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Case Brief: In Re: Mr. Rakesh Khare And Krishna Engineering Works - Case No. 2 Of 2020

  • Eastern Railway, through its Chief Materials Manager (Stores), Mr. Rakesh Khare, referred this case under Section 19(1)(b) of the Competition Act, 2002, claiming a violation of Section 3's rules. The informant hails from one of the sixteen zones of the Indian Railways, which has its main office in Kolkata, West Bengal. The OPs are Research Designs and Standards Organization (RDSO)-approved suppliers working with the Indian Railways to produce and sell Plain Sleeve Bearing - Top and Bottom Halves for axle bearings
  • According to the informant, OPs (OP-1 to OP-6) engaged in cartel behavior or an Anti-competitive agreement during the purchase of an axle bearing for a BHEL traction motor used in railway EMU coaches. The Informant stated that it had issued an open contract with the number 20/19/1830 and a deadline of 02.09.2019 for the purchase of 594 pairs of the aforementioned item. Out of the seven ICF-approved vendors for providing the specified item, it was claimed that OP-1 to OP-6 participated and provided identical Total Unit Rates (TUR) and their breakdown.
  • In its Investigation DG came to the conclusion that the six OPs-listed as OP-1 to OP- 6 in the Commission's prima facie order dated 02.02.2021-along with OP-7 and OP- 8, were all participants in the cartel. In violation of Sections 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act, they conspired and worked together to determine the bid price stated in Eastern Railway tenders for the supply of axle bearing issued between 2015 and 2019. The DG looked into the situation, and on February 21, 2022, it gave the Commission its Inquiry Report.
  • The application for grant of priority status under Regulation 5(2) of the LPR, 2009, was sent via email by Mr. Krishnakant G. Singh, Partner of M/s Janardan Engineering Industries (OP-6), on June 3, 2021 at 7:53 p.m. Additionally, Vaish Associates, Advocates, on behalf of M/s Sriguru Melters & Engineers (OP-4), sent the application via email on November 8, 2021 at 2:27:46 p.m. The Commission transmitted these to the DG, who properly informed the applicants for the lesser penalty.
  • The CCI noted that it could not be a coincidence that the prices the OPs quoted in response to the tender were the same despite them being located in different places, such as Kolkata, Hyderabad, and Mumbai, and possibly having different costs for raw materials, labour, etc. The CCI took into consideration all of the parties' statements and arguments. Additionally, CCI found that the cartelization of the opposing parties has a noticeable negative impact on competition.
  • As a result, the Commission issued an order declaring that OP-1 to OP-8 had contravened the provisions of Section 3(3)(a) and 3(3)(d) of the Act when taken in conjunction with Section 3(1). In light of the unique circumstances of this case, the Commission decided not to impose any financial penalties on the OPs and their respective officials after carefully examining all the relevant factors. The Commission acknowledged that the MSME sector in India is already stressed and is suffering from the effects of the economic situation brought on by the COVID 19 pandemic.

Case No. & Name Of The Court: Case No. 02 of 2020, Competition Commission of India

Name Of The Parties:
Mr. Rakesh Khare (Informant)
Krishna Engineering Works (Opposite Party No. 1) M/s Chandra Brothers (Opposite Party No. 2)
M/s Rama Engineering Works (Opposite Party No. 3) M/s Sriguru Melters & Engineers (Opposite Party No. 4) M/s Chandra Udyog (Opposite Party No. 5)
M/s Janardan Engineering Industries (Opposite Party No. 6) M/s Jai Bharat Industries (Opposite party No.7)
M/s V.K. Engineering (Opposite Party No. 8)

  1. Issue No.1: whether there has been an agreement or arrangement amongst the OPs to quote the same price/rate for the tender which led to the contravention of the provisions of Section 3(3) read with Section 3(1) of the Act?'
  2. Issue No.2: Whether OP-7 and OP-8 are involved in the matter and were also the part of the cartel?
  3. Issue No.3: Was there Appreciable Adverse Effect on the competition due to the cartelization or agreement of bid rigging between the opposite parties?

Rule Of Law:
  1. The Order was issued in accordance with Section 27 of the Competition Act, which gives the CCI the authority to inflict penalties on organizations engaged in anti- competitive behavior, such as abusing their dominant position or making anti- competitive agreements. According to this clause, the CCI may impose a fine on the entity if it considers it appropriate, but the fine cannot exceed 10% of the average turnover for the entity's three most recent financial years. It may even direct that all agreements be changed in accordance with the order, abide by any additional orders that the Commission may issue, and follow all other instructions, including paying any associated costs.
  2. This matter was received as a reference under Section 19(1)(b) of the Competition Act, 2002 from Eastern Railway through its Chief Materials Manager (Stores), Mr. Rakesh Khare. Section 19(1)(b) empowers the commission to inquire into any alleged contravention of provisions contained in section 3(1) or section 4 or on its own motion or on a reference made to it by the Central Government or a State Government or a statutory authority.
  3. According to Section 26(1) of the Act, the Commission issued an order on February 2, 2021, in which it expressed the opinion that there was a presumptive basis for believing that the OPs had agreed to offer identical prices in response to the aforementioned tender floated by the Informant, in violation of Section 3(3). (d). According to Section 26(1), if the Commission believes there is a prima facie case after receiving a referral from the Central Government, a State Government, or a statutory authority, or based on its own knowledge or information obtained under Section 19, it must direct the Director General to induce an investigation into the situation.
  4. Lesser Penalty Applications under Section 46 of the Act, applications under Section 46 of the Act read with Regulation 5 of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (LPR, 2009) were received in the Commission from OP- 4 and OP-6. According to Section 46, if the commission identifies that a producer, seller, distributor, trader, or service provider who is alleged to have violated Section 3 has made a full and truthful disclosure regarding the alleged violations and that disclosure is essential, a lesser penalty may be imposed on that producer, seller, distributor, trader, or service provider as the commission sees fit. The process for awarding the lower penalty is outlined in Regulation 5 of LPR, 2009.
  5. OP's have contravened provisions of Section 3(3)(a) read with Section 3(1) of the Act. Resultantly, the conduct of the OPs also amounts to contravention of Section 3(3)(d) read with Section 3(1) of the Act. Section 3(1) states that No enterprise or association of enterprises or person or association of persons enter into an agreement that substantially lessens competition within India or that impacts the manufacturing, sale, distribution, storage, purchase, or control of goods or the provision of services. There shall not be appreciable adverse Effect on the competition. Section 3 (3) states that any agreement made between enterprises or associations of enterprises or persons or associations of persons etc., including cartels, that are involved in identical or similar trade of goods or provision of services, which:
    1. directly or indirectly determines purchase or sale prices;
    2. directly or indirectly results in bid rigging or collusive bidding, then it will fall under the ambit of Anti-Competitive Agreement.

Ratio Decidendi:
The Competition Commission of India has stated that OP-1 to OP-8 have contravened the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act. It clearly means that the opposite parties have been in an Anti-competitive agreement and have formed the cartel due to which even when they were placed as different locations and there were diverse factors, they came up with the identical bids. Hence, effecting the prices which they put. Therefore, falling under the ambit of appreciable adverse effect on the competition.

In October 2022, the CCI found eight axle bearing manufacturers namely Krishna Engineering Works (Opposite Party No. 1), M/s Chandra Brothers (Opposite Party No. 2), M/s Rama Engineering Works (Opposite Party No. 3), M/s Sriguru Melters & Engineers (Opposite Party No. 4), M/s Chandra Udyog (Opposite Party No. 5), M/s Janardan Engineering Industries (Opposite Party No. 6), M/s Jai Bharat Industries (Opposite party No.7) and M/s V.K. Engineering (Opposite Party No. 8). Including their office bearers namely Mr. Vallabhaneni Venkata Ram of OP-1, Mr. Vallabhaneni Chakrapani of OP-3, Mr. Biswanath Palit of OP-4, Mr. Krishnakant Singh of OP-6, Mr. Naresh Garg of OP-7 and Mr. Sandeep Mehendale of OP- 8, liable under Section 48 of the Act, guilty of indulging in a bid-rigging cartel, in relation to the tenders floated by Eastern Railway between for the procurement of axle bearings, in violation of Sections 3(3) of the Act.

The DG reported that, after reviewing the bids submitted by the OPs in the tenders floated for axle bearing in the years 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019, a pattern of largely identical or similar bids cited by the OPs over the course of the previous eight years had been noticed.

The DG emphasized that OP-1 to OP-4 continued to submit revised offers even after negotiations in the contested tender brought their initial bids down to the same amount of Rs. 18,690/-, enabling them to divide the quantity given among themselves. The DG observed that from 2012 to 2019, the OPs had an arrangement, agreement, or plan to swap Axle Bearing quantities.

With respect to ISSUE NO.1, the Commission came to the conclusion that there existed an Anti-competitive agreement between the OPs. Since no OPs filed this break-up when placing their online bids. The only goal in doing this was to maintain parity between their offers.

The Commission also observes that, surprisingly, the OPs quoted the same or a very similar price in each of the tenders issued by Eastern Railway from 2012 to 2019 despite having separate manufacturing units in various locations with distinct manufacturing costs, overhead costs, transportation costs, and profit margins, as submitted by the OPs themselves.

There was regular phone communication between cartel members, and the OPs shared commercially sensitive information through emails with one another, according to tabulation statements and excel sheets that are available. However, these documents do not show any other business motivations other than the desire for coordinated and collusive action.

Additionally, OP-4 and OP-6 have acknowledged that this collusion was carried out by exchanging Excel sheets with quantity, rates, and other information where identical Bid values were chosen. Even OP-6 acknowledged in its statement that there had been verbal agreements between rivals regarding Eastern Railway tenders for some time and that it had spoken with other cartel participants. Consequently, coming within the purview of sections 3(1) and 3(3) d.

With respect to ISSUE NO.2 the commission stated that, in relation to OP-7, the Commission notes that Mr. Naresh Garg of OP-7 has admitted before the DG that he had interactions with the other OPs and received e-mails from other OPs. Further, he also admitted that he replied to those e-mails by correcting the data with respect to his firm. Regarding OP-8, the Commission takes note of the DG's analysis that the deponent joined the cartel in 2017 after receiving ICF approval as a development vendor, but since Jai Bharat Industries was already a Part-II RDSO approved vendor.

The existing cartel members would have given Jai Bharat Industries the developmental order and told V. K. Engineering not to take part in the relevant tender. In June 2019, Jai Bharat Industries was added to the Part-I RDSO approved vendor roster. Following this, the cartel members chose to give V. K. Engineering the developmental order. In view of the aforementioned, the Commission believes that OP-8 did not come to the Commission with clean hands. Therefore, Both OP-7 and OP-8 will be considered the Part of the Cartel.

With respect to ISSUE NO.3, Firstly, the Commission draws attention to the fact that Section 3(1) of the Act's provisions prohibit not only agreements that result in AAEC in the market but also agreements that are likely to do so. The Commission also points out that once an agreement of the kinds listed in Section 3(3) of the Act is formed, it is assumed to have an AAEC in India. As a result, it is obvious that the parties' contested behavior has led to AAEC in the current dispute.

As a result, the CCI observed that axle bearing manufacturers used to keep track of the distribution of tender quantities by maintaining and sharing excel sheets etc. among themselves, which also helped in identifying the party who would be submitting the cover bids.

Despite having different transportation costs and other costs, they were still able to provide identical bid prices. Because they were all MSMEs who had been negatively affected financially by the COVID-19 pandemic, CCI commanded axle bearing manufacturers to stop and desist from engaging in such conduct but did not apply any financial penalties because doing so would have forced some of them out of business.

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