Rajasthan Cylinders and Containers Limited vs Union of India and Another

HELD: 1. On the one hand the economic policy of the nation has ushered in the era of liberalisation and globalisation thereby giving freeplay to the private sector in the manner of conducting business, at the same time, in public interest and in the interest of consumers, a regime of regulators has also been brought to ensure certain checks and balances. Since competition among the enterprises or businessmen is treated as service for a public purpose and, therefore, there is a need to curb anti-competitive practices. The Competition Commission of India (CCI) is given the task (as a regulator) to ensure that no such anti-competitive practices are undertaken. In fact, Section 18 of the Act casts a specific and positive obligation on CCI to ‘eliminate’ anticompetitive practices and promote competition, interest of the consmuer and free trade. [Para 72] [536-G-H; 537-A-B] Competition Commission of India vs. Steel Authority of India Limited and Another (2010) 10 SCC 744 : [2010]

11 SCR 112 – relied on.

2. One of the anti-competitive practices is cartelisation, the essential postulate whereof is agreement between enterprises or association of enterprises or persons or associations of persons in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of service, which causes or is likely to cause an appreciable adverse effect on competition within India. Such an agreement is treated as void. The types of agreement which may fall foul of Section 3 are mentioned in subsection (3) thereof. These include sharing the market by way of allocation of geographical areas of market [clause (c)] and the agreements which result in bid-rigging or collusive bidding whether directly or indirectly [clause (d)]. There is a presumption that four types of agreements mentioned in sub-section (3) will have an appreciable adverse effect on competition. [Para 73] [537F-H]

3. Section 19(3) of the Act mentions the factors which are to be examined by the CCI while determining whether an agreement has an appreciable adverse effect on competition under Section 3. However, this inquiry would be needed in those cases which are not covered by clauses (a) to (d) of sub-section (3) of Section 3. Reason is simple. The agreeements of nature mentioned in sub-section (3) are presumed to have an appreciable effect and, therefore, no further exercise is needed by the CCI once a finding is arrived at, that a particular agreement fell in any of the aforesaid four categories. Agreements mentioned in Section 3(3) raise a presumption that such agreements shall have an appreciable adverse effect on competition. It follows, as a fortiorari, that the presumption is rebuttable as these agreements are not treated as conclusive proof of the fact that it would result in appreciable adverse effect on competition. What follows is that once the CCI finds that case is covered by one or more of the clauses mentioned in sub-section (3) of Section 3, it need not undertake any further enquiry and burden would shift upon such enterprises or persons etc. to rebut the said presumption by leading adequate evidence. In case such an evidence is led, which dispels the presumption, then the CCI shall take into consideration the factors mentioned in Section 19 of the Act and to see as to whether all or any of these factors are established. If the evidence collected by the CCI leads to one or more or all factors mentioned in Section 19(3), it would again be treated as an agreement which may cause or is likely to cause an appreciable adverse effect of competition, thereby compelling the CCI to take further remedial action in this behalf as provided under the Act. That, is the broad scheme when Sections 3 and 19 are to be read in conjuction. [Para 74] [538-A-F]

4. Explanation to Section 3, assigns meaning to ‘bid rigging’. The necessary ingredients of bid rigging, are: (a) agreement between the parties; (b) these parties are engaged in idential or similar production or trading of goods or provisions of services; and (c) the agreement has the effect of eliminating or reducing competition of bids or adversely affect or manipulating the process for bidding. Though the expression ‘collusive bidding’ is not defined in the Act, it appears that both ‘bid rigging’ and ‘collusive bidding’ are overlapping concepts. [Paras 75, 77] [538G; 539-B-C]

5. Having regard to the scheme of the Act, it cannot be said that there is no possibility of a competition in the present cases and, therefore, CCI had no jurisdiction to carry out any such investigation. Section 3 prohibits anti-competitive agreements and brings about the prime objective of the Competition Act. The purpose of the Act is not only to illuminate practices having adverse effect on the competition but also to promote and sustain competition in the market. Enforcement provides remedies to avoid situation that will lead to decrease competition in the market. Therefore, effective enforcement is important not only to sanction anti-competitive conduct but also to deter future competitive practices. In the present case itself, there are sixty suppliers of the product for which there are three buyers. After all, each supplier would like to be L-1 or L-2 so that it is able to get order for larger quantities than the other. In this sense, there would be a competition among them. Further, it would also be in the interest of the buyers like IOCL etc. that the elements of healthy competition persists in the market. [Paras

78 and 79] [543-D; 544-C-E]

6. It is the duty of the CCI to ensure that the conditions which have tendency to kill the competition are to be curbed. It is also the function of the CCI to ensure that there is a competition so that benefits of such competition are reaped by the consumers. [Para 79] [544-E]

7. The CCI and Competition Appellate Tribunal (COMPAT) have held that there was collusive bidding in the present case in view of the fact that there is an active trade association of the suppliers; a meeting took place couple of days before the date of bidding; common changes were pointed out by these appellants who submitted bids on their behalf; and bids were of identical amounts despite varying cost, which were repetitive in nature. The respondents may be right in their submission that there may not be a direct evidence on the basis of which cartelisation or such agreement between the parties can be proved as these agreements are normally entered into in closed doors. The standard of proof which is required is one of probability. [Para 80] [544-G-H; 545-A]

Technip SA v. SMS Holding (P) Ltd. & Ors. (2205) 5 SCC 465 : [2005] 1 Suppl. SCR 223; Commissioner of Income Tax, Bombay City I, Bombay v. Jubilee Mills Ltd., Bombay (1963) 48 ITR 9 – relied on.

8. Even in the absence of proof of concluded formal agreement, when there are indicators that there was practical co-operation between the parties which knowingly substitute the risk of competition, that would amount to anti-competitive practices.[Para 83] [549-D]

9. The manner in which tendering process takes place would show that in such a competitive scenario, the bid which the different bidder would be submitting becomes obvious. It has come on record that just a few days before the tender in question, another tender was floated by BPCL and on opening of the said tender the rates of L-1, L-2 etc. came to be known. In a scenario like this, that obviously becomes a guiding factor for the bidders to submit their bids. Keeping in mind the aforesaid fact situation, the very factors on the basis of which the CCI has come to the conclusion that there was cartelisation, in fact, become valid explanations to the indicators pointed out by the CCI. [Paras 90 and 91] [555-F-G]

10. Identical products along with market conditions for which there would be only three buyers, in fact, would go in favour of the appellants. The factor of repetitive bidding, though appears to be a factor against the appellants, was also possible in the aforesaid scneario. The prevailing conditions in fact rule out the possibility of much price variations and all the manufacturers are virtually forced to submit their bid with a price that is quite close to each other. Therefore, it became necessary to sustain themselves in the market. Hence, the factor that these suppliers are from different region having different cost of manufacture would lose its significance. It is a situation where prime condition is to quote the price at which a particular manufacturer can bag an order even when its manufacturing cost is more than the manufacturing cost of others. The main purpose for such a manufacuring would be to remain in the fray and not to lose out. Therefore, it would be ready to accept lesser margin. This would answer why there were near identical bids despite varying cost. [Para 91] [556-A-D]

11. Insofar as meeting of bidders in Mumbai just before the date of submission of tender is concerned, some aspects pointed out by the appellants are not considered by the CCI or the COMPAT at all. No doubt, the meeting took place a couple of days before the date of tender. No doubt, the absence of agenda coming on record would not make much difference. However, only 19 appellants had attended that meeting. Many others were not even members or did not attend the meeting. In spite thereof, even they quoted almost same rates as the one who attended the meeting. This would lead the Court to the inference that reason for quoting similar price was not the meeting but something else. [Para 92] [556-D-E]

12. Monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. In such a situation, a manufacturer with no buyers will have to exit from the trade. Therefore, first condition of oligopsony stands fulfilled. The other condition for the existence of oligopsony is whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability to raise prices or it stood reduced/eliminated by the aforesaid buyers. [Para 95] [558-G-H; 559-A]

13. On a hollistic view of the matter, it is clear that the appellants have been able to discharge the onus by referring to various indicators which go on to show that parallel behaviour was not the result of any concerted practice. [Para 96] [559-A-B]

14. Parallel behaviour does not, by itself, amount to a concerted practice, though it may provide a strong evidence of such a practice. Nevertheless, it is a strong evidence of such a practice. However, before such an inference is drawn it has to be seen that this parallel behaviour has led to conditions of competition which do not correspond to the normal conditions of the market, having regard to the nature of the products, size and volume of the undertaking of the said market. [Para 97] [559-B-C]

15. Whenever there is a situation of oligopsony, parallel pricing simplicitor would not lead to the conclusion that there was a concerted practice there has to be other credible and corroborative evidence to show that in an oligopoly a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut. [Para 97] [559-D-E]

16. The inferences drawn by the CCI on the basis of evidence collected by it are duly rebutted by the appellants and the appellants have been able to discharge the onus that shifted upon them on the basis of factors pointed out by the CCI. However, at that stage, the CCI failed to carry the matter further by having required and necessary inquiry that was needed in the instant case. [Para 102] [563-F-G]

17. In such a watertight tender policy of IOCL which gave IOCL full control over the tendering process, it was necessary to summon IOCL. This would have cleared many aspects which are shrouded in mystery and the dust has not been cleared. [Para 103] [563-G-H]

18. Thus, there is no sufficient evidence to hold that there was any agreement between the appellants for bid rigging. As a consequence, since no penalty is payable, appeals of the CCI are rendered infructuous and dismissed as such. [Para 104] [564-A-B] Union of India vs. Hindustan Development Corporation (1993) 3 SCC 499 : [1993] 3 SCR 128; Ashoka

Smokeless Coal India (P) Ltd. v. Union of India (2007)

2 SCC 640 : [2006] 9 Suppl. SCR 954; Excel Crop Care Limited v. Competition Commission of India & Anr. (2017) 8 SCC 47 : [2017] 5 SCR 901; Union of India v. Hindustan Development Corporation (1993) 1 SCC

467 : [1993] 3 SCR 108; Union of India v. Hindustan Development Coproration (1993) 3 SCC 499 : [1993]

3 SCR 128; Punjab Land Developement & Reclamation Corporation Ltd. v. Presiding Officer, Labour C o u r t (1990) 3 SCC 682 : [1990] 3 SCR 111; S. Sundaram Pillai v. V.R. Pattabiraman (1985) 1 SCC 591 : [1985]

2 SCR 643; CCI v. Artistes & Technicians of W.B. Film & Television (2017) 5 SCC 17 : [2017] 5 SCR 1; Union of India vs. Hindustan Development Corporation (1993) 3 SCC 499 : [1993] 3 SCR 128 – referred to. Ahlstrom Osakeyhtio v. Commission 31.3.1993, ECJ (“Woodpulp”); Theatre Enterprises v. Paramount Films

346 US 357; Monsanto Co. v. Spray-Rite Service Corp.

346 US 357; Monsanto Co. v. Spray-Rite Service Corp.

465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed. 2Nd 775 (1984); Matsushita v. Zenith Ratio Corp. 475 U.S.574 (1986) Bell Atlantic Corp v. Twombly 550 U.S. 544 – referred to.