On October 1, 2018, the Hon’ble Supreme Court of India passed a judgment in Rajasthan Cylinders and Containers Limited (Civil Appeal No. 3546 of 2014) setting aside the orders passed by Competition Appellate Tribunal (“COMPAT”), which found that suppliers of liquefied petroleum gas cylinders were in contravention of Section 3(3)(d) of the Competition Act, 2002 (“Act”), for rigging their bids in the tender floated by Indian Oil Corporation Limited (“IOCL”), in relation to the supply of 105 lakh cylinders between the years 2010 and 2011. The COMPAT, by the said order, (a) upheld the findings of the Competition Commission of India (“CCI”), insofar as it found the suppliers guilty of contravening Section 3(3)(d) of the Act; and (b) reduced the amount of penalty imposed on the suppliers.   

The suppliers filed instant appeals on the ground that there was no cartelization and that they had not contravened Section 3(3)(d) of the Act. On the other hand, the CCI challenged the latter part of the order whereby the penalties imposed on the suppliers were reduced. 

Basis of CCI’s findings:

The CCI concluded that the suppliers colluded and formed a cartel, which led to bid rigging, based on the following factors:  

1. Existence of an active trade association in which many of the suppliers are members. The primary interest of the trade association, it was concluded, is to ensure that no new entrants are able to join. Further, the trade association also ensures that all the members are able to receive a portion of the order. The CCI concluded that it is for this reason that the bids submitted in various standards which are floated by IOCL at different places are almost identical despite varying cost;
2. Further, the CCI inferred this from the fact that 2 (two) days prior to the submission of bids, the association conducted a meeting which most of the suppliers attended. Further, six common agents were appointed who submitted the bids on behalf of these suppliers;
3. IOCL requires gas cylinders of a particular specification and in large numbers, every year. Further, there are very few manufacturers and suppliers of this product to IOCL and two other buyers. For this identical product which is to be supplied by all the suppliers, there is no substitute and no significant technology change. 

Supreme Court’s findings and observations: 

1. The Supreme Court held that the aforesaid factors highlighted by the CCI ought to be analysed keeping in mind the prevailing ground realities, viz,

a) There are only three buyers, namely, IOCL, Hindustan Petroleum Corporation Limited and Bharat Petroleum Private Limited. In the event these buyers do not purchase from any of the suppliers, the suppliers would not be in a position to sell those cylinders to any other entity, as there are no other buyers;

b) In the event the buyer does not purchase the gas cylinders and in view of the limited number of buyers and suppliers in the market, new suppliers would be deterred from entering the market;

c) The manner in which the tenders are floated by IOCL and the rates at which the tenders are awarded, are an indicator that IOCL determines pricing. It is a matter of record that IOCL undertakes the exercise of having its internal estimates about the cost of the cylinders. All the tenders which have been accepted are for a price lesser than IOCL’s aforesaid estimate; and

d) All participants in the bidding process were awarded contracts in all States. This was to ensure a larger pool of manufacturers so that the supply of cylinders is always maintained for the benefit of the general public. The Supreme Court concluded that had IOCL left some manufacturers empty handed, in all likelihood, they would have shut their shops. However, IOCL wanted all manufacturers to be in the fray in their own interest.  

2. The Supreme Court observed that “monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. What is emphasised is that in such a situation a manufacturer with no buyers will have to exit from the trade. Therefore, first condition of oligopsony stands fulfilled. The other condition for the existence of oligopsony is whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability to raise prices or it stood reduced/eliminated by the aforesaid buyers.”
3. The Supreme Court held that where only a small number of buyers exist for a product, parallel pricing would not lead to the conclusion that there was a concerted practice. In this regard, the Supreme Court held that there should be other credible and corroborative evidence to prove that, where limited competition exists, a reduction in price would swiftly attract the customers of the other two or three rivals, due to which such rivals shall be so devastatingly affected that they would have to react by matching the cut.
4. After taking note of the applicable test to be applied in the present case, the Supreme Court concluded that the suppliers had discharged their onus and burden of proof, on the basis of the factors highlighted by the CCI. However, the CCI failed to carry out the inquiry that became necessitated upon the onus being discharged. The Supreme Court, therefore, held that (a) there was no sufficient evidence to hold that there was any agreement with the suppliers, for bid rigging; (b) set aside the orders passed by the COMPAT; and (c) as a consequence, since no penalty was payable, the appeals of the CCI were rendered infructuous and dismissed, as such.