The Competition Commission of India (‘CCI’ or ‘Commission’) vide its order dated July 10, 2020 has directed 10 (ten) enterprises and some of their officials to cease and desist from indulging in anti-competitive practices in a matter related to cartelisation in bidding for certain tenders of Indian Railways.
In the present case, references were filed under Section 19(1)(b) of the Competition Act, 2002 (‘the Act’) by the Chief Materials Manager, South Eastern Railway (‘IP-1’), the Controller of Stores, Central Railway (‘IP-2’), the Chief Materials Manager, Eastern Railway (‘IP-3’), the Chief Materials Manager-I, North Western Railway (‘IP-4’) and the Chief Materials Manager-Sales, North Western Railway (‘IP-5’) in Reference Case Nos. 03 of 2016, 05 of 2016, 01 of 2018, 04 of 2018 and 08 of 2018 respectively. There were 10 (ten) opposite parties namely, Hindustan Composites Limited (‘OP-1’), Industrial Laminates (India) Private Limited (‘OP-2’), BIC Auto Private Limited (now Masu Brake Pads Private Limited) (‘OP-3’), Escorts Limited (Railway Equipment Division) (‘OP-4’), Rane Brake Lining Limited (‘OP-5’), Om Besco Super Friction Private Limited (‘OP-6’), Cemcon Engineering Co. Private Limited (‘OP-7’), Sundaram Brake Lining Limited (‘OP-8’), Bony Polymer Private Limited (‘OP-9’), Daulat Ram Brakes Mfg. Co. (‘OP-10’).
In all the references, the allegations were with respect to contravention of Section 3 of the Act in the tenders issued by various zones of Indian Railways, by the opposite parties who were the manufacturers and suppliers of composite brake blocks.
The CCI passed orders under Section 26(1) of the Act and the Director General (“DG”) was directed to investigate the matter. Since the issues in all the references were common and the parties were same, the matters were clubbed and a common investigation report was filed by the DG holding that the opposite parties had indulged into contravention of the provisions of Section 3(3)(a), 3(3)(b), 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act from 2009 to 2017. The DG also identified several officials of the opposite parties to be liable in terms of Section 48(1) and/or 48(2) of the Act, for the contravention acts committed by their respective companies.
Issues framed for determination:
The CCI framed the following issues for determination:
(1) Whether the Opposite Parties had acted in a manner which is in contravention of the provisions of Section 3 (3) of the Act in the tenders floated by the various divisions/zones of the Indian Railways (including by the informants) and other procuring entities for procuring of different types of Composite Brake Block (“CBB”), during the period 2009 to 2017:
(a) by directly or indirectly determining the sale price of the different types of CBBs in terms of Section 3(3)(a) of the Act; or
(b) by limiting or controlling the supply of CBBs to various Railway Zones and other procuring entities in terms of Section 3(3)(b) of the Act; or
(c) by sharing/allocating the tender quantities amongst themselves in terms of Section 3(3)(c) of the Act.; or
(d) by collusive biding/ bid rigging in terms of Section 3 (3)(d) of the Act?
(2) In case the answer to any of the above listed issues is in affirmative, then who are the individuals/ persons/officials of the opposite parties, who are liable in terms of Section 48(1) or Section 48(2) of the Act?
Findings and conclusion:
On the submissions made by the opposite parties, the CCI gave its findings as under:
(1) A bare reading of the provisions of Section 3(1) of the Act shows that these provisions not only prescribe the agreements which cause AAEC but the same also forbid the agreements which are likely to cause AAEC. Hence, the plea that there is no contravention of the provisions of the Act in the present matter because allegedly no AAEC has been caused as a result of the alleged cartel between the parties, is misdirected and untenable in the face of clear legislative intent whereby even the conduct which can potentially cause AAEC, is prohibited. Furthermore, once an agreement of the types specified under Section 3(3) of the Act is established, the same is presumed to have an AAEC within India. Therefore, in the opinion of the Commission, it can well be presumed in the present matter that the impugned conduct of the parties has caused AAEC within India. No doubt, as per the ratio of the decision given by the Supreme Court in the matter of Rajasthan Cylinders and Containers Ltd. v. Union of India, 2018 (13) SCALE 493, the presumption of AAEC in a case involving contravention of the provisions of Section 3(3) of the Act can be rebutted by the parties by placing evidence to the contrary on record. However, save and except contending that the impugned conduct caused no AAEC, the parties have not been able to rebut the said presumption by leading adequate evidence.
(2) Merely putting emphasis on market conditions in isolation ignoring the actual conduct in the teeth of overwhelming evidence meticulously pieced together by the DG, the parties have been selective in projecting their submissions. Further, as a consumer, the Indian Railways is free to make a choice as far as selection of goods or services provider is concerned. This has to be also considered in view of direct accrual of benefits to the consumer i.e., the Government of India and the passengers using railway services. Negotiating terms and conditions with the opposite parties to procure CBB on the best possible bargain price amounts to nothing but ensuring benefit to itself and its end consumers i.e. railway passengers. Therefore, the Indian Railways cannot allow the opposite parties to fix any arbitrary prices and/or quantities. Negotiations/bargaining made by the Indian Railways does not detract from the factum of bid-rigging indulged in by the vendors in flagrant violation of the provisions of the Act.
(3) The Commission therefore, holds OP-1 to OP-10 guilty of contravention of the provisions of Section 3 (3)(a), 3 (3)(c) and 3 (3)(d) read with Section 3 (1) of the Act during the period 2009 to 2017.
The Commission in terms of Section 27(a) of the Act, directed the OP-1 to OP-10 and their respective officials who have been held liable in terms of the provisions of Section 48 of the Act, to cease and desist in future from indulging in practices which have been found in the present order to be in contravention of the provisions of Section 3 of the Act.
The Commission took into consideration the cooperation extended by the opposite parties in quantifying the penalties. The Commission noted that some of the OPs are Micro Small and Medium Enterprises (MSMEs). The Commission has also looked at the relevant turnover arising out of CBB in the present matter and observed that most of the OPs are having small annual turnover in this segment. The Commission considered the prevailing economic situation arising due to the outbreak of global pandemic (COVID-19) and the various measures undertaken by the Government of India to support the liquidity and credit needs of viable MSMEs to help them withstand the impact of the current shock. In this backdrop, considering the matter holistically and cumulatively, the Commission in the interest of justice, did not impose any monetary penalty in the peculiar circumstances of the case.
This update has been contributed by R. Sudhinder (Senior Partner) and Prerana Amitabh (Managing Associate).
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