On 5 October 2017, the Competition Commission of India (CCI) passed an order in two separate reference cases filed by the Delhi Jal Board (DJB) against Grasim Industries Ltd. (GIL), Aditya Birla Chemicals (India) Ltd. (ABCIL) and Gujarat Alkalis and Chemicals Limited (GACL) for violation of Section 3(3)(d) of the Competition Act, 2002 (Act) due to collusive bidding. DJB was procuring Poly Aluminium Chloride (PAC) and Liquid Chlorine (LC) from the said companies for purification of water, through press tendering and e-tendering, and alleged that there was collusive bidding for both the chemicals for several years.
Concept of Single Economic Entity under Section 3 of the Competition Act, 2002
It was, inter alia, the contention of GIL and ABCIL that together they constituted a single economic entity and, therefore, there was no question of collusion between them. In order to establish this, GIL and ABCIL contended that they were both a part of the Aditya Birla Group. Further, they did not exercise any competitive constraints on each other, they had common promoters, shareholders, directors and customers and their chemical business was managed by a single marketing team.
The CCI did not accept this argument of GIL and ABCIL, as according to the CCI, “Where two or more entities of the same group decide to separately submit bids in the same tender, they have consciously decided to represent themselves to the procurer that they are independent decision making centres and independent options for procurement.” According to the CCI, in such cases the entities have to comply with the provisions of the Act, in letter and spirit.
Cartelisation in Poly Aluminium Chloride tenders
The CCI found that GIL, ABCIL and GACL had cartelised in bidding for PAC tenders. To come to this finding, the CCI relied on economic evidence. According to the CCI, there were various indicators which were pointing to collusion between the bidders. Some of these indicators pointed out by the CCI were converging but simultaneously increasing prices, parallel pricing despite locational differences of the manufacturing facilities, lack of discernible pattern in freight charges and rates offered to DJB being generally higher than the rates offered to other customers. Furthermore, the CCI also found that there was a discernible bidding pattern which could not be coincidental and was rather indicative of collusive behaviour.
While the CCI found the bidding by GIL, ABCIL and GACL to be collusive, it is important to note that Kanoria Chemicals and Industries Ltd. (KCIL) which was one of the parties alleged to have contravened the provisions of the Act, was exonerated by the CCI. KCIL argued that it had sold off its concerned chloro chemical division to ABCIL in May 2011 and that for the period prior to the sale of the concerned division, it had bid only in the years 2009-10 and 2010-11, and in these years, it did not win L1 status even once. This according to KCIL evidenced that they could not have been a part of any cartel.
No cartelisation in Liquid Chlorine tenders
With regard to the LC tenders, the CCI ruled against the allegations of cartelisation. While the CCI acknowledged that the prices quoted by GIL, Punjab Alkalies & Chemicals Limited (PACL) and ABCIL were in a close range and the timings of submission of the bids were also close to each other, but there were no other factors indicative of concerted action by the opposite parties. KCIL was exonerated on different grounds.
KCIL argued that it had sold off its concerned chloro chemical division to ABCIL in May 2011 and that for the period prior to the sale of the concerned division, it had only bid for the years 2009-10 and 2010-11. Further, in the years in which it had bid, it was the highest bidder and it did not get any order from DJB. This, according to KCIL, clearly established that they could not have been a part of any cartel.
Keeping in mind various factors and nature of products involved, the CCI imposed a penalty equivalent to 8 percent of average relevant turnover for ABCIL and GIL and at 6 percent of average relevant turnover for GACL. The CCI considered the act of submitting separate bids while preparing them through common channels to be “egregious” and decided to impose a higher percentage of penalty on GIL and ABCIL.
The key takeaway from this decision is that group companies having same or common decision makers / marketing teams cannot submit two separate bids for the same tender. It is advisable that when group companies, with separate marketing teams are submitting competing bids, there should not be any interaction between the two companies with regard to that bid/tender.