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CCI’s order in Railway procurement establishes the right benchmark for bid-rigging. Here’s why

Srilakshmi Nambiar

The said case pertains to alleged cartelization in the supply of spares to Diesel Loco Modernization Works (DLMW), Punjab. Competition Commission of India (CCI) found that the conduct of Stone India, Faiveley and Escorts, now referred as the Opposite Parties (OPs), was in violation of Section 3(3)(d) of the Competition Act 2002 (the “Act”) as per the investigation and imposed a penalty of two per cent of turnover on them.

The facts of the case were that DLMW floated a tender to procure feed valves used in diesel locomotives on 27th April 2012 and it could be procured only by Research Designs and Standards Organisation (RDSO) approved vendors. The tender committee then received bids from the OPs, who were the only competing parties, and found a clear case of price parallelism. It therefore referred the case to CCI, which took suo-moto cognisance of the same.

One of the compelling evidence against the OPs was the extent to which the quoted price was same. It was found out that the cost running up to thousands of rupees, was not only same up to two place of decimals, but was 33 per cent higher than the last purchase rates. This was in the background when the manufacturing units of the OPs were spread across states like West Bengal, Tamil Nadu, and Haryana, thereby subjecting the final price to be a product of state policies and other production factors, and OPs not being able to provide any justification for such a co-incidence when being called upon by DG to do so.

Interesting aspect was that even though DLMW went forward with Stone India, the only option left for it after Escorts and Faiveley fell short of the technical requirements (Escorts did not submit the cost of the tender document and Faiveley did not accept a warranty clause), it did not stop it from referring the case to CCI. This indicates that the provisions of the Act are enforceable at any stage of transaction. Even when disputes are settled long before, if concerns regarding anti-competitive behaviour are raised, the commission can be actively involved in promoting competition post-facto.

The commission also noted that this case is a classic, textbook case of bid rigging and ‘such entities do not participate in the bid process to actually compete with the successful bidder but submit ‘complementary/cover/courtesy bids’ only so that the procurement process does not get stalled due to lack of competition…’. Given that it was a section 3(3) case where the burden of proof shifted on the OPs post establishment of price-parallelism, unsubstantiated defence provided by the parties warranted such an observation.

The reasoning of the order is convincing given that it is grounded in facts and CCI has dealt elaborately with the OPs’ arguments and DG investigation. It interpreted the definition of term ‘agreement’ as per section 2(b) of the Act, and said that ‘the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in cooperation with each other’, when an evidence to establish ‘action in concert’ is missing. This gives the judgment a sound base, apart from other consistent interpretation of provisions of the Act.