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)
