In order to control and uphold the competitiveness in the Indian economy, the Competition Commission (hearinafter “Commission”) of India has passed a plethora of commendable orders whereby the large players in the market have missed the chances of “clever” marketing and trading.
The Competition Act, 2002 (hereinafter referred to as “the Act”) defines “bid rigging” as “any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”
In the recent case of Western Coalfields Limited vs SSV Coal Carriers Private Limited CCI (Case No. 34 of 2015) the Court observed that identical prices in Tenders are a violation of the principles of Competition laws. A brief set-up of the case and the significant points of interpretation observed by the Commission are enumerated below.
The Informant is one of the 8 subsidiary companies of Coal India Limited, having mining operations in multiple states and supplying coal to various industries. The Opposite Parties (hereinafter referred to as “OPs”) are engaged in the business of providing ancillary services for sand and coal transportation in the Informant’s areas of operation. The instant application was filed pursuant to the alleged quoting of identical prices which were considerably higher than the estimated costs, by the OPs in 4 tenders floated by the Informant for coal and sand transportation. The information in the present case was filed by the Informant under Section 19 (1) (a) of the Competition Act, 2002 for alleged contravention of Section 3 of the Act.
Relations and interactions between parties:
The informant majorly based its contentions on the Director General’s (“hereinafter referred to as DGs”) observations that the key persons involved in the OPs were related, worked together on projects, had significant business relations and intercourse and therefore there was a prima facie case that they had an arrangement to decide and agree upon the prices quoted by them. It was significant to note that the prices were identical upto the last decimal, which cannot be overlooked as a mere coincidence. They were all involved in identical services of transportation of sand/ coal, which had the effect of eliminating, reducing and manipulating the process of bidding for the 4 impugned tenders.
The Informant hence, alleged that the aforesaid conduct of the OPs in submitting identical bids at higher rates is a blatant act of bid-rigging. The case required the DG to infer upon whether the relations and commercial interactions between the OPs would amount to collusive bid rigging and therefore be adjudged as Anti-Competitive arrangements by the Commission.
For the DGs observation that there were several joint ventures between the OPs, which was breeding ground for inter-mingling, the OPs contended that such business dealings were natural as, it was a condition in the tender itself that allowed them to form joint ventures at times considering that 1 bidder may not be able to undertake the entire work single-handedly.
Factors considered by the DG during investigation:
The DG investigated the matter into great detail and included points such as the infrastructural conditions of the informant’s office or the familial ties between the various OPs and investigation into the prior tenders and several such ancillary factors. However, the OPs stated that such factors cannot be relevant.
The OPs also rationalized the identical prices by stating that there was “a limited market where the Informant used to divide the work between bidders quoting identical prices, there was an incentive for suppliers to quote higher prices instead of competitive prices.” They also stated that since the market was oligopolistic, having very few or a handful or players, there was high probability of there being identical price and the same cannot be considered anti-competitive.
Lack of concrete evidence against the OPs and the need thereof-
The OPs contended that unlike other clauses of Section 3 (3), in cases of bid-rigging, appreciable adverse effect on competition has to be established. It must be established that not only the parties quoted inflated identical prices, but also that the effect of such an act was to manipulate the bidding process.
The OPs while admitting to having business relations and interactions and a probable opportunity to have fixed the prices, stated that these were mere opportunities and there was not enough evidence on record to showcase that such opportunities were abused by the OPs. They contended that “in cases of circumstantial evidence, the DG has to satisfy that on the basis of evidence, there is possibility of only one conclusion and no other plausible explanation other than collusion amongst the OPs. Since the proceedings under the Act have penal consequences, the relevant standard of proof to establish a cartel/ bid-rigging should be 'beyond reasonable doubt' and not 'preponderance of probabilities'.” They stated that the DG had failed to establish cartel amongst the OPs through clear and cogent evidence.
Consideration of all relevant and incidental factors
The Commission did not find enough merit in the contention of OPs that the DG cannot examine tenders that were issued prior to the enforcement of Section 3 the Act i.e. prior to May 20, 2009 or the familial ties or the infrastructural environment of the Informant. As, the Commission was of the view that since the case is based on circumstantial evidence, it was legitimate on the part of the DG to ponder upon each and every incidental and ancillary observation to infer with a holistic perception. The Hon'ble Supreme Court in Excel Crop Care Limited v. CCI (CIVIL APPEAL NO. 2480 of 2014), held as under:
"Pertinently, the investigation of DG revealed that the appellants had been quoting such identical rates much prior to and even after May 20, 2009. No doubt, in relation to tenders prior to 2009, it cannot be said that there was any violation of law by the appellants. However, prior practice definitely throws light on the formation of cartelization by the appellants, thereby making it easier to understand the events of 2009 tender.”
The Commission hence observed that, in a case of alleged bid-rigging, if a holistic, not isolated, assessment of the evidence on record points to the fact that identical prices quoted by the bidders are not a result of any market force but a consequence of consensus amongst them, the same is conclusive of contravention of Section 3 (3) (d) read with Section 3 (1) of the Act.
The Commission observed that in cases of cartelization, where direct and prima facie evidence is not easily available, it is unfair to out rule the existence of circumstantial evidence or relevant factors pointing towards an inference.
Burden of Proof
The Commission differentiated between the burden of proof required in penal cases vis a vis that in competition cases. It cited the observations of Hon'ble COMPAT in International Cylinder (P) Ltd. and Others v. Competition Commission of India and Others, 2014 Comp. L.R. 184 (CompAT):
"30. The burden in this behalf cannot be equated with the burden in the criminal cases where the prosecution has to prove the allegation beyond the reasonable doubt. A strong probability would be enough to come to the conclusion about the breach of the provisions of the Competition Act, 2002.”
Proof of appreciable adverse effect:
Since the agreement amongst OPs stands established, the statutory presumption of appreciable adverse effect on competition automatically follows. The Commission notes that the Hon'ble Supreme Court in Excel Crop (supra) has held that agreements mentioned in Section 3(3) of the Act, including bid-rigging, would be treated as ipso facto causing appreciable adverse effect on competition. The Court further held that once an agreement amongst the bidders is established, heavy onus is on the bidders to justify the conduct. Once existence of an agreement for anti-competitive object is established, the burden is on the alleged contravener to prove that the said agreement does not have any appreciable adverse effect on competition.
The Commission concluded that since the prices quoted by the OPs were identical in all the Tenders and not just 1, and that there were identical upto the last decimal, it would not be construed as a coincidence or prices based on mere market analysis, but a case of collusive bidding. It stated that “It is highly unlikely that in normal market conditions, prices quoted by 4 different bidders in two tenders for several jobs would be identical to this extent. The Commission notes that the matter in hand is not a case of mere price parallelism as contended by the OPs. The investigation has revealed several other plus factors (including against OP-8) which evidences cartel, which are dealt with in detail in the later part of this order.”