Rajasthan Cylinders and Containers Ltd. Vs. Union of India and Another
[Civil Appeal No. 3546 of 2014]
[Civil Appeal No. 4280 of 2014]
[Civil Appeal No. 4346 of 2014]
[Civil Appeal No. 4649 of 2014]
[Civil Appeal No. 4342 of 2014]
[Civil Appeal No. 4879 of 2014]
[Civil Appeal No. 4868 of 2014]
[Civil Appeal No. 6033 of 2014]
[Civil Appeal No. 5771 of 2014]
[Civil Appeal No. 5772 of 2014]
[Civil Appeal No. 5035 of 2014]
[Civil Appeal No. 5773 of 2014]
[Civil Appeal No. 5649 of 2014]
[Civil Appeal No. 5650 of 2014]
[Civil Appeal No. 5651 of 2014]
[Civil Appeal No. 4972 of 2014]
[Civil Appeal No. 6661 of 2014]
[Civil Appeal No. 7102 of 2014]
[Civil Appeal No. 6868 of 2014]
[Civil Appeal No. 7214 of 2014]
[Civil Appeal No. 6025 of 2014]
[Civil Appeal No. 6365 of 2014]
[Civil Appeal Nos. 5993-5994 of 2014]
[Civil Appeal No. 5774 of 2014]
[Civil Appeal No. 5775 of 2014]
[Civil Appeal No. 5776 of 2014]
[Civil Appeal Nos. 5832-5833 of 2014]
[Civil Appeal No. 5777 of 2014]
[Civil Appeal No. 5778 of 2014]
[Civil Appeal No. 6317 of 2014]
[Civil Appeal No. 8953 of 2014]
[Civil Appeal No. 6372 of 2014]
[Civil Appeal No. 6373 of 2014]
[Civil Appeal No. 6366 of 2014]
[Civil Appeal No. 6367 of 2014]
[Civil Appeal No. 6374 of 2014]
[Civil Appeal No. 6368 of 2014]
[Civil Appeal No. 6364 of 2014]
[Civil Appeal No. 6369 of 2014]
[Civil Appeal No. 6370 of 2014]
[Civil Appeal No. 10579 of 201]
[Civil Appeal No. 1724 of 2015]
[Civil Appeal Nos. 5277-5278 of 2016]
[Civil Appeal Nos. 5281-5315 of 2016]
[Civil Appeal No. 7359 of 2016]
A.K. SIKRI, J.
1. All these appeals are filed against the orders dated 20th December, 2013 passed by the Competition Appellate Tribunal (hereinafter referred to as 'COMPAT'). The COMPAT by the said judgment has upheld the findings of the Competition Commission of India (for short, 'CCI') that the appellants/suppliers of Liquefied Petroleum Gas (LPG) Cylinders to the Indian Oil Corporation Ltd. (for short, 'IOCL') had indulged in cartilisation, thereby influencing and rigging the prices, thus, violating the provisions of Section 3(3)(d) of the Competition Act, 2002 (for short, the 'Act'). The CCI, as a result, imposed severe penalties in the form of fines under Section 27 of the Act.
While maintaining the order of the CCI insofar as it found the appellants guilty of contravention of Section 3(3)(d) and also under Section 3(3)(a) of the Act, the COMPAT has reduced the amount of penalty. These suppliers have filed the instant appeals on the ground that there was no cartilisation and they have not contravened the provisions of the Act. On the other hand, CCI has also come up in appeal challenging latter part of the order whereby penalties inflicted on the suppliers stand reduced. For the sake of convenience these suppliers will be referred to as the appellants hereinafter.
2. We may point out at the outset that all these appellants are manufacturing gas cylinders of a particular specification having capacity of 14.2 kg which are needed for use by the three oil companies in India, namely, IOCL, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL) [all public sector companies]. It is also a matter of record that apart from the aforesaid three companies there are no other buyers for these cylinders manufactured by the appellants. Insofar as IOCL is concerned, it is a leading market player in LPG as its market share is 48%. Thus, in case a particular manufacturer is not able to supply its cylinders to the aforesaid three companies, there is no other market for these cylinders and it may force that company to exit from its operations. We may also point out at this stage itself that inquiry was started against 47 companies. The CCI exonerated two companies and found that 45 companies had entered into an arrangement/agreement insofar as statements of bids pursuant to tenders issued by IOCL are concerned. Out of these 45 companies one did not challenge the orders before the COMPAT and other 44 had filed appeals which have been decided by the COMPAT.
3. The manner in which the inquiry was undertaken by the CCI, culminating into the finding of guilt and imposition of penalty, is succintly and sequally recorded by the COMPAT in its impugned order. As there is no dispute about the said factual narration, it would be convenient to borrow the said discussion as recorded by the COMPAT.
4. The suo-motu proceedings were started by the CCI on the basis of the information received by it in Case No. 10 of 2010 titled M/s. Pankaj Gas Cylinders Ltd. Vs. Indian Oil Corporation Ltd. in that case a complaint was made by M/s. Pankaj Gas Cylinders before the CCI complaining about unfair conditions in the tender floated by IOCL for the supply of 105 lakh 14.2 Kg. capacity LPG Cylinders with SC valves in the year 2010-11, the tender No. being LPG-O/M/PT-03/09-10. While considering the Director General's investigation report in Case No. 10 of 2010, the CCI in pursuance of its duties under Section 18 felt that investigation was necessary in the case of all bidders who were the suppliers of 14.2 kg. LPG cylinders in that tender. In the investigation report in the said case, the Director General had noted that out of 63 bidders who participated in the tender, 50 bidders were qualified for opening of price bids, while 12 bidders were qualified as new vendors who were not required to submit price bids and one bidder was not qualified for the opening of the price bid.
The technical bid of the subject tender was opened on 3.3.2010 and the price bids of 50 qualified bidders were opened on 23.3.2010. According to the Director General, there was a similar pattern in the bids by all the 50 bidders who submitted price bids for various States. The bids of a large number of parties were exactly identical or near to identical for different States. The Director General had observed that there were strong indications of some sort of agreement and understanding amongst the bidders to manipulate the process of bidding.
5. It was on this basis the CCI directed further investigation in the matter. The Director General after careful consideration submitted a detailed investigation report to the CCI. After the CCI considered the freshly ordered investigation report, it directed that a copy of the report be sent to the parties seeking their objections. In all, 44 opposite parties submitted their objections. After giving them the opportunity to be heard, the CCI passed the order in question.
6. As per the Director General's report, the process of bidding followed by the IOCL in the tender was as under :-
i) The bidders would submit their quotations with the bid documents.
ii) The existing bidders, who were existing suppliers, were required to submit the price bids and technical bids.
iii) The bidders were to quote for supplies in different States of India in keeping with their installed capacity.
iv) After price bids were opened the bidders were arranged according to the rates in the categories of L-1, L-2 and L-3.
v) The rates for the supplies in different States were approved after negotiations with L-1 bidder. In case the L-1 bidder could not supply a required number of cylinders in a particular State, the orders of supplies went to L-2 and also L-3 bidder or likewise depending upon the requirement in that State as per fixed formula provided in the bid documents.
vi) Certain bidders were called new parties. They were required to submit only technical bids and to supply as per L-1 rates determined after the negotiations.
vii) One bidder could quote for maximum eight States.
7. The Director General after analyzing the bids came to the conclusion that there was not only a similarity of pattern in the price bids submitted by the 50 bidders for making supply to the IOCL but the bids of large number of parties were exactly identical or near to identical in different States. It was also found that bidders, who belonged to same group, might have submitted identical rates.
It was found that not only there was identical pricing in case of group concerns but the rates of other entities not belonging to the group were also found to be identical. The D.G. painstakingly noted the names of group companies as well as non-group companies. He came to the conclusion that in all 37 entities could not be said to be belonging to any single group and were independently controlled. The Director General found it unusual that unrelated firms had quoted identical rates in different States. The D.G. had analyzed the bidding pattern for the various parties for all the 25 States. He found that :-
a. The orders were placed on all the 50 successful bidders.
b. The contracts were awarded to the sets of bidders who had quoted identical rates or near to identical rates in a particular pattern in almost all the States.
c. There was a common pattern for quotation depending upon the State. In case of North East the rates were highest, quoted at Rs. 1240 whereas in case of others rates were Rs.1100, Rs.1127 and Rs. 1151. d. It was found that only for Andaman and Nicobar Islands there was a single party who had quoted the L-1 rate and got the formal contract. In other States the contracts were bagged in a group on the basis of identical or near to identical rates.
e. The similarity of the rates was found even in case of bidders whose factories and offices were not located at one and the same place in the States and where they were required to supply was far off from their factories located in different place.
8. The D.G. had found further that though the factors like market conditions and small number of companies were different, there was a large scale collusion amongst the bidding parties. He also arrived at a finding to the effect that the LPG Cylinder Manufacturers had formed an Association in the name of Indian LPG Cylinders Manufacturers Association and the members were interacting through this Association and were using the same as a platform. The date for submitting the bids in the case of the concerned tender was 3.3.2010 and just two days prior to it, two meetings were held on 1st and 2nd March, 2010 in Hotel Sahara Star in Mumbai.
As many as 19 parties took part and discussed the tender and, in all probability, prices were fixed there in collusion with each other. The D.G. reported that the bidders had agreed for allocation of territories, e.g., the bidders who quoted the bids for Western India had not generally quoted for Eastern India and that largely the bidders who quoted the lowest in the group in Northern India, had not quoted generally in Southern India. The D.G. also concluded that this behavior created entry barrier and that there was no accrual of benefits of consumers nor were there any plus factors like improved production or distribution of the goods or the provision of services.
9. Ultimately, the D.G. came to the conclusion that there was a cartel like behavior on the part of the bidders and that the factors necessary for the formation of cartel existed in the instant case. It was also found that there was certainly a ground to hold concerted action on the part of the bidders. The D.G. had also noted that the rates quoted for the year 2009-10 and in years previous to that were also identical in some cases. Thus, he came to the conclusion that the bids for the year 2010-11 had been manipulated by 50 participating bidders. It was thereafter that the CCI decided to supply the D.G.'s investigation report to the concerned parties and invite their objections.
10. A common reply came to be filed as also the individual replies. After considering the same, the CCI formulated the following issue for determination:- "Whether there was any collusive agreement between the participating bidders which directly or indirectly resulted in bid rigging of the tender floated by IOCL in March 2010 for procurement of 14.2 kg. LPG cylinders in contravention of Section 3(3)(d) read with Section 3(1) of the Act?"
11. After considering the oral as well as written submissions, the CCI answered the issue against the Cylinders Manufacturers and inflicted the penalties against the present appellants. In its impugned order, while determining the issue, the CCI, in the first instance, considered the common replies to the DG's report filed by as many as 44 opposite parties. It was more or less pleaded that every part of LPG Cylinder is regulated by the Rules through various Notifications and that the price of steel constitutes 50% of the total manufacturing cost, so also the price of the paint, it being an essential raw material.
All these factors, including the taxes which vary from State to State, determine the overall bidding pattern of the bidders. In para-5.2.3 of the common objection, it was added that these 44 parties had nominated six agents for depositing their bids on their behalf and it was a common practice amongst the bidders to direct their agents to keep close watch on the rates offered by their competitors in respect of a particular State and this led to the possibility of copying and matching of the rates quoted in the price bids by many suppliers in a particular State, who may have appointed common agents. Due to this reason, cutting and over-writing in the price bids for the tender in question was noticed by the Director General.
12. It was further pointed out that there were only 62 qualified tenderers in the whole country, out of whom 12 bidders were classified as new parties, meaning thereby that they had not supplied Cylinders in last three years and were not required to bid in the tender. Out of the remaining 50 bidders, there were group companies controlled by single management.
13. The CCI in its detailed order began with considering the scope of constructed bid rigging agreement and cartel. In that the CCI also considered the 18 famous observations by Lord Denning in case of RRTA vs. W. H. Smith & Sons Limited regarding the quiet and secret nature of the agreement between the parties. The CCI then went on to record its inference holding that there was element of agreement and considered the following factors in coming to the conclusion.
They being:-
1. Market conditions
2. Small number of suppliers
3. Few new entrants
4. Active trade association
5. Repetitive bidding
6. Identical products
7. Few or no substitutes
8. No significant technological changes
9. Meeting of bidders in Mumbai and its agenda.
10. Appointing common agents
11. Identical bids despite varying cost.
14. After consideration of these factors, the CCI came to the conclusion that it did suggest collusive bidding. Thereafter, the CCI analyzed these bids for each States and found that all 50 participating bidders had secured the order; that the orders were placed on the said 50 bidders who had quoted identical rates or near to identical rates in a particular pattern common to all the parties. CCI also highlighted the facts of absence of business justification. According to the CCI, the material revealed that the supplies were effected at the higher cost. After discussing the concepts of standards of proof and appreciable adverse effect on competition, the CCI considered the various arguments and repelled those arguments. The CCI then went on to consider the case law, and in particular the judgment of this Court in Union of India vs. Hindustan Development Corporation1. It also took into consideration the arguments raised by the individual parties and then came to record that cases of M/s. JBM Industries and Punjab Cylinders, however, were exceptional ones and they could be exonerated. After this the CCI went on to decide the penalty factor under Section 27 of the Act.
15. The COMPAT after discussing the findings of the CCI and also taking note of the arguments of the appellants which were advanced before the CCI, proceeded with its own discussion. It started with the admitted facts of the case, and took note of the following such facts:
(A) The tender offers were to be made at Mumbai on 03.03.2010. Admittedly there were meetings in Hotel Sahara Star, Mumbai on 1st and 1 (1993) 3 SCC 499 2nd March, 2010 which were attended by some of the appellants. The D.G. has held that 19 appellants were represented by various persons in that meeting. The fact of the meeting having been held was not disputed. Though some of the appellants stated that they did not attend the meeting and those who attended the meeting maintained that nothing was disucssed about the tender, the same was not believed by the COMPAT and it held that these meetings did relate to the tender offers which were to be submitted on 03.03.2010. This finding is premised on the basis that nobody came with the explanation as to what transpired in the meeting or gave any proof that prices were discussed. Minutes of the meeting were also not produced.
(B) There is an association of the cylinder manufacturers. All the parties, except few competing with each other, stated that they were not the members of that association. A feeble argument was also raised by some appellants that though they were the members but they were not the active members thereof. Some of the appellants also argued that they had abandoned the membership by not contributing the subscription in the later years. However, the appellants could not deny the position that there was an association called Indian LPG Cylinder Manufacturers' Association. It was a registered association, its Memorandum of Association provided that one of the objectives was to prtoect common interest and welfare of LPG cylinder manufacturers. According to COMPAT, there was a definite platform available for all cylinder manufacturers and practically all the appllants appear to be the members of that Association.
(C) A common written reply was submitted by as many as 44 parties. Further, the appellants had nominated six agents for depositing bids on their behalf. These common agents were instructed to keep a close watch on the price quoted by the competitors in a particular State. Though some of the appellants had contended that they had not appointed the common agents, the plea was not accepted by the COMPAT.
The COMPAT, therefore, proceeded on the 'admitted grounds' that there was an association of cyliner manufactures; practically all the appellants were members of the said association; this association was an active association; it held meetings on the eve of entry tender obviously for discussing tenders, its conditions etc.; these meetings were attended by representatives of at least 19 appellants; and these appellants had six common agents at Mumbai who were instructed to watch the prices offered by the others.
A dinner meeting as also a munch were held and one Mr. Chandi Prasad Bhartia of M/s. Haldia Precision Engineering Private Limited paid the bill for the same. Dinner and lunch held in Sahara hotel were attended by about 50 persons in all. From this the COMPAT inferred that there was no reason to disbelieve that the parties had an access to each other through their association which was an active association. The existence of such an association under the aegis of which meetings took place just before the submission of tender has been noted as a very relevant factor by the COMPAT in affirming the findings of CCI on cartelisation and it summed up the position in the following manner:
"26. What is important is not whether a particular appellant was a member of the association or not. The existence of an association is by itself sufficient, as it gives opportunity to the competitors to interact with each other and discuss the trade problems. There will be no necessity to prove that any party actually discussed the prices by actively taking part in the meeting. If there is a direct evidence to that effect that is certainly a pointer towards the fact that such party had a tacit agreement with its competitors. However, the existence of an association and further holding of the meetings just one or two days prior to the last date of making offers and further admission that the parties had appointed common agents with the instructions to keep watch on the prices quoted by the competitors would go a long way in providing plus factors in favour of the agreement between the parties. All these factors would form a back drop, in the light of which, the further evidence about agreement would have to be appreciated. We have seen the comments of Director General as also the findings of the CCI.
We are convinced that CCI has not committed any error in considering all these factors as plus factors to come to the conclusion that there was a concerted agreement between the parties on the basis of which the identical or near identical prices came to be quoted in tenders for the supply of cylinders to the 25 States. In view of this, we need not dilate on the individual claims by some of the appellants that they were not the members of the association or that they were only the dormant members or that they had abdicated their membership. We also need not go on the claim that while the meeting was attended by the 19 parties as held by the D.G. and confirmed by the CCI, it was not attended by the rest of the appellants because that would be of no consequence. Once there was a meeting, there was every opportunity to discuss or to communicate to each other whatever transpired in the meeting.
27. We have seen the order of the CCI and while commenting about the meeting, the CCI has painstakingly noted the details of that meeting. The CCI has referred to the evidence of Mr. Dinesh Goyal, who was an active member of the Indian LPG Cylinder Manufacturers' Association and noted that he had attended the meeting. He has also referred to the statement of Mr. Sandeep Bhartia of Carbac Group though initially he denied to have organized the conference, he later on had confirmed about such a conference having been held along with Mr. Sandeep Bhartia of Carbac Group. The CCI also noted that he admitted that in such meetings there were discussions on pre-bid issues. He also admitted that though there are about 50 competitors, in fact about 25 persons control the whole affairs. From this evidence, the CCI correctly deduced that pre-bid issues were discussed in that meeting.
The CCI has then referred to the evidence of Mr. Manvinder Singh of Bhiwadi Cylinders Limited, Mr. Chandi Prasad Bhartia of Haldia Precision Engineering P. Ltd., Mr. Vijay Kumar Agarwal of SM Sugar Pvt. Ltd., Mr. S. Kulandhaiswamy, MD of Lite Containers Pvt. Ltd. and Secretary of the Association, Mr. Ramesh Kumar Batra, Director of Surya Shakti Vessels Pvt. Ltd. and on that basis came to the correct conclusion that not only was the meetings held on 1st and 2nd March, but thorough discussions went on in those meeting on the pre-bid issue of the concerned tender. The CCI has also correctly noted about the agenda of the meeting and has also referred to an admission made by one of the witnesses that the matching of the quotation was a matter of co-incidence and telephonic discussions do take place amongst the parties regarding the trends. We are thus thoroughly convinced about holding of the meeting, the discussion held therein and also the discussion regarding the pre-bid issue having been taken place in that meeting."
16. The COMPAT thereafter took up for discussion the argument of the appellants that the CCI should have enquired IOCL also. But rejected the same. Another significant argument which was canvassed before us also with great emphasis was that it was an oligopolistic market wherein there was a likelihood of each player being aware of actions of the other and in such a situation price parallelism would be a common phenomena. Thus, merely because there was a price parallalism, it would not be construed as evidence of collusion. The COMPAT rejected this argument as well. In the process, it analysed the order of CCI, conclusion whereof was founded on the following factors:
(1) The prevailing market conditions were such that there was a constant demand for cylinders not only by IOCL but by other two oil manufacutring companies as well. Therefore, there was a constant need for the cylinders which facilitated factor for the collusion.
(2) There was small number of suppliers. Among the 50 participating companies, only 37 companies could be said to be independant bidding companies and there were seven groups consisting of 20 participating companies. This small number of suppliers should also be a facilitating factor.
(3) There were very few new entrants.
(4) The existence of an active trade association in which all the bidders, except seven companies, were members would be another facilitating factor.
(5) Few other factors like repetitive bidding, identical products, few or no substitutes and no significant technological changes were the additional factors which persuaded the CCI to arrive at such a conclusion.
(6) These manufacturing companies had their factories at different places in India, where the costs of the components would differ from State to State. Even the taxing structure, the labour conditions and other factors like cost of electricity etc. were bound to be different. Still the prices quoted were almost identical. (7) On the above considerations, the defence of the appellants was rejected as unconvincing, thereby undergoing the factors considered by the CCI.
17. According to the COMPAT all these could not have been possible unless there were internal agreements between the appellants. The COMPAT has approved the finding of the CCI that owing to the collusion, the IOCL could not get lower or the competitive prices. The rates quoted in 2010-2011 were higher as compared to the rate quoted in 2009-10. From the year 2006-07, the prices had collectively been raised on an average of 30% for making supplies in different states.
18. According to the COMPAT, the CCI was right in concluding that it had appreciable adverse effect on competition as the conduct of the LPG cylinder manufacturers in coming together on a common platform and fixing the bid prices ensures that no new player could enter the relevant market and quote the prices independently. Thus, these manufacturers would make entry of a new player into the relevant market difficult, because such new player would necessarily have to first negotiate with the existing players to get the business profitably. Other factors were driving existing competitiors out of the market and foreclosure of competition by hindering entry into the market.
19. It negated the argument of the appellants that when the IOCL was placing orders on the basis of negotiated rates there could be no possibility of incentive to collude. According to it, even where the rates are fixed, the bid rigging can still take place to keep the big amounts to a pre-determined level. Such pre-determination can be by way of intentional manipulation by members of the bidding group and where the L-1 rates themselves get fixed like in the present case at higher level even if there are negotations the negotiators would have to take into consideration the benchmark rates. There is aslo a possibility that such benchmark rates could go higher in the subsequent tenders; known as rippel effect in long term.
20. The COMPAT also took note of the provisions of Section 3, as per which once the agreement is proved there is a presumption about the appreciable adverse effect on competition on the mere proof of the agreement. Thus, onus shifts on the other side to prove otherwise which according to the COMPAT was not discharged by the appellants. The COMPAT thereafter took note of some arguments by certain counsel specific to their cases but did not find any substance in them.
21. Having examined the relevant provisions whereupon these appeals centre around, we proceed to take note of the arguments that were advanced by various counsel appearing for the appellants and the manner in which respondents endeavoured to meet the same.
22. Ms. Madhavi Divan, learned counsel appearing in the appeal filed by Rajasthan Cylinders and Containers Ltd., attacked the very basis and foundation on which CCI came to conclusion that there was an agreement or cartelisation by the appellants aimed at bid rigging. She premised her case on the following three propositions:
(i) the inherent nature of the market of cylinder manufacturers itself precludes the possibility of competition;
(ii) alternatively, there is no collusive agreement or bid-rigging in the present case; and
(iii) further, in the alternative, even assuming that there is a collusive agreement or bid-rigging in the present case, there is no appreciable adverse effect on competition.
23. On the first proposition, argument developed by Ms. Divan was that the Act prohibits anti-competitive practices, which would imply that there has to be a competition in the market, in the first place. As a corrolary, if there is no such competition, Section 3(1) of the Act does not get triggered. According to her, in the instant case, the fact would show that there was a tight control and regulation by the IOCL and, thus, it did not lead any scope of competition at the very threshold. She stressed that the conditions of monopsony/oligopsony prevailed.
For the existence of monopsony/oligopsony, she referred to the Glossary of Industrial Organization Economics and Competition Law published by the Organisation for Economic Co-operation and Development (OECD), as per which a monopsony consists of a market with a single buyer. When there are only a few buyers, the market is described as an oligopsony. In general, when buyers have some influence over the price of their inputs they are said to have monopsony power. The ability of a firm to raise prices, even when it is a monopolist, can be reduced or eliminated by monopsony or oligopsony buyers. To the extent that input prices can be controlled in this way, consumers may be better off.
24. According to her, these conditions were adequately present in the instant case. In her attempt to make this propositoin good, she highlighed the following features and conditions surrounding the contract:
(i) Extremely limited number of buyers and for this particular kind of market - a sole buyer, i.e., IOCL. IOCL controls 48% of the market share. There are no other purchasers of 14.2 Kg gas cylinders except for HPCL and BPCL, both of whom invite e-tenders, having a market share of 26% and 25% respectively.
(ii) The product is standardized and special to the extent that it is tightly controlled and regulated by the Government and also there are no other takers for it.
(iii) There are entry barriers in the market. As per the Tender conditions, only those manufacturers having valid approval from the Chief Controller of Explosives (CCOE) and Bureau of Indian Standards (BIS) license for manufacture of 14.2 kg LPG cylinders as per IS-3196 (Part 1) could submit bids for the tender.
(iv) Even the machinery used to manufacture this product is special and will become obsolete and reduceable to scrap if IOCL and the aforesaid two players were to discontinue contracts for supply of 14.2 kg cylinders. She pointed out that this was accepted in the Expert Report of Dr. Rughvir K.S. Khemani.
(v) The tender conditions state that it can be rejected without furnishing reasons. Therefore, the lowest price is not sacrosanct (clause 11 of the contract).
(vi) L2 and L3 have also been granted contracts irrespective of the price they have quoted.
(vii) Effective price has no sanctity since not only L2 and L3 also get contracts in addition to or in exclusion of L1 but further, the final negotiated price is determined on the basis of privately conducted negotiations with individual bidders for which the benchmark is not the price quoted by them but the internal estimates arrived on the basis of objective criteria.
(viii) In most States, the final negotiated price was concluded at a rate lower than the internal estimate. The internal estimate had absolutely no correlation with the quoted rates by L1 or any other party.
In this behalf, she pointed out that the IOCL had carried out the exercise of ascertaining the estimated cost of the cylinder through its experts. In the report given by the expert, the estimated cost per cylinder was arrived at Rs. 1106.61 paisa per cylinder. As against this, the final negotiated price at which the appellants had supplied cylinders to the IOCL was much lesser. According to her, in the whole process the price determination was on the basis of internal estimates by IOCL which could not be influenced by the appellants at all. In fact, even after the tenderers submitted their bids, final price was the price negotiated by IOCL which fact was accepted by Mr. Y. Ramana Rao of IOCL in his deposition recorded by the Director General of CCI. This, according to the learned counsel, clearly proved that there was no adverse effect on competition, in any case.
(ix) The internal estimates were drawn up long after the price bids were made, i.e., on 5th May, 2010. Price bids were opened on 23rd March, 2010 and negotiations were held only after the submission of Mott MacDonald Report on 05.05.2010.
(x) The pattern shows that since L1, L2 and even L3 were awarded the contract and not merely L1, quoting the lowest price did not even determine the identity of the parties who were to get the contract, therefore, the manner in which the process was conducted or controlled by IOCL, completely leaves no scope for either determination of price or the identity of the parties who would get the contract.
25) She submitted that in such market conditions where on account of the vertical agreement there is virtually no scope of competitive forces between horizontal players, the question of anti-competitive conduct by virture of horizontal agreements does not arise. There is no competition in the market even before a player enters the fray. Therefore, the first premise for the applciation of Section 3, i.e., the presence of an otherwise competitive market is absent. The burden of proof is on the respondent- CCI to establish that there is competition in the market before it can justify invoking Section 3. There is no automatic presumption under Section 3 that there is competition in the market.
26) From the aforesaid factors, Ms. Divan tried to deduce that price control was entirely in the hands of IOCL and in a situation like this, question of entering into any agreement with the motive of bid rigging or collusive bidding did not arise.
27) She also referred to LPG (Regulation of Supply and Distribution) Order, 2000 published vide Notification dated 26th April, 2000 as per which only Government oil companies can supply LPG to domestic consumer of 14.2 kg LPG cylinders with dimensions as specified therein. Predicated thereupon, her submission was that the LPG supply in 14.2 kg gas cylinders is an essential commodity; the distribution of such cylinders takes place only through Government oil companies; the price to the consumer is controlled by the Government; and parallel marketeers, supplier and distributor of LPG cylinders may do so only for cylinders and specifications other than 14.2 kg cylinders. This control of the Government, insofar as supply of 14.2 kg gas cylinders is concerned, would also show tight control over the pricing. In such a statutorily tight control price fixing mechanism there could not be bid rigging, was the submission of Ms. Divan. She supported this submission by drawing the attention of the Court to the following observations in Ashoka Smokeless Coal India (P) Ltd. v. Union of India2 :
"109. It may be true that prices are required to be fixed having regard to the market forces. Demand and supply is a relevant factor as regards fixation of the price. In a market governed by free economy where competition is the buzzword, producers may fix their own price. It is, however, difficult to give effect to the constitutional obligations of a State and the principles leading to a free economy at the same time. A level playing field is the key factor for invoking the new economy. Such a level playing field can be achieved when there are a number of suppliers and when there are competitors in the market enabling the consumer to exercise choices for the purpose of procurement of goods. If the policy of the open market is to be achieved the benefit of the consumer must be kept uppermost in mind by the State.
xxx xxx xxx
127. While fixing a fair and reasonable price in terms of the provisions of the Essential Commodities Act (although the price is not dual), it is essential that price is actually fixed. Such price fixation is necessary in view of the fact that coal is an essential commodity. It is, therefore, vital that price is actually fixed and not kept variable. Fixation of price of coal is of utmost necessity as it is a mineral of grave national importance. Non-availability of coal and consequently, the other products may lead to hardship to a section of citizens. It may entail closure of factories and other industries which in turn would lead to loss to the State exchequer; as they would be deprived of its taxes. It will lead to loss of employment of a 2 (2007) 2 SCC 640 large number of employees and would be detrimental to the avowed object of the Central Government to encourage small-scale industries."
28) She also referred to the following discussion in Excel Crop Care Limited v. Competition Commission of India & Anr.3:
"52. We are here concerned with parallel behaviour. We are conscious of the argument put forth by Mr Venugopal that in an oligopoly situation parallel behaviour may not, by itself, amount to a concerted practice. It would be apposite to take note of the following observations made by European Court of Justice in Dyestuffs [Imperial Chemical Industries Ltd. v. Commission of European Communities, 1972 ECR 619 (ECJ)] :
"By its very nature, then, the concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent from the behaviour of the participants. Although parallel behaviour may not itself be identified with a concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of competition which do not respond to the normal conditions of the market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. Such is the case especially where the parallel behaviour is such as to permit the parties to seek price equilibrium at a different level from that which would have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers."
(emphasis supplied)
At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test: "If the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken of the specific features of the products in question." 3 (2017) 8 SCC 47
29. The learned counsel also referred to various judgments of other jurisdictions, primarily that of European Commission and the Court of Justice of European Union, which we shall discuss at the appropriate stage.
30. Ms. Divan, also highlighted that in this entire scenario, it was necessary to have the views of IOCL. However, in a suo motu case, IOCL was not even served with any notice and therefore no evidence was elicited from IOCL on the issue whether there was any autnomy left to the manufacturer in the matter of price determination.
31. She, thus, argued that merely because there was price parallelism, it could not have been the reason to arrive at a conclusion that there was a collusive agreement or bid rigging. She submitted that in a monopsonistic market where there are few buyers, the price is set by the buyers, and the conditions are such that sellers can predict demand, there is a repetitive bidding process and the products are identical and specilized, the likelihood of price parallelism is natural.
32. Further, price parallelism is inevitable where the buyer has a high degree of control and determines price, quantity, and even the identities of the awardees at its discretion. Referring to the following discussion in Union of India v. Hindustan Development Corporation4, she argued that mere identical pricing cannot lead to the conclusion of cartelisation:
"7. [....] (1) There is not enough of material to conclude that M/s H.D.C., Mukand and Bhartiya formed a cartel. Because of mere quoting identical tender offers by the said three manufacturers for which there is some basis, the conclusion that the said manufacturers had formed a cartel does not appear to be correct. However since the offers of the said three tenderers were identical and the price was somewhat lower, the Tender Committee entertained a suspicion that a cartel had been formed and the same got further strengthened by the post-tender attitude of the said manufacturers which further resulted in entertaining the same suspicion by the other authorities in the hierarchy of decision making body including the Minister of Railways. [....]
33. She pointed out that this principle has also been stated in paragraph 17 of the Union of India v. Hindustan Development Coproration5. Her submission was that identical pricing may be further explained by the fact that, given the high degree of predictability of prices, bidders may take a business decision to mirror prices of competitiors in certain States, by adjusting or averaging prices in others.
34. The learned counsel pointed out that the CCI arrived at an inference of a collusive agreement based, inter alia, on the presence of circumstances which have acted as 'facilitating factors' for collusion. These factors which describe the nature of the industry are: 4 (1993) 1 SCC 467 5 (1993) 3 SCC 499
(i) Predictability of demand
(ii) Small number of suppliers
(iii) Few new entrants
(iv) Active trade association
(v) Repetitive bidding
(vi) Identical products
(vii) Few or no substitutes
(viii) No significant technological changes, i.e, a standardised product in repsect of which there has been no change or alteration in design.
35. Her reply was that these are the characteristics which define the industry. Yet these very factors are relied upon to come to the consclusion that there is 'collusion' and 'bid rigging'. She submitted that if the very nature of the industry is such that there are very small numbers of suppliers, very few new entrants and a standard product being supplied to the same party year after year, such factors are beyond the control of the individual manufacturers and cannot be relied upon as factors to lead to a presumption that there is collusive conduct. In other words, the very nature of the industry cannot be used as a factor to presume collusion because collusion itself requires a state of mind or intent whereas in this case, most of these factors are inherent in the nature of the industry as described by the CCI itself.
36. Adverting to her 2nd proposition, namely, there was no collusive agreement or bid rigging in the present case, her submission was that CCI has relied on a dinner attended by some manufacturers on 1st March, 2010 and a lunch on 2nd March, 2010 as evidence of a price fixing agreement. Her response was that the factum of meetings of an association by itself in any case cannot lead to a conclusion of collusion. Likewise, the COMPAT also upheld that inference based on the factum of the meetings of the Associaiton. The COMPAT went to the extent of holding that it is irrelevant whether a particular party was a member of the Association or not and the existence of Association is by itself sufficient. This approach was attacked as contrary to the fundamental right to form an association under Article 19(1)(c)(g) of the Constitution of India.
37. So far as the meetings over dinner and lunch are concerned, both were hosted by individual members. In the case of the dinner meeting on 1st March, 2010, it was hosted by Mr. C.P. Bhartiya, MD of North India Wires. The lunch on 2nd March, 2010 was hosted by Mr. Santosh Bhartiya of Haldia Precision. It is not as if that the Association paid or the expenses were shared by all members who attended.
38. She also submitted that insofar as appellant - Rajasthan Cylinders and Containers Limited is concerned, no representatives of appellant attended the said meeting. Further, many other members did not attend the meeting. Even as per the findings of the Director General, only 12 persons representing 19 parties are said to have attended the meeting. Her submission was that as per the allegations, 45 persons had entered into an agreement of cartelisation which should not be established only with the said meeting which was not attended by all and in fact very few members.
39. In any case, according to her, it was expressly stated by at least two persons who attended the meeting that price was not discussed. These are Mr. Chandi Prasad Bhartia from Haldia Precision and Mr. Manvinder Singh of Bhiwadi Cylinders Ltd.
40. Her further submission on this aspect was that the inference drawn on the basis of six agents being nominated for depositing 44 bids was also misconceived. The CCI holds that 'this might have held to the possibility of copying and matching of the rates quoted in the price bids by many suppliers in a particular state."
41. The test as laid down in the case of Ahlstrom Osakeyhtio v. Commission6 is: Is the concertation the only plausible explaination for the 6 31.3.1993, ECJ (paragraph 115, Internal P.1611) ("Woodpulp") conduct?
"126. Following that analysis, it must be stated that, in this case, concertation is not the only plausible explanation for the parallel conduct. To begin with, the system of price announcements may be regarded as constituting a rational response to the fact that the pulp market constituted a long-term market and to the need felt by both buyers and sellers to limit commercial risks. Further, the similarity in the dates of price announcements may be regarded as a direct result of the high degree of market transparency, which does not have to be described as artificial. Finally, the parallelism of prices and the price trends may be satisfactorily explained by the oligopolistic tendencies of the market and by the specific circumstances prevailing in certain period. Accordingly, the parallel conduct established by the Commission does not constitute evidence of concertation. This test is not met in the present case for reasons that are enumerated.
42. Her third proposition was that in any case there was no appreciable adverse effect on competition. She tried to make this submission good by contending that when industry is an oligopoly, the price parallel or a finding of identical quoting of price does not by itself lead to the conclusion of a conerted price. Moreoever, in the instant case, number of entrants had increased as 12 new entrants submitted their bid for the year 2010-11. Therefore, the finding of the CCI, upheld by the COMPAT, that there has been a creation of barriers for new entrants is without any basis.
43. Other counsel who appeared on behalf of the appellants made their submission almost on the same lines, albeit, with further elaborations on 36 certain aspects, some of which are taken note of hereafter. Mr. Jaiveer Shergil, who argued for the appellant-Om Containers (C.A. No. 6369 of 2014) submitted that in order to attract the presumption contained in Section 3(3) about the appreciable adverse effect on competition, in the first instance, there has to be a finding that there has been an agreement of the kind set out in Section 3(3)(a) to (d).
Since, the allegation against the appellants was that the agreement resulted in bid rigging and case is covered under Section 3(3)(d) of the Act, it was necessary that there is a positive finding to the aforesaid effect, namely, that there was agreement which had resulted in bid rigging. Accordoing to him, since the definition of bid rigging in Explanation to Section 3(3) uses the words 'means', the definition is a hard and fast definition and no other meaning can be assigned to the expression than is put down in the definition, as held in Punjab Land Developement & Reclamation Corporation Ltd. vs. Presiding Officer, Labour Court7 in the following words:
"72. The definition has used the word 'means'. When a statute says that a word or phrase shall "mean"- not merely that it shall "include" - certain things or acts, "the definition is a hard-and-fast definition, and no other meaning can be assigned to the expression than is put down in definition" (per Esher, M.R., Gough v. Gough [(1891) 2 QB 665 : 65 LT 110] ). A definition is an explicit statement of the full connotation of a term." 7 (1990) 3 SCC 682
44. Thus, according to him, for it to be a case of bid rigging, the agreement must be such which is defined in the Explanation to Section 3(3)(d) creating the effect of: a. Eliminating or reducing competition for bids or b. Adversely affecting the process for bidding or c. Manipulating the process for bidding.
45. He referred to the judgment in S. Sundaram Pillai vs. V.R. Pattabiraman8, on the purpose of an 'Explanation', viz.:
"46. We have now to consider as to what is the impact of the Explanation on the proviso which deals with the question of willful default. Before, however, we embark on an inquiry into this difficult and delicate question, we must appreciate the intent, purpose and legal effect of an Explanation. It is now well settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. Sarathi in Interpretation of Statutes while dwelling on the various aspects of an Explanation observes as follows:
(a) The object of an Explanation is to understand the Act in the light of the explanation.
(b) It does not ordinarily enlarge the scope of the original section which it explains, but only makes the meaning clear beyond dispute."
46. He submitted that there is no positive evidence of this nature at all and the CCI as well as COMPAT has proceeded on inferences as regards 8 (1985) 1 SCC 591 bid rigging and, therefore, such orders cannot be sustained. In the absence thereof, submitted the learned counsel, doctrine of reverse burden which was put on the appellants would not apply. He referred to the following judgments9 in support.
47. The counsel relied upon the following observations in CCI v. Artistes & Technicians of W.B. Film & Television:
"31. The Competition Act, 2002, as amended in 2007 and 2009, deals with anti-trust issues viz. regulation of anti-competitive agreements, abuse of dominant position and a combination or acquisition falling within the provisions of the said Act. Since the majority view of CCI also accepted that the impugned activities of the Coordination Committee did not amount to abuse of dominant position, and it treated the same as anti-competitive having appreciable adverse effect on competition, our discussion would be focused only on anti-competitive agreements. Section 3 of the Act is the relevant section in this behalf. It is intended to curb or prohibit certain agreements. Therefore, in the first instance, it is to be found out that there existed an "agreement" which was entered into by enterprise or association of enterprises or person or association of persons. Thereafter, it needs to be determined as to whether such an agreement is anti-competitive agreement within the meaning of the Act. Once it is found to be so, other provisions relating to the treatment that needs to be given thereto get attracted."
48. Taking aid of the aforesaid legal principle, it was submitted that in the present case it will be seen that the CCI, rather arriving at a finding with focus on the aforesaid factors, proceeded to analyse factors which attach to the general market conditions of the industry to 'infer' the 'possibility' of bid rigging and then concluded that the 'facilitating factors' which may be 'considered conducive for cartelisation' are present. The D.G. found that9 'in all the probability, prices were fixed there at the meeting in Bombay in collusion with each other. Such an inference and assumption based on 'higher chances', 'probability', 'tendencies' or 'likelihood' by the CCI does not meet the requirement of the definition contained in Explanation to Section 3(3) and certainly does not constitute a finding of 'bid rigging' as defined therein. The Tribunal has also proceeded on the basis that it 'is to be deduced....that these meetings did relate to the tender offers'. There was, thus, not clearcut, precise and consistent evidence to support that the alleged bid rigging took place.
49. Next submission of Mr. Shergil was that apart from the complete absence of a finding of bid rigging, in the present IOCL tender, as a matter of fact there canot be any bid rigging as defined in Section 3(3). To take the first ingredient, i.e., eliminating or reducing competition for bids, the report of D.G. itself finds that out of the 60 bidding parties 37 entities were not belonging to any single group and are independently controlled. Hence, straight away there is no case of 'eliminating or reducing competition for bids' which is one of the possible ingredients of bid rigging as there were 37 entities who were free of mind to participate and bid of their own accord in the absence of any control by any cartel.
50. As regards the second and third requirement of bid rigging, i.e., adversely effecting or manipulating the bidding process, he argued that the submission of bids by the appellant (even if identical) can have no effect of 'adversely effecting or manipulating the bidding process' this being on account of the very nature of the present tender process. Although, bids are invited from bidders, IOCL has a fixed/base procurement price of Rs. 1106.61 per cylinder. IOCL then works out an estimated rate per State based on certain factors peculiar to that State such as octroi, freight etc. The bid offered by the L1 (lowest bidder) is then subject to further downward negotiations by IOCL as per the tender clause and a further finalised rate is arrived at. Such finalised rate is eventually even lower10 than the L1 bid amount. Thus, factually, logically and in reality any bid submitted by any party can never be one which is said to adversely affect or manipulate the bidding process. All of this information is with IOCL as part of its bidding process preparations, estimates and financial workings and could easily have been taken into consideration. In support, Mr. Shergil also referred to the terms and conditions of the IOCL tender.
51. His further submission was that CCI, or for that matter COMPAT, were wrong in getting influenced by the submissions of identical bids by the appellants as it could not be, ipso facto, inferance of bid rigging. Such10 identical prices could be for various reasons and he shared that the reasons given by Ms. Divan predicated her submissions on oligopsony/monopsony. In addition, he relied upon the judgment of this Court in Union of India vs. Hindustan Development Corporation11 and, in particular, para 17 thereof, which is as under:
"17. Therefore, whether in a given case, there was formation of a cartel by some of the manufacturers which amounts to an unfair trade practice, depends upon the available evidence and the surrounding circumstances. In the instant case, initially the Tender Committee formed the opinion that the three big manufacturers formed a cartel on the ground that the price initially quoted by them was identical and was only a cartel price. This, in our view, was only a suspicion which of course got strengthened by post-tender attitude of the said manufacturers who quoted a much lesser price. As noticed above it cannot positively be concluded on the basis of these two circumstances alone. In the past these three big manufacturers also offered their own quotations and they were allotted quantities on the basis of the existing practice.
However, a mere quotation of identical price and an offer of further reduction by themselves would not entitle them automatically to corner the entire market by way of monopoly since the final allotment of quantities vested in the authorities who in their discretion can distribute the same to all the manufacturers including these three big manufacturers on certain basis. No doubt there was an apprehension that if such predatory price has to be accepted the smaller manufacturers will not be in a position to compete and may result in elimination of free competition.
But there again the authorities reserved a right to reject such lower price. Under these circumstances though the attitude of these three big manufacturers gave rise to a suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such formation of a cartel. However, such an opinion entertained by the concerned authorities including the Minister was not malicious nor was actuated by any extraneous considerations. They entertained a reasonable suspicion based on the record and other11 surrounding circumstances and only acted in a bona fide manner in taking the stand that the three big manufacturers formed a cartel."
52. Some literature on the 'theory of oligopolistic interdependence' as well as judgments of the European Union and European Commission were also cited.
53. Mr. Pradeep Aggarwal, in addition, argued that though there was no positive finding of cartelisation and the conclusion was merely presumptive, even if it is accepted that there was such an agreement of bid rigging or collusive bidding, there was no presumption of 'appreciable adverse effect on competiiton'. In the alternative, he submitted that there was, in fact, no appreciable adverse effect on competition in the present case and the said presumption totally was rebutted by producing sufficient evidence on record.
54. Various other counsel also argued on the same lines and in addition referred to facts or their specific cases and it is not necessary to state all those arguments to avoid repetition.
55. Per contra, Mr. Salman Khurshid, learned senior counsel appearijng for CCI highlighted the purpose for which the Act is enacted and, in particular, objective behind Section 3 of the Act, whch is taken note of by this Court in Excel Crop Care Limited as well as West Bengal Artists Association. Insofar as instant case is concerned, his submission was that it is a stark and clear-cut case of bid rigging as a result of anti-competitive agreement amongst LPG manufacturers in respect of a tender (Tender No. LPG-O/M/PT-03/09-10) floated by IOCL for procurement of approximately 1,05,00,000 (105 laks) LPG Cylinders. This is a matter of serious public concern because these cylinders were to be used to supply Liquefied Petroleum Gas (LPG) for domestic consumption across 25 States. A rise in price resulting from anti-competitive activities would affect the cost of living for the common man, and has serious ramifications for the economy as a whole.
56. Mr. Khurshid referred to the findings of the CCI as approved by COMPAT and submitted that there was a strong economic evidence of collusion which is evident from the following aspects:
(a) Identical or near-identical bidding by all 50 empaneled LPG vendors resulting in bid rigging.
(b) Results of the tender revealed that these bids were made in such a way that all the bidders were awarded some portion of the tender and no bidder was left empty handed, i.e., Market Sharing Arrangement.
(c) Geographical/Territorial allocation of market, i.e., the bids were placed in such a way that entities located in the northern parts of the country were awrded the tender in the northern States, entities located in the southern parts were awarded the tender in respect of southern States etc.
(d) No plausible economic rationale or explanation was forthcoming for the identical bids, despite obvious difference in cost of production, location, input cost etc.
(e) The overall effect of increase in price of procurement of LPG Cylinders over previous years.
57. He also submitted that pattern of identical and near identical bids, which was all pervasive through out, could not be brushed aside lightly as that was the clear indic
