CCI found 8 firms guilty of bid rigging & cartelization in Eastern Railway tenders

Rakesh Khare Vs Krishna Engineering Works (Competition Commission of India)

CCI issues cease and desist order against firms found guilty of bid rigging and cartelization in tender floated by Eastern Railway

The Competition Commission of India (CCI) issued a final order today against eight firms which were found to have contravened the provisions of Sections 3(3)(a) and 3(3)(d) of the Competition Act, 2002 (‘the Act’) read with Section 3(1), which proscribe anti-competitive agreements. The case was initiated on the basis of a reference filed on behalf of the Eastern Railway.

CCI found these firms to have indulged in cartelization in the supply of Axle Bearings to Eastern Railway by means of directly or indirectly determining prices, allocating tenders, coordinating bid prices and manipulating the bidding process. The evidence in the matter included e-mails, call detail records and the statements of the representatives of the firms. The e-mails exchanged showed that the firms discussed quantity allocation with respect to the tenders of Indian Railways for the procurement of Axle Bearings amongst themselves. The vendors were also found to have discussed the compensation mechanism in the event that some of them did not win the agreed quantities. Of the eight (8) entities, two (02) 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.

In this backdrop, CCI found eight firms guilty of bid rigging and cartelization in tender floated by Eastern Railway during the years 2015 to 2019. However, CCI refrained from imposing any monetary penalty considering the firms were MSMEs with limited staff and turnover, the cooperative and non-adversarial approach adopted by firms in acknowledging their involvement as well as the economic stress wrought upon the MSME sector in the wake of COVID-19. Furthermore, the Commission found that the OPs stopped their cartel conduct immediately after the investigation began in the earlier matter (i.e., Ref. Case No. 02 of 2018). Thus, the Commission considered the aforesaid fact as the mitigating factors for not imposing any monetary penalty and issued a cease and desist order against the firms.

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 Eastern Railway through its Chief Materials Manager (Stores), Mr. Rakesh Khare (Informant), against Krishna Engineering Works (Opposite Party No. 1/OP-1), M/s Chandra Brothers (Opposite Party No. 2/OP-2), M/s Rama Engineering Works (Opposite Party No. 3/OP-3), M/s Sriguru Melters & Engineers (Opposite Party No. 4/OP-4), M/s Chandra Udyog (Opposite Party No. 5/OP-5), and M/s Janardan Engineering Industries (Opposite Party No. 6/OP-6), alleging contravention of the provisions of Section 3 of the Act.

2. The Informant is from one of the sixteen zones of the Indian Railways, with its headquarters in Kolkata, West Bengal. The OPs are Research Designs and Standards Organisation (RDSO)-approved vendors, engaged in the manufacture and supply of Axle Bearings, more specifically, Plain Sleeve Bearing – Top and Bottom Halves, to the Indian Railways.

3. The Axle Bearings supplied by the OPs are used in EMU/DMU motor coaches to assist in the rotations of axle motors. It is an alloy comprising high-leaded bronze, steel, copper, nickel, etc., as its main constituents. The product was standardised as per RDSO specifications, which undergo minor changes at times to customise the product as per the requirements of Zonal Railways.

4. The Informant alleged that OPs (OP-1 to OP-6) had indulged in cartelisation in the bidding process for the procurement of Axle Bearing (Plain Sleeve Bearing – Top and Bottom Halves) for BHEL Traction Motor used for Railway EMU coaches, in contravention of the provisions of the Act. The Informant submitted that it had floated an open tender bearing No.20/19/1830 with tender closing date 02.09.2019, in Single Packet Bidding System, with restriction of procurement from ICF (Integral Coach Factory, Chennai)-approved vendors for the procurement of 594 pairs of the aforesaid item. It was alleged that, out of the seven ICF-approved vendors for supplying the said item, OP-1 to OP-6 participated and quoted identical Total Unit Rate (TUR) and its break-up.

5. The Commission, after analysing the details as submitted by the Informant relating to the bids in the said tender, inter alia, observed that it could not be a coincidence that the prices quoted by the OPs in response to the aforesaid tender and the price quoted by the OPs after negotiations were identical despite them being located at dispersed and diverse locations such as Kolkata, Hyderabad, and Mumbai and possibly having different costs for raw material, labour, etc. Accordingly, the Commission passed an order dated 02.02.2021 under Section 26(1) of the Act forming an opinion that there exists a prima facie reason to believe that there was an agreement amongst the OPs to quote identical prices in response to the aforesaid tender floated by the Informant, thereby contravening the provisions of Section 3(3)(d) of the Act read with Section 3(1) thereof and directed the Director General (DG) to cause an investigation to be made into the matter. The DG investigated the matter and submitted its Investigation Report to the Commission on 21.02.2022.

Investigation by the DG

6. During investigation, the DG issued notices to the Informant, OPs and third parties, for collecting relevant information/ evidence. Further, for the purposes of investigation, the DG also gathered data from the Centre for Railway Information Systems (CRIS) and various telecom service providers. Subsequently, the key persons of OPs were summoned and their statements recorded by the DG.

Lesser Penalty Applications under Section 46 of the Act

7. 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, 2009) were received in the Commission from (i) Mr. Krishnakant G. Singh, Partner, M/s Janardan Engineering Industries/OP-6, vide e-mail dated 03.06.2021 at 07:53:24 p.m. for grant of priority status under Regulation 5(2) of the LPR, 2009; and (ii) Vaish Associates, Advocates, on behalf of M/s Sriguru Melters & Engineers/OP-4, vide e-mail dated 08.11.2021 at 2:27:46 p.m. for grant of priority status under Regulation 5(2) of the LPR, 2009. The same, vide separate orders, were forwarded by the Commission to the DG and the applicants of the lesser penalty were also intimated appropriately.

Findings of the DG

8. The DG, after conducting investigation in the matter, submitted the Investigation Report. The findings of the DG, in brief, are noted in the succeeding paras.

9. In the Investigation Report, the DG noted that Axle Bearing (Plain Sleeve Bearing- Top and Bottom Halves) 3.5 mm under size is a component in BHEL Traction Motor and is used for Railway EMU coaches (Axle Bearing). Plain Sleeve Axle Bearing, also known as Plain Sleeve Suspension Bearing, is used in EMU/DMU motor coaches for assistance in rotation of axle motors. The said item is standardised as per RDSO specification drawing no. RDSO/PE/SK/EMU/0052-2003 and STR No. RDSO/PE/STR/EMU-0006-2003(Rev.1) with undersize bore diameter 3.5 mm for AC EMU/MEMU traction motor 253 BX/BW/4601AZ/BX/BW.

10. The DG noted that the procurement of Axle Bearing by the Eastern Railway is done through the e-bidding process in which a tender is issued giving details of the items under procurement and other terms and conditions of the tender. The DG gathered and analysed various evidences obtained during the course of investigation, including Call Detail Records (CDRs) and statements recorded on oath to ascertain whether there was an understanding/agreement between the OPs for quoting identical prices in the impugned tender floated by the Informant.

11. According to the DG, the Informant had floated a tender bearing no. 20/19/1830 on 31.07.2019 with closing date 02.09.2019 for procuring 594 pairs of Axle Bearing (Plain Sleeve Bearing – Top and Bottom halves). As per the tender conditions, 50% of the quantity was to be supplied after 01.04.2020 but within 30.06.2020, and the balance 50% after 30.07.2020 but before 31.10.2020. The tender conditions further stipulated that the Eastern Railways i.e., Informant reserved the right to procure bulk/full quantity from ICF-approved vendors.

12. On analysing the bid prices quoted by the vendors/OPs in the tender, the DG noted that bids were received from 10 vendors, and the Last Purchase Rates (LPR) considered in the tender was Rs. 18,690/- (Basic Rate 17,800/- per pair) for regular order, which were placed on Krishna Engineering (OP-1), Chandra Brothers (OP-2), Rama Engineering (OP-3), and Sriguru Melters & Engineers (OP-4). The LPR for development order was Rs. 18,270/- per pair and was placed on Jai Bharat Industries (OP-7). Furthermore, the DG noted that M/s Mira Moulders and Traders and M/s P.S. Metal, which were L1 and L2, respectively, were neither approved nor were a developmental source of ICF for the tendered item, and hence, their offers were found to be unacceptable and ineligible for any ordering. However, the offer of V. K. Engineering (OP-8) was found to be acceptable and eligible for developmental ordering, and the remaining offer from Jai Bharat Industries (OP-7) was not considered, as it was perceived to be on higher side.

13. As per the DG report, the Tender Committee constituted by the Railways for the purpose noted that, out of seven approved vendors, including a Public Sector Undertaking (PSU), i.e., BHEL, the remaining six non-PSU vendors who had participated in the tender quoted exactly the same rate, i.e., TUR of Rs. 18,690/-. The Tender Committee also found that, in the previous tender bearing No. 20181830, four approved vendors had quoted exactly the same rate, i.e., TUR of Rs. 18,900/-. Additionally, during negotiation in the previous tender, the four firms, namely, Krishna Engineering (OP-1), Chandra Brothers (OP-2), Rama Engineering (OP-3) and Sriguru Melters & Engineers (OP-4) had reduced their respective prices in sync, making the negotiated bid to TUR of Rs. 18,690/, pursuant to which the bulk quantity was equally distributed amongst the four approved vendors.

14. Consequently, after suspecting a cartel formation in the impugned tender, the Tender Committee recommended placing a bulk order of the revised requirement of 249 pairs with the lowest suitable developmental vendor, i.e., V. K. Engineering (OP-8), at TUR of Rs. 18,270/- per pair, to ensure economic purchase at a lower rate and discourage cartel formation. Accordingly, a purchase order (PO) dated 22.01.2020 was placed with OP-8 for 249 pairs, with total order value of Rs. 45,49,230/- at TUR of Rs. 18,270 per pair.

15. In this regard, the DG noted that, in Ref. Case No. 02 of 2018, relating to procurement of Axle Bearings by the Informant, the same OPs were found to have formed a cartel amongst themselves by rigging the tenders floated for the procurement of Axle Bearings by the Informant during the years 2012, 2013 and 2014. Since the impugned tender and its terms and conditions were similar to the tenders investigated in Ref. Case No. 02 of 2018 (i.e., three tenders floated between August 2012 and August 2014) and that alleged cartelisation in tender no. 20/19/1830 seemed to be a continuation of the cartel that manipulated the bidding process in tender no. 20/18/1830, the DG compared the bidding pattern in the 2019 tender with all preceding tenders floated from 2012 onwards.

16. Based on examination of the bids submitted by the OPs in the tenders floated for Axle Bearing during 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019, the DG observed a pattern of mostly identical/similar bids quoted by the OPs over a period of the last eight years. The DG noted that, even after negotiations in the impugned tender, OP-1 to OP-4 submitted revised offers reducing their bids to identical figures of Rs. 18,690/-, enabling them to share the tendered quantity amongst themselves.

17. From the evidence collected during investigation, the DG observed that there was an arrangement/ agreement/ understanding amongst the OPs to share Axle Bearing quantities during the years 2012–2019.

18. The DG noted that, in order to implement the aforesaid agreement/ arrangement/ understanding, records of allocation of tender quantities relating to Axle Bearing procured by Eastern Railway through tenders were being diligently maintained, updated and shared as attachment to emails amongst the cartel members.

19. The DG further noted that the purpose of sharing these records was to correct any discrepancy in these records so as to arrive at an accurate account of quantities of Axle Bearings received by each cartel member in various Railway tenders so that allocation for future tenders as per agreed share could be decided. The cartel members also assisted/compensated each other in case of any shortfall in respect of any member from its agreed share by submitting cover bids or not submitting bids/bid suppression, enabling the concerned member/supplier to win the tender.

20. The DG concluded that there was regular communication among the cartel members through telephone calls as well as SMS, which also continued during the period when the subject tenders were under process. Further, all parties in their statement on oath also admitted that they were in regular communication with their competitors through telephone calls and SMS.

21. The DG observed that having separate manufacturing units situated in different locations and having different manufacturing costs, overhead costs, transportation costs and profit margins, quoting of the exact same price by Part-1 RDSO approved vendors/OPs in each of the tenders issued by Eastern Railway over different years appears to be highly unlikely and unfeasible, except if the parties had, through cartelisation, rigged bids in the said tenders.

22. Mr. Krishnakant Singh of OP-6 and Mr. Biswanath Palit of OP-4 admitted on oath that the OPs had formed a cartel to rig Eastern Railway tenders for Axle Bearing since 2012, and collusion ended only in January 2020, when the OPs became aware of the investigation against them in Ref. Case No. 02 of 2018. They admitted that the price submitted by the OPs in the Eastern Railway tenders were discussed and decided through telephonic calls and informed through SMS. In this regard, the DG has observed that Mr. Vallabhaneni Chakrapani of OP-3, Mr. Vallabhaneni Venkata Ram of OP-1, Mr. Kaustav Chandra of OP-5, Mr. Sandeep Mehendale of OP-8 and Mr Naresh Garg of OP-7 in their statements recorded on oath submitted evasive, vague, contradictory and untruthful replies, and suppressed vital information when confronted with evidence of their role in cartelisation and bid-rigging.

23. Even though Mr. Krishnakant Singh of OP-6 and Mr. Biswanath Palit of OP-4 named others as the main conspirators, evidence shows that they themselves were involved in collecting, tabulating and sharing the details of order quantities received by each party in the Railway tenders. As such, their role in the cartel is no less than other cartel members.

24. Accordingly, given the aforesaid findings against Jai Bharat Industries (OP-7) and V. K. Engineering (OP-8), in addition to other OPs, the DG submitted that these parties may also be considered additional OPs in the present matter.

25. On the basis of the above, the DG concluded that the six OPs arrayed in the Commission’s prima facie order dated 02.02.2021 as OP-1 to OP-6, along with OP-7 and OP-8, were members of the cartel. Through their collusive and concerted efforts, they were involved in determining the bid price quoted in Eastern Railway tenders for the supply of Axle Bearing issued during the years 2015–2019, which is in violation of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act.

26. In terms of Section 48 of the Act, the DG also 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 were 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 Mr. Vallabhaneni Venkata Ram of OP-1; Mr. Sushanta Chandra (now deceased) of OP-2 and OP-5; Mr. Vallabhaneni Chakrapani of OP-3; Mr. Biswanath Palit of OP-4; Mr. Krishnakant Singh of OP-6; Mr. Naresh Garg of OP-7; and Mr. Sandeep Mehendale of OP-8.

Proceedings before the Commission

27. Upon consideration of the Investigation Report submitted by the DG, in its ordinary meeting held on 22.03.2022, the Commission decided to implead the additional two parties found guilty of contravention of the provisions of the Act by the DG as Opposite Parties Nos. 07 and 08 in the present matter. The Commission forwarded electronic copies of the Investigation Report to the Informant and the Opposite Parties (OPs), who have been found by the DG to have contravened the provisions of the Act, as well as to the individuals identified by the DG as being liable in terms of the provisions of Section 48 of the Act.

28. The parties were also given an opportunity to file their objections/suggestions, if any, to the Investigation Report of the DG, and they were also directed to file their audited balance sheets and profit and loss accounts/turnover for the relevant Financial Years (‘FYs’) 2015–16, 2016–17, 2017–18, 2018–19 and 2019–20, along with details of their revenue and profit generated in these FYs from the sale of Axle Bearings, by way of filing affidavit supported by a Certificate of Chartered Accountant. The persons found liable under Section 48 of the Act were also directed to file their income details, including Income Tax Returns, for FYs 2015–16, 2016–17, 2017–18, 2018–19 and 2019–20.

29. Thereafter, on 13.07.2022, the Commission heard the oral submissions made by the respective learned counsel(s) for the parties on the DG Report and on the respective applications for lesser penalty filed by the two parties under Section 46 of the Act. The Commission decided to pass an appropriate order in the matter in due course and also allowed the parties to submit their respective written submissions, if any.

Submissions of the Parties

30. In their suggestions/objections to the Investigation Report of DG and submissions during the oral hearing, the parties took diverse pleas, which are summarised in the succeeding paras:

OP-1 and its Individuals

31. OP-1 is an MSME Micro category (Udyam registration) registered with the District Industries Centre, Hyderabad. OP-1 is a partnership firm incorporated in 1981, manufacturing and undertaking contracts/job works of Axle Suspension Bearings to the Indian Railways.

32. OP-1 submitted that it had quoted a very competitive and economical price depending on the Railway requirement and tender criteria, i.e., delivery schedule, quantity, consignee distance, transportation availability, etc. Further, it quoted for the impugned tenders at the last purchase rate at a lesser rate than to other Railways, considering the large quantity. Incidentally, all suppliers quoted the same rate. It also submitted that it had never contacted any competitor before the tender bidding nor hiked the rate abnormally.

33. OP-1 submitted that the Railways have a right to award the contract to L1 position, split the quantity on a 60:40 basis, counter the offer on L1 rate or running contract rate, implement Optional Clause 30% to the existing supplier, and other options. It was submitted by OP-1 that if the Railways was not satisfied with the price, the delivery schedule of the tender could have been been cancelled and a fresh tender invited as per the Railway Board guidelines.

34. Lastly, it is submitted that due to the COVID-19 pandemic, Indian Railways has decreased procurement because of non-running of trains which, in turn, has affected its turnover drastically, decreasing it by 50% and more. Resultantly, it is unable to pay its employees’ salaries on time.

OP-2 and its Individuals

35. OP-2 submitted that it was engaged in the business of manufacturing of components relating to Indian Railways from 1992 as a proprietary concern of Mr. Sushanta Chandra. On 24.06.2020, a partnership firm was constituted between Mr. Sushanta Chandra, Mrs. Pratima Chandra, Mr. Dipankar Chandra and Mr. Kaustav Chandra. On 30.06.2020, Mr. Sushanta Chandra passed away, and the said partnership firm was reconstituted on 01.07.2020. Partners of OP-2 are Mrs. Pratima Chandra, Mr. Dipankar Chandra and Mr. Kaustav Chandra.

36. The inherent nature of the market of Axle Bearings itself precludes the possibility of competition, as it can only be sourced from an RDSO approved vendors. Further, merely because there was price parallelism, it could not have been reason to arrive at the conclusion that there was bid rigging or collusive agreement. Given the high degree of predictability of prices, bidders may take a business decision to mirror the prices of competitors in certain other Railway Zones.

37. Alleged cartel was formed to deal with the excess supply and low demand and not to manipulate the higher prices of Axle Bearings. OP-2 submitted that the DG’s finding that the OP-2 has contravened the provisions of Section 3(3) of the Act is entirely based on the evidence and materials collected during investigation of Ref. Case No. 02 of 2018. The DG report is relying on materials and evidences which were collected in the earlier round of investigation for alleged contravention for the years 2012, 2013 and 2014, which is illegal and invalid as the earlier investigation eventually led to an order of cease and desist vide order dated 12.10.2021, and the Commission is now proceeding against the OPs for alleged contravention of the Act for the year 2019. It is further submitted that the DG, while conducting investigation, had already made up his mind as to the contravention, then proceeded to find evidence against the OPs.

38. There was no evidence in the form of a written agreement nor was there any independent evidence available to suggest an understanding or meeting of minds amongst the competing parties regarding sharing of bid price. There was no discussion in the DG report that there was any appreciable adverse effect on competition due to alleged action of the OPs in terms of Section 19(3) of the Act, which is a prerequisite and touchstone to attract Section 3 of the Act.

0. OP-2 is small-scale industrial unit registered with the National Small Industries Corporation (NSIC). It is facing considerable stress in its day-to-day operations and financial losses induced by the COVID-19 pandemic. Any adverse order of penalty now imposed on OP-2 would prove discouraging and will have the effect of shutting down the business of OP-2.

OP-3 and its Individuals

40. OP-3 is a partnership firm established in 1994 and engaged in manufacture and supply of rail spares. Partners of OP-3 are Mr. V. Chakrapani, Mr. V. V. Murali Krishna and Ms. V. Ramadevi.

41. It is submitted that the DG report is relying on the materials and evidence which were collected in an earlier round of investigation for alleged contravention for the years 2012, 2013 and 2014, which is illegal and invalid. The DG, while conducting investigation, had already made up his mind as to the contravention, then proceeded to find evidence against the OPs. Further, the alleged cartel which was formed amongst the OPs was not to manipulate higher prices to amortise profits to respective parties.

42. The inherent nature of the market itself precludes the possibility of competition; it can only be sourced from an RDSO approved source. Even assuming that there is collusive agreement or bid rigging in the present case, there is no appreciable adverse effect on competition. Further, OPs’ prices never caused loss of revenue to the Railways.

43. OP-3 submitted that even if the OPs, as alleged in the Investigation Report, formed a cartel to rig the tender, their prices never caused any loss of revenue to the Railways. Moreover, the prices quoted by OP-3 were very competitive and their profit margin was much lower than the market price.

44. OP-3 also submitted that, merely because there was price parallelism, it could not have been reason to arrive at a conclusion that there was a collusive agreement or bid rigging in a monopolistic market where there are few buyers. The price is set by the buyer, and the conditions are such that sellers can predict demand, there is repetitive bidding and the products are identical and specialised, and thus, the likelihood of price parallelism is natural.

45. In addition, OP-3 submitted that identical pricing may be further explained by the fact that, due to high degree of predictability of price, bidders may take a business decision to mirror prices of competitors in certain other Railway zones by adjusting or averaging prices in others. OP-3 further stated that the DG failed to gather any evidence whatsoever to prove the existence of the agreement as mentioned under Section 3(3)(d) of the Act, other than emails, purportedly recording orders placed by the Railways with the OPs. Once the PO is issued for certain quantities, it becomes a public document and anyone can access it. The Investigation Report is biased, unilateral and based on surmises and irrelevant findings.

46. With respect to the email communications relied upon by the DG, they cannot be legally admitted as evidence in view of the non-availability of certificate of authenticity under Section 65-B of the Evidence Act, 1872.

47. Price bid submitted by the OP-3 in relation to the Axle Bearing includes a profit margin of a mere 8% and thus, the evidence on record clearly demonstrates that the alleged bid rigging arrangement, if any, in the present case was born out of necessity rather than any intention to garner supra competitive profits.

48. OP-3 is an MSME, and any penalty may result OP-3 becoming unviable. The relevant product in the present case is Plain Sleeve Axle Bearings, and the turnover generated by OP-3 from the sale of this product alone has to be considered for the imposition of penalty, if any is imposed. CCI ought to consider mitigating circumstances while imposing penalty, if any.

OP-4 and its Individual

49. OP-4 is a sole proprietorship firm incorporated in 1979 and the proprietor of OP-4 is Mrs. Jyotsana Palit. The firm is managed by her husband and Chief Executive Officer Mr. B. N. Palit. OP-4 is registered as an NSIC small-scale industrial unit.

50. OP-4 submitted that it concurs with the findings in the DG’s Investigation Report insofar as that the OPs have colluded with respect to the subject tenders in violation of Section 3(3)(d) read with Section 3(1) of the Act. Mr. Palit, during his deposition on 20.12.2021, explicitly admitted that there was an agreement between the OPs and six RDSO-approved vendors of Plain Sleeve Axle Bearings had formed a cartel.

51. OP-4 also submitted that, in the evidence collected in the earlier Ref Case No. 02 of 2018, on which the DG has relied in the present case, OP-4 had provided full and true disclosure regarding the contravention of Section 3 of the Act. Further, OP-4’s disclosures during the investigation in Ref Case No. 02 of 2018 enabled the DG to arrive at the conclusions independently and without corroboration from the other OPs. The cartel was formed in 2012 and continued till 2019 and the investigation in the present case deals with the conduct of the same parties for a further period i.e., from 2015 to 2019.

52. The rationale for sharing the Axle Bearing quantities were to ensure that all the manufacturers have at least a few orders to make their business economically viable. Further, in order to gain an accurate assessment of order quantities received by various parties in Railway tenders and monitor any shortfall from their respective agreed shares, a detailed account of order quantities received by the cartel members in various Railway tenders were maintained and circulated through email. The cartel members also implemented a mechanism wherein the OPs who received less than the agreed share in a current tender were compensated in future tenders.

53. OP-4 submitted that, in the absence of OP-4’s admissions, the DG would not have been able to establish a contravention of Section 3(3) of the Act in light of the vague, contradictory and evasive replies given by the other OPs regarding their role in rigging the subject tenders. It is also submitted that OP-4’s quality and the details of disclosures made by it are such that, in the absence of submissions, the DG would not have been able to establish bid-rigging in the face of vague, contradictory and evasive replies/ denials given by the other OPs. The Commission ought to afford lenient treatment to OP-4 and provide it a 100% reduction of penalty in view of the first and vital disclosures made by it.

OP-5 and its Individuals

54. OP-5 was established in 1987 as a partnership firm, with Mr. Subrata Chandra and Mr. Sushanta Chandra having 50% share each. OP-5 was reconstituted on 07.10.2016 due to the exit of Mr. Subrata Chandra, and Mrs. Pratima Chandra was taken in as the new partner. After the death of Mr. Sushanta Chandra on 30.06.2020, OP-5 was reconstituted with Mrs. Pratima Chandra, Mr. Dipankar Chandra and Mr. Kaustav Chandra as partners. OP-5 is a small scale industrial unit registered with NSIC, and any penalty imposed on OP-5 would drive the company out of business.

55. It is submitted that OP-5 is rejecting the Investigation Report in toto and denying any formation of cartel and any alleged involvement of OP-5 in such cartel. OP-5 being a small-scale industrial unit registered with NSIC, any penalty now imposed on OP-5 would drive it out of business. OP-5 gives direct employment to 150 workers and indirect employment to 50 workers. In this economic downturn, OP-5 was forced to retrench 50 workers and is already facing huge financial stress on its day-to-day operations due to financial losses induced by the pandemic.

56. It is submitted that the DG’s finding that the OPs have contravened the provisions of Section 3(3) of the Act is entirely based on the evidences and materials collected during investigation in Ref Case No. 02 of 2018.

57. The inherent nature of the market itself precludes the possibility of competition, as it can only be sourced from an RDSO-approved source. Even assuming that there is collusive agreement or bid rigging in the present case, there is no appreciable adverse effect on competition. Further, OPs’ prices never caused loss of revenue to the Railways.

58. OP-5 also submitted that even if, as alleged in the Investigation Report, the OPs formed a cartel to rig the tender, their prices never caused any loss of revenue to the Railways. Moreover, the prices quoted by OP-3 were very competitive, and their profit margin was much lower than the market price.

59. It is submitted by OP-5 that, merely because there was price parallelism, it could not have been the reason to arrive at a conclusion that there was collusive agreement or bid rigging in a monopolistic market where there are few buyers. The price is set by the buyer, and the conditions are such that sellers can predict demand, there is repetitive bidding and the products are identical and specialised, and thus, the likelihood of price parallelism is natural.

60. In addition, OP-5 submitted that identical pricing may be further explained by the fact that due to high degree of predictability of price, bidders may take a business decision to mirror the prices of competitors in certain other Railway Zones by adjusting or averaging prices in others.

61. With respect to the email communications relied upon by the DG, it is submitted that they cannot be legally admitted as evidence in view of the non-availability of certificate of authenticity under Section 65-B of the Evidence Act, 1872.

62. Lastly, it is submitted that, in a recent case of Chief Material Manager v. Hindustan Composites Limited and Ors. in Ref Case No. 03/2016, the Hon’ble CCI had provided relief from penalty on account of the OPs in question being SMEs and the dire economic strife caused to them by the COVID-19 pandemic. Accordingly, relief may be provided to OP-5 as well in this matter.

OP-6 and its Individuals

63. OP-6 is a partnership firm engaged in the business of running a foundry and machine shop. It was approved as a registered vendor (Part I) by RDSO on 28.03.2016. Subsequently, the Railway Board transferred the registration and incidental work to ICF. Partners of OP-6 are Mr. Krishnakant Singh, Mr. Shrikant Singh and Mr. Vivek Singh.

64. OP-6 submitted that it is a micro industry firm with barely an average five workers employed throughout the year and having limited manufacturing capacity. The firm’s turnover was less than Rs. 1 crore during the five financial years with respect to the alleged product.

65. OP-6 submitted that during investigation period, it earned a profit of Rs. 20,35,547/-from supply of Axle/Plain Sleeve Bearings and that it could not win the tenders also. With a continued threat of getting the material rejected from the consignee in the event of receiving an odd tender, it was forced to succumb to the pressure of five other cartel parties duly identified by the DG and admitted that, for business exigencies, OP-6 was compelled to join the other cartel participants. OP-6 submitted that it had applied for lesser penalty treatment under the relevant regulations.

OP-7 and its Individuals

66. OP-7 is a sole proprietorship firm and has been in business since 2004. Mr. Naresh Garg is the sole proprietor of OP-7. The firm is also registered as a MSME. The firm is in the business of manufacturing machinery items such as lifting hooks, bushes, pedestal caps, etc. The firm has also been manufacturing Axle Bearing/Plain Sleeve Bearing for the Railways. The firm was registered by RDSO as a Part II source on 30.03.2016. Subsequently, the firm was upgraded as an approved vendor in the ICF vendor list on 18.06.2019 for the manufacture and supply of Plain Sleeve Bearing as per RDSO drawing.

67. OP-7 submitted that the DG had erroneously found OP-7 to be a member of a cartel formed by Plain Sleeve Axle Bearing manufacturers participating in Eastern Railway’s tenders by relying on email exchanges that had taken place in the year 2017.

68. OP-7 has further submitted that the DG ignored the fact that, in 2018, OP-7 was considered as L1; however, instead of placing the order solely from OP-7, on recommendation of the Finance Member of the Tender Committee, the Eastern Railway placed the developmental order of 657 pairs with Sriguru Melters & Engineers and 657 pairs each with Rama Engineering, Krishna Engineering and Chandra Brothers, who were considered L2 in the aforementioned tender. Additionally, it is pertinent to note that the orders were placed on parties other than OP-7 after the Accepting Authority [Chief Materials Managers – CMM (Stores)] indicated suspected cartel formation. Therefore, the DG, instead of investigating Railway officials as to why they placed orders when they suspected cartel formation, proceeded with making an erroneous observation stating the cover bid to be a reason to conclude cartel formation against OP-7.

69. OP-7 further submitted that, on careful perusal, those emails would show that OP-7 has always been a recipient of emails being exchanged by the OPs. The only email which allegedly originated from OP-7 is an email dated 14.08.2017, which carries information already in the public domain. Even otherwise, any person/individual can collect the said information using the Right to Information Act, 2005 from the Railways. Moreover, the said email does not have any information/reference to the aforesaid tenders between the years 2015 and 2019.

OP-8 and its Individuals

70. OP-8 is a partnership firm and was incorporated on 06.12.1986. Mr. S. Mangala Balkrishna Mehendale, Mr. Sandeep Balkrishna Mehendale and Mrs. Gouri Sandeep Mehendale are the partners of OP-8.

71. OP-8 submitted that it was found not to be a part of the bid rigging cartel contravening the provisions of Section 3(3)(d) read with Section 3(1) of the Act.

72. OP-8 further submitted that Railways follow a robust and watertight tender policy, which gives them full control over the tendering process. As per the wish of Railways, even the price as discovered during the bidding process is replaced by a negotiated price. Thus, price discovery by the bidding process is subject to reasonability assessment. The vendors have no say as regards the price or ordered quantity by the Railways. The Railways also has an effective provision and mechanism to deal with suspected cartels, which allows the Railways to be in complete control of the procurement process.

73. The order was placed with OP-8 as it adhered to all the above-mentioned robust watertight policies/ processes set out by Railways, which is now completely delivered. There has been no violation of section 3(3)(d) read with Section 3(1) of the Act on the part of OP-8.

Informant

74. The Informant did not submit any objections/suggestions to the Investigation Report of the DG.

Analysis

75. The Commission has perused the applications seeking lesser penalty filed by OP-4 and OP-6 under Regulation 5(2) of LPR, 2009 read with Section 46 of the Act, the Investigation Report submitted by the DG along with the evidences collected by the DG, objections/suggestions to the Investigation Report and also the oral submissions made by the respective learned counsel(s) representing the parties in the matter.

76. The Commission observes that the Informant had floated a tender bearing No. 20/19/1830 dated 31.07.2019 with closing date 02.09.2019 for the procurement of 594 pairs of Axle Bearing (Plain Sleeve Bearing – Top and Bottom halves) 3.5 mm under size for BHEL Traction Motor Type 253 BX/BW and 4601 AZ as per RDSO Drg. No. RDSO/PE/SKIEM U/0052-2003 and STR No. RDSO/PE/STR/EM U/0006-2003 (Rev.1) with undersize bore dia. 3.5 mm. As per the tender conditions, 50% of the quantity was to be supplied after 01.04.2020 but within 30.06.2020, and the balance 50% after 30.07.2020 but before 31.10.2020. The tender conditions further stipulated that the Railways reserved the right to procure bulk/full quantity from ICF-approved vendors.

77. It is important to note that, in Ref. Case No. 02 of 2018, the same OPs were found to have formed a cartel amongst themselves to rig the Eastern Railway tenders floated during the year 2012, 2013 and 2014 for the procurement of Axle Bearings. Keeping in mind the aforesaid fact, the product for procurement for which the tenders were issued was the same, and the fact that the approved vendors (i.e. approved by RDSO/ICF) who had participated in the impugned Eastern Railway tender were also the same, the DG examined the bidding pattern for the tenders preceding the subject tender of 2019.

78. Against the above background, the Commission shall analyse whether there was any cartelisation in the Informant’s bidding process between the OPs with respect to the impugned tender and/or other tenders issued for Axle Bearings. On the basis of the above, the Commission proceeds to consider and determine as to whether there has been an agreement/ arrangement amongst the OPs to quote the same rate for the tender in question which led to the contravention of the provisions of Section 3(3) read with Section 3(1) of the Act?

79. With respect to the aforesaid issue, the Commission notes that the DG has analysed various evidences, including statements recorded on oath as well as CDRs obtained during the course of investigation, to ascertain whether there was an understanding/ agreement between the OPs for quoting identical prices in the impugned tender floated by the Informant.

80. It is noted that, during the course of investigation by DG, individuals of the OPs had admitted their involvement in the cartel behaviour. The statements of those individuals who admitted their cartel participation are placed below:

(i) Statement of Mr. Biswanath Palit, Sriguru Melters & Engineers (OP-4)

• • Mr. Biswanath Palit, in his statement, admitted that the six RDSO approved vendors for Axle Bearing had formed a cartel. He further admitted that the bidders were in constant touch until the last date of the tender to collude amongst themselves.
  • When confronted with emails dated 17.08.2017 and 18.08.2017 in which he was the recipient, he admitted that such collusion was perpetrated by way of sharing Excel sheets containing quantity, rates, etc. He further stated that such practice of sharing data continued from 2012 to 2019.
  • He also admitted to have spoken to Mr. Sushanta Chandra and members from OP-1, OP-3 and OP-6 to fix the prices. Furthermore, when questioned if there were any physical meetings with the aforementioned parties, he admitted that the proprietors of the OPs such as Mr. Sushanta Chandra, Mr. V. S. Rao, Mr. Ghanshyam Singh, Mr. Naresh Garg and Mr. Chakrapani were present in Hyderabad and Bombay to discuss and fix the tenders and further mentioned that the cartel was entered into for increasing the rates, since the supply of the prescribed item in the tender was not feasible with low rates.
  • When questioned if he remembered anything from the meeting in Bombay, he admitted that the meeting in Bombay took place to increase the rates collectively.

(ii) Mr. Krishnakant Singh, Managing Director of Janardan Engineering (OP-6)

• • Mr. Krishnakant Singh, in his statement recorded before the DG, accepted that OP-6 manufactured Axle Bearings for the tenders of Eastern Railway. He submitted the names of competitors of OP-6 involved in the supply of the Axle Bearing against this tender, viz., Chandra Udyog, Chandra Brothers, Sriguru Melters, Krishna Engineering, Rama Engineering, Jai Bharat Industries and V. K. Engineering. Further, according to Mr. Krishnakant, all the OPs were involved in cartelisation.
  • Mr. Krishnakant Singh admitted that there was a verbal agreement between the competitors with respect to the Eastern Railway tenders for the past few years and admitted to having conversations with other cartel members, including Mr. Sushanta Chandra of OP-2 and OP-5, Mr. Vallabhaneni Chakrapani of OP-3, Mr. Vallabhenani Venkata Ram of OP-1, Mr. Naresh Garg of OP-7, Mr. Sandeep B Mehendale of OP-8 and Mr. B. N. Palit of OP-4. He named the main leader of the cartel as Mr. Sushanta Chandra of OP-2 and OP-5. He identified the active role of Mr. Vallabhaneni Chakrapani of OP-3 and Mr. Vallabhenani Venkata Ram of OP-1 in the cartel.
  • When asked about the derivation of the basic rate quoted by OP-6 in the impugned tender, he gave a precise break-up, working right down to the insurance charges. When asked as to why the break-up of transportation, packing and insurance, which was so clearly outlined in his calculation, had not been filled in the tender filled up by him, he stated that such details are not filled in the particular columns in the tender. The Commission noted that this, as per the DG, is very unusual, considering that it is a general practice to first work out the bid amount by factoring in each and every cost separately, then filling up a composite figure in the tender.
  • He further elaborated as to how he joined the cartel and the modus operandi of the cartel perpetrated by the OPs to receive orders in tenders from other Railway zones like Central, Western and North Railway. Mr. Krishnakant Singh also admitted that, for the first time in an Eastern Railway tender of 2017, he had contacted Mr. Sushanta Chandra, who later asked him to talk to OP-3 and OP-1 to find out the rates to be quoted in the 2017 tender.
  • Mr. Krishnakant Singh, while elaborating further, submitted that he was promised a share in the 2019 tender as he had not received any previous tenders. In this regard, he submitted that he had a telephonic conversation with Mr. Sushanta Chandra about the rates to be quoted in the impugned tender. He also admitted to having a conversation with Mr. Chakrapani of OP-3, whereby Mr. Chakrapani said that everyone except OP-8 would be quoting Rs. 17,800/-. Mr. Chakrapani informed that OP-8 would be quoting Rs. 17,400/- as it was a Part II RDSO approved vendor. Mr. Chakrapani apprised him that he had asked OP-7 to also quote Rs. 17,800/-.
  • Regarding the duration of cartel, Mr. Krishnakant Singh submitted that the cartel stopped only after receiving notices in Ref. Case No. 02 of 2018, which happened around January 2020.

81. The Commission notes that the TUR along with break-up as quoted by the OPs in the impugned tender are as follows:

82. From the bid evaluation carried out by the Tender Committee of the Railways, it is noted that the bids were received from 10 vendors and the LPR considered for the instant tender was Rs. 18,690/- (Basic Rate 17,800/- per pair) for regular order, which was placed on Krishna Engineering (OP-1), Chandra Brothers (OP-2), Rama Engineering (OP-3) and Sriguru Melters & Engineers (OP-4). The LPR for development order was Rs. 18,270/- per pair and was placed on Jai Bharat Industries (OP-7).

83. The Commission observes that the Tender Committee had noted that, out of seven approved vendors, all six non-PSU firms participated in the tender (BHEL, a PSU, was the only approved vendor that did not participate), and all of them quoted the exact same rate, i.e., TUR of Rs. 18,690/-. The Tender Committee found that, in its previous Tender No. 20181830, four approved vendors had quoted exactly same rate, i.e., TUR of Rs.18,900/-. Further, during negotiation in the previous tender, all four firms [Krishna Engineering (OP-1), Chandra Brothers (OP-2), Rama Engineering (OP-3) and Sriguru Melters & Engineers (OP-4)] reduced their prices in sync, reducing the negotiated bid to Rs. 18,690/- as TUR, pursuant to which, the bulk quantity was equally distributed amongst those four approved vendors.

84. After suspecting a cartel formation in the impugned tender, the Tender Committee recommended placing a bulk order of the revised requirement of 249 pairs on the lowest suitable developmental vendor, i.e., V.K. Engineering (OP-8), at TUR of Rs. 18,270/-per pair to ensure economic purchase at a lower rate and discourage cartel formation. Consequently, a PO dated 22.01.2020 was placed on OP-8 for 249 pairs, with a total order value of Rs. 45,49,230/- (Unit Rate Rs. 18,270/pair).

85. The Commission took note of the bids submitted by the RDSO approved vendors and developmental vendors in Eastern Railway tenders for the years 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019, which are tabulated hereunder:

* When called for negotiations, OP-1 to OP-4 submitted revised offers reducing their bids to identical figure of Rs. 18,690/-

86. From the bids submitted by the OPs in the previous tenders, the Commission observes a pattern of identical/similar bids quoted by the OPs over a period of 8 years. The Commission notes that the DG has found that in case of negotiations in the 2018 tender, OP-1 to OP-4 submitted revised offers reducing their bids to identical figures of Rs. 18,690/-, enabling them to share the tendered quantity amongst themselves, with OP-7 getting an order for 657 pairs and OP-1 to OP-4 getting 25% of the remaining quantity each.

87. On a comparative analysis of the break-up of costs submitted by the OPs in the impugned tender (2019) with that of the 2018 tender referred to in Ref. Case No. 02 of 2018, the Commission observes that, while bidding for the 2018 tender, none of the bidding parties quoted the LPR in their financial bids, but in the 2019 tender, all parties except OP-7 quoted the LPR rate, as detailed below:

88. From the above table, it is noted that the manufacturing costs (basic price component in the bid price) for the OPs (except OP-7) were identical or very close to each other, which were adjusted due to other factors. The Commission notes that the DG has found that the transportation cost for the same item in Kolkata ranges from Rs.30/- to Rs.80/-, while the transportation cost from Mumbai and Hyderabad has been quoted as ranging from Rs. 400/- to Rs. 500/-. OP-7, which is based in Delhi, has quoted Rs. 140/- as transportation cost in its cost break-up. Be that as it may, there are other OPs who have not factored in packing and insurance costs. However, despite afore-mentioned differences all the OPs worked out their cost to be Rs. 17,800/-, except OP-7 and OP-8.

89. In relation to OP-7, the Commission notes that Mr. Naresh Garg of OP-7 has admitted before the DG that he had interactions with the other OPs and had received e-mails from other OPs. Further, he also had admitted that he replied to those e-mails by correcting the data with respect to his firm. Moreover, as pointed out by the DG, the rationale for OP-7 to quote a higher bid of Rs. 19,950/- as against the mutually decided bid price of Rs. 18,690/- as quoted by other OPs in the impugned tender, was the following: (a) to offer a cover bid for the other cartel members and (b) OP-7 had already received the mutually decided share of tender quantity in the previous tenders.

90. The Commission further notes that Mr. Sandeep Mehendale of OP-8 gave evasive replies in his deposition before the DG. When DG, confronted Mr. Sandeep Mehendale, with CDR in respect of his telephonic communication with Mr. Vallabhaneni Venkata Ram of OP-1 and posed the following question “Q.24. Did you send or receive any e­mail from the other tenderers in connection with this tender? His answer was “I am not sure”. However, to another question i.e. “Q.26. Did you at any point of time have an agreement with the other bidders to bid at a particular price of for a particular quantity? His reply was “There might have been an oral discussion because I have phoned”. The Commission observes that the conduct of OP-8, quoting a different price from other bidders is in the nature of cover bid and further observes that OP-8 has not answered categorically in its deposition before DG that it has not received any e-mail with respect to the impugned tender, in fact most of OP-8 answers were evasive like “I don’t know”, “I don’t remember” and “I don’t recollect”.

91. With regards to OP-8, the Commission notes the analysis of DG that after getting the ICF approval as a development vendor in 2017 the deponent joined the cartel, but since Jai Bharat Industries was already a Part-II RDSO approved vendor, the existing cartel members would have allocated the developmental order to Jai Bharat Industries, and directed V. K. Engineering not participate in the said tender. After Jai Bharat Industries got upgraded to Part-I RDSO approved vendor list in June, 2019, the cartel members then decided to allocate the developmental order to V. K. Engineering. In light of above, the Commission is of the opinion that OP-8 has not approached the Commission with clean hands.

92. Thus, the Commission is of the view that OP-7 and OP-8 are involved in this matter. On the basis of examination of the evidence available on record, including statements and CDRs, it is evident that there was an arrangement/ agreement amongst the cartel members to rig the tenders issued by the Eastern Railway for Axle bearings, by quoting mutually decided prices. The six OPs, along with Jai Bharat Industries and V. K. Engineering (impleaded as OP-7 and OP-8, respectively), through their concerted and collusive efforts, were involved in directly determining the bid prices quoted in Eastern Railway tenders issued during 2015 to 2019 for supply of Plain Sleeve Axle Bearing. Further, such conduct of OP-1 to OP-8 amounts to bid rigging/collusive bidding in Eastern Railway tenders issued during the years 2015 to 2019 for the supply of Axle Bearing.

93. Apart from quoting identical prices/ very similar prices in the impugned tender and in the previous tenders floated by the Informant, it is noted that, instead of indicating the break-up of the bid price in terms of ex-works basic price, packing charges, forwarding charges, taxes and freight charges separately, as stipulated in the “Instructions to Tenderers for Manual and E-Tender and General Tender Conditions for Open Tenders” issued by the Stores Department of the Eastern Railway, none of the OPs submitted this break-up while submitting their bids online. This was done with the sole intention to keep their bids identical. Further, the Commission notes that, surprisingly, the OPs, despite having separate manufacturing units situated in different locations, with different manufacturing costs, overhead costs, transportation costs and profit margins, as submitted by the OPs themselves, quoted identical/ very similar price in each of the tenders issued by Eastern Railway during the years 2012 to 2019. Apart from above, the Commission agrees with the analysis and finding of DG that the tabulation statement of order quantities meticulously maintained by the cartel members, were being shared for the sole purpose of monitoring the actual share in tender received by each cartel member which also aided in deciding the parties who would be submitting the cover bids for ‘intended winners’.

94. The Commission notes that the present case bears a similarity to Reference Case No. 02 of 2018. Further, while Reference Case No. 02 of 2018 pertained to cartelisation by the OPs in Eastern Railway tenders issued during the years 2012 to 2014 for the procurement of Axle Bearings, the instant case pertains to cartelisation by the OPs in the tender floated in 2019. It is also pertinent to note that the tendering process in the 2019 tender was completed by the time the OPs were examined by the DG in Reference Case No. 02 of 2018, i.e., in January 2020. Moreover, as the conduct of the OPs were continuing, the DG had examined the tenders prior to 2019.

95. Considering the evidence and depositions recorded during the investigation by the DG in the impugned tender and the evidences available on record, including the CDRs, tabulation statements and excel sheets available indicate that there was regular communication among cartel members through telephone calls and the OPs had shared commercially sensitive information through emails amongst themselves, and the same does not depict any business rationale except the intent for coordinated & collusive action. Accordingly, the Commission notes that there was an agreement/ arrangement/ understanding amongst the cartel members/ OPs to share orders offered in tenders issued by Eastern Railway during the years 2012 to 2019 for procurement of Axle Bearing and to rig the said tenders by quoting mutually decided prices and by providing cover bids.

96. The Commission also notes that the representatives of two out of the eight OPs, i.e., Mr. Krishnakant Singh of Janardan Engineering Industries (OP-6) and Mr. Biswanath Palit of Sriguru Melters & Engineers (OP-4) themselves admitted on oath that the collusion ended only in January 2020, when the OPs became aware of the investigation against them in Reference Case No. 02 of 2018. The aforementioned individuals of the two OPs admitted to the anti-competitive conduct perpetrated by all the OPs in concert and collusion with each other and also disclosed the names and roles of the OPs as well as the modus operandi employed in the cartel.

97. It is noted that the OPs have argued that the cartel conduct of the OPs did not lead to any AAEC in the market as there were no entry barriers for new entrants, nor were competitors driven out of the market, nor prices increased for the Indian Railways and that there was no loss of revenue to Indian Railways.

98. In this regard, firstly, the Commission notes that the provisions of Section 3(1) of the Act not only proscribe the agreements which cause AAEC in the market but also forbid agreements which are likely to cause AAEC in the market. Secondly, the Commission notes that, once an agreement of the types specified under Section 3(3) of the Act is established, the same is presumed to have an AAEC within India. Thus, it is axiomatic to presume in the present matter that the impugned conduct of the parties has caused AAEC within India. Further, in relation to the submissions that the conduct of the OPs has not caused AAEC, the Commission, on a holistic evaluation of the submissions made by the parties and in light of the factors enumerated in Section 19(3) of the Act, is satisfied that, in the present matter, the parties, except making bald assertions, have not been able to dislodge the statutory presumption of AAEC by adducing cogent evidence to the contrary, as required.

99. Though the OPs have also argued that they were forced to indulge into such arrangement and cartel activity due to the market structure in order to avoid losses and get their fair share of business from the Indian Railways which is a monopoly buyer, the Commission is of the view that the same does not bestow a right upon the OPs, i.e., the suppliers/ vendors, to collude and fix prices, allocate quantities and indulge into the illegal conduct of bid-rigging in contravention of the provisions of the Act.

100. Another issue that has been raised by some of the OPs are that telephone service providers had not supported the CDRs with a 65B Certificate for the reasons mentioned therein. In this regard, it is suffice to note that Mr. Biswanath Palit (OP-4) and Mr. Krishnakant Singh of Janardan Engineering (OP-6) admitted before the DG that they were in regular communication with other competitors through telephone calls and SMS during the period mentioned in the CDRs, including when the impugned tender referred by the Eastern Railway was under process. Thus, against the backdrop of such admission and admitted position, the issue of the 65B Certificate loses its salience. Further, it is pertinent that such CDRs are not the sole basis upon which contravention is established against the OPs. Apart from CDRs, there are other evidence which establish contravention of the provisions of the Act by the OPs, including identical prices and emails exchanged among the OPs. Thus, on an overall assessment of the entire gamut of evidence and material available on record, the Commission finds that the contravention by the OPs stands proved beyond doubt.

101. The Commission notes that the OPs were involved in collecting, tabulating and sharing the details of order quantity received by each OP in the Railway tenders. Based on the statements recorded during the investigation, bid prices, evidences gathered in earlier matter in Ref Case No. 02 of 2018 the Commission holds that OPs (OP-1 to OP-8) were members of cartel and were involved in bid rigging by quoting identical sale price/ bid price through coordination and/or providing cover bids in the tenders floated by the Eastern Railway for the supply of Plain Sleeve Axle Bearing during the years 2015 to 2019 and thus, have contravened provisions of Section 3(3)(a) read with Section 3(1) of the Act. Resultantly, the conduct of the OPs also amounts to contravention of Section 3(3)(d) read with Section 3(1) of the Act.

102. Considering that the contravention by the OPs, i.e., OP-1 to OP-8, is established, the Commission now proceeds to analyse the conduct of the officers/employees of the OPs, who would be liable for such anti-competitive acts of the OPs in terms of Section 48 of the Act. The provisions of Section 48 apply to companies and persons responsible to the company. Further, as per explanation to Section 48, the company includes a firm or other association of individuals. In the present case, all parties against whom contravention has been found are either partnership firms or sole proprietorship concerns, as such provisions of Section 48 would be applicable to them. According to the Investigation Report, the following persons of OP-1 to OP-8 were found to be liable under Section 48(1) of the Act by the DG (i) Mr. Vallabhaneni Venkata Ram of OP-1, (ii) Mr. Sushanta Chandra (now deceased) of OP-2 and OP-5, (iii) Mr. Vallabhaneni Chakrapani of OP-3, (iv) Mr. Biswanath Palit of OP-4, (v) Mr. Krishnakant Singh of OP-6, (vi) Mr. Naresh Garg of OP-7 and (vii) Mr. Sandeep Mehendale of OP-8.

103. With respect to the above, the Commission observes from the records that Mr. Sushanta Chandra expired on 30.06.2020 and his death certificate was also annexed to the Investigation Report. Accordingly, the Commission decided to drop the proceedings against Mr. Sushanta Chandra.

104. So far as the liability of the rest of the officials of the OPs under Section 48(1) of the Act is concerned, the Commission observes that the aforesaid individuals who are in charge of, and responsible for, the conduct of the business of the contravening OPs must either prove that the anti-competitive activity was committed without their knowledge or that they exercised all due diligence to prevent such conduct. However, in the instant matter, the said individuals failed to place any evidence to disprove their conduct. Further, the Commission notes that Mr. Biswanath Palit of OP-4 and Mr. Krishnakant Singh of OP-6 admitted before the DG that they were in regular communication with other competitors through telephone calls and SMS during the period mentioned in the CDRs, including the period when the impugned tender referred by the Eastern Railway was under process. Furthermore, the Commission notes that Mr. Naresh Garg of OP-7, has admitted before the DG that he had interacted with the other OPs through e-mails and has also admitted that he replied to those e-mails by correcting the data with respect to his firm. Based on the above, the Commission holds the said individuals i.e., Mr. Vallabhaneni Venkata Ram of OP-1, Mr. Vallabhaneni Chakrapani of OP-3, Mr. Biswanath Palit of OP-4, Mr Krishnakant Singh of OP-6 and Mr. Naresh Garg of OP-7 and Mr. Sandeep Mehendale of OP-8, liable under Section 48(1) of the Act.

ORDER

105. In view of the above, the Commission holds that OP-1 to OP-8 have contravened the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act.

106. As far as individuals’ liability is concerned, the Commission holds the following individuals of the OPs, viz., Mr Vallabhaneni Venkata Ram of OP-1, Mr. Vallabhaneni Chakrapani of OP-3, Mr. Biswanath Palit of OP-4, Mr. Krishnakant Singh of OP-6, Mr. Naresh Garg of OP-7 and Mr. Sandeep Mehendale of OP-8, liable under Section 48 of the Act.

107. Further, the Commission, in terms of Section 27(a) of the Act, directs OP-1 to OP-8 and their respective officials to cease and desist in future from indulging in practices which have been found in the present order to be in contravention of the provisions of Section 3(3) read with Section 3(1) of the Act, as detailed in the earlier part of the present order.

108. The Commission notes that all the OPs in this case are MSMEs having limited staff and small turnover. Clearly, they have contravened the provisions of the Act, as brought out in this order above. As regards imposition of penalties, at the outset, the Commission takes note of the cooperative and non-adversarial approach adopted by some of the OPs in admitting their involvement and coming forward to seek leniency. Against this backdrop, the question before the Commission is whether imposition of penalty would be the appropriate measure and course in the given market situation. The Commission is conscious of the fact that the MSME sector in India is already under stress and bearing the impact of the economic situation arising from the outbreak of the COVID 19 pandemic. The Government of India has undertaken various measures to support the liquidity and credit needs of viable MSMEs to help them withstand the impact of economic shock. In such a situation, if any penalty were to be imposed on these firms, it may render these firms economically unviable; some of these firms may even exit the market, which would further reduce competition in a market already characterised by the presence of few players due to the policy of the Indian Railways to procure items from RDSO approved vendors.

109. Further, the Commission notes the submission of the OPs that they stopped the conduct immediately after the investigation began in the previous matter (Ref. Case No. 02 of 2018) i.e. in year 2020 and that the cartel conduct in the impugned tender relates to the year 2019, and their argument that this may not be treated as recidivism on the part of OPs. Thus, the Commission considers this conduct of OPs as one of the mitigating factors for deciding on penalty.

110. Thus, considering the matter holistically, the Commission decides not to impose any monetary penalties on the OPs and their respective officials in the peculiar circumstances of this case, as noted supra. Further, the Commission is of the considered opinion that the objectives of the Act would be met if the Parties in the present matter cease such cartel behaviour and desist from indulging in similar behaviour in the future, as directed earlier. The Parties are, however, cautioned to ensure that their future conduct is strictly in accord with the provisions of the Act, failing which, any such future behaviour would be viewed seriously as constituting recidivism, with attendant consequences.

111. It is made clear that nothing contained in this order shall be deemed confidential, as the same has been used in the terms of provisions of Section 57 of the Act.

112. The Secretary is directed to communicate with the Parties, accordingly.