Amazon and Flipkart found violating Competition law in India-DG investigation report out
COMPAT by its order dated May 10, 2016 has set-aside the order of CCI whereby it had imposed a penalty to the tune of INR 3 crores, on 12 suppliers for indulging in cartelization for supplying “CN containers with disc” used for manufacturing of 81 mm bomb. The CCI had asked the 12 suppliers to “cease and desist” from indulging in anti-competitive practices.
The Comptroller and Auditor General (CAG) in his report on Defence Sector for the year 2010-11, made an observation that there existed a cartel in the supply of CN Containers with the disc. The CCI suo-moto took cognizance of that observation and ordered a detailed investigation into the alleged anti-competitive practice adopted by the suppliers of CN Containers with the disc for violation of Section 3(3)(d) of the Act.
In the appeals filed against the order passed by the CCI, COMPAT considered whether the appellants , who were engaged in manufacturing 81 MM bombs by using CN containers with disc (including, M/s Narendra Explosives Ltd. ) were involved in collusive bidding in the supply of ‘CN Containers with disc’ to Ammunition Factory, Khadki (Pune), Ordnance Factory, Dehu Road (Pune) and Ordnance Factory, Chandrapur, and, thereby, contravened Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Competition Act, 2002 (hereinafter the Act).
The DG report found that nearly all the suppliers had quoted identical rates notwithstanding the fact that they were located at different places. It was also observed that the opposite parties simultaneously increased or decreased the rates for consecutive tender enquiries. The factory-wise and tender-wise information received from the 3 Ordnance Factories and discussed revealed that several opposite parties quoted identical bids. In some of the tenders, only one enterprise submitted the bid which appears to be a case of bid suppression. Moreover, even when more than one bidder submitted identical bids, on negotiation of price, all except one regretted and the tender was awarded to the one bidder.
The CCI approved the findings of the DG Report and imposed a penalty @ 3% of their turnover on the appellants and others.
In appeal, the COMPAT ruled that the Dy. DG committed a jurisdictional error by investigating the conduct of M/s. Narendra & Co. Neither the CAG Report nor the order under Section 26(1) of the Act had included the name of M/s Narendra & Co. The jurisdiction of the DG is circumscribed by the mandate of the direction given by the CCI. He cannot suo-moto initiate or conduct investigation into any allegation of violation of the particular provision of Section 3 and/or 4. The COMPAT also held that the participation of Shri Sudhir Mital(Member, CCI) in the decision-making process despite the fact that he had not heard the arguments of the advocates/representatives of the opposite parties has the effect of vitiating the impugned order on the ground of violation of principles of natural justice.
COMPAT held that the observations made by the Dy. DG that the market conditions were conducive for collusive bidding were based on assumptions, conjectures and were also self-contradictory. It held that mere presence of some common features between some of the suppliers cannot lead to an inference that the market for CN Containers was conducive for reaching an agreement for bid-rigging among the bidders.
On the issue of the absence of any new entrant in the market, COMPAT held that the investigating officer had contradicted himself. He had observed that the market of CN containers was very limited, the requirement of product was also limited and that could be the reason why no new player has shown interest in the business. At the same time, he has observed that absence of new entrant in the market is conducive for an agreement amongst the existing players. However, while making this observation, the Dy. DG lost sight of the fact that M/s. Narendra Explosives Ltd. had entered the market of CN containers in 2007.
COMPAT observed that the CCI did not advert to objections raised by the appellants and other manufacturers to show that the market conditions were not conducive to collusive bidding and there was no evidence of any agreement between them. In the questionnaire circulated among the suppliers, the DG had specifically asked them whether there was any meeting of mind and each one of them answered in negative. The DG could not collect any independent evidence to prove that the suppliers had met before submitting their bids in response to the different Tender Enquiries or they had reached some consensus on the pricing of the product. Therefore, the theory of meeting of mind propounded by the DG and approved by the CCI is liable to be rejected.
It was held that the issue relating to cost of manufacturing, had no bearing on the issue of collusive bidding/ bid rigging or formation of a cartel. This factor although may have some bearing on the profit earned by some of the manufacturers, but it cannot lead to an inference of collusive bidding or bid rigging by the appellants and other suppliers.
Lastly, the COMPAT considered whether the quoting of identical or near identical price by the suppliers can lead to an inference of collusive bidding/bid-rigging. It was noted that the price quoted by M/s. Narendra Explosives Ltd. in response to the majority of tender enquiries investigated by the DG was not even remotely similar to the price quoted by other bidders except in one or two cases. Therefore, a sweeping observation made in the investigation report that the appellants and other suppliers had quoted identical prices was totally uncalled for. COMPAT also gave due consideration to the reasons given by the appellants for substantial similarity in the prices quoted by them and other suppliers in response to various tender enquiries, noting that the suppliers had quoted the price keeping in view the last purchase price which was available on the website of the Ordnance Factories and in view of the fact that the supplies were to be made only to three Ordnance Factories, the suppliers had the temptation to quote the price keeping in view the last purchase price.
Relying on various Supreme Court judgments, COMPAT considered the question whether quoting identical or near-identical price by the sellers/suppliers of a product can by itself be construed as an act of cartelization/bid-rigging and answered the same in negative. It held that mere identity of price did not furnish a valid ground for holding that the respondents had indulged in bid rigging. The CCI committed grave error by approving the findings recorded by the DG and, as such, the impugned order is legally unsustainable. The order of CCI has been set-aside. (Source: Order dated May 10, 2016. For full text see COMPAT website-www.compat.nic.in)
Suggested Reads:
i. Bid Rigging Cartels In Public Procurement: Some Evolving Trends In Indian Competition Law
ii.Predicting Cartels: Difficult Task for Competition Regulator
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