TaxTMI 
TaxTMI 
2015 (12) TMI 1773
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....India Limited for supply of 67 feed valves @ Rs. 16,499/- each. M/s. Stone India Limited completed the supply in next 8 1/2 months. 2. Even before the Tender Committee could consider the tenders of the appellants, Respondent No. 2 filed an information dated 31.05.2012 under Section 19(1)(a) of the Competition Act, 2002 (for short, 'the Act') alleging formation of cartel by the appellants for the purpose of jacking up the price of feed valves. The Competition Commission of India (for short, 'the Commission') prima facie felt satisfied that the allegations levelled by Respondent No. 2 need investigation and passed order dated 30.12.2012 under Section 26(1) of the Act and directed the Director General (for short, 'the DG') to cause an investigation into the matter. 3. In compliance of the direction given by the Commission, the DG issued notices under Section 36(2) read with Section 41(2) of the Act and called upon the appellants to provide specified information and documents. Each of the appellants furnished the required information and documents. 4. In the course of investigation, the DG took cognizance of the previous supplies of feed valves made by the ap....
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.... 5.12 DLMW, Patiala upon opening the bid in question has observed the formation of the cartel by the three vendors and found that all the three vendors have quoted the identical price which is as follows :- 5.13 Further, from perusal of the minutes of the tender committee dated 30.5.2012 and 29.6.2012 (copy enclosed at Annexure-5). It is observed that in the evaluation made by the tender committee for its tender No. 201320510 in Para 5 of the minutes the issue of identical bid has been discussed along with the tabulation statement. The bid of Escorts Limited Faridabad which have quoted @ Rs. 17,147.54 each inclusive of ED and CST inclusive @ of 5.25% on FOR has been rejected on the plea the firm has not submitted the cost of the tender document in terms of condition No. 10 of tender (SN-19) the offer without tender document cost are liable to be rejected. The bid of the FTIL has not been considered by the DLMW Patiala on the plea that the firm (FTIL) has not accepted the warranty clause as per the IRS condition of contract as well as has also not accepted standard payment terms of the Railways therefore the tender committee has considered their bid commercially unsuita....
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....nder Committee (TC) of the DLMW Patiala, it's a fact that in response to the Tender No. 201320510 opened on 27.04.2012 by the DLMW Patiala in which none of the tenderers have been approved though they are RDSO approved firm to supply the Feed valves. After the said tender is open DLMW has called of the firm (Stone India Limited) and entered in to negotiation. The Stone India Limited have been given Purchase Order but till this date they have not supplied Feed Valves to the DLMW, Patiala. xxx xxx 7.2 The investigation has examined into following question in this case : (I) Whether there are conditions in the tendering process which are considered to be conducive for collusion. (II) Whether the identical/near identical prices quoted by the OPs against the e-tender No. 201320510 dated 14.3.2012 was 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. Issue I : Assessment of conditions considered to be conducive for collusive bidding. 7.3 Certain conditions have generally been considered as conducive for collusive action by competit....
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....e static demand and supply conditions are conducive for collusion in the instant matter. 7.7 When the products or services sold or rendered are identical or very similar and there are few or no substitutes, it is easier for bidders to reach an agreement on a common price structure. In the current case, the product being the same for all the bidders, and since the specifications of RDSO make the product in question distinct it cannot be considered substitutable with any other product. As such the product being the same, the probabilities of bidders reaching an agreement on a common price structure are high. In addition to the above conditions, investigation has revealed that the system of awarding the contract by the Railways is conducive for collusive bidding. 7.8 In the present case, the product in question is same for all bidders and since the specifications and installed capacity has been approved by the RDSO for feed valves, and cannot be considered substitutable therefore, the product being the same; the probabilities of reaching in agreement on a common price are high. Based on the above it is observed that the conditions prevailing with respect to the product....
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....rice by Rs. 554.15 each on the basic price. 7.12 No doubt DLMW has placed two different purchase order for supply of feed valves for the alleged tender to M/s. FTIL (34 feed valves) and to SIL (67 feed valves) but the same have been ordered on two different prices i.e. Rs. 12855.47 and Rs. 16,499.99. it is due to the faulty E-biddina process of the railway. Due to the faulty procurement system adopted by Railways the Government has been put to loss by paving higher price to the SIL whereas FTIL or other vendors would have been called for similar negotiation to reduce the price of feed valves. Apart from the losses being occurred process of tender has direct impact on consumer that the Railway imposed a burden on the public at large therefore, the faulty tender process not only affect the competition but equally brings adverse effect on the consumers. 7.13 Based on the above analysis, it has been concluded that the conditions prevailing with respect to the product, its market etc. are conducive for the OPs to reach an agreement for bid-rigging and mutual allocation of market. ISSUE 2 - Whether the identical prices quoted by the OPs against the e-tender No. 20....
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....em components and not limited to feed valve the company is stated to have the cost per set of Rs. 12,728.48 the cost of the each feed valves has been awarded contract for supply of feed valves on the basis of purchase order 18.1.2012 for basic price of Rs. 12,893.16 for WCR and similarly a Purchase Order dated 10.4.2012 @ of the Rs. 13,000 basic price of per unit of feed valve by NEFR. 7.16 Further, the SIL in their statement has also stated that :- Q. No. 4 It has been alleged in the complaint that you have quoted a price of Rs. 17,147.54 for the supply f feed-valves to DMW and your other competitors have also quoted the identical price as such you have formed a cartel while submitting the bid. Please explain the justification and reasoning for quoting the above price. Ans. At the outset, SIL denies the allegation for forming any cartel for this alleged tender. Since there are various factors in quoting a particular price as stated above. Besides above facts, railway requires the vendor to give proper justification for the price bid quoted by it and the last purchase made by any of its zonal railways for the same product and, as such, SIL has quoted the above said pric....
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....their records would justify the basis of their offer and prove their case that they have not contravenes in any manner for the formation of cartel in aforesaid tender. Further, it has also submitted that their commercial offer for quoting a price was based on last PO No. 26111569 1 04659 dated 18.1.2012 for supply of 30 No. of feed valve to southern Railway for the alleged tender. The company is stated to be in the business of manufacture of feed valve since 2010 and its install capacity is 900 No. of feed valve per annum and till August 2012, it has only supplied 488 feed valves to the different zones of Railways. The breakup cost of the feed valve of FTIL is Rs. 12,147 of FTI feed valve. It is further been claimed that FTIL have quoted the basic price of Rs. 14,534.52 for the tenders submitted by it to the different Zonal Office of the Railway including Northern Eastern Railway, Southern Railway, Northern Railway, Central Railway etc. as per the statement submitted by the company in their reply. Form Serial No. 37 to 49 these tender were opened from the period January 2012 to June 2012 whereas the company have quoted the basic price of Rs. 12,628.57 for the tender opened on 20.6.....
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....ve quoted consolidated price for supply of feed valves to DMW, Patiala for the tender No. 201320510 for supply of 151 feed valves ? Ans. The tender provision for quoting the basic price or the all inclusive price in the E-Tendering process (inclusive of Excise duty and sales tax). While we have quoted all inclusive price clearly stating in the remarks columns the rate at which the excise duty and sales-tax have been included in the price. While it does not have any bearing on the result as the tabulation is done based on the ranking of the all inclusive price, sometimes we derive certain mileage in case the statutory levies go up during the pendency of the tender giving us an opportunity to absorb the increase in the statutory levies as an additional discount. Q. No. 6. It has been alleged in the complaint that you have quoted a price of Rs. 17,147.54 for the supply of feed-valves to DMW and your other competitors have also quoted the identical price as such you have formed a cartel while submitting the bid. Please explain the justification and reasoning for quoting the above price. Ans. The price of Rs. 17,147.54 translates to basic rate of Rs. 14,500 based on the 12.36% of ....
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....01320510 which was opened on 27.4.2012? Has any party been awarded the tender for supplying the entire quantity required by you in the aforesaid alleged tender ? Ans. Our requirement for feed valves was 151 Nos. for which tender was called vide tender No. 201320510. On opening of bids it was found that the rates were higher than the previous purchase order dated 11/11/2011 placed on M/s. Faiveley hence, the quantity of the previous purchase order was increased by 30% as per the quantity option clause available in the previous year purchase order (PO). Therefore, the procurable quantity came down to 151-34 = 117 Nos. feed valves. In the aforesaid tender since the prices quoted by the all the three RDSO approved vendors were found to be identical i.e. Rs. 17,147.54 all inclusive therefore, administrative action has been purposed by the tender committee against formation of cartel by quoting the identical price. The tender committee purposed to make reference to RDSO as well as to CCI New Delhi. No, the entire procurable quantity was not ordered on any single vendor. Q. No. 6 Please intimate whether Stone India Limited who has been awarded contract for supply of 67 feed valves h....
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....aining quantity for 2013-14 along with the subsequent tender for the next purchase cycle for the year 2014-15. The purchase cycle for the requirement of 2014-15 will start from April, 2013. Q. No. 10. From your statement it is observed that the contracting party i.e. Stone India Limited has not supplied any feed valve for the tender dated 27/4/2012. Why you have not waited for the decision of CCI for the outcome of your complaint for formation of cartel by the Stone India & Others ? Ans. Since we can not anticipate the timing that is required for delivering the decision by CCI or RDSO and the routine work of the Department cannot be kept in abeyance therefore, a decision was made to go ahead for procurement as there was also no other alternate source other than the approved vendors. 7.21 The issue of identical bids submitted by the bidders was analysed on the basis of the statement given by OPs as well as the IP in this case. The arguments offered by the venders that the bid was based on their last purchase orders received from them was examined in depth. It is noted that the e-bid in question was uploaded on their website on 14.3.2012 and it closed on 27.4.2012. All th....
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.... and therefore, the price so tendered would not be available with others. Obviously this could have been possible only if there was consultation on sharing of the bid price by each of the bidders. It is important to note that the bid price tendered by the three bidders matches to the last paisa which just could not been possible without meeting of mind and sharing of the price data amongst the bidders. 7.25 It is also relevant to mention here that the bidders in the present bid had raised the price of unit by 33% from the last purchase order made by Diesel Loco Modernisation Works, Patiala. The observations of the technical tender committee are reproduced below: 6.1 "Tender Committee noted that last regular purchase of the item has been made from M/s. Faiveley Transport India Limited, Hosur vide PO No. 761206 dated 11.11.2011 at an all inclusive rate of Rs. 12,855.47 each. The all inclusive rate of Rs. 17,147.54 received now from all the RDSO approved firms are 33% higher than last purchase rates of six months old PO. Although M/s. Stone India Limited in support of their rate justification have attached copies of two PO's for the tendered item placed on them by EC Rly....
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....cranes, loaders, vibratory rollers and forklifts. (c) Escorts Railway Products (ERP) has been one of the main suppliers to the Indian Railways for nearly five decades. Product offerings include brakes, couplers, shock absorbers, rail fastening systems, composite brakes etc. ERP is focusing on technology upgradation to cater to the growth of Indian Railways. (d) Auto Products Business (APB) supplies parts such as shock absorbers and telescopic font forks etc. for various industries across India and outside India. 4. xx xx xx xx II. Relevant Facts 5. xx xx xx xx 6. xx xx xx xx 7. Escorts had received a notice dated November 8, 2012 under Section 36(2) read with Section 41 of the Competition Act from the office of the Director General. In response to the said notice, Escorts had provided the requested information to the office of the Director General pursuant to a submission dated December 26, 2012. The information provided in the submission included : (a) information in relation to 'feed valve'; (b) brief overview about Escorts; (c Annual Report for 2010-11; (d) chart outlining the shareholding pattern as on Sep....
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....policies and overcharging compliance principles which all officers of the company agree to adhere to as a part of the standard norms and practice within Escorts. There has never been any discussion / understanding between Escorts and any competitors at any point of time. The rates at which earlier tenders have been awarded to successful bidders and the quoted price of each bidder are in the public domain. It is submitted that the different arms of the Indian Railways rely on the last purchase/quoted rates while awarding tenders. It is further submitted that the rate quoted by Escorts is based on previous purchase / quoted rates and various other factors such as quantity, yearly target, Inventory levels, taxes etc. 12. xx xx xx xx 13. In the tender in question, Escorts was not invited for negotiation because the tender committee conclude that Escorts had not paid Rs. 1,000/- as tender cost. The Indian railways granted the tender to Stone India Limited at a negotiated price which was Rs. 500 per piece less than the quoted bid. This clearly shows that the success of the tender does not depend on the quoted price. 14. It is humbly submitted that Escorts takes it....
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....above, it is clearly evident that the DG has examined the market dynamics and the role of RDSO at length and concluded without any doubt that the RDSO is an integral player in shaping the nature of the relevant market. The RDSO has indeed played a key role in determining the number of players in the market and thereby affecting the competitive structure and dynamics of the market. It is therefore submitted that the behaviour of the market participants including Escorts has to be looked at in the context of the existing market situation. 22. Another important issue to consider while examining the nature of market is the fact that, though the market appears to be a competitive bidding market, it should be noted that in practice the aforesaid bidding process is used to identify the lowest bidder/price and thereafter, the final price at which a tender is awarded is negotiated by the Indian Railways with the lowest bidder. 23. For instance, Escorts had in relation to tender No. 041251310 dated October 10, 2012 (Diesel Locomotive Works, Varanasi) submitted an all inclusive rate of Rs. 15,964.95 (a base price of Rs. 13,500) and was the lowest bidder in that tender. The Ind....
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.... Works, Patiala. Please see Annex 1 of the DG Report. In response to question No. 13 relating to reliance placed on last purchase order by the Railways, Mr. Rawat has stated that "The purchase orders placed by Zonal Railways are also considered for adjudging the reasonably of rates. However, each tender is dealt on its merits and first comparison of rates is made with the last purchase rates of the concerned Railway." 30. We would also like to bring to the notice of the Hon'ble Commission the "Fall Clause" set out in the General Conditions of Contract for Stores Department, Indian Railways. The 'Fall Clause" states that: "the price charged for the stores supplied under the contract by the contractor shall in no event exceed the lowest price at which the contractor sells the stores or offer to sell stores of identical description to any persons/organisations including the purchaser or any department of central government or any Railway office or undertaking........ during the currency of the contract. The lowest price will be applicable to supplies made after the date of coming into force of such reduction or sale or offer to sell at a reduced rate." ....
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....egard the high installed capacity, it is submitted that as observed by the DG in Para 7.9 of the DG Report, the installed capacities of the vendors are also fixed/approved by the RDSO. Therefore, the grounds on which DG has come to the conclusion that all vendors have formed a cartel through meeting of mind and engaged in bid rigging are incorrect and not tenable. 35. It is submitted that the office of Director General has failed to analyse and appreciate the following factors that adversely affects the competitive dynamics of the railway bidding market: (a) Practice of the Indian Railways to rely on last purchase price, while negotiating with the lowest bidder; therefore, the vendors are forced to refer to the prices quoted by competitors to various zonal railways before deciding on their price bids. (b) Application of the "fall clause", wherein if a vendor supplies the product at a particular price to a zonal railway, which happens to be the lowest price offered for that product in India, then the said price will have to be mandatorily matched by such a vendor in executing running/existing contracts for the supply of the said product. (c) Availabil....
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....nisation Economic and Competition Law : "Under conditions of oligopoly, the pricing and output actions of one firm have a significant impact upon [those] of its rivals. Firms may after some period of repeated actions become conscious or aware of this fact and without an explicit agreement coordinate their behaviour as if they were engaged in collusive behaviour or a cartel to fix prices and restrict output. The fear that departure from such behaviour may lead to costly price cutting, lower profits and market share instability may further create incentives for firms to maintain such an implicit arrangement amongst themselves. This form of conscious parallel behaviour or tacit collusion generally has the same economic effect as a combination, conspiracy or price fixing agreement. However, whether or not conscious parallel behaviour constitutes an illegal action which is restrictive of competition is (a) subject of controversy in both competition law and economics. Price uniformity may be a normal outcome of rational economic behaviour in markets with few sellers and homogenous products. Arguments have been advanced that the burden proof must be higher than circumstantial evid....
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....ffers of parties according to whims and fancies, no business firm will enter into any such arrangement. i. xx xx xx xx. j. The Opposite Party No. 2 humbly submits that in order to show that the alleged agreement in question, which is alleged to be falling within the mischief of Section 3(3)(d) of the Act, ipso facto, notwithstanding the statutory presumption, it should be shown that the agreement, whether a "cartel" or otherwise, causes or is likely to cause an appreciable adverse effect on Competition within India. k. The Opposite Party No. 2 humbly submits that cartel implies the existence of a trade practice followed by same parties over a period of time. It cannot be deduced from any one contract. l. xx xx xx xx m. The report of the Director General fails to establish in the first place that there exists any such agreement; not to speak about the same being an "anti-competitive agreement". The report does not establish the existence of any "cartel" and is based largely on surmises. n. The Opposite Party No. 2 further submits that even if there is any anti-competitive agreement, it should be established that there was an intention ....
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....osite Party No. 2 had not hampered the entry of any new entrant or demand and has not impeded the advent or growth of any new technology, there is nothing to suggest the existence of any anti-competitive agreement. The Opposite Parties do not decide the system. Further when there is a mechanism to fight cartel, cartel cannot be said to be existing or affecting competition. There is in any event no cartel as we have already demonstrated hereinabove. o. The Opposite Party No. 2 states that there is no truth in the allegation regarding cartel. The Opposite Party No. 2 humbly submits that it is not sufficient evidence to show that there was any meeting of minds. It must be shown that there was a meeting of minds between persons carrying or working with a common objective in order to be bracketed as persons acting in concert. The allegations have no substance and are liable to be dismissed totally. The tender committee meeting held on 22nd May 2012 also appears to be a farce in as much as there is no basis for the finding that there are reasonable circumstances to suspect cartel formation. p. The Opposite Party No. 2 further states that the legislature while enacting the....
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....posite Party No. 2 reiterates its submissions. As already said the offer price is based on the previous Purchase Order No. 26.11.1569.1.04659 dated 18th January 2012. Hence allegation of cartel automatically falls to ground. As already demonstrated, there are cases such as the earlier purchase order of Southern Railways. Further the tender No. 201221040 opened on 04/07/2011 of DMW for 112 Nos. of Feed Valve, despite the fact that the opposite parties had quoted different pries and the entire order was awarded to Opposite Party No. 2 at the quoted price. Therefore there is no basis in the allegation of DG so far as it pertains to the Opposite Party No. 2. It is clarified that the DG has not properly appreciated the break up cost of the feed valve as provided by Opposite Party No. 2. The said break up relates only to raw material cost which alone is Rs. 12847.9, in addition there are other elements costs inter alia sub contract charges, purchase/manufacturing overheads, warranty, labour, non-productive overhead. d to f xx xx xx xx g. With reference to Para 6.10 of the report, the Opposite Party No. 2 states that the DG's finding confirms the basis of the p....
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.....32, the Opposite Party No. 2 submits that in May, 2011, the base price quoted by it was Rs. 11,900/- and in October 2011, it was Rs. 14,534.52. There prices were based on the preceding bid/order pries. Therefore, the conclusion of the DG that past conduct also indicates a collusive bidding is incorrect. n. xx xx xx xx 9. xx xx xx xx 10. The Opposite Party No. 2 humbly submits that the DG has not applied the statutory guiding factors contained in 19(3) of the Competition Act before concluding that the trade practice has appreciable adverse effect on competition. In the report, the DG has miserably failed to show the existence of any of the circumstances to indicate that this practice allegedly indulged by the opposite parties has any effect on competition not to speak about any appreciable adverse effect on competition. 11. xx xx xx xx 12. On the above aspects falling under Section 19(3) of the Act, the Opposite Party No. 2 states as follows : a. Creation of barriers to new entrants in the market i. OP2 has no role to play in entry of any other entrant. If RDSO approves a vendor, a new entrant comes into existence. A new entrant has....
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....spondent No. 2 alleged that the informant had suppressed material facts from the Commission. On merits, SIL made the following submissions in paragraphs 6 to 15. The same are reproduced below : "6. It is submitted that even if it is assumed without admitting that there was indeed some form of price coordination between SIL and the other two Opposite Parties, no bid rigging could have been taken place as the other two Opposite Parties were already disqualified on 27 April 2012 by the tender committee and SIL remained the only bidder with whom DLMW negotiated. Hence, there cannot be a bid rigging with the existence of a single party in the bidding process. Further, DLMW negotiated the price with SIL and also received all the 67 C2N Feed Valve without imposing any condition upon SIL post negotiations. Hence, no violation of bid rigging under section 3(3)(d) read with section 3(1) could stand against SIL from the very moment the Tender Committee of DLMW immediately on opening of the tender on 27 April 2012 found that amongst the three registered bidders as per the RDSO Vendor Director, except SIL, the other two bidders i.e., FTIL and Escorts were technically ineligible to bid a....
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.... action on the part of SIL with regard to submission of the financial bid on 26 April 2012, the penultimate date of submission to the DLMW Patiala. On the contrary, it is informed that SIL submits submission almost all quotations from its Head Office at Kolkata. The tender submission process is centralised for better administration and timely completion of processes and normally Branch Offices are not assigned to undertake submissions of the quotations for reasons of commercial sensitivities associated with tendering processes in a competitive market scenario. This is the procedure being followed by SIL since beginning of their business with Indian Railways. There is a trained and nominated person at Kolkata Marketing Office who submits the tender to Indian Railways website (www.ireps.gov.in). There are large numbers of quotations which are being submitted frequently by SIL both electronically as well as manually. Lots of manual tenders are also received from Sheds and Depots for small requirements for local purchase for which SIL needs secretarial assistances and submit the quotations manually thereafter correctly. 15. In view of foregoing circumstances, no allegation of c....
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.... the Commission. Based on such communication, as noted earlier, the present case was registered as a suo moto case and the DG was directed to investigate the matter. 30. From the information provided by DLMW, the quotes of the parties who participated in the tender under consideration along with the break-up of levies are as follows: From the above, it is indisputable that the total unit price quoted by all the opposite parties was Rs. 17,147.54/-. Irrespective of the justifications advanced by the parties to support such identical quotes right up to the last paisa and which shall be examined in detail in the latter part of the order, it may be observed here itself that in absence of any plausible economic justification, this circumstance alone is a very strong indicator towards a possible collusion amongst the bidders. However, in some cases for establishing such collusion, the factum of identity of quotes may further require to be supported by some corroborative evidence. 32. It may be observed that the definition of 'agreement' as given in section 2(b) of the Act required inter alia any arrangement or understanding or action in concert whether or ....
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....r Committee during evaluation and consideration of the bids suspected cartel. However, as per General Conditions of Contact for Stores Department it is provided that wherever all or most of the approved firms quote equal rates and cartel formation is suspected, railways reserves the right to place order on one or more firms with exclusion of the rest without assigning any reasons thereof. Accordingly, after considering the implications of e-tendering, the Committee decided to enter into negotiations with SIL. Consequent upon negotiations, SIL reduced its basic price and offered discount of Rs. 554.15/- each on basic price i.e. it offered revised basic rate of Rs. 14,120.13/- each +ED +CST as per its offer. At this stage, it may be observed that though the offer of EL was found technically suitable, its offer was passed over as it did not submit the cost of tender documents. Similarly, the offer of FTRTIL was found technically suitable, yet its offer was passed over as the firm did not accept the warranty clause as per IRS conditions of the contract. 36. Much was made by SIL of the fact that the other two bidders having been found ineligible by the Tender Committee, the entire cas....
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....eem it necessary to exempt EL from complying with the tender condition. 39. Similarly, with respect to the non-acceptance of the warranty clause by FTRTIL, the Committee noted that under normal conditions the firm would have been asked to accept these commercial deviations but since all the three RDSO approved firms quoted identical rates, it was decided to consider the offer of FTRTIL as commercially unsuitable. Therefore, in view of the facts of the present case, the Commission is of considered opinion that EL and FTRTIL were not ineligible to participate in the tender as argued by the parties. Both were RDSO approved vendors and their bids were found to be technically suitable. The defects, if any, were of technical and curable nature. In the circumstances of the case, it was futile for the procurer to condone such defects and deviations and thereby putting further premium over the collusive act. In the result, the arguments advanced by the parties in this regard are misconceived and cannot be sustained. 40. In this regard, it may also be observed that during the course of the arguments, the Commission put a specific query to the counsel appearing for EL as to the steps take....
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.... dated 18.01.2012 at a basic price of Rs. 14,534.52/-. In the opinion of the Commission, this plea of FTRTIL was also red herring and could not have been accepted. From the details of tenders awarded/bids submitted to FTRTIL and placed by FTRTIL on record, it is evident that FTRTIL selectively picked the figure of Rs. 14,534.52/- out of long and varying list of suit its convenience. In this regard, it is instructing to note that FTRTIL relied upon the purchase order dated 18.01.2012 and 29.12.2012 in it support, yet it conveniently ignored the other purchase orders of 18.01.2012 of lower price i.e. Rs. 12,770.37/- as can be seen from the details available in the report of the Dg. Hence, the plea of FTRTIL is found to be misleading and without any substance. 43. The DG, however, did not accept the claim made by SIL that its bid prices were based on the basic price of Rs. 14,674.28/- of the earlier purchase orders dated 14.12.2011 and 08.11.2011. Suffice to note, as observed above, it is not discernible as to how these two orders were picked up by SIL in support of its contention ignoring the other bids and purchase orders. Furthermore, even at this basic price, a calculated ....
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....rty were available to its rivals, there is no logical reason for such rivals to quote exactly the same price when they could have easily chosen to quote a lower price, even if by only one paisa, to win the bid. 46. In the aforesaid backdrop, the filing of the electronic bids by the opposite party bidders on the same date i.e. 26.04.2012 cannot be brushed aside as mere coincidence or a common practice. 47. The DG also examined the past conduct of these bidders with respect to tenders invited by other railway zones. From the information so gathered, it was observed that though the production cost of the feed valves of the opposite parties were different but they quoted nearly identical price in the past in different zones of railway and in some cases there was difference of bid price of merely 88 paisa and/or Rs. 9.14 paisa as in the case of Tender No. 26111569 dated 11.10.2011 where EL and FTRTIL quoted identical price for supply of 54 feed valves Rs. 14,535.40/- and Rs. 14,534.52/- respectively. Similarly, in Tender No. 43110361A dated 17.10.2011 EL and FTRTIL have quoted Rs. 14,525.38 and 14,534.52 respectively to Southern Railway. As such, the action of the opposite parties i....
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....directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition. 50. Thus, in case of agreements as listed in section 3(3) of the Act, once it is established that such an agreement exists, it will be presumed that the agreement has an appreciable adverse effect on competition; the onus to rebut this presumption would lie upon the opposite parties. 51. In the present case, the opposite parties could not rebut the said presumption. It has not been shown by the opposite parties how the impugned conduct resulted into accrual of benefits to consumers or made improvements in production or distribution of goods in question. Further, the opposite parties could not explain as to how the said conduct did not foreclose competition. 52. Various conspiracy theories including 'corporate espionage' were also ought to be advanced by SIL to justify the identical quotes as resulting from 'corporate espionage'. Except propounding such theory, no material was placed before the Commission to support the thesis. Further, the Commission has already dealt with these submissions earlier in this order. 53. The....
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....f the view that such failure has resulted in miscarriage of justice. As noted above, it is not the case of SIL that due to such different composition its cause has been prejudiced in any manner leave alone causing of any miscarriage of justice. In this view of the mater, the Commission is constrained to note that the plea is without any merit particularly when the Commission had the benefit of written replies and submissions of SIL which were duly considered by the Commission. 56. In the result, the Commission is of the view that the opposite party bidders by quoting identical rates had, indirectly determined prices/rates in the tenders and indulged in bid rigging/collusive bidding in contravening of the provisions of section 3(1) read with section 3(3)(a) and 3(3)(d) of the Act." [Underlining is mine] 10. On the basis of the aforesaid finding and conclusion, the Commission imposed penalty @ 2% of the average turnover of each of the appellants. The rationale of imposing penalties contained in paragraphs 58 to 62 of the impugned order are reproduced below:- "58. As regards penalty under section 27 of the Act, the Commission notes: that all the bidding companies who....
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....se any agreement referred to in section 3 has been entered into by a cartel, the Commission may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover for each year of the continuance of such agreement, whichever is higher. 60. There are no other mitigating factors significantly raised, except that the amount involved in the tender was very small and the order was only of the few lakhs. It must also be kept in mind that public procurement is a major concern of all competition authorities in the world. The Commission cannot ignore bid rigging in a case of small procurement nor can consider small procurement unimportant. The bid rigging practices are spread throughout the public procurement system. Various collusive methods are adopted in public procurement to deprive the State i.e. exchequer, of the real benefit of money paid by the. The contravention of the competition law cannot be considered non-serious only because the amount of the bid was small. The size of tender in itself is not a decisive factor for ta....
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.... and past conduct of the appellants are extraneous and irrelevant. Learned counsel submitted that the appellants had no role in RDSO's failure to approve new suppliers of feed-valves for a long period of time and formulation of policy by the Railways for procurement of different items from private suppliers and, therefore, these could not be made basis for recording an adverse finding against the appellants on the issue of cartel formation or bid-rigging/collusive bidding. Learned counsel argued that in recording a finding adverse to the appellants, the DG was unduly influenced by extraneous factors, namely, absence of the entry of new vendors in the field and the so called error committed by the Tender Committee not to consider the bids of EL and FTRTIL. Learned counsel further argued that the Commission committed grave error by observing that even though the bids submitted by EL and FTRTIL were defective, the Tender Committee should have waived the deficiencies/defects and invited them for negotiation. They also criticised the theory of cover bidding /complementary bidding by EL and FTRTIL innovated by the Commission by emphasising that the same is neither based on facts nor ....
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.... factor of identity of total price quoted by the appellants and there was no plus factor which could justify the conclusion that the appellants were guilty of forming a cartel or indulging in bid-rigging. In support of this argument, Shri Dave heavily relied on the judgement of the Supreme Court in Union of India v. Hindustan Development Corporation and others [ (1993) 3 SCC 499]. 14. Learned counsel representing the other appellants relied upon the Commission's own orders in other cases to substantiate their argument that the similarity of price quoted by the bidders cannot be made the sole criteria for recording a finding on the issue of cartelisation/ bid-rigging or collusive bidding. Learned counsel also questioned the penalty imposed by the Commission by pointing out that the calculation of average turnover of the appellants is contrary to the ratio of the order passed by the Tribunal in M/s. Excel Corp Care Limited v. Competition Commission of India and others (Appeal No. 79 of 2011) decided on 29.10.2013. 15. Ms. Anupam Sanghi, learned counsel for the Commission supported the impugned order and argued that the appeals are liable to be dismissed because the appellants f....
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....refully scanned the records. 18. The question whether 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 facts of that case and conclusions recorded by the Supreme Court is reported in (1993) 1 SCC 467. The second part which contains detailed reasons in support of various conclusions is reported in (1993) 3 SCC 499. The factual matrix of that case is substantially similar to the case in hand. Every year, the Railway Board used to invite bids for supply of cast steel bogies which were used for building the wagons. There were 12 suppliers, who were regularly supplying the cast steel bogies. Two new entrants were Simplex and Beekay. Among the 12 regular suppliers, M/s. H.D.C., Mukand and Bhartiya were having capacity to manufacture large quantities of steel bogies. In response to a limited tender notice issued by the Railway Board on 25.10.1991 for procurement of 19,000 cast steel bogies, M/s. H.D.C., Muka....
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....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: "1. There is not enough material to conclude that M/s. H.D.C., Mukand and Bhartiya formed a cartel. Because of mere quoting identical tender offers by the said three manufacturers for which there is some basis, the conclusion that the said manufacturers had formed a cartel does not appear to be correct. However since the offers of the said three tenders were identical and the price was somewhat lower, the Tender Committee entertained a suspicion that a cartel had been formed and the same got further strengthened by the post-tender attitude of the said manufacturers which further resulted in entertaining the same suspicion by the other authorities in the hierarchy of the decision making body including the Minister of Railways. Though there is not enough of material to establish formation of a cartel as is underst....
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....ons 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 word 'cartel', took notice of the discussion on cartel in American Jurisprudence 2d Vol. 54, referred to some decisions of the foreign jurisdictions and observed that the opinion formed by the Tender Committee that the three big manufacturers had formed a cartel because they had quoted identical price was not correct. The relevant portions of that judgement are extracted below : "14. First we shall consider the submissions regarding the formation of cartel by these three big manufacturers. The word "cartel" has a particular meaning with reference to monopolistic control of the market. In Collins English Dictionary, the meaning of the word "cartel" is given as under: "cartel- 1. Also called: trust, a collusive international association of independent enterprises formed to monopolize production and distribution....
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....uite 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 sense (2)." The cartel therefore is an association of producers who by agreement among themselves attempt to control production, sale and prices of the product to obtain a monopoly in any particular industry or commodity. Analysing the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. Dealing with the provisions of Sherman Anti Trust Act, in National Electrical Contractors Associations, Inc. v. National Constructors Association. [678 FR 2d 492] it was observed as under: &nbs....
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.... 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) the conspirators must have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered. * * * The alleged conspiracy's failure to achieve its ends in the two decades of its asserted operation is strong evidence that the conspiracy does not in fact exist. Since the losses in such a conspiracy accrue before the gains, they must be 'repaid' with interest. And because the alleged losses have accrued over the course of two decades, the conspirators could well require a correspondingly long time to recoup. Maintaining supra competitive prices in turn depends on the continued cooperation of the conspirators, on the inability of other would-be competitors to enter the market, and (not incidentally) on the conspirators' ability to escape antitrust liability for their minimum price-fixing cartel. Each of these factors weighs more heavily as the time needed to recoup losses grows. If the losses have been su....
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....ntities 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 comer 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 reject such lower price. Under these circumstances though the attitude of these three big manufacturers gave rise to a suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such formation of a cartel......" 19. In this case, the DG recorded an affirmative conclusion on the issue of cartel formation and bid-rigging by the appellants by relying upon the following factors: "(a) RDSO had approved only three suppliers i.e. the appellants and there was no new entrants in ....
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....volved supplementary/complementary bidding by EL and FTRTIL is based on pure conjectures and is liable to be rejected because before making this observation, the Commission did not give any opportunity to the two appellants to have their say. Similarly, the observation made by the Commission that the Tender Committee committed an illegality in overlooking the bids of EL and FTRTIL is ex facie erroneous. Once the competent authority had laid down particular conditions required to be fulfilled by the tenderer and the two of the three tenderers failed to comply with the same, the Tender Committee and Respondent No. 2 cannot be said to have committed any illegality by not acting upon their tenders. The Tender Committee could have recommended for fresh tendering and Respondent No. 2 could have accepted that recommendation but their failure to do so cannot lead to an inference that they have acted with ulterior motive or that the Tender Committee ought to have waived the defects/deficiencies and allowed the two appellants i.e. EL and FTRTIL to participate in the bid or called them for negotiations. 21. For appreciating the question whether the appellants had been constantly quoting iden....
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....e to be set-aside. 27. There are other reasons for holding that the penalty imposed by the Commission is legally unsustainable and the same is liable to be set-aside because : "(i) The Commission acted in total disregard of the order passed by the Tribunal in Appeal No. 79 of 2011 in M/s. Excel Corp Care Limited v. Competition Commission of India and others (supra). In that case, the Commission had imposed penalty on the appellants @ 9% of the average turnover of three financial years. While modifying the order of the Commission, the Tribunal made the following observations : "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 de....
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.... relevant turn over. We are accepting the argument regarding the relevant turn over in the peculiar 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." [Underlining is mine] (ii) It is not in dispute that EL is engaged in manufacturing multiple products of many hundred crores of rupees. Similar is the case of FTRTIL and SIL. The total production of feed valves is almost insignificant. It is not even 5% of the total production cost of the appellants. Therefore, the turnover of other products could not have been clubbed for the purpose of Section 27(b). Since, the term 'turnover' appearing in clause (b) of Section 27 has not been defined in the Act, it must take colour from the preamble, definitions of various terms and other provisions of the Act including Sections 3 and 4, the contravention of which can invite an order of penalty and other consequences enumerated in Section 27. In this connection, reference can usefully be m....
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....nd of themselves', and 'reference to the abstract meaning of words', states Craies, 'if there be any such thing, is of little value in interpreting statutes'.... in determining the meaning of any word or phrase in a statute the first question to be asked is - 'What is the natural or ordinary meaning of that word or phrase in its context in the statute? It is only when that meaning leads to some result which cannot reasonably be supposed to have been the intention of the legislature, that it is proper to look for some other possible meaning of the word or phrase.' The context, as already seen in the construction of statutes, means the statute as a whole, the previous state of the law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy. In Poppatlal Shah v. State of Madras 1953 CriLJ 1105, this Court while construing the word 'sale' appearing in the Madras General Sales Tax Act, 1939 before its amendment in 1947, observed: It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statutes are to be taken together, and ea....