CCI imposes penalty of INR 205 Crore on 7 cement manufacturers for bid-rigging in supply of cement to Director General (Supplies and Disposal), Haryana

Tweet

CCI by its order dated January 19, 2017 has imposed a penalty for bid-rigging on 7 cement manufacturers, viz. Shree Cement Limited, Ultratech Cement Limited, Jaiprakash Associates Limited, J.K. Cement Limited, Ambuja Cements Limited, ACC Limited, and J.K. Lakshmi Cement Limited (collectively referred to as “Opposite Parties”/”OPs”).

In the reference made by the DGS&D, it was alleged that in the tender floated in 2012 for supply of 4 Lakh Metric Ton cement at 30 different destinations to the Government Departments & Boards/Corporations of State of Haryana, the rates quoted by the bidders were 35-42% higher than existing rate contracts. The last rate contract was negotiated/finalized which was not justified in light of the Price Index for Cement. The CCI considered a prima-facie case of bid-rigging, and directed a detailed investigation by the DG.

The DG concluded that the OPs had colluded with each other in bidding for the said tender and the conduct of OPs was in violation of Section 3(3)(d) of the Act.

An analysis of the data collected by the DG showed that the average bid prices of cement quoted by the OPs between 2009 and 2012were significantly higher than the corresponding increase in wholesale price index for grey cement thus indicating price parallelism and collusive bidding. The OPs did not offer any satisfactory justification for such increase in prices.

The CCI also noted the contention of OPs that they first arrived at the final price to be quoted and then work backwards to arrive at the basic price.  The CCI considered this “paradoxical” and stated that it “defies logic that without determination of ex-factory/ basic price based on the cost of production and then adding various components like freight, VAT etc.., the companies would arrive at the final price”.

The CCI also noted that the for the year 2010 and 2011, the cumulative quantity quoted  by the OPs for each of these years was significantly higher than the total tender quantity of 4200000 MT offered in 2012 tender, which was very near to the tendered quantity of 400000 MT. The OPs did not offer any satisfactory justification for quotation of quantities. The CCI noted that in the present tender of 2012, all OPs have acquired L1 status in some or the other destination and none of the OPs have failed to obtain a bid. Such conduct is unprecedented. While OPs had bid for lower prices in certain destinations to emerge L1, they have quoted much higher prices in adjoining destinations. The CCI also noted through the call data records that various officials of the OPs had been making a number of calls and exchanging SMSes with each other in the month preceding the tender. The frequency and duration of calls had increased as the date of tender i.e. 16.08.2012 was approaching. Thus, the CCI concluded that the conduct of OPs is in contravention of Section 3(1) read with Section 3(3)(d) of the Act.

The CCI passed a cease and desist order against the OPs and imposed penalty at the rate of 0.3% of the average turnover of the preceding three years. (Source: CCI decision dated January 19, 2017; For full text see CCI website)

Suggested Reading:

(i) Competition Commission of India (CCI) re-imposes penalty on 11 cement companies for cartelisation

(ii) COMPAT sets aside CCI’s penalty on Alkem Laboratories for indulging in anti-competitive practices-

(iii) CCI again fines Pharma Company for Anti-Competitive Activities

(iv) Bid-Rigging in Public Procurement: Some evolving trends in Indian Competition Law

(v) Competition Appellate Tribunal (COMPAT) directs Competition Commission of India (CCI) to re-consider penalties imposed on LPG manufacturers