CCI by its order dated September 8, 2015 dismissed allegations of bid-rigging against manufacturers of axle mounted disc brake system (AMDBS) used in coaches and power cars of the Indian Railways. The allegations were made by Rail Coach Factory, Kapurthala against Faiveley Transport India Limited and Knorr Bremse India Pvt. Ltd. It was alleged that the Faiveley and Knorr Bremse are only two firms competent to supply the AMDBS brakes to Indian Railways. The two firms had submitted identical bids against tenders for procurement by the Informant. The tenders were equally divided between the two firms as their rates were identical.

CCI noted that despite the fact that identical prices were being quoted on three separate tenders in quick succession the Tender Committee of the Informant did not raise any objections, but instead placed the tenders on the two firms.

CCI did note that the policy of Indian Railways did not incentivize competition between the suppliers. Further, the bids are subject to approval by the Tender Committee. The bidders have to many a time refund the money already received as the price for supplies made, if the Tender Committee decides that the prices are lesser than the quoted price. Further, as a rule, the supply is divided between two firms and hence there is very little incentive to compete since the entire quantity cannot be placed on a single firm.

CCI noted that the Railways exercises an option of increasing supply orders by 30% on any awarded tender. Such a condition is onerous and results in bidders quoting rates to cover prospective losses. The Tender Committee never recorded any adverse remark or suspicion on identical bids by the two firms, but in fact found the rates reasonable.

Sometime the tender conditions in railway tender are onerous in so far as they incorporate unfair conditions in the tender regarding experience of the bidders. CCI also noted that the present case was filed by the Railways as a retaliatory action against the two firms since they refused to submit the cost-breakup as sought by the Railways. Cost details are commercially sensitive and supplying the same to the Railways could harm the business interests of the two firms.

CCI concluded that the evidence available to substantiate the allegations of bid-rigging is insufficient to find a violation under the Act. Although, CCI did recommend that the procurement policies of Railways may be fine-tuned further to bring them in harmony with competition law.

(Source: CCI: Order dated September 8, 2015. For full text see CCI website: http://www.cci.gov.in/)

Comment:

This is rather an unusual order in as much as in-spite of quotation of similar rates in three successive emergency purchase tenders for disc brakes by the two firms, the only approved suppliers, CCI has exonerated on the basis of faulty anti-cartel enforcement in the Railways i.e. on policy considerations. CCI also accepted the defiance of the parties against non-disclosure of cost breakup in the post tender scrutiny. The order is likely to be debated as one of the parties i.e. Faiveley Transport, was penalized with a penalty of ` 5.70 Crores in a similar allegation of matching of rates with two other bidders in just one regular tender for supply of spare parts (feed valves) to the Diesel Loco Modernization Works, of Indian Railways. Further due to a legal lacunae, no appeal can be filed against this order by the Railways.