TaxTMI 
TaxTMI 
2013 (10) TMI 1504
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....by a common order passed by the Competition Commission of India (hereinafter called the "CCI"). One learned Member, however wrote a separate minority judgment, however has concurred with majority, though for different reasons. In majority judgment, the CCI came to the conclusion that all the appellants had indulged in collusive bidding and had contravened the provisions of Section 3(3)(d) of the Competition Act (hereinafter called the "Act"). It is also held that all the appellants had also violated the provisions of Section 3(3)(b) of the Act. One learned Member Shri R. Prasad, however, did not agree that these appellants had contravened the Section 3(3)(b), though he agreed that Section 3(3)(a) and 3(3)(d) of the Act was contravened. He, however, held that there was no applicability of Section 3(3)(b) in the matter and the appellants could not be penalised on that count. He, however, agreed with the quantum of penalties as ordered by the CCI, which was at 9% of the average three years' turnover of these three appellants. While in case of Excel Corp Care Limited, the penalty came to Rs. 63.90 crores, in case of Sandhya Organics Chemicals Pvt. Ltd., it came to Rs. 1.57 crores, ....
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....It was found that the sale of 3 gram tablet was restricted to the government agencies as also to the approved Pest Control Operators and it could not be sold in open market. It was found that there were only four manufacturers of ALP, three of whom were the appellants and 4th was M/s. Agrosynth Chemicals Limited, though 19 manufacturers were granted the licence to manufacture ALP. It was found that these government agencies procuring the ALP tablets worth Rs. 40 crores annually. It was noted that the FCI had adopted the process of tender, which is normally a global tender. The concerned tender had two bid system, that is first techno commercial and then the financial bid. On the basis of the bids, the rate running contracts are executed with successful bidders. The DG found that there was also a Committee comprising of responsible officers for evaluation of technical and price bids. As per the practice, the lowest bidder (L-1) is invited by the Committee for negotiations and after negotiations, the Committee submits the report giving its recommendations and the contracts are awarded and after that the payment for the purchased tablets is released by the concerned regional offices. ....
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....r of 16 tenders including the tender dated 08.05.2009. The last eight tenders considered by the DG and the pricing pattern definitely showed the practice of quoting identical pricing at times by all the three appellants or at some other times by two appellants including M/s. M/s. Agrosynth Chemicals Limited. The DG found the explanation offered to be of no consequence. The analysis also showed rising prices which were mostly attributed to the increase of the price by China during the Beijing Olympics. The DG however, came to the conclusion that even when the phosphorous prices had fallen, no reflection thereof was seen in the high prices quoted by the appellants. The DG also examined the costs structure of each company and found that there was nothing common in the cost structure of the appellants. The DG did not stop at that and also found that at the tender dated 08.05.2009 and also in the earlier tenders, there was a joint boycott at the instance of the appellants. The DG found that during the course of enquiry, the parties boycotted the e-tender issued by the FCI, which was invited in the March 2011 and was to be closed on 27.05.2011. The DG found that though M/s. Excel Corp Ca....
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.... 3(1). 5. We need not deliberate in terms of the replies of M/s. Agrosynth Chemicals since M/s. Agrosynth Chemicals have been exonerated and there is no appeal against them. However, we may use some facts of their response to support our conclusions. 6. M/s. Excel Corp Care Ltd. urged that the tenders floated earlier to 20th of May, 2009 (the day when Section 3 and 4 were activated) could not be taken into consideration. They also objected that in the letter dated 4th February, 2011 by FCI which was treated to be the information, there was no mention of 2011 tender and therefore, all the enquiry in respect of the boycott of that tender by the DG was without jurisdiction. 7. It was also urged by M/s. Excel Corp Care Ltd., opponent No. 2, that the supplies under the tender were already completed by May, 2010 and therefore by getting an enquiry instituted on the basis of such tender FCI was abusing its dominant position. It was further urged by them that the Director General by himself could not have investigated into the facts which were not directed by the Commission under Section 26(1) and that is what the DG has done by inquiring into the tender of 2011. The increase in p....
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.... quoted. The reliance of the DG on circumstantial evidence for inferring the cartel was also criticised and objected to. 8. Almost similar was the reply of OP-3, United Phosphorous Limited, on the question of 2011 tender and its consideration by the DG. It was pleaded that no opportunity was made available to it for inspecting the investigation records. It was urged that since the other ones like Excel Crop Core Limited and Sandhya Organic Chemicals Pvt. Limited were the competitors and therefore there was no question of any agreement with them. OP-3 had justified the identical pricing by pleading that the rate finalized in the tender of CWC in the beginning of the particular year is considered to be the bench mark for the other tenders for that year and therefore there is likelihood of identical pricing. The charge of entry barrier was also refuted on the ground that there were rigid and strict conditions of licensing and the entry barrier was therefore attributed to the legislative acts. It was tried to justify in the others tenders, UPL-OP -3 had quoted different rates, for example for the tender floated in the year 2006, UPL had quoted the price of Rs. 200 per kg. The price ....
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....ests that the investigation included the further tenders as well. It was pointed out that the tenders floated during 2007 and 2009 decided in the information as evidence to the fact that the opposite parties had been acting as a cartel even on earlier occasion due to which informant-FCI had to pay unusually higher prices. The reliance by the opponents on the judgment of Hon'ble Supreme Court in All-India Organisation of Chemists and Druggists Association reported in (2002) 2 CTJ 4 (SC) (MRTP) was also criticised on the ground that the facts was different and so was the scope. The FCI also objected to the reliance to the note-sheets of the FCI which were reflected on pages 268-272 of the DG's report and urged that note-sheet could not be looked by the Courts since that is the views expressed by the individuals and nothing to do with the legal submissions. It was urged that in this case the issue was not merely parallel pricing but the issue of identical pricing and concerted bidding which was evident from the fact that in certain years all the manufacturers have chosen not to bid. It was urged that besides this there were other factors to draw a conclusion of cartel by the o....
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.... question of any jurisdiction being with the CCI to enquire into the so called collusive bidding. A reliance was placed on the reported ruling in the case of M/s. Gulf Oil Corporation Ltd. Vs. Competition Commission of India & Ors. reported in : 2013 COMPLR 0409 (COMPAT) where it was observed that their pre-Act behaviour could not be taken into consideration even for the purpose of penalty. This argument was opposed by the Senior Counsel Shri Virmani appearing for the FCI and also by Shri Balaji Subramanian, learned counsel appearing for the CCI. The first contention raised by Shri Virmani was that it was not as if the provision of Section 3 was not known to the appellants on 8.5.2009 when the bids were submitted. The learned Senior counsel was at pains to point out that the Section was very much there on the Statute Book but had only not been notified. The learned counsel, however, carried his argument further that the gravamen of the allegation against the appellants as was found by the CCI was the agreement amongst the appellants which directly or indirectly resulted in the bid rigging or collusive bidding. In that, the learned counsel argues that, therefore, it is not only the ....
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....referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. Therefore, the words 'manipulating the process for bidding' assume a very great importance. Its not only the act of offering an identical price which is complained of. What is complained of, is the act of bid rigging or the act of collusive bidding, which understood in the light of the language of explanation, has resulted firstly in eliminating or reducing competition for bids or secondly adversely affecting or manipulating the process for bidding. The argument put forth by Shri Virmani as also Shri Bala Subramanian is undoubtedly correct. In this behalf the CCI has also recorded a finding in paragraph 7.13 that 8.5.2009 is not the crucial date but even 1.6.2009 and 17.6.2009 are equally crucial. This discussion would mean that the illegality of collusive bidding or rigging the bidding which commenced on 8.5.2009 was continued thereafter on 1.6.2009 and 17.6.2009 also. The negotiation of prices with the lowest bidder, and....
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....ations also. Once this inference is reached on the basis of the interpretation of Section 3(3) explanation there would be no question of dearth of jurisdiction on the part of the CCI to firstly order the investigation into the matter and also to inquire itself into the complained illegality. 17. It was seriously canvassed by the learned counsel appearing for the appellants that the Competition Act is not retrospective in operation and therefore, only the facts after 20th May, 2009 when Section 3 and 4 were notified could be considered. It was very seriously argued that unless there are words in the statute sufficient to show the intention of the legislature to affect the existing rights, it is deemed to be prospective on the principle "nova constitution futuris formam imponere debet non-praeteitis". A long list of Hon'ble Supreme Court cases relied upon by the learned counsel were cited, which are:- (a) Keshvan v. State of Bombay, AIR 1951 SC 128 (b) Janardan Reddy v. State, AIR 1951 SC 124 (c) Mahadeolal Kanodia v. Administrator General of West Bengal, AIR 1960 SC 936 &n....
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....process for bidding. We have already accepted the argument raised by the learned counsel for the FCI and CCI to the effect that this allegation was not event specific and it was about the whole tendering and bidding process. 19. It was also sought to be argued that once there were negotiations between FCI on the one side and the three appellants on the other. It had the effect of wiping out the original identical pricing offer made by the three appellants on 8.5.2009. The learned counsel argued, therefore the negotiation was independent of the original offer and had effect of wiping out the identical pricing offered by the three appellants. The argument is clearly incorrect for the simple reason that firstly it has to be held that there was no hiatus after 8.5.2009 and the bidding process did continue even after 8.5.2009. If that interpretation is given to the term bidding process appearing in Section 3(3) explanation then the rigour of the argument goes away. The negotiations were undoubtedly pursuant to the tender floated by the FCI and in terms of the NIT conditions. It could not be held that the reduction in rates wiped out the tender and that it amounted to an independent t....
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....he argument is, therefore, rejected. 23. An argument was also raised by the appellants that in fact the information led before the FCI by letter dated 4.2.2011 was hopelessly belated and should not have taken note of particularly because the supplies under the disputed tender were already over. For this purpose, reliance was sought to be placed on the judgment of the Hon'ble Supreme Court in the matter of All India Chemists and Druggists Association reported in (2002) 2 CTJ 4 (SC) (MRTP) wherein the Hon'ble Supreme Court dropped the proceedings because the agreement complained of had come to an end. We do not see how the ratio in the above case is applicable to the present facts. It is obvious that even up to 4.2.2011 the appellants had been continuing their anti-competitive activities with regard to the dealings with the FCI and other State Corporations. It must be stated that the complaint by the FCI from its very language in the letter dated 4.2.2011 is not even specific to any transaction. The contention raised in this behalf must be rejected. 24. It was also urged that the Director General as well as the CCI had ignored the fact that the officer of the FCI had th....
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....also in the tenders floated by some other Corporations. In this behalf our attention was invited to the report of the Director General which report referred by the CCI in paragraph 4.14 of the impugned order. This table is as under:- From this table it was sought to be urged by Shri Virmani and Shri Balaji Subramaniam that right from 2007 there has been identical pricing between Excel Crop care Ltd. and United Phosphorous Ltd. in respect of the tenders floated by UP State Warehousing Corp and Punjab State Civil Supplies Corp. It is then pointed out in the table that even in 2008 tender floated by Central Warehousing Corp. there has been identical pricing of Rs. 450 between Excel Crop Care Ltd. and Sandhya Organics. Same thing has happened in the tender floated by UP State Warehousing Corp and Punjab State Civil Supplies Corp as also Central Warehousing Corp. where the prices quoted by Excel Crop Care and United Phosphorous are identical. At Sl. No. 9 it is seen that there was identical pricing in the case of tender floated on 15.6.2009 between Excel Crop and Agrosynth Chemicals Ltd. So far so good however in as many as 7 tenders thereafter also, there is a clear cut example of i....
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....d not have investigated into the tender floated in 2011, as the CCI had not authorized the DG to investigate into that matter. The learned counsel, then contended that the DG had no jurisdiction, therefore, to investigate and the whole investigation thus has been rendered non-est because of the lack of jurisdiction. The learned counsel took us through the provisions of Section 26(1) as also the various Regulations in that behalf. As per the sub-section (1) of Section 26, there can be no doubt that the DG has the power to investigate only on the basis of the order passed by the Commission under Section 26(1). Our attention was also invited to sub-section (3) of Section 26 under which the Director-General, on receipt of direction under sub-section (1) is to submit a report of its findings within such period as may be specified by the Commission. The argument of the parties is that if on the relevant date when the Commission passed the order, even the tender notice was not floated, then there was no question of Direction General going into the investigation of that tender. It must be noted at this juncture that under Section 18, the Commission has the duty to eliminate practices havin....
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....the order of Section 26(1) is considered, it is broad enough. At this juncture, we must refer to the letter written by Chairman and Managing Director of FCI, providing information to the CCI. The language of the letter is clear enough to show that the complaint was not in respect of a particular event or a particular tender. It was generally complained that appellants had engaged themselves in carteling. The learned counsel Shri Virmani as well as Shri Balaji Subramanian are undoubtedly correct in putting forth the argument that this information did not pertain to a particular tender, but it was generally complained that the appellants had engaged in the anticompetitive behaviour. When we consider the language of the order passed by the CCI under Section 26(1) dated 23.04.2012 the things becomes all the more clear to us. The language of that order is clearly broad enough to hold, that the Director General was empowered and duty bound to look into all the facts till the investigation was completed. If in the course of investigation, it came to the light that the parties had boycotted the tender in 2011 with pre-concerted agreement, there was no question of the DG not going into it. ....
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....e not changed, therefore, ultimately a letter dated 26th May, 2011 came to be served on FCI conveying the inability on the part of M/s. Excel Corp to take part in that tender. According to the learned counsel the decision not to take part in the tender was a valid business decision and not a result of pre-concerted agreement along with the other manufacturers who are the appellants before us. 30. Similar was the plea raised by Dr. Vijay Aggarwal on behalf of M/s. Sandhya Organics Chemicals Pvt. Ltd. He pointed out that even M/s. Sandhya Organics Chemicals Pvt. Ltd. had made it clear to FCI by a letter that it could not take part in the tender by offering its price bids. Dr. Vijay Kr. Aggarwal raised a novel plea that in fact as per the tender conditions M/s. Sandhya Organics Chemicals Pvt. Ltd. did not qualify to take part in the tender as it did not have the capacity to produce and supply 75MTs of ALP every month. Dr. Aggarwal pressed in service a certificate issued by the authorities certifying that the monthly capacity of M/s. Sandhya Organics Chemicals Pvt. Ltd. was only 25 tones. On this basis Dr. Aggarwal seriously contends that M/s. Sandhya Organics Chemicals Pvt. Ltd., a....
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....believed that the production capacity remained limited to the one mentioned in the certificate and yet they survived in the market. In short, we do not find any merit in this plea on behalf of M/s. Sandhya Organics Chemicals Pvt. Ltd. of their dis-qualification. We have already held that by sending the letters afterwards (even that plea is to be believed) M/s. Sandhya Organics Chemicals Pvt. Ltd. displayed serious lack of bonafides. At this juncture we must note that M/s. United Phosphorous Limited, another appellant did not even bother to make any representation. Once these facts are established the only irresistible conclusion is that all the three appellants engaged themselves in boycotting the tenders though they were the only manufacturers besides M/s. Agrosynth Chemicals Limited in India of ALP and were constantly supplying the ALP over the years. This is nothing but bid rigging prohibited under Section 3(3)(d) of the Act. In our opinion, the Director General and CCI were absolutely correct in that behalf. 33. We were taken through the conditions of 2011 tender. Shri Srinivasan complained against some of the conditions, but we do not think those conditions could be such as....
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.... as the situation was then, such identical pricing and such boycott viewed on the backdrop of consistent practice of offering identical price bids, only confirms that all this was made with a common design, which amounts to an agreement. All the learned counsel could not explain the odd figure of Rs. 388/-, which was the price bid offered. The learned counsel also could not meet the argument of Shri Virmani and Shri Balaji Subramanian that all the three factories were located at different places and there was no way that the cost prices could be identical. Considering the different distances and locations, for the supplies to be made, there was absolutely no explanation on identical pricing. The identical pricing on one or two occasions though raises strong suspicion, may not be enough to draw the inference of the concerted agreement, but when is repeated constantly with odd figures and without any reasonable explanation for the same, would only draw an inference of a pre-concerted agreement. 36. It was also urged by the learned counsel that in some of the tenders, these three appellants had not offered identical price bids. That may be so, however, on several occasions, the thr....
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....e. 40. In short, we are of the clear opinion that the CCI was correct in holding the appellants guilty of contravention of Section 3(3)(d). 41. At this juncture we must also take the note of the concurring but separate order by one of the learned Member Shri R. Prasad and in his order. He has firstly taken the stock of the reported decision in Hindustan Lever Ltd. 1993 (3) SCC 499 where the Supreme Court had held that a mere price parallelism does not lead to a conclusion of existence of a cartel. The learned Member has then considered the language of Section 3 as well as Section 2(b) of the Act. After considering and examining the concept of trade practice as elaborated by the Supreme Court in Hindustan Lever Ltd. vs. MRTP AIR 1977 SC 1285 the learned Member has come to a correct finding that submitting identical price bids amounted to a practice for the purpose of Section 3(3) of the Act and that the appellant not having discharge their onus. It could be deduced that there was consultation inter se between the appellant before quoting the identical price. We, therefore, approve the separate order passed by Shri Prasad. However, we do not agree that in this case the provisio....
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....9% of average turn over by way of penalty the CCI had acted arbitrarily. Lengthy arguments were advanced on this question. The learned counsel and more particularly Shri Ravinder Narain for United Phosphorus Limited argued that the CCI at least in its case should not have considered the over all turn over and should have restricted itself to the relevant turn over. Meaning thereby that the CCI should have only considered the turn over of the business of manufacturing ALP tablets. Shri Ravinder Narain pointed out that the appellant, United Phosphorous Ltd., is a multi product company where the turn over of ALP tablets was insignificant. He points out that while the total turn over for the year 2009 was Rs. 2,738.98 Crores and the total turnover of ALP tablets including all domestic and export sales was Rs. 84.99 crores and the total turn over of ALP in that year for the domestic market was a mere Rs. 23.33 crores. He also asserts that insofar as the total amount of supplies of ALP to FCI in the year 2009-10 was concerned it was merely Rs. 8.49 crores which was merely 0.3% of the total turnover of the company. He wonders as to how the exorbitant penalty of Rs. 252.44 crores be impose....
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....s. 44. In point 8 of the guidelines set out the principles which would guide the Commission where it order fines in terms of Article 23(a) of Regulation No. 1/2003. Thereafter the method of setting of fines is prescribed. In that under Section A it is provided at point 13 that in determining the basic amount of the find, the Commission will take the value of the undertakings sale of goods to which the infringement directly or indirectly relates. In this case it would be the supplies to FCI under the tender of 2009. 45. It is pointed out that the value of sales to be determined should be before the VAT and in other taxes. 46. In point 22 of the guidelines provides that it should be determined whether or not the infringement is implemented. 47. In point 36, it is provided that in certain cases the Commission may even imposes symbolic fine. 48. Now speaking about the OFT Guidelines. In paragraph 1.3 speaks about the guidance as to the circumstances in which in determining a penalty the OFT may taken into account the effect of an infringement in another member State. 49. In paragraph 1.6, it is provided that firstly it would be the task to determine whether the financ....
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....der:- 54. Shri Ramji Srinivasan also reiterated all these points of the guidelines of EU and OFT. A table was presented before us which is as under:- The learned counsel, however, very seriously argued the question of relevant turn over which concept is to be found in the EU guidelines. He also relied on the decision in the case of Southern Pipeline Contractors Conrite Walls (Pty) Ltd. and the Competition Commission (Case No. 105/CAC/Dec 10) (106/CAC/Dec 10) - Page 27 [51.] The concept of 'turnover' is not defined in the Act and is only referred to in Section 59(2), being annual turnover. There is thus some uncertainty as to the precise meaning of 'turnover'. However, section 59(3) refers on more than one occasion to 'the contravention', in particular, in dealing with the nature, duration, gravity and extent 'of the contravention', the loss or damage suffered as a result of the 'contravention' the market circumstances in which 'the contravention' took place and the level of profit derived from 'the contravention'. Thus there is a legislative link between the damage caused and the profits which....
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....available to the CCI. It was tried to be argued that the CCI should have given them the opportunity to argue on the question of penalty. 59. 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. 60. There can be no dispute that where harsh financial penalties are inflicted the reasons become all the more necessary. 61. All the learned counsels very seriously canvass the question of "relevant turn over". The argument that the appellants, United Phosphorous Ltd. and M/s. Excel Crop 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 ....
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....us Ltd. in the domestic market was mere Rs. 23.33 corers while the total turn over regarding the manufacturing of ALP tablets was Rs. 84.99 crores in one year. In our opinion, it would not be reasonable to hold the total turn over of the United Phosphorous Ltd. as the relevant turn over and it would have to be restricted to the turn over regarding the ALP Tablets. Unfortunately for us the United Phosphorous Ltd. have not given any details about its other products. In our opinion, unless those details are supplied, it would be very difficult to arrive at a definite finding regarding the turn over of ALP tablets. However, we do not agree with Shri Ravinder Narain who insists on restricting the relevant turn over to the sale only in the domestic market. In fact, it is the whole turnover regarding the ALP Tablets, which will be liable to be considered. Similar is the case of M/s. Excel Crop. It is only at the appellate stage M/s. Excel Crop has chosen to give the figures regarding their turn over relating to the production of ALP Tablets. While arriving at a conclusion about the relevant turn over it would be open to the authorities like CCI to rely on the general principles expressed ....
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....asonable price. 64. We do not accept the argument that there was no appreciable adverse effect on competition as the rates were reasonable and all the competitors took part in the first tender. There is a great confusion about this term. We must at this stage point out that the term has to be interpreted with the aid of the words that it contains. Meaning thereby that the appreciable adverse effect should be on the aspect of 'competition' itself and not restricted to the 'competitors' or rates. It is trite that with the healthy and higher competition ultimate consumer would be benefited. In the second tender which was boycotted, considering the necessity of the product, FCI had to purchase the product at the increased rate of 499/- per kg. from all the appellants. Considering the volume of requirement of several hundreds tonnes, this was a huge increase resulting in adversely affecting the competition substantially. A collective and deliberate boycott always affects the competition, same is the case of identical prices. If the parallel prices had not been offered or if the second tender was not boycotted (undoubtedly as a result of the concerted agreement) there ....
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....turnover of the ALP Tablets including all domestic and export sales, the average of three years comes to Rs. 77.14/- crores. Therefore, their penalty @ 9% of this figure would come to Rs. 6,94,26,000/-. That will be a penalty against M/s. United Phosphorous Limited. 68. In so far as the M/s. Sandhya Organic Chemicals (P) Ltd. is concerned, there is no question of the relevant turnover, as it was not urged before us that they have any other product, than the ALP Tablets. The CCI has calculated their penalty at Rs. 1.57/- crores, on the basis of their total turnover. M/s. Sandhya Organic Chemicals (P) Ltd. is relatively a small enterprise. We also noted that M/s. Sandhya Organic Chemicals (P) Ltd. had raised a plea that they could not have taken part in the second tender since their production capacity was only 25 metric tonnes a month as per the certificate issued on November 29, 1995 by National Small Industries Corporation Limited (A Government of India Enterprises). Though, we had not accepted that plea, it will have to be considered that their production capacity is also not comparable to the production capacity and the size of the other two appellants. We would, therefore, c....