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TMI Blog2024 (7) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... Jhansi and 4 bids for Meerut. In the present case, the appellant was acting as a member of the cartel and was providing cover bid for the successful bidder Austere Systems. In view of peculiar facts and circumstances of the present case, where almost all bidders for soil testing are first time bidders and relevant turnover of firms from the aforesaid business is NIL, the concept of relevant turnover in such cases would not be correct, as it would lead to NIL penalty and allow the parties involved to go scot-free. Hence, the Commission s approach of taking the total turnover for computation and imposition of penalty is agreed upon. At the same time considering the fact that the Appellant was in a supporting role in this cartel, by providing the cover bids, the penalty in such cases should be less than for those in the main role. The order of the Commission in respect of holding the appellant guilty under Section 3(3)(c) and 3(3)(d) read with section 3(1) and order passed under Section 27(a) regarding cease-and-desist order are upheld - the penalty under Section 27 (b) is reduced to 3% of average annual turnover for last 3 years, instead of 5% as imposed by the commission. Applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wati Sales /OP-4) (v) Austere System Pvt. Ltd., New Delhi ( Austere Systems /OP-5) 5. It was further alleged that there were numerous red flags in the documents submitted by the aforesaid entities for Tender No. 1 and Tender No. 2, but the tender inviting authorities preferred to ignore these aspects. Yash Solutions emerged as the successful bidder for the award of work for Tender No. 1 and Tender No.2 for the regions Moradabad and Bareilly, respectively, in the year 2018-19. It was also stated in the complaint, that in the previous year, i.e., 2017-18, Yash Solutions was awarded tender for soil testing for the regions of Bareilly and Moradabad, and Austere Systems was awarded tenders for the regions of Jhansi, Saharanpur and Meerut as a result of such collusive bidding. It was alleged in the complaint that the entities referred above, rigged the tenders of soil testing in the state of Uttar Pradesh by indulging in cover bidding, bid rotation and collusive bidding. 6. The commission considered the complaint and obtained documents like audit report, experience certificates and term deposit receipts submitted by relevant parties. Based on the analysis of records the commission was of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urcing ) indulged in cartelisation and bid-rigging in the 2017 and 2018 tenders pertaining to soil testing work issued by various divisions of the Department of Agriculture, Government of Uttar Pradesh. (iv) Austere Systems in collusion with Yash Solutions, Delicacy Continental, M/s Toyfort and Fimo Info Solutions, had rigged bids and emerged as the L-1 bidder in soil testing tenders floated by the Department of Agriculture, Government of Uttar Pradesh in Meerut and Jhansi divisions in the year 2017 as well as Saharanpur and Meerut division tenders in the year 2018. (v) The investigation also brought out that Delicacy Continental, Fimo Info Solutions, M/s Toyfort and Chaitanya Business Outsourcing be added as Opposite Parties in the matter. (vi) The investigation also found that Austere Systems, Fimo Info Solutions and M/s Toyfort, through cartelisation and collusion, rigged the bids of 2017 for Meerut and Jhansi divisions. Austere Systems and Fimo Info Solutions had prior business relationships and inter se shareholdings in each other. The investigation revealed that these three entities had no prior experience of soil testing before they submitted bids for the Jhansi and Meerut d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thereafter, commission decided to add M/s Delicacy Continental, Fimo Info solutions, M/s Toyfort and M/s Chaitanya Business Outsourcing as parties to the proceedings and they were arrayed as Opposite Party (OP) Nos. 6, 7, 8 9 respectively. The commission, thereafter forwarded a copy of investigation report to electronic form to all the 9 OPs mentioned above and the persons/ individuals of the opposite parties identified by the DG as being responsible under Section 48 of the Act for filing their respective objections/ suggestions thereto latest by 16.07.2021. The Commission also directed the Opposite Parties to furnish copies of their audited balance sheets and profit loss accounts/turnover for the last three financial years, i.e., 2018-19, 2019-20 and 2020-21 latest by 16.07.2021. The persons/individuals named above were also directed to Ille their income details including copies of the income tax returns for the last 3 financial years, i.e., 2018-19, 2019-20 and 2020-21. The Commission further decided to hear the parties on the Investigation Report on 05.08.2021. 10. M/s Toyfort in its submission to the commission has averred that: the DG failed to appreciate that if neither the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2021 framed two issues, these are as follows: Issue 1: Whether the Opposite Parties have directly or indirectly rigged/ manipulated the tenders of soil testing issued by the Department of Agriculture, Government of Uttar Pradesh, in various regions for the year 2017 and 2018, by indulging in bid rigging, collusive bidding and sharing of market, resulting in contravention of provisions of Section 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act. Issue 2: If the Opposite Parties are found to have contravened the provisions of Sections 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act, then who are the persons in charge thereof and responsible for the conduct of business of the respective enterprises under Section 48 of the Act? 12. For the analysis of the first issue the commission grouped the opposite parties in 3 sets are as under For the sake of brevity, the analysis of the first issue in the present case is being carried out by grouping the Opposite Parties in sets, as under: a) Set 1: Yash Solutions, M/s Saraswati Sales, M/s Satish Kumar, M/s Siddhi Vinayak and Chaitanya Business Outsourcing, b) Set 2: Austere Systems, M/s Toyfort, Fimo Info Solutions and Delicacy Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attern of Austere Systems is as under: S. No. Name % Shareholding 1. Mr. Rahul Gajanan Teni 40 2. Mr. Shikhir Gupta 30 3. Mr. Piyush Gupta 10 4. Mr. Suresh Kumar Gupta 20 Total 100 17. Apart from Mr. Rahul Teni, who manages the business as well as the technological aspect of the company, Mr. Piyush Gupta is the other Director who looks after the financial matters of the company. Mr. Piyush Gupta is the son of Mr. Suresh Gupta (sole proprietor of M/s Toyfort) who holds 20 percent shareholding in the company and is also stated to be a strategic investor and had purchased a second-hand soil testing machine in 2017. 18. The commission further noted that Fimo Info Solutions and M/s Toyfort had also bid in the Meerut and Jhansi tenders of 2017. As stated above, Fimo Info Solutions and M/s Toyfort had no experience in soil testing work. However, Fimo Info Solutions and M/s Toyfort could not win any of the aforesaid tenders. 19. The Commission in its finding noted that M/s Toyfort is a proprietorship concern and is engaged in the business of sale of toys, stationery items, etc. Mr. Suresh Kumar Gupta is the proprietor of M/s Toyfort and is stated to be responsible for all the decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d no experience of soil testing work and did not even qualify the terms and conditions of the 2017 Meerut and Jhansi tenders. 23. The Commission also noted that Mr. Suresh Kumar Gupta as well as Mr. Jai Kumar Gupta could not submit any explanation regarding the submission of EMD on behalf of their entities from the bank account of Mr. Shikhir Gupta, son of Mr. Jai Kumar Gupta, Director of Fimo Info Solutions. Further, neither persons could justify how Fimo Info Solutions was registered at M/s Toyfort's address. 24. In view of their findings, the Commission took the view that three bidders, namely, Austere Systems, M/s Toyfort and Fimo Info Solutions, which were related concerns through family as well as business relationships, made concerted efforts and rigged the bids in 2017 soil testing tenders for Meerut and Jhansi divisions, with a common objective to ensure that Austere Systems wins those tenders. The Commission agreed with the DG's finding, that the bids submitted by M/s Toyfort and Fimo Info Solutions were not submitted with the intention to compete and win but to create a fa ade of competition. Issue 2 : If the Opposite Parties are found to have contravened the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which the DG has gathered cogent and clinching evidences, which are primarily based on their active conduct in perpetuating the anti-competitive conduct with a view to manipulate and vitiate the tender process as discussed in the foregoing paragraphs. None of these individuals have been able to credibly refute the evidence against them unearthed by the investigation nor have they been able to explain their conduct. From the statements of the individuals, it can be discerned that they have chosen to be evasive in submitting before the investigation. Mere perfunctory justifications have been proffered to escape their liability. Neither the Opposite Parties nor their individuals have been able to rebut the presumption that stares them in their faces, and the Commission was convinced that the Opposite Parties acted in a concerted manner to rig the tenders, which is in violation of Section 3(1) read with Sections 3(3)(c) and 3(3)(d) of the Act. Therefore, the Commission found the identified individuals of the Opposite Parties liable in terms of the provisions of Section 48(1) and 48(2) of the Act. 28. The Commission noted that cartelisation, including bid rigging, is a pernicious f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the quantum of penalty imposed must correspond to the gravity of the offence, and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case. 33. On the issue of penalty, most of the Opposite Parties in their objections to the Investigation Report and subsequent submissions have averred, referring the decision of the Hon'ble Apex Court in the case of Excel Crop Care Limited vs. Competition Commission of India and others [(2017) 8 SCC 47], that the turnover to be calculated under Section 27 of the Act has to be the relevant turnover, which relates to the product in question, in respect whereof, the provisions of the Act are found to be contravened. The Opposite Parties have averred that, as that they could not derive any income from the soil testing tenders for never being involved in the business of soil testing, zero penalty would naturally arise out of nil income and nil turnover. Some of the Opposite Parties have prayed for mitigation of penalty on the grounds of being Micro Small and Medium Enterprises (MSME). 34. With regard to the submission of the Opposite Parties that they have derived no income from tend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the mitigating factors put forth by the Opposite Parties, the Commission observed that the findings of the DG clearly indicate the active role played by each of the Opposite Parties in rigging the tenders. The Commission accordingly imposed the penalty upon the Opposite Parties @ 5 percent of the average of their turnover for the three financial years, i.e, 2017-20. 36. The Commission further deemed it appropriate and necessary to impose penalty on the individuals identified above for being liable under Section 48 of the Act at the rate of 5 percent of their average income of the financial years 2017-18, 2018-19 and 2019-20 filed with the Commission. However, since M/s Satish Kumar Agarwal, M/s Siddhi Vinayak, M/s Saraswati Sales and M/s Toyfort, are sole proprietorship concerns, no separate penalty was imposed on their respective proprietors. Submission of Appellant 37. The submission of the appellant is that the Commission by way of the impugned judgment has held the Appellant along with other parties to be guilty of contravening Section 3(1) r/w Sections 3(3)(c) and 3(3)(d) of the Act in consonance with the opposite parties before it in Suo Motu Case No. 01 of 2020. 38. Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Meerut Division there was one more bidder not related to the entities in Set-2 however, such entity was not investigated by the DG and it's existence does not find mention in the investigation report and the impugned order. This is a classic case of unreasonable classification. 42. The appellant further submitted that the DG failed to show how the Appellant's participation in the Meerut and Jhansi Division bids held in 2017 led to the bid being swayed in favour of Austere Systems. It is further submitted that the two bids did not have a limit on the maximum number of participants who could participate in the bids and the Appellant's bid did not lead to the winner of the bids being declared as L-1. It is further important to note that the Appellant, as has been categorically noted by the DG, was not even qualified to participate in the bid and the entire bidding process by the Appellants was an exercise of commercial misadventure which cannot be construed as bid rigging. 43. That, the Commission did not pass any finding on how Section 19(3) of the act was satisfied to show appreciable adverse effect. The appellant submitted that the Commission, while determining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be the relevant turnover, which relates to the product in question, in respect whereof, the provisions of the Act are found to be contravened. As per the certificate annexed by the Appellant as Annexure A-11, the average annual turnover from the relevant business stream is Rs. 7,60,784/-, Since a higher sum stands deposited already, the amount paid in excess may kindly be refunded to the Appellant. Submission of Respondent 46. The counsel for Commission submits that the captioned appeal is part of the batch of appeals ( Appeals ) arising out of the Commission order dated 04.04.2022 ( Impugned Order ), wherein it was held that the three bidders, namely, Austere Systems, Toyfort ( Appellant ) and Fimo Info Solutions Private Limited ( Fimo ), which were related concerns through family as well as business relationships, made concerted efforts and rigged the bids in 2017 soil testing tenders for Meerut and Jhansi divisions, with a common objective to ensure that Austere Systems wins those tenders. The Commission further held that the bids submitted by the Appellant and Fimo were not submitted with the intention to compete and win, but to create a fa ade of competition. 47. The ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pta were shareholders of Austere Systems with a combined shareholding of 30%. Moreover, Mr. Suresh Kumar Gupta could not explain how the bids for the Appellant were submitted by his son, Mr. Piyush Gupta, when he is the proprietor. 52. The conduct of the appellant is also seen by the act of Earnest Money Deposit of the Appellant being submitted by the Director of Fimo Although Mr. Suresh Kumar Gupta is the proprietor of the Appellant, as per the reply given by ICICI Bank, the Demand Draft for the Appellant was made by Mr. Shikhir Gupta, from his own account. 53. Fimo Info Solutions (a rival bidder) has the same registered address as the Appellant, which could not be justified/explained by their directors. 54. Even though, the Appellant is a sister concern of Austere Systems i.e, the winning entity, Mr. Suresh Kumar Gupta was unable to explain as to why the Appellant and Austere Systems submitted separate bids in the 2017 tenders, when both were related concerns. 55. The counsel submitted that the Appellant had placed reliance on the decision of the Hon'ble Supreme Court in Excel Crop Care Limited (supra) and submitted that since it derived no income from the tenders in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenders for Soil Testing floated by Govt. of UP? If yes, please provide details. A.6. Yes, my company had bid in soil testing tenders floated by Government of U.P. Q.7. Please explain your understanding of Government's Soil testing Program? A.7. I have no understanding of Government's soil testing program Q.8. What are the requirements for soil testing work? A. 8. I have no understanding of soil testing work. Q.9. Did you or your firm Toyfort had any experience in soil testing work when bids were submitted in the soil testing tenders issued by Meerut Jhansi divisions of the Agriculture department, Uttar Pradesh Government in the year 2017? A.9. No, my firm Toyfort had no experience of soil testing work when bids were submitted in the soil testing tenders issued by Meerut Jhansi divisions of the Agriculture department, Uttar Pradesh Government in the year 2017 Q.10. I am showing you the GST registration of your firm Toyfort (Exhibit 1), as per which your firm is engaged in the business of Toys, stationery items, articles equipment for general exercise etc., however no mention has been made regarding soil testing work. Why? A 10. As my firm did not have any soil testing work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soil testing tenders of 2017 (Exhibit-6). A. 15 Yes, I have seen Q 16 Did you or your firm had any relationship with any other firm which had submitted bids in the aforesaid tenders? A. 16. No, I do not know any of two other firms M/s RK Enterprises. Meerut and M/s Austere Systems Pvt. Ltd. Pune. Q 17. As your firm had no experience in soil testing work, how did you decide the financial bids for the aforesaid tenders? A. 17. I do not know. Q. 18. Your firm Toyfort had submitted bids in the Jhansi Meerut soil testing tenders of 2017 (Exhibit-7 8) wherein the bid documents of your firm have been submitted by Sh. Piyush Gupta. A. 18. Yes, Seen Q.19 Who is Piyush Gupta? A. 19 Sh. Piyush Gupta is my son Q. 20. How did Sh Piyush Gupta submit bids of your company in the soil testing tenders when you were the Proprietor. A. 20. 1 do not know Q. 21. I am showing you the bid submitted by Austere Systems Pvt Ltd in the Jhansi tenders of 2017 and the minutes of the tender committee dated 31.08.2017 (Exhibit-9 10), wherein the bid documents of the said firm have been signed submitted by you and M/s Austere was represented in the tender committee meeting by you. Why did you submit bid of your r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d M/s Austere System Pvt. Ltd. were sister concerns, having common directors, why your firm submitted a separate bid in the soil testing tenders of Jhansi Meerut divisions in 2017? A. 29. I do not know. 60. The relevant extracts from the statement of Mr. Rahul Gajanan Teni, Director of M/s Austere System Pvt. Ltd, Pune, recorded on 19.02.2021 are as follows: Q.1. What is your role and responsibilities in your firm M/s Austere System Pvt. Ltd? A.1. My responsibility is mainly related to managing the business as well as technology/technical part. Shri Piyush Gupta Son of Sh Suresh Kumar Gupta who was a strategic investor in our company looks after finance matter of the company Shri Shikhir Gupta, another Director looks after the business development work. Q.2. Details of the business your company M/s Austere System Pvt Ltd. is engaged in? A.2. Software Development, Onshore development, Staffing Augmentation. technology consulting, business consulting, data entry, soil analysis and automation. My company M/s Austere is not engaged in any other business other than the above mentioned business. Q.3 Has your company M/s Austere Systems Pvt Ltd, submitted bids in the tenders for Soil Test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Meerut and Jhansi Divisions in the year 2017. How did your company qualify and receive contract for soil testing from UP Govt. in 2017 tenders, when your company neither had any Lab nor the relevant experience of the soil testing work as required by the aforesaid conditions? A. 14. Because, there were very few players in the soil testing business. We thought that we can apply in these tenders. As to how my company qualified only Government authorities can explain the same. Q 15. I am showing you the GST Registration receipt (Exhibit 5) generated from Maharashtra which was submitted in the Meerut tenders. As per details of GST registration of your company (Exhibit-6). the Principal place of business of your company is mentioned as the office of the Assistant Director (Soil Testing/Culture), Regional Soil testing laboratory, Meerut. How and why did you register your company at the address of the Regional Soil Testing Lab Meerut to the GST Department? A 15 There was no permission from any authority to use the address of the Assistant Director (Soil testing) for using their address in the GST registration. However, I do not remember whether the soil testing authorities has given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittee meeting. A. 27. Sh. Piyush Gupta who is son of Sh. Suresh Kumar Gupta. Sh. Suresh Kumar Gupta was also shareholder and director in our company with a 10% holding Sh. Piyush Gupta is currently a director in Mis. Austere Systems Q. 30. What is the justification for submission of bid documents and EMD by competitors on behalf of rival bidders as well as the competitors/bidders being related concerns shows? A. 30. I have no justification. Q. 31. Why bids from all three related /sister concerns having no experience of soil testing work as mentioned in the terms of conditions, wherein bid EMD were submitted for each other? A. 31.1 have no justification 61. We have seen from the aforesaid statement of Sh. Suresh Kumar Gupta on oath and Sh. Rahul Teni that Sh. Gupta gave false statement on oath and accepted to facts only confronted with documents. The statement of Sh. Rahul Teni fills the gaps perfectly in regarding the relationship between M/s Toyfort, M/s Fimo Info Solutions Pvt. Ltd. and M/s Austere System Pvt. Ltd. The following emerges from the statement of Sh. Gupta and Sh. Teni and the documents on record: (i) M/s Toyfort had no experience in soil testing and dealt in sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from such act from indulging in the practices which were found in contravention of the provisions contained in Section 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act. 65. Regarding the punishment, both the appellant and commission have cited the judgement of Hon ble SC in Excel Crop Care (supra). The contention of the appellants being that the penalty is to be imposed based on the relevant turnover. The commission, however, disagreed with the contention of the appellant and stated that such a narrow interpretation of relevant turnover would allow the OPs who are involved in pernicious practice of bid rigging/collusive bidding to go scot-free. This was never the intention of Hon ble SC nor of the legislature, while enacting the Competition Act. 66. In this context, we looked into the aforesaid Judgment of Excel Corp Care (supra) closely, regarding the facts of the case and whether the aforesaid ratio applies squarely to the present appeal. 67. In the Excel Crop Care matter (supra) the matter related to procurement by FCI for Aluminium Phosphide tablets (for short APT) of 3 gm each between the year 2007-2009. The relevant para of the judgement are extracted below : 3.2. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was providing cover bid for the successful bidder Austere Systems. In view of peculiar facts and circumstances of the present case, where almost all bidders for soil testing are first time bidders and relevant turnover of firms from the aforesaid business is NIL, the concept of relevant turnover in such cases would not be correct, as it would lead to NIL penalty and allow the parties involved to go scot-free. Hence, we agree with the Commission s approach of taking the total turnover for computation and imposition of penalty. At the same time considering the fact that the Appellant was in a supporting role in this cartel, by providing the cover bids, we are of the view that the penalty in such cases should be less than for those in the main role. 70. Based on the above discussion, we hold (i) The order of the Commission in respect of holding the appellant guilty under Section 3(3)(c) and 3(3)(d) read with section 3(1) and order passed under Section 27(a) regarding cease-and-desist order are upheld. (ii) The penalty under Section 27 (b) is reduced to 3% of average annual turnover for last 3 years, instead of 5% as imposed by the commission. 71. The pending IAs if any, are accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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