2024 (6) TMI 136 - AT - Companies Law

Cartelisation and Bid-rigging in tenders invited by the Department of Agriculture, Government of Uttar Pradesh for soil sample testing - Contravention of Sections 3(3)(c) and 3(3)(d) r/w Section 3 (1) of Competition Act, 2002. Whether the Opposite Parties have directly or indirectly rigged/ manipulated the tenders of soil testing issued by the Department of Agriculture, Government of Uttar Pradesh, in various regions for the year 2017 and 2018, by indulging in bid rigging, collusive bidding and sharing of market, resulting in contravention of provisions of Section 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act? - HELD THAT - The Commission took a view that Delicacy Continental colluded with Austere Systems to rig the soil testing tenders of 2018 for Saharanpur and Meerut divisions - The Commission noted that only three bidders, namely, Austere Systems, Yash Solutions and Delicacy Continental, had submitted bids in the 2018 Meerut and Saharanpur tenders. From the above, the Commission notes that there was an arrangement/ agreement between the said three entities to manipulate the process of bidding in the soil testing tenders of 2018. The Commission agreed with the findings of the DG that Austere Systems, under an arrangement/understanding with rival company Yash Solutions, had geographically allocated the soil testing tenders issued by the Department of Agriculture, Government of Uttar Pradesh, in 2017 and 2018 by not bidding in each other's allocated regions and by submitting supporting bids in favour of each other. If the Opposite Parties are found to have contravened the provisions of Sections 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act, then who are the persons in charge thereof and responsible for the conduct of business of the respective enterprises under Section 48 of the Act? - HELD THAT - The Commission found the present case fit for imposition of penalty, under the provisions contained in Section 27(b) of the Act under the aforesaid Section the Commission may impose such penalty upon the contravening parties as it may deem fit, which shall be not more than ten percent of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreement - The commission noted that the twin objectives behind the imposition of penalty are. (a) to reflect the seriousness of the infringement, and (b) to ensure that the threat of penalties will deter the infringing undertakings from indulging in similar conduct in the future. Therefore, the quantum of penalty imposed must correspond to the gravity of the offence, and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case. Penalty - HELD THAT - In the present case, the appellant was acting as a member of the cartel and was providing cover bid for the successful bidder Austere Systems. In view of peculiar facts and circumstances of the present case, where almost all bidders for soil testing are first time bidders and relevant turnover of firms from the aforesaid business is NIL, the concept of relevant turnover in such cases would not be correct, as it would lead to NIL penalty and allow the parties involved to go scot-free. Hence, the Commission s approach of taking the total turnover for computation and imposition of penalty agreed upon. At the same time considering the fact that the Appellant was in a supporting role in this cartel, by providing the cover bids, the penalty in such cases should be less than for those in the main role. The order of the Commission in respect of holding the appellant guilty under Section 3(3)(c) and 3(3)(d) read with section 3(1) and order passed under Section 27(a) regarding cease-and-desist order are upheld - The penalty under Section 27 (b) is reduced to 3% of average annual turnover for last 3 years, instead of 5% as imposed by the commission. Application disposed off.

Issues Involved:
1. Allegations of bid-rigging and collusive bidding.
2. Identification of individuals responsible for anti-competitive conduct.
3. Determination of penalty and its calculation.

Summary:

Issue 1: Allegations of Bid-Rigging and Collusive Bidding

The appeal was filed u/s 53(b) of the Competition Act, 2002, challenging the order passed by the Competition Commission of India (CCI) u/s 27 of the Act. The CCI found that the appellant contravened Sections 3(3)(c) and 3(3)(d) r/w Section 3(1) of the Act by engaging in bid-rigging in tenders for soil sample testing invited by the Department of Agriculture, Government of Uttar Pradesh. The complaint alleged that entities including Yash Solutions, M/s Satish Kumar, M/s Siddhi Vinayak, M/s Saraswati Sales, and Austere Systems, among others, colluded to rig the tenders through practices like cover bidding and bid rotation.

The CCI's investigation revealed that despite being competitors, these entities manipulated the bidding process. The Director General (DG) was directed to investigate, and the findings indicated that the parties engaged in cartelisation and bid-rigging in tenders for the years 2017 and 2018. The investigation also identified individuals responsible under Section 48 of the Act.

The commission grouped the opposite parties into three sets for analysis. It was found that Austere Systems, in collusion with other entities, rigged bids to emerge as the L-1 bidder in various divisions. The investigation also revealed that Delicacy Continental, despite having no experience in soil testing, participated in the tenders using fake experience certificates issued by Austere Systems. The commission concluded that there was an arrangement between Austere Systems, Yash Solutions, and Delicacy Continental to manipulate the bidding process.

Issue 2: Identification of Individuals Responsible

The DG identified several individuals liable under Section 48 of the Act, including Mr. Praveen Kumar Agarwal (Yash Solutions), Mr. Satish Kumar Agarwal (M/s Satish Kumar and M/s Siddhi Vinayak), Mr. Naresh Kumar Sharma (M/s Saraswati Sales), Mr. Rahul Gajanan Teni (Austere Systems), and Mr. Ankur Kumar (Delicacy Continental). The commission noted that these individuals played active roles in the anti-competitive conduct and failed to rebut the evidence against them. Consequently, they were held liable under Sections 48(1) and 48(2) of the Act.

Determination of Penalty

The commission imposed a penalty u/s 27(b) of the Act, amounting to 5% of the average turnover for the last three financial years. The commission emphasized that the penalty should reflect the seriousness of the infringement and deter future violations. The appellant argued that the penalty should be based on relevant turnover, as per the Supreme Court's decision in Excel Crop Care Ltd. vs. CCI. However, the commission rejected this narrow interpretation, stating it would allow parties involved in bid-rigging to escape penalties.

Conclusion

The Appellate Tribunal upheld the CCI's findings of contravention of Sections 3(3)(c) and 3(3)(d) r/w Section 3(1) of the Act. However, it reduced the penalty from 5% to 3% of the average annual turnover for the last three years, considering the appellant's supporting role in the cartel. The cease-and-desist order u/s 27(a) was also upheld.

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