India: CCI Penalizes 10 Transportation Companies For Bid Rigging In Public Procurement Tenders

In a recent order, the Competition Commission of India (Commission/ CCI) penalized 10 transportation companies¹ (Opposite Parties) for rigging bids in response to tenders floated by a public sector undertaking for transportation of coal and sand² (Order). The CCI held that the Opposite Parties indulged in bid rigging in violation of Section 3(3)(d)³ read with Section 3(1)⁴ of the Competition Act, 2002 (Act) and the came down heavily on the transportation companies as the tenders were for procurement of services by a public utility, which were ultimately meant for the public at large.

Factual Background

The informant in the present case was a public sector undertaking engaged in the business of mining and supplying of coal to major industries such as electricity, cement, fertilizers, steel, chemical etc. whereas the Opposite Parties were engaged in ancillary services in colliery areas including sand and coal transportation.

The informant had floated four tenders for procurement of services of the Opposite Parties for coal and sand transportation. In response to the tenders, the Opposite Parties submitted identical bids, which resulted in the genesis of the proceedings before the CCI. The CCI took prima facie cognizance of the matter on 02.07.2015 and directed the office of the Director General, CCI (DG) to cause an investigation.

The DG submitted its investigation report on 17.01.2016 and concluded that (1) none of the opposite parties were able to justify their conduct of quoting identical rates; (2) that there were regular talks between the bidders and that they could not substantiate in any way, legitimate grounds for such communication; (3) many of the bidders had business and financial dealings with each other and they met at social gatherings and meetings; (4) some of the bidders admitted their conduct of bid rigging in some of the previous tenders floated by the informant; (5) that few of the bidders kept exchanging important information regarding the instant matter and its investigation. On the basis of the circumstantial evidence collected by the DG, it was concluded that the Opposite Parties indulged in bid rigging in contravention of Section 3(3) (d) read with Section 3(1) of the Act.

After considering the report of the DG, the CCI sent the investigation report to the parties for their comments/ objections. The opposite parties took numerous defenses some of which included (1) mis-joinder of tenders as they related to separate products; (2) violation of principles of natural justice by recording statements in English whereas the parties made their statements in Hindi; (3) non-admissibility of call data records as the same were not supported by affidavits as per Section 65B of the Evidence Act, 1872; (4) that the DG erroneously relied on previous tenders and could not go beyond the order of investigation which restricted the investigation only to the four impugned tenders; (5) failure to establish any agreement to rig bids; (6) long standing relationship between the parties has been wrongly considered by the DG as a plus factor; (7) reliance placed by the DG upon family relationships between some of the bidders cannot be construed as a plus factor; (8) failure of the DG to prove any AAEC; and (9) that the Opposite Parties are first time offenders and no harm has been caused to consumers as the impugned tenders were cancelled.

Analysis

The Order of the Commission appears to reinforce their approach of aggressively prosecuting hardcore cartels, especially in the public procurement space. From the date of enforcement of Section 3 of the Act i.e., 20.09.2009, the Commission has prosecuted approximately 15 cases (in the public procurement space) out of which 8 have resulted in infringement findings, many of these cases were instituted by aggrieved informants who were either subjected to unfair terms and condition or bid rigging.

The Commission vide its Order appears to have laid down certain plus factors which supplement corroboration of evidence to arrive at a finding of collusion, for instance call data records to prove communication amongst the bidders, quoting of near identical rates in previous tenders, business and financial dealings between many bidders, meetings at social gatherings, infrastructural conditions at the office of the informant, admission of bid rigging in earlier tenders etc.

Further, the CCI drawing power from the recent judgment of the Supreme Court of India in Excel Crop Limited v. CCI & Anr⁵, rejected the argument of the Opposite Parties that the DG ought not to have investigated and relied upon the conduct of the Opposite Parties in previous tenders as they did not form part of the initial order of investigation. The CCI noted that the initial order of investigation did not in any manner restrict the DG to limit the scope of investigation to the four impugned tenders and that for the purposes of inquiry into bid-rigging, it is inherently relevant to undertake a holistic assessment of facts and circumstances including the behavior of the parties in other relevant tenders/ previous tenders to establish whether quoting of identical prices is merely a co-incidence or repetitive conduct of the opposite parties.

The CCI reiterated that appropriate standard of proof to establish cartelization/ bid rigging ought to be preponderance of probabilities and not 'beyond reasonable doubt' as the proceedings under the Act do not involve criminal punishments but only monetary penalties and that detection of cartels is arduous, as such conspiracies are hatched in secrecy and many a times direct evidence is unavailable.

It appears that the while returning a finding on the liability of the office bearers, the CCI lost sight of its recent order in Director, Supplies & Disposals, Haryana v. Shree Cement Ltd.⁶, wherein it categorically held that 'Lastly, the Commission notes that though the DG has identified the individuals of the OPs for the purpose of proceeding under Section 48 of the Act; however, on perusal of the DG Report, it appears that, save and except recording the designation of such individuals and noting briefly their work profile based on their respective statements, no specific investigation was undertaken to link their role with the impugned conduct of the OPs. In these circumstances, the Commission is not inclined to proceed against such individuals as reported by the DG in Chapter 8 of the Investigation Report. Resultantly, proceedings initiated against them under Section 48 of the Act stand discharged forthwith.'⁷ The CCI appears to have yet again disregarded the precedents laid down by the erstwhile Competition Appellate Tribunal, which in a plethora of cases has held that the Scheme of the Act suggests that proceedings against individuals under Section 48 of the Act may only begin once the final order has been passed under Section 27 of the Act.

Further, the CCI taking into account the importance of the electricity sector, treated cartelization in the public procurement space as an aggravating factor, though it weighed in cooperation by the Opposite Parties as a mitigating factor, thereby imposing a penalty of approximately INR 120 million⁸. Additionally, the CCI also imposed penalties on eight officers amounting to INR 390 thousand who were responsible for the conduct of the opposite parties⁹.

The Order seems to have clarified the approach of the CCI with respect to many facets of competition laws in India. For instance, plus factors that may be considered by the CCI while prosecuting cartels, the standard of proof required to establish cartelization, the importance of public procurement and competition compliance programs.

However, it appears that even though steps were taken by the Opposite Parties to instill the spirit of competition laws within their organization by implementing a competition compliance program, the CCI did not treat the same as a mitigating factor.

It flows from the order that the enterprises already under the lens of the CCI may not benefit much from competition compliance programs, if the same are implemented after a probe has been initiated. This may be construed to be a setback for enterprises grappling with stringent competition laws in India and at the same time trying to comply with the law by implementing competition compliance programs.

Arjun Nihal Singh is a Senior Associate in the Competition Law Practice Group at Luthra and Luthra Law Offices. He graduated from Amity Law School, Delhi in 2014 with a degree in B.A.,LL.B. (Hons.). At the Firm, He has been engaged in various complex competition law litigations, mergers as well leniencies across various sectors. He has represented clients engaged in various fields including real estate, technology markets, agriculture, auto parts etc. before the Competition Commission of India, Competition Appellate Tribunal, High Court of Delhi as well the Supreme Court of India. He can be reached at ansingh@luthra.com

Footnotes

1. SSV Coal Carriers Pvt. Ltd.; Bimal Kumar Khandelwal; Pravin Transport; Khandelwal Transport; Khandelwal Earth Movers; Khanduja Coal Transport Co.; Punya Coal Road Lines; B. Himmatlal Agarwal; Punjab Transport Co.; Avaneesh Logistics Pvt. Ltd.

2. In re: Western Coalfields Limited v. SSV Coal Carriers Pvt. Ltd. & Ors., Case No. 34 of 2015, Order dated 14.09.2017;

3. Bid rigging or collusive bidding;

4. Restriction on enterprise or association of enterprise or persons or association of persons from entering into any agreement which causes or is likely to cause Appreciable Adverse Effect on Competition (AAEC)

5. Civil Appeal No. 2480 of 2014, Order dated 8.05.2017;

6. Ref Case No. 05 of 2013, Order dated 19.01.2017;

7. Para 281;

8. Four percent of the relevant turnover of the past three financial years of the OPs, i.e., from providing coal and sand transportation services;

9. Four percent of the average income from the past three financial years.

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