Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): The CCI has passed final order in two cases involving bid rigging/collusion in three tenders floated by Pune Municipal Corporation for Design, Supply, Installation, Commissioning, Operation and Maintenance of Municipal Organic and Inorganic Solid Waste Processing Plant(s). These cases were taken up by CCI suo motu under Section 19 of the Act based on the disclosure by firms under Section 46 of the Competition Act, 2002 (‘the Act’) read with the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘Lesser Penalty Regulations’). All firms in these cases had approached CCI as lesser penalty applicants.

While in one case, the tenders pertained to Financial Year 2013-14, in other case the tender pertained to Financial Year 2014-15. From the evidence gathered during investigation, CCI found that there was bid rigging/collusive bidding in the Tender Nos. 21 and 29 of 2013 and Tender No. 59 of 2014 floated by Pune Municipal Corporation for Solid Waste Processing Plant(s), in contravention of Section 3(3)(d) read with Section 3(1) of the Act by way of submitting proxy/ cover bids.

In case involving tender floated in Financial Year 2013-14 penalty was imposed on four firms in terms of Section 27(b) of the Act at the rate of 10 percent of their average turnover for the years 2011-12, 2012-13 and 2013-14 i.e. three years preceding the year in which collusion took place. An amount of INR 46.45 Lakhs was imposed on Saara Traders Pvt. Ltd. (Saara), INR 33 Lakhs on Ecoman Enviro Solutions Pvt. Ltd. (‘Ecoman’), INR 11 Lakhs on Fortified Security Solutions (‘Fortified’) and INR 26.40 Lakhs on Raghunath Industry Pvt. Ltd. (‘Raghunath’). The penalty was also imposed on individual officials of three firms, namely, Saara, Ecoman and Raghunath at the rate of 10 percent of their average income for the same three years. No penalty was imposed on individual of Fortified as it is a proprietorship firm. Further, in view of penalty already levied in Case No. 50 of 2015 for infringement during the period 2014-15, no penalty was levied in case involving tender floated in financial year 2014-15.

Keeping in view the modus operandi of the cartel, the stage at which the lesser penalty application was filed, the evidences gathered by the DG independent of lesser penalty application and co-operation extended in conjunction with the value addition provided in establishing the existence of cartel, CCI granted 50 percent reduction in penalty to Saara and its individuals than otherwise leviable. Pursuant to reduction, penalty imposed on Saara was INR 23.22 Lakh and INR 74,513 on its individual. [In re, Cartelization in Tender Nos. 21 and 28 of 2013 of Pune Municipal Corporation for Solid Waste Processing, Suo Motu Cases Nos. 03 and 04 of 2016, decided on 31.5.2018]

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Competition Commission of India: The Commission recently dealt with an application that was filed by the Association of Registration Plates Manufacturers of India, under Section 19(1)(a) of the Competition Act, seeking information against the respondents collectively, alleging them of having contravened the provisions of the Act. The informants sought investigation into the anti-competitive manner that was being done through cartelisation of implementation of a mandatory “High Security Registration Plates” (HSRP) Policy in various States by the respondents. The informants had previously filed several cases in the High Courts for larger interest of competition and public interest for the implementation of the aforementioned policy. The HSRP Policy was promulgated in 2001 following Parliament attack and the objective behind it was to control the usage of counterfeit registration plates over vehicles. The respondents had got their companies type- approved on 3 consecutive days in the same year.

The applicant pointed out that the Supreme Court had held in Association of Registration Plates v. Union of India, (2005) 1 SCC 679 that the State shall have the power to select a certain manufacturer through notice inviting tender (NIT) and can impose tender conditions for the purposes of manufacturing, supplying or selling of HSRP. He argued that the conditions upon which the tender was issued was such that it proved cartelization amongst the respondent companies had taken place as the rates quoted by them were so high that it could only be secured if there did not exist any competition in the selection process. This was done by seeking assistance from officials of the Transport Department in creating a “tailor-made pre-eligibility criteria”. But when non-manipulated NITs were issued in other states, since the respondent companies could not control the market in those states, the HSRP rates saw a fall in them in such states. This acted as an impetus for the respondent companies to lower their own rates to unreasonably lower prices so as to again be able to eliminate competition.

The Commission held that a careful consideration of the facts of the case ruled out a specific case of bid rigging in any State post relaxation of norms since many previous contracts that the respondent companies had secured were cancelled subsequently and other companies formed contracts instead of the ones in question. The Court mentioned that this could at best be called a case wherein misconduct by public officials had taken place since they connived with the bidding entities. But it went on to acknowledge that CBI had already begun proceedings in that regard and hence, the Commission didn’t need to look into that matter any longer. [Association of Registration Plates Manufacturers of India v. Shimnit UTSCH India Private Limited; Case No. 58 of 2017, decided on 14.11.2017]

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Competition Commission of India: The CCI recently passed an order under Sec. 26(2) of the Competition Act wherein the informant had filed information against several banks under Section 19(1)(a) of the above-mentioned Act alleging cartelisation between them to limit or control the safe deposit lockers services offered by them.

The facts of the case are that the informant had tried to avail a bank locker with a bank when he came to know that banks charge a certain amount of rent for providing locker services and the person availing the service is also made to sign an agreement wherein it is agreed that the banks shall hold no liability for any loss sustained to the articles that are kept inside the locker. The Informant noticed that till date no such mechanism has been introduced by banks to compensate their customers for any loss/ damage towards the articles kept inside the lockers. The informant alleged that banks in India have formed a monopoly over the system and them not compensating for any loss/ damage to the articles constitutes as them engaging in Cartelisation.

The informant contended that cartelisation is occurring due to non-compliance towards the principle of “Bailment” under the Indian Contract Act, 1872 by the banks in India. The informant argued that the mandatory agreement which is to be signed by the person applying for availing the bank locker is anti-competitive and prohibitive under Section 3 of the Act. The informant acknowledged that although there is no explicit agreement amongst the banks to show any evidence of such a practice being carried out, it is appropriate to inquire into cases of anti-competitive agreements on the basis of material and doing so will prove this practice amongst banks being anti-competitive. The informant also alleged that the banks have formed an association to prevent improvement of services thus affecting competition in the market and interests of consumers.

The Commission held that since there is no evidence given in regard to the allegation that the banks engage in cartelisation besides merely providing RTI responses that suggest that no responsibility is taken by the banks for any loss/damage to the articles inside the lockers, it cannot be considered by the Commission. The Commission mentioned that certain elements need to be fulfilled for Section 3(3) of the Act to have been contravened, which are:

i. the competitors need to enter into an agreement under Section 2(b) of the Act inclusively as an arrangement in concert or one that is enforceable by legal proceedings; and

ii. the object, if such an agreement is covered under Sec.tion 3(3) of the Act.

The Commission noted that for establishing a case in the preliminary stages, the above-mentioned elements need not be established in great details but there should at least be material that establishes a case prima facie in contravention of Section 3 of the Act. Hence, it held that no such prima facie case is being established considering the material that has been presented by the informant. [Kush Kalra v. Reserve Bank of India, Case No. 23 0f 2017, decided on 23/08/2017]

 

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Competition Commission of India: The CCI found insurance PSUs guilty of cartelization qua rigging the tender floated by the Government of Kerala for selecting insurance service provider for implementation of the ‘Rashtriya Swasthya Bima Yojna’(‘RSBY’). The regulator imposed around 670 crore rupees penalty on the PSUs.

The notable point in this order is that CCI did not buy the ‘single economic entity’ argument advanced by the PSUs. They argued that since the Government of India holds 100% shares of all the four companies, and controls the management and affairs of the companies through Ministry of Finance, therefore these PSUs constitute ‘single economic entity’. However, the CCI rejected the argument on the ground that the Finance Ministry was not informed and consulted by these companies before or after submitting their bids thus they participated in the tender independent of the Finance Ministry. In Re: Cartelization by public sector insurance companies in rigging the bids, 2015 CCI 17 decided on 10/07/2015