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20 September, 2017
The Competition Commission of India (CCI) has imposed a cumulative penalty of INR 120 million (approx. USD 1.87 million) on ten coal and sand transporters (Opposite Parties or OPs) for bid-rigging. The OPs were found to have rigged the bids submitted in relation to four tenders for coal and sand transportation floated by Western Coalfields Limited (Informant), a subsidiary of the state-owned monopolist, Coal India Limited.[1]
The information filed with the CCI alleged contravention of the provisions of the Competition Act, 2002 (Competition Act) on the ground that the OPs had quoted identical prices, which were suspiciously higher than the rates quoted for the same jobs in the recent past.
The CCI in this order reiterated that the standard of proof required to establish contravention of the Competition Act, a civil legislation, is ‘preponderance of probabilities’ and not ‘beyond reasonable doubt’ which is the standard followed in criminal cases. Further, in line with the cases examined by it previously, the CCI observed that circumstantial evidence, in conjunction with plus factors, is sufficient evidence to establish the existence of an agreement in cartel cases, given that they are not hatched in the open.
In relation to the submission of identical bids, the CCI observed that each tender required the tender participant to provide quotes for more than one job. Under normal market conditions, it was highly unlikely that prices quoted by the OPs for different jobs in the four tenders could be identical to the extent of the decimals. In addition, despite the fact that the OPs had separate and distinct cost structures, the quoted bid prices were identical.
In addition to the above, the CCI observed that the following plus factors played a significant role in ascertaining that the OPs were engaged in bid-rigging in this particular case:
- Regular meetings and financial dealings among the OPs;
- History of quoting identical prices in previous tenders;
- Last minute filing of price bids at the office of the Informant, which could have provided a platform for discussion between the OPs at the time of filing the bids; and
- Demand for higher prices in the tenders by the Cottage Industries Miniaturists Trade Association, the trade association of the OPs.
In relation to the procedure followed by the Director General (DG) in the course of the investigation, the OPs argued that the DG should not have looked at conduct of the parties prior to 20 May 2009 to ascertain the allegations in the present investigation, as the provisions relating to anti-competitive agreements (Section 3) were not in force. However, placing reliance on the ruling of the Supreme Court in Excel Crop Care[2], the CCI observed that there was no restriction (express or implied) to limit the investigation to the four impugned tenders. While conduct of the OPs prior to 20 May 2009 may not be subject to the provisions of the Competition Act, such instances can definitely be taken into account to comprehensively determine whether quoting of identical prices in the impugned tenders was merely a co-incidence or repetitive practice of the OPs.
In terms of imposition of penalty, the CCI took note of the importance of the electricity sector and found the criticality of the services procured by the Informant under public procurement as an aggravating factor. However, the CCI also considered mitigating factors such as cooperation by the OPs in the proceedings and incorporation of competition law compliance measures into their businesses. The CCI therefore imposed a penalty of INR 120 million (approx. USD 1.87 million), i.e., four per cent. of the average turnover of the past three financial years of the OPs, which accrued from providing coal and sand transportation services (i.e., the relevant turnover).
Additionally, the CCI also imposed penalties on eight officers who were in-charge of the conduct of the OPs at the rate of four per cent. of their average income of the past three financial years.
In the last couple of years, the CCI has aggressively prosecuted bid-rigging cartels and this order significantly adds to the growing body of competition jurisprudence in India. It is notable that a majority of the big-rigging cases investigated by the CCI have been references from the government department/enterprise floating the tender. This demonstrates the pro-active role of the government towards rectifying anti-competitive practices prevailing in the government procurement sector and the critical role played by the CCI.
[1] Western Coalfields Limited v. SSV Coal Carriers Private Limited, Case No. 34 of 2015
[2] Excel Crop Care Limited v. Competition Commission of India, AIR 2017 SC 2734.
* The authors were assisted by Neelambera Sandeepan, Senior Associate and Anmol Awasthi, Associate
For further information, please contact:
Anshuman Sakle, Partner, Cyril Amarchand Mangaldas
anshuman.sakle@cyrilshroff.com
