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24 January 2019
By way of a 12 July 2018 order, the Competition Commission of India (CCI) rejected the director general's findings and closed the case against 37 signalling cable suppliers in relation to allegations of bid rigging in eight tenders floated by the North West Railway (NWR) for the procurement of railway signalling cables in the 2012-13 fiscal year.
In its reference case before the CCI, the NWR alleged that the offending parties (ie, the signalling cable suppliers) had been involved in collusive bidding with respect to eight tenders (hereinafter referred to as the impugned tenders) which the NWR had floated for the procurement of four types of railway signalling cable in the 2012-13 fiscal year.
The offending parties consisted of both Part I and Part II suppliers approved by the Research Designs and Standard Organisation (RDSO). Part I suppliers can supply up to 100% of the procurable quantity, whereas Part II suppliers fulfil only developmental orders (ie, they can supply up to 25% of the procurable quantity).
In the reference filed by the NWR against the offending parties, it was alleged that these enterprises had held a meeting before the bidding process for the impugned tenders began. As a result, the quoted rates for railway signalling cables were higher than the prevailing market rates. It was further alleged that the offending parties had quoted higher prices simultaneously in response to the NWR's impugned tenders and that this contravened Section 3 of the Competition Act, as it implied that the parties were practising collusive bidding.
After a prolonged investigation, the director general found 11 of the offending parties to be in contravention of Section 3(3)(d) read with Section 3(1) of the act. The director general's finding was based on:
Accordingly, the parties found to be in violation of Section 3(3) read with Section 3(1) of the act were divided into five subsets:
In its investigative report, the director general also identified 15 individuals who were officers of the offending parties and responsible for their relevant business's conduct under Section 48 of the act.
The CCI's order was confined to these 11 offending parties, as the director general's report indicated no contraventions of Section 3 of the act by the remaining 26 parties. The categorisation of these 11 offending parties into the abovementioned subsets was based on various common denominators within each subset, including:
The 11 offending parties filed detailed objections to the director general's report, which were elaborated on during the inquiry (oral hearing) before the CCI.
After considering the objections and arguments advanced on behalf of the 11 offending parties, the CCI concluded that the director general's report had provided no evidence that the offending parties had quoted identical or similar rates in order to create an overall increase in supply rates for the cables. Further, the director general had not provided sufficient evidence to establish any collusion between the offending parties in order to achieve this objective.
The CCI noted that although the parties in the five subsets had made similar bids, the director general's report had failed to substantiate the existence of a prior agreement or 'meeting of the minds' between these five subsets. It was also noted that all of the offending parties – not only the five subsets – had shown a pattern of increasing rates.
The CCI observed that while identical and similar pricing by bidders in tenders can raise suspicions of collusive bidding when coupled with other factors (eg, common management, the sharing of premises, common IP addresses, frequent phone calls between the parties and common representatives in association meetings), the facts presented in the instant case did not substantiate such a claim. Hence, the CCI did not rely on the presumption of collusion.
According to the CCI, the director general had failed to present any evidence of the existence of an anti-competitive agreement or arrangement among the five subsets or any circumstantial evidence to establish tacit collusion. Although the investigation uncovered certain instances of identical or similar pricing, it had failed to demonstrate that this had been the result of collusion. On that basis, the CCI concluded that the 11 offending parties had not contravened Sections 3(3)(a) and 3(3)(d) read with Section 3(1) of the act.
However, the CCI advised the railways to modify their procurement policies in accordance with competition law principles – primarily, by reassessing their rules regarding the participation of sister companies in the procurement of products from various RDSO-approved suppliers – to ensure efficiency, transparency and accountability.
The CCI's decision is significant, as although the bidders were found to have presented similar or identical bids, careful scrutiny showed that there was no evidence of any anti-competitive agreement or arrangement among the five subsets, nor any evidence to suggest tacit collusion. Thus, the CCI has rejected the view that mere structural links or common directors are sufficient grounds to constitute bid rigging in the absence of any direct or circumstantial evidence.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (firstname.lastname@example.org). The Vaish Associates website can be accessed at www.vaishlaw.com.
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