TaxTMI 
TaxTMI 
2013 (2) TMI 867
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.... and dispose of the three appeals namely - (i) Appeal No 93/2012 filed by one MDD Medical System India (P) Ltd. (hereinafter called "MDD" or the "appellant" as the case may be) (ii) Appeal No. 94/2012 filed by PES Installations Ltd. (hereinafter called "PES" for short) and (iii) Appeal No. 95/2012 filed by Medical Products Services (hereinafter called "MPS" for short). In all the appeals a common order passed by the Competition Commission of India (hereinafter called the "CCI") is challenged. By that order, CCI held that all the three appellants had contravened the provisions of Section 3(3)(d) read with Section 3(1) of the Competition Act, 2002 (hereinafter called the "Act") by indulging in the process of bid rigging in the matter of supply and installation, testing and commissioning of Modular Operation Theatre (MOT for short) and Medical Gases Manifold System (MGMS) at Sports Injury Centre (SIC hereinafter), Safdarjung Hospital, New Delhi. The CCI has also proceeded to inflict the penalty against all the three appellants under Section 27 of the Act. While in the case of MDD the penalty is Rs. 18,470,778/-, in the case of PES the penalty is Rs. 6,840,252/- and in the case of MPS ....
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....es which specialized in either of these two products from participation in the tender. Further allegation was that certain pre-qualification criteria were also incorporated which resulted in limiting the competition. According to the informant, further, all these steps enabled the firms named in the information to manipulate the entire tender process and for this influential government officials used their authority which ultimately resulted helping the manipulation of bidding process. It was pointed out that initially in the pre-bid meeting dated 12.10.2009, as many as 12 firms had participated wherein a protest was raised over the conditions in the tender documents by every single prospective bidder except by the firms represented by the appellants. It was expressed therein that because of the restrictive tender conditions there was a possibility of cartelization in the tender process. The firms were directed to submit their concerns and objections regarding the clauses in writing. It was pointed out in the information that in another meeting dated 22.10.2009 certain amendments were issued by HSCC. However, these amendments were also tailored to help the three appellants firms. I....
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....d were not added after pre-bid meeting. The informant alleges that the committee deviated from its original stand of purchasing equipments along with their operation and running cost for ten years and reduced it from ten years to five years. According to the informant, this was how the committee compromised with the life of crucial MSMS and MOT systems. Ultimately the final order was placed on MDD for Rs. 16,11,92,206.73 with reduced warranty and operations and maintenance charges for five years only. According to the informant, this was done with the sole intention to justify the cost at approximately Rs. 16.11 crore against the budget value of Rs. 10 crore. According to the informant MDD would be asked in future to undertake CMC and O & M for the next five years and finally the total cost of the project would be Rs. 24.32 crores only which was quoted by the MDD in its tender. The informant also alleged non-verification of the fact regarding the rates quoted by MDD. It is also submitted that ultimately contract was signed on 6.1.2010 and the terms of contract were also modified favouring the MDD vide letter dated 1.2.2010 which was authored by an Under Secretary of the Ministry. T....
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....atter such, as these bidders were having common authorization from only one principal namely Stryker India which amounted to violation of the specified terms and conditions of the tender. According to the Director General's investigation it was revealed that MDD had requested Stryker India for its authorization and since PES was the exclusive distributor in India, it was decided that MDD would be authorized for the SIC tender on behalf of Stryker but it would be routed through PES. In fact according to the DG, there was some kind of mutual understanding between the two as both claimed through Stryker India of which PES was the exclusive distributor. Thus MDD was, technically, not qualified as it was not having the manufacturers' authorization for integration nor was it having five years experience with the principal. The Director General also submitted that the fact that MDD did not have requisite experience was well known to PES but it did not object since this would have resulted in disqualification of MDD. In fact, Stryker's certification which enabled MDD to quote in SIC tender was routed through PES itself. Thus, PES and MDD were not actual competitors but collabor....
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....llusion between these three firms which was totally in contravention of Section 3(3)(d) of the Act. The Director General also had examined the profit and loss and balance-sheets of the three firms and found that there were numerous financial and business transactions with each other in the accounts of MDD, PES and MPS installation. It was also found that among the contracts awarded to the different parties PES installations was the leading awardee while MDD and MPS had followed. Therefore, the Director General held that over a period of time these three firms were able to corner most of the MOT and MGMS projects in the various private and government hospitals. The Director General also reported that there was violation of Section 3(4) of the Act on the part of the PES. According to the Director General there were two companies namely Stryker India and Karl Storz which provide expertise in integrated devices and solutions in MOT. However, Stryker India was more preferred to the other. On account of its exclusive dealership with Stryker, PES was at an advantage as compared to other local dealers/agents who could not bid in various hospitals for MOT. This has resulted in restricting t....
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....ot bother about Issue No. 2 in this appeal since that question is not pending before us owing to the exoneration of the appellants on that account by CCI. 5. As regards the first issue, the CCI first gave the brief history of the whole process of tendering and also referred to the amendments of the tender condition. It has then quoted comparative offers made by MDD and PES. It then referred to the opinion of the Committee that the budget provision of Rs. 10 crores could not be considered as the overall estimated cost for the complete project inclusive of 5 years of warranty, 5 years of subsequent CMC and 10 years of operation cost. It has then gone on to mention about separate rates having been called for 5 years of subsequent CMC and 5 years to maintenance cost and hence mentioned the comparative tables of the prices with the fresh conditions. It also referred to the opening of the price bid of Medical products though it was disqualified which was only for comparison sake. In paragraph 6.24, the CCI criticized the tender design and specifications as uncertain. It also commented adversely on there being no payment by Stryker for PES which was indicative of the fact that PES was ....
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....h 6.49 the CCI has adversely commented upon the opening bid of MPS which was disqualified. The CCI mentioned in paragraph 6.49 as under:- As per Government norms, minimum 3 bids should be there for considering any purchase. Technical and financial bids were together submitted by MPS and the record shows that MPSs financial bid was opened and considered for comparative purpose. It only seems that MPS deliberately filed bid so that the entire bidding process may not be rescinded." The finding is recorded in paragraph 6.50 that MPS was not acting independently and was acting in concert with the other bidders. The finding is then recorded that all the three firms were acting in concert with each other. 6. The CCI adversely commented on the fact that though MDD approached Stryker Limited for authorization, the PES who was the sole distributor of Stryker products did not object to such authorization being given by the Stryker to MDD particularly when PES was also competing with MDD. Further, the CCI found it strange that the rate of the Stryker related items quoted by MDD was lower than PES. According to the CCI, ordinarily the prices quoted by PES for the Stryker related ite....
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....equer and resulted in huge profit being made by MDD which was shared with PES. This prompted the CCI to pass the order under Section 27 of the Act and on the basis of 5% of the average turnover, the CCI imposed a penalty of Rs. 6,840,252 on PES, Rs. 4,784,188 on MPS and Rs. 18,470,778 on MDD. 7. Shri Dhruv Mehta, Sr. counsel appearing on behalf of MDD, Shri Neeraj Malhotra and Shri Kamal Mehta appearing for MPS and PES respectively severely criticized this order. Shri Mehta firstly contended that the finding of the CCI and its deductions regarding MPS were not correct. He pointed out that the CCI had held, that, though MPS was not qualified yet it had presented a bid to show that there were at least three competitors in the field. The CCI had observed in paragraph 6.49 that as per the government's norms minimum three bids were required for considering any purchase. The CCI had also observed in the same para knowing that it did not have the necessary qualification of not doing one project of the similar kind during the last three years for Rs. 400 Lakhs or above, the MPS should never have offered bid knowing fully well that it would not succeed. However, it did so only to pro....
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....5%, 17% and 20% for the 1st, 2nd, 3rd, 4th and 5th year respectively. PES has also identically quoted these percentages. In our opinion, this identity in the percentage itself should raise an eyebrow. Though, the price could not have been same, one wonders as to how the two competing firms could have quoted identical percentages. There is no fixed norm or any material to suggest that these percentages are standard percentages in case of the comprehensive annual maintenance. This is apart from the fact that the price covered by these percentages is almost the double of the price quoted by the MDD. Roughly, in case of MDD, the percentages for the 1st, 2nd and 3rd year would be nearly 5%, 6% and 7% which are almost double the percentages of MPS and PES. Shri Balbir Singh, advocate for the CCI pointed out that unless there was a meeting of minds at least between MPS and PES, they would not have quoted the identical percentage for comprehensive maintenance. He is undoubtedly right there. Such identical percentage could not have been a mere co-incidence. We can understand if there was any standard norm in the matter of annual maintenance of MOT and MGPS. There is nothing brought on recor....
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....ttee formed the opinion that the three big manufacturers formed a cartel on the ground that the price initially quoted by them was identical and was only a cartel price. This, in our view, was only a suspicion which of course got strengthened by post-tender attitude of the said manufacturers who quoted a much lesser price. As noticed above it cannot positively be concluded on the basis of these two circumstances alone. In the past these three big manufacturers also offered their own quotations and they were allotted quantities on the basis of the existing practice. However, a mere quotation of identical price and an offer of further reduction by themselves would not entitle them automatically to corner the entire market by way of monopoly since the final allotment of quantities vested in the authorities who in their discretion can distribute the same to all the manufacturers including these three big manufacturers on certain basis. No doubt there was an apprehension that if such predatory price has to be accepted the smaller manufacturers will not be in a position to compete and may result in elimination of free competition. But there again the authorities reserved a right to rejec....
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....ntity of figures in percentages. Presently, we rest at that. 10. This takes us to the contention raised by the learned counsel for all the three parties about the finding in common errors in the bid documents and the common typographical errors. Shri Dhruv Mehta, Senior counsel as well as two other advocates-Shri Neeraj Malhotra and Shri Kamal Mehta, very earnestly argued that though there were common errors and the common typographical errors in the three bid documents, the same was an innocuous factor. The learned counsel also pointed out that in spite of all these common errors and common typographical errors, no inference could be drawn about there being a meeting of minds between the three competitors. The learned counsel pointed out those common errors occurred in typing of price schedule. As per the procedure prescribed in the tender document the price of the items picked up from the bill of quantity was to be incorporated in either Form XIA or XIB. In this behalf, in paragraph 6.29 the CCI has noted that the prices of goods available in India were quoted in the column meant for price schedule for goods to be imported from abroad. This was a common mistake committed by al....
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....acute;. Here also the explanation given before the DG by PES vide letter 29.7.2011 was that generally the price bid format was provided by the tendering authorities but since in the present tender such price bid format was not available in the price bid meeting held on 12.10.2009, the price bid format had to be got typed and printed by the tenderer themselves and as it was an exhaustive format consisting of about 75 items with their descriptions the officials of tendering companies for convenience got it typed from some nearby computer café and since only one typist typed the price bid format for all the three companies such common typographical errors occurred. The CCI then noted the statement of Shri Rajan Verma of MDD Medical. The CCI noted that in his answer he had stated "MDD cannot confirm, neither is aware how all these typographical mistakes have happened in the price schedule form which is identically similar with PES and MPS." The CCI also noted the explanation by MPS through its representative in the statement dated 1.8.2011 and found that the same was different. The CCI, therefore, concluded in its order that explanations were also contradictory with each other. ....
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....o quote competitive price as compared to MDD. The CCI found out that PES had quoted almost double of maintenance and operational charges compared to MDD which was also not natural considering the fact that PES alone had experience of installation and integrated items of Stryker. It must be mentioned here that ultimately though the contract was given to MDD but the installation work was got done through PES only. The learned counsel tried to justify this on the grounds that PES was interested in making profits and had, therefore, quoted prices higher than MDD and that all this was possible during the course of business. The learned counsel also urged that the products of Stryker quoted by MDD constituted only 6% of the entire project. In our opinion, such explanation is of no consequence and there had to be a handshake between MDD and PES who were the only competitors. 13. The learned counsel invited our attention to the comments made by the CCI on the forwarding letter of MPS to the tendering agency and urged that in that letter MPS had referred to bank guarantee No. 2384 1 BG-10-09 dated 26.10.2009 for twenty lacs. The learned counsel argued that this circumstance was in fact a....
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....ces of MDD, the DG had noted that the landed cost of equipments and the custom duty paid by MDD was insignificant as compared to what was quoted by it to SIC and thus MDD had escalated the selling price of equipments compared to the landed cost and thus was able to make huge profit. This was reflected by PES and MPS by quoting further escalated price. In the analysis which is reflected in paragraphs 6.58 in a tabular form, this inference is firmly supported. The CCI has further observed that the price bid of the successful firm was Rs. 24.32 crores. However, it was scaled down to Rs. 16 crores by limiting the O & M charges not for 10 years as was the proposal but to 5 years only. It will not be for us to make any comment on the wisdom of the Tendering Committee in modifying these tender terms. However, we do find that the contract price was brought down artificially to Rs. 16 crores even by changing the tender terms. As to what is its effect on the whole tender process is not for this Tribunal to decide. It is for some other authorities to consider these facts. 17. The learned senior counsel had argued that there was no evidence in shape of written agreement nor was there any in....
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....d in this behalf will be of no consequence. In fact all the parties were represented by the counsel who had the full opportunity to argue their matter before the CCI. We therefore, do not accept this argument that there was no opportunity given to address on the question of penalty. However, the second criticism appears to be somewhat justified that the CCI has not given any reasons as to why it was ordering the penalty at the rate of 5% of the average turnover and that too for all the three parties. 20. In that behalf, we must note that the CCI should have considered certain factors while inflicting the penalties. In our opinion those factors would be:- (i) That this was a single incident and there is no evidence that the three companies were engaging themselves in such practice earlier. (ii) That the parties are being booked for the first time. (iii) Any post tender development, such as timely execution of contract of a complicated and technical nature. 21. We also do not find any justification in the order for the penalty at the rate of 5% of the average turnover. While considering the question of penalty, the CCI has to be very....
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....e, split this turnover treating it to be a relevant turnover by taking into consideration only the value of the materials, supply to the Government Hospitals and the services offered to them through the tender. In our opinion, the argument is completely illogical. In fact there would be no difference in the nature of business in case of Government Hospitals and the private hospitals. In both what the enterprise would be doing is only supplying the necessary materials for building operation theatres and creating the said theatres so that they are efficient and without any fault. In the matter of service also, the task of maintaining these operation theaters would be no different. Therefore, we cannot persuade ourselves to accept such argument and we do not see any justification to take into account only the value of materials, supplied to and the services offered only to the Government Hospitals through tenders. That would be a hair splitting exercise. We also do not accept the argument that there would be any material difference in between the Government Hospitals and Private Hospitals or the materials supplied to and the services offered to them. The argument is, therefore, reject....
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....ing reasons not only by quasi-judicial authorities, but also by the administrative authorities. It cannot be disputed that the reasons display as to how the mind of a particular authority exercising discretion was working or has worked. It also provides an opportunity for the Appellate Authorities to test the correctness of the same and thus the exercise of the discretion does not remain subjective, but remain objective because of the reasons. 26. In the earlier paragraphs, we have already noted that the CCI has not given any reasons nor has it discussed as to why it was pegging the penalty at 5%. 27. While inflicting the penalty the CCI should have considered the aggravating as well as the mitigating circumstances. This case, being held of cartelization and bid rigging is undoubtedly a very serious circumstance against the appellants. In the competition jurisdiction, bid rigging and cartelization have been treated to be abhorrent to the competition and have been looked down upon internationally. The trend in the countries where the competition jurisdiction has been in prevalence for substantial number of years, the judicial thought favours stiff penalties which can be deterr....