2025 (10) TMI 274 - AT - Law of Competition

Competition authority upholds bid-rigging finding in soil-testing tenders; penalties affirmed under Sections 3(3)(c), 3(3)(d) read with 3(1)

Austere Systems Pvt. Ltd., Rahul Gajanan Teni, Fimo Infosolutions Pvt. Ltd. And Mr. Jai Kumar Gupta Versus Competition Commission of India

NCLAT upholds Commission's finding of bid-rigging in soil-testing tenders, concluding anti-competitive conduct under Sections 3(3)(c), 3(3)(d) read with ... Anti-competitive practices/Cartelization - manipulation of process of bidding in the soil testing tenders in state of UP by indulging in bid-rigging - contravention of Sections 3(3)(c) and 3(3)(d) r/w Section 3(1) of Competition Act, 2002 - rejection of bid submitted at the technical stage due to non- submission of the last three years’ balance sheets, income tax returns, absence of a lab in-charge with requisite experience, and non-availability of an ICP machine - HELD THAT:- 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 said principle was reiterated by Hon’ble Supreme Court in the case of Rajasthan Cylinders and Containers Ltd. Vs. Union of India and Others, [2018 (10) TMI 229 - SUPREME COURT]. The Hon’ble Supreme Court held that 'Even in the absence of proof of concluded formal agreement, when there are indicators that there was practical cooperation between the parties which knowingly substitute the risk of competition, that would amount to anti- competitive practices.' In the present case the evidence is very direct and is proven from documents on record and conduct of the individuals involved making it a clear case of anti-competitive practices. Based on the material on record; evidence of OPs; and judicial precedent Rajasthan Cylinders [2018 (10) TMI 229 - SUPREME COURT], it is opined that 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. In view of peculiar facts and circumstances of the present case, where all the 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, it is agreed with the Commission’s approach of taking the total turnover for computation and imposition of penalty. There are no infirmity in the order of Commission. All three Appeals are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the participating bidders directly or indirectly rigged/manipulated government soil-testing tenders by indulging in bid rigging, collusive bidding, cover bidding and geographic market allocation, thereby contravening Sections 3(3)(c) and 3(3)(d) read with Section 3(1) of the Competition Act. 2. If contravention under Section 3 is established, whether identified individuals are persons in charge and responsible for the conduct of business under Section 48 of the Act and liable for directions under Section 27(a) and monetary penalty under Section 27(b). 3. Whether the monetary penalty under Section 27(b) must be calculated on the 'relevant turnover' relating to the specific product/tender (as contended by appellants relying on Excel Crop Care) or may be calculated on the average total turnover where relevant turnover is nil or would lead to no penalty. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Existence of bid-rigging, collusion, cover bidding and geographic allocation (Sections 3(3)(c), 3(3)(d) r/w 3(1)) Legal framework: Section 3(1) prohibits agreements in appreciable adverse effect on competition; Sections 3(3)(c) and 3(3)(d) identify cartel practices including cover bids, bid rotation and market allocation. Proof may be inferential; direct evidence of a formal agreement is not necessary where circumstantial evidence establishes practical cooperation substituting competition. Precedent treatment: The Tribunal applies the principle that cartel existence can be inferred from circumstantial evidence and conduct, citing the Supreme Court's approach (Rajasthan Cylinders) that a probabilistic standard of proof suffices where direct evidence is unlikely. Appellants' reliance on precedents treating related entities as a single economic entity (Shamsher Kataria; Exclusive Motors) is considered and distinguished on facts. Interpretation and reasoning: The Tribunal examined documentary evidence, DG investigation findings and witness statements to identify patterns: common addresses/registrations, inter-se shareholding and cross-directorships, preparation of demand drafts/EMDs by persons connected to rival bidders, submission of bids by related concerns lacking requisite experience, issuance of experience certificates and MOUs suggesting subcontracting and control, and strategic non-participation/high-priced bids consistent with cover bids. The Tribunal found that (a) relatedness plus unexplained financial/documentary interchanges and (b) evasive/unjustified conduct by key persons together establish concerted action to create a façade of competition and ensure award to a designated bidder. The Tribunal rejected the contention that familial/related status converts the entities into a single economic entity for Section 3, observing that distinct legal personalities, separate commercial interests and independent participation in tenders preserve the risk of anti-competitive concertation; relatedness therefore corroborates collusion rather than negates it in the tendering context. Ratio vs. Obiter: Ratio - cartel can be inferred from circumstantial indicators (shared addresses, cross-deposited EMDs, shared personnel and fabricated documentation) and strategic bidding conduct (high bids, non-participation) in public procurement; related-party status does not automatically immunize conduct from Section 3 where entities act as distinct bidders and create a façade of competition. Obiter - illustrative commentary on the dangers of allowing a narrow 'relevant turnover' interpretation to enable impunity (addressed more fully under Issue 3). Conclusions: The Tribunal upheld the finding of contravention of Sections 3(3)(c) and 3(3)(d) read with Section 3(1), concluding that the evidence and statements (including admissions and evasive answers) establish concerted action comprising cover bids, subcontracting to create eligibility, cross-deposit of EMDs and geographic allocation to manipulate tender outcomes. Issue 2 - Identification and liability of persons-in-charge under Section 48; cease-and-desist and penalty under Section 27 Legal framework: Section 48 fixes liability on persons who were in charge of and responsible for conduct of the business at the time of contravention; Section 27(a) empowers cessation and desist directions; Section 27(b) empowers imposition of monetary penalty up to ten percent of average turnover for preceding three financial years. Precedent treatment: The Tribunal follows established practice of attaching individual liability where evidence shows active participation, direction or culpable knowledge; it treats evasive and unrefuted admissions as supporting individual attribution. Prior Tribunal decisions arising from the same impugned order (other co-ordinate appeals) are relied upon to the extent they sustain factual linkages and findings of active orchestration. Interpretation and reasoning: The Tribunal parsed witness admissions and documentary record to identify individuals who managed business decisions, authorized or acquiesced in the conduct (e.g., directing bid submissions, executing MOUs, issuing experience certificates, permitting EMDs by related parties). Evasive answers and failure to explain unusual transactions (EMDs issued from rival accounts; bids signed/submitted by proprietors of related concerns; subcontracting to ineligible entities with fabricated supporting documents) were treated as corroborative of culpability. The Tribunal concluded that several named individuals bore responsibility under Section 48 for perpetuating and overseeing the anti-competitive scheme and thus were amenable to Section 27 directions and monetary penalty. Ratio vs. Obiter: Ratio - where individuals are shown by record and statements to have managed, controlled or actively participated in the anti-competitive conduct, they can be held liable under Section 48 and subjected to cease-and-desist directions and monetary penalties under Section 27. Obiter - specific factual observations about the interplay between subcontracting and issuance of experience certificates to create cover bidders. Conclusions: The Tribunal affirmed the Commission's directions under Section 27(a) to cease-and-desist and upheld individual liability under Section 48 for specified officers whose roles and conduct could not be satisfactorily explained. Issue 3 - Quantum of penalty and the 'relevant turnover' question (application of Excel Crop Care) Legal framework: Section 27(b) prescribes monetary penalty up to ten percent of average turnover for the preceding three financial years; Excel Crop Care is authority discussing 'relevant turnover' concept and proportionality. Precedent treatment: Appellants invoke Excel Crop Care to argue that penalty must be based on turnover relevant to the specific product/tender. The Tribunal examined Excel Crop Care facts and distinguished them: there the infringing parties had longstanding, segmentable turnover from the same product line, enabling a proportionate 'relevant turnover' calculation. The Tribunal also referred to its own prior reasoning (Suo Motu case) and other Tribunal decisions which warned against a pedantic narrowness that would enable cartelists who refrained from participating or had nil turnover in the tender to escape penalty. Interpretation and reasoning: The Tribunal reasoned that adopting a narrow 'relevant turnover' approach in cases where the bidders were first-time entrants to the product/service and had nil or negligible turnover in that specific line would yield zero penalty and defeat the statutory deterrent. The statutory object of deterrence and proportionality requires holistic appraisal: where relevant turnover cannot realistically be isolated or would lead to impunity, total or average turnover is a permissible and reasonable base for penalty, subject to consideration of mitigating and aggravating factors. The Tribunal applied this reasoning to uphold the Commission's choice of average turnover and its 5% imposition (mid-range, below statutory maximum) as consistent with gravity, evidence and mitigating factors (e.g., MSME submissions considered but not determinative). Ratio vs. Obiter: Ratio - where factual matrix shows first-time bidders, nil relevant turnover in the contested activity or inability to segregate relevant turnover without frustrating deterrence, the Commission may base penalty on average turnover; Excel Crop Care is distinguished where its facts permit segmentation. Obiter - cautionary statements on avoiding regulatory arbitrage if relevant-turnover is applied mechanistically. Conclusions: The Tribunal upheld the penalty computation methodology and quantum (5% of average turnover for specified years), finding it proportionate given the evidence of organized cartel conduct, the role of the appellants, and the need for deterrence; the Tribunal rejected appellants' contention that Excel Crop Care mandates a narrow product-specific turnover approach in all circumstances. Overall conclusions The Tribunal affirmed the Commission's findings of contravention of Sections 3(3)(c) and 3(3)(d) read with Section 3(1), upheld individual liability under Section 48 for persons who managed and actively participated in the anti-competitive conduct, sustained the cease-and-desist directions under Section 27(a), and validated the penalty imposition methodology and the specific 5% quantum under Section 27(b) after holistic consideration of facts, admissions, circumstantial indicators and applicable precedents (distinguishing those relied on by appellants where factually inapposite).