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2015 (12) TMI 1773

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..... re monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. The observation made by the Commission that the appellants had adopted a strategy which involved supplementary/complementary bidding by EL and FTRTIL is based on pure conjectures and is liable to be rejected because before making this observation, the Commission did not give any opportunity to the two appellants to have their say. Similarly, the observation made by the Commission that the Tender Committee committed an illegality in overlooking the bids of EL and FTRTIL is ex facie erroneous. Once the competent authority had laid down particular conditions required to be fulfilled by the tenderer and the two of the three tenderers failed to comply with the same, the Tender Committee and Respondent No. 2 cannot be said to have committed any illegality by not acting upon their tenders. The Tender Committee could have recommended for fr .....

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..... short, 'the Act') alleging formation of cartel by the appellants for the purpose of jacking up the price of feed valves. The Competition Commission of India (for short, 'the Commission') prima facie felt satisfied that the allegations levelled by Respondent No. 2 need investigation and passed order dated 30.12.2012 under Section 26(1) of the Act and directed the Director General (for short, 'the DG') to cause an investigation into the matter. 3. In compliance of the direction given by the Commission, the DG issued notices under Section 36(2) read with Section 41(2) of the Act and called upon the appellants to provide specified information and documents. Each of the appellants furnished the required information and documents. 4. In the course of investigation, the DG took cognizance of the previous supplies of feed valves made by the appellants, only who have been approved by the RDSO, to various zonal Railways, the price paid by the concerned Railways, statements of representatives of the appellants and Respondent No. 2. After completing the investigation, the DG submitted report dated 28.02.2013 with the finding that the appellants are engaged in anti-com .....

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..... in the evaluation made by the tender committee for its tender No. 201320510 in Para 5 of the minutes the issue of identical bid has been discussed along with the tabulation statement. The bid of Escorts Limited Faridabad which have quoted @ ₹ 17,147.54 each inclusive of ED and CST inclusive @ of 5.25% on FOR has been rejected on the plea the firm has not submitted the cost of the tender document in terms of condition No. 10 of tender (SN-19) the offer without tender document cost are liable to be rejected. The bid of the FTIL has not been considered by the DLMW Patiala on the plea that the firm (FTIL) has not accepted the warranty clause as per the IRS condition of contract as well as has also not accepted standard payment terms of the Railways therefore the tender committee has considered their bid commercially unsuitable. 5.14 The bid offer of Stone India Limited has also been considered by the tender committee and it considered their offer suitable for placement of regular order and therefore, called for negotiation by the tender committee as per the minutes dated 13.6.2012 wherein decision has been taken by them to place an order on Stone India Limited for supply 117 f .....

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..... Stone India Limited have been given Purchase Order but till this date they have not supplied Feed Valves to the DLMW, Patiala. xxx xxx 7.2 The investigation has examined into following question in this case : (I) Whether there are conditions in the tendering process which are considered to be conducive for collusion. (II) Whether the identical/near identical prices quoted by the OPs against the e-tender No. 201320510 dated 14.3.2012 was a result of collusion amongst the OPs and whether there are any direct or indirect evidences in support of an agreement, formal or informal between OPs for bid rigging. Issue I : Assessment of conditions considered to be conducive for collusive bidding. 7.3 Certain conditions have generally been considered as conducive for collusive action by competitors. Investigation has assessed the prevalence of such conditions, if any, specifically with respect to the matter under investigation. Bid rigging is more likely to occur when a small number of companies supply the goods or services and such suppliers are repetitive bidders. The fewer the number of sellers, and the repetitive the bidding, the conditions become more conducive for bidders to .....

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..... uestion distinct it cannot be considered substitutable with any other product. As such the product being the same, the probabilities of bidders reaching an agreement on a common price structure are high. In addition to the above conditions, investigation has revealed that the system of awarding the contract by the Railways is conducive for collusive bidding. 7.8 In the present case, the product in question is same for all bidders and since the specifications and installed capacity has been approved by the RDSO for feed valves, and cannot be considered substitutable therefore, the product being the same; the probabilities of reaching in agreement on a common price are high. Based on the above it is observed that the conditions prevailing with respect to the product in question and its market are conducive for the OPs to reach an agreement for forming of cartel and/or bid rigging. 7.9 In this case the RDSO has approved only three vendors to make supply of feed valves for the demand of all Zonal Railways. It has also fixed their installed capacity. The installed capacity is much higher than the demand raised by all Zonal Offices of the Railways. It is pertinent here that the RDSO .....

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..... ernment has been put to loss by paving higher price to the SIL whereas FTIL or other vendors would have been called for similar negotiation to reduce the price of feed valves. Apart from the losses being occurred process of tender has direct impact on consumer that the Railway imposed a burden on the public at large therefore, the faulty tender process not only affect the competition but equally brings adverse effect on the consumers. 7.13 Based on the above analysis, it has been concluded that the conditions prevailing with respect to the product, its market etc. are conducive for the OPs to reach an agreement for bid-rigging and mutual allocation of market. ISSUE 2 - Whether the identical prices quoted by the OPs against the e-tender No. 201320510 dated 14.3.2012 was a result of collusion amongst the OPs and whether there are any direct or indirect evidences in support of an agreement, formal or informal between OPs for bid rigging. ANALYSIS OF THE IDENTICAL BIDS 7.14 Information of the electronic bid submitted by the opposite parties was called from the IP. The working of the e-tender submitted by the OPs to Diesel Loco Modernization Works, Patiala is given as under :- .....

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..... It has been alleged in the complaint that you have quoted a price of ₹ 17,147.54 for the supply f feed-valves to DMW and your other competitors have also quoted the identical price as such you have formed a cartel while submitting the bid. Please explain the justification and reasoning for quoting the above price. Ans. At the outset, SIL denies the allegation for forming any cartel for this alleged tender. Since there are various factors in quoting a particular price as stated above. Besides above facts, railway requires the vendor to give proper justification for the price bid quoted by it and the last purchase made by any of its zonal railways for the same product and, as such, SIL has quoted the above said price by taking a reliance on the purchase order No. 02113747134601/E-2477 dated 8-11-2011 issued by COS, East Coast Railway, as well as PO No. 261115691 04660 dated 18-1-2012 issued by COS, Southern Railway. As alleged in the complaint, wherever there are such instances of identical prices have been quoted by the vendors for supply of different items, Railways used to call the references from other zonal office as well as enter into negotiations with all the vendors .....

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..... s install capacity is 900 No. of feed valve per annum and till August 2012, it has only supplied 488 feed valves to the different zones of Railways. The breakup cost of the feed valve of FTIL is ₹ 12,147 of FTI feed valve. It is further been claimed that FTIL have quoted the basic price of ₹ 14,534.52 for the tenders submitted by it to the different Zonal Office of the Railway including Northern Eastern Railway, Southern Railway, Northern Railway, Central Railway etc. as per the statement submitted by the company in their reply. Form Serial No. 37 to 49 these tender were opened from the period January 2012 to June 2012 whereas the company have quoted the basic price of ₹ 12,628.57 for the tender opened on 20.6.2012 by the Southern Railway, ₹ 14,534.52 tender opened on 12.7.2012 and ₹ 12,000 tender opened on 25.7.2012 for Southern Central Railway. 7.18 Further, in their statement FTIL has stated that :- Q.6 Why you have been called for negotiation for the alleged tender No. 201320510 for supply of 151 feed valves ? Ans. Neither we have been called for negotiation nor received any communication from DMW, Patiala for the alleged tender. Under IRS te .....

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..... t does not have any bearing on the result as the tabulation is done based on the ranking of the all inclusive price, sometimes we derive certain mileage in case the statutory levies go up during the pendency of the tender giving us an opportunity to absorb the increase in the statutory levies as an additional discount. Q. No. 6. It has been alleged in the complaint that you have quoted a price of ₹ 17,147.54 for the supply of feed-valves to DMW and your other competitors have also quoted the identical price as such you have formed a cartel while submitting the bid. Please explain the justification and reasoning for quoting the above price. Ans. The price of ₹ 17,147.54 translates to basic rate of ₹ 14,500 based on the 12.36% of ED and 5.25% CST and this basic rate of 14,500 had been quoted by us during four earlier occasions also as per the following details : SWR Tender No. 11111398 dated 05.10.2011 i) WCR Tender No. 10112237 dated 15.12.2011 ii) CR Tender No. 47115146 dated 13.01.2012 iii) WCR Tender No. 10115119 dated 11.04.2012 These rates had enabled us to emerge as lowest bidder and this was relied upon by us to quote the same basic rate of  .....

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..... er was increased by 30% as per the quantity option clause available in the previous year purchase order (PO). Therefore, the procurable quantity came down to 151-34 = 117 Nos. feed valves. In the aforesaid tender since the prices quoted by the all the three RDSO approved vendors were found to be identical i.e. ₹ 17,147.54 all inclusive therefore, administrative action has been purposed by the tender committee against formation of cartel by quoting the identical price. The tender committee purposed to make reference to RDSO as well as to CCI New Delhi. No, the entire procurable quantity was not ordered on any single vendor. Q. No. 6 Please intimate whether Stone India Limited who has been awarded contract for supply of 67 feed valves has supplied the quantity and what is their last date of fulfilling the PO ? Ans. As per the delivery schedule of the PO placed on Stone India the supply of entire quantity of 67 No has to be made in the month of March 2013. Q. No. 7 Who has been awarded the contract and on what rate in spite of forming a cartel as alleged by you or whether these alleged tender has been scrapped by you, if no why ? Ans. The contract was awarded to M/s. S .....

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..... ion of cartel by the Stone India & Others ? Ans. Since we can not anticipate the timing that is required for delivering the decision by CCI or RDSO and the routine work of the Department cannot be kept in abeyance therefore, a decision was made to go ahead for procurement as there was also no other alternate source other than the approved vendors. 7.21 The issue of identical bids submitted by the bidders was analysed on the basis of the statement given by OPs as well as the IP in this case. The arguments offered by the venders that the bid was based on their last purchase orders received from them was examined in depth. It is noted that the e-bid in question was uploaded on their website on 14.3.2012 and it closed on 27.4.2012. All these bidders had submitted their electronic bids on 26.04.2012. AS far as the claim made by M/s. Faiveley that their bid was based on their last purchase order dated 18.1.2012 goes, it is found that the said party had adopted the basic price at ₹ 14534.52 of that purchase order to bid at a price of ₹ 17147.54 inclusive of all taxes. However, the claim made by SIL that its bid price were based on the basic price of ₹ 14674.28 of the .....

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..... levant to mention here that the bidders in the present bid had raised the price of unit by 33% from the last purchase order made by Diesel Loco Modernisation Works, Patiala. The observations of the technical tender committee are reproduced below: 6.1 "Tender Committee noted that last regular purchase of the item has been made from M/s. Faiveley Transport India Limited, Hosur vide PO No. 761206 dated 11.11.2011 at an all inclusive rate of ₹ 12,855.47 each. The all inclusive rate of ₹ 17,147.54 received now from all the RDSO approved firms are 33% higher than last purchase rates of six months old PO. Although M/s. Stone India Limited in support of their rate justification have attached copies of two PO's for the tendered item placed on them by EC Rly and S. Rly. (SN/47-49) at the rates at which they have quoted in this tender but considering the cartel formation in this case and 33% increase in prices, TC recommends to have one round of negotiation with M/s. Stone India Limited, Kolkata to make an effort to achieve reduction in rates. 6.2 TC discussed that all the three RDSO approved sources have quoted equal rates which indicates clear carrel formation on th .....

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..... bsorbers and telescopic font forks etc. for various industries across India and outside India. 4. xx xx xx xx II. Relevant Facts 5. xx xx xx xx 6. xx xx xx xx 7. Escorts had received a notice dated November 8, 2012 under Section 36(2) read with Section 41 of the Competition Act from the office of the Director General. In response to the said notice, Escorts had provided the requested information to the office of the Director General pursuant to a submission dated December 26, 2012. The information provided in the submission included : (a) information in relation to 'feed valve'; (b) brief overview about Escorts; (c Annual Report for 2010-11; (d) chart outlining the shareholding pattern as on September 30, 2011; (e) process of inviting tender by the Indian Railways, Patiala and their methodology for awarding tender; (f) process of enrolment as suppliers by Research Design and Standards Organisations (RDSO) and approval granted by RDSO; (g) cost break up of components of manufacture of feed valves; (h) details in relation to the tenders awarded to and the quantity supplied by Escorts in the period 2009 - 10, 2010 -11 (and upto July 31, 2012). 8. The office of the .....

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..... quoted rates while awarding tenders. It is further submitted that the rate quoted by Escorts is based on previous purchase / quoted rates and various other factors such as quantity, yearly target, Inventory levels, taxes etc. 12. xx xx xx xx 13. In the tender in question, Escorts was not invited for negotiation because the tender committee conclude that Escorts had not paid ₹ 1,000/- as tender cost. The Indian railways granted the tender to Stone India Limited at a negotiated price which was ₹ 500 per piece less than the quoted bid. This clearly shows that the success of the tender does not depend on the quoted price. 14. It is humbly submitted that Escorts takes its pricing decisions independently and decides the price to be quoted in the tender bids on its own accord and has also done the same in the instant case. III. Nature of the Relevant Market 15. xx xx xx xx Role of RDSO and Railways Procurement System 16. Indian Railways has set up RDSO, which is the sole R& D organisation of Indian Railways and functions as the technical advisor to the Railway Board, Zonal Railways and Production Units. Amongst its many functions, the RDSO is responsible for deve .....

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..... 22. Another important issue to consider while examining the nature of market is the fact that, though the market appears to be a competitive bidding market, it should be noted that in practice the aforesaid bidding process is used to identify the lowest bidder/price and thereafter, the final price at which a tender is awarded is negotiated by the Indian Railways with the lowest bidder. 23. For instance, Escorts had in relation to tender No. 041251310 dated October 10, 2012 (Diesel Locomotive Works, Varanasi) submitted an all inclusive rate of ₹ 15,964.95 (a base price of ₹ 13,500) and was the lowest bidder in that tender. The Indian Railways, Diesel Locomotive Works, Varanasi had pursuant to a letter dated November 17, 2012 invited Escorts for negotiation/reduction of quoted rate. In response to this request Escorts had based on discussions with the Indian Railways offered a revised rate of ₹ 13,000 (basic price). The Indian Railways issued a purchase order dated December 20, 2012 and ordered the feed valve at ₹ 13,000. Please refer to annex 1 for copies of the relevant documents. 24. The example set out above reflects the process followed by the Indi .....

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..... es Department, Indian Railways. The 'Fall Clause" states that: "the price charged for the stores supplied under the contract by the contractor shall in no event exceed the lowest price at which the contractor sells the stores or offer to sell stores of identical description to any persons/organisations including the purchaser or any department of central government or any Railway office or undertaking........ during the currency of the contract. The lowest price will be applicable to supplies made after the date of coming into force of such reduction or sale or offer to sell at a reduced rate." "If any time during the said period of the contract reduces the sale price, sells or offers to sell such stores to any persons, organisations including the purchaser or any department of central government or any Railway office or undertaking at a price lower than the price chargeable under the contract, he shall forthwith notify such reduction or sale or offer of sale to the purchaser and the price payable under the contract for the stores supplied after the date of coming into force of such reduction or sale or offer of sale, shall stand correspondingly reduced. .....

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..... lways to rely on last purchase price, while negotiating with the lowest bidder; therefore, the vendors are forced to refer to the prices quoted by competitors to various zonal railways before deciding on their price bids. (b) Application of the "fall clause", wherein if a vendor supplies the product at a particular price to a zonal railway, which happens to be the lowest price offered for that product in India, then the said price will have to be mandatorily matched by such a vendor in executing running/existing contracts for the supply of the said product. (c) Availability of information relating to previous price bids submitted by competitors. It should be notified that feed valves are "de facto" commodity product; though the technology used and the cost structures are different from the Railway perspective these products are perfectly substitutable in quality and price. Therefore, no vendor can command higher price by virtue of technology or quality, as they are perfectly substitutable. It is settled principle globally, that in such commodity markets, there is interdependence amongst competitors while deciding on their prices. Such interdependence / price .....

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..... s. This form of conscious parallel behaviour or tacit collusion generally has the same economic effect as a combination, conspiracy or price fixing agreement. However, whether or not conscious parallel behaviour constitutes an illegal action which is restrictive of competition is (a) subject of controversy in both competition law and economics. Price uniformity may be a normal outcome of rational economic behaviour in markets with few sellers and homogenous products. Arguments have been advanced that the burden proof must be higher than circumstantial evidence of concerned or parallel behaviour and uniform pricing and output policies. In other words, conscious parallelism in and of itself should not necessarily be construed as evidence of collusion." 41. xx xx xx xx 42. xx xx xx xx [Underlining is mine] 7. In its objections/submissions, M/s. Faiveley Transport Rail Technologies India Limited (for short, 'FTRTIL') questioned the findings recorded by the DG and raised detailed contentions in that regard, some of which (paragraphs 6 to 11) are extracted below : "6. The Opposite Party No. 2 makes the following further submissions : a to d xx xx xx xx e. W .....

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..... It cannot be deduced from any one contract. l. xx xx xx xx m. The report of the Director General fails to establish in the first place that there exists any such agreement; not to speak about the same being an "anti-competitive agreement". The report does not establish the existence of any "cartel" and is based largely on surmises. n. The Opposite Party No. 2 further submits that even if there is any anti-competitive agreement, it should be established that there was an intention (amongst the enterprises which are allegedly part of the agreement) to causing or that the agreement in question has the effect of causing or is likely to cause an appreciable adverse effect on Competition within India. The report has totally failed to establish the same. o. xx xx xx xx 7. Without prejudice to the above submissions, the Opposite Party No. 2 humbly makes the following para-wise submissions : a to k xx xx xx l. The contents of paragraphs 7.3 to 7.11 of the Report are completely misplaced and the conclusions made therein are wholly out of context in the present proceedings. The conditions referred to in these paragraphs do not operate with the same results i .....

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..... of minds between persons carrying or working with a common objective in order to be bracketed as persons acting in concert. The allegations have no substance and are liable to be dismissed totally. The tender committee meeting held on 22nd May 2012 also appears to be a farce in as much as there is no basis for the finding that there are reasonable circumstances to suspect cartel formation. p. The Opposite Party No. 2 further states that the legislature while enacting the law governing anticompetitive agreements did not definitely envisage that business enterprises may have to sub serve the cause of competition at the cost of their own survival. The commercial solvency and existence of competing firms is a sine-qua-non for competition and for the sake of promoting competition. The Opposite Party No. 2 makes it very clear that it does not mean that there is any truth in the finding of the DG. q. The factors which DG describes as conducive to cartel formation do not exist nor is the Opposite Party responsible for such factors. There is no bid rigging as alleged. r. With reference to Para 7.12 of the report, the Opposite Party No. 2 humbly submits that in addition to what has al .....

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..... lve as provided by Opposite Party No. 2. The said break up relates only to raw material cost which alone is ₹ 12847.9, in addition there are other elements costs inter alia sub contract charges, purchase/manufacturing overheads, warranty, labour, non-productive overhead. d to f xx xx xx xx g. With reference to Para 6.10 of the report, the Opposite Party No. 2 states that the DG's finding confirms the basis of the price quoted by the Opposite Party No. 2 in the impugned tender. Despite the above finding the DG has rendered an erroneous finding that identical price was as a result of collusion. Neither the DLMW nor the DG has applied their mind as to how, in the whole process, the previously accepted price plays an important basis for new offers to be made. It is denied that the price bid was in consultation with the other bidders. Thus previous order plays its role and further the preponderant buyer has the power to pay any role. The contention that quoting to the last paise is not possible without a meeting of mind and sharing of price data stands demolished by the mere fact that the Opposite Party No. 2 had arrived at a price quoted by it admittedly on the basis of i .....

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..... ut any appreciable adverse effect on competition. 11. xx xx xx xx 12. On the above aspects falling under Section 19(3) of the Act, the Opposite Party No. 2 states as follows : a. Creation of barriers to new entrants in the market i. OP2 has no role to play in entry of any other entrant. If RDSO approves a vendor, a new entrant comes into existence. A new entrant has to meet technical specifications and get qualified by complying with the Schedule of Technical Requirements. The RDSO website is in public domain and those requirements are part of the same. Any person who wants to enter the field may comply with specifications for a particular product. The first and foremost task would be to satisfy RDSO that the new entrant has all the requisite credentials. If there is a need for any new product, RDSO issues Expression of Interest [EOI] asking parties to submit their draft specifications. On receipt of drat specification from various parties, RDSO takes steps for finalisation of one specification which will be applicable to all vendors. Everyone has to comply with the terms and conditions relating to development tender. The respective Railway division may also float developme .....

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..... s. Hence, no violation of bid rigging under section 3(3)(d) read with section 3(1) could stand against SIL from the very moment the Tender Committee of DLMW immediately on opening of the tender on 27 April 2012 found that amongst the three registered bidders as per the RDSO Vendor Director, except SIL, the other two bidders i.e., FTIL and Escorts were technically ineligible to bid as such were declared disqualified to bid. Thus, due to foregoing factual issues, SIL became the only bidder and resultantly became 11 by implication. 7. xx xx xx xx 8. That similarly assuming but not admitting, there could have been discussion on quoting similar prices, this was not implemented. In terms of letter issues by the Ministry of Railways (Railway Board) dated 05 August 2002, wherever approved firms quote equal rates and cartel is suspected, the Railways has the right to place order on one and more firms with exclusion of other firms (please refer to Annexure 3). Consequently on 27 April 2012. The Tender Committee disqualified the other two bidders and concluded that SIL was the only qualified bidder with whom DLMW initiated the process of negotiating prices on the same day as such the alle .....

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..... ently by SIL both electronically as well as manually. Lots of manual tenders are also received from Sheds and Depots for small requirements for local purchase for which SIL needs secretarial assistances and submit the quotations manually thereafter correctly. 15. In view of foregoing circumstances, no allegation of concerted action can be attributed against SIL for having submitted the impugned tender on 26 April 2012. In fact, there are many instances when quotations have been submitted on the last day. In many cases the tender remains open till 2:00 PM and in some other cases it remains valid up to 11.30 AM of the particular tender opening date therefore it is absolutely logical to submit bids on the last day or on the preceding day of the tender opening. Moreover, submission of a tender is purely an administrative action depending on various internal factors of SIL and the same cannot be attributable to formation of an action in concert with other bidders. It is noteworthy that SIL had been submitting in the past on several occasions tenders on the last as well as on the penultimate dates from the closing date of the submission of the tenders and has never been found to have i .....

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..... ases for establishing such collusion, the factum of identity of quotes may further require to be supported by some corroborative evidence. 32. It may be observed that the definition of 'agreement' as given in section 2(b) of the Act required inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings. The definition, being inclusive and not exhaustive, is a wide one. The understanding may be tacit, and the definition rarely a direct evidence of action in concert and in such situation the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in co-operation with each other. In the light of the definition of the term 'agreement', the Commission has be find sufficiency of evidence on the basis of benchmark of 'preponderance of probabilities'. 33. In view of the above and further considering the fact that since the prohibition on participating in anti-competitive agreements and the penalties the offenders may incur being well known, it is normal for the activities which those practices and those agreements e .....

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..... submit the cost of tender documents. Similarly, the offer of FTRTIL was found technically suitable, yet its offer was passed over as the firm did not accept the warranty clause as per IRS conditions of the contract. 36. Much was made by SIL of the fact that the other two bidders having been found ineligible by the Tender Committee, the entire case falls as for establishing a cartel, the law requires at least two entities to be involved in the alleged anti-competitive agreement/conduct. The Commission has examined the plea in law and on facts. As shall be shown presently, the plea is legally untenable and factually incorrect. 37. The Commission may observe that stratagem adopted by some of the bidders in filing defective bids is not unknown to competition agencies. Complementary/cover bids are filed by some of the bidders in response to a tender inquiry to provide comfort to the procuring authorities that there are various bids in response to the tender inquiry to avoid any question being raised on the absence of competition in the tender process. Such entities do not participate in the bid process to actually compete with the successful bidder but submit 'complementary' .....

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..... ions and thereby putting further premium over the collusive act. In the result, the arguments advanced by the parties in this regard are misconceived and cannot be sustained. 40. In this regard, it may also be observed that during the course of the arguments, the Commission put a specific query to the counsel appearing for EL as to the steps taken by the company to remedy the defect in relation to non-submission of cost of tender documents. No explanation or reason was offered by the counsel either at the hearing or in the written submissions in this regard. 41. The other pleas taken by the opposite parties justifying the rates quoted on diverse grounds are also without force and merit rejection. So far as the case of EL is concerned, though it has taken the plea that the price quoted by it i.e. ₹ 17,147.54/- translated to basic rate of ₹ 14,500/- based on 12.36% of excise duty and 5.25% CST and this basic rate of ₹ 14,500/- was quoted by it on four earlier occasions. As rightly noted by the DG, the prices quoted by EL were based on the quotes in its earlier bids and not on the prices in any purchase orders placed by any zonal office of Railways or DLMW. There .....

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..... y SIL that its bid prices were based on the basic price of ₹ 14,674.28/- of the earlier purchase orders dated 14.12.2011 and 08.11.2011. Suffice to note, as observed above, it is not discernible as to how these two orders were picked up by SIL in support of its contention ignoring the other bids and purchase orders. Furthermore, even at this basic price, a calculated by the DG, the total unit price would be ₹ 17,312.42/- and not ₹ 17,147.54/- i.e. the actual quoted price. Be that as it may, there is nothing on record placed by SIL to justify the rate quoted by it in pursuance of the impugned tender and the only plausible explanation which may be drawn from the identical figure and lack of justification is that the rate was quoted to match the bid price of the other bidders acting in collusion and concert. 44. The other aspect which further strengthens the finding of collusion is the examination of the cost of production of the valves vis-à-vis the bid price. In this connection, it may be notices that the DG called for the cost audit report/cost production data from the parties. From the information submitted, it was noticed by the DG that EL's cost of .....

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..... merely 88 paisa and/or ₹ 9.14 paisa as in the case of Tender No. 26111569 dated 11.10.2011 where EL and FTRTIL quoted identical price for supply of 54 feed valves ₹ 14,535.40/- and ₹ 14,534.52/- respectively. Similarly, in Tender No. 43110361A dated 17.10.2011 EL and FTRTIL have quoted ₹ 14,525.38 and 14,534.52 respectively to Southern Railway. As such, the action of the opposite parties in bidding nearly identical amount in the tender was found to establish that the three bidders have resorted to collusive biddings for supply of feed valves to the railways in the past. Thus, taking into consideration the past conduct of the three bidders it is further established that the opposite parties were used to such practice of sharing the price date and had accordingly also resorted to similar practice of collusive bidding in the e-tender in the present case as well. 48. On a careful consideration of entire circumstances i.e. quotation of identical prices despite these units having been located in different geographical locations and different cost of production; filing of the bids on the same date containing minor technical defaults and failure on the part of the .....

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..... ot foreclose competition. 52. Various conspiracy theories including 'corporate espionage' were also ought to be advanced by SIL to justify the identical quotes as resulting from 'corporate espionage'. Except propounding such theory, no material was placed before the Commission to support the thesis. Further, the Commission has already dealt with these submissions earlier in this order. 53. The Commission also notes that the subsequent action of the railways in entering into negotiations and consequent awarding of contract to one of the parties is of no significance and consequence as far as present proceeding are concerned. The tender inquiry pertained to procurement of feed valves, and hence the railways had no other option or source to procure the same. Resultantly, such action was actuated by expediency and nothing turns upon such development except to infer and notice the piquant situation in which the Railways was placed. 54. Lastly, a feeble attempt was made by SIL through its written submissions filed on 08.07.2013 to challenge the validity of the proceedings of the Commission by arguing that in view of the different compositions of the Commission durin .....

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..... (3)(d) of the Act." [Underlining is mine] 10. On the basis of the aforesaid finding and conclusion, the Commission imposed penalty @ 2% of the average turnover of each of the appellants. The rationale of imposing penalties contained in paragraphs 58 to 62 of the impugned order are reproduced below:- "58. As regards penalty under section 27 of the Act, the Commission notes: that all the bidding companies who infringed the provisions of section 3 of the Act are responsible in equal measure and no mitigating circumstances were brought to the notice of the Commission by any of them. The Commission has taken note of the submissions of some of the opposite parties to the effect that they have never been found in breach of any provisions of the Act in the past and have been facing the inquiries for the first time before the Commission. Basically, the other arguments advanced is that it was first offence of the parties and therefore a lenient view should be taken. No doubt that the parties herein have been found guilty for the bid rigging for the first time by the Commission, however, while investigating the present bid rigging case, the Commission had opportunity to look in .....

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..... l procurement unimportant. The bid rigging practices are spread throughout the public procurement system. Various collusive methods are adopted in public procurement to deprive the State i.e. exchequer, of the real benefit of money paid by the. The contravention of the competition law cannot be considered non-serious only because the amount of the bid was small. The size of tender in itself is not a decisive factor for taking a lenient view. However, it may be taken into consideration as one of the factors while imposing penalty. 61. The Commission has bestowed its thoughtful consideration on the issue of quantum of penalty. The Commission is also not oblivious of the submissions made by the opposite parties to the effect that the turnover relatable to the product under consideration constitutes a small percentage of the total turnover. It has been submitted by FTRTIL that its turnover during the period in respect of feed valve was ₹ 58 Lakhs constituting 0.07% of the total turnover. SIL has also filed details of the turnover and profits for the relevant period for the whole business and the business related to feed valve separately. It has been mentioned illustratively tha .....

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..... IL. Learned counsel further argued that the Commission committed grave error by observing that even though the bids submitted by EL and FTRTIL were defective, the Tender Committee should have waived the deficiencies/defects and invited them for negotiation. They also criticised the theory of cover bidding /complementary bidding by EL and FTRTIL innovated by the Commission by emphasising that the same is neither based on facts nor there is any evidence to show that the two appellants had deliberately submitted defective bids to enable the third appellant i.e. SIL to grab the contract. Learned counsel submitted that before taking into consideration these and other factors for recording findings on other issues, the Commission was duty bound to give an opportunity to the appellants to rebut/controvert these allegations like cover/complementary bidding, which was not done. Learned Counsel then argued that the bidding done by the appellants in the past three years does not, in any manner reflect that they had formed cartel and the Commission was not at all justified in drawing an adverse inference against the appellants. Learned counsel for SIL made a pointed reference to reply dated 21 .....

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..... ommission by pointing out that the calculation of average turnover of the appellants is contrary to the ratio of the order passed by the Tribunal in M/s. Excel Corp Care Limited v. Competition Commission of India and others (Appeal No. 79 of 2011) decided on 29.10.2013. 15. Ms. Anupam Sanghi, learned counsel for the Commission supported the impugned order and argued that the appeals are liable to be dismissed because the appellants failed to reply to queries made by the DG on the issue of identical price of bids. She relied upon the definition of 'agreement' contained in Section 2(b) and Section 3 of the Act and argued that the Commission did not commit any error by rejecting the objections raised by the appellants to the findings recorded by the DG. Learned counsel also emphasised that appreciable adverse effect on competition was rightly presumed by the Commission and the appellants cannot challenge the same because they did not adduce any evidence to prove that despite formation of cartel by them and their involvement in bid-rigging, Section 3 was not attracted. In support of her submission, learned counsel referred to paragraphs 7.16 to 7.20 of the DG's report, pag .....

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..... hich were used for building the wagons. There were 12 suppliers, who were regularly supplying the cast steel bogies. Two new entrants were Simplex and Beekay. Among the 12 regular suppliers, M/s. H.D.C., Mukand and Bhartiya were having capacity to manufacture large quantities of steel bogies. In response to a limited tender notice issued by the Railway Board on 25.10.1991 for procurement of 19,000 cast steel bogies, M/s. H.D.C., Mukand and Bhartiya quoted identical price of ₹ 77,666/- per bogie, the other tenderers quoted price between ₹ 83,000/- and ₹ 84,500/- per bogie. The Tender Committee considered all the tenders and concluded that M/s. H.D.C., Mukand and Bhartiya, who had quoted identical rates without any cushion for escalation between July 1, 1991 and September 1, 1991, had apparently formed a cartel but ultimately recommended award of contract to them for supply of bogies @ ₹ 76,000/- per bogie. The day on which the Tender Committee finalised the recommendations, Member (Mechanical), who was a part of the Tender Committee received letters from M/s. H.D.C. and Mukand that they could supply bogies at a reduced rate. Advisor (Finance), Member (Mechan .....

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..... re identical and the price was somewhat lower, the Tender Committee entertained a suspicion that a cartel had been formed and the same got further strengthened by the post-tender attitude of the said manufacturers which further resulted in entertaining the same suspicion by the other authorities in the hierarchy of the decision making body including the Minister of Railways. Though there is not enough of material to establish formation of a cartel as is understood in the legal parlance but at the same time it cannot be contended that such an opinion entertained by the concerned authorities including the Minister was per se malicious or was actuated by any extraneous considerations. After a careful examination of the entire record and facts and circumstances of the case we are of view that all the railway authorities including the Minister acted in a bonafide manner in taking the stand that the three manufactures formed a cartel. 6. Now coming to the allotment of quota of bogies the Tender Committee made recommendations on the basis of the existing practice. The Minister of Railways in his ultimate decision has made some variations taking into consideration the recommendations of .....

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..... "14. First we shall consider the submissions regarding the formation of cartel by these three big manufacturers. The word "cartel" has a particular meaning with reference to monopolistic control of the market. In Collins English Dictionary, the meaning of the word "cartel" is given as under: "cartel- 1. Also called: trust, a collusive international association of independent enterprises formed to monopolize production and distribution of a product or service, control prices etc...." In Webster Comprehensive Dictionary, International Edition, the meaning of the word "cartel" is given thus: "cartel... 3. An international combination of independent enterprises in the same branch of production, aiming at a monopolistic control of the market by means of weakening or eliminating competition...." In Chambers' English Dictionary the word "cartel" is defined thus: "cartel- A combination of firms for certain purposes especially to keep up prices and kill competition...." In Black's Law Dictionary, Fifth Edition the meaning of the word "cartel" is given thus: "cartel- A combination .....

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..... cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same. Dealing with the provisions of Sherman Anti Trust Act, in National Electrical Contractors Associations, Inc. v. National Constructors Association. [678 FR 2d 492] it was observed as under: "We know of no better statement of the rule than that of this court in United States v. Society of Ind. Gasoline Marketers [624 F 2d 461 : 465 (4th Cir 1979) : cert denied 101 S Ct 859 : 449 US 1078 : 66 L Ed 2d 801] where stated: 'Since in a price-fixing conspiracy the conduct is illegal per se, further inquiry on the issues of intent or the anti-competitive effect is not required. The mere existence of a price-fixing agreement establishes the defendants' illegal purpose since the aim and result of every price-fixing agreement, if effective, is the elimination of one form of competition'." It was also observed that: "The critical analysis in determining whether a particula .....

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..... conspirators could well require a correspondingly long time to recoup. Maintaining supra competitive prices in turn depends on the continued cooperation of the conspirators, on the inability of other would-be competitors to enter the market, and (not incidentally) on the conspirators' ability to escape antitrust liability for their minimum price-fixing cartel. Each of these factors weighs more heavily as the time needed to recoup losses grows. If the losses have been substantial - as would likely be necessary (475 US 593) in order to drive out the competition - petitioners would most likely have to sustain their cartel for years simply to break even." (emphasis supplied) In this context, one of the submissions is that the price of ₹ 67,000 offered by these manufacturers during the post-tender stage was not predatory and that the view taken by the authorities that such an offer of lower price was predatory one confirming the formation of a cartel, is also unwarranted. In Matsushita case [678 FR 2d 492] it was observed that predatory pricing conspiracies are by nature speculative and that the agreement to price below the competition level requires the conspirators .....

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..... se three big manufacturers gave rise to a suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such formation of a cartel......" 19. In this case, the DG recorded an affirmative conclusion on the issue of cartel formation and bid-rigging by the appellants by relying upon the following factors: "(a) RDSO had approved only three suppliers i.e. the appellants and there was no new entrants in the field over a period of time and that gave scope for cartel formation. (b) Three approved suppliers have given bids from time to time in response to the tenders issued by different Zonal Railways quoting identical price. (c) The demand of feed-valves has remained almost static in last few years and the existing operators have prevented new entrants from entering the market. (d) The system of awarding contracts by the Railways is conducive to collusive bidding. (e) The product specifications approved by RDSO makes cartelisation very probable. (f) When the products or services sold or rendered are identical or very similar and there are few or no substitutes, it is easier for the bidders to reach an agreement on a common .....

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..... ndering and Respondent No. 2 could have accepted that recommendation but their failure to do so cannot lead to an inference that they have acted with ulterior motive or that the Tender Committee ought to have waived the defects/deficiencies and allowed the two appellants i.e. EL and FTRTIL to participate in the bid or called them for negotiations. 21. For appreciating the question whether the appellants had been constantly quoting identical price in response to the tenders invited by different Zonal Railways, I may take cognisance of the statement filed by the learned counsel for Respondent No. 2 giving date-wise details of the rates of feed valves quoted by the appellants. The same is reproduced below: 22. A careful scrutiny of the above statement shows that between January, 2009 and February, 2012, various Zonal Railways had issued 44 tenders. Of them exactly identical price was found only in one tender dated 15.12.2011 issued by West Central Railway, where the price quoted by the bidders was ₹ 16,833.16. Out of the remaining bids, similar price was quoted by SIL and FTRTIL in response to tenders dated 20.07.2009 issued by Southern Railway, 24.09.2010 issued by Southern R .....

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..... e 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 Corp 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 and OFT guidelines, we are of the opinion that those guidelines are undoubtedly relevant in arriving at the issue of deciding upon the turn over. However, those guidelines cannot be treated as be all and end all in the matter and would h .....

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..... en clubbed for the purpose of Section 27(b). Since, the term 'turnover' appearing in clause (b) of Section 27 has not been defined in the Act, it must take colour from the preamble, definitions of various terms and other provisions of the Act including Sections 3 and 4, the contravention of which can invite an order of penalty and other consequences enumerated in Section 27. In this connection, reference can usefully be made to the proposition laid down by the Supreme Court in Central Bank of India v. State of Kerala and others [(2009) 4 SCC 94] on the interpretation of statutes. The question considered in that case was whether Section 38-C of the Bombay Sales Tax Act, 1959 (for short "the Bombay Act") and Section 26-B of the Kerala General Sales Tax Act, 1963 (for short "the Kerala Act") and similar provision contained in other State legislations by which first charge has been created on the property of the dealer or such other person, who is liable to pay sales tax etc., are inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short "the DRT Act") and the Securitisation and .....

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..... tatutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy. In Poppatlal Shah v. State of Madras 1953 CriLJ 1105, this Court while construing the word 'sale' appearing in the Madras General Sales Tax Act, 1939 before its amendment in 1947, observed: It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statutes are to be taken together, and each word, phrase or sentence is to be considered in the light of the general purpose of the Act itself. In Reserve Bank of India v. Peerless General Finance and Investment Company Limited: [1987] 2 SCR 1, it was observed, "that interpretation is best which makes the textual interpretation match the contextual." Speaking for the Court, Chinappa Reddy, J. noted the importance of rule of contextual interpretation and held: Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextua .....

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