In re Chief Materials Manager, North Western Railway Vs. Moulded Fibreglass Products and Others (Competition Commission of India)
The Competition Commission of India (CCI) issued a final order against eleven (11) companies/ firms which were found to have contravened the provisions of Sections 3(3)(a), 3(3)(b), 3(3)(c) and 3(3)(d) read with Section 3(1) of the Competition Act, 2002 (Act), which proscribe anti-competitive agreements. The case was initiated on the basis of a reference filed on behalf of the North Western Railways.
CCI found these companies/ firms to have indulged in cartelisation in the supply of High Performance Polyamide Bushes (HPPA) and Self Lubricating Polyester Resin Bushes (SLPR) to the Indian Railways by means of directly or indirectly determining prices, allocating tenders, controlling supply and market, co-ordinating bid prices and manipulating the bidding process. The evidence in the matter included regular e-mail communications and WhatsApp exchanges between the parties, quoting of identical/ similar prices by certain parties, filing of bids from same IP addresses by certain parties in close proximity etc. Of the eleven (11) entities, four (04) were lesser penalty applicants before the CCI. Under Section 46 of the Act, a cartel member may approach the Commission by way of filing an application seeking lesser penalty, in return for providing full, true and vital disclosures in respect of the alleged cartel to the Commission.
Further, fourteen (14) individuals of these eleven (11) entities were also held by the CCI to be liable for the anti-competitive conduct of their respective companies/ firms, in terms of the provisions of Section 48 of the Act.
CCI imposed penalties @5% of the average turnover/ income upon the companies/ firms and their respective individuals found guilty of violating the provisions of the Act. Giving benefit of reduction in penalty under the provisions of Section 46 of the Act of 80% to first lesser penalty applicant and its individuals, 40% to second lesser penalty applicant, 30% to third lesser penalty applicant and its individuals, and 20% to fourth lesser penalty applicant and its individuals, CCI directed the parties to pay penalties totaling to approx. INR 1.16 crores, besides issuing a cease-and-desist order.
The order was passed in Ref. Case No. 03 of 2018 and a copy of the order is available at CCI website at www.cci.gov.in.
ORDER UNDER SECTION 27 OF THE COMPETITION ACT, 2002
Facts:
1. The present matter was initiated by the Commission on receipt of a Reference under Section 19(1)(b) of the Competition Act, 2002 (the ‘Act’) from Chief Materials Manager, North Western Railways (‘Informant’), against Moulded Fibreglass Products (‘OP-1’) and Power Mould (‘OP-2’).
2. The Informant alleged that OP-1 and OP-2 had indulged in cartelisation in the Informant’s bidding process for the procurement of High Performance Polyamide (‘HPPA’) Bushes and Self Lubricating Polyester Resin (‘SLPR’) Bushes (which are alternatives to each other) used in Bogie Mounted Brake Cylinder Coaches in contravention of the provisions of the Act. The Informant, inter alia, submitted that OP-1 and OP-2 had quoted identical prices to the last 2 decimal points in their bids, in response to the Informant’s Re-Tender No. 30.16.2151-A opened on 02.09.2016, despite them being located at different places (Kolkata and Daman).
3. Upon consideration of the reference in its ordinary meeting held on 19.07.2018, the Commission decided to call for certain documents/ clarification from the Informant which were filed by him on 17.08.2018.
4. Thereafter, the Commission considered the matter in its ordinary meeting held on 11.09.2018 and decided to pass an appropriate order.
5. Subsequent thereto, the Commission passed an order dated 16.10.2018 under Section 26(1) of the Act forming an opinion that there exists a prima facie case of contravention of the provisions of Section 3(3)(d) read with Section 3(1) of the Act, and accordingly, directed the Director General (‘DG’) to cause an investigation into the matter and submit a report. The Commission made it clear that if during the course of investigation, the DG comes across anti-competitive conduct of any other entity/ person in addition to those mentioned in the information, the DG shall be at liberty to investigate the same as well. Further, the DG was directed to conduct a detailed investigation into the matter without restricting and confining itself to the duration mentioned in the information. The DG was also directed to investigate the role of the officials of the Opposite Parties, in terms of Section 48 of the Act, after giving them due opportunity of being heard.
6. During the pendency of investigation before the DG, applications under Section 46 of the Act read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘LPR’) were received in the Commission on behalf of (i) Black Burn and Co. Pvt. Ltd. and its 5 individuals, (ii) OP-1 and its 5 individuals, (iii) Jai Polypan Pvt. Ltd. and its individuals, and (iv) Quadrant EPP Surlon India Ltd. (now MCAM Surlon India Ltd.) and its 2 individuals. The same, vide separate orders, were forwarded by the Commission to the DG.
Findings of the DG:
7. The DG, after conducting a comprehensive investigation in the matter, submitted the investigation report. The findings of the DG in its report, in brief, are as under:
(a) The following nine (09) other parties are also found to be involved in the alleged cartelisation:
i. Black Burn and Co. Pvt. Ltd. (‘OP-3’)
ii. Polyset Plastics Private Ltd. (‘OP-4’)
iii. M/s Anju Techno Industries (‘OP-5’)
iv. Calstar Steel Limited (‘OP-6’)
v. Jai Polypan Pvt. Ltd. (‘OP-7’)
vi. Polymer Products of India Ltd. (‘OP-8’)
vii M/s Micro Engineers (‘OP-9’)
viii. Quadrant EPP Surlon India Ltd. (Now MCAM Surlon India Ltd.) (‘OP-10’)
ix. Skylark Projects Pvt. Ltd (‘OP-11’)
(b) After analysing the nature of activities performed by the contravening parties i.e. manufacture and supply of moulded plastics, HPPA/ SLPR Bushes, protective tubes and other multiple components, all the eleven (11) parties (OP-1 and OP-2 and the above additional 09 parties) were found to be entities indulging into economic activities and hence, ‘enterprise’ within the definition of Section 2(h) of the Act. Further, it was found that the Indian Railways, vide its circular, has declared HPPA/ SLPR Bushes to be alternates to each other. As such, all the 11 parties were found to be engaged in identical/ similar trade of goods. Accordingly, the conduct of these 11 parties was can be analysed in terms of Section 3(3) of the Act.
(c) During the investigation, the DG analysed various evidences in the form of price parallelism in various tenders across different railways zones, commonality of IP addresses and common login time and date of a bunch of parties, common directorship/ partnership of some groups of parties, and e-mail exchanges and WhatsApp communications between representatives of various parties. The DG carved out a modus operandi which was being followed by the parties and observed that:
a. there was a clear understanding between the parties with respect to determination of prices in regard to the tenders floated by Indian Railways for procurement of HPPA/ SLPR Bushes. Further, there were also discussions regarding revision in prices and e-mails where members can be seen pressuring other members to quote only the decided prices and not lower;
b. the parties had an agreement and understanding wherein the intention was to inflate or increase the prices of HPPA/ SLPR Bushes in the tendering process. The parties also discouraged each other to quote lower rates in the bids and encouraged each other to quote higher prices;
c. the parties could be seen asking other parties to withdraw their offers which showed that the parties, in agreement with each other, were controlling and limiting the supply of HPPA/ SLPR Bushes as these were the only approved vendors of the said product;
d. the tenders were distributed amongst the parties on the basis different railway zones and accordingly, the parties were sharing the market by way of allocation of the tenders by geographical area of the market.
In view of the above, the DG concluded that all the eleven (11) parties were indulging in contravention of the provisions of Section 3(3)(a), 3(3)(b), 3(3)(c) and 3(3)(d) of the Act.
(d) In terms of Section 48 of the Act, the DG identified certain individuals of the parties who had played an active role in contravention of the provisions of the Act by the respective entity and/ or was in-charge of and responsible for the conduct of the business of the respective entity during the period of contravention, and accordingly, fixed liability upon 14 such individuals..
Proceedings before the Commission:
8. The Commission considered the investigation report submitted by the DG in its ordinary meeting held on 15.04.2021 and decided to implead the additional 09 parties found guilty of contravention of the provisions of the Act by the DG, as Opposite Parties 03 to 11 in the present matter (OP-1 to OP-11 hereinafter referred to as the ‘OPs’). The Commission also forwarded an electronic copy of public version of the investigation report to the Informant, giving it an opportunity to file its suggestions/ objections, if any thereto. As far as the OPs and their individuals found liable by the DG in terms of Section 48 of the Act were concerned, the Commission decided to form a confidentiality ring amongst them for the purposes of sharing confidential version of the DG Report/ DG Records with them, and accordingly, directed the OPs and their individuals concerned to furnish to the Commission, the names and undertakings of persons who would form part of the confidentiality ring on their behalf.
9. Upon receipt of such names and undertakings from 09 out of 11 OPs and their 12 individuals, the Commission, vide order dated 08.09.2021, created a confidentiality ring amongst the 09 OPs and their 12 individuals and forwarded to them, electronic copy of the confidential version of the investigation report. To remaining 02 OPs and their 02 individuals, non-confidential qua OPs version of the investigation report was forwarded. The parties were given an opportunity to file their suggestions/ objections, if any, to the investigation report of the DG and they were also directed to file their certain financial statements. The OPs were directed to furnish their audited Financial Statements including Balance Sheets and Profit & Loss Accounts for the relevant Financial Years (‘FYs’) i.e. 2015-16 to 2019-20 along with details of their revenue and profit generated in these FYs from the sale of HPPA Bushes and SLPR Bushes by way of Affidavits supported by certificates of Chartered Accountants, while the persons identified by the DG in terms of Section 48 of the Act were directed to file their income details including Income Tax Returns (‘ITRs’) for the FYs 2017-18, 2018-19 and 2019-20.
10. Thereafter, on 27.01.2022, the Commission heard the oral submissions addressed by the respective learned counsel(s) for the parties on the DG report and on the respective applications for lesser penalty filed by certain parties under Section 46 of the Act. The Commission decided to pass an appropriate order in the matter in due course. Thereafter, the parties submitted their respective written arguments.
Submissions of the parties:
11. In their suggestions/ objections to the investigation report of DG written arguments, and during the oral hearing, the parties took diverse pleas which are summarised in the succeeding paras:
12. Informant
12.1 No submissions were filed on behalf of the Informant, and neither anyone appeared on behalf of the Informant.
13. Moulded Fibreglass Products and Mr. Alok Somani
13.1 OP-1 largely agrees with the observations and conclusions drawn in the investigation report. However, it may be noted that OP-1’s role in the cartel was limited only in its capacity of being a Part I supplier of SLPR Bushes. It did not participate in the cartel as Part II supplier of HPPA Bushes. Further, though the cartel was in operation since 2014 onwards, OP-1 came to know about the same only in 2016 when Mr. Alok Somani was approached by the other manufacturers to become a part of the cartel. In 2016 also, OP-1 became an unwilling member to the cartel only because it was incurring heavy losses in its SLPR Bushes business as the Indian Railways had decided to treat low performing HPPA bushes at par with expensive SLPR bushes. However even on becoming a part of the cartel, OP-1 did not play an active role in facilitating the cartel. Since beginning, it was Ms. Shanta Sohoni of OP-4 who co-ordinated the activities and was the ring leader of the cartel. Further, the tendering mechanism of Indian Railways of negotiating prices based on L1 quotes also lead to an indirect exchange of price related information.
13.2 There was no cartel between OP-1, OP-3 and OP-11. The DG’s theory of there being a cartel between OP-1 and OP-3 based on identical IP addresses from which bids were quoted, is untenable. OP-1 and OP-3 may have participated in the same tenders, but while one was quoting for HPPA Bushes, the other was quoting for SLPR Bushes. Further, the Indian Railways was also well aware of OP-1 and OP-3 being sister entities. For the sake of complete disclosure, it is submitted that on certain occasions, even OP-11 also filed the bids from OP-3’s office; however, this was because OP-11 bought the major raw material ‘prepreg’ for SLPR Bushes, from OP-3 only. OP-11 could enter the business of SLPR Bushes only because of the help of OP-3 which provided to it the necessary raw material and technology to develop SLPR Bushes. However, it continued to face various technical difficulties for which it regularly consulted OP-1 and OP-3. Hence, it cannot be said that OP-11 provided cover bids for OP-1 and OP-3.
13.3 The DG has not investigated cartel conduct prior to 2016 despite there being evidence on record to show that the cartel was in operation from at least 2014.
13.4 The DG’s conclusion regarding there being geographical allocation of market amongst the OPs, is factually and legally, untenable. There is no evidence on record regarding territorial/ geographical/ zonal allocation of tenders amongst the OPs.
13.5 OP-1 is a Micro Small and Medium Enterprise (‘MSME’) and has undergone severe economic hardship on account of COVID-19 pandemic. Hence, monetary penalty ought not to be imposed on OP-1.
13.6 OP-1 has fulfilled all conditions mentioned in the LPR for grant of lesser penalty to it. It has provided full, true and vital disclosures and has extended full, continuous and expeditious co-operation. In fact, the disclosures made by OP-1 and OP-3 led to other participants also file for lesser penalty. The DG has also extensively relied upon the evidence provided by OP-1 to incriminate various OPs. Even before the filing of a lesser penalty application, Mr. Alok Somani of OP-1 had voluntarily made vital disclosures to the DG and provided direct evidence of cartel which included e-mails exchanged between the OPs in furtherance of the cartel. Hence, OP-1 ought to be granted the maximum benefit of reduction in penalty, if any, imposed upon it.
13.7 OP-1’s participation in the cartel did not lead to any appreciable adverse effect on competition (‘AAEC’) within India. In terms of the factors stated under Section 19(3) of the Act, OP-1’s conduct neither created any entry barriers for new entrants in the market, nor drove existing competitors out of the market, nor led to foreclosure of competition by hindering entry into the market. Rather, OP-1 developed a technically superior product in the form of SLPR Bushes along with competing vigorously against incumbent HPPA Bushes players who had formed a cartel which led to significant benefit to the consumer (Indian Railways). It helped OP-11 enter SLPR Bushes market leading to improvement in the production and distribution of SLPR Bushes. By developing SLPR Bushes, OP-1 solved longstanding technical problem faced by the Indian Railways thereby leading to promotion of technical and scientific development.
14. Black Burn and Co. Pvt. Ltd. and Mr. Alok Somani
14.1 OP-3 largely agrees with the observations and conclusions drawn in the investigation report. However, though the cartel was in operation since 2014 onwards, OP-3 came to know about the same only in 2016 when Mr. Alok Somani was approached by the other manufacturers to become a part of the cartel. Further, OP-3 started participating in the cartel only from January 2018 onwards, that too because it was incurring heavy losses in its SLPR Bushes business as the Indian Railways had decided to treat low performing HPPA bushes at par with expensive SLPR bushes. It can be seen from the rates quoted by OP-3 in 2016 and 2017 tenders that such rates were quite low and competitive. Anyhow, even on becoming a part of the cartel in January 2018, OP-3 did not play an active role in facilitating the cartel. Since beginning, it was Ms. Shanta Sohoni of OP-4 who coordinated the activities and was the ring leader of the cartel.
14.2 In many of the excel sheets containing data of allotment of tenders to various OPs which are attached to the e-mails of Ms. Shanta Sohoni of OP-4 sent 2016 onwards, OP-3 has been wrongly mentioned in place of OP-1. It was OP-1 and not OP-3 which had joined the cartel in 2016. Further, the tendering mechanism of Indian Railways of negotiating prices based on L1 quotes also lead to an indirect exchange of price related information.
14.3 There was no cartel between OP-1, OP-3 and OP-11. The DG’s theory of there being a cartel between OP-1 and OP-3 based on identical IP addresses from which bids were quoted, is untenable. OP-1 and OP-3 may have participated in the same tenders, but while one was quoting for HPPA Bushes, the other was quoting for SLPR Bushes. Further, the Indian Railways was also well aware of OP-1 and OP-3 being sister entities. For the sake of complete disclosure, it is submitted that on certain occasions, even OP-11 also filed the bids from OP-3’s office; however, this was because OP-11 brought the major raw material ‘prepreg’ for SLPR Bushes, from OP-3 only. OP-11 could enter the business of SLPR Bushes only because of the help of OP-3 which provided to it the necessary raw material and technology to develop SLPR Bushes. However, it continued to face various technical difficulties for which it regularly consulted OP-1 and OP-3. Hence, it cannot be said that OP-11 provided cover bids for OP-1 and OP-3.
14.4 The DG has not investigated cartel conduct prior to 2016 despite there being evidence on record to show that the cartel was in operation from at least 2014.
14.5 The DG’s conclusion regarding there being geographical allocation of market amongst the OPs is factually and legally, untenable. There is no evidence on record to regarding territorial/ geographical/ zonal allocation of tenders amongst the OPs.
14.6 OP-3 is an MSME and has undergone severe economic hardship on account of COVID-19 pandemic. Hence, monetary penalty ought not to be imposed on OP-3.
14.7 OP-3 has fulfilled all conditions mentioned in the LPR for grant of lesser penalty to it. It has provided full, true and vital disclosures and has extended full, continuous and expeditious co-operation. In fact, the disclosures made by OP-1 and OP-3 led to other participants also file for lesser penalty. The DG has also extensively relied upon the evidence provided by OP-3 to incriminate various OPs. Even before the filing of a lesser penalty application, Mr. Alok Somani of OP-3 had voluntarily made vital disclosures to the DG and provided direct evidence of cartel which included e-mails exchanged between the OPs in furtherance of the cartel. Hence, OP-3 ought to be granted the maximum benefit of reduction in penalty, if any, imposed upon it.
14.8 OP-3’s participation in the cartel did not lead to any AAEC within India. In terms of the factors stated under Section 19(3) of the Act, OP-3’s conduct neither created any entry barriers for new entrants in the market, nor drove existing competitors out of the market, nor led to foreclosure of competition by hindering entry into the market. Rather, OP-3 developed a technically superior product in the form of SLPR Bushes along with competing vigorously against incumbent HPPA Bushes players who had formed a cartel which led to significant benefit to the consumer (Indian Railways). It helped OP-1 and OP-11 enter SLPR Bushes market leading to improvement in the production and distribution of SLPR Bushes. By developing SLPR Bushes, OP-3 solved long-standing technical problem faced by the Indian Railways thereby leading to promotion of technical and scientific development.
15. Power Mould, M/s Anju Techno Industries, Polyset Plastics Private Ltd., Mr. Bhupesh Bafna and Ms. Shanta Sohoni
15.1 The informal market understanding amongst the vendors with regard to the supply of HPPA Bushes to the Railways existed to safeguard and recover the investments in R&D put forth by the vendors and to deliver good quality product at reasonable price. The answering OPs were not fully aware of the exact and specific competition law in the country and the OPs will certainly be extra careful and cautious of all rules, regulations and existing compliances in all their future dealings. The informal arrangement between the OPs existed in ignorance of existing laws. Their intention or actions were not to prevent the entry of any new entity in the tender process i.e. anti-competitive in nature. The field and market was always open for all and the answering OPs’ dealings have always been fair to all.
15.2 In the digital era, procurement system and subsequent tendering process of the Indian Railways is very robust and in no way can be influenced by the vendors. It is not the case that due to any action on part of the answering OPs, the price of the product increased or jacked-up.
15.3 The answering OPs have never been party to any earlier inquiry or investigation. The revenue earned by them from the sale of HPPA Bushes is also very less considering the overall business. Further, in light of the impact of COVID-19 pandemic and consequent lockdowns, the businesses of the answering OPs have suffered a lot. Hence, no penalty ought to be imposed upon the answering OPs.
16. Calstar Steel Ltd. and Mr. Vikas Agarwal
16.1 OP-6 has not been a member of the association amongst the OPs for a major portion of the period in question. It was not an active member and always had reservations in forming or participating in this association. It was only a part of the association for a brief period from 05.12.2016 to 22.06.2017 and further from 01.03.2019 to 31.03.2020. It was a reluctant participant as it did not approve of this understanding/ association and joined for this brief period only at the insistence of other participants. From the documents on record, it is very clear that OP-6 had not quoted in any tender during the period 22.06.2017 to 01.03.2019 as per the directions of the association or participated in any manner with the association. The DG has missed out that OP-6 was not a regular participant and was a part of the association only for a brief period. As a result of not being a regular member, OP-6 was not able to get good rates and operated at a negligible profit.
17. Jai Polypan Pvt. Ltd., Mr. Vishal Baid, Mr. Rajeev Dhudani and Mr. Rajesh R.
17.1 OP-7 is a lesser penalty applicant before the Commission. Through its lesser penalty application, OP-7 has provided full, true and vital disclosures regarding the alleged cartel. OP-7 has extensively explained the cartel conduct by providing details of (i) the market structure in which the cartel arrangement took place; (ii) the members and modus operandi of the cartel, (iii) role of key persons involved in the cartel, (iv) e-mail correspondences regarding preparation and submission of bids in a concerted manner and indicating sharing of commercially sensitive and confidential price information between the OPs; and (v) chronology of the related events in which bid-rigging took place. Further, OP-7 also provided allocation tables, which contain details of all tenders for which the OPs had colluded with each other to fix prices and allocate quantity amongst each other. The allocation tables contained details of approximately 417 tenders from February 2016 till July 2020. Hence, OP-7 has made immense value addition by way of its submissions and extensively assisted the DG in arriving at its conclusions. The DG has heavily relied on the information and evidence submitted by OP-7. This value addition by OP-7 demonstrates the exact nature of collusion, which would have been difficult to ascertain without having received the extensive cooperation from OP-7. OP-7 also submitted evidence highlighting involvement of additional member(s) in the cartel conduct who have not been identified by the DG as relevant individual(s) under Section 48 of the Act. In light of this, and considering the fact that OP-7 has fulfilled all conditions for grant of lesser penalty as mentioned under the LPR, OP-7 and its individuals should not be levied any penalty, and if a penalty is to be levied, OP-7 and its individuals ought to be granted the maximum applicable reduction in penalty under the LPR.
17.2 The DG has erred in observing that the OPs indulged in geographical allocation of the market. The Indian Railways distributes its operations into different zones across the country geographically and each railway zone procures its products separately by floating separate tenders. The DG rightly mentions that the OPs had allocated the market percentage to each vendor. However, this market percentage is not allocated on the basis of any geographic segmentation as the OPs supply their products to railways pan-India, i.e. across various railway zones.
17.3 Penalty, if any, ought to be imposed only on relevant turnover/ profit of OP-7, i.e. the turnover/ profit derived from sale of HPPA bushes in the relevant time period/ duration (i.e. 2016 to 2020)
17.4 Following mitigating factors ought to be considered in case the Commission deems it necessary to impose penalty: (i) OP-7 continuously co-operated with the Commission and the DG during the investigation; (ii) OP-7 earned insignificant profits from the cartel arrangement; (iii) OP-7 was forced to join hands with other vendors in order to secure their business because the market is driven and solely controlled by Indian Railways and vendors have to adhere to the framework and tender conditions stipulated by Indian Railways; (iv) OP-7 is a MSME unit with limited resources, and has suffered significant repercussions of COVID-19 pandemic and accordingly, imposition of penalty will put an additional significant financial burden on OP-7; and (v) OP-7 played a limited role in the cartel arrangement as Ms. Shanta Sohoni was responsible for co-ordinating amongst the members of the cartel.
17.5 OP-7 had also disclosed about existence of another cartel arrangement. The Competition Law Review Committee, in its report dated 26.07.2019, has acknowledged the challenges faced by the Commission in cartel detection and enforcement and, in view of this, recommended that where an applicant makes full, true and vital disclosure with respect to another cartel (Leniency Plus), such applicant may be granted lesser penalty specified in the LPR. In view of this, the Commission, while deciding the quantum of penalty reduction in the present matter, may also take into account the additional disclosure of a contravention of Section 3 of the Act made by OP-7 in another matter. Considering the legislative desire for Leniency Plus, in addition to the comprehensive co-operation provided by OP-7 in this matter, the Commission may, considering the fact that OP-7 has also made full, true and vital disclosures with respect to another anti-competitive agreement, grant OP-7 and its individuals, 100% immunity from penalty in the present matter.
18. Polymer Products of India Ltd., Mr. Vishnu N.M., Mr. Venkata Subramanyam and Mr. Harsha Gumballi
18.1 OP-8 was not named as an OP in the initial reference received from the Informant. OP-8 and its individuals were rather impleaded by the DG later as an after-thought without any merit, solely on the basis of the fact that OP-8 had always participated in the tender process issued by the Indian Railways. However, the DG, in the investigation report, has failed to establish any relation between OP-8 and the other OPs.
18.2 The DG has failed to establish prior agreement of ‘meeting of minds’ between the OPs. The communications referred to between OP-8 and its individuals with other OPs rather express difference of opinions and disagreements. OP-8 has always followed fair trade practices and accordingly, avoids any professional communication with any competitor with respect to any tender whatsoever, for which OP-8 may or may not bid.
18.3 OP-8 was only a Part II supplier of HPPA Bushes/ SLPR Bushes to the Indian Railways. Part II suppliers are not considered for supply of more than 20% of the tendered quantity, that too only if the rate quoted by them is less than Part I source suppliers’ rate. Since OP-8 was offered 10% of the net procurable quantity in the Impugned Tender, it illustrates that OP-8 had quoted quite competitive rates to the Indian Railways based on various factors such as cost of raw material, labour cost, freight cost, etc. Being a part II source supplier, OP-8 is in no position to dictate the prices of HPPA Bushes/ SLPR Bushes, which are decided on the basis of prices of Part I source suppliers. Part II source suppliers are left at complete mercy of Part I source suppliers and they are forced to follow the directions set by Part I source suppliers to survive in the market and procure business. Hence, OP-8, having no control over the market of HPPA/ SLPR Bushes, has not entered into any cartel arrangement and/ or manipulated the prices of HPPA/ SLPR Bushes.
18.4 OP-8 has not indulged in modification of any prices arising out of the cartel.
18.5 OP-8 had not quoted in any of the tenders through a common IP address with any other OP.
18.6 OP-8 had provided all relevant information, documents and evidence during the entire proceedings and has co-operated genuinely, fully, continuously and expeditiously in the present matter. It has not concealed, destroyed, manipulated or removed any relevant and necessary documents of the present case.
18.7 COVID-19 pandemic has had catastrophic impact on the entire world, especially small-scale industry like OP-8 which have been facing the brunt of uncertainty looming around the world economic structure since the onset of COVID-19. Hence, Commission may consider waiving of levy of any penalty upon OP-8 and its individuals.
19. M/s Micro Engineers and Mr. Salimuddin
19.1 There is no evidence in the DG Report which may even remotely connect OP-9 or Mr. Salimuddin to the alleged cartel. OP-9 and Mr. Salimuddin have been falsely implicated in the present case on the basis of mere suspicion and conjectures by the DG, without any application of mind to the facts, statements, e-mails, WhatsApp communications and documents on record.
19.2 OP-9 had received approval for participation in Tenders of Railways as Part-II Vendor for HPPA Bushes/ SLPR Bushes on 09.09.2015 from RDSO. It had participated only in 2 small tenders for HPPA bushes/ SLPR bushes concerning Purchase Orders (‘PO’) dated 09.03.2016 and 15.03.2016. However, as it incurred losses in the two (2), contemplating further losses, it stopped manufacturing HPPA bushes/ SLPR bushes and participating in railway tenders from the 2nd half of 2016. RDSO, on its own as per its rules, and without any application from OP-9, extended the validity of approval granted to OP-9 till 08.09.2020 vide letter dated 17.07.2017. However, OP-9 did not participate in any railway tender for HPPA bushes/ SLPR bushes between 2nd half of 2016 and 2020 or beyond.
19.3 The DG has simply implicated OP-9 and Mr. Salimuddin on the basis of certain e-mails marked to them. However, OP-9 could not have prevented any other party to send any such e-mail to OP-9. None of such e-mails were ever replied to by or on behalf of OP-9. None of the e-mails were ever even acted upon by OP-9. OP-9 did not receive any P.O. from Railways post 15.03.2016 which itself shows that none of such e-mails marked to OP-9 were ever relevant to it.
20. Quadrant EPP Surlon India Ltd. (now MCAM Surlon India Ltd.), Mr. Luv Kumar and Mr. R.K. Singh
20.1 OP-10 and its individuals have filed lesser penalty application before the Commission admitting to their limited participation in the cartel arrangement and as such, they have no objections to the findings contained in the investigation report.
20.2 OP-10 and its individuals, as lesser penalty applicant, have provided full, true and vital disclosures to assist the investigation and they have extended full cooperation as well. They have fulfilled all conditions set out in Section 46 of the Act and the provisions of the LPR. The admissions of individuals of OP-10 have been used and relied upon by the DG in its investigation report. As part of their lesser penalty application, OP-10 and its individuals have provided comprehensive details of the relevant market, vendors, products concerned, price/ rates quoted, formation and mode of operation of cartel etc. with supporting documents and meticulously compiled data represented in the form of tables, charts/ graphs in order to provide maximum aid to the investigation. The DG has also relied upon such information and data supplied by OP-10 and its individuals. As such, OP-10 and its individuals ought to be granted full benefit of lesser penalty and no penalty ought to be imposed upon them.
20.3 OP-10 is an MSME and a small market player in the relevant market. Its market share was 3.97% in 2016-17, 8.8% in 2017-18, 6.83% in 2018-19, 3.18% in 2019-20 and 2.15% in 2020-21 which differs from and is far less beneficial than the share allocated to it in the cartel arrangement. The actual amounts received by OP-10 were miniscule and not as per the cartel arrangement. OP-10 mostly had a passive role in the cartel activity which is clear from the investigation report which clearly shows that very limited correspondences were exchanged by the individuals of OP-10 in comparison to other parties.
20.4 OP-10 and its individuals have ceased to participate in the cartel and have also put appropriate structures in place to effectively implement Competition Law Compliance policies in future.
20.5 The COVID-19 pandemic has had disastrous impact on small scale businesses like OP-10. Hence, any penalty decided to be imposed upon OP-10 ought to be waived off. This has also been the recent trend of the Commission in various other matters.
21. Skylark Projects Pvt. Ltd. and Mr. Shirish Tapuriah
21.1 No submissions were filed on behalf of OP-11, and neither anyone appeared on behalf of OP-11.
Analysis:
22. The Commission has perused the applications seeking lesser penalty filed by OP-3, OP-1, OP-7 and OP-10 under Section 46 of the Act, the investigation report submitted by the DG and the evidences collected by the DG, the suggestions/ objections to the DG Report and written arguments filed by the parties, and also heard the oral arguments made by the respective learned counsel representing the parties in the matter.
23. The Commission notes that in the present matter, allegations relate to cartelisation in the Informant’s bidding process with respect to the Impugned Tender issued by the Indian Railways, for HPPA Brake Bushes and/ or SLPR Brake Bushes.
24. From the DG Report, it is noted that Brake Bushes are spherical linings used in bush holders of brake hanger of railway coaches for reducing friction while connecting the hanger to the Chassis and Brake Shoe. The DG has noted that passenger coaches earlier made by the Indian Railways had braking system which used Bronze Bushes. Thereafter, Brake Bushes made out of acetal, nylon and lastly Phenolic Bushes were used. However, in 2004-05, the Indian Railways initiated field trials with SLPR Brake Bushes and since the same gave promising results, Indian Railways gave approval to SLPR Bushes and divided Brake Bushes Kit into two parts – Brake Bushes for critical locations and Brake Bushes for non-critical locations. SLPR Bushes were approved for critical locations and Phenolic Bushes continued to be used for non-critical locations. Ultimately, due to poor performance of Phenolic Bushes, SLPR Bushes were approved for all locations despite their high cost. Simultaneously, trials were also approved for non-critical locations in HPPA Bushes. Thereafter, the Indian Railways passed an order to procure SLPR Bushes and HPPA Bushes as alternates to each other depending on the price that the lowest bidder was offering.
25. From the evidence on record, it is noted that SLPR Bushes are manufactured by three OPs i.e. OP-1, OP-3 and OP-11 while HPPA Bushes are manufactured by 10 OPs i.e. all the OPs except OP-11. Thus, evidently, all the OPs are engaged in the manufacture and supply of HPPA Bushes and/ or SLPR Bushes to the Indian Railways, though OP-9 which started the manufacture of HPPA bushes in 2012-13 did not continue in such line of activity for too long. Hence, since all the OPs have been engaged in identical or similar trade of goods, their alleged cartel conduct shall be analysed by the Commission in terms of Section 3(3) of the Act.
26. The Indian Railways, in order to ensure reliability, availability and safe working of Railway assets, follows the practice of maintaining lists of approved vendors for certain specific items. It is noted from the DG Report that SLPR Bushes and HPPA Bushes were two of such items. Research Designs and Standards Organization (‘RDSO’) is the nodal agency of the Indian Railways for vendor approval. It maintains two lists – of Part I vendors and of Part II vendors. RDSO approved vendors included in Part I are eligible for regular supply to the Indian Railways and for getting an order for full quantity of tenders floated by the Indian Railways, whereas vendors approved and included in Part II are eligible for developmental order and for getting an order for part quantity (up to 25% only). For SLPR Bushes and HPPA Bushes, the RDSO approved vendors along with their timelines are as follows:
