TMI Blog2015 (12) TMI 1773X X X X Extracts X X X X X X X X Extracts X X X X ..... restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. The observation made by the Commission that the appellants had adopted a strategy which involved supplementary/complementary bidding by EL and FTRTIL is based on pure conjectures and is liable to be rejected because before making this observation, the Commission did not give any opportunity to the two appellants to have their say. Similarly, the observation made by the Commission that the Tender Committee committed an illegality in overlooking the bids of EL and FTRTIL is ex facie erroneous. Once the competent authority had laid down particular conditions required to be fulfilled by the tenderer and the two of the three tenderers failed to comply with the same, the Tender Committee and Respondent No. 2 cannot be said to have committed any illegality by not acting upon their tenders. The Tender Committee could have recommended for fresh tendering and Respondent No. 2 could have accepted that recommendation but their failure to do so cannot lead to an inference that they have acted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellants for the purpose of jacking up the price of feed valves. The Competition Commission of India (for short, 'the Commission') prima facie felt satisfied that the allegations levelled by Respondent No. 2 need investigation and passed order dated 30.12.2012 under Section 26(1) of the Act and directed the Director General (for short, 'the DG') to cause an investigation into the matter. 3. In compliance of the direction given by the Commission, the DG issued notices under Section 36(2) read with Section 41(2) of the Act and called upon the appellants to provide specified information and documents. Each of the appellants furnished the required information and documents. 4. In the course of investigation, the DG took cognizance of the previous supplies of feed valves made by the appellants, only who have been approved by the RDSO, to various zonal Railways, the price paid by the concerned Railways, statements of representatives of the appellants and Respondent No. 2. After completing the investigation, the DG submitted report dated 28.02.2013 with the finding that the appellants are engaged in anti-competitive activities and are guilty of bid rigging. Parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its tender No. 201320510 in Para 5 of the minutes the issue of identical bid has been discussed along with the tabulation statement. The bid of Escorts Limited Faridabad which have quoted @ ₹ 17,147.54 each inclusive of ED and CST inclusive @ of 5.25% on FOR has been rejected on the plea the firm has not submitted the cost of the tender document in terms of condition No. 10 of tender (SN-19) the offer without tender document cost are liable to be rejected. The bid of the FTIL has not been considered by the DLMW Patiala on the plea that the firm (FTIL) has not accepted the warranty clause as per the IRS condition of contract as well as has also not accepted standard payment terms of the Railways therefore the tender committee has considered their bid commercially unsuitable. 5.14 The bid offer of Stone India Limited has also been considered by the tender committee and it considered their offer suitable for placement of regular order and therefore, called for negotiation by the tender committee as per the minutes dated 13.6.2012 wherein decision has been taken by them to place an order on Stone India Limited for supply 117 feed valves. However, the recommendation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase Order but till this date they have not supplied Feed Valves to the DLMW, Patiala. xxx xxx 7.2 The investigation has examined into following question in this case : (I) Whether there are conditions in the tendering process which are considered to be conducive for collusion. (II) Whether the identical/near identical prices quoted by the OPs against the e-tender No. 201320510 dated 14.3.2012 was a result 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. Issue I : Assessment of conditions considered to be conducive for collusive bidding. 7.3 Certain conditions have generally been considered as conducive for collusive action by competitors. Investigation has assessed the prevalence of such conditions, if any, specifically with respect to the matter under investigation. Bid rigging is more likely to occur when a small number of companies supply the goods or services and such suppliers are repetitive bidders. The fewer the number of sellers, and the repetitive the bidding, the conditions become more conducive for bidders to reach an agreement to rig bids ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be considered substitutable with any other product. As such the product being the same, the probabilities of bidders reaching an agreement on a common price structure are high. In addition to the above conditions, investigation has revealed that the system of awarding the contract by the Railways is conducive for collusive bidding. 7.8 In the present case, the product in question is same for all bidders and since the specifications and installed capacity has been approved by the RDSO for feed valves, and cannot be considered substitutable therefore, the product being the same; the probabilities of reaching in agreement on a common price are high. Based on the above it is observed that the conditions prevailing with respect to the product in question and its market are conducive for the OPs to reach an agreement for forming of cartel and/or bid rigging. 7.9 In this case the RDSO has approved only three vendors to make supply of feed valves for the demand of all Zonal Railways. It has also fixed their installed capacity. The installed capacity is much higher than the demand raised by all Zonal Offices of the Railways. It is pertinent here that the RDSO which is the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been put to loss by paving higher price to the SIL whereas FTIL or other vendors would have been called for similar negotiation to reduce the price of feed valves. Apart from the losses being occurred process of tender has direct impact on consumer that the Railway imposed a burden on the public at large therefore, the faulty tender process not only affect the competition but equally brings adverse effect on the consumers. 7.13 Based on the above analysis, it has been concluded that the conditions prevailing with respect to the product, its market etc. are conducive for the OPs to reach an agreement for bid-rigging and mutual allocation of market. ISSUE 2 - Whether the identical prices quoted by the OPs against the e-tender No. 201320510 dated 14.3.2012 was a result 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. ANALYSIS OF THE IDENTICAL BIDS 7.14 Information of the electronic bid submitted by the opposite parties was called from the IP. The working of the e-tender submitted by the OPs to Diesel Loco Modernization Works, Patiala is given as under :- D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that :- Q. No. 4 It has been alleged in the complaint that you have quoted a price of ₹ 17,147.54 for the supply f feed-valves to DMW and your other competitors have also quoted the identical price as such you have formed a cartel while submitting the bid. Please explain the justification and reasoning for quoting the above price. Ans. At the outset, SIL denies the allegation for forming any cartel for this alleged tender. Since there are various factors in quoting a particular price as stated above. Besides above facts, railway requires the vendor to give proper justification for the price bid quoted by it and the last purchase made by any of its zonal railways for the same product and, as such, SIL has quoted the above said price by taking a reliance on the purchase order No. 02113747134601/E-2477 dated 8-11-2011 issued by COS, East Coast Railway, as well as PO No. 261115691 04660 dated 18-1-2012 issued by COS, Southern Railway. As alleged in the complaint, wherever there are such instances of identical prices have been quoted by the vendors for supply of different items, Railways used to call the references from other zonal office as well as enter into negotiatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feed valve since 2010 and its install capacity is 900 No. of feed valve per annum and till August 2012, it has only supplied 488 feed valves to the different zones of Railways. The breakup cost of the feed valve of FTIL is ₹ 12,147 of FTI feed valve. It is further been claimed that FTIL have quoted the basic price of ₹ 14,534.52 for the tenders submitted by it to the different Zonal Office of the Railway including Northern Eastern Railway, Southern Railway, Northern Railway, Central Railway etc. as per the statement submitted by the company in their reply. Form Serial No. 37 to 49 these tender were opened from the period January 2012 to June 2012 whereas the company have quoted the basic price of ₹ 12,628.57 for the tender opened on 20.6.2012 by the Southern Railway, ₹ 14,534.52 tender opened on 12.7.2012 and ₹ 12,000 tender opened on 25.7.2012 for Southern Central Railway. 7.18 Further, in their statement FTIL has stated that :- Q.6 Why you have been called for negotiation for the alleged tender No. 201320510 for supply of 151 feed valves ? Ans. Neither we have been called for negotiation nor received any communication from DMW, Patiala for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x have been included in the price. While it does not have any bearing on the result as the tabulation is done based on the ranking of the all inclusive price, sometimes we derive certain mileage in case the statutory levies go up during the pendency of the tender giving us an opportunity to absorb the increase in the statutory levies as an additional discount. Q. No. 6. It has been alleged in the complaint that you have quoted a price of ₹ 17,147.54 for the supply of feed-valves to DMW and your other competitors have also quoted the identical price as such you have formed a cartel while submitting the bid. Please explain the justification and reasoning for quoting the above price. Ans. The price of ₹ 17,147.54 translates to basic rate of ₹ 14,500 based on the 12.36% of ED and 5.25% CST and this basic rate of 14,500 had been quoted by us during four earlier occasions also as per the following details : SWR Tender No. 11111398 dated 05.10.2011 i) WCR Tender No. 10112237 dated 15.12.2011 ii) CR Tender No. 47115146 dated 13.01.2012 iii) WCR Tender No. 10115119 dated 11.04.2012 These rates had enabled us to emerge as lowest bidder and this was reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Faiveley hence, the quantity of the previous purchase order was increased by 30% as per the quantity option clause available in the previous year purchase order (PO). Therefore, the procurable quantity came down to 151-34 = 117 Nos. feed valves. In the aforesaid tender since the prices quoted by the all the three RDSO approved vendors were found to be identical i.e. ₹ 17,147.54 all inclusive therefore, administrative action has been purposed by the tender committee against formation of cartel by quoting the identical price. The tender committee purposed to make reference to RDSO as well as to CCI New Delhi. No, the entire procurable quantity was not ordered on any single vendor. Q. No. 6 Please intimate whether Stone India Limited who has been awarded contract for supply of 67 feed valves has supplied the quantity and what is their last date of fulfilling the PO ? Ans. As per the delivery schedule of the PO placed on Stone India the supply of entire quantity of 67 No has to be made in the month of March 2013. Q. No. 7 Who has been awarded the contract and on what rate in spite of forming a cartel as alleged by you or whether these alleged tender has been scrappe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the decision of CCI for the outcome of your complaint for formation of cartel by the Stone India Others ? Ans. Since we can not anticipate the timing that is required for delivering the decision by CCI or RDSO and the routine work of the Department cannot be kept in abeyance therefore, a decision was made to go ahead for procurement as there was also no other alternate source other than the approved vendors. 7.21 The issue of identical bids submitted by the bidders was analysed on the basis of the statement given by OPs as well as the IP in this case. The arguments offered by the venders that the bid was based on their last purchase orders received from them was examined in depth. It is noted that the e-bid in question was uploaded on their website on 14.3.2012 and it closed on 27.4.2012. All these bidders had submitted their electronic bids on 26.04.2012. AS far as the claim made by M/s. Faiveley that their bid was based on their last purchase order dated 18.1.2012 goes, it is found that the said party had adopted the basic price at ₹ 14534.52 of that purchase order to bid at a price of ₹ 17147.54 inclusive of all taxes. However, the claim made by SIL tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on sharing of the bid price by each of the bidders. It is important to note that the bid price tendered by the three bidders matches to the last paisa which just could not been possible without meeting of mind and sharing of the price data amongst the bidders. 7.25 It is also relevant to mention here that the bidders in the present bid had raised the price of unit by 33% from the last purchase order made by Diesel Loco Modernisation Works, Patiala. The observations of the technical tender committee are reproduced below: 6.1 Tender Committee noted that last regular purchase of the item has been made from M/s. Faiveley Transport India Limited, Hosur vide PO No. 761206 dated 11.11.2011 at an all inclusive rate of ₹ 12,855.47 each. The all inclusive rate of ₹ 17,147.54 received now from all the RDSO approved firms are 33% higher than last purchase rates of six months old PO. Although M/s. Stone India Limited in support of their rate justification have attached copies of two PO's for the tendered item placed on them by EC Rly and S. Rly. (SN/47-49) at the rates at which they have quoted in this tender but considering the cartel formation in this case and 33% in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ways for nearly five decades. Product offerings include brakes, couplers, shock absorbers, rail fastening systems, composite brakes etc. ERP is focusing on technology upgradation to cater to the growth of Indian Railways. (d) Auto Products Business (APB) supplies parts such as shock absorbers and telescopic font forks etc. for various industries across India and outside India. 4. xx xx xx xx II. Relevant Facts 5. xx xx xx xx 6. xx xx xx xx 7. Escorts had received a notice dated November 8, 2012 under Section 36(2) read with Section 41 of the Competition Act from the office of the Director General. In response to the said notice, Escorts had provided the requested information to the office of the Director General pursuant to a submission dated December 26, 2012. The information provided in the submission included : (a) information in relation to 'feed valve'; (b) brief overview about Escorts; (c Annual Report for 2010-11; (d) chart outlining the shareholding pattern as on September 30, 2011; (e) process of inviting tender by the Indian Railways, Patiala and their methodology for awarding tender; (f) process of enrolment as suppliers by Research D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion / understanding between Escorts and any competitors at any point of time. The rates at which earlier tenders have been awarded to successful bidders and the quoted price of each bidder are in the public domain. It is submitted that the different arms of the Indian Railways rely on the last purchase/quoted rates while awarding tenders. It is further submitted that the rate quoted by Escorts is based on previous purchase / quoted rates and various other factors such as quantity, yearly target, Inventory levels, taxes etc. 12. xx xx xx xx 13. In the tender in question, Escorts was not invited for negotiation because the tender committee conclude that Escorts had not paid ₹ 1,000/- as tender cost. The Indian railways granted the tender to Stone India Limited at a negotiated price which was ₹ 500 per piece less than the quoted bid. This clearly shows that the success of the tender does not depend on the quoted price. 14. It is humbly submitted that Escorts takes its pricing decisions independently and decides the price to be quoted in the tender bids on its own accord and has also done the same in the instant case. III. Nature of the Relevant Mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has indeed played a key role in determining the number of players in the market and thereby affecting the competitive structure and dynamics of the market. It is therefore submitted that the behaviour of the market participants including Escorts has to be looked at in the context of the existing market situation. 22. Another important issue to consider while examining the nature of market is the fact that, though the market appears to be a competitive bidding market, it should be noted that in practice the aforesaid bidding process is used to identify the lowest bidder/price and thereafter, the final price at which a tender is awarded is negotiated by the Indian Railways with the lowest bidder. 23. For instance, Escorts had in relation to tender No. 041251310 dated October 10, 2012 (Diesel Locomotive Works, Varanasi) submitted an all inclusive rate of ₹ 15,964.95 (a base price of ₹ 13,500) and was the lowest bidder in that tender. The Indian Railways, Diesel Locomotive Works, Varanasi had pursuant to a letter dated November 17, 2012 invited Escorts for negotiation/reduction of quoted rate. In response to this request Escorts had based on discussions with the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudging the reasonably of rates. However, each tender is dealt on its merits and first comparison of rates is made with the last purchase rates of the concerned Railway. 30. We would also like to bring to the notice of the Hon'ble Commission the Fall Clause set out in the General Conditions of Contract for Stores Department, Indian Railways. The 'Fall Clause states that: the price charged for the stores supplied under the contract by the contractor shall in no event exceed the lowest price at which the contractor sells the stores or offer to sell stores of identical description to any persons/organisations including the purchaser or any department of central government or any Railway office or undertaking........ during the currency of the contract. The lowest price will be applicable to supplies made after the date of coming into force of such reduction or sale or offer to sell at a reduced rate. If any time during the said period of the contract reduces the sale price, sells or offers to sell such stores to any persons, organisations including the purchaser or any department of central government or any Railway office or undertaking at a price lower th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el through meeting of mind and engaged in bid rigging are incorrect and not tenable. 35. It is submitted that the office of Director General has failed to analyse and appreciate the following factors that adversely affects the competitive dynamics of the railway bidding market: (a) Practice of the Indian Railways to rely on last purchase price, while negotiating with the lowest bidder; therefore, the vendors are forced to refer to the prices quoted by competitors to various zonal railways before deciding on their price bids. (b) Application of the fall clause , wherein if a vendor supplies the product at a particular price to a zonal railway, which happens to be the lowest price offered for that product in India, then the said price will have to be mandatorily matched by such a vendor in executing running/existing contracts for the supply of the said product. (c) Availability of information relating to previous price bids submitted by competitors. It should be notified that feed valves are de facto commodity product; though the technology used and the cost structures are different from the Railway perspective these products are perfectly substitutable in quality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y were engaged in collusive behaviour or a cartel to fix prices and restrict output. The fear that departure from such behaviour may lead to costly price cutting, lower profits and market share instability may further create incentives for firms to maintain such an implicit arrangement amongst themselves. This form of conscious parallel behaviour or tacit collusion generally has the same economic effect as a combination, conspiracy or price fixing agreement. However, whether or not conscious parallel behaviour constitutes an illegal action which is restrictive of competition is (a) subject of controversy in both competition law and economics. Price uniformity may be a normal outcome of rational economic behaviour in markets with few sellers and homogenous products. Arguments have been advanced that the burden proof must be higher than circumstantial evidence of concerned or parallel behaviour and uniform pricing and output policies. In other words, conscious parallelism in and of itself should not necessarily be construed as evidence of collusion. 41. xx xx xx xx 42. xx xx xx xx [Underlining is mine] 7. In its objections/submissions, M/s. Faiveley Transport Rail Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it should be shown that the agreement, whether a cartel or otherwise, causes or is likely to cause an appreciable adverse effect on Competition within India. k. The Opposite Party No. 2 humbly submits that cartel implies the existence of a trade practice followed by same parties over a period of time. It cannot be deduced from any one contract. l. xx xx xx xx m. The report of the Director General fails to establish in the first place that there exists any such agreement; not to speak about the same being an anti-competitive agreement . The report does not establish the existence of any cartel and is based largely on surmises. n. The Opposite Party No. 2 further submits that even if there is any anti-competitive agreement, it should be established that there was an intention (amongst the enterprises which are allegedly part of the agreement) to causing or that the agreement in question has the effect of causing or is likely to cause an appreciable adverse effect on Competition within India. The report has totally failed to establish the same. o. xx xx xx xx 7. Without prejudice to the above submissions, the Opposite Party No. 2 humbly makes the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve already demonstrated hereinabove. o. The Opposite Party No. 2 states that there is no truth in the allegation regarding cartel. The Opposite Party No. 2 humbly submits that it is not sufficient evidence to show that there was any meeting of minds. It must be shown that there was a meeting of minds between persons carrying or working with a common objective in order to be bracketed as persons acting in concert. The allegations have no substance and are liable to be dismissed totally. The tender committee meeting held on 22nd May 2012 also appears to be a farce in as much as there is no basis for the finding that there are reasonable circumstances to suspect cartel formation. p. The Opposite Party No. 2 further states that the legislature while enacting the law governing anticompetitive agreements did not definitely envisage that business enterprises may have to sub serve the cause of competition at the cost of their own survival. The commercial solvency and existence of competing firms is a sine-qua-non for competition and for the sake of promoting competition. The Opposite Party No. 2 makes it very clear that it does not mean that there is any truth in the finding of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es had quoted different pries and the entire order was awarded to Opposite Party No. 2 at the quoted price. Therefore there is no basis in the allegation of DG so far as it pertains to the Opposite Party No. 2. It is clarified that the DG has not properly appreciated the break up cost of the feed valve as provided by Opposite Party No. 2. The said break up relates only to raw material cost which alone is ₹ 12847.9, in addition there are other elements costs inter alia sub contract charges, purchase/manufacturing overheads, warranty, labour, non-productive overhead. d to f xx xx xx xx g. With reference to Para 6.10 of the report, the Opposite Party No. 2 states that the DG's finding confirms the basis of the price quoted by the Opposite Party No. 2 in the impugned tender. Despite the above finding the DG has rendered an erroneous finding that identical price was as a result of collusion. Neither the DLMW nor the DG has applied their mind as to how, in the whole process, the previously accepted price plays an important basis for new offers to be made. It is denied that the price bid was in consultation with the other bidders. Thus previous order plays its role a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Competition Act before concluding that the trade practice has appreciable adverse effect on competition. In the report, the DG has miserably failed to show the existence of any of the circumstances to indicate that this practice allegedly indulged by the opposite parties has any effect on competition not to speak about any appreciable adverse effect on competition. 11. xx xx xx xx 12. On the above aspects falling under Section 19(3) of the Act, the Opposite Party No. 2 states as follows : a. Creation of barriers to new entrants in the market i. OP2 has no role to play in entry of any other entrant. If RDSO approves a vendor, a new entrant comes into existence. A new entrant has to meet technical specifications and get qualified by complying with the Schedule of Technical Requirements. The RDSO website is in public domain and those requirements are part of the same. Any person who wants to enter the field may comply with specifications for a particular product. The first and foremost task would be to satisfy RDSO that the new entrant has all the requisite credentials. If there is a need for any new product, RDSO issues Expression of Interest [EOI] asking parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the tender committee and SIL remained the only bidder with whom DLMW negotiated. Hence, there cannot be a bid rigging with the existence of a single party in the bidding process. Further, DLMW negotiated the price with SIL and also received all the 67 C2N Feed Valve without imposing any condition upon SIL post negotiations. Hence, no violation of bid rigging under section 3(3)(d) read with section 3(1) could stand against SIL from the very moment the Tender Committee of DLMW immediately on opening of the tender on 27 April 2012 found that amongst the three registered bidders as per the RDSO Vendor Director, except SIL, the other two bidders i.e., FTIL and Escorts were technically ineligible to bid as such were declared disqualified to bid. Thus, due to foregoing factual issues, SIL became the only bidder and resultantly became 11 by implication. 7. xx xx xx xx 8. That similarly assuming but not admitting, there could have been discussion on quoting similar prices, this was not implemented. In terms of letter issues by the Ministry of Railways (Railway Board) dated 05 August 2002, wherever approved firms quote equal rates and cartel is suspected, the Railways has the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocesses in a competitive market scenario. This is the procedure being followed by SIL since beginning of their business with Indian Railways. There is a trained and nominated person at Kolkata Marketing Office who submits the tender to Indian Railways website (www.ireps.gov.in). There are large numbers of quotations which are being submitted frequently by SIL both electronically as well as manually. Lots of manual tenders are also received from Sheds and Depots for small requirements for local purchase for which SIL needs secretarial assistances and submit the quotations manually thereafter correctly. 15. In view of foregoing circumstances, no allegation of concerted action can be attributed against SIL for having submitted the impugned tender on 26 April 2012. In fact, there are many instances when quotations have been submitted on the last day. In many cases the tender remains open till 2:00 PM and in some other cases it remains valid up to 11.30 AM of the particular tender opening date therefore it is absolutely logical to submit bids on the last day or on the preceding day of the tender opening. Moreover, submission of a tender is purely an administrative action depending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o support such identical quotes right up to the last paisa and which shall be examined in detail in the latter part of the order, it may be observed here itself that in absence of any plausible economic justification, this circumstance alone is a very strong indicator towards a possible collusion amongst the bidders. However, in some cases for establishing such collusion, the factum of identity of quotes may further require to be supported by some corroborative evidence. 32. It may be observed that the definition of 'agreement' as given in section 2(b) of the Act required inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings. The definition, being inclusive and not exhaustive, is a wide one. The understanding may be tacit, and the definition rarely a direct evidence of action in concert and in such situation the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in co-operation with each other. In the light of the definition of the term 'agreement', the Commission has be find sufficiency of evidence on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consequent upon negotiations, SIL reduced its basic price and offered discount of ₹ 554.15/- each on basic price i.e. it offered revised basic rate of ₹ 14,120.13/- each +ED +CST as per its offer. At this stage, it may be observed that though the offer of EL was found technically suitable, its offer was passed over as it did not submit the cost of tender documents. Similarly, the offer of FTRTIL was found technically suitable, yet its offer was passed over as the firm did not accept the warranty clause as per IRS conditions of the contract. 36. Much was made by SIL of the fact that the other two bidders having been found ineligible by the Tender Committee, the entire case falls as for establishing a cartel, the law requires at least two entities to be involved in the alleged anti-competitive agreement/conduct. The Commission has examined the plea in law and on facts. As shall be shown presently, the plea is legally untenable and factually incorrect. 37. The Commission may observe that stratagem adopted by some of the bidders in filing defective bids is not unknown to competition agencies. Complementary/cover bids are filed by some of the bidders in response to a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that EL and FTRTIL were not ineligible to participate in the tender as argued by the parties. Both were RDSO approved vendors and their bids were found to be technically suitable. The defects, if any, were of technical and curable nature. In the circumstances of the case, it was futile for the procurer to condone such defects and deviations and thereby putting further premium over the collusive act. In the result, the arguments advanced by the parties in this regard are misconceived and cannot be sustained. 40. In this regard, it may also be observed that during the course of the arguments, the Commission put a specific query to the counsel appearing for EL as to the steps taken by the company to remedy the defect in relation to non-submission of cost of tender documents. No explanation or reason was offered by the counsel either at the hearing or in the written submissions in this regard. 41. The other pleas taken by the opposite parties justifying the rates quoted on diverse grounds are also without force and merit rejection. So far as the case of EL is concerned, though it has taken the plea that the price quoted by it i.e. ₹ 17,147.54/- translated to basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.01.2012 and 29.12.2012 in it support, yet it conveniently ignored the other purchase orders of 18.01.2012 of lower price i.e. ₹ 12,770.37/- as can be seen from the details available in the report of the Dg. Hence, the plea of FTRTIL is found to be misleading and without any substance. 43. The DG, however, did not accept the claim made by SIL that its bid prices were based on the basic price of ₹ 14,674.28/- of the earlier purchase orders dated 14.12.2011 and 08.11.2011. Suffice to note, as observed above, it is not discernible as to how these two orders were picked up by SIL in support of its contention ignoring the other bids and purchase orders. Furthermore, even at this basic price, a calculated by the DG, the total unit price would be ₹ 17,312.42/- and not ₹ 17,147.54/- i.e. the actual quoted price. Be that as it may, there is nothing on record placed by SIL to justify the rate quoted by it in pursuance of the impugned tender and the only plausible explanation which may be drawn from the identical figure and lack of justification is that the rate was quoted to match the bid price of the other bidders acting in collusion and concert. 44. The ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these bidders with respect to tenders invited by other railway zones. From the information so gathered, it was observed that though the production cost of the feed valves of the opposite parties were different but they quoted nearly identical price in the past in different zones of railway and in some cases there was difference of bid price of merely 88 paisa and/or ₹ 9.14 paisa as in the case of Tender No. 26111569 dated 11.10.2011 where EL and FTRTIL quoted identical price for supply of 54 feed valves ₹ 14,535.40/- and ₹ 14,534.52/- respectively. Similarly, in Tender No. 43110361A dated 17.10.2011 EL and FTRTIL have quoted ₹ 14,525.38 and 14,534.52 respectively to Southern Railway. As such, the action of the opposite parties in bidding nearly identical amount in the tender was found to establish that the three bidders have resorted to collusive biddings for supply of feed valves to the railways in the past. Thus, taking into consideration the past conduct of the three bidders it is further established that the opposite parties were used to such practice of sharing the price date and had accordingly also resorted to similar practice of collusive bidding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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. Further, the opposite parties could not explain as to how the said conduct did not foreclose competition. 52. Various conspiracy theories including 'corporate espionage' were also ought to be advanced by SIL to justify the identical quotes as resulting from 'corporate espionage'. Except propounding such theory, no material was placed before the Commission to support the thesis. Further, the Commission has already dealt with these submissions earlier in this order. 53. The Commission also notes that the subsequent action of the railways in entering into negotiations and consequent awarding of contract to one of the parties is of no significance and consequence as far as present proceeding are concerned. The tender inquiry pertained to procurement of feed valves, and hence the railways had no other option or source to procure the same. Resultantly, such action was actuated by expediency and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of SIL which were duly considered by the Commission. 56. In the result, the Commission is of the view that the opposite party bidders by quoting identical rates had, indirectly determined prices/rates in the tenders and indulged in bid rigging/collusive bidding in contravening of the provisions of section 3(1) read with section 3(3)(a) and 3(3)(d) of the Act. [Underlining is mine] 10. On the basis of the aforesaid finding and conclusion, the Commission imposed penalty @ 2% of the average turnover of each of the appellants. The rationale of imposing penalties contained in paragraphs 58 to 62 of the impugned order are reproduced below:- 58. As regards penalty under section 27 of the Act, the Commission notes: that all the bidding companies who infringed the provisions of section 3 of the Act are responsible in equal measure and no mitigating circumstances were brought to the notice of the Commission by any of them. The Commission has taken note of the submissions of some of the opposite parties to the effect that they have never been found in breach of any provisions of the Act in the past and have been facing the inquiries for the first time before the Commission. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing factors significantly raised, except that the amount involved in the tender was very small and the order was only of the few lakhs. It must also be kept in mind that public procurement is a major concern of all competition authorities in the world. The Commission cannot ignore bid rigging in a case of small procurement nor can consider small procurement unimportant. The bid rigging practices are spread throughout the public procurement system. Various collusive methods are adopted in public procurement to deprive the State i.e. exchequer, of the real benefit of money paid by the. The contravention of the competition law cannot be considered non-serious only because the amount of the bid was small. The size of tender in itself is not a decisive factor for taking a lenient view. However, it may be taken into consideration as one of the factors while imposing penalty. 61. The Commission has bestowed its thoughtful consideration on the issue of quantum of penalty. The Commission is also not oblivious of the submissions made by the opposite parties to the effect that the turnover relatable to the product under consideration constitutes a small percentage of the total turnover. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts on the issue of cartel formation or bid-rigging/collusive bidding. Learned counsel argued that in recording a finding adverse to the appellants, the DG was unduly influenced by extraneous factors, namely, absence of the entry of new vendors in the field and the so called error committed by the Tender Committee not to consider the bids of EL and FTRTIL. Learned counsel further argued that the Commission committed grave error by observing that even though the bids submitted by EL and FTRTIL were defective, the Tender Committee should have waived the deficiencies/defects and invited them for negotiation. They also criticised the theory of cover bidding /complementary bidding by EL and FTRTIL innovated by the Commission by emphasising that the same is neither based on facts nor there is any evidence to show that the two appellants had deliberately submitted defective bids to enable the third appellant i.e. SIL to grab the contract. Learned counsel submitted that before taking into consideration these and other factors for recording findings on other issues, the Commission was duty bound to give an opportunity to the appellants to rebut/controvert these allegations like cover/comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l representing the other appellants relied upon the Commission's own orders in other cases to substantiate their argument that the similarity of price quoted by the bidders cannot be made the sole criteria for recording a finding on the issue of cartelisation/ bid-rigging or collusive bidding. Learned counsel also questioned the penalty imposed by the Commission by pointing out that the calculation of average turnover of the appellants is contrary to the ratio of the order passed by the Tribunal in M/s. Excel Corp Care Limited v. Competition Commission of India and others (Appeal No. 79 of 2011) decided on 29.10.2013. 15. Ms. Anupam Sanghi, learned counsel for the Commission supported the impugned order and argued that the appeals are liable to be dismissed because the appellants failed to reply to queries made by the DG on the issue of identical price of bids. She relied upon the definition of 'agreement' contained in Section 2(b) and Section 3 of the Act and argued that the Commission did not commit any error by rejecting the objections raised by the appellants to the findings recorded by the DG. Learned counsel also emphasised that appreciable adverse effect on co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case and conclusions recorded by 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 case 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 ₹ 77,666/- per bogie, the other tenderers quoted price between ₹ 83,000/- and ₹ 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 forme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: 1. There is not enough material to conclude that M/s. 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 authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ', took notice of the discussion on cartel in American Jurisprudence 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 Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct to obtain a monopoly in any particular industry or commodity. Analysing the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. 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-fixin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serted 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 ₹ 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 of lower price was preda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice 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...... 19. In this case, the DG recorded an affirmative conclusion on the issue of cartel formation and bid-rigging by the appellants by relying 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 scope for cartel formation. (b) Three approved suppliers have given bids from time to time in response to the tenders issued by different Zonal Railways quoting identical price. (c) The demand of feed-valves has remained almost static in last few years and the existing operators have prevented new entrants from entering the market. (d) The system of awarding contracts by the Railways is conducive to collusive bidding. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 21. For appreciating the question whether the appellants had been constantly quoting identical price in response to the tenders invited by different Zonal Railways, I may take cognisance of the statement filed by the learned counsel for Respondent No. 2 giving date-wise details of the rates of feed valves quoted by the appellants. The same is reproduced below: 22. A careful scrutiny of the above statement shows that between January, 2009 and February, 2012, various Zonal Railways had issued 44 tenders. Of them exactly identical price was found only in one ten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover of three financial years. While modifying the order of the Commission, the Tribunal made the following observations : 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 that where harsh financial penalties are inflicted the reasons become all the more necessary. 62. All the learned counsels very seriously canvassed the question of relevant turn over . The argument that the appellants, United Phosphorous Ltd. and M/s. Excel Corp Limited, are the multi product companies was not seriously disputed by Shri Balaji Subramanian, learned counsel for the CCI. We have no reason not to accept that f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng multiple products of many hundred crores of rupees. Similar is the case of FTRTIL and SIL. The total production of feed valves is almost insignificant. It is not even 5% of the total production cost of the appellants. Therefore, the turnover of other products could not have been clubbed for the purpose of Section 27(b). Since, the term 'turnover' appearing in clause (b) of Section 27 has not been defined in the Act, it must take 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. In this connection, reference can usefully be made to the proposition laid down by the Supreme Court in Central Bank of India v. State of Kerala and others [(2009) 4 SCC 94] on the interpretation of statutes. The question considered in that case was whether Section 38-C of the Bombay Sales Tax Act, 1959 (for short the Bombay Act ) and Section 26-B of the Kerala General Sales Tax Act, 1963 (for short the Kerala Act ) and similar provision contained in other State legislations by which first charge has been created on the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, 1939 before its amendment in 1947, observed: It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statutes are to be taken together, and each word, phrase or sentence is to be considered in the light of the general purpose of the Act itself. In Reserve Bank of India v. Peerless General Finance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti-dimensional services. Such an enterprise may be found guilty either of entering into anti-competitive agreement with reference to particular product/goods or services or may be held guilty of abuse of dominant position in respect of such product/goods or services. However, such finding cannot be made applicable to agreements entered into between the enterprise and another person in respect of other products, goods or services qua which there is no allegation of anti-competitive agreements or abuse of dominant position. Therefore, the turnover of other products or services cannot be clubbed with the one qua which a finding of violation of the provisions of the Act is recorded and the penalty cannot be calculated by taking into consideration the total turnover of all the products or services. 28. For the reasons mentioned above, I hold that the penalty imposed by the Commission is based on erroneous interpretation of Section 27(b) and is liable to be set aside. 29. In the result, the appeals are allowed. The impugned order is set aside and the penalty imposed on the appellants by the Commission is quashed. The appellants shall now be entitled to refund of the 20% penalty, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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