CCI introduces Leniency “Plus” regime in India- Will it suffice?
It will be music for some firms in India! The Indian fair market watchdog, the Competition Commission of India (CCI) has lately started showing a much nuanced and mature understanding of practical realities and difficulties of doing business in India in the context of imposition of penalties on cartels and bid rigging cases in India during the ongoing COVID-19 pandemic.
Continuing with its recent trend of going soft on naïve cartels formed by micro , small and medium enterprises (MSMEs) and refraining from imposing penalty ( or imposing a token penalty ) India’s fair market watchdog , the Competition Commission of India (CCI) , in a series of orders passed during the last two months or so has exposed a number of cartels of small enterprises in supply of goods & services to large public sector buyers the Indian Railways , Gas Authority of India Limited (GAIL) and the Food Corporation of India (FCI) .
“Naïve cartels” are cartels whose members do not attempt to conceal their activity, either because they are unaware that their conduct is unlawful or because they are not sufficiently sophisticated to do so. In the case of naïve cartels direct evidence is relatively plentiful, rendering circumstantial evidence less important[1]. Naïve cartels are much more common in developing countries and others that have not been active in prosecuting the conduct. Such cartels probably do not deserve to be sanctioned heavily, especially if their members cooperate with an investigation and immediately cease their prohibited conduct[2].
BACKGROUND
This “trend” (of imposing nil penalty despite finding sufficient evidence of cartel, including filing of leniency petitions by some parties), started during the first wave of COVID-19, with the first order dated 5.6.2020 passed by CCI against domestic industrial and automotive bearings manufacturers , (which , though , cannot be included in the category of naïve cartels) which involved large enterprises including few multinational companies , namely FAG Bearings India Ltd. (now, Schaeffler India Ltd.) (“Schaeffler), National Engineering Industries Ltd. (“NEI”), SKF India Ltd. (“SKF‟) and Tata Steel Ltd., Bearing Division (“Tata Bearing‟), which were found to have indulged in cartelisation in the domestic industrial and automotive bearings market from 2009 to 2014 but CCI did not impose any penalty due to peculiar facts and circumstances[3] of the case.
The trend continued with the second order dated 10.7.2020 in which it 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 can be included as the first case of naïve cartel.
The third such order was the order dated 17.3.2021 in which the suppliers were found to have colluded to fix prices by rigging the bids in the tender for procurement of Picofall-cum-Sewing Machine (Multifunction) with Indian Standard Institute (ISI) mark for distribution amongst the people belonging to backward classes, women, and disabled persons living in the rural areas of Pune district under a scheme announced by the Social Welfare Department of the Government of Maharashtra. The three authorised dealers (OP2, OP3 & OP4 ) of the sole authorised representative of the Thailand based OEM Jerome, Usha International (OP-1) , were found to have quoted almost identical rates with meagre price difference. The rates quoted by the three dealers were almost double than the Maximum Retail Price (MRP) of the same machine marketed and distributed by OP-1 in the open market. CCI, taking note of the ratio of the Supreme Court judgment in Excel Crop case[4] on the degree of proportionality of punishment, imposed a token penalty of Rs. 10,00,000/- on each of the three dealers.
RECENT ORDERS
The above trend started, during the lockdown during first and second wave of COVID -19 in India, has continued post the second wave. I briefly discuss the five recent CCI orders, mostly related to cartels in the supply of goods and services to large public sector undertakings (PSUs), where CCI , despite finding sufficient direct and indirect and circumstantial evidence of bid rigging and cartelization, has restrained itself from imposing monetary penalties, considering the mitigating factors including the size of the parties , mostly SMEs and the losses suffered by them during COVID-19 and being first time offenders lacking understanding about the competition law as such . These cases can be considered as naïve cartels in my view justifying the soft glove treatment by the market regulator.
GAIL Case–
Continuing the above trend, CCI vide its order dated 11.10.21 found two parties , PMP Infratech Pvt Ltd. (‘OP-l’) and Rati Engineering (‘OP-2’) guilty for bid rigging the tender floated by Gas Authority of India Limited [GAIL (India) Limited ] in the year 2017-18 for contract Hiring of Services, restoration of well site locations in GAIL operated block in Ahmedabad and Anand and also for disposal of drilling wastes from the various well sites. The information was filed by GAIL (India) Limited (“GAIL”) alleging that the tender floated for the year 2016-17 and 2017-18 raised some concerns of collusion between OP-1 and OP-2 since in the internal investigation by GAIL it was noticed that in the tender for the year 2017-18, the IP address used for filing the online bids by the OP-1 and OP-2 was same. DG in its investigation found that during the year 2017-18, OPs exchanged confidential and commercially sensitive information among themselves. Further it had held by the DG that OP-1 and OP-2 submitted their bids for tender in the year 2017-18 from the same Internet Protocol address, with a gap of one day. Based on the electronic/documentary evidence found during the investigation, DG concluded that OP-1 and OP-2 joined hands and colluded in submitting the bid against GAIL E-tender No. 8000011934 for the year 2017-18, violating the provisions of Section 3(3)(d) read with Section 3(1) of the Act.
The findings were opposed by the parties. OP -1 claimed that the information exchanged vide e-mail dated 25.10.2017 with OP-2 was ‘public information’ and the same was neither commercially nor price sensitive. As such, such exchange could not have any anticompetitive effect on the market or on the competitive bidding process. Further, it was contended that, since OP-2 was facing some technical difficulties with its Java software, use of which was indispensable for the submission of bids by any bidder, Mr. Dhaval Patel of OP-2 requested and was allowed by his close friend, Mr. Yogesh Patel from OP-1 to submit OP-2’s bid from OP-1’s office. As a result, the bids of both OPs ended up being submitted from the same IP address. OP-2 further emphasised that a mere perusal of the queries indicate that they were hyper technical and bear no relevance to the tender nor are they determinative. Therefore, the mere sharing of queries between the parties cannot attribute any sort of an anti-competitive spirit, much less a contravention of the Act and formation of a cartel.
CCI decision– CCI after hearing the parties, however, rejected their contentions and agreed with the DG findings and noted that Shri Yogesh Patel, Tender Executive of OP-1, in his deposition before the DG admitted the fact that the queries raised by GAIL to OP-2 were sent by OP-2 to OP-1 ‘for appropriate response on behalf of Rati Engineering’. He had also admitted that OP-2 shared the confidential information relating to bid submitted by OP-2 toOP-1 and further also admitted that he prepared the suitable reply and forwarded the same to OP-2 for submission to GAIL.
Based on the above finding CCI, concluded that OPs had indulged in collusive bid rigging of tender during FY 2017–18 floated by GAIL. On the issue of imposing the monetary penalty CCI took a lenient view by taking cognizance of the mitigating pleas of lack of business due to frequent lock downs during COVID-19, ongoing disputes between partners of OP2 being a small enterprise etc. and CCI imposed a token monetary penalty of Rs 25 lakhs on OP-1 and Rs. 2.5 lakhs on OP 2 besides token penalties of Rs. 1.0 Lakh and Rs. 50000/- on the director and partner of OP 1 and OP 2 respectively.
Eastern Railways- Axle bearings cartel
The next case decided by CCI vide its order dated 12.10.21 was initiated on a reference made by Eastern Railways alleging cartelization and bid rigging by 5 Research Designs and Standards Organisation (RDSO) approved Part I suppliers , namely , M/s Chandra Brothers (‘OP-1’), M/s Chandra Udyog (‘OP-2’), M/s Sriguru Melters & Engineers (‘OP-3’), M/s Rama Engineering Works (‘OP-4’) and M/s Krishna Engineering Works (‘OP-5’) guilty of bid rigging the tender floated by Eastern Railways for the procurement of Plain Sleeve Bearing- Top and Bottom Half (Axle Bearing) used in EMU/DMU motor Coaches to assist in the rotation of axle motors. It was alleged that the OPs had quoted the same price in response to the three tenders floated by Eastern Railways between August 2012 to August 2014. Based on the information filed CCI was of the prima facie opinion that it could not be a coincidence that the prices quoted by the OPs in response to each of the tenders were the same and the prices quoted by the OPs after negotiation was the same and accordingly directed the DG to cause an investigation into the matter.
DG investigation- Based on the data received from the email service providers, call detail records (CDR), DG identified three more firms namely (i) M/s Janardan Engineering Industries, Mumbai (‘OP-6’) (ii) M/s V. K. Engineering Industries, Mumbai (‘OP-7’) and (iii) M/s Jai Bharat Industries, New Delhi (‘OP-8’) to be involved in the bid rigging the Railway tenders and thus were also investigated along with the other five OPs. DG found that There was an agreement/understanding/ arrangement between the OPs to share the quantities of Axle Bearing offered in the railway tenders issued by various railway zones. Records of allocation of tender quantities of Axle Bearing in the railway tenders were diligently maintained, updated, and shared amongst the cartel members/OPs as attachments to emails. OPs also assisted/compensated each other in case of any shortfalls from the agreed share of any member by submitting cover bids or not submitting bids/bid suppression in forthcoming/future Railway tenders, enabling the concerned member/supplier to win the tender. There was regular communication between the among the OPs through emails, telephone calls as well as the SMS, which also continued while the three tenders were being processed. It was also observed by the DG that OPs had different manufacturing and overhead costs and profit margins and were in different cities/places. Therefore, DG found that there was no other explanation for the bid prices of OP-1 to OP-5 to be the same in the said Eastern Railway tenders except through bid rigging/collusive bidding in said tenders. Accordingly, DG concluded that OPs had colluded to rig bids in the three tenders floated by the eastern railways between the year 2012-2014 violating the provisions of the section 3(3)(a),3(3)(b), 3(3)(d) read with section 3(1) of the Act.
Response by Parties – In response to the above findings , OP1 & OP2 , which were related parties , refuted the findings whereas OP3 concurred with the findings and claimed waiver of penalty since It cooperated fully with the investigation and had provided all vital evidence including emails exchanged between the parties as well as the the modus operandi of the cartel, the business rationale for the cartel and the commencement and the duration of the cartel, in addition to details of other cartel members. OP3 pleaded that the cooperation between the parties was borne out of need rather than greed, which fact was also independently corroborated by the statement given by Mr. Krishnakant Singh, the representative of OP-6, who submitted that the rationale for the formation of the cartel and sharing of quantities of Axle Bearings was because, “As work was getting less and less, it was agreed that to help each firm get orders there will be equal distribution of Axle Bearings among the Group members.” And claimed that the bid rigging arrangement in the present case was borne out of necessity to survive rather than any intention to garner undue and supra competitive profits. OP4 adopted the objections given by OP1 & OP 2 and OP5, also refuted the findings claiming the like others it had also quoted based on the Last Purchase Rate (LPR) which was less than the rate quoted to other Railway zones, owing to it being a large quantity. OP6 submitted that in the FYs 2013–14 and 20l4–15, OP-6 was registered as a Part II Vendor (Trial Vendor) with RDSO. During the three years, i.e., FYs 2012–13, 2013–14 and 2014–15, OP-6 had supplied Axle Bearings of the above drawing numbers to other zones of the Indian Railways but not to the Eastern railways. OP7 claimed that being a new unapproved RDSO supplier, OP-7 was bidding for an educational order and was not a part of a cartel. It did not bid for the other two tenders as considered in the investigation report of the DG. As a new supplier it had apportioned the development costs to the small quantity that may have been placed as an educational order by the Eastern Railway and for this reason the bid by OP-7 cannot be said to be a “cover bid” as found by DG, but an exploratory bid seeking additional work. OP8 submitted that it was OP-8 who, despite being L1 in the tender floated by the Eastern Railway in 2014, couldn’t get an order on account of cartel formation by OP-1 to OP-5. Hence, being aggrieved by the aforesaid cartelisation of OP-1 to OP-5, OP-8 had filed a complaint before different government authorities, including the Central Vigilance Commission (CVC) and, because of the consistent efforts of OP-8, the present reference was filed before the Commission. Had OP-8 been part of the cartel, it would have not made these complaints to different government authorities
CCI decision– Agreeing with the finding of the DG, CCI noted that whereas OP3 and OP6 had admitted that there existed a cartel of Axel Bearing suppliers to the eastern railways, and that the OPs were sharing Axle Bearing quantities in Railways tenders, including the three tenders floated by the Eastern Railways. They had also admitted that the price bids for the three Eastern Railway tender were discussed and decided through telephonic calls and informed individually through SMS/telephonic calls. On the other hand, representatives from OP-1, OP-2, OP-4 OP-5, OP-7, and OP-8 gave evasive, vague, contradictory replies and suppressed information about the cartel even after confronting them all with direct evidence of their own emails and telephonic call records. CCI further held that despite their evasive and contradictory statements, evidence on records such as the emails, call records and the statements of the key officials of the other OPs are sufficient to conclude that all OPs were the members of the cartel for the supply of Axle Bearing to the Railways and had colluded to rig the bid in the three Eastern Railway tender floated between 2012-2014. Finally considering all the direct evidences collected by the DG and the admissions made by the key officials of the OPs, CCI concluded that there was an agreement/understanding/arrangement amongst the suppliers of Axle Bearing to share quantities offered in Railway tenders issued by different Railway Zones, and under such arrangement, they rigged the price bids for the three railway tenders used by the Eastern Railways between 2012-2014 and thus violating the provisions of Section 3(1) read with section 3(3) of the Act.
On the Issue of penalty, CCI decided not to impose any monetary penalty on the OPs as well as the officials of the OPs because all the OPs in the case are MSMEs having limited staff and small turnovers. Further CCI also appreciated the cooperative and non-adversarial approach adopted by some of the OPs in admitting their involvement and coming forward to seek leniency. CCI also considered the fact that the MSME sector in India is already under stress and bearing the impact of the economic situation arising from the outbreak of the pandemic (COVID-19) and under this condition if any penalty were to be imposed on these firms, it may render these firms economically unviable; some firms may even exit the market, which would further reduce competition in a market already characterized by the presence of few players due to the policy of the Indian Railways to procure items from RDSO-approved vendors.
FCI case –LDPE Covers cartel
In another order dated 29.10.21, on a reference filed by the Food Corporation of India (FCI) suspecting cartelization in the supply of low density poly ethylene (LDPE) covers for its large food grain storage godowns , CCI found that six manufactures of LDPE covers, namely , Shivalik Agro Poly Products Ltd. (‘OP-1’), Climax Synthetics Pvt. Ltd. (‘OP-2’), Arun Manufacturing Services Pvt. Ltd. (‘OP-3’) and Bag Poly International Pvt. Ltd. (‘OP-4’), Shalimar Plastic Industries, (‘OP-5’) and Dhanshree Agro Poly Product (‘OP-6’) , had colluded to fix prices and had submitted identical bids in respect of seven tenders floated by FCI during the period 2005 to 2017 (Tenders in 2005 and 2015 were scraped).
Noticeably, in this case discreet “dawn raids” were conducted by the Director General (DG) immediately after receipt of the reference from FCI after CCI formed a prima facie opinion for intervention and directed DG to investigate the case. After plethora of incriminating evidence was recovered by the DG after the dawn raids, four of the parties , OP1 to OP 4 , approached CCI with “leniency applications” admitting the cartel in supply of LDPE covers to FCI .
DG Investigation -During the investigation DG found that all the OPs had entered into an agreement to share the quantities of LDPE in different tenders floated by FCI and other government agencies on an all-India basis. The agreement clearly mentioned the quantities shared between parties. The OPs had even agreed to appoint arbitrators in case of any differences/issues arising from the said agreement. DG had even found a table showing the quantities received, actual quantities as per agreement, and difference of quantities on an annual basis. The DG had also recovered the calculation sheets from the premises of OP-1, OP-2, and OP-4 during investigation. Further DG also found that a WhatsApp group named ‘Super Six’ was formed by the OPs, and the contents of the WhatsApp chats was retrieved which clearly proved the modus operandi of OPs. The DG also found that OPs followed the process of compensatory mechanism under which they use to compensate Rs. 7/- per kg to bidder, out of the six OPs who received lesser quantity on an annual basis. DG also found direct evidence in the form of financial transaction between the OPs and certain incriminating emails exchange between the OPs which clearly established that OPs (OP-1 to OP-6) were involved in fixing the price of LDPE covers, limiting/restricting the supply of LDPE covers, sharing tender quantities, and thereby rigged the bids in respect of the tenders floated by FCI and other government agencies for procurement of LDPE covers.
In response to the DG findings almost all the parties, i.e., OP1 to OP4 having already filed leniency applications conceded to the cartel arrangement in respect of supply of LDPE covers to FCI, though OP3 opposed the finding regarding supply to other government agencies since no such case of supply against any other tender (expect those of the seven FCI tenders) was investigated by the DG.
CCI decision- CCI agreed with the DG finding in view of direct evidence i.e., the copy of the written Agreement recovered from the premises of OP-1, OP-2 and OP-3 during the dawn raids, whereby the OPs had agreed to share the quantities of LDPE covers in different tenders floated by various government agencies on an all-India basis. It was noted by the CCI that Managing Director of OP-1 in his deposition had confessed that he had submitted the bid documents after discussing it with OP-2, OP-3 and OP-4 for the period 2009 and 2014. Further it was also noted by the CCI that Shri Pankaj Mundhra of OP-2 in his deposition had also confessed that he had quoted the prices in FCI tenders for 2005, 2007, 2009, and 2012 after discussing with other OPs. It was also noted that Arun Agarwal from OP-3 had also confessed to be part of the cartel, and had quoted the price in all FCI tenders after discussing with other OPs and had disclosed the sharing percentage of profits between the OPs on a WhatsApp group, known as “super six”, formed by him . OP-4 had also confessed to be involved in discussing the price to be quoted in FCI tenders with other bidders for 2005, 2007, 2009, 2012. Taking into account all the above direct evidences collected by the DG and the confession statement made the OPs, CCI concluded that OPs had indulged in cartelization and bid rigging in respect of tenders floated by FCI and other government agencies for procurement of LDPE, by means of directly or indirectly determining prices, allocating markets, coordinating bid response, and manipulating the bidding process in contravention of the provisions of Section 3(3)(d) read with Section 3(1) of the Act.
On the issue of imposing the monetary penalty, it was noted by the CCI that OPs are small/medium enterprises and four out of six OPs had already filed the lesser penalty / leniency applications and had admitted their conduct. Therefore, considering the matter holistically CCI decided not to impose any monetary policy and decided to issue cease and desist order directing the OPs to disband the cartel arrangement forthwith.
Southern railways-Carbon brush cartel
In another order dated 1.11.2021 , CCI found two parties , Mersen (India) Pvt. Ltd. (OP-1) and Assam Carbon Products Ltd (OP-2) guilty of cartelization in the supply of Hitachi carbon brush to Southern Railways during the period of November 2014 till 2019, by means of co-ordinating bid responses and manipulating the bidding process. OP-1 is a subsidiary of multinational company viz. ‘Mersen SA’, France, which operates in 35 countries through its subsidiaries/group companies with expertise in electrical power. It is a leading company with expertise in manufacturing brushes and brush holders for industrial electric motors. OP-2 is an MSME and is inter alia engaged in supply of carbon brushes for Hitachi Traction Motor Type HS 15250A, to Indian Railways. The OPs the only two RDSO approved vendors of the said product in India, and the Informant has no other option but to procure the said product from them.
The case was initiated based on reference received from the Controller of Stores, Southern Railways (Informant) alleging that the OPs have been steadily hiking the rates of carbon brushes for Hitachi Traction Motor type HS 15250A for the last 5 years in tandem without any justification. It was further alleged that in the various tender floated by the Informant for the procurement of the carbon brush had been rigged by the OPs by way of cartelization and collusive bidding. Further, it was alleged that OP-1 had hiked its quoted rate in the latest tender (2015) by more than 18% compared to the purchase rate for the same grade in the previous year 2014, without any justification or reason. CCI vide its order dated 04.09.2017 formed its prima facie opinion that there seemed to be a case of bid rigging in the tenders and accordingly directed the DG to cause a detailed investigation into the matter.
Interestingly, during the pendency of the investigation, both OPs filed leniency applications admitting to the cartel arrangement.
DG investigation- DG, based on the evidence collected during the investigation, such as WhatsApp messages and e-mails exchanged between OPs, the DG concluded that OPs have indulged in anti-competitive practices in contravention of the provisions of Section 3(3)(d) of the Act read with Section 3(1) thereof, since 2015 onwards.
In response to the investigation findings, OP-1 despite filing leniency application objected to the findings and stated that the DG had unilaterally expanded the scope of investigation despite finding that there has been no contravention in relation to the impugned eight tenders alleged by the Informant. However, the DG proceeded to investigate a new set of eight railway tenders issued during the years 2016 – 2019 and rendered its findings in relation to the same without any prima facie opinion of Commission, thereby violating the principles of natural justice. OP-1 submitted that it had also made a leniency application wherein it provided disclosures on the scope of its operations in connection to the tenders for the period 2010 – 2014. OP-1 further submitted that it has made bonafide, full, true, and vital disclosures of all relevant material in its possession with respect to import grade Hitachi Carbon Brushes for the period starting from 2010 to 2014. OP-1 submitted that the market with respect to Hitachi Carbon Brushes is unilaterally defined by the Railways, which decides its requirements and manner of procurement, thereby creating entry barriers. Further, as a procurer, the Railways enjoy extensive discretion and the presence of entry barriers on account of its procurement policies. It was also contended that no Appreciable Adverse Effect on Competition (AAEC) was caused. It was further contended that the DG’s findings based on e-mails, messages, and WhatsApp chats are surmises and conjectures, and submitted that it was in discussion with OP-2 with respect to the carbon brushes of Indigenous Grade only with the intent of better understanding of market sentiments on its pricing. OP-2 on the other hand, agreed and concurred with the conclusions of the DG and admitted to the role and findings made against it in the investigation report of the DG. OP2 further submitted that the primary objective of participating in the cartel was to increase the existing prices of Hitachi Carbon Brushes to a level that would be sustainable from a business perspective and try to secure orders for its manufacturing unit, which was not being utilized to its appropriate extent for a long period of time. It was also pleaded that the Indian Railways have immense bargaining power to pressurise suppliers to supply at lower prices and procure carbon brushes only from RDSO-approved vendors. It was pointed out that tender conditions act as an entry barrier to new suppliers and result in reduced competition.
CCI decision – CCI rejected the objection raised by OP-1 that DG had investigated the OPs for the time after November 2014 till 2019, which was not specifically directed to be investigated in the prima facie order of the Commission. CCI held that while directing the DG to investigate into the matter, it has not circumscribed the time of investigation and that it is neither feasible nor otherwise possible to order investigation into specific time frame at the stage of forming the prima facie administrative opinion based on limited material, the Commission cannot predicate the extent of anti-competitive conduct, the duration thereof and the parties involved. CCI relied on the Judgement of the Supreme Court on Excel Crop Care and that of the Delhi High Court in the Cadila case[5] and held that no fault can be found with the DG investigating the conduct of the OPs for the time period after November 2014 till 2019 in respect of other tenders. Further after analyzing the WhatsApp chats and the emails exchanged between the OPs , CCI held that the bare perusal of emails exchanged between OP-1 and OP-2 indicate that there was an agreement between them as they had discussed among themselves prospective bid price to enable either the sharing of tender between them based on spit provisions or rotation of bid among themselves.
Further it was also noted by the CCI that Mr. V.I. Perumal MD of OP-1 during his deposition had admitted that his company discussed with OP-2 and decided the price to be quoted in certain tender floated by the Railways so that both the company are able to share the quantity. It was also noted by the Commission that Mr. Basak, General Manager of the OP-1 had also confessed that his company had quoted the rated after discussing it with OP-2 in various railway tender since 2015. Based on all the documentary evidence collected by the DG, CCI agreed with the finding of DG and concluded that OP-1 and OP-2 had indulged cartelization in the Hitachi Carbon Brushes market in India at least from November 2014 till 2019, by means of coordinating bid responses and manipulating the bidding process which had an AAEC within India.
On the Issue of penalty, CCI noted both the OPs are medium enterprises and from the financial record of the OPs it was observed that OP-2 had incurred losses from the sale of the carbon brushes during the financial year 2014-15 to 2018-19 and OP-1 had also incurred losses during some years. CCI also noted the point that both the OPs had filed leniency application and acknowledged their conduct. It was further noted by the CCI that MSME sector in India is already under stress and bearing the impact of the economic situations arising from the outbreak of the COVID-19 pandemic and under this situation if monetary penalty is imposed on the these firms it may render these firm economically unviable and may even result in exit from the market which would further reduce competition in a market which is characterized by the presence of few players due to the policy of the Indian Railways to procure items from RDSO approved vendor. Therefore, considering the matter holistically CCI decided not to impose any monetary policy and decided to issue cease and desist notice to the OPs, which according to CCI would serve the objective of the Act.
Writing paper cartel
As if continuing with the trend, CCI vide its recent order dated 17.11.2021, found 10 out of 20 non wood based writing paper manufacturers ( Paper mills) along with the Indian Agro & Recycled Paper Mills Association (OP-4 Association/IARPMA) guilty of price fixation . IARPMA was found to have provided the platform for their coordination on prices.
The inquiry was initiated by CCI suo moto internally, pursuant to a note dated 28.04.2016 received from the Director General (DG) office stating that during the ongoing investigation into the Case No. 30 of 2014 and Case No. 85 of 2015 certain incriminating emails were found indicating that the paper manufacturers might have indulged in price manipulation through concerted action. Based on the note received from the DG office CCI registered a suo moto case No 05 of 2016 against 20 manufacturers and vide its order dated 06.12.2016 formed prima facie opinion that case of contravention is made out and accordingly directed the DG to cause an investigation into the matter.
DG investigation- DG , during the course of the investigation of two earlier cases under investigation, came across four emails dated 19.09.2012, 19.11.2012, 19.12.2012 and 19.01.2013 from the email box of Shri P. K. Vasist, Vice President (Marketing) of Seshasayee Paper and Boards Limited (SPBL), containing details of meetings held on meetings held on 19.09.2012, 19.11.2012, 19.12.2012 and 19.01.2013, in Hotel Jaypee Siddharth, New Delhi amongst 20 paper mills of North India , under the aegis of Indian Agro & Recycled Paper Mills Association (IARPMA), engaged in the manufacture of paper by using agricultural waste or waste paper as their raw material. Each of the 4 emails described the names of the attendees, their companies, agenda for the meeting and its outcome including decisions taken on price and follow up and implementation thereof. Out of the 21 OPs investigated, the DG held that ten (10) OPs, viz. OP-2, OP-5, OP-6, OP-7, OP-8, OP-9, OP-10, OP-12, OP-17 and OP-21 had contravened the provisions of Section 3(1) of the Act read with Section 3(3)(a) of the Act. Further DG held that the platform of OP-4 /IARPMA was used by the paper manufacturers to discuss and decide on price to be increased in a concerted manner. DG did not find any evidence against the rest of the 10 OPs.
CCI decision– CCI agreed with the findings of the DG investigation report and based upon the direct communicative evidence in the form of the four emails and admissions regarding the meetings and their agenda etc. made by some of the OPs , CCI held that “ mere attendance in meetings where commercially sensitive information like prices, is discussed, influences and takes away the independent decision making ability of participant competitors and resultantly, they can no longer independently decide the price related policies in the market” therefore in cases where direct evidences are present it is unnecessary and inconsequential to deal with the arguments of price parallelism.
Further CCI dealt with the argument advanced by the parties that the decision of the meeting were not implemented by all the parties uniformly, by stating that “the legislature has proscribed anti-competitive agreements which not only cause but which are also likely to cause appreciable adverse effect on competition and when competitors are meeting and discussing prices, it is beyond any doubt that such conduct, at the minimum, is likely to cause appreciable adverse effect on competition. In this statutory backdrop, where even conduct which is likely to cause appreciable adverse effect on competition is proscribed, it would require a very high degree of rebuttal by the parties to dislodge the statutory presumption” and none of the parties were able to rebut the presumption.
Further it was held by the CCI that in a market where there are many players and even if few players are found to have indulged in the proscribed conduct, it is not the requirement of law that, for a cartel to be established, it is necessary to implicate and implead each and every player operating in the industry.
Finally based on the direct evidence collected by the DG and the deposition statements by the OPs, CCI concluded that OPs had indulged in cartelization in fixing prices of writing and printing paper by participating in the meetings convened under the umbrella of the platform provided by their trade association and discussing prices and the roadmap for coordinated increase, besides monitoring the decisions taken in such meetings. Such conduct of competitors is sufficient to hold that OP-2, OP-5, OP-6, OP-7, OP-8, OP-9, OP-10, OP-12, OP-17 and OP-21 have contravened the provisions of Section 3(1) of the Act read with Section 3(3)(a) of the Act.
On the issue of imposing the monetary penalty CCI held that due to COVID-19 pandemic, most of the businesses moved to the virtual mode, reducing the need for paper and thereby affecting the paper business significantly and under this situation if, any significant penalty is imposed on these firms it may render them economically unviable. Thus, considering the matter holistically, the CCI decided to impose a token monetary penalty of only Rs. 5 Lakh upon each of the 10. OPs found guilty.
Incidentally, OP-21 had filed leniency application and had cooperated fully during the investigation therefore CCI decided to grant 100% reduction in the penalty amount imposed upon OP-21. Further penalty of Rs. 2.50 Lakh was imposed upon OP4, /IARPMA for actively providing its platform for anti-competitive activities of the players, besides convening, coordinating, and organizing the meetings.
Comment – The CCI can certainly be credited in starting a new trend of going soft on the so-called naïve cartels, particularly, comprising of MSMEs during the ongoing COVID -19 pandemic. The trend is clearly visible from the five recent orders described above wherein despite finding sufficient direct and circumstantial evidence of bid rigging/cartelization, CCI imposed nil or token penalty. This marks the beginning of the understanding of market and business realities by the Commission which needs to be applauded.
However, having said so, I also tend
to feel that in the process even some large enterprises have got the benefit of
such lenient treatment, which they did not deserve and may be used as a
precedent in future cases of hard-core cartels, of which CCI and the appellate
tribunal and superior courts must be wary of.
[1] https://www.oecd.org/competition/cartels/38704302.pdf
[2] https://unctad.org/system/files/official-document/tdrbpconf6d4_en.pdf
[3] This was a peculiar case of a cartel forced by buyers, which was considered as a strong mitigating factor by CCI to avoid imposition of any financial penalty on the parties. Admittedly, it was a buyers’ market in which each OEM was unwilling to increase the prices of the automotive bearings on being approached individually by any of the parties, which, forced them to coordinate to send price increase letters to OEMs. Interestingly, none of the customer/buyer-OEMs had any complaint against the parties to the alleged cartel.
[4] Excel Crop Care Limited v. Competition Commission of India & Anr., Civil Appeal No. 2480 of 2014 decided on 08.05.2017
[5]Cadila case Health care Limited v. Competition Commission of India 2018 SSC OnLine Del 11229
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