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TMI Blog2016 (4) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Tents, Synthetic Web Equipment, Polyester Blended Duck Ankle Boot Rubber Sole and Ground Sheets. II) M/s. M.B. Rubber Pvt. Ltd. (Appellant in Appeal No. 35 of 2013) M/s. M.B. Rubber Pvt. Ltd. was incorporated on 21st July, 1988 and is engaged in the manufacturing of Footwear, Rain coats and Capes. Ground sheets etc. in its SSI unit located at Sahibabad Industrial Area, Ghaziabad, U.P. The company started production of Hawai-Chappals in the year 1990-91. After two years, it commenced manufacturing of canvas shoes. The company is registered with NSIC, DGS&D, DGQA, Indian Navy and Ministry of Defence for various items being manufactured by it. As per the DGS&D Registration Certificates, the company is registered for supply of various Footwear Items, Ground Sheets, Coats and Capes, Mosquito Nets etc. which it supplies to various Government Departments such as Railways, Paramilitary forces etc. III) M/s. Tirupati Footwear Pvt. Ltd. (Appellant in Appeal No. 36 of 2013) M/s. Tirupati Footwears Pvt. Ltd. is a SSI Unit located at Basti Bawa Khel, Kapurthala Road, Jalandhar. As per the DGS&D Registration Certificate, the company is registered for supply of various footwear items an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Derpa Industrial Polymers (P) Ltd. (Appellant in Appeal No. 42 of 2013) M/s. Derpa Industrial Polymers (P) Ltd. was incorporated in 1983. It is engaged in the manufacturing of various types of Footwear and other Rubberized items such as Rain Capes, Ground Sheets etc. in its SSI unit located at Rural Industrial Estate, Loni, Ghaziabad, U.P. As per the DGS&D Registration Certificate, the company is registered for supply of Rain Capes, Footwears, Synthetic Web Equipment, Sleeping Bags, Mosquito Nets etc. X) M/s. R.S. Industries (Appellant in Appeal No. 43 of 2013) M/s. R.S. Industries is a Sole Proprietorship firm which was established in 1992. It is engaged in manufacturing different textile, jute and rubber items including Rain Coats, Ground Sheets, Mosquito Nets, Bags, Footwears, Hospital Rubber Sheeting etc. in its SSI unit located at Chingrighata Lane, Kolkata. XI) M/s. Puja Enterprises (Appellant in Appeal No. 08 of 2014) M/s. Puja Enterprises is a registered partnership firm. It is engaged in the manufacture of footwear items in its SSI Unit located at Basti Bawa Khel, Kapurthala Road, Jalandhar. The company is registered with DGS&D for supply of various footwear ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prices against the tenders of DGS&D for conclusion of Rate Contracts of the product in question under a collusive agreement. ii) Direct and indirect evidences have established the existence of an agreement between OPs for quoting identical/near identical prices and not competitively. iii) The collusive behaviour of the OPs has defeated the price discovery mechanism of a competitive market, to the detriment of the consumers who are government agencies in the instant case. The OPs have thus been instrumental in determining prices of the product under an agreement that violates the provisions of the Act. iv) The OPs have been engaged in bid rigging under an agreement for manipulating the process of bidding. v) The investigation has clearly brought out through direct and indirect evidences that the quantity restrictions imposed by the OPs was a result of concerted action of the OPs. vi) The OPs have under an agreement controlled the supply of the product in question and shared the market amongst themselves through mutual allocation." 7. As a sequel to the above, the DG recorded the following conclusion: "The investigation has established that the Opposite Partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh such manufacturers of this product who are registered with DGS&D, and who have been awarded Rate Contracts for the product. As such the Relevant Product Market has been identified as the market of Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/Tex/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) manufactured by DGS&D registered Rate Contract holders under Section 2(t) of the Act. 5.5 As aforementioned the product is procured mainly by various government agencies from DGS&D registered suppliers against the Rate Contracts awarded to them and that these procurers are geographically located across India. As such, the Relevant Geographic Market has been identified as the market of Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/Tex/Misc/55Boots Rubber (but with detachable sock thickness 5mm.) manufactured by DGS&D registered Rate Contract holders across India under Section 2(s) of the Act. 5.6 Thus the Relevant market has been identified as the market across India of Polyester Blended Duck Ankle Boot Rubber Sole confirming to Governing Specifications G/Tex/Misc/55Boots Rubber (but with det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are awarded, some of the past suppliers should also be included to the extent possible, instead of having only new entrants as the performance of new entrants may not be known before hand and DDOs may have to face problems in getting the supplies." 10. In Chapter 7 of his report, the DG noticed the replies/clarifications and documents submitted by the DGS&D and summarised the same in paragraphs 7.1 to 7.8, which are reproduced below: "7.1 In response to the Notice sent, DGS&D has submitted its reply, clarifications and various documents vide its letter dated 02.08.2012, 10.10.2012 and 18.12.2012 DGS&D has explained in detail about the instrument of Rate Contract, features of items generally brought on Rate Contract, methodology of approving an item for conclusion of Rate Contract, preparation of specifications of the item of Rate Contract, tendering procedure of DGS&D and factors considered for conclusion of Rate Contracts including determination of Reasonable Rates. List of DGS&D registered suppliers (Rate Contract holders) for Polyester Blended Duck Ankle Boot Rubber Sole (governing specifications G/Tex/Misc./55Boot Rubber with detachable Socks thickness 5mm.), fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t available on DGS&D server as the service provider for e-bidding at that time was no longer associated with DGS&D. 7.4 During 2010-11 and 2011-12 manual tendering was followed and copies of the tender offers have been furnished. As per the information submitted, against the Rate Contract of the product for the period 2010-11, offers from 11 parties were reportedly received on 11.08.2010 and from one party on 09.08.2010. Regarding Rate Contract for the period 2011-12, offers from 09 parties were reportedly received on 29.07.2011 and from two parties on 27.07.2011. 7.5 DGS&D has also furnished details of Supply Orders for the product placed by DDO's on the Rate contract holders for the Rate Contract periods 2008-09, 2009-10 & 2010-11 and has informed that due to certain digital certificate problems, server problems etc. there could be minor discrepancies in the data furnished. 7.6 DGS&D has furnished clarification regarding basis of its allegations of total estimated demand being allocated by the bidders amongst themselves through imposition of quantity restrictions. 7.7 Regarding the query about any association of manufacturers of the product, it has been informed by DG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o substitute of the product which is required to be manufactured as per the specifications prescribed by the DGS&D and there are no other buyers of the same except the Government Agencies; that the Rate Contract is essentially a mechanism for fixing the price for a specified period with no assurance of firm orders for the Rate Contract holders and repeatedly conjectured that all these factors are conducive to collusive bidding. In order to show that the DG has been extremely casual in making observations suggesting that the appellants had indulged in collusive bidding, paragraphs 8.8 to 8.14 of the report are reproduced below: "8.8 Investigation has revealed that the OPs are registered suppliers of DGS&D for the past several years and have repeatedly been bidding over the years against the tenders of DGS&D floated for awarding Rate Contracts for the product as well as for other items for which they are registered with DGS&D. The OPs have been consistently bidding against the Tender Enquiries of DGS&D for the product during the last few years. Some of these OPs are regionally located in close proximity to each other - four in Jalandhar, three in Ghaziabad, two in Kolkata and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bidders reaching an agreement on a common price structure are high. 8.12 In addition to the above conditions, investigation has revealed that the instrument of Rate Contract has certain features that are inherently conducive for collusive action. 8.13 Rate Contract being merely an agreement whereby the Supplier(s) agrees to supply to the Purchaser, specified stores at specified prices during the period covered by the Contract and there being no assured minimum purchase quantity, the Rate Contract holders do not have any incentive to quote rates competitively. 8.14 Rate Contracts being essentially a mechanism of fixing prices for a specified period with no assurance of firm orders for the Rate Contract holders, there is no incentive for competitive bidding of rates which only results in lowering the Rate Contract Rates for all without any consequential benefits in the form of assured orders. The above scenario is thus conducive for collusive bidding." [Emphasis supplied] 13. The DG then referred to the rates quoted in response to the four Tender Enquiries dated 16.04.2008 (Rate Contract period from 01.09.2008 to 31.08.2009), 30.07.2009 (Rate Contract period from 01.09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered, too are different. Even with respect to the specific product, the installed capacity of the OPs ranges from 48,000 pairs per annum to 2,40,000 pairs per annum. Further, these OPs are also located in different geographical regions. 8.32 During the record of statements the OPs had informed that raw material cost was a major component of the total cost of the product and that Rubber and Latex constitute a substantial cost component in the total cost of the raw materials. It has been observed that the rates of Rubber and Latex are prone to significant fluctuations over a given period of time as per the data of prices posted on the website of Rubber Board. As such identical/near identical estimation of average cost of raw materials (including cost of a major raw material whose prices are subject to significant fluctuations) over the Rate Contract period by different OPs is improbable. 8.33 Considering all the aforementioned factors, it is concluded that the cost of production and sales of all the OPs for the product could not be so similar as to result in identical/near identical prices quoted by them. 8.34 During the course of investigation, details of cost of production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .44 During recording of statement in case of M/s. H.B. Rubber Pvt. Ltd., it was asked whether the company or its Directors discussed or shared information regarding prices, market etc. or had dealings with its competitors. The relevant extract of the statement is reproduced below: Q.8 Who are your main competitors for this product? Ans. The parallel R.C. holders are our competitors. Q.9. Does the company or its Directors discuss or share information regarding prices, market etc. or have dealings with these competitors? Ans. No, we do not share information regarding prices, market etc. nor have any dealings/meetings with these competitors. 8.45 However, it has been observed that two of the directors on the board of M/s. H.B. Rubber Pvt. Ltd. are sons of two directors on the board of M/s. M.B. Rubber Pvt. Ltd. Further, as per the audited Annual Accounts submitted by these OPs for the year ended 31.03.2011, not only are there financial transactions in the Annual Accounts of these companies with respect to the Directors/their relatives. M/s. H.B. Rubber Pvt. Ltd. has been shown as an Associated Company of M/s. M.B. Rubber Pvt. Ltd. and there are Sales & Purchase transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween competitors which has consistently been denied by the OPs, it has been observed during examination of various documents submitted by the OPs that against the Notices sent to them, one of the OPs, namely M/s. Preet Enterprises, had submitted copies of certain documents being Performance Statements pertaining to other OPs, namely, M/s. Shiva Rubber Industries, M/s. R.S. Industries, M/s. S.S. Rubber, M/s. Puja Enterprises, M/s. MKU Private Limited (Group company of M/s. A.R. Polymers Pvt. Ltd., one of the OPs), M/s. M.B. Rubber Pvt. Ltd. and M/s. Derpa Industrial Polymer Pvt. Ltd. It may be mentioned that Performance Statements contain details of total value of orders received, value of orders due to supply by the cut of date, value of orders supplied upto cut of date etc. pertaining to the party concerned and forms part of the bid documents submitted by the bidders. The competitors are thus not privy to the information contained in the Performance Statement being specific to the party concerned unless shared between the competitors. 8.49 In view of the above, explanation in the matter was sought from the firm during the recording of statement and response to the queries was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounter offers, if required, are made to the bidders. As such, the Reasonable Rates are in the nature of benchmark defining the upper limit of rates. In the event of rates being received by DGS&D below the Reasonable/Ceiling Rates, no counter offer is resorted to and Rate Contracts can be concluded at rates below the Reasonable/Ceiling Rates. The OPs being well conversant with the DGS&D methodology quote identical/near identical in collusion and not competitively since in the event of lower rates being quoted by the bidders which may be below the Reasonable/Ceiling Rates worked by DGS&D, the implication of the same would be lowering of the Rate Contract rates for all the bidders. As such, the OPs indirectly determine the prices since in a situation where quoted rates are higher than the Reasonable/Ceiling Rates, DGS&D is constrained to counter offer the Ceiling Rates which are not the best rates/competitive rates and defeat the substantiated by the fact that with respect to the rates quoted by them against the Tender enquiry of DGS&D dated 14.06.2011 for the RC period 01.12.2011 to 30.11.2012, all the OPs subsequently accepted the reduced counter offered rates of DGS&D, being the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng quantity restrictions, clarification in the matter was sought from DGS&D. In this respect DGS&D has vide its letter dated 20.12.2012 clarified that the assessed capacities of different footwear items as per the Registration Certificates are standalone capacities individually assessed for each footwear item. As such, the above contention of the OPs is also not tenable. Copy of the reply of DGS&D dated 26.12.2012 is enclosed at Annexure-65. 8.65 Investigation has revealed that imposition of quantity restrictions by the OPs with the exception of M/s. R.S. Industries had commenced only from the RC period 2010-11 and that no such restrictions were being imposed during earlier RC periods. As such, it is evident that unless taken in collusion, the decision of the OPs to impose quantity restrictions that too simultaneously from the RC period 2010-11 would have been based on factors prevailing during earlier RC periods of 2008-09 & 2009-10. Quantity Restrictions vis a vis Supply Orders 8.66 Investigation has, gathered details of the Supply Orders placed by DDO's upon various RC holders when no restrictions had been stipulated as per following details: Supply orders for RC per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariations. 8.73 The figures indicate that the demand for the product during the last few years has remained static and is much lower than the total installed capacity of the various manufacturers. The demand having remained static at levels much below the total installed capacity and some of the OPs being unable to get adequate Supply Orders, have under an agreement/arrangement with a view to equitably distribute the total demand amongst themselves, imposed total quantity restrictions as well as restrictions per DDO." 17. The DG also took cognisance of the meeting held on 13.03.2009 under the aegis of the Federation of Industries of India and held that the discussion made in the meetings is indicative of an agreement amongst the competitors to share the market. 18. On Issue No. 4, the DG returned a negative finding by observing that the appellants are not at different stages or levels of production chain and as such, they cannot be held guilty of acting in violation of Section 3(4) of the Act. 19. In the last part of his report, the DG analysed the provisions of Section 3 of the Act and recorded the following observations: "9.3 All the OPs in the instant case are D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct amongst themselves under an agreement/arrangement and by bid rigging thereby contravening the provisions of Section 3(1) with Sections 3(3)(b) and 3(3)(d) of the Act." 20. The report of the DG was considered by the Commission in its ordinary meeting held on 09.01.2013 and it was decided that copies thereof be forwarded to the informant i.e. DGS&D and the Opposite Parties (Appellants herein) to enable them to file their replies/objections. 21. The appellants filed separate detailed replies to controvert the findings recorded by the DG. They generally pleaded that the findings recorded by the DG on the issue of bid-rigging/collusive bidding/cartelisation are based on pure assumptions and conjectures and no evidence was available to prove the allegation of collusive bidding or cartelisation. The appellants also justified quoting identical or near identical price for the product i.e. Jungle Boots by making the following assertions: "a) The specification of the product was prescribed by the DGS&D and all the manufacturers were to comply with the same. b) The quality and quantity of the raw materials used in manufacturing the Jungle Boots were the same. c) The time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby it approved the findings and conclusions recorded by the DG and imposed penalty on the appellants under Section 27(b) @5% of the average of the turnover for the last three preceding financial years. 25. In paragraphs 21 and 22, the Commission noted the facts relating to the reference made by the DGS&D, the rates quoted by the appellants and observed: "23. From the above, it is noticed that each of the opposite parties had quoted six rates depending upon the colour/print and the size slab of the product. Within each category, the bidders quoted almost similar rates with a price differential in rates in the range of only about 1%. The DG also examined the quotations given by the bidders including the opposite parties herein against the previous tender floated by DGS&D for the product for the relevant Rate Contract period (01.09.2010 to 31.08.2011) and observed that within each category the bidders quoted near identical rates and the variation in the rates was in the range of 1%. The rates quoted by the opposite parties for the RC period 01.09.2009 to 31.08.2010 were also found exactly identical for each category with a price differential of only one paisa in two of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40,000 pairs per annum. Moreover, these opposite parties are also located in different geographical regions. 29. The Commission also agrees with the conclusion of the DG that the raw material cost was a major component of the total cost of the product and that Rubber and Latex constitute a substantial cost component in the total cost of the raw materials. As observed by the DG the rates of Rubber and Latex were prone to significant fluctuations over a given period of time as per the data of prices posted on the website of Rubber Board and, as such, identical/near identical estimation of average cost of raw materials (including cost of a major raw material whose prices are subject to significant fluctuations) over the Rate Contract period by different opposite parties is improbable. In such a situation, it is difficult to accede to the explanation and justification advanced by the opposite parties that since raw material and other costs for all the manufacturers were more or less same, their quoted prices were also almost same. 30. Moreover, from the DG report, it is apparent that the approximate profit component/margins of the opposite parties varied from 2% to 15%. In such a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the past been members of a trade federation viz. Federation of Industries of India (FII), Delhi. Some of the opposite parties, in their statements before the DG, maintained that the Federation did not provide a common platform for its members and that various issues were taken up by the members, as and when they arose, on an individual basis and not collectively. The DG, however, observed that a meeting of the opposite parties (members as well as non-members) had in the past been convened by FII on 20.10.2009 at PSK, Laxmi Nagar, District Centre, Delhi for eliciting views regarding various problems to be discussed with DG S&D in its forthcoming meeting. Without delving into the rival submissions on this aspect, the Commission observes that the opposite parties did avail a platform under the Trade Federation to hold meetings. 34. Before concluding discussion on this aspect, it is pertinent to note that one of the opposite parties viz. M/s. Preet Enterprises had submitted copies of certain documents being Performance Statements pertaining to other opposite parties viz. M/s. Shiva Rubber Industries, M/s. R.S. Industries, M/s. S.S. Rubber, M/s. Puja Enterprises, M/s. MKU Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Enquiry dated 14.06.2011 vis-à-vis their installed capacities for the product as per DG S&D Registration Certificates were as under: 39. It is evident that nine opposite parties had restricted their total quantity for the RC period to 50000 pairs and the remaining two had restricted the same to 100000 and 150000 pairs respectively for the Rate Contract period 01.12.2011 to 30.11.2012. Further, six opposite parties had restricted their commitment per DDO to 10000 pairs, two opposite parties to 20000 pairs and one opposite party to 30000 pairs. 40. From DG S&D Registration Certificates, it was noted by the DG that the total installed capacity of all the opposite parties for the product in question is 15,72,000 pairs per annum whereas the opposite parties had restricted their total quantity to 7,00,000 pairs against the tender under reference. 41. The opposite parties could not give any valid justification in support of imposing quantitative restrictions. In fact, as noted by the DG, the opposite parties had started imposing quantity restrictions only from the Rate Contract period 2010-11 and no such restrictions were imposed by any of the RC holders during earlier y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the opposite parties could explain as to how the said conduct did not foreclose competition." 27. The Commission distinguished the judgement of the Supreme Court in Union of India v. Hindustan Development Corporation (1993) 3 SCC 499 relied upon by the appellants by observing that apart from conscious price parallelism, there is overwhelming circumstantial evidence to infer the anti-competitive nature of the impugned actions. 28. As a sequel to its finding that the appellants have contravened the provisions of Section 3(1) read with Section 3(3)(a) and 3(3)(d) of the Act, the Commission imposed penalty on each of the appellants @ 5% of their average turnover. The quantum of the penalty imposed on each of the appellants is indicated in the following chart: # M/s. S.S. Rubbers expressed its inability to furnish details of actual production and sales turnover for the previous years and a copy of its annual accounts for the year 2008-09. The said opposite party informed the DG that its building and most of its records/documents were destroyed in a fire accident in February, 2011. Hence, the penalty for M/s. S.S. Rubbers was calculated on the basis of its turnover details av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information by the appellants is ex facie perverse and is liable to be ignored. They pointed out that the statistics supplied by M/s. Preet Footwears (Appellant in Appeal No. 39/2013) to the DG were nothing but copies of the consolidated performance statements dated 17.08.2006, 07.09.2007 and 01.08.2008 in respect of the Rate Contracts executed in 2006-07, 2007-08 and 2008-09 and they were very much available in public domain on the website of the DGS&D and any bidder could download the same for the purpose of bidding in the subsequent Tender Enquires. Learned counsel submitted that the performance statements contained only the total value of the order received and the quantity supplied by each of the vendors in the past and the same was of no use for submitting the bids in future and, in any case, the data relating to the Rate Contracts executed prior to 2010 was of no use for fixing the rate/quantities to be offered in response to the Tender Enquiry issued in 2011. 30. Another argument advanced by the learned counsel for the appellants is that the Commission committed grave illegality by holding the appellants guilty on the ground that they had imposed quantity restrictions. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harma submitted that the appellants had deliberately quoted identical or near identical price for Jungle Boots with a view to compel the DGS&D to execute Rate contracts with them at a higher price resulting in loss to the public exchequer. He laid considerable emphasis on the plus-factors relied upon by the Commission for holding that the appellants had violated Section 3(1) read with Sections 3(3)(a) and 3(3)(d) of the Act and argued that the explanation given by the appellants for sharing the information regarding bids and quantity restriction are illusory and the same should not be made basis for upsetting the well-reasoned order passed by the Commission. Shri Sharma also defended the principal adopted by the Commission for computation of penalty and argued that the word 'turnover' appearing in Section 27(b) of the Act cannot be construed narrowly so as to restrict it to the relevant product i.e. the Jungle Boots. 33. I have considered the respective arguments and carefully scrutinized the entire record. I have also gone through the written submissions filed by some of the appellants and the respondents. 34. The question whether identical or near identical price quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Authorities also decided that the price should be reduced and a counter offer be given to the three bidders to supply bogies @ ₹ 65,000/- per bogie and to nine other manufacturers to supply bogies @ ₹ 76,000/- per bogie. M/s. H.D.C. and Mukand filed writ petitions in the Delhi High Court to challenge the counter offer. The High Court passed the interim order and directed the Railways to accept the allocation of bogies recommended by the Tender Committee and pay the price @ ₹ 67,000/- per bogie subject to the final decision. In the Special Leave Petition filed against the order of the High Court, the Supreme Court modified the interlocutory order. At the final hearing, learned counsel for Union of India reiterated the views of the Tender Committee, three senior officers and the Minister that M/s. H.D.C., Mukand and Bhartiya had formed a cartel and argued that it was not obligatory for Railways to place order for supply of bogies at the rate quoted by them. He also justified the allotment of bogies to other manufacturers by contending that this was in consonance with Article 14 of the Constitution of India. The counsel appearing for M/s. H.D.C., Mukand and B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. H.D.C., Mukand and Bhartiya that no departure from the recommendations of the Tender committee is permissible in the absence of any established policy which was also known by the tenderers. From the records it appears that in the past also there have been such variations. In our view, the Minister of Railways as the final authority, after considering various relevant factors, may be justified in taking a particular decision in the matter of allotment of quota but such decision must be taken on objective basis. But, in this case. It appears to us that all the smaller manufacturers deserving a favourable treatment in the matter of allotment of quota, have not been equally treated in the sense that one or, two of them got larger quantities. Though this does not appear to be a serious departure, yet in these matters the Government is expected to be just and fair to one and all. We hope that in future the authorities would make a proper consideration of the relevant factors in respect of each tenderer in an objective manner in allotting the quantities." [Emphasis supplied] The reasons in support of the aforesaid conclusions were recorded on various aspects of the case inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isprudence 2d Vol. 54, page 677 it is mentioned thus: "A cartel is an association by agreement of companies or sections of companies having common interests, designed to prevent extreme or unfair competition and to allocate markets, and perhaps also to exchange scientific or technical knowledge or patent rights and to standardize products, with competition regulated but not eliminated by substituting competition in quality, efficiency, and service for price-cutting. An international cartel arrangement providing for a worldwide division of a market has been held a per se violation of 15 USC S 1. An American corporation violates the Sherman Act by entering into agreements with English and French companies to (1) allocate world trade territories among themselves; (2) fix prices on products of one sold in the territory of the others; (3) cooperate to protect each other's markets and eliminate outside competition; and (4) participate in cartels to restrict imports to and exports from the United States." In A Dictionary of Modern Legal Usage by Bryan A. Garner, it is noted thus: "cartelize - to organize into a cartel. See -IZE. Yet cartel has three quite differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the United States District Court alleging that these competitors had violated Sections 1 and 2 of the Sherman Act and other federal statutes. It was alleged that the Japanese companies had conspired since 1950 to drive domestic firms from the American market, by maintaining artificially high prices for these products in Japan while selling them at a loss in the United States. The District Court after excluding bulk of evidence, finally granted the Japanese companies' motion for summary judgment dismissing the claims. The United States Court of Appeal reversed and remanded for further proceedings. On a certiorari, the United States Supreme Court while considering the standards supplied by the Court of Appeals in evaluating the summary judgment, observed thus: "To survive petitioners' motion for summary judgment, respondents must establish that there is a genuine issue of material (475 US 586) fact as to whether petitioners entered into an illegal conspiracy that caused respondents to suffer a cognizable injury." It was further observed that: "A predatory pricing conspiracy is by nature speculative. Any agreement to price below the competitive level requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not have harmed respondents." Therefore mere offering of a lower price by itself, though appears to be predatory, cannot be a factor for inferring formation of a cartel unless an agreement amounting to conspiracy is also proved. (emphasis supplied) A mere offer of a lower price by itself does not manifest the requisite intent to gain monopoly and in the absence of a specific agreement by way of a concerted action suggesting conspiracy, the formation of a cartel among the producers who offered such lower price cannot readily be inferred..... ......... In the instant case, initially the Tender Committee formed the opinion that the three big manufacturers formed a cartel on the ground that the price initially quoted by them was identical and was only a cartel price. This, in our view, was only a suspicion which of course got strengthened by post-tender attitude of the said manufacturers who quoted a much lesser price. As noticed above it cannot positively be concluded on the basis of these two circumstances alone. In the past these three big manufacturers also offered their own quotations and they were allotted quantities on the basis of the existing practice. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 2, who complained of cartel formation, had placed order on FTRTIL to supply 34 more feed-valves @ ₹ 12,855.47 in addition to the purchase order dated 11.11.2011 and, at the same time, had entered into negotiation with SIL and ultimately placed order for 67 feed-valves @ ₹ 16499.99. This was indicative of faulty procurement system adopted by the Railways resulting in financial loss. (h) The three bidders had quoted identical price by manipulating the figures in as much as EL, Faridabad quoted base price of ₹ 17147.54. The other two bidders quoted ₹ 14534.52 (FTRTIL, Hosur) and ₹ 14,674.28 (SIL, Kolkata) as base price and added the elements of Excise Duty, Cess on Excise Duty and Central Sales Tax to make the final price as ₹ 17,147.54. (i) The assertion of the appellants that their price was based on the price quoted in previous purchase orders was not correct." 20. The Commission approved the findings and conclusions recorded by the DG primarily on the basis of identical price quoted by the appellants by observing that this could not have been possible because their production units are situated in three different states. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price quoted by the appellants is also evident from the statement furnished by the learned counsel for Respondent No. 2. Therefore, it must be held that both the DG and the Commission committed grave error by relying upon the so-called past conduct of the appellants in quoting identical price as a plus-factor for arriving at a conclusion that they had formed a cartel. 23. The calculation made by the DG and the Commission on the price formula indicated in the offer of SIL is also erroneous because the DG proceeded on an erroneous assumption that the rate of Central Sales Tax was 5% whereas, in fact, it was 4%. The DG and the Commission also committed an error in presuming that the appellants had quoted high price to maximize the profit, ignoring that the rate of Excise Duty had been increased by the Government." 36. The special features of the cases in hand reveal the following important facts: "(i) the Jungle Boots are required to be manufactured strictly as per the specifications prescribed by the DGS&D; (ii) the Jungle Boots are not readily marketable and the same are supplied to Paramilitary Forces, State Police, Railways etc. on the basis of the Rate Contacts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the terms, 'cartel', 'enterprise', 'goods', 'relevant market', 'relevant geographic market', 'relevant product market', 'service', 'trade' and 'turnover' contained in Section 2 (c), (h), (i), (r), (s), (t), (u), (x) and (y) and the provisions of Sections 3, 4 and 27 of the Act, the Tribunal referred to well-recognised rules of interpretation, some judicial precedents and held that 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. Paragraphs 14 to 30 of order dated 01.03.2016, which have direct bearing on the appellants' challenge to the quantum of penalty in the present appeals, are reproduced below: "14. One of the well-recognized rules of interpretation of statutes is the rule of contextual interpretation. This rule requires that the Court should examine every word of a statute in its context. In doing so, the Court has to keep in view preamble of the statute, other provisions thereof, pari materia statutes, if any, and the mischief intended to be remedied. Context often ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the Court construed the expression 'prize chit' in Srinivasa (1980) 4 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and analysis of all relevant statistics on the subject and formulate a policy, which will combine industrialization with social justice and economic development with dispersal of economic power. In April 1964, the Government of India appointed a five-member Monopolies Inquiry Commission. The Commission submitted report dated 31.10.1965, some of the salient features of which were: (i) Industrywise or productwise concentration existed in so far as a limited number of producers had a comparatively large share of the market. In 65 out of 100 selected products, a high degree of concentration existed in the sense that the share of the top producers was more than 75 per cent of the total production. (ii) As regards countrywise concentration (overall size being the consideration), the total paid-up capital and assets of the companies belonging to 75 business groups, each with assets of not less than ₹ 5 crores, accounted for about 44% and 47%, respectively, of the total paid-up capital and total assets of the companies in the corporate sector. (iii) There were instances where some of these monopoly houses attempted to keep out fresh competitors in various ways. (iv) There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r focus from curbing monopolies to promoting competition. 2. The Central Government constituted a High Level Committee on Competition Policy and Law. The Committee submitted its report on the 22nd May, 2000 to the Central Government. The Central Government consulted all concerned including the trade and industry associations and the general public decided to enact a law on Competition. 3. The Competition Bill, 2001 seeks to ensure fair competition in India by prohibiting trade practices, which cause appreciable adverse effect on competition in markets within India and, for this purpose, provides for the establishment of a quasi-judicial body to be called the Competition Commission of India (hereinafter referred to as CCI) which shall also undertake competition advocacy for creating awareness and imparting training on competition issues. 4. The Bill also aims at curbing negative aspects of competition through the medium of CCI. CCI will have a Principal Bench and Additional Benches and will also have one or more Merger Benches. It will look into violations of the Act, a task which could be undertaken by the Commission based on its own knowledge or information or complaints rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto." 19. Keeping in view the rule of contextual interpretation and the background in which the Act was enacted as also the objectives sought to be achieved by it, we shall now analyse the provisions extracted hereinabove. The term 'cartel' as defined in Section 2(c) includes an association of producers, sellers, distributors traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services. The term 'enterprise' as defined in Section 2(h) means a person [this term has an inclusive definition in Section 2(l)] or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or provision of services, which, directly or indirectly, determines purchase or sale prices, limits or controls production, supply, markets, technical development, investment or provision of services etc. shall be presumed to have an appreciable adverse effect on competition. Proviso to this section contains an exception which includes the agreement which increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Sub-section (4) deals with tie-in arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to deal, resale price maintenance and declares that any agreement among the enterprises or persons at different stages or levels of production chain in different markets in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of services shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. Section 4 (1) declares that no enterprise or group shall abuse its dominant position. Sub-section (2) of Section 4 lays down that there shall be an abuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion is required to give an opportunity to the informant and also the enterprise(s)/person(s) investigated by the DG to file reply/objections and then pass an appropriate orders. The Commission may approve the finding recorded by the investigating officer but that exercise will also have to be restricted to the particular product, goods or service qua which the allegation of violation of Section 3 and/or Section 4 is made and which is subjected to an investigation. Therefore, the term 'turnover' used in Section 27(b) and its proviso will necessarily relate to the goods, products or services qua which finding of violation of Section 3 and/or Section 4 is recorded and while imposing penalty, the Commission cannot take average of the turnover of the last three preceding financial years in respect of other products, goods or services of an enterprise or associations of enterprises or a person or associations of persons. The definition of the term 'turnover' which includes value of sale of goods or services will necessarily mean the value of goods or services which are made subject-matter of investigation under Section 26 and order of punishment under Section 27. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of that order, which have bearing on these cases, are extracted below: "60. The arguments put forward by Shri Ravinder Narain, Shri Ramji Srinivasan as also by Dr. V.K. Aggarwal are more or the less correct when they point out the total absence of reasons as to why the CCI decided to inflict the penalty @ 9% of the average turn over. Time and again we have been reiterating the necessity of the reasons while ordering the penalty. We hope that the CCI take serious note of that factor. This is particularly true as the CCI is an adjudicatory body as declared by two Supreme Court judgments. The role as an adjudicatory body would cover all the aspects of hearing and deciding. 61. There can be no dispute that where harsh financial penalties are inflicted the reasons become all the more necessary. 62. All the learned counsels very seriously canvassed the question of "relevant turn over". The argument that the appellants, United Phosphorous Ltd. and M/s. Excel Crop Limited, are the multi product companies was not seriously disputed by Shri Balaji Subramanian, learned counsel for the CCI. We have no reason not to accept that factor. As regards the arguments based on EU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided on 18.12.2015, the Tribunal considered whether average of the total turnover of the appellant for the last three preceding financial years could be taken into consideration for the purpose of imposing penalty under Section 27(b) on the ground of violation of Section 3(1) in respect of one service i.e. stem cell banking by ignoring that the appellant was a multi-speciality hospital and was providing various services including stem cell banking. After noticing the relevant facts and statutory provisions, the Tribunal observed: "(ii) It is not in dispute that the appellant is a multi-speciality hospital and its total annual turnover is the income derived from the services provided in different specialities and not maternity services alone. The figures provided by the appellant (paragraph 47 of the written submissions filed on 20.03.2015) show that the total commission earned by the appellant from Cryobanks was ₹ 85,45,567/- from September, 2011 to August, 2012 and September, 2012 to August, 2013. The total maternity revenue generated from maternity patients who availed Cryobanks' services during the aforesaid period from 2011 to 2013 was ₹ 3,96,76,307/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been providing multiple healthcare services, maternity service being one of them and stem cell banking which is being provided by a third party (Cryobanks), can at best be considered as a small part of the maternity services provided to those who are desirous of availing such services. Therefore, even if the finding of the majority of the Commission that the agreement entered into between the appellant and Cryobanks is violative of Section 3(1) of the Act is to be upheld, the turnover of the appellant with reference to stem cell banking services only could be taken into consideration for the purpose of imposing penalty and not the turnover with reference to other services or income derived from other sources." 27. The issue deserved to be considered from another angle. Proviso to Section 27(b) (unamended) was couched in a language, which made it mandatory for the Commission to impose on each producer, seller, distributor, trader or service provider included in a cartel, a penalty equivalent to three times of the amount of profits made out of such agreement by the cartel or 10% of the average of the turnover of the cartel for the last preceding three financial years, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this court, inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective." [Emphasis supplied] 29. In Hindustan Steel Ltd. v. State of Orissa [1970] SC 253, the Supreme Court made the following observations on the issue of imposing penalty: "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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