2025 (9) TMI 1090 - AT - Law of Competition

Appellants found cartelised and bid-rigged soil testing tenders; breaches of ss.3(1), 3(3)(c),(d); s.27(a) upheld, s.27(b) penalty cut to 3%

M/s Satish Kumar Agarwal, Sole Proprietor, M/s Siddhi Vinayak & Sons, Sole Proprietor Versus Competition Commission of India, Delhi

NCLAT upheld findings that the appellants engaged in cartelisation and bid-rigging in tenders for soil testing, violating ss.3(1), 3(3)(c) and 3(3)(d) of ... Anti-competitive practices - Cartelisation/bid-rigging - contravention of Sections 3(3)(c) and 3(3)(d) r/w Section 3(1) of Competition Act, 2002 - bid-rigging in the tenders invited by the Department of Agriculture, Government of Uttar Pradesh for soil sample testing - levy of penalty u/s 27(b) of the Act - Quantum of punishment - applicability of doctrine of proportionality - HELD THAT:- It is absolutely clear from the findings based on the evidence tendered by Appellants and documents on record that Mr. Satish Kumar Agarwal, was solely responsible for decisions of both his firms (M/s Satish Kumar and M/s Siddhi Vinayak), he had admitted to submitting bids on behalf of both entities despite lacking infrastructure or experience; solely to create a false appearance of competition and support Yash Solutions. The DG’s investigation, corroborated by admissions and evidence such as common IP usage; use of fake and fabricated documents; prove bid rigging in collusion with Yash Solutions and submission of cover bids to support the bid of Yash Solutions. Based on the overwhelming evidence against the appellants the Commission found them violative of Section 3(1) read with Sections 3(3)(c) and 3(3)(d) of the Competition Act. It is well established principle that in cases of alleged cartelization or anti-competitive practices, direct evidence of an agreement between parties is not required. Instead, a probabilistic standard of proof is sufficient, meaning that the existence of a cartel can be inferred from circumstantial evidence or behaviours. The Commission has correctly and legally held the appellants responsible for violation of Section 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act and there is no error in respect of order passed under Section 27(a) whereby the appellant was directed to cease and desist from such act, from indulging in the practices which were found in contravention of the provisions contained in Section 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act. Quantum of punishment - applicability of doctrine of proportionality - HELD THAT:- It can be seen that the all the four companies referred to in the Excel Crop Care [2017 (5) TMI 542 - SUPREME COURT] were in the same business since 2002, and their balance sheets had segment wise reporting, which made it possible to segregate the turnover from the APT business for each year of operation. In such cases, the ratio laid down by Hon’ble SC regarding imposition of penalty on the basis of relevant turnover is a very logical and correct way of calculating the penalty, as it brings in the doctrine of proportionality to the penalty for the offences under the Act. In the present case, the appellants were acting as a member of the cartel and were providing cover bid for the successful bidder Yash Solutions. 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 in spite of clear-cut case of cartel and bid rigging in violation of the Act. 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. 1. ISSUES PRESENTED AND CONSIDERED * Whether the conduct of certain bidders in relation to soil-testing tenders constituted cartelisation / bid-rigging in contravention of Section 3(1) read with Sections 3(3)(c) and 3(3)(d) of the Act (cover bids, bid rotation, collusive bidding, manufacture/submission of fabricated documents to establish technical eligibility). * Whether particular individuals (proprietors/directors) are 'persons in charge of and responsible for the conduct of the business' and hence liable under Section 48 for the anti-competitive conduct attributed to their enterprises. * The correct legal approach to imposition and computation of monetary penalty under Section 27(b) in cartel/bid-rigging cases: whether 'relevant turnover' (turnover attributable to the product/service at issue) or broader/total turnover should be used; and what quantum of penalty is appropriate given the role (principal vs cover bidder) and mitigating/aggravating factors. 2. ISSUE-WISE DETAILED ANALYSIS Issue A: Whether the conduct amounted to cartelisation / bid-rigging under Section 3(1) read with Sections 3(3)(c) & (d). Legal framework: Section 3(1) prohibits agreements that cause appreciable adverse effect on competition; Sections 3(3)(c) and (d) expressly proscribe cover-bidding, bid-rotation and collusive submission of bids in procurement processes. Precedent treatment: The Tribunal relied on the established principle that cartelisation may be inferred from circumstantial evidence and a probabilistic standard (as reiterated in Rajasthan Cylinders). Direct proof of a formal agreement is not necessary; practical cooperation substituting competition suffices. Interpretation and reasoning: The Commission's and DG's findings relied on multiple strands of evidence: admissions by key individuals, common IP addresses and login IDs for e-bids, employees of one bidder submitting bids for rival bidders, identical/altered invoices and fake experience/work-order certificates, blacklisting by the procurer, and employees' testimony that bids were submitted at directions of a principal bidder. The conduct was analysed holistically and grouped to show concerted patterns. The Tribunal accepted that these factual indicia, taken together, permit an inference of collusion and cover-bidding aimed at manipulating procurement outcomes. Ratio vs. Obiter: Ratio - a cartel can be inferred from consistent and converging circumstantial indicators (common IP/login, fabrication of documents, employees submitting rival bids, admissions of submitting cover bids), sufficient to establish contravention of Sections 3(1), 3(3)(c) and 3(3)(d). Obiter - none material beyond contextual reliance on general anti-cartel principles. Conclusions: The Court upheld the finding of contravention: the evidence established that the concerned enterprises acted in concert to submit cover bids and fabricate eligibility to support the winning bidder, thereby violating Sections 3(3)(c) and 3(3)(d) read with Section 3(1). Issue B: Liability of individuals under Section 48 (persons in charge of and responsible for the conduct of the business). Legal framework: Section 48 renders persons in charge of and responsible for the conduct of the business of an enterprise liable for offences under the Act; liability attaches where individuals exercised control/decision-making leading to contravention. Precedent treatment: The Commission and Tribunal applied standard of responsibility and control over business decisions; admissions and documentary corroboration may suffice to fix individual liability. Interpretation and reasoning: The DG's investigation and recorded statements showed that a proprietor exercised complete control over two related enterprises, admitted bidding to create an appearance of competition, admitted use/submission of fabricated documents (and inability/evasion to explain same), and coordinated with employees/other bidders. The proprietor's admissions (including that he managed both firms and took the decisions) and corroborative evidence (CDRs, employee statements, common documentation) established personal culpability. The Tribunal emphasised that evasive answers and failure to rebut the DG findings bolstered attribution of liability. Ratio vs. Obiter: Ratio - where an individual admits control/decision-making and evidence links that conduct to anti-competitive acts, that person is liable under Section 48. Obiter - remarks on general evasiveness of witnesses as a common indicator. Conclusions: The Tribunal affirmed individual liability under Section 48 for the proprietor who controlled both firms and actively participated in or facilitated the anti-competitive conduct. Issue C: Imposition and computation of penalty under Section 27(b) - relevant turnover v. total turnover; quantum/percentage applicable. Legal framework: Section 27(b) empowers imposition of penalty up to 10% of the average turnover for the preceding three financial years (with relevant statutory scheme and proportionality considerations). Earlier jurisprudence (Excel Crop Care) discusses 'relevant turnover' concept where turnover can be segregated by product/segment. Precedent treatment (followed/distinguished): The appellants sought limitation of penalty to 'relevant turnover' (turnover attributable to soil-testing activity) relying on Excel Crop Care. The Commission rejected a narrow reading, relying on its suo motu decision and policy considerations. The Tribunal examined Excel Crop Care, distinguished it on facts - there the parties were established manufacturers in the relevant product with segment-wise reporting enabling segregation of relevant turnover; here the alleged activity yielded nil/zero relevant turnover because concerned entities had no prior soil-testing business. Interpretation and reasoning: The Tribunal reasoned that applying Excel's 'relevant turnover' formula mechanically where relevant turnover is nil would frustrate deterrence and allow cartelists to escape monetary sanction by structuring or lacking segmental activity. The Court recognised proportionality but held that where the unlawful conduct relates to a procurement/service in which parties reported no segmental turnover, total/aggregate turnover may be used to ensure effective deterrence. The Tribunal also considered precedent within its benches where cover-bidders received a reduced percentage due to secondary/supporting role (Toyfort matter), and therefore treated role differentiation as a mitigating factor in quantum. Ratio vs. Obiter: Ratio - Excel Crop Care's 'relevant turnover' principle applies where the relevant business segment is identifiable and turnover can be segregated; it is inapplicable where the alleged infringing activity yields nil relevant turnover and using it would nullify penalties. Ratio - Penalty computation in cartel cases may, in such circumstances, permissibly use broader turnover to effect deterrence, subject to proportionality and role-based mitigation. Obiter - discussion of policy dangers if 'relevant turnover' is given a pedantic application in all cases. Conclusions: The Tribunal upheld the Commission's use of broader turnover for penalty computation in this factual matrix but reduced the quantum imposed by the Commission (from 5% to 3% of average annual turnover for three years) on account of the appellants' supporting/cover-bidder role and other mitigating considerations, while maintaining the principle that cover bidders cannot escape all monetary sanction by showing nil income from the specific activity. Ancillary procedural and evidentiary points considered * Standard of proof: The Tribunal reaffirmed that cartel inference may be drawn from converging circumstantial evidence under a probabilistic standard; direct proof is not necessary (citing Rajasthan Cylinders principle). * Natural justice/cross-examination contention: The appellants' complaint about inability to cross-examine certain individuals was considered but the Tribunal found the DG's investigation and evidence (documents, admissions, CDRs, vendor replies) sufficient; lack of cross-examination did not vitiate the findings in view of the weight of documentary and testimonial evidence. * Mitigation and proportionality: The Tribunal balanced deterrence and proportionality - while declining a nil/zero penalty approach based on narrow 'relevant turnover', it accepted reduction of percentage for cover-bidders, reflecting lesser culpability than main conspirators. Final consolidated conclusions * The anti-competitive conduct alleged (cover bids, submission of fabricated documents, collusion) was established on a holistic appraisal of direct admissions and corroborative documentary and electronic evidence and amounted to contravention of Section 3(1) read with Sections 3(3)(c) and 3(3)(d). * Individuals exercising control over the enterprises and participating in or facilitating the misconduct were properly held liable under Section 48. * Excel Crop Care's relevant-turnover principle remains good law where turnover is segment-reportable and attributable; however, where relevant turnover is nil and using it would nullify deterrence, broader turnover may be employed for penalty computation, subject to proportionality and role-based mitigation. Applying those principles, the penalty was reduced from 5% to 3% of average annual turnover for the preceding three years for the appellants in their role as cover bidders.