2013 (5) TMI 215 - Commission - Law of Competition

Application u/s 19(1)(b) of the Competition Act 2002 Manipulation of tender Bid rigging - Formation of cartel - Tender notice of rail lines was floated by South Eastern Railway for procurement of Anti-Theft Elastic Rail Clips with Circlips from RDSO approved firms 29 firms submitted offer. The rate quoted by most of the firms was @ 66.50 (all inclusive). The quantity quoted by each of the firms was far less than 50% of the total tender quantity. It is also alleged that the quoted rate was about 10% higher than the neighboring Railways last purchase rate. Suspecting cartelization by the bidders in fixing the price and distributing the tender quantity of the materials amongst themselves the instant reference has been filed by Principal Chief Engineer South Eastern Railway. Held that - It may be noted that in the Instruction to Tenderer and General Conditions of Tender it was provided that wherever all or most of the approved firms quote equal rates and cartel formation is suspected Railways reserve the right to place order on one or more firms to the exclusion of the rest without assigning any reasons thereof. Further it was provided therein that firms were expected to quote for a quantity not less than 50% of tendered quantity. Offers for less than 50% quantity were to be considered unresponsive and liable to be rejected in case cartel formation was suspected. In the result the Commission is of the view that conduct of the opposite parties amounts to bid rigging within the meaning of the said expression as given in explanation to section 3(3) of the Act as the impugned agreement being an agreement between enterprises or persons engaged in identical or similar production or trading of goods or provision of services had the effect of eliminating or reducing competition for bids/ adversely affecting or manipulating the process for bidding. As regards penalty u/s 27 of the Act the Commission notes that there are circumstances in this case which require the issue of penalty to be looked into somewhat differently. The facts as projected in the present reference reveal a complete lack of awareness by the opposite parties which are small and micro enterprises. Thus right in the beginning the offers made by these parties were not in accordance with the requirement of the tender and hence they could not have got supplies as per the tender conditions. Moreover the bid given by these parties was not the lowest and so they could not have been awarded the contract.

Summary

Issues Involved:
1. Alleged contravention of Section 3 of the Competition Act, 2002.
2. Existence of cartelization and bid rigging.
3. Examination of appreciable adverse effect on competition.
4. Determination of penalties and orders under Section 27 of the Act.

Issue-wise Detailed Analysis:

1. Alleged Contravention of Section 3 of the Competition Act, 2002:
The reference was filed under Section 19(1)(b) of the Competition Act, 2002 by the Principal Chief Engineer, South Eastern Railway, alleging that multiple firms had contravened the provisions of Section 3 of the Act by quoting identical rates for a tender, indicating possible cartelization. The Commission noted that the identical rates quoted by the bidders were inclusive of excise duty, VAT, and freight, despite the firms being located across the country, which suggested a "meeting of minds" to manipulate the tender.

2. Existence of Cartelization and Bid Rigging:
The Director General (DG) conducted an investigation and concluded that there was a "meeting of minds" among the bidders, resulting in bid rigging and allocation of supply in proportion to their production capacity. The evidence included identical bid prices, similar handwriting in bid documents, and the use of the same format for covering letters. The DG found that the firms had colluded to fix the price and allocate the supply, which was anti-competitive and violated Section 3(3)(d) read with Section 3(1) of the Act.

3. Examination of Appreciable Adverse Effect on Competition:
The DG examined the appreciable adverse effect on competition arising from the anti-competitive conduct. The investigation revealed that the concerted actions of the firms created entry barriers for other firms, eliminated competition, and resulted in bid rigging at an elevated price. The Commission noted that such agreements are presumed to have an appreciable adverse effect on competition under Section 3(3) of the Act, and the onus to rebut this presumption lay with the opposite parties, which they failed to do.

4. Determination of Penalties and Orders under Section 27 of the Act:
The Commission directed the opposite parties to cease and desist from such anti-competitive conduct in the future. Considering the circumstances, including the small and micro nature of the enterprises and their lack of awareness, the Commission decided not to impose a penalty. Instead, a cease and desist order was issued under Section 27(a) of the Act. The parties were warned that failure to comply with the Commission's orders could result in fines as per Section 42 of the Act.

Conclusion:
The Commission concluded that the opposite parties had contravened the provisions of Section 3(3)(d) read with Section 3(1) of the Act by engaging in bid rigging and cartelization. The Commission issued a cease and desist order and directed the parties to file an undertaking within 30 days, warning them of potential fines for non-compliance.