By TIOL News Service

NEW DELHI, APR 15, 2016: THE issue is: Whether identical or near identical quotations submitted by bidders can be the sole basis for inferring collusive bidding when there are cogent reasons to substantiate such similar pricing. No is the answer.

Facts of the case

The Director General (Supply and Demand) (DGS&D) had floated tenders for procurement of Polyester Blended Duck Ankle Boot Rubber Sole ('the Jungle Boots') which is required to be manufactured as per the specifications prescribed by the DGS&D. These Boots are mostly purchased by the Government Agencies like Paramilitary Forces, State Police, Railways etc. on the basis of the Rate Contracts executed on annual basis. 'Rate Contract' are an agreement whereby the Supplier(s) agrees to supply to the Purchaser, specified stores at specified prices during the period covered by the Contract and there being no assured minimum purchase quantity, the Rate Contract holders do not have any incentive to quote rates competitively. In 2011, tender was floated to which the appellants submitted their bids. The DGS&D found identical bids being submitted by the appellants and hence made a reference to the Competition 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 and quantity of the product.

The DG investigation revealed reasons for collusive bidding which was confirmed by the Commission. The Commission held 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. Hence, this appeal.

Reasoning

Identical bids and PLUS factors

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 Vs. Hindustan Development Corporation and others. The Tribunal observed that the facts of this judgment was quite similar to the present case wherein it was held by the Supreme Court that mere quoting of identical bids for which there was some basis did not amount to bid rigging. The Supreme Court held that:

["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…… "]

Then the Tribunal refereed to the Escorts Limited and two others Vs. Competition Commission of India and Another case where a similar question was considered by the Tribunal. The DG and the Commission concurrently held that the appellants had formed cartel and indulged in bid-rigging in the matter of supply of C2N feed valves to Diesel Loco Modernization Works, Patiala primarily on the ground of identical bids, although the bidders lived in different states. But in that case, the Tribunal observed that only in two to three percent of the total tenders invited by various Zonal Railways, the price quoted by the appellants or two of them were identical. The Tribunal in that case 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.

The Tribunal noted that special features of the case 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 basis of the Rate Contacts executed on annual basis and there is no independent market for the same;

(iii) there is no substitute of the product and there are no other buyers except the Government Agencies;

(iv) the requirement of the Jungle Boots for the years 2008-09 to 2011-12 has remained static and this is the reason why no new manufacturer has entered the market. Rather, some of the existing manufacturers have exited the market;

(v) while fixing the Rate Contracts for 2011-12, no increase was allowed over the Rate Contract awarded for 2010-11; and

(vi) there is no association of manufacturers of the Jungle Boots but the Federation of Industries of India had sent letter(s) in the past regarding delay in conclusion of the Rate Contracts.

Unfortunately, neither the DG nor the Commission gave due weightage to the aforesaid factors and heavily banked on the factors like identical or near identical price quoted by the appellants in response to Tender Enquiry dated 14.06.2011 and the so-called plus-factor for recording a finding that the appellants had contravened Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act. On a holistic consideration of the entire record and keeping in view the judgment of the Supreme Court and the order passed by the Tribunal in Appeals Nos. 13, 15 and 20 of 2014, the findings and conclusions recorded by the DG and the Commission that the appellants had indulged in collusive bidding/bid-rigging and thereby violated Section 3(1) read with Section 3(3)(a) and 3(3)(d) of the Act are legally unsustainable and the impugned order is liable to be set aside.

Penalty on total turnover or relevant turnover

The Commission committed grave illegality by imposing penalty @5% of the average turnover of the appellants in respect of all the products manufactured by them for the last three preceding financial years. The respondents have not disputed that all the appellants are multi-product companies and the Jungle Boots is only one of the products manufactured by them. The question whether the word 'turnover' appearing in Section 27(b) can be construed as total turnover of the person found guilty of acting in contravention of Section 3 or 4 of the Act by was decided the Tribunal in ECP Industries Ltd. and SKN Industries Ltd. Vs. Competition Commission of India. In that case, the Tribunal referred to 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. Thereafter, 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.

(See 2016-TIOL-14-COMPAT-CACT)