CCI introduces Leniency “Plus” regime in India- Will it suffice?
CCI again refrains from imposing penalty in a bid rigging cartel for supply of composite brake blocks to Indian Railways due to COVID 19
By way of order dated 10 July 2020, the Competition Commission of India (“CCI/Commission”) found 10 suppliers of different types of Composite Brake Blocks (CBBs) to Indian Railways having engaged in bid rigging cartels during 2009-2017 but, did not impose any penalty relying upon mitigating factors including current economic crisis faced by the suppliers , mostly medium small and micro enterprises (MSME) . This case is the second such case in recent times where CCI has avoided imposing financial sanctions on firms due to the ongoing COVID-19 pandemic. The first case being that of automotive bearings cartel in which no penalty was imposed and only cease and desist order was passed.
The case was initiated based on references received from the Chief Material Managers and Controller of Stores of 5 railways zones. The suppliers found involved in this case are Hindustan Composites Limited (“OP-1”), Industrial Laminates (India) Private Limited (“OP-2”) , BIC Auto 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”) and Daulat Ram Brakes Mfg. Co. (“OP-10”) , all RDSO approved suppliers . It was found that the aforesaid enterprises had engaged in cartelization in the tenders floated by the various railways zones of the Indian Railways for procuring of different types of Composite Brake Blocks (CBBs) during 2009-2017 by means of directly or indirectly determining prices, allocating markets, co-ordinating bid response and manipulating the bidding process, in contravention of Section 3(3) (a), 3(3) (c) and 3(3) (d) read with Section 3(1) of the Competition Act, 2002(“the Act”).
The decision was based on overwhelming direct evidences in the form of e-mails and messages exchanged through SMSes and WhatsApp between the parties.
Background
The case was initiated on the basis of five references filed by Chief Materials Manager South Eastern Railway, Controller of Stores Central Railways, Chief Materials Manager Eastern Railways Chief Materials Manager – I, North Western Railways and Chief Materials Manager – Sales , North Western Railway, Jaipur , alleging that the aforesaid 10 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 and other procuring entities for procuring of different types of CBBs, during the period 2009 to 2017: (i) by directly or indirectly determining the sale price of the different types of CBBs in terms of Section 3 (3) (a) of the Act; (ii) 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; (iii) by sharing/ allocating the tender quantities amongst themselves in terms of Section 3 (3) (c) of the Act (iv) by collusive biding/ bid rigging in terms of Section 3 (3) (d) of the Act.
DG Investigation
The DG during the investigation collected evidences in the form of e-mails and messages exchanged through SMSes and WhatsApp between the Opposite Parties, the call detail records of their individuals and the statements of their officials who were confronted with the evidences available against them, and accordingly, concluded that OP-1 to OP-10 were indulging in cartelisation during the period 2009 to 2017.
It was found that one of the employees of OP-1 used to keep the records of allocation of tender quantities amongst the Opposite Parties by maintaining excel sheets, which were modified from time to time according to the inputs received from OP-1 to OP-10 based on lower or higher quantities allotted to them in a particular tender. Furthermore, the DG found that OP-1 to OP-10 used to exchange screenshots of their financial bids to ensure that all of them stuck to their promise of quoting the pre-decided prices. It was found by the DG that OP-1 to OP-10 used to meet at different locations to decide the strategy and the modus operandi of their cartel and to resolve the differences amongst them.
Interestingly, officials of eight of the Opposite Parties i.e. OP-1, OP-3, OP4, OP-5, OP-6, OP-7, OP-8 and OP-9 admitted that they had formed a cartel to rig the bids of different tenders of CBBs floated by the Indian Railways and other entities. Further, with regard to the remaining two Opposite Parties i.e. OP-2 and OP-10, though they did not admit to be a part of the cartel, they did admit that they had exchanged bid related information through e-mails and messages.
CCI Analysis
The Commission observed that the e-mails and other evidence collected by the DG clearly revealed the modus operandi of the cartel and are direct evidence of involvement of the Opposite Parties and that there can be nothing can be more incriminating than these. It was noted that OP-1 to OP-10 and their respective individuals had discussed every detail of the tenders and the process to rig the bid at every step and had even discussed how they would be compensated if they did not win the previous or earlier tenders.
The Opposite parties contended that even though they had cartelised, there was no AAEC in the market for CBBs in India. However, the Commission held that a bare reading of the provisions of Section 3 (1) of the Act shows that these provisions not only proscribe 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.
Another argument put forward by the Opposite parties was that the Indian Railways being a monopolistic buyer controls the price and quantity to be supplied to it, thus, the Opposite Parties do not have any control over the price or quantity. However, the Commission observed that this contention was misconceived for the following reasons: (i) in the presence of overwhelming documentary evidence it is futile for the parties to take recourse to such plea. 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; (ii) As a consumer, the Indian Railways is free to make a choice as far as selection of goods or services provider is concerned and 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.
Accordingly, the Commission concluded that OP-1 to OP-10 and their respective individuals had indulged in cartelisation in the Composite Brake Blocks (CBB) market in India, at least from 2009 till 2017, by means of directly or indirectly determining prices, allocating markets, co-ordinating bid response and manipulating the bidding process, which had an AAEC within India.
However, the CCI refrained from imposing any monetary penalty on any of the aforesaid enterprises or their respective office bearers considering various mitigating factors such as cooperation and admission of their respective roles by the enterprises, some enterprises being Micro Small and Medium Enterprises (MSMEs), small annual turnovers of the enterprises and the prevailing economic situation arising due to the outbreak of global pandemic (COVID-19).
Comment: This is another case of naïve cartels typical of developing countries showing the prevailing ignorance of competition law amongst enterprises supplying goods for public procurement. The meticulous investigation conducted by the Director General (DG) by collecting plenty of direct evidence in the form of WhatsApp messages and emails made CCI task easy. However, by not imposing even a token penalty on the cartel participants, the CCI , in my view is setting a wrong precedent in India where such repeated lenient treatment will rather encourage numerous such naïve cartels to continue to flourish .
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