On 1st May 2018, the Competition Commission of India (“CCI”) issued its third leniency decision in the case of Nagrik Chetna Manch vs. Fortified Security Solutions and Others (Case No. 50 of 2015), wherein it granted partial leniency to four out of six leniency applicants involved in bid-rigging of five tenders floated in 2014 by the Municipal Corporation of the City of Pune (“PMC”),for “Design, Supply, Installation, Commissioning, Operation and Maintenance of Municipal Organic and Inorganic Solid Waste Processing Plant(s)”.
Nagrik Chetna Manch, a public charitable trust, had filed an information before the CCI stating that as per information available on the website of PMC,itappeared that the bidders of certain tenders were involved anticompetitive conduct of bid rigging. Prima facie satisfied, the CCI vide order dated 29th September 2015 directed the Director General (“DG”) to carry out an investigation.Between 2nd August 2016and 20th September 2016, all the six parties filed leniency applicationsbefore the CCI.
As per the investigation report dated 23rd November 2016, it was observed that only one party had emerged as the L-1 bidder in all the five tenders, while the remaining five players had provided cover bids. It also revealed that the individuals who owned/managed the aforesaid entities belongedeither to the same family or shared close personal bonds. It was also noticed that few biddersdid not even operate in the relevant market,as they were engaged in various other trades and industries such as steel trading business, distribution and stockists ship of drugs, sales and services of electronic security systems, health and medical equipment etc.
Nonetheless, they had participated in the PMC tenders and provided cover bids.Some of these entities even had common office address managed by common person. Even the ‘contact details of a person for the bid’, required to be submitted by the bidders during online filing of the tender, were same for some of the bidders. Further, the Demand Drafts (“DD”), which wererequired to be submitted as earnest money deposits (“EMD”) along with the bids, revealed consecutive serial numbers, having been issued on the same daybythe same bank, despite theoffices of the bidders being situated in different cities. Further, such DDs for EMD were prepared by debiting the accounts of a common person.
Some of the bidders had also used the same Internet Protocol address (“IP address”) to upload the tender documents, with their log in and log out time being in very close range. Even the IP addresses of some of the bidders were registered with the same mobile number. It also revealed that the L-1 bidderhad procured the digital keys from the office of PMC on behalf of other bidders. In view of the above, the DG concluded that all the evidences indicated that the bidders were hand-in-glove with each other and had engaged in bid rigging in all the five tenders.
A copy the DG’s investigation report was forwarded to the parties, as also to their officers who were identified by the DG for having indulged in the practice of bid rigging,on 30th August 2017, for filing their objections/ suggestions, if any. The CCI also heard the parties on 16th November 2017.
While agreeing with the conclusions drawnin the DG report, the parties raised several issues in their defence:
That their case does not fall under Section 3 of the Act, as the bidders are not engaged in ‘identical or similar trade of goods or provision of services’. It was further contended that since they were engaged in businesses other than the infringing product, no penalty could be imposed on them as they did not have any ‘relevant turnover’ or ‘relevant profit’.
That ‘confidentiality’ granted to them as leniency applicants was breached by disclosure of their statements, recorded during investigation, to the other partieswhich adversely affected their rights and reputation.
That there can be no presumption of an appreciable adverse effect on competition (“AAEC”)as the market was not foreclosed; the e-auction tenders were open for all bidders and thus entry was not restricted in any manner by the alleged agreement. It was also submitted that the objective of the alleged cartelisation was merely to ensure that PMC does not extend the tender period and no actual loss was caused to PMC.
That theCCI should make a holistic evaluation of substantial value addition done by them through the Lesser Penalty Application filed by them; that neither any consideration was received or offered to them from the L-1 bidder;that they were not aware of the provisions of the Act; that they have never been involved in any kind of cartelisation, bid rigging, proxy bidding or any such activity before and that they undertake not to indulge in any such activity in future. Thus, prayer for grant of maximum reduction in penalties was made.
As to the contention that the parties are not engaged in ‘identical or similar trade of goods or provision of services’, the CCI held:
“…In the instant case, the Commission is of the view that it is the business activity of the parties that they are actually bidding for and the one regarding which the violation of law has been alleged which is relevant for the purpose of the applicability of Section 3(3)(d) Act rather than any other business activity(s) parties ‘were’ or ‘are’ engaged in.…”
Regarding the issue of breach of Confidentiality, the CCI held: “The confidential treatment granted under Lesser Penalty Regulations does not extend to evidence obtained or collected by the DG, even if such an evidence is obtained from a Lesser Penalty Applicant”, being in the nature of an ‘independent evidence’ whichmay or may not contain the informationsubmitted in the Lesser Penalty Regulations.”.
The CCI also rejected the contention that their rights and reputation had been adversely affected since the alleged‘confidential information’had not been disclosed to the public at large but only tothe Informant, who too was bound by an undertaking in this regard.
As regards the contention that no AAEC has been caused in India, the CCI observed that in terms of Section 3(3)(d) of the Act, bid rigging is presumed to cause an AAECirrespectiveof the duration or purpose and whether benefit was actually derived or not from the cartel. The CCI further observed that the charged parties ‘have neither been able to rebut the said presumption nor been able to show how the impugned conduct resulted into accrual of benefits toconsumers or made improvements in production or distribution of goods inquestion’. The CCI further observed that‘mere possibility that other bidders could have bid for the tender cannot absolve the colluding OPs from their conduct of bid rigging. Explanation to Section 3(3) of the Act makes it clear that bid rigging even includes an agreement that has the effect of reducing competition for bids or adversely affecting or manipulating the process of bidding. Therefore, even if a subset of bidders colludes amongst themselves to rig or manipulate bidding process, it would be a violation of Section 3(3)(d) of the Act’.
The CCI found all the six charged partiesto have indulged in bid rigging/ collusive bidding. Accordingly, it imposed monetary penalty to the tune of 10% of their average annual turnover of the preceding three financial years. However, in deciding the quantum of penalties to be imposed, the CCI gave due weightage to the extent to which the leniency applicants had contributed in the completion of the investigation.
The CCI acknowledged that the 1stleniency applicanthad helped in unearthing the existence of bid rigging cartel for few of the tenders and had co-operated fully and expeditiously on a continuous basis. However,it granted a reduction in penalty by only 50%, asthe leniency applicant had not filed the same at the beginning but at later stage, when some evidence had already been collectedby the CCI /DG. The 2ndleniency applicantwas granted a reduction in penalty by 40%, as it had disclosed the names of certain individuals associated with the ring leader of the cartel and provided copies of certain critical emails. The 3rd leniency applicantwas granted reduction in the penalty imposed by 50%, as it had provided certain information,not provided by the 1st or the 2nd Leniency Applicants, and which aided in unearthing the cartel for certain tenders.Interestingly, the 4thleniency applicant,despite having orchestrated the entire cartel and emerged as L1 bidder in all the five tenders, was also granted a reduction in penalty by 25% for providing information regarding purchase/procurement of digital keys by its owner for uploading the bid documents on the website of the PMC on behalf of other bidders.
As regards the 5th& 6thleniency applicants, the CCI did not grant any reduction in penalties imposed upon them, as disclosure by these entities did not lead to any value addition in the investigation.
The official of the companies, involvedin the aforesaid contravention, were also subjected to leniency reduction in penalties, imposed on them at the rate of 10% of their average income during the preceding three financial years.
As the CCI did not find PMC’s conduct to be in contravention of the provision of Section 3(3)(d) of the Act, it did not impose any monetary penalty onit; however, scathing remarks were made against it. The CCI observed that the conduct of PMC may have facilitated bidrigging, as evidenced by uploading by a bidder of one of the bid documents from PMC’s own IP address, call data records of communication between some of the officials of PMC with the L-1 bidder and other systemic failures on the part of PMC. The CCIalso observedthat that PMC did not exercise due diligence, while scrutinizing the bid documents,despiteclear indications of collusion such as use ofsame IP addresses, common proprietor / director, same office address, consecutive serial number for DDs etc. The CCI also pointed out that PMC had allowed even ineligible bidders, not having requisite experience in solid waste management as required under tender, to participate. Thus, the CCI found glaring acts of omission and commission on part of PMC which, intentionally or otherwise, facilitated bid rigging.
The CCI has correctly interpreted the term ‘turnover’, in the facts of the case, purposively and in furtherance of the objectives of the Act. Pertinently, in doing so, it was not constrained by the Apex Courts’ order in Excel Corp Care case,wherein the term ‘turnover’ was interpreted to mean ‘relevant turnover’. The CCI rightly held that ‘in the peculiar facts of this case where OPs have admittedly submitted cover bids but are not engaged in the solid waste management i.e. the activity relating to which bid-rigging has taken place, interpretation of ‘turnover’ in Excel Crop Care case would not be applicable’.
It is, however, still not clear whether CCI’s interpretation would be applicable to cases other than that of bid rigging, such as where enterprises do not operate in the same horizontal relevant market or operate in the related vertical market or in another adjacent market but are nonetheless engaged in cartel activities on the horizontal market, either as facilitators or co-conspirators, as upheld by the European Court of Justice in the case ofAC Treuhand (Case C 194/14 P, judgement dated 22nd October 2015).
For the very first time, on the ground of being separate set of evidences, the CCI has made a distinction between confidentiality granted to the identity and information provided by a leniency applicant under the CCI (Lesser Penalty) Regulations, 2009 and confidentiality granted by the DG to the information/evidence collected by the DG during investigation under Regulation 35 of the General Regulations. This appears to bea hyper-technical approach, which would deter parties from filing leniency applications as they would now be faced with a higher risk of exposure and class action suit for damages being filed against them. As a result, cartel activities may continue for a longer period longer than they could have been otherwise.
The order also reflects a hardening of stance by the CCI in as much asno reduction in penalties was granted to two of the parties notwithstanding the fact that the CCI recorded that they ‘supported the investigation and cooperated with the investigation/ inquiry throughout and accepted information indicating the modus operandi of the cartel and evidence in its possession or available to’ them. While this may reflect some maturation of the nascent juris prudence,this has been in sharp contrast to the decision dated 19th April 2018 in Zinc carbon dry cell batteries cartel case (Suo Motu Case No. 02 of 20), wherein all the three charged parties, who had filed leniency applications, were granted reduction in penalties notwithstanding the fact that information/ evidence on cartel furnished by two of the applicants did not result in ‘significant value addition’ to the evidence already in possession of the DG. Thus, the approach of the CCI appears to be inconsistent with its own earlier order in the Zinc carbon dry cell batteries case and suffers from application of different standards to parties similarly placed under the leniency provisions.This requires clarification by the CCI or issuance of necessary guidelines.
The order places a premium on the time period when the leniency application is filed. In the instant case, the first leniency applicant got a reduction in penalty by only 50%, unlike the Zinc Batteries case where the first leniency applicant got 100% reduction, as leniency application was filed in the instant case at a very late stage wherein the investigation had commenced and substantial evidence had been collected by the DG.
On the whole, the CCI has passed a very reasoned and detailed order. There is a greater clarity now as to how the various provisions of the Act would be interpreted and applied by the CCI. The need of the hour is to develop consistent legal tools to fight the menace of cartel and perhaps to buttress it with a robust antitrust whistle-blower policy
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