CCI introduces Leniency “Plus” regime in India- Will it suffice?
Competition Commission of India (“CCI/Commission”) vide its order dated 09.06.2022, in a Suo Moto case found 7 companies i.e. Polyset Plastics Private Ltd. (OP-1), M/s Anju Techno Industries (OP-2) M/s Power Mould (OP-3), Jai Polypan Private Ltd. (OP-4), M/s Rama Engineering Works (OP-5), M/s Polymer Products of India (OP-6), and M/s Hari Narayan Bihani (OP-7) guilty of bid rigging the tenders floated by different railway zones for the procurement of ‘polyacetal protective tube’ for axle box guide in Integral Coach Factory (ICF) through a cartel amongst them, by contravening the provision of Section 3(3)(a), (b), (c) read with Section 3(1) of The Competition Act, 2002 (“Act”).
The case was initiated pursuant to an application under Section 46 Act read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (LPR), by OP-4 disclosing that there existed coordination and collusion among all the OPs from 10.06.2015 to 29.06.2020 in the tenders issued by the Indian Railways for procurement of protective tubes through the modus operandi of, inter alia, quoting mutually agreed prices and allocating tenders amongst themselves.
Prima Facie view
Based on the Disclosures made by OP-4 in its Leniency Application, Commission vide its order dated 17.11.2020 formed its prima facie view that the conducts of the OPs appears to be in contravention of Section 3(3) read with 3(1) of the Act and accordingly directed the DG to cause an investigation into the matter and submit a report.
DG Findings
DG in its report found that there was regular email communications between the OPs discussing the prices to be quoted, tender quantity allocation among themselves. Further there were other emails asking some of the OPs to withdraw their offers from tenders.
It was further found by the DG that OPs were manipulating the bidding process by forming a pool or cartel of vendors, even for developmental vendors who were entering the market and were in the initial phases of manufacturing.
Some of the OPs had during their deposition admitted that there was an agreement among the OPs.
Based on the above finding the DG concluded that all the 07 OPs had indulged in conduct in 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. Further DG had also identified the certain individuals and role played by them in terms of Section 48 of the Act.
CCI findings
CCI after considering the DG Report, LPR filed by OP-4 and the objections to the DG report filed by the OPs, at the very outset noted that OP-1, OP-2, and OP-3 were declared as sister concerns before the Research Design and Standards Organization (RDSO) but still the three OPs were participating as competitors for the same product in same tenders. It was further noted by the CCI that in 12 tenders the three sister concerns had submitted the tenders from the same IP Address.
Further during the investigation, the email dumps were recovered by the DG and on the basis of the emails it was noted by the CCI that there were regular communications between the OPs w.r.t the tenders issued by the various zonal railways for the procurement of polyacetal protective tubes. The emails further established the modus operandi of the collusion/coordination in the form of cartel pool amongst the OPs, which included the allocation/allotment of tenders amongst the OPs, revision of sharing pattern, induction of new members to the pool, calculation methods to arrive at the price to be quoted, discussion on rates to be quoted, complaints regarding undercutting, and communication amongst OPs to withdraw offers.
Further the emails also established the pivotal role played by Ms. Shanta Sohoni, an employee of OP-1(as well as on behalf of OP-2 and OP-2) who use to maintain the record of the cartel, allocate the tenders between the OPs and was at the center of the cartel through whom all the communications were made to the other OPs regarding the tenders. Further she acknowledges the existence of the agreement/understanding between the OPs.
Finally on the basis of the analysis of the emails recovered by the OPs and the leniency Application the Commission agreed with the finding of the DG and concluded that there was active engagement and participation of the OPs in discussing the bids and controlling the supply and allocation of market for polyacetal protective tubes in various Railway tenders, leading to manipulation of the bidding process of the Indian Railways.
Further , replying to the plea raised by the parties that the conduct of the OPs did not lead to any AAEC in the market, CCI held that the plea raised by the parties are misconceived as, once an agreement of the types specified under Section 3(3) of the Act is established (including cartel), the same is presumed to have an AAEC within India and , though as per the ratio decidendi of the of the decision given by the Hon’ble Supreme Court of India in the matter of Rajasthan Cylinders and Containers Ltd. v. Union of India and Others, 2018 (13) SCALE 493, that the presumption of AAEC can be rebutted by the parties by placing evidence to the contrary on record , but in the present case OPs had been unable to show any positive effects emanating from their cartel activity, such as accrual of benefits to consumers, improvement in production or distribution of goods or provision of services, or promotion of technical, scientific, and economic development by means of production or distribution of goods or provision of services. Thus, CCI find no evidence which could rebut the presumption of AAEC in favour of the OPs
Further, CCI also rejected the arguments raised by the parties that they were forced to indulge in such pool arrangement and cartel activity due to the market structure and monopsonist position of the Indian Railways, in order to avoid losses and get their fair share of business, as per the ratio decidendi of the same Supreme Court judgment in Rajasthan Cylinder case . The following observations by CCI is worth reproducing:
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 are concerned. This also has to be considered in view of the 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 OPs to procure polyacetal protective tubes 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 OPs 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.
Based on the above reasoning CCI concluded that all the OPs had contravened the provisions of Sections 3(3)(a), 3(3)(b), 3(3)(c), and 3(3)(d) read with 3(1) of the Act.
On the issue of monetary penalty CCI imposed the penalty at the rate of 5 percent of the average of their turnover generated from the sale of protective tubes for the last three preceding financial years. CCI also identified the roles played by individuals of the OPs to be liable in terms of Section 48 of the Act and imposed a impose penalty @5% of the average of their incomes, for the last three preceding financial years.
Further CCI noted that OP-4 is eligible for up to 100% reduction in the penalty amount as it extended genuine, full, continuous, and expeditious co-operation not only during investigation before the DG, but also during the subsequent proceedings before the Commission and accordingly granted 100% reduction in the penalty amount imposed upon them.
COMMENT: This appears to be yet another case of a naïve cartel busted by the CCI with the help of leniency regulations. Noticeably, In this order the Commission, has attempted to differ from the ratio decidendi of the Supreme Court famous judgment in Rajasthan Cylinder case by holding that mere reliance on market structure created by a monopsonist buyer, which may tend to control the market for supply, does not grant a license to suppliers to cartelize. Since, in the circumstances of the case and given the fact that minor penalties have been imposed on parties an appeal is unlikely to be filed, the observations of the CCI as reproduced above assume significance as a precedent.
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