisputably the opposite parties quoted near identical rates with reference to the Tender Enquiry under reference for RC period 01.02.2011 to 30.11.2012. The Commission observes that the quotation of near identical rates by the firms is no doubt suggestive of an indicative of formation of a cartel but the same in itself is not conclusive and determinative of the issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the country with differences in the applicable taxes. The DG noted that at the time of Tender Enquiry dated 14.06.2011, for Punjab, Jharkhand and UP applicable CST/VAT was 13.5% whereas for West Bengal the same was 4%. The opposite parties had quoted their rates as inclusive of applicable taxes. Thus, the Commission agrees with the conclusion drawn by the DG that the bidders from Kolkata had an advantage of 9.5% tax differential as compared to other bidders and if the rates had been quoted competitively, the rates of Kolkata based suppliers would have been lower than the rates of other competitors due to the advantage of lower tax rate. However, these bidders quoted rates identical/near identical to the other bidders. Quoting lower rates competitively by some of the opposite parties would have resulted in lowering of the Rate Contract Rate by DG S&D, to the detriment of the opposite parties located in higher tax rate States. 32. Furthermore, the opposite parties gave different and diverse reasons when asked about the basis for quoting identical rates. In the statements made before the DG during investigation, the opposite parties maintained a uniform stand that since raw ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the bidders. Ordinarily, the competitors are not privy to the information contained in the Performance Statement being specific to the party concerned unless shared between the competitors. From this, it would not be far-fetched to infer mutual sharing and exchange of information amongst the bidders prior to submission of bid documents. 35. On a careful consideration of entire circumstances i.e. quotation of near identical prices despite these units having been located in different geographical locations with varying tax structure and different margins; possession by one bidder of the Performance Statements of other bidders; meetings under the platform of Trade Federation; and failure on the part of the opposite parties to provide any plausible explanation for the same, it is safe to deduce that the opposite parties entered into an agreement to determine prices besides rigging the bid. 36. The another aspect which requires consideration is whether the restriction of total quantity to be supplied during the RC period and the restriction of maximum quantity to be supplied per DDO was a result of collusion amongst the opposite parties and whether there are any dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions contained in section 3(1) of the Act, no enterprise or association of enterprises or person or association of persons can enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India. Section 3(2) of the Act declares that any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void. Further, by virtue of the presumption contained in Sub-section (3), 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-(a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of production or provision of services by way of allocation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries was calculated on the basis of its turnover details available for the years 2009-10 and 2010-11." 29. Learned counsel for the appellants argued that the impugned order suffers from multiple legal infirmities and is liable to be set-aside because the finding recorded by the DG on the issue of collusive-bidding/bid-rigging which has been approved by the Commission is based on pure assumptions and conjectures. In support of this argument, learned counsel referred to the observations contained in Chapter-8 of the report of the DG. Learned counsel submitted that the so-called plus factors relied upon by the DG and the Commission were non-existent and the same could not have been relied upon for recording a finding that the appellants had acted in contravention of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act. They pointed out that the two meetings of the Federation of Industries of India held on 13.03.2009 at Kolkata and 20.10.2009 held at Delhi had nothing to do with the price of the Jungle Boots for which the Rate Contracts were executed by the DGS&D for the year 2011-12. Learned counsel emphasised that the Federation of Industries of India is not a represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed that quantity restrictions were imposed keeping in view the escalation in the cost of rubber from 106.75 per Kg. in September, 2009 to Rs. 200/- per Kg. in October, 2010, increase in price of raisins from Rs. 45.5 per Kg. in August, 2009 to Rs. 115/- per Kg. in October, 2010 and marginal price increase in the cost of clothes. They also pointed out that the appellants were required to manufacture other products by using the same machinery, which were sold to the private parties apart from the Government agencies and this was the reason why the appellants had indicated that they will be in a position to supply only the specified quantity of the Jungle Boots. 31. Another argument of the learned counsel for the appellants is that the penalty imposed by the Commission is ex facie illegal inasmuch as it is based on the total turnover of three preceding financial years and not the turnover of the relevant product i.e. the Jungle Boots. They submitted that even if the finding recorded by the Commission that the appellants had acted in contravention of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act is upheld, the turnover of the appellants in respect of the Jungle Boots ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court is reported in (1993) 1 SCC 467. The second part which contains detailed reasons in support of various conclusions is reported in (1993) 3 SCC 499. The factual matrix of that case is substantially similar to the cases in hand. Every year, the Railway Board used to invite bids for supply of cast steel bogies which were used for building the wagons. There were 12 suppliers, who were regularly supplying the cast steel bogies. Two new entrants were Simplex and Beekay. Among the 12 regular suppliers, M/s. H.D.C., Mukand and Bhartiya were having capacity to manufacture large quantities of steel bogies. In response to a limited tender notice issued by the Railway Board on 25.10.1991 for procurement of 19,000 cast steel bogies, M/s. H.D.C., Mukand and Bhartiya quoted identical price of Rs. 77,666/- per bogie, the other tenderers quoted price between Rs. 83,000/- and Rs. 84,500/- per bogie. The Tender Committee considered all the tenders and concluded that M/s. H.D.C., Mukand and Bhartiya, who had quoted identical rates without any cushion for escalation between July 1, 1991 and September 1, 1991, had apparently formed a cartel but ultimately recommended award of contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . H.D.C., Mukand and Bhartiya formed a cartel. Because of mere quoting identical tender offers by the said three manufacturers for which there is some basis, the conclusion that the said manufacturers had formed a cartel does not appear to be correct. However since the offers of the said three tenders were identical and the price was somewhat lower, the Tender Committee entertained a suspicion that a cartel had been formed and the same got further strengthened by the post-tender attitude of the said manufacturers which further resulted in entertaining the same suspicion by the other authorities in the hierarchy of the decision making body including the Minister of Railways. Though there is not enough of material to establish formation of a cartel as is understood in the legal parlance but at the same time it cannot be contended that such an opinion entertained by the concerned authorities including the Minister was per se malicious or was actuated by any extraneous considerations. After a careful examination of the entire record and facts and circumstances of the case we are of view that all the railway authorities including the Minister acted in a bona fide manner in taking the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence 2d Vol. 54, referred to some decisions of the foreign jurisdictions and observed that the opinion formed by the Tender Committee that the three big manufacturers had formed a cartel because they had quoted identical price was not correct. The relevant portions of that judgement are extracted below: "14. First we shall consider the submissions regarding the formation of cartel by these three big manufacturers. The word "cartel" has a particular meaning with reference to monopolistic control of the market. In Collins English Dictionary, the meaning of the word "cartel" is given as under: "cartel - 1. Also called: trust, a collusive international association of independent enterprises formed to monopolize production and distribution of a product or service, control prices etc. ...." In Webster Comprehensive Dictionary, International Edition, the meaning of the word "cartel" is given thus: "cartel ... 3. An international combination of independent enterprises in the same branch of production, aiming at a monopolistic control of the market by means of weakening or eliminating competition ...." In Chambers' English Dictionary the word "car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monopoly in any particular industry or commodity. Analysing the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. Dealing with the provisions of Sherman Anti Trust Act, in National Electrical Contractors Associations, Inc. v. National Constructors Association. [678 FR 2d 492] it was observed as under: "We know of no better statement of the rule than that of this court in United States v. Society of Ind. Gasoline Marketers 624 F 2d 461 : 465 (4th Cir 1979) : cert denied 101 S Ct 859 : 449 US 1078 : 66 L Ed 2d 801] where stated: 'Since in a price-fixing conspiracy the conduct is illegal per se, further inquiry on the issues of intent or the anti-competitive effect is not required. The mere existence of a price-fixing agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decades of its asserted operation is strong evidence that the conspiracy does not in fact exist. Since the losses in such a conspiracy accrue before the gains, they must be 'repaid' with interest. And because the alleged losses have accrued over the course of two decades, the conspirators could well require a correspondingly long time to recoup. Maintaining supra competitive prices in turn depends on the continued cooperation of the conspirators, on the inability of other would-be competitors to enter the market, and (not incidentally) on the conspirators' ability to escape antitrust liability for their minimum price-fixing cartel. Each of these factors weighs more heavily as the time needed to recoup losses grows. If the losses have been substantial - as would likely be necessary (475 US 593) in order to drive out the competition - petitioners would most likely have to sustain their cartel for years simply to break even." (emphasis supplied) In this context, one of the submissions is that the price of Rs. 67,000 offered by these manufacturers during the post-tender stage was not predatory and that the view taken by the authorities that such an offer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 elimination of free competition. But there again the authorities reserved a right to reject such lower price. Under these circumstances though the attitude of these three big manufacturers gave rise to a suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such formation of a cartel......" [Emphasis supplied] 35. A question similar to the one raised in these appeals was considered by the Tribunal in Appeals Nos. 13, 15 and 20 of 2014 Escorts Limited and two others v. Competition Commission of India and Another decided on 18.12.2015. In that case, the DG and the Commission concurrently held that the appellants had formed cartel and indulged in bid-rigging in the matter of supply of C2N feed valves to Diesel Loco Modernization Works, Patiala. In support of this conclusion, the DG and the Commission relied upon the following factors: "(a) RDSO had approved only three suppliers i.e. the appellants and there was no new entrants in the field over a period of time and that gave s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EL and FTRTIL is based on pure conjectures and is liable to be rejected because before making this observation, the Commission did not give any opportunity to the two appellants to have their say. Similarly, the observation made by the Commission that the Tender Committee committed an illegality in overlooking the bids of EL and FTRTIL is ex facie erroneous. Once the competent authority had laid down particular conditions required to be fulfilled by the tenderer and the two of the three tenderers failed to comply with the same, the Tender Committee and Respondent No. 2 cannot be said to have committed any illegality by not acting upon their tenders. The Tender Committee could have recommended for fresh tendering and Respondent No. 2 could have accepted that recommendation but their failure to do so cannot lead to an inference that they have acted with ulterior motive or that the Tender Committee ought to have waived the defects/deficiencies and allowed the two appellants i.e. EL and FTRTIL to participate in the bid or called them for negotiations." This Tribunal took cognizance of the so-called plus factors relied upon by the DG and the Commission as also the statement of the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the existing manufacturers have exited the market; (v) while fixing the Rate Contracts for 2011-12, no increase was allowed over the Rate Contract awarded for 2010-11; and (vi) there is no association of manufacturers of the Jungle Boots but the Federation of Industries of India had sent letter(s) in the past regarding delay in conclusion of the Rate Contracts." 37. Unfortunately, neither the DG nor the Commission gave due weightage to the aforesaid factors and heavily banked on the factors like identical or near identical price quoted by the appellants in response to Tender Enquiry dated 14.06.2011 and the so-called plus-factor for recording a finding that the appellants had contravened Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act. On a holistic consideration of the entire record and keeping in view the judgment of the Supreme Court and the order passed by the Tribunal in Appeals Nos. 13, 15 and 20 of 2014, I hold that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absolute meaning, for no words can be defined in vacuo, or without reference to some context'. According to Sutherland there is a 'basic fallacy' in saying 'that words have meaning in and of themselves', and 'reference to the abstract meaning of words', states Craies, 'if there be any such thing, is of little value in interpreting statutes'. ... in determining the meaning of any word or phrase in a statute the first question to be asked is -- 'What is the natural or ordinary meaning of that word or phrase in its context in the statute? It is only when that meaning leads to some result which cannot reasonably be supposed to have been the intention of the legislature, that it is proper to look for some other possible meaning of the word or phrase.' The context, as already seen in the construction of statutes, means the statute as a whole, the previous state of the law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy. In Poppatlal Shah v. State of Madras 1953 CriLJ 1105, this Court while construing the word 'sale' appearing in the Madras General Sales Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered before the process of construction or during it. It is, therefore, wrong to say that the court may only resort to the evidence of contextual scene when an ambiguity has arisen." [Underlining in original] 15. The control of monopoly and restrictive business practices through special legislation became an important aspect of the economic policies of almost all Western countries in the 19th century. The United States took lead and enacted the first Federal Legislation i.e. Sherman Act, 1890. Subsequently, many other laws were enacted to control monopolies and restrictive trade practices. Similar laws were enacted in Canada in 1889. After Second World War, Britain enacted the Monopolies and Restrictive Trade Practices (Inquiry and Control) Act, which was followed by the enactment of the Restrictive Trade Practices Act, 1956. The other Western countries also enacted laws to contain the problem of monopoly and constituted various bodies and tribunals to decide the issues relating to monopolies and restrictive trade practices. 16. By virtue of Article 39(b) and (c), which find place in Chapter IV of the Constitution of India, it was made mandatory for the State t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After examining the report of the Commission, the Government introduced Monopolies and Restrictive Trade Practices Bill in Parliament in August 1967, which was finally passed as the Monopolies and Restrictive Trade Practices Act, 1969. The preamble of that Act reads as under: "An Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected or incidental thereto." 17. In 1980s and early 1990s, the economic scenario in the country underwent a sea change. In pursuit of globalisation, India opened its economy, removed controls and adopted the policy of liberalisation. As a consequence, the focus shifted from curbing monopolies to promoting competition and the Monopolies and Restrictive Trade Practices Act, 1969, which was enacted with the primary objective of controlling monopoly and prohibiting monopolistic, restrictive and unfair trade practices became obsolete in several aspects in the new dispensation. The Government of India constituted a High Level Committee to exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court. The Central Government will also have powers to issue directions to the Commission on policy matters after considering its suggestions as well as the power to supersede the Commission if such a situation is warranted. 5. The Bill also provides for investigation by the Director-General for the Commission. The Director-General would be able to act only if so directed by the Commission but will not have any suo moto powers for initiating investigations. 6. The Bill confers power upon the CCI to levy penalty for contravention of its orders, failure to comply with its directions, making of false statements or enterprise a penalty of not more than ten per cent of its average turn-over for the last three financial years. It can also order division of dominant enterprises. It will also have power to order demerger in the case of mergers and amalgamations that adversely affect competition. 7. The Bill also seeks to create a fund to be called the Competition Fund. The grants given by the Central Government, costs realized by the Commission and application fees charged will be credited into this Fund. The pay and allowances and the other expenses of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or through one or more of its units or divisions or subsidiaries, whether such units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space. The term 'service' has been given an exclusive definition in Section 2(u) which means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial matters such as banking, communication, education, financing, insurance, chit funds, real estate, transport, storage, material treatment, processing, supply of electrical or other energy, boarding, lodging, entertainment, amusement, construction, repair, conveying of news or information and advertising. The term 'turnover' as defined in Section 2(y) includes value of sale of goods or services. 20. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 and 27 of the Act makes it crystal clear that an enterprise or associations of enterprises or a person or associations of persons who/which enters into any anti-competitive agreement or is found guilty of abuse of dominant position can be penalized in more than one ways. If at the end of the investigation conducted in accordance with the provisions of Section 26 of the Act read with the relevant provisions of the Competition Commission of India (General) Regulations, 2009, an enterprise or associations of enterprises or person or associations of persons is/are found guilty of having acted in violation of Section 3 and/or Section 4, the Commission can pass a cease and desist order and also impose penalty under Section 27 of the Act. Section 26(1) read with Sections 18 and 19 empowers the Commission to direct an investigation into any alleged violation of Section 3 and/or Section 4. The accusation/allegation against an enterprise may be in relation to one or more than one product or service. If the Commission feels prima facie satisfied that the accusation/allegation needs to be investigated, then it can pass an order under Section 26(1) and direct the DG to conduct an investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation into the product, goods or service other than those qua which allegation of anticompetitive agreement or abuse of dominant position is levelled. Likewise, the investigating officer is required to confine his investigation to the particular product, goods or services. If the enterprise or person against whom investigation is conducted is engaged in manufacturing multiple products or providing multiple services, the investigating officer cannot transgress the boundary of the order passed under Section 26(1) and record a finding in respect of the products, goods or services other than those which are subject-matter of the allegation of violation of Section 3 and/or Section 4. 24. The term 'turnover' appearing in Section 27(b) and its proviso came up for interpretation before the Tribunal in Excel Corp Care Ltd. (Appeal No. 79 of 2012), M/s. United Phosphorous Ltd. (Appeal No. 81 of 2012) and M/s. Sandhya Organics Chemicals (P) Ltd. (Appeal No. 80 of 2012) v. Competition Commission of India in the context of an argument that the appellants were multi-product companies and the turnover of three preceding financial years except the product qua which a finding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered in the light of the facts of each case. We, however, accept the contention that in the circumstances of this case the relevant turn over should be considered in case of the two appellants who are multi product companies. To that extent we generally agree with the sentiment expressed in the relied upon judgment of the South African Tribunal in the case of Southern Pipeline Contractors & anr. v. The Competition Commission. We must, at this stage, take into consideration the argument by Shri Balaji Subramanian. The learned counsel who supported the penalty on the basis of the average turn over. The learned counsel invited our attention to our judgment in the matter of MDD Medical Systems India Pvt. Ltd. v. Foundation for Common Cause &Ors.(Appeal No. 93 of 2012) and more particularly to paragraph 23. Relying on those observations, the learned counsel argues that in that judgment we had rejected the concept of relevant turn over. We must explain that firstly the companies which we were dealing with in that case were not multi-product companies. Secondly, we had specifically pointed out that the restricted turn over could not be taken into consideration. A restricted turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated from all the services provided by the appellant hospital and accordingly imposed penalty, which is legally impermissible in view of the Tribunal's order in M/s. Excel Corp Care Limited v. Competition Commission of India and others. (iii) Since the term 'turnover' appearing in clause (b) of Section 27 has not been defined, the same must take its colour from the preamble, definitions of various terms and other provisions of the Act including Sections 3 and 4, the contravention of which can invite an order of penalty and other consequences enumerated in Section 27." 26. The Tribunal then referred to the rule of contextual interpretation, the judgement of Supreme Court in Central Bank of India v. State of Kerala and others - (2009) 4 SCC 94 and observed: "Section 3 speaks of anti-competitive agreement and Section 4 deals with abuse of dominant position. A finding that the particular agreement is anti-competitive or any enterprise or group of enterprises are guilty of abuse of dominant position can be recorded only with reference to the particular goods, product or service. An enterprise may be engaged in manufacture, production, supply, distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cartel. However, in its wisdom, Parliament amended the proviso and substituted the word 'shall' with the word 'may'. This amendment was done to bring the proviso in tune with the main Section 27, which uses the expression "it may pass all or any of the following order" and clause (b), which confers discretion upon the Commission to impose penalty as it may deem fit, subject to the rider that it shall not be more than 10% of the average of the total turnover for the last three preceding financial years. Clauses (c) and (d) also uses the word 'may', which signifies that the Commission has the discretion to pass the particular order, which it may deem proper in the facts and circumstances of the case. 28. Since the legislature has not laid down any criteria for imposing penalty, the Commission is duty bound to consider all the relevant factors like - nature of industry, the age of industry, the nature of goods manufactured by it, the availability of competitors in the market and the financial health of the industry etc. and also take note of the law laid down by the Supreme Court, the High Courts and the Tribunal. In Dilip N. Shroff v. Joint CIT [2007] ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." [Emphasis supplied] 30. Unfortunately, the Commission has, while reiterating the penalty imposed on the appellants by the original order dated 24.02.2012, altogether ignored the principles laid down by the Supreme Court and the High Courts on the interpretation of statutes, which confer power upon the competent authority to impose penalty on a person who is found guilty of having acted in violation of the particular provision. Not only this, the Commission distinguished the order passed by the Tribunal in Appeal No. 79/2012 M/s. Excel Corp Care Limited and other connected cases without any cogent reason. In that case, the Tribunal had remitted the matter to the Commission because it had imposed penalty by taking into consideration the average of the total turnover of the appellants for the preceding three financial years ignoring that the two of the appellants were multi-product companies. In these appeals also, learned counsel appearing for many of the appellants had argued that their clients were multi-prod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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