2018 (10) TMI 229 - SC - Companies Law

Cartilisation - Bid rigging - Violation of provisions of Section 3(3)(d) of the Competition Act, 2002 - 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 - penalties inflicted on the suppliers stand reduced - collusive tendering - situation of oligopsony - Held that - 12 new entrants cannot be considered as entry of very few new suppliers where the existing suppliers were only 50. Identical products along with market conditions for which there would be only three buyers, in fact, would go in favour of the appellants. The factor of repetitive bidding, though appears to be a factor against the appellants, was also possible in the aforesaid scneario. The prevailing conditions in fact rule out the possibility of much price variations and all the manufacturers are virtually forced to submit their bid with a price that is quite close to each other. Therefore, it became necessary to sustain themselves in the market. Hence, the factor that these suppliers are from different region having different cost of manufacture would lose its significance. It is a situation where prime condition is to quote the price at which a particular manufacturer can bag an order even when its manufacturing cost is more than the manufacturing cost of others. The main purpose for such a manufacuring would be to remain in the fray and not to lose out. Therefore, it would be ready to accept lesser margin. This would answer why there were near identical bids despite varying cost. Insofar as meeting of bidders in Mumbai just before the date of submission of tender is concerned, some aspects pointed out by the appellants are not considered by the CCI or the COMPAT at all. No doubt, the meeting took place a couple of days before the date of tender. No doubt, the absence of agenda coming on record would not make much difference. However, only 19 appellants had attended that meeting. Many others were not even members or did not attend the meeting. In spite thereof, even they quoted almost same rates as the one who attended the meeting. This would lead us to the inference that reason for quoting similar price was not the meeting but something else. The question is what would be the other reason and whether the appellants have been able to satisfactorily explain that and rebut the presumption against them? The explanation is market conditions leading to the situation of oligopsony that prevailed because of limited buyers and influence of buyers in the fixation of prices was all prevalent. This seems to be convincing in the given set of facts. The situation of oligopsony can be both ways. There may be a situation where the sellers are few and they may control the market and by their concerted action indulge into cartelization. It may also be, as in the present case, a situation where buyers are few and that results in the situation of oligopsony with the control of buyers. Monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. What is emphasised is that in such a situation a manufacturer with no buyers will have to exit from the trade. Therefore, first condition of oligopsony stands fulfilled. The other condition for the existence of oligopsony is whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability to raise prices or it stood reduced/eliminated by the aforesaid buyers. On a hollistic view of the matter, we find that the appellants have been able to discharge the onus by referring to various indicators which go on to show that parallel behaviour was not the result of any concerted practice. After taking note of the test that needs to be applied in such cases, which was laid down in Dyestuffs and accepted in Excel Crop Care Limited, we come to the conclusion that the inferences drawn by the CCI on the basis of evidence collected by it are duly rebutted by the appellants and the appellants have been able to discharge the onus that shifted upon them on the basis of factors pointed out by the CCI. However, at that stage, the CCI failed to carry the matter further by having required and necessary inquiry that was needed in the instant case. In such a watertight tender policy of IOCL which gave IOCL full control over the tendering process, it was necessary to summon IOCL. This would have cleared many aspects which are shrouded in mystery and the dust has not been cleared. We, thus, arrive at a conclusion that there is no sufficient evidence to hold that there was any agreement between the appellants for bid rigging. Accordingly, we allow these appeals and set aside the order of the Authorities below. As a consequence, since no penalty is payable, appeals of the CCI are rendered infructuous and dismissed as such. All the pending applications stand disposed of.

Summary

Issues Involved:
1. Whether there was any collusive agreement between the participating bidders resulting in bid rigging of the tender floated by IOCL in March 2010.
2. Whether the appellants successfully rebutted the presumption of appreciable adverse effect on competition.
3. The role of IOCL in the tendering process and its impact on the alleged bid rigging.

Issue-wise Detailed Analysis:

1. Collusive Agreement and Bid Rigging:
The Supreme Court analyzed the findings of the Competition Commission of India (CCI) and the Competition Appellate Tribunal (COMPAT), which concluded that the appellants had engaged in cartelization and bid rigging. The CCI's investigation revealed that the appellants, manufacturers of 14.2 kg LPG cylinders, had submitted identical or near-identical bids in response to IOCL's tender. The CCI inferred collusion from the following factors: market conditions, small number of suppliers, few new entrants, active trade association, repetitive bidding, identical products, few or no substitutes, no significant technological changes, meetings of bidders in Mumbai just before the tender submission, appointing common agents, and identical bids despite varying costs. The COMPAT upheld these findings, emphasizing the existence of an active trade association and meetings held just before the tender submission. However, the Supreme Court noted that only 19 appellants attended the meeting, and many others quoted similar prices without attending, suggesting market conditions rather than collusion.

2. Rebuttal of Presumption of Adverse Effect on Competition:
The appellants argued that the market conditions, characterized by an oligopsony with only three buyers (IOCL, HPCL, and BPCL), influenced their bidding behavior. They contended that IOCL's tendering process, which involved internal estimates and negotiations leading to a final price lower than the bids, controlled the pricing. The Supreme Court found merit in the appellants' arguments, noting that IOCL's internal estimate of ?1106.61 per cylinder was higher than the final negotiated prices, indicating IOCL's significant influence over pricing. The Court also observed that the presence of 12 new entrants in the tender contradicted the CCI's conclusion that the appellants prevented new entries. The Supreme Court concluded that the appellants successfully rebutted the presumption of an appreciable adverse effect on competition.

3. Role of IOCL in the Tendering Process:
The Supreme Court emphasized the need to examine IOCL's role in the tendering process. It noted that IOCL undertook an exercise to determine internal estimates and negotiated prices with the lowest bidder (L1), ultimately awarding contracts at the negotiated price to multiple bidders. This process ensured that all technically viable bidders received some order, maintaining a larger pool of manufacturers. The Court highlighted that IOCL's control over the tendering process and price determination was a significant factor influencing the bidding behavior of the appellants. The Court criticized CCI for not summoning IOCL to clarify its role, which could have provided crucial insights into the tendering process and the alleged bid rigging.

Conclusion:
The Supreme Court concluded that there was insufficient evidence to prove that the appellants had entered into an agreement for bid rigging. The Court allowed the appeals, setting aside the orders of the CCI and COMPAT, and dismissed the appeals of the CCI as infructuous. The Court emphasized the importance of examining the role of IOCL in the tendering process to fully understand the dynamics influencing the bidding behavior of the appellants.