Case Law Details
ADGST (SM) Army Purchase Organisation Vs Gokul Agro Resources Ltd. (Competition Commission of India)
Presence of common ownership or directors does not automatically indicate anti-competitive practices unless accompanied by evidence of collusion
Competition Commission of India (CCI) reviewed allegations of cartel formation in a tender process initiated by the Army Purchase Organisation (APO) for procuring edible oil for the Armed Forces. The case was brought under Section 19(1)(b) of the Competition Act, 2002. The APO claimed that two bidders, Gokul Agro Resources Ltd. and Gokul Agri International Ltd., participated in the tender as separate entities but were likely sister concerns, potentially contravening Section 3(3)(d) of the Act, which prohibits bid rigging.
The APO noted that while the two companies won bids in separate schedules, their close competition raised concerns about potential collusion. However, during the tender evaluation, no commonalities in documentation or operations were observed to substantiate the claim of cartel formation. Furthermore, both firms participated in reverse auctions and reduced their rates independently. The APO also cited a 2015 Gujarat High Court ruling indicating that these firms were previously part of the same management group, adding to their suspicion.
The CCI analyzed the claims, referencing past cases, including XYZ Vs. Continental Milkose India Limited and Suo Motu Case No. 03 of 2018, where it was held that mere common ownership or directors are insufficient to establish anti-competitive practices. The Commission emphasized that evidence of collusion, such as bid rotation or mutual agreements, is critical to proving contraventions under Section 3 of the Act.
Ultimately, the CCI found no evidence indicating collusion or bid rigging in this case. The tender process involved multiple participants, and no single party dominated the outcomes. As per judicial precedents, common business linkages or shared directors alone cannot substantiate anti-competitive behavior without supporting material. Thus, the allegations of cartel formation were dismissed.
The decision underscores the necessity of tangible evidence to establish anti-competitive conduct in procurement processes. It reiterates the principle that the presence of shared ownership or directors should not automatically raise suspicions of collusion without corroborative data. The ruling serves as a reminder for both regulatory bodies and businesses to ensure fairness and transparency in bidding practices.
FULL TEXT OF THE ORDER OF COMPETITION COMMISSION OF INDIA
1. The present matter was received as a Reference under section 19(1)(b) of the Competition Act, 2002 (‘Act’) from Army Purchase Organisation (‘APO’/ ‘Informant’) through ADGST (SM), APO alleging contravention of the provisions of Section 3 by M/s Gokul Agro Resources Ltd. (‘Opposite Party No. 1’/ ‘OP-1’) and M/s Gokul Agri International Ltd (‘Opposite Party No. 2’/ ‘OP-2’), collectively referred to as ‘OPs’.
2. As per the Reference, APO is responsible for the procurement of ration items (including tinned, packaged, dry ration and animal ration) for the Armed Forces.
3. The Informant has stated that:
3.1 An indent was received from DGSR (ST-4) for procurement of 31,000 MT Edible Oil for the financial year 2024-25. Based on the indent, a Bid document including Acceptance of Terms and Conditions (‘ATC’), was uploaded on the Government e-Marketplace (‘GeM’) Portal vide GeM Bid No: GEM/2024/B/4693332 dated 26.02.2024.
3.2 Technical Evaluation Committee (‘TEC’) meeting for the bid was scheduled on 18.03.2024. It was seen that 14 firms had participated in the tender out of which 11 were found fit for participating in the subsequent stages of the tendering process.
3.3 Thereafter, Commercial Negotiation Committee (‘CNC’) meeting was scheduled on 08.05.2024 for evaluation of financial bids. During the CNC meeting the Principal Integrated Financial Advisor (‘PIFA’) Army (Q&M) noted that OPs appear to be sister concerns and dominant. Therefore, competition may be restricted.
3.4 The Procurement Committee (‘PC’) recommended retendering of procurement of refined mustard oil on the advice of PIFA Army (Q&M). OPs have been participating in tenders for procurement of Edible Oil with brand names ‘VITALIFE’ and ‘VIVAAN’ respectively.
3.5 OPs have also been found to be competing with each other in course of reverse auction (‘RA’) on the GeM Portal during Financial Year 2024-25.
3.6 PIFA Army (Q&M) was approached by APO vide letter No. 62801/Q/1/ATC/2024-25/Edible Oil/APO (Pur.- IV) dated 26.06.2024 to provide reasons/ grounds which point towards the above mentioned two firms being sister concerns as during documents evaluation and factory inspection, TEC did not observe any commonality between both the firms. Also, both these firms participated separately in the RA of “schedules” along with other five firms. They also reduced their rates to emerge as L-1 in 4 schedules each i.e., in a total 8 of the 15 schedules.
3.7 Further vide letter No 42663/PIFA (Q&M)/APO/19/301 dated 10.07.2024, PIFA Army (Q&M) cited Gujarat High Court Order No. O/COMP/36/2015 dated 12.06.2015, wherein as per preamble of the composite scheme of arrangement Gokul Refoils and Solvent Ltd (‘GRSL’), OP-1 and O-2 were all part of the same group of management i.e., Gokul Group. It has been further stated that PIFA Army (Q&M) has also advised to refer the matter to Competition Commission of India (‘CCI’ / the ‘Commission’) in terms of para 7.5.8 of Ministry of Finance Manual for Procurement of Goods, 2022. The said paragraph reads as following:
“7.5.8. It is possible that sometimes a group of bidders quote the same rate against a tender. Such pool/cartel formation is against the basic principle of competitive bidding and defeats the very purpose of an open and comparative tendering system. Such and similar tactics to avoid/control true competition in a tender leading to “Appreciable Adverse Effect on Competition” (AAEC) have been declared as an offence under the Competition Act 2002, as amended by the Competition (Amendment) Act, 2007. Such practice should be severely discouraged with strong measures. In case of evidence of cartel formation, detailed cost analysis may be done by associative experts if necessary. Besides, suitable administrative actions can be resorted to, such as rejecting the offers, reporting the matter to the trade associations, the Competition Commission or NSIC, etc., and requesting them, inter-alia, to take suitable strong actions against such firms. New firms may also be encouraged to get themselves registered for the subject goods to break the monopolistic attitude of the firms forming a cartel. Changes in the mode of procurement (GTE instead of OTE) and packaging/slicing of the tendered quantity and items may also be tired. A warning clause may also be included in the bid documents to discourage the bidders from indulging in such practices.”
4. The Informant has prayed for the following reliefs before the Commission:
i. to examine the shareholding structures of OPs;
ii. details of promoters and their stakes in respect of OPs in terms of 7.5.8 of Ministry of Finance Manual of Procurement of Goods, 2022; and
iii. verify if OPs are sister concerns and hence the possibility of cartel formation.
5. The Commission considered the matter in its ordinary meeting held on 18.12.2024 and decided to pass an appropriate order in due course.
6. The Commission has carefully perused the information in the Reference and material available on record.
7. The Commission notes that the Informant has alleged possibility of cartel formation in tender invited by the APO. Section 3(3)(d) of the Act deals with bid-rigging and reads as under:
“Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
…
(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.”
8. It is noted by the Commission that both OPs are enterprises and are engaged in identical trade of goods. In the present matter, the Commission, upon perusal of the Reference and documents annexed therein finds that 15 entities participated in the impugned tendering process and 11 of them were found technically qualified for participating in the subsequent stages of the tendering process.
9. On scrutiny of the summarized table of bids relating to tenders, as provided in the Reference, it is observed that OP-1 and OP-2 emerged L-1 on 4 occasions each out of a total of 15 occasions, and the percentage difference between their bids ranges between 0.42% and 10.46%. Further, from the data given for 15 occasions, it is noted that on 7 occasions the winner was a party other than OPs.
10. Further, it is pertinent to mention that one of the prayers in the Reference is to investigate the possibility of cartel formation and commonality of management between the OPs. Previously the Commission has dealt with similar allegations in Case No. 25 of 2021 (XYZ Vs. Continental Milkose India Limited). Relevant paragraphs from the Order of the Commission are reproduced as under:
“19…. Be that as it may, the Commission, in the facts and circumstances of the instant case, observes that merely having common Directors/Partners may not, ipso facto, give rise to anti-competitive concerns, in the absence of other material factors to indicate that such common relationship facilitated a few entities to come together and manipulate the bid process and reduce the strategic uncertainty required in such process. It may not be entirely uncommon, where a common Promoter/Director acts as a link between two entities, to facilitate anti-competitive behaviour. However, there is no presumption that it has to be that way at all times; instead, it will depend upon the attendant factual matrix. Thus, the Commission is of the view that merely having common business linkages between the bidders as projected by the Informant, in itself, cannot be the sole basis to suggest meeting of minds or assentio mentium between the bidders in the bidding process.
20. The Commission has previously held that common ownership is not sufficient to record any findings of contravention of the provisions of Section 3 of the Act. In Re: Alleged cartelization in road construction work in the State of Uttar Pradesh (Suo Motu Case No. 03 of 2018), it was held that:
“Having examined the DG report and the material available on record, the Commission, at the outset, notes that as regards related parties submitting bids or parties having common ownership, the Commission is of the opinion that mere commonality of ownership of participating firms, in itself, is not sufficient to record any conclusion about bid rigging in the absence of any material indicating collusion amongst such bidders while participating in tenders. The Commission has consistently held that mere common ownership is not sufficient to record any findings of contravention of the provisions of Section 3 of the Act. In this regard, reference may be made to a few of such previous orders passed by the Commission. In Re: Ved Prakash Tripathi v. Director General Armed Forces Medical Services & Ors. (Case No. 10 of 2020), the Commission held that: “…mere commonality of directors or ownership of participating firms, in itself, is not sufficient to record any prima facie conclusion about bid rigging in the absence of any material indicating collusion amongst such bidders while participating in the impugned tender…. Further, In Re: Reprographics India v. Hitachi Systems Micro Clinic Pvt. Ltd. & Ors. (Case No. 41 of 2018), the Commission held that: “…merely having common business linkages between the OPs as projected by the Informant, cannot be the basis to suggest collusion in the bidding process. Moreover, there is no material on record to suggest that the OPs were engaged in Bid Rotation etc. Therefore, the allegation of supportive bid does not find favour with the Commission….”. Resultantly, mere commonality of ownership does not imply contravention of the provisions of Section 3(3)(d) of the Act, unless there is material on record to substantiate the allegations of bid rigging by way of collusion.”
11. The Commission notes that mere commonality of ownership does not by itself imply contravention of the provisions of Section 3(3) (d) of the Act.
12. The Commission notes that the Informant has also annexed a copy of the Order of the Hon’ble High Court of Gujarat (Company Petition Nos. 36, 37 & 38 of 2015) wherein the then scheme of de-merger of Gokul Refoils & Solvent Limited, OP-1 and OP-2 was approved. Paragraph number 5 of the said Order reads as under:
“5. It is envisaged that the restructuring exercise would inter alia achieve the following:
a. Restructuring would result in two independent listed companies, which would provide opportunities to the respective businesses to attract different set of investors, strategic partners, lenders and other stakeholders, thereby unlocking the value of respective businesses and existing shareholders.
b. Restructuring of businesses would enable respective management(s) to concentrate on core businesses and strengthen competencies, and provide independent opportunities to increase scale of operations, etc.;
c. Restructuring would result in focused management attention to the respective businesses, and segregation of businesses with distinct risk – reward profiles. This would be beneficial to its shareholders as well as creditors.”
13. On the perusal of the above-mentioned Order of the Hon’ble High Court of Gujarat, the OPs appear to be independent entities. Further, from the information given in the Reference, it is noted that OPs are listed companies with no common directors.
14. Regarding competition dynamics in the tendering process, the Commission notes from the data furnished with the Reference for the 15 occasions of bidding, that bidders other than the OPs had also participated as well as won. Besides, there is no evidence to indicate any collusion between OPs.
15. In view of the facts and circumstances of the Reference and analysis carried out in the preceding paragraphs, the Commission does not find evidence which would suggest the presence of bid-rigging in the impugned tendering process. On the contrary, the Commission, upon perusal of the Reference and documents annexed therein, finds that several entities have been participating in the impugned tendering process. In view of the same, the Commission does not find any occasion to intervene in the matter under the provisions of the Act.
16. In light of the above, the Commission directs that the matter be closed forthwith under Section 26(2) of the Act.
17. The Secretary is directed to communicate to the Informant, accordingly.
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