The Indian Competition Authority refuses to penalize railway companies for bid-rigging due to economic downturn caused by COVID-19 (Chief Materials Manager, South Eastern Railway / Hindustan Composites)

KEY POINTS

While the CCI found sufficient evidence to hold that there existed a contravention of Section 3(3) of the Act, given the economic downturn due to the pandemic faced by Micro Small and Medium Enterprises (“MSMEs”) in India, and other public interest considerations, the CCI imposed no penalty and only directed the parties to cease and desist from indulging in such activities in the future.

BRIEF FACTS

Multiple references were made to CCI by (i) Chief Materials Manager, South Eastern Railway, (ii) the Controller of Stores, Central Railway, (iii) the Chief Materials Manager, Eastern Railway, (iv) the Chief Materials Manager-I, North Western Railway and (v) the Chief Materials Manager-Sales, North Western Railway under Section 19(1)(b), alleging that 12 manufacturers and suppliers, namely (i) Hindustan Composites Ltd., (ii) Industrial Laminates (India) Pvt. Ltd., (iii) BIC Auto Pvt. Ltd. (now Masu Brake Pads Pvt. Ltd.), (iv) Escorts Ltd. (Railway Equipment Division), (v) Rane Brake Lining Ltd., (vi) Om Besco Super Friction Pvt. Ltd., (vii) Cemcon Engineering Co. Pvt. Ltd., (viii) Sundaram Brake Lining Ltd., (ix) Bony Polymer Pvt. Ltd., (x) Daulat Ram Brakes Mfg. Co., (xi) Hindustan Fibre Glass Works, and (xii) Precision Industrial System (“Opposite Parties”), of composite brake blocks (“CBB”) to the Indian railways had indulged in bid-rigging in various tenders from 2009 to 2017.

Reference was made to CCI after it was noticed that the Opposite Parties had been submitting identical tender bids across tenders issued by different railways divisions despite the geographical differences.

OBSERVATIONS OF THE CCI

Whether the Opposite Parties and suppliers had acted in a manner which was in contravention of provisions under Section 3(3) of the Act?

The evidence collected by the DG showed that key personnel from the Opposite Parties were constantly in touch with each other through e-mails, SMSes, WhatsApp, and through phone calls. These exchanges regularly involved exchange of Excel sheets as attachments containing information pertaining to various railway tenders of CBB, price bids, distribution of CBB tenders among different manufacturers along with compensation and other details relating to location and timing for cartel meetings. The content and context behind these e-mails was also clarified in statements given to the DG in the course of its investigation, when the concerned o-cials of the Opposite Parties were confronted with the evidence. Therefore, CCI concluded that such exchange of information was direct evidence of involvement of the parties in bid-rigging and the evidence was su-cient to hold the opposite parties liable for contravention of Section 3(3) of the Act.

Whether in a monopsony – a market with a single buyer i.e., the Indian railways, the Opposite Parties could potentially control prices by cartelizing?

Given the overwhelming evidence to the fact that the parties had colluded by quoting identical prices, CCI held that it was futile for the Opposite Parties to take such a plea. As a consumer, the Indian railways is free to make a choice as far as selection of goods or services and merely putting an emphasis on the market conditions without considering the actual anti-competitive conduct was selective and misconceived.

Whether the actions of the Opposite Parties had caused an Appreciable Adverse Effect on Competition ("AAEC")?

Once an agreement of the type specified under Section 3(3) of the Act is established, the same is presumed to have an AAEC within India. On considering the replies filed by the Opposite Parties, CCI was of the opinion that the Opposite Parties were unable to provide any evidence to dispute this presumption. Further, Section 3(3) does not require an actual effect to take place for concluding bid-rigging. The likelihood of an AAEC is sufficient to find the cartelists in violation. Further, the smoking-gun evidence relied upon by the DG left nothing to explanation and accordingly, the CCI observed that “nothing can be more incriminating than these”.

Judgement

While the Opposite Parties were unable to rebut the presumption of AAEC caused by their activities and despite clinching evidence and clear admission of guilt by 8 of the Opposite Parties, the CCI did not impose any penalty on the parties on account of economic downturn as well as continued cooperation by the Opposite Parties and rather chose to issue a cease and desist order. [In re: Chief Materials Manager, South Eastern Railway, (Reference Case No. 03 of 2016)]

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Authors

Quotation

L. Badri Narayanan, Charanya Lakshmikumaran, Neelambera Sandeepan, Aditya Bhattacharya, Rishabh Chopra, The Indian Competition Authority refuses to penalize railway companies for bid-rigging due to economic downturn caused by COVID-19 (Chief Materials Manager, South Eastern Railway / Hindustan Composites), 10 July 2020, e-Competitions Transport (rail), Art. N° 102916

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