2018 (9) TMI 2129 - CCI - Indian Laws

Anti-competitive agreements - Joint tender floated by Public Sector Oil Marketing Companies (PSU OMCs/OMCs) on 02.01.2013 for procurement of anhydrous alcohol - quoting an exorbitant price for supply of ethanol to OMCs - contravention of the provisions of Section 3 of Competition Commission Act, 2002 - levy of monetary penalty. Whether the joint tender floated by OMCs is in violation of provisions of Section 3(1) read with Section 3(3) of the Act? - HELD THAT - The Commission holds that floating of joint tender by OMCs for procurement of ethanol per se cannot be construed as anti-competitive particularly when such process has evident efficiency benefits, as detailed above. Resultantly, the Commission finds no merit in the allegations levelled by the Informants in laying challenge to the joint tendering resorted to by the OMCs. In this connection, the Commission notes that even the presumption of appreciable adverse effect on competition is not applicable in respect of agreements entered into by way of joint ventures if such agreements increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services by virtue of the proviso engrafted to Section 3(3) of the Act. In the factual matrix of the present case, OMCs have demonstrated efficiencies resulting from the joint tendering process and in the absence of any rebuttal thereto or any other material available on record, the Commission has no hesitation in holding that no case whatsoever has been made out against OMCs of contravention of the provisions of Section 3 of the Act due to the impugned act of floating a joint tender. Such a system is beneficial to suppliers and all other stakeholders as it has demonstrable efficiency in improving the production and distribution of ethanol in an equitable manner. Before concluding on this count, the Commission is constrained to note the brazen conduct of India Glycols Limited in laying repeated challenges to the joint tendering process which was evidently adopted by PSU OMCs in order to avoid multiplicity of tendering exercise and to attain equitable distribution of procured ethanol amongst OMCs, to carry out the mandate of the Government. Such a procedure has also saved wastage of time, money and resources of the stakeholders besides minimizing the attendant costs to the national exchequer. Whether the tender floated on 02.01.2013 by PSU OMCs was rigged by sugar mills/ISMA/EMAI/NFSCF in contravention of the provisions of Section 3 of the Act? - HELD THAT - No plausible explanation could be offered by the bidders as to how the freight charges could match exactly despite substantial variance in distance between the distilleries of the bidders and the depots for which they participated in the bidding process. It is also found that the freight charges quoted by the bidders were neither based on the actual figures of past supplies nor the same were found to have any connection with the actual charges paid by them to the transporters after award of tender. On the contrary, as noted above, despite difference in the distance between the depot and factory, identical freight charges have been quoted by the bidders. Such conduct can only be an outcome of collusive behavior and not the result of free market forces. The Commission also finds no merit in the plea that the DG has only picked few depots and players for the purpose of investigation to arrive at a finding of contravention against few bidders leaving the rest. The Commission notes that bidding was depot-wise and therefore the DG was justified in focussing investigation on the depots where the bidding pattern appeared to be collusive - the Commission is of the considered opinion that the bidders who participated in respect of the depots located in UP, in response to the joint tender floated by OMCs, have acted in a concerted and collusive manner in submitting their bids. This is evidenced from the prices quoted, quantities offered and the explanations given by the parties. Moreover, such collusion is also strengthened from bidders utilizing the platform of ISMA as also from the signals emitted by EMAI which influenced the bidding behavior of the parties. ISMA was proactively facilitating coordinated action by ethanol manufacturers. As noted above, ISMA even invited Bajaj in the meetings as it was the largest ethanol manufacturers controlling more than 40% of the market share in UP. Needless to add, no coordination amongst ethanol manufacturers of UP could have been successful without Bajaj being a party to such concerted effort. Such actions coupled with evasive responses of ISMA representatives lead to inescapable conclusion that ISMA acted as fulcrum to the whole arrangement - considering the past history of ISMA in facilitating concerted bidding in respect of the tenders floated by OMCs, as recorded by the DG, the Commission has no hesitation in holding that ISMA was actively involved with the bidding parties during the relevant period of the tender of January 2013. The evidence adumbrated hereinabove establishes that ISMA has violated the provisions of Section 3(3)(a), 3(3)(b) read with Section 3(1) of the Act. In the present case, the Commission is of the considered view that the bidders through their impugned conduct have contravened the provisions of Section 3(3)(d) read with Section 3(1) of the Act by acting in a collusive and concerted manner which has eliminated and lessened the competition besides manipulating the bidding process in respect of the impugned tender floated by OMCs - the Commission holds that the bidders who participated in respect of the depots located in UP/Gujarat/Andhra Pradesh in response to the joint tender floated by OMCs have colluded in submitting the bids by quoting collusive prices and sharing quantities using the platform of ISMA and signals provided by EMAI. The sugar mills and ISMA/EMAI are directed to cease and desist from indulging in conduct that has been found to be in contravention of the provisions of the Act. Monetary penalty - HELD THAT - It may be noted that the twin objectives behind imposition of penalties are (a) to reflect the seriousness of the infringement; and (b) to ensure that the threat of penalties will deter the infringing undertakings. Therefore, the quantum of penalties imposed must correspond with the gravity of the offence and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case. The Commission imposes monetary penalties upon the parties for contravention of the provisions of Section 3(1) read with Section 3(3) of the Act - Commission directs the parties to deposit the penalty amount within 60 days from the receipt of this order. It is evident that Dhampur was granted sufficient opportunity which it did not avail and as such the plea that it was denied opportunity of cross-examination is not only fallacious but is reflective of its contumacious conduct in not complying with the directions given by the Commission. The Secretary is directed to communicate to the parties, accordingly.

Summary

Issues Involved:
1. Whether the joint tender floated by OMCs is in violation of provisions of Section 3(1) read with Section 3(3) of the Act.
2. Whether the tender floated on 02.01.2013 by PSU OMCs was rigged by sugar mills/ISMA/EMAI/NFSCF in contravention of the provisions of Section 3 of the Act.

Issue-wise Analysis:

Issue 1: Joint Tender by OMCs
The EBP Programme was introduced to benefit the agriculture sector and improve the environmental footprint. Ethanol is produced from sugar molasses, and the programme aimed for 5% ethanol blending with petrol. The joint tender by OMCs was scrutinized to determine if it violated Section 3 of the Act.

The Commission noted that the Government of India (GoI) holds a majority of shares in OMCs, which work under the Ministry of Petroleum and Natural Gas. The joint tendering process was found to enhance efficiency by saving time, money, and resources, thus avoiding wastage and ensuring equitable distribution of ethanol among OMCs. Separate tenders would have led to inefficiencies and potential market imperfections.

The Commission concluded that the joint tendering process by OMCs was not anti-competitive and had evident efficiency benefits. The presumption of appreciable adverse effect on competition was not applicable as the process increased efficiency in production, supply, and distribution of ethanol. The Commission found no merit in the allegations against the joint tendering process and upheld its legality.

Issue 2: Bid Rigging by Sugar Mills/ISMA/EMAI/NFSCF
The Commission examined whether the sugar mills rigged the bids in the tender floated on 02.01.2013. The tender required bidders to quote Basic Price and Net Delivered Cost (NDC), with L1 determined based on NDC. The investigation revealed that the prices quoted by bidders in UP were clustered in a narrow range, indicating collusion. Identical bids were found in Gujarat and Andhra Pradesh as well.

The DG's investigation found that ISMA facilitated coordinated action among ethanol manufacturers. Meetings were convened by ISMA, and call data records showed frequent interactions between ISMA officials and bidders. The platform provided by ISMA enabled collusive behavior, leading to bid rigging.

The Commission also found that EMAI influenced the bidding behavior of its members by setting a benchmark price for ethanol. The conduct of EMAI was found to contravene Section 3(3)(a) of the Act.

The Commission concluded that the bidders colluded in submitting bids, quoting collusive prices, and sharing quantities using the platform of ISMA and signals from EMAI. The conduct of ISMA and EMAI facilitated bid rigging, violating the provisions of Section 3 of the Act.

Conclusion:
The Commission directed the sugar mills and ISMA/EMAI to cease and desist from anti-competitive conduct. Penalties were imposed on the sugar mills at 7% of their average relevant turnover from ethanol sales and on ISMA/EMAI at 10% of their average receipts. The parties were directed to deposit the penalty within 60 days.

The Commission found no merit in the plea for cross-examination by Dhampur and upheld the findings against the bidders in UP, Gujarat, and Andhra Pradesh. The bidding pattern in Maharashtra did not indicate collusion, and no contravention was found against the bidders there.