TaxTMI 
TaxTMI 
2016 (4) TMI 1329
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....ry Forces, State Police, Railways etc. on the basis of the Rate Contracts executed on annual basis, is the moot question which arises for consideration in these appeals filed against order dated 06.08.2013 passed by the Competition Commission of India (for short, 'the Commission'). An ancillary question which calls for the determination is whether in exercise of powers vested in it under Section 27(b) of the Act, the Commission could impose penalty on the total turnover of the appellants for the three preceding financial years. 2. All the appellants are multi-product companies. The details of their status and production activities are enumerated below: "I) M/s. A.R. Polymers Pvt. Ltd. (Appellant in Appeal No. 34 of 2013) M/s. A.R. Polymers Pvt. Limited is engaged in the business of manufacturing of Wood Panels, Footwear and Fibre Reinforced Polymer Products (FRP). The appellant started operations in year 1997 as a Wood Panel manufacturer. It acquired the Footwear and FRP businesses in the year 2010 from its group company MKU Pvt. Ltd. The company has two SSI units located at Rooma, Kanpur and Malwan, Fatehpur in U.P. The company's facili....
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.... VI) M/s. Preet Footwear (Appellant in Appeal No. 39 of 2013) M/s. Preet Footwears is a partnership firm engaged in the business of manufacturing of Rubber goods such as Hawai-Chappals, Canvas and other kind of shoes, Ground Sheets, etc. in its SSI units located at Sports and Surgical Complex, Basti Bawa Khel, Jalandhar and Una, Himachal Pradesh. As per the DGS&D Registration Certificate, the company is registered for supply of various Footwear items and Ground Sheets. VII) M/s. S.S. Rubbers (Appellant in Appeal No. 40 of 2013) M/s. S.S. Rubbers is a partnership firm and is engaged in manufacturing and supplying of different type of footwear items, Rain Capes etc., which are supplied to Para Military Forces and Indian Defence Services. These items are manufactured in the firm's SSI unit located at Sports & Surgical Complex, Basti Bawa Khel, Jalandhar. As per DGS&D Registration Certificate, the firm is registered for supply of various types of Footwear Items and Ground Sheets. VIII) M/s. Shiva Rubber Industries (Appellant in Appeal No. 41 of 2013) M/s. Shiva Rubber Industries is a Sole Proprietor....
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....ch were opened on 29.07.2011. Thereafter, the DGS&D held negotiations and executed Rate Contracts with the successful bidders in July/August, 2011. 5. After about nine months, DG(S&D) made a reference to the Commission under Section 19(1)(b) of the Act alleging that the appellants had indulged in bid-rigging/collusive bidding for determination of the price of the product and, thereby, caused loss to the public exchequer. The Commission felt prima facie satisfied that a case is made out for investigation. Accordingly, an order dated 08.05.2012 was passed under Section 26(1) and the Director General (DG) was directed to conduct an investigation into the matter. 6. The DG issued notices to the appellants under Section 41(2) read with Section 36(2) of the Act and called upon them to submit the specified information/documents. The appellants complied with the notices and furnished the required information and documents. Similar notices were issued to M/s. Bihar Rubber Company Limited, Kolkata; M/s. Joy Lakshmi Supply Corporation, Kolkata; M/s. M.K.U. Private Limited, Kanpur; M/s. Techno India, Jodhpur, Rajasthan; M/s. Trimurti Industries Limited, Kolkata; Federation of Industries ....
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....ra Military Forces, State Police, Railways etc. mainly for patrolling purposes. Though Jungle Boots is a commonly used terminology, however, boots manufactured as per differing specifications, using different raw materials and with differing intended end use, prices etc. make them distinct from each other. The specific product in the matter under reference is, "Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/TEX/Misc/55Boots Rubber (but with detachable sock thickness 5mm.)". The said governing specifications, prepared by DGS&D, makes boots confirming to the aforementioned governing specifications, distinct and different from boots manufactured with differing specifications, raw materials, and intended use etc. Boots confirming to the above mentioned governing specifications are manufactured to meet the specific requirements of Paramilitary Forces, State Police, Railways etc. The Relevant Market 5.3 As aforementioned, Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/TEX/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) is a distinct product meeting the specific requirements of ....
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....ders placed by the various government agencies for the said product against DGS&D Rate Contracts during the previous three years, a rough estimation of the demand of the said product during the previous years has been made as under: Sl. No. Year (RC Period) Demand (Supply Order Quantity in numbers of pairs) 1. 2008-09 4,53,320 2. 2009-10 4,51,401 3. 2010-11 4,43,623 Note : The above details have been derived from copies of Supply Orders/Performance Statements furnished by the OPs, as well as details regarding Supply Orders furnished by DGS&D and there may be minor variations in the figures. 5.8 Detailed party-wise break up of each of the Supply Orders for the aforementioned Rate Contract periods is placed at Annexure-1, 2 & 3 respectively. The Supply Orders, Performance Statements furnished by the parties as well as details regarding Supply Orders furnished by DGS&D are being separately forwarded, in original, with the files to Secretary, CCI." 9. In Chapter 6 of the report, the DG discussed the methodology adopted by the DGS&D for award of Rate Contracts and placement of supply orders by d....
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....tc. and as such being not readily marketable it is difficult to ascertain any market price for the same. It has further been informed that since the product was already on Rate Contract for year 2010-11, the said Rates were considered as per the basis, and variation in price indices of major input materials such as Cotton, Polyester and Rubber along with variation in general price indices was considered to arrive at Reasonable Rates and that no cost study was conducted in 2010-11 or at the time of concluding 2011-12 Rate Contract. It has also been informed that the specifications of the product were laid down by DGS&D w.e.f. 11.11.2003. Regarding the query about the basis of finalization of Rates for the first Rate Contract period after finalization of the specifications, it has been informed that records pertaining to the said period being not available, the required information was not available with DGS&D. It has further been informed that while concluding Rate Contracts for 2011-12, no increases was allowed over the 2010-11 Rate Contract Rates. 7.2 Further, with regard to the details/documents etc. with respect to the tenders opened on 29.07.2011 against the Tend....
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....regarding bidders being represented by a common representatives." [Emphasis supplied] 11. The DG then identified the following issues: "1. Whether conditions prevailing specifically with respect to the industry, the product in question, its market etc. were conducive for collusive action by the Opposite Parties. 2. Whether the identical/near identical prices quoted by the OPs against the Tender Enquiry of DGS&D dated 14.06.2011 were a result of collusion amongst the OPs and whether there are any direct or indirect evidences in support of an agreement, formal or informal between OPs for bid rigging in violation of the provisions of Section 3(1) read with Section 3(3) of the Act as alleged by the IP. 3. Whether, the restriction of total quantity to be supplied during the R.C. period and the restriction of maximum quantity to be supplied per DDO was a result of collusion amongst the OPs and whether there are any direct or indirect evidences of collusive agreement amongst the manufacturers in violation of the provisions of Section 3(1) read with Section 3(3) of the Act as alleged by the IP. 4. Whether there is any violation....
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....at market are protected from the competitive pressure of potential new entrants. 8.9 In this case, investigation has revealed that during the past four years, barring one opposite party who entered the market in the year 2009-10 (another OP who had acquired the business segment to which the product belongs, from its group company in 2010 has not been considered as a new entrant) there have been no new entrants. Rather, few past players have exited and the OPs have been the only consistent players in the market for the product. Further, the demand having remained almost static during previous few years and the high installed capacity of the product of the existing Rate Contract holders acts as a deterrent for new entrants. As such, due to the stagnating demand during the last few years and the already available high installed capacity of the OPs, there have been no significant new entrants nor likely to enter the market in the future and the existing suppliers are protected from competitive pressure of new entrants. The conditions prevailing are thus conducive for an agreement amongst the existing players for collusion. 3. Significant changes in demand ....
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.... were identical or there was a difference of 1% or less, referred to the replies furnished by M/s. A.R. Polymers Pvt. Ltd., M/s. Derpa Industrial Polymers (P) Ltd., M/s. M.B. Rubber Pvt. Ltd., M/s. H.B. Rubber Pvt. Ltd., M/s. Preet Footwears, M/s. Puja Enterprises, M/s. R.S. Industries, M/s. Rajkumar Dyeing & Printing Works Pvt. Ltd., M/s. S.S. Rubbers, M/s. Shiva Rubber Industries and M/s. Tirupati Footwears Pvt. Ltd. to specific question put in the context of identity/similarity of rates and made the following observations: "8.28 As per the Statements, in the matter of exactly identical prices quoted by the OPs during the aforementioned Rate Contract periods, none of the OPs has been able to give any reasonable explanation as to how the rates quoted were identical. 8.29 In view of the above, it can be stated that the identical prices quoted by the OPs(including group company of one of the OPs) during the RC periods 2008-09 and 2009-10 and thereafter identical/near identical prices quoted during subsequent years was a result of collusive agreement amongst the OPs. 8.30 Investigation has thus examined whether there are any direct or indi....
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....nder Enquiry dated 14.06.2011 in terms of cost component and profit component were sought from the OPs. However, barring few OPs who had furnished a breakup of the quoted prices in terms of cost component and profit component, the others either expressed inability to work out the details on the ground of multiple products, non-availability of information etc. or did not respond with the details. As such the matter was taken up with the concerned OPs during the course of recording of statements. As per the details furnished some of the OPs in their written replies as well as during the course of recording of statements, it has been observed that the approximate profit component/margins have been stated by the OPs to vary from 2% to around 15% as under: 8.35 Thus, it is evident that the profit component/margins of some of the OPs in the quoted prices being at variance, the cost component too, have to be different, if the final Rates quoted by the OPs are to remain identical/near identical. The differences in the cost are thus contrary to the contention of the OPs that the costs between various manufactures being similar, the rates quoted are identical. This confirms th....
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.... the given statement that there are no dealings with competitors. As such it can be concluded that the identical/near identical prices quoted by these companies was a result of sharing of information and meeting of minds due to their inter linkages. Copies of Audited Annual Accounts of M/s. H.B. Rubber Pvt. Ltd. and M/s. M.B. Rubber Pvt. Ltd. for the year ended 31.03.2011 are enclosed as Annexure -59 & 60 respectively. 8.46 Investigation has revealed that certain OPs are either presently members, or had in the past been members of a trade federation namely, Federation of Industries of India (FII), Delhi. Some of the OPs during recording of statements have maintained that the Federation did not provide a common platform for its members and that various issues are taken up by the members, as and when they arise, on an individual basis and not collectively. It has however been observed from the information gathered from FII that a meeting of the OPs (members as well as non-members) had in the past been convened by FII on 20.10.2009 at PSK, Laxmi Nagar, District Centre, Delhi for eliciting views regarding various problems to be discussed with DGS&D in its forthcoming mee....
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....the queries was as under: Q.14 I am showing you a document submitted by you vide your letter dated 25/08/2012. Please explain what is this document and confirm whether the same was part of the bid submitted by you on 14.04.2008 through e bidding against DGS&D enquiry for the item in question for the RC period 01.09.2008 to 31.08.2009. Ans. This is a performance statement which was submitted with our e-tender bid on 14/4/2008. Q. 15 Can the information and documents uploaded with the bid be accessed by other bidders? Are these details shared between competitors prior to or after the bids are opened. Ans. No the information and documents uploaded with the bid cannot be accessed by other bidders as the same are password protected and are also not shared between competitors prior to or after the bids are opened. Q.16 I am showing you certain document submitted by you vide your letter dated 30/07/2012 as enclosures of your bid submitted on 29/07/2009 through e bidding against DGS&D enquiry for the item in question for the RC period 01.09.2009 to 31.08.2010. Please reconfirm that these documents have been submitted by you. ....
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.... 14.06.2011 for the RC period 01.12.2011 to 30.11.2012, all the OPs subsequently accepted the reduced counter offered rates of DGS&D, being the same rates, as had been fixed for the previous RC period 01.09.2010 to 31.08.2011, without any increase. 8.53 It has thus been established that the identical/near identical prices quoted by the OPs from time to time against the tenders of DGS&D for the given product inspite of variations in cost factors arising out of differences in product range, installed capacities, size of operations, tax structure, sources of procurement of raw materials, basis adopted for giving quotations etc. as well as on account of the OPs being geographically located in different regions and, as also evidenced by the direct evidence of sharing of information by competitors, is thus, possible only if the rates quoted were of result of concerted action of the OPs. 8.54 Based on the above analysis and direct and indirect evidences, it can be conclusively stated that the OPs have contravened the provisions of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act by determining prices and bid rigging respectively."  ....
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.... Supply Orders 8.66 Investigation has, gathered details of the Supply Orders placed by DDO's upon various RC holders when no restrictions had been stipulated as per following details: Supply orders for RC period 01.09.2008 to 31.08.2009 Supply orders for RC period 01.09.2009 to 31.08.2010 8.67 It can be observed from the details of Supply Orders received by some of the OPs, that the order quantity received by them during 2008-09 & 2009-10 was not only very low compared to their installed capacity, there was no justification for fixing the restriction for maximum quantity at a level, which was much higher than the Supply Orders received by them during the said RC periods except that the said restrictions were necessitated under an agreement between the OPs and had thus to be in line with the quantity restrictions of others. Had the contentions of these parties been true, the restriction of quantity would have been in sync with the Supply Orders being received by them and not in tandem with the others. It has also been observed that one of the OPs had imposed quantity restriction at a level which was even higher than its....
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.... 18. On Issue No. 4, the DG returned a negative finding by observing that the appellants are not at different stages or levels of production chain and as such, they cannot be held guilty of acting in violation of Section 3(4) of the Act. 19. In the last part of his report, the DG analysed the provisions of Section 3 of the Act and recorded the following observations: "9.3 All the OPs in the instant case are DGS&D registered Rate Contract holders of Polyester Blended Duck Ankle Boots of Governing Specifications G/TX/Misc/55/Boots Rubber (but with detachable sole thickness 5mm), which is procured by various Government agencies against the Rate Contracts awarded by DGS&D. For securing Rate Contracts, the OPs have been submitting their bids against the tender enquiries floated by DGS&D for the said item from time to time. Investigation has revealed that the OPs have been submitting identical/near identical rates against the tenders of DGS&D and that direct and indirect evidences have established that the identical/near identical rates are a result of collusion amongst the bidders. These bidders being well conversant with the DGS&D methodology of awarding Rate Contrac....
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....le to prove the allegation of collusive bidding or cartelisation. The appellants also justified quoting identical or near identical price for the product i.e. Jungle Boots by making the following assertions: "a) The specification of the product was prescribed by the DGS&D and all the manufacturers were to comply with the same. b) The quality and quantity of the raw materials used in manufacturing the Jungle Boots were the same. c) The time taken for production of the Jungle Boots, the quantum of electricity consumed, labour cost, packaging of goods were also substantially similar. d) The manufacturers used to quote the rates keeping in view the rates at which the previous Rate Contract had been executed. e) The DGS&D finally awarded the contract after holding negotiations with the bidders. f) While fixing the price of the product for the Rate Contract, the DGS&D used to take consideration the following factors: i) The rates received in the tender. ii) The rates of direct purchases made by the Central Government/State Government/PSUs/autonomous bodies for the item ....
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....lmost similar rates with a price differential in rates in the range of only about 1%. The DG also examined the quotations given by the bidders including the opposite parties herein against the previous tender floated by DGS&D for the product for the relevant Rate Contract period (01.09.2010 to 31.08.2011) and observed that within each category the bidders quoted near identical rates and the variation in the rates was in the range of 1%. The rates quoted by the opposite parties for the RC period 01.09.2009 to 31.08.2010 were also found exactly identical for each category with a price differential of only one paisa in two of the six rates quoted. Similarly, the rates quoted by the opposite parties for the RC period 01.09.2008 to 31.08.2009 were also found exactly identical for each category with a price differential of only one paisa in four of the six rates quoted. 24. During the course of the investigation, the DG specifically put to the opposite parties the identical or near identical pattern of quotations with a price differential of only about 1%. In response thereto, the opposite parties maintained that since raw material and other costs for all the manufacturers....
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....Rubber Board and, as such, identical/near identical estimation of average cost of raw materials (including cost of a major raw material whose prices are subject to significant fluctuations) over the Rate Contract period by different opposite parties is improbable. In such a situation, it is difficult to accede to the explanation and justification advanced by the opposite parties that since raw material and other costs for all the manufacturers were more or less same, their quoted prices were also almost same. 30. Moreover, from the DG report, it is apparent that the approximate profit component/margins of the opposite parties varied from 2% to 15%. In such a scenario, it necessarily follows that the cost component of the opposite parties ought to have been different if the final rates quoted by the opposite parties remained identical/near identical. This falsifies the explanation and justification advanced by the opposite parties that manufacturing cost being same, the rates quoted were identical. 31. It is also a fact that the opposite parties are located in different States of the country with differences in the applicable taxes. The DG noted that at....
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....e past been convened by FII on 20.10.2009 at PSK, Laxmi Nagar, District Centre, Delhi for eliciting views regarding various problems to be discussed with DG S&D in its forthcoming meeting. Without delving into the rival submissions on this aspect, the Commission observes that the opposite parties did avail a platform under the Trade Federation to hold meetings. 34. Before concluding discussion on this aspect, it is pertinent to note that one of the opposite parties viz. M/s. Preet Enterprises had submitted copies of certain documents being Performance Statements pertaining to other opposite parties viz. M/s. Shiva Rubber Industries, M/s. R.S. Industries, M/s. S.S. Rubber, M/s. Puja Enterprises, M/s. MKU Private Limited (Group company of M/s. A.R. Polymers Pvt. Ltd., one of the opposite parties), M/s. M.B. Rubber Pvt. Ltd. and M/s. Derpa Industrial Polymer Pvt. Ltd. The performance Statements contain details of total value of orders received, value of orders due for supply by the cut of date, value of orders supplied upto cut of date etc. pertaining to the party concerned and forms part of the bid documents submitted by the bidders. Ordinarily, the competitors are not....
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..... Further, six opposite parties had restricted their commitment per DDO to 10000 pairs, two opposite parties to 20000 pairs and one opposite party to 30000 pairs. 40. From DG S&D Registration Certificates, it was noted by the DG that the total installed capacity of all the opposite parties for the product in question is 15,72,000 pairs per annum whereas the opposite parties had restricted their total quantity to 7,00,000 pairs against the tender under reference. 41. The opposite parties could not give any valid justification in support of imposing quantitative restrictions. In fact, as noted by the DG, the opposite parties had started imposing quantity restrictions only from the Rate Contract period 2010-11 and no such restrictions were imposed by any of the RC holders during earlier years. Hence, such an action can only be a result of the collusive action by the opposite parties for mutual allocation of markets. Resultantly, it is held that the said opposite parties entered into an agreement/arrangement to limit/control the supply of the product and to share the market by mutual allocation. 42. The Commission notes that in terms of the ....
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....here is overwhelming circumstantial evidence to infer the anti-competitive nature of the impugned actions. 28. As a sequel to its finding that the appellants have contravened the provisions of Section 3(1) read with Section 3(3)(a) and 3(3)(d) of the Act, the Commission imposed penalty on each of the appellants @ 5% of their average turnover. The quantum of the penalty imposed on each of the appellants is indicated in the following chart: # M/s. S.S. Rubbers expressed its inability to furnish details of actual production and sales turnover for the previous years and a copy of its annual accounts for the year 2008-09. The said opposite party informed the DG that its building and most of its records/documents were destroyed in a fire accident in February, 2011. Hence, the penalty for M/s. S.S. Rubbers was calculated on the basis of its turnover details available for the years 2009-10 and 2010-11. ## Ms R.S. Industries expressed its inability to provide annual accounts for the year 2008-09 as possession of the factory premises stated to be disputed and under litigation. Hence, it was informed to the DG that the relevant records are inaccessible to it. ....
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.... respect of the Rate Contracts executed in 2006-07, 2007-08 and 2008-09 and they were very much available in public domain on the website of the DGS&D and any bidder could download the same for the purpose of bidding in the subsequent Tender Enquires. Learned counsel submitted that the performance statements contained only the total value of the order received and the quantity supplied by each of the vendors in the past and the same was of no use for submitting the bids in future and, in any case, the data relating to the Rate Contracts executed prior to 2010 was of no use for fixing the rate/quantities to be offered in response to the Tender Enquiry issued in 2011. 30. Another argument advanced by the learned counsel for the appellants is that the Commission committed grave illegality by holding the appellants guilty on the ground that they had imposed quantity restrictions. Learned counsel pointed out the quantity restriction had not been imposed for the first time for execution of the Rate Contract for 2011-12 and as a matter of fact, similar restrictions had been incorporated in the bids submitted in response to the tender enquiry issued in 2010 for execution of Rate Contrac....
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....ission for holding that the appellants had violated Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act and argued that the explanation given by the appellants for sharing the information regarding bids and quantity restriction are illusory and the same should not be made basis for upsetting the well-reasoned order passed by the Commission. Shri Sharma also defended the principal adopted by the Commission for computation of penalty and argued that the word 'turnover' appearing in Section 27(b) of the Act cannot be construed narrowly so as to restrict it to the relevant product i.e. the Jungle Boots. 33. I have considered the respective arguments and carefully scrutinized the entire record. I have also gone through the written submissions filed by some of the appellants and the respondents. 34. The question whether identical or near identical price quoted by the bidders can be made the basis for recording an affirmative finding on the issue of cartel formation was considered by the Supreme Court in Union of India v. Hindustan Development Corporation and others, which has been reported in two parts of the Supreme Court Cases. The first part which contains the....
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....unter offer. The High Court passed the interim order and directed the Railways to accept the allocation of bogies recommended by the Tender Committee and pay the price @ Rs. 67,000/- per bogie subject to the final decision. In the Special Leave Petition filed against the order of the High Court, the Supreme Court modified the interlocutory order. At the final hearing, learned counsel for Union of India reiterated the views of the Tender Committee, three senior officers and the Minister that M/s. H.D.C., Mukand and Bhartiya had formed a cartel and argued that it was not obligatory for Railways to place order for supply of bogies at the rate quoted by them. He also justified the allotment of bogies to other manufacturers by contending that this was in consonance with Article 14 of the Constitution of India. The counsel appearing for M/s. H.D.C., Mukand and Bhartiya controverted the Railways' assertions on the issue of cartelisation by arguing that mere quoting of identical price cannot justify such an inference. By an order dated 14.01.1993, the Supreme Court disposed of the Special Leave Petition by recording its conclusions, paragraphs 1 and 6 of which read as under: ....
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....ways as the final authority, after considering various relevant factors, may be justified in taking a particular decision in the matter of allotment of quota but such decision must be taken on objective basis. But, in this case. It appears to us that all the smaller manufacturers deserving a favourable treatment in the matter of allotment of quota, have not been equally treated in the sense that one or, two of them got larger quantities. Though this does not appear to be a serious departure, yet in these matters the Government is expected to be just and fair to one and all. We hope that in future the authorities would make a proper consideration of the relevant factors in respect of each tenderer in an objective manner in allotting the quantities." [Emphasis supplied] The reasons in support of the aforesaid conclusions were recorded on various aspects of the case including the powers of the State and its agencies in the matter of award of contract. In paragraph 14 of the judgment reported in (1993) 3 SCC 499, the Supreme Court considered the submissions on the issue of formation of cartel by three big manufacturers, referred to the dictionary meanings of the....
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....e scientific or technical knowledge or patent rights and to standardize products, with competition regulated but not eliminated by substituting competition in quality, efficiency, and service for price-cutting. An international cartel arrangement providing for a worldwide division of a market has been held a per se violation of 15 USC S 1. An American corporation violates the Sherman Act by entering into agreements with English and French companies to (1) allocate world trade territories among themselves; (2) fix prices on products of one sold in the territory of the others; (3) cooperate to protect each other's markets and eliminate outside competition; and (4) participate in cartels to restrict imports to and exports from the United States." In A Dictionary of Modern Legal Usage by Bryan A. Garner, it is noted thus: "cartelize - to organize into a cartel. See -IZE. Yet cartel has three quite different meaning: (1) 'an agreement between hostile nations'; (2) 'an anticompetitive combination usu. that fixes commercial prices'; and (3) 'a combination of political groups that work toward common goals'. Modern usage favours sens....
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....ve domestic firms from the American market, by maintaining artificially high prices for these products in Japan while selling them at a loss in the United States. The District Court after excluding bulk of evidence, finally granted the Japanese companies' motion for summary judgment dismissing the claims. The United States Court of Appeal reversed and remanded for further proceedings. On a certiorari, the United States Supreme Court while considering the standards supplied by the Court of Appeals in evaluating the summary judgment, observed thus: "To survive petitioners' motion for summary judgment, respondents must establish that there is a genuine issue of material (475 US 586) fact as to whether petitioners entered into an illegal conspiracy that caused respondents to suffer a cognizable injury." It was further observed that: "A predatory pricing conspiracy is by nature speculative. Any agreement to price below the competitive level requires the conspirators to forgo profits that free competition would offer them. The forgone profits may be considered an investment in the future. For the investment to be rational (475 US 589) ....
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....actor for inferring formation of a cartel unless an agreement amounting to conspiracy is also proved. (emphasis supplied) A mere offer of a lower price by itself does not manifest the requisite intent to gain monopoly and in the absence of a specific agreement by way of a concerted action suggesting conspiracy, the formation of a cartel among the producers who offered such lower price cannot readily be inferred..... ......... In the instant case, initially the Tender Committee 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 enti....
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..... 2, who complained of cartel formation, had placed order on FTRTIL to supply 34 more feed-valves @ Rs. 12,855.47 in addition to the purchase order dated 11.11.2011 and, at the same time, had entered into negotiation with SIL and ultimately placed order for 67 feed-valves @ Rs. 16499.99. This was indicative of faulty procurement system adopted by the Railways resulting in financial loss. (h) The three bidders had quoted identical price by manipulating the figures in as much as EL, Faridabad quoted base price of Rs. 17147.54. The other two bidders quoted Rs. 14534.52 (FTRTIL, Hosur) and Rs. 14,674.28 (SIL, Kolkata) as base price and added the elements of Excise Duty, Cess on Excise Duty and Central Sales Tax to make the final price as Rs. 17,147.54. (i) The assertion of the appellants that their price was based on the price quoted in previous purchase orders was not correct." 20. The Commission approved the findings and conclusions recorded by the DG primarily on the basis of identical price quoted by the appellants by observing that this could not have been possible because their production units are situated in three different states. The Com....
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.... price quoted by the appellants is also evident from the statement furnished by the learned counsel for Respondent No. 2. Therefore, it must be held that both the DG and the Commission committed grave error by relying upon the so-called past conduct of the appellants in quoting identical price as a plus-factor for arriving at a conclusion that they had formed a cartel. 23. The calculation made by the DG and the Commission on the price formula indicated in the offer of SIL is also erroneous because the DG proceeded on an erroneous assumption that the rate of Central Sales Tax was 5% whereas, in fact, it was 4%. The DG and the Commission also committed an error in presuming that the appellants had quoted high price to maximize the profit, ignoring that the rate of Excise Duty had been increased by the Government." 36. The special features of the cases in hand reveal the following important facts: "(i) the Jungle Boots are required to be manufactured strictly as per the specifications prescribed by the DGS&D; (ii) the Jungle Boots are not readily marketable and the same are supplied to Paramilitary Forces, State Police, Railways etc. on the ba....
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..... Competition Commission of India, on 01.03.2016. After noticing the definitions of the terms, 'cartel', 'enterprise', 'goods', 'relevant market', 'relevant geographic market', 'relevant product market', 'service', 'trade' and 'turnover' contained in Section 2 (c), (h), (i), (r), (s), (t), (u), (x) and (y) and the provisions of Sections 3, 4 and 27 of the Act, the Tribunal referred to well-recognised rules of interpretation, some judicial precedents and held that the Commission is not entitled to impose penalty on the defaulting enterprise/person by taking into consideration its total turnover for the preceding three financial years. Paragraphs 14 to 30 of order dated 01.03.2016, which have direct bearing on the appellants' challenge to the quantum of penalty in the present appeals, are reproduced below: "14. One of the well-recognized rules of interpretation of statutes is the rule of contextual interpretation. This rule requires that the Court should examine every word of a statute in its context. In doing so, the Court has to keep in view preamble of the statute, other provisions thereof, ....
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....pretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what ....
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....both in generalised and in specific forms. The Committee suggested that the Government should setup a machinery for collection, examination and analysis of all relevant statistics on the subject and formulate a policy, which will combine industrialization with social justice and economic development with dispersal of economic power. In April 1964, the Government of India appointed a five-member Monopolies Inquiry Commission. The Commission submitted report dated 31.10.1965, some of the salient features of which were: (i) Industrywise or productwise concentration existed in so far as a limited number of producers had a comparatively large share of the market. In 65 out of 100 selected products, a high degree of concentration existed in the sense that the share of the top producers was more than 75 per cent of the total production. (ii) As regards countrywise concentration (overall size being the consideration), the total paid-up capital and assets of the companies belonging to 75 business groups, each with assets of not less than Rs. 5 crores, accounted for about 44% and 47%, respectively, of the total paid-up capital and total assets of the companies i....
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....e Monopolies and Restrictive Trade Practices Act, 1969 has become obsolete in certain respects in the light of international economic developments relating more particularly to competition laws and there is a need to shift our focus from curbing monopolies to promoting competition. 2. The Central Government constituted a High Level Committee on Competition Policy and Law. The Committee submitted its report on the 22nd May, 2000 to the Central Government. The Central Government consulted all concerned including the trade and industry associations and the general public decided to enact a law on Competition. 3. The Competition Bill, 2001 seeks to ensure fair competition in India by prohibiting trade practices, which cause appreciable adverse effect on competition in markets within India and, for this purpose, provides for the establishment of a quasi-judicial body to be called the Competition Commission of India (hereinafter referred to as CCI) which shall also undertake competition advocacy for creating awareness and imparting training on competition issues. 4. The Bill also aims at curbing negative aspects of competition through the medi....
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....ng before the Monopolies and Restrictive Trade Practices Commission will be transferred to the CCI except those relating to unfair trade practices which are proposed to be transferred to the relevant flora established under the Consumer Protection Act, 1986." 18. The preamble of the new Act reads thus: "An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto." 19. Keeping in view the rule of contextual interpretation and the background in which the Act was enacted as also the objectives sought to be achieved by it, we shall now analyse the provisions extracted hereinabove. The term 'cartel' as defined in Section 2(c) includes an association of producers, sellers, distributors traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the produ....
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....(3) contains a presumption that any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which, directly or indirectly, determines purchase or sale prices, limits or controls production, supply, markets, technical development, investment or provision of services etc. shall be presumed to have an appreciable adverse effect on competition. Proviso to this section contains an exception which includes the agreement which increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Sub-section (4) deals with tie-in arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, resale price maintenance and declares that any agreement among the enterprises or persons at different stages or levels of production chain in different markets in respect of production, supply, distribution, storage, acquisition or con....
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....ection 3 and/or Section 4 will have to be confined to the particular product or service or activity. 22. At the end of the investigation, the DG is required to submit report with the finding whether or not the accusation/allegation is factually correct and there is violation of Section 3 and/or Section 4. On receipt of the report of the investigation, the Commission is required to give an opportunity to the informant and also the enterprise(s)/person(s) investigated by the DG to file reply/objections and then pass an appropriate orders. The Commission may approve the finding recorded by the investigating officer but that exercise will also have to be restricted to the particular product, goods or service qua which the allegation of violation of Section 3 and/or Section 4 is made and which is subjected to an investigation. Therefore, the term 'turnover' used in Section 27(b) and its proviso will necessarily relate to the goods, products or services qua which finding of violation of Section 3 and/or Section 4 is recorded and while imposing penalty, the Commission cannot take average of the turnover of the last three preceding financial years in respect of other....
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....were multi-product companies, but argued that their total turnover was rightly taken into consideration by the Commission for the purpose of imposing penalty under Section 27(b). By an order dated 29.10.2013, the Tribunal upheld the findings recorded by the Commission on the issue of violation of Section 3(3)(b) and 3(3)(d) read with Section 3(1) of the Act but set aside the penalty. Paragraphs 60 to 62 of that order, which have bearing on these cases, are extracted below: "60. 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. 61. There can be no dispute that where harsh financial penalties are inflicted the r....
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....liar circumstances of this case where the two appellant companies have clearly indicated that the other products of those companies have no connection and do not depend upon the product involved in this matter, that is ALP Tablets. We, therefore reject the argument of Shri Balaji Subramanian." [Emphasis supplied] 25. In L.H. Hiranandani Hospital v. Competition Commission of India and Another [Appeal No. 19 of 2014] decided on 18.12.2015, the Tribunal considered whether average of the total turnover of the appellant for the last three preceding financial years could be taken into consideration for the purpose of imposing penalty under Section 27(b) on the ground of violation of Section 3(1) in respect of one service i.e. stem cell banking by ignoring that the appellant was a multi-speciality hospital and was providing various services including stem cell banking. After noticing the relevant facts and statutory provisions, the Tribunal observed: "(ii) It is not in dispute that the appellant is a multi-speciality hospital and its total annual turnover is the income derived from the services provided in different specialities and not materni....
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....ission cannot be made applicable to agreements entered into between the enterprise and another person in respect of other products, goods or services qua there is no allegation of anti-competitive agreements or abuse of dominant position and the turnover of other products and services cannot be clubbed with the one qua which a finding of violation of the provisions of the Act is recorded. 39. At the cost of repetition, it deserves to be emphasised that the appellant has been providing multiple healthcare services, maternity service being one of them and stem cell banking which is being provided by a third party (Cryobanks), can at best be considered as a small part of the maternity services provided to those who are desirous of availing such services. Therefore, even if the finding of the majority of the Commission that the agreement entered into between the appellant and Cryobanks is violative of Section 3(1) of the Act is to be upheld, the turnover of the appellant with reference to stem cell banking services only could be taken into consideration for the purpose of imposing penalty and not the turnover with reference to other services or income derived from other ....
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....mentioned provisions. Clause (c) of sub-section (1) of section 271 categorically states that the penalty would be leviable if the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. By reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this court, inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective." [Emphasis supplied] 29. In Hindustan Steel Ltd. v. State of Orissa [1970] SC 253, the Supreme Court made the following observations on the issue of imposing penalty: "An order imposing penalty for fa....
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....s of their turnover of LPG cylinders of 14.2 Kg." 40. By applying the ratio of the aforesaid order, I hold that the Commission committed grave error by imposing penalty on the appellants @5% of their total turnover in respect of all the products manufactured by them including the Jungle Boots. 41. In the result, the appeals are allowed, the impugned order is set aside and the penalty imposed by the Commission on the appellants is quashed. The appellants shall be entitled to refund of the penalty deposited pursuant to the interim order passed by the Tribunal. The concerned authority shall refund the amount within a period of three months, failing which, the appellants shall be entitled to interest @12% per annum from the date of this order. ============= Document 1 Sl. No. 1. 2345600 2. M/s. S.S. Rubbers Name of the Company/Firm M/s. A.R. Polymers Pvt. Ltd. Approximate Profit Component/Margin 10% 12.80% 3. M/s. H.B. Rubber Pvt. Ltd. 4. M/s. M.B. Rubber Pvt. Ltd. 13.70% to 15.62% 15% 5. M/s. Derpa Industrial Polymers Pvt. Ltd. 10% to 15% 6. M/s. Tirupati Footwear Pvt. Ltd. 7% to 8% 7. M/s. Shiva Rubber....