CCI | MSMEs indulging in cartelization in the Composite Brake Blocks (CBB) market in India, cautioned to refrain from indulging in such malpractices in future

Competition Commission of India (CCI): While deciding the instant matter which revolved around violation of Section 3 (3) of the Competition Act, 2002 in the tenders floated by the various divisions/ zones of the Indian Railways (including the Informants) and other procuring entities for procuring of different types of Composite Brake Blocks (CBBs), during the period 2009 to 2017, the Coram comprising of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma, Bhagwant Singh Bishnoi, (Members) accepted the complaint registered by the Railway zones against various manufacturing companies for indulging in cartelization (price-fixing) in the Composite Brake Blocks (CBB) market in India, at least from 2009 till 2017, by means of directly or indirectly determining prices, allocating markets, co-ordinating bid response and manipulating the bidding process, which had an “appreciable adverse effect on competition” (AAEC) within India.

Various railway divisions from different zones of the country had given out tenders for procurements of certain Brake blocks and Composite Brake Blocks (CBB), for which vendors were approved by Research Design and Standards Organisation (‘RDSO’). It was alleged that identical/ higher bids were quoted by the Opposite Parties in the instant matter, in tenders floated by various Railway Zones and identical reductions in quoted rates were offered by them in the subsequent negotiations.The Commission, on noting the allegations made against the companies, ordered the Director General to conduct the investigation on the matter. The DG found that 8 of the 10 Opposite Parties had formed a cartel in order to manipulate the rates of the tenders and the other 2 OPs had not been a part of the cartel but did get involve in manipulative practices to exchange bid related information. Thus it was concluded by the DG that the Opposite Parties were found to be in violation of Section 3 of the Competition Act, 2002.

The counsels for OP 1-10 submitted their claims against the report of DG. The main grounds of their respective defenses were – being co-operative in submitting the evidence; no economic injury caused to the railways; ceased participation from the cartel; the company being unaware of its employees engaging in such cartel like behaviour and upon knowing so, withdrawing the employee from such deal; indirect involvement in the business; no opportunity provided to the company for cross-examination of employees found engaging in such behaviour etc. No objections/ suggestions to the investigation report of the DG were made by the Informant Parties (the Railway Zones).

The Commission noted two main issues after hearing the claims of the counsels. The first was whether the Opposite Parties had acted in a manner which is in contravention of the provisions of Section 3 (3) of the Act and the second issue was of the liability of the individuals/ persons/ officials of the Opposite Parties, in terms of Sections 48 (1) or (2) of the Competition Act. The answer to the first question was found in the affirmative by the Commission and hence, it found OP -1 to OP-10 had violated Section 3 (3) (a), Section 3(3) (c) and Section 3 (3) (d) read with Section 3 (1) of the Competition Act, 2002. Commission further ordered the OPs, in term of Section 27 (a) of the 2002 Act, to direct to their officials found to be in contravention of Section 48 (2) of the 2002 Act to desist from indulging in such practices in the future. However, the Commission did not impose any monetary penalty n these companies as it found many of them to be Micro Small and Medium Enterprises (MSMEs) and noting how adverse the monetary situation has been during COVID-19, the Commission, in the interest of justice, refrained from imposing any monetary penalty in the peculiar circumstances of the case. However it did caution these companies to refrain from indulging in such malpractices and any such future behaviour would be constituting recidivism with attendant consequences. [South Eastern Railway West Bengal v. Hindustan Composites Ltd., 2020 SCC OnLine CCI 28 , decided on 10-07-2020]

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