2016 (4) TMI 1329 - AT - Law of Competition

Anti-competitive Activities - Whether the appellants could be accused of bid-rigging/collusive bidding and held guilty of acting in contravention of Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Competition Act 2002 merely because they quoted substantially similar price for the product namely Polyester Blended Duck Ankle Boot Rubber Sole (hereinafter described as the Jungle Boots ), which is required to be manufactured as per the specifications prescribed by the Director General (Supply and Demand) (DGS&D) and is mostly purchased by the Government Agencies like Paramilitary Forces State Police Railways etc. on the basis of the Rate Contracts executed on annual basis? - Held that - Unfortunately neither the DG nor the Commission gave due weightage to the aforesaid factors and heavily banked on the factors like identical or near identical price quoted by the appellants in response to Tender Enquiry dated 14.06.2011 and the so-called plus-factor for recording a finding that the appellants had contravened Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act - the findings and conclusions recorded by the DG and the Commission that the appellants had indulged in collusive bidding/bid-rigging and thereby violated Section 3(1) read with Section 3(3)(a) and 3(3)(d) of the Act are legally unsustainable and the impugned order is liable to be set aside. Whether in exercise of powers vested in it under Section 27(b) of the Act the Commission could impose penalty on the total turnover of the appellants for the three preceding financial years? - Held that - The Commission committed grave illegality by imposing penalty @5% of the average turnover of the appellants in respect of all the products manufactured by them for the last three preceding financial years. The respondents have not disputed that all the appellants are multi-product companies and the Jungle Boots is only one of the products manufactured by them - the Commission is not entitled to impose penalty on the defaulting enterprise/person by taking into consideration its total turnover for the preceding three financial years. The impugned order is set aside and the penalty imposed by the Commission on the appellants is quashed - appeal allowed.

Summary

Issues Involved:
1. Whether the appellants could be accused of bid-rigging/collusive bidding under Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Competition Act, 2002.
2. Whether the Commission could impose a penalty on the total turnover of the appellants for the three preceding financial years under Section 27(b) of the Act.

Detailed Analysis:

Issue 1: Accusation of Bid-Rigging/Collusive Bidding
The appellants were accused of bid-rigging/collusive bidding for quoting substantially similar prices for Jungle Boots, which are manufactured as per specifications prescribed by DGS&D and mostly purchased by government agencies. The DG's investigation concluded that the appellants had engaged in collusive bidding, quoting identical/near identical prices, and controlling supply through mutual allocation, thereby violating Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act.

The DG's findings were based on several factors:
- Identical/near identical prices quoted by the appellants over multiple years.
- The appellants' inability to provide reasonable explanations for the identical pricing.
- Evidence of sharing of information among competitors, including possession of performance statements of other bidders by one of the appellants.
- Imposition of quantity restrictions by the appellants, which began simultaneously from the RC period 2010-11, suggesting collusion to limit supply and share the market.

The Commission agreed with the DG's findings, noting that the appellants' explanations for the identical pricing were inconsistent and unconvincing. The Commission also highlighted the appellants' participation in meetings under the Federation of Industries of India, which could have facilitated collusion.

However, the Tribunal found that the DG and the Commission had heavily relied on assumptions and conjectures. The Tribunal emphasized that the identical pricing alone could not conclusively prove collusion without additional evidence of an agreement. The Tribunal referred to the Supreme Court's judgment in Union of India v. Hindustan Development Corporation, which held that mere identical pricing is insufficient to establish cartel formation without concrete evidence of a conspiracy.

The Tribunal also noted the special features of the case, including the static demand for Jungle Boots, the lack of new entrants in the market, and the absence of a substitute product. These factors, along with the appellants' status as multi-product companies, were not given due weightage by the DG and the Commission.

Issue 2: Imposition of Penalty on Total Turnover
The Commission imposed a penalty of 5% on the average turnover of the appellants for the last three preceding financial years, including all products manufactured by them. The appellants argued that the penalty should be based only on the turnover of the relevant product (Jungle Boots) and not their total turnover.

The Tribunal agreed with the appellants, holding that the penalty should be based on the turnover of the specific product involved in the violation. The Tribunal referred to its previous decisions, including M/s. Excel Corp Care Limited v. Competition Commission of India, where it was held that the turnover for penalty calculation should be restricted to the relevant product or service.

The Tribunal emphasized that the term "turnover" in Section 27(b) should be interpreted in the context of the specific violation and not the total turnover of the enterprise. The Tribunal also highlighted the need for the Commission to consider mitigating factors and provide reasons for the quantum of penalty.

Conclusion:
The Tribunal set aside the Commission's order, finding that the appellants were not guilty of collusive bidding/bid-rigging based on the evidence presented. The Tribunal also quashed the penalty imposed by the Commission, directing the refund of the deposited penalty amounts within three months, failing which interest would be payable.