TaxTMI 
TaxTMI 
2013 (12) TMI 1666
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.... of 2012, Shri Anshum Jain, Advocate in Appeal Nos. 32, 33 and 51/2012, Shri Ramji Srinivasan, Sr. Advocate, Shri Manas Kumar Chaudhari, Shri Vijay Chauhan, Shri Sagardeep Rathi, Advocates in Appeal Nos. 38, 46 and 65 of 2012, Mr. M.M. Sharma, Ms. Deepika Rajpal, Mr. Vaibhav Chaukse, Advocate in Appeal Nos. 41 and 54/2012, Shri N.S. Nandakumar, Advocate in Appeals Nos. 35, 36 and 37 of 2012, Shri Pradeep Aggarwal, Shri Rajesh Aggarwal, Shri Umesh Pratap Singh, Advocates in Appeals Nos. 39, 40, 42, 44 and 47 of 2012, Shri Atul Nanda, Senior Advocate, Shri Jaiveer Shergill, Shri Ankur Sood, Ms. Rameeza Hakeem, Ms. Priyadarshi, Advocates in Appeal Nos. 48, 50, 58 and 62 of 2012, Shri Kuljeet Rawal, Mr. Jagjit Singh, Advocates in Appeal No. 52/2012, Shri P.K. Bhalla, Advocate in Appeal No. 53/2012, Shri O.P. Gaggar, Advocate in Appeal No. 64 of 2012 and Shri O.P. Aggarwal, Advocate For the Respondent: Ms. Anupam Sanghi, Advocate and Dr. Shabistan Aquil, DD(L) ORDER V.S. Sirpurkar, J. (Chairman) 1. This judgment will dispose of the following appeals 1. M/s. International Cylinder (P) Ltd. 2. M/s. HIM Cylinders Ltd. 3. M/s. OMID En....
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....y the common order which was majority order. However, the learned Member Shri Prasad in his minority order found them guilty of contravention of Section 3(3)(d) and also under Section 3(3)(a) of the Act. Shri Prasad, however, agreed with the majority in so far as the finding of guilty was concerned against the above appellants. He also agreed with the penalty ordered under Section 27 of the Act. The common order of the Competition Commission of India (for short 'the CCI') has taken a view that the appellants' company were liable to pay penalty on the basis of the average of the last three years turn over. In some cases the turn over was not available the CCI calculated the average turn over of last two years. In case of Hyderabad Cylinders, the penalty was imposed @2.1 times of its net profits as details were not available at all. Needless to say we need not consider the imposed penalty against the Hyderabad Cylinders as Hyderabad Cylinders have not come up in appeal before us. The CCI has neatly discussed the details of the penalty separately in case of defaulting companies. Thus, out of original 47 companies, one company M/s. Hyderabad Cylinders has not filed an appea....
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...., Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL) require these cylinders which they supply to the consumers for the domestic gas uses after the process of bottling. Under the essential conditions of the tender each bidder was permitted to apply for supply in eight States to the maximum. In his investigation report, the D.G. had reported that IOCL is a leading market player in the Liquefied Petroleum Gas (LPG) and its market share was 48.2% and that it was a major procurer of 14.2 Kg. LPG Cylinders. The D.G. had reported that in the year 2010-11 the IOCL procured 105.16 lakh cylinders, HPCL floated a tender for 36 Lakh Cylinder and BPCL floated a tender for 40.33 lakh cylinders. While HPCL and BPCL had adopted e-platform for tender invitation, IOCL had procured cylinders by way of invitation of tenders. 4. Be that as it may. As per the D.G.'s report, the process of bidding followed by the IOCL in the tender was as under:- i) The bidders would submit their quotations with the bid documents. ii) The existing bidders, who were existing suppliers, were required to submit the price bids and technical bids. ....
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....t only Andaman and Nicobar Islands there was a single party who had quoted the L-1 rate and got the formal contract. In other States the contracts were bagged in a group on the basis of identical or near to identical rates. e. The similarity of the rates was found even in case of bidders whose factories and offices were not located at one and the same place in the States and where they were required to supply was far off from their factories located in different place. 6. The D.G. had found further that though the factors like market conditions, small number of companies, were different, there was a large scale collusion amongst the bidding parties. 7. In addition to this, the D.G. found that the LPG Cylinder Manufacturers had formed an Association in the name of Indian LPG Cylinders Manufacturers Association and the members were interacting through this Association and were using the same as a platform. Lastly date for submitting the bids in the case of concerned tender was 3.3.2010 and just two days prior to it, two meetings were held on 1st and 2nd March, 2010 in Hotel Sahara Star in Mumbai. As many as 19 parties took part and discussed the tender and in all....
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.... through various Notifications and that the price of steel constitutes 50% of the total manufacturing cost, so also the price of the paint, it being an essential raw material. All these factors including the taxes which vary from State to State, determine the overall bidding pattern of the bidders. In para-5.2.3 of the common objection, it was added that these 44 parties had nominated six agents for depositing their bids on their behalf and it was a common practice amongst the bidders to direct their agents to keep close watch on the rates offered by their competitors in respect of a particular State and this led to the possibility of copying and matching of the rates quoted in the price bids by many suppliers in a particular State, who may have appointed common agents. Due to this reason, cutting and over-writing in the price bids for the tender in question was noticed by the DG. 12. It was further pointed out that there were only 62 qualified tenderers in the whole country, out of whom 12 bidders were classified as new parties, meaning thereby that they had not supplied Cylinders in last three years and were not required to bid in the tender. Out of the remaining 50 bidders, t....
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....dentical. So also the parties urged before the CCI that since in spite of the identical prices having been quoted by number of parties, the prices were fixed by negotiations, there was no question of breach of Section 3(3)(d) of the Act. The parties also almost unanimously urged before the CCI that IOCL not having been joined as a party the prejudice is caused inasmuch as the stand of the IOCL in the matter would have helped the CCI as well as the parties to solve the riddle of the parallel, identical or nearly identical pricing. It was tried to be urged before CCI and also before us by few senior advocates more particularly like Shri N. Venkataraman that even the IOCL did not think that the bid was rigged. It was urged by him, more particularly, that this was all the more true and there was a Monitoring Committee headed by one of the able officers. He states that monitoring committee was consulted by the Director General during the investigation. It was also urged that since prior to the tender supplies were made to HPCL and BPCL at higher rates, there was no point in colluding to form a cartel for low price. It was the effort on the part of the learned counsel to show that the pr....
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.... the Supreme Court Judgment in Union of India vs. Hindustan Development Corporation - (1993) 3 SCC 499. It also took into consideration the arguments raised by the individual parties and then came to record that cases of M/s. JBM Industries and Punjab Cylinders, however, were exceptional ones and they could be exonerated. After this the CCI went on to decide the penalty factor under Section 27 of the Act. 17. It must be stated here that admittedly no party had addressed the CCI on the question of penalty which exercise was done before us extensively by almost all the parties. 18. Be that as it may. After considering the overall average turnover factor the CCI passed the order. The CCI ordered penalty of 7% of the average of the last three years turn over. Where such turn over was not available, the CCI considered the other factors like turn over for the last two years. Two parties namely M/s. JBM Industries Ltd. and M/s. Punjab Cylinders Ltd. were exonerated and were let off. Though we are not satisfied at all with the reasons given by the CCI for their exoneration, we cannot consider their case as there is no appeal against the verdict of the CCI is before us. A very strong ....
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....ised by some appellants that though they were the members but they were not the active members thereof. Some of the appellants also argued that they had abandoned the membership by not contributing the subscription in the later years. However, the appellants could not deny the position that there was an association called Indian LPG Cylinder Manufacturers Association. This association seems to have been registered in the State of Tamil Nadu and the date of registration appears to be 29.6.2004. It is registered under Section 10 of the Tamil Nadu Act, 1975 (Tamil Nadu Act 27 of 1975). There is a certificate of registration on the record. A glance at the Memorandum of Association and more particularly to the objects listed in clause 3 of this Memorandum would suggest that it had the object to protect common interest and welfare of LPG cylinder manufacturers. The association had also provided a platform for expressing the feelings, grievances, requirements and commercial concerns to the public through all relevant measures. It also served the purpose of mediating, negotiating and arbitrating the grievances of the LPG cylinder manufacturers. All this goes to suggest that there was a def....
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.... as well as the CCI found that 19 companies which attended the meeting at Mumbai where M/s. Haldia Precision Engineering Ltd. through their representatives Mr. Chandi Prasad Bhartia, Mr. Sandeep Bhartia and Mr. Raj Kumar Bhartia. A dinner meeting as also a lunch were held and Mr. Chandi Prasad Bhartia paid the bill for the same. M/s. Carbac Holdings also attended the meeting. It is a group company of M/s. Haldia Precision Engineering Pvt. Ltd. The others who attended the meeting were M/s. North India Wires, M/s. Bhiwadi Cylinders, M/s. Surya Shakti Vessels Pvt. Ltd., M/s. Tirupati LPG Industries Ltd., M/s. Tirupati Cylinders and M/s. International Cylinders (P) Ltd. These three appear to be the group companies. The others were M/s. Om Containers Pvt. Ltd., M/s. Super Industries, M/s. Tee Kay Metals Pvt. Ltd., M/s. Krishna Cylinders, M/s. Shri Ram Cylinders, M/s. Him Cylinders Ltd., M/s. Omid Engineering Pvt. Ltd., M/s. Lite Containers Pvt. Ltd., M/s. Rajasthan Cylinders & Containers Ltd., M/s. S.M. Cylinders and M/s. Sahuwala Cylinders Pvt. Ltd. There are clear admissions on the record which have been noted both by the DG as well as CCI that all those who attended the meetings were....
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....pointer towards the fact that such party had a tacit agreement with its competitors. However, the existence of an association and further holding of the meetings just one or two days prior to the last date of making offers and further admission that the parties had appointed common agents with the instructions to keep watch on the prices quoted by the competitors would go a long way in providing plus factors in favour of the agreement between the parties. All these factors would form a back drop, in the light of which, the further evidence about agreement would have to be appreciated. We have seen the comments of Director General as also the findings of the CCI. We are convinced that CCI has not committed any error in considering all these factors as plus factors to come to the conclusion that there was a concerted agreement between the parties on the basis of which the identical or near identical prices came to be quoted in tenders for the supply of cylinders to the 25 States. In view of this, we need not dilate on the individual claims by some of the appellants that they were not the members of the association or that they were only the dormant members or that they had abdicated ....
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.... was also argued that the tender of IOCL alone should not have been considered but the tenders of BPCL and HPCL should have also been considered and investigated by the D.G. and further considered by the CCI. Both the arguments are obviously incorrect. Firstly, it was the behavior on the part of the tenderers which was being investigated and that was a clear mandate by the CCI. That was felt necessary as on the basis of D.G. Report in some other matters namely in case No. 10 of 2010 of M/s. Pankaj Gas Cylinder, the CCI decided to proceed suo-motu. The CCI had not decided to proceed against the IOCL. Since, it found from the report in case No. 10 of 2010 that there was an element of identical pricing and that there was a peculiar pattern of quoting for the particular State and hence ordered a thorough investigation. The tenders of HPCL and BPCL did not fall for its consideration nor did it have any material to proceed against any of the tenders floated by those companies. Case No. 10 of 2010 against M/s. Pankaj Gas Cylinder had altogether a different factual background. That was a case where M/s. Pankaj Gas Cylinder was complaining against the conditions in the tender perhaps becaus....
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....nditions and deduced that there was a constant demand for cylinders, not only by IOCL, but also by the other oil manufacturing companies. It was, therefore, deduced by the CCI that this aspect of constant need for the cylinders by the companies, was a facilitating factor for collusion. The CCI also considered as a relevant factor the small number of suppliers. It found that amongst the 50 participating companies, only 37 companies could be said to be independent bidding companies as there were 7 groups consisting of 20 participating companies. Thus, it held that the small number of suppliers could be a facilitating factor. The CCI also considered the factor of very few new entrants. Fourthly, it took into consideration the existence of active trade association. We have already endorsed the finding of CCI on the active trade association. It was noted that except seven companies, all the bidders were the members of the association. They being - Asian Fab Tech Ltd., Faridabad Metal Udyog Pvt. Ltd., Gopal Cylinders, Krishna Cylinders, JBM Industries and Shri Ram Cylinders. It was noted by the CCI that out of these, Asian Fab Tech Ltd., which was previously Avatar Asian Cylinder, cou....
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....ous companies. It was noted that this was a huge order, as IOC required 105 lakhs LPG cylinders for 25 States. The CCI also noted the tender conditions that the rates were to be fixed after negotiation only with L-1 bidders and in case the L-1 bidders were not in a position to supply, then the orders for supply were to go to L-2 or also to L-3 bidders or likewise, depending upon the requirements in that State as per fixed formula announced in the bid documents. The CCI painstakingly considered the report of the Director General of the Investigation and noted that bids of large number of parties were exactly identical or mere to identical in different States. It also found that not only rates of group concerns were common, but the rates of other concerns belonging to other and unrelated groups were also identical. The CCI has noted that despite being located in different places and having varied manufacturing cost, the appellants had quoted identical rates across the length and breadth of the country. The CCI then painstakingly did the analysis of the bids for 25 States. The result of the analysis was quite shocking. 32. In case of Punjab, where there were five bidders, four bidd....
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....parties, four parties quoted the common rate of Rs. 1117.5, while some others gave different rates like Rs. 1130, Rs. 1125, Rs. 1117 and Rs. 1180. In case of Tamil Nadu, it is interesting to note that out of twenty three parties, fifteen parties quoted the rate of Rs. 1127, while the others quoted the rate of Rs. 1126, Rs. 1250, three quoted the rate of Rs. 1126, five quoted the rate of Rs. 1250 and some other rates like Rs. 1130, Rs. 1128, Rs. 1125 and Rs. 1175. In Pondicherry also out of ten parties, four parties quoted the identical rate of Rs. 1130 and the other three quoted Rs. 1125, two quoted Rs. 1131. In State of Maharashtra, out of eight parties, five quoted identical rates of Rs. 1100, while one quoted Rs. 1110 and the two quoted Rs. 1150. In case of Sikkim, both the parties quoted identical rate of Rs. 1150. In state of Kerala, out of eighteen, ten parties quoted the rate of Rs. 1151, two parties had quoted Rs. 1160, two quoted rate of Rs. 1170 and four others quoted Rs. 1152, Rs. 1153, Rs. 1154 and Rs. 1150.5 each. As far as State of Assam was concerned, out of four parties, two parties quoted Rs. 1175 and two others Rs. 1166 and Rs. 1165 respectively. For North East, t....
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.... in other States like Himachal Pradesh, Uttar Pradesh and Haryana, yet they had quoted the identical price to the last decimal. It was in this fashion that the CCI considered the identity or near identity of the prices by the concerns, who had different considerations like the location of factories, electricity rates and labour rates etc. 35. We are thoroughly convinced by this analysis that all this could not have been possible unless there were internal agreements between the concerns. What shocks us is that the quotations of the price did match to the last decimal and the quotations in some cases were in odd figures like Rs. 1127 in the State of Tamil Nadu. The record is replete with such odd figures. It was strange that in some of the oral statements of the representatives of these parties, who were examined by the DG, some of them could not even justify these identical prices and tried to say that it was a mere coincidence. We cannot accept the argument of coincidence as was rightly rejected by CCI. There can be no explanation for this kind of identical or near identical pricing. The CCI has rightly considered that the manufacturing cost of per cylinder varies in a wide spe....
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.... are also properly discussed by the CCI and we accept the same, though much was argued against this aspect. As regards the last three aspects of accrual of benefits, improvements in production or distribution of good or provision of services and promotion of technical, scientific and economic development, the CCI has rightly concluded that nothing has been shown so as to answer these three aspects in favour of the appellants. 38. It is argued before us, like CCI, that where the allocation is made by the IOCL on the basis of installed capacity and on the basis of the negotiated rates, there could be no possibility of incentive to collude. We have already pointed out earlier that even where the rates are fixed by negotiations, the bid-rigging can still take place, if the bidders collude and keep the bid amounts to a pre-determined level. It will be seen that such pre-determination can be by way of intentional manipulation by members of the bidding group and where the L-1 rates themselves get fixed like this at higher level, even if there are negotiations, the negotiator would have to take into consideration the benchmark rates. Even if, such benchmark rates are not accepted becaus....
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....arteling parties. In our case, there is substantial evidence available and if all the circumstances proved like the existence of an association, holding of meeting, appointing of common agents in Bombay along with the identical pricing aspect, the only conclusion is that there was a carteling behaviour. 40. Some counsel pointed out that the factors enumerated in Clause a, b and c of Section 19(3) were absent in the present matter and therefore, there was no appreciable adverse effect on competition. We are thoroughly convinced by the discussion by the CCI in this behalf and we have already endorsed the finding on that basis. Some counsel painstakingly pointed out to us that this very product was earlier supplied at higher rate to BPCL and HPCL and therefore, ultimate consumers were beneficial because of the lower price fixed in case of IOCL. The CCI has rightly rejected this argument and we also propose to do the same. Merely because in some other tender the OMCs did secure the cylinders at higher cost that by itself is not sufficient to rebut the presumption raised under Section 3(3). This is apart from the fact that before the CCI parties did not furnish any material to show t....
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....on 3, then the burden automatically shifts to prove otherwise. There is a presumption about appreciable adverse effect on competition in the wake of the mere proof of the agreement under Section 3. The argument that by proving the agreement such presumption cannot be raised and that the authorities have to independently come to the finding on appreciable adverse effect on competition is incorrect in law. The moment agreement is proved the presumption is raised and the burden shifts to the other side. In the present case, no efforts have been made to dispel or to rebut the presumption raised. The argument is, therefore, clearly incorrect. While arguing for Supreme Technofabs Pvt. Ltd., Krishna Cylinders, Shriram Cylinders, Gopal Cylinders and Faridabad Metal Udyog Pvt. Ltd., Shri Pradeep Aggarwal by way of its additional written submissions reiterated his earlier arguments and tried to prove that these concerns were not the part of 44 concerns which had given the common reply. He also reiterated that these concerns were not the members of the Association and did not attend the Sahara meeting. We have already considered these arguments in the earlier part of the judgment and for the ....
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....ated equally like them and in effect they should be exonerated. We have already given our reasons as to why that is not possible and we reiterate those reasons. Reliance was also placed on a case of Orissa Concrete & Allied Industries Ltd. (Case No. 5 of 2011). The learned counsel tried to stress on the observations of paragraph 13 where the Commission had observed that "the quotation of identical rates by large number of firms is no doubt suggestive of and indicative of formation of a cartel but the same in itself is not conclusive and determinative of the issue." We have no doubt about the correctness of this but we have pointed out the plus factors and the enormous evidence in this case in favour of the agreement in breach of Section 3(3) of the Act. The argument in that behalf is, therefore, rejected. 44. Shri Ramji Srinivasan appearing for Carbac Holdings Limited submitted that the Carbac's bid prices were not matching with any of the other bidders in any of the three States where it submitted its bids. We have already shown that insofar as the State of West Bengal is concerned Carbac bid prices did match with others. It was suggested that there was justification for th....
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....d for a Commission decision to stand in court depends on both the quantity and quality of evidence adduced by the Commission in support of its case (i.e., whether the standard of proof has been met). In our opinion this condition was complete in the present matter. This is apart from the fact that the U.K. Competition Appeal Tribunal had recently confirmed that the appropriate standard is a civil standard and that case is, therefore, required to be proved on the balance of probabilities. It is true that this does not mean that U.K. applies a bare balance probabilities. In our opinion, there is very strong probability on the basis of the evidence led before the CCI. It is true that the application of the proof would differ from case to case and in accordance with the well established principle the unlikely and/or particularly serious events would require more convincing proof. In our opinion, in this case such proof is available. We, therefore, reject the argument of Shri Srinivasan. 45. The arguments of Shri P.S. Narsimhan, Shri Kuljeet Rawal, Shri Jacob Mathew, Shri P.K. Bhalla, for Vaish Associates, Shri Anshuman Jain and Shri Atul Nanda are more or the less on the same gro....
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....la had also quoted the identical price for supply for the State of Tamil Nadu while the appellant had not done so. We are not impressed by this argument at all. We had already held that whether a particular party was a Member of the association or not or whether the particular party attended the meeting or not, the existence of an association, holding of the meeting and engaging of common agents would be the plus factors in addition to the identical prices quoted by the appellant. We, therefore, reject the argument of Shri Bhalla. 49. These are the only contentions raised before us by the learned counsel. We, therefore, proceed to confirm the order of the CCI insofar as its finding on issue No. 1 is concerned. 50. Shri Prasad has written a separate order, where he has concurred with the majority, that the appellants had acted in breach of Section 3(3)(d) of the Act. He, however, held that he was unable to agree with the findings of the Commission in case of JBM Industries and Punjab Cylinders. According to him, both these parties were guilty of breach of Section 3(3). The learned Member has held that the cylinder manufacturers had an association and that the manufacturers use....
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....he Act. The CCI has observed in paragraph 15.2 that all the bidding companies who had infringed the provision of Section 3(3) are responsible in equal measure and no mitigating circumstances are available to any of them. The CCI has, therefore, fixed the liability at the rate of 7% of the average turnover of the companies. In paragraph 15.3 the CCI has also explained the methodology for calculating the fines shown in the chart. In that the CCI has held that some companies had given the financial details and some others had not. Those who had not furnished the financial details, the details were taken from the website of the companies. It was held that in some cases the financial details could be available only for two years. The CCI decided to use the information assuming it to reflect the position in regard to the third year also. We find from this list that in the case of Konark Cylinders & Containers Pvt. Ltd., Tee Kay Metals Pvt. Ltd., Sahuwala Cylinders, M/s. Universal Cylinders, Mahaveer Cylinders Ltd., Omid Engineers Pvt. Ltd., Bhiwadi Cylinders Pvt. Ltd., Shri Ram Cylinders, International Cylinders, Tripuati LPG Industries Ltd., Surya Shakti Vessels Pvt. Ltd., Faridabad Met....
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....CI fixed the penalty at 5% of the average turnover, relying on a reported decision in Hindustan Steel Ltd. vs. State of Orissa reported in MANU/SC/0418/1969MANU/SC/0418/1969 : AIR 1970 SC 253 wherein it was observed "if there is discretion, authority is bound to take into account aggravating or mitigating circumstances and exercise discretion laid down under the law, judicially", we had held that the Hon'ble Supreme Court has always insisted upon the reason and that in the absence of reason, the discretion tends to become arbitrary. We had also relied on the judgment of the Hon'ble Supreme Court in Kranti Associates Pvt. Ltd. & Anr. Vs. Sh. Masood Ahmed Khan & Ors. reported in (2010) 9 SCC 496. MDD was also a case of cartelization. In another judgment dated 29.10.2013 in M/s. Excel Crop Care Limited vs. Competition Commission of India & Ors. (Appeal No. 79 of 2012), we had relied on some observations made in Southern Pipeline Contractors & Anr. vs. The Competition Commission. We had also referred to the guidelines by the European Union (EU) and Office of the Fair Trade (OFT). We had quoted the five EU guidelines, where it was provided that is appropriate for the Commission ....