2024 (7) TMI 321 - AT - Law of Competition

Company penalized for bid rigging in soil testing tenders, penalty reduced from 5% to 3% under Section 3(3)(d)

Toyfort Versus Competition Commission of India

NCLAT Principal Bench upheld Competition Commission's finding that appellant company colluded with other bidders to rig soil testing tenders for UP ... Bid-rigging in tenders invited by the Department of Agriculture, Government of Uttar Pradesh for soil sample testing - contravention of provisions of Section 3 (1) r/w Section 3 (3) (d) of Competition Act 2022 - HELD THAT:- M/s Toyfort along with other bidders namely M/s Austere System Pvt. Ltd. and M/s Fimo Info Solutions Pvt. Ltd., colluded to rig bids in the 2017 soil testing tenders of Meerut and Jhansi Divisions. It has also been established beyond doubt that the submission of bids by M/s Toyfort in the 2017 soil testing tenders of Meerut and Jhansi divisions were the cover bids in support of M/s Austere System Pvt. Ltd., so that the tender is not cancelled due to lack of participation. Had they not participated these bids would have been cancelled due to insufficient participation in tenders, as there were only 3 bids for Jhansi and 4 bids for Meerut. In the present case, the appellant was acting as a member of the cartel and was providing cover bid for the successful bidder Austere Systems. In view of peculiar facts and circumstances of the present case, where almost all bidders for soil testing are first time bidders and relevant turnover of firms from the aforesaid business is NIL, the concept of relevant turnover in such cases would not be correct, as it would lead to NIL penalty and allow the parties involved to go scot-free. Hence, the Commission’s approach of taking the total turnover for computation and imposition of penalty is agreed upon. At the same time considering the fact that the Appellant was in a supporting role in this cartel, by providing the cover bids, the penalty in such cases should be less than for those in the main role. The order of the Commission in respect of holding the appellant guilty under Section 3(3)(c) and 3(3)(d) read with section 3(1) and order passed under Section 27(a) regarding cease-and-desist order are upheld - the penalty under Section 27 (b) is reduced to 3% of average annual turnover for last 3 years, instead of 5% as imposed by the commission. Application disposed off. Issues Involved:1. Alleged bid-rigging in tenders for soil sample testing by the Department of Agriculture, Government of Uttar Pradesh.2. Determining whether the Opposite Parties manipulated the tenders by indulging in bid rigging, collusive bidding, and sharing of the market.3. Identifying the persons responsible for the contravention under Section 48 of the Competition Act, 2002.4. Imposition of penalties on the contravening parties.Issue-wise Detailed Analysis:Issue 1: Alleged Bid-rigging in TendersThe Competition Commission of India (CCI) received a complaint alleging bid-rigging in tenders for soil sample testing in Uttar Pradesh. The tenders in question were Tender No. 1 (Moradabad) and Tender No. 2 (Bareilly). The complaint named several entities, including Yash Solutions, M/s Satish Kumar Agarwal, M/s Siddhi Vinayak and Sons, M/s Saraswati Sales Corporation, and Austere System Pvt. Ltd., among others. The complaint alleged that these entities engaged in cover bidding, bid rotation, and collusive bidding.Issue 2: Manipulation and Collusion in BiddingThe CCI's investigation revealed that the named entities manipulated the bidding process by engaging in cartelization and bid-rigging. The investigation covered nine tenders from 2017 and 2018 across various divisions. It was found that Yash Solutions and Austere Systems, among others, manipulated the bidding process to ensure specific entities won the tenders. The investigation showed that these entities had no prior experience in soil testing and did not meet the tender requirements, indicating collusion.Issue 3: Identification of Responsible PersonsThe CCI identified individuals responsible for the contravention under Section 48 of the Act. These included Mr. Naresh Kumar Sharma (M/s Saraswati Sales), Mr. Satish Kumar Agarwal (M/s Satish Kumar and M/s Siddhi Vinayak), Mr. Praveen Kumar Agarwal (Yash Solutions), Mr. Nitish Agarwal (Chaitanya Business Outsourcing), Mr. Ankur Kumar (Delicacy Continental), Mr. Jai Kumar Gupta (Fimo Info Solutions), Mr. Suresh Kumar Gupta (M/s Toyfort), and Mr. Rahul Gajanan Teni (Austere Systems).Issue 4: Imposition of PenaltiesThe CCI imposed penalties on the contravening parties under Section 27(b) of the Act. The penalties were based on the average turnover of the entities for the last three financial years. The CCI rejected the argument that penalties should be based on the relevant turnover from the specific tenders, citing the need to deter anti-competitive behavior. The CCI imposed a penalty of 5% of the average turnover on the entities and individuals involved.Analysis of Evidence and Findings:The CCI grouped the opposite parties into three sets for analysis:- Set 1: Yash Solutions, M/s Saraswati Sales, M/s Satish Kumar, M/s Siddhi Vinayak, and Chaitanya Business Outsourcing.- Set 2: Austere Systems, M/s Toyfort, Fimo Info Solutions, and Delicacy Continental.- Set 3: Austere Systems and Yash Solutions.The investigation revealed that Austere Systems, M/s Toyfort, and Fimo Info Solutions were related through family and business relationships and colluded to rig bids. The CCI found that these entities submitted bids not to compete but to create a facade of competition, ensuring Austere Systems won the tenders.Key Findings:- The entities had no prior experience in soil testing and did not meet the tender requirements.- There were clear business and family relationships between the entities, indicating collusion.- The bids submitted by M/s Toyfort and Fimo Info Solutions were cover bids to support Austere Systems.Conclusion:The CCI upheld the findings of bid-rigging and collusion, directing the entities to cease and desist from such practices. The CCI imposed penalties on the entities and individuals involved, reducing the penalty for the appellant to 3% of the average annual turnover for the last three years, considering their supporting role in the cartel.Final Orders:1. The order holding the appellant guilty under Section 3(3)(c) and 3(3)(d) read with Section 3(1) is upheld.2. The cease-and-desist order under Section 27(a) is upheld.3. The penalty under Section 27(b) is reduced to 3% of the average annual turnover for the last three years.