India: CCI Closes Allegation Of Cartel Against 37 Suppliers Of Signaling Cables To Indian Railways

Last Updated: 26 September 2018

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

The Competition Commission of India (CCI/Commission ) by way of an order dated 12 July 2018 rejected the findings of  the Director General (DG) and closed the case against 37 signaling cable manufactures in relation to allegations of bid-rigging in eight tenders floated by the North West Railway (NWR) in the FY 2012-13 for the procurement of Railway Signaling Cables.

Allegation

The NWR in a reference case made to CCI , had alleged that the Opposite Parties-  signaling cable manufacturers were involved in collusive bidding with respect to the 8 tenders which had been floated by NWR  in the FY 2012-13(hereinafter referred to as "impugned tenders"), for procurement of 4 different types of Railway Signalling Cables. The Opposite Parties consist of both Part I and Part II suppliers approved by the Research Designs and Standard Organization (RDSO). Part I suppliers are eligible for supplying up to 100% of the procurable quantity whereas Part II suppliers are only eligible for developmental orders (i.e. up to 25%).

In the reference filed by NWR against the OP's it was alleged that these enterprises had a prior meeting of mind before the bidding process for the impugned tenders. As a result the quoted rates for Railway Signalling Cables were higher in comparison to the prevailing market rates. It was further alleged, that different OPs quoted higher prices simultaneously in response to the impugned tenders floated by NWR. Further, quotation of higher prices simultaneously by the Ops was in contravention of Section 3 of the Act, as it implied engagement of all the OP's in the practice of Collusive Bidding.

Findings of the DG in the Investigation Report

The DG in the DG Investigation Report found 11 of the OPs to be in contravention of Section 3(3)(d) read with Section 3(1) of the Act. The DG's finding of contravention was based on pattern of bidding, relationship of key persons, cross-shareholdings, representation in association meetings, frequent interaction between key persons, email exchanges, use of common IP address, inter-se job work, and comparison of rates quoted by Opposite Parties in tenders of other railway zones, etc.

Accordingly, the offending OPs were classified into 5 sub-sets:

  1. Paramount Wires and Cables Ltd and Paramount Communications;
  2. Tirupati Plastomatics Pvt. Ltd and Kanha Cables Pvt Ld;
  3. Vindhya Telelinks Ltd and Birla Cable Ltd;
  4. Myco Electricals (P) Ltd, Telecontinental Telepower Industries Ltd and Delhi Telecom Pvt. Ltd; and
  5. Incom Cables Pvt. Ltd and Incom Wires and Cables Ltd.

During the investigation, the DG also identified fifteen individuals, who were officers of the offending OP's and responsible, under Section 48 of the Act, for the conduct of business of these OP's. The order passed by the Commission is confined with respect to these 11 OPs' only as the DG's report did not indicate any findings on contravention of Section 3 of the Act by the remaining 26 OP's.

The categorization of these 11 OP's into the abovementioned sub-sets was  based on various common denominators within each such sub-set:

  • The Impugned Tenders the enterprises placed the bids on and the tenders from which they abstained.
  • The relation between the enterprises- including factors such as common key persons, inter-related functioning between such enterprises etc.
  • Price variation between the bids placed by the enterprises with respect to the Impugned Tenders and also with respect to other tenders issues during the relevant period by other Railway Zones.

The 11 OPs filed detailed objections to the findings in the DG report which were explained during the inquiry ( oral hearing ) held before the CCI .

CCI's findings

On consideration of the objections and the arguments advanced by the Counsels on behalf of each of the 11 OPs , CCI decided as under.

  • It was concluded that he DG's report did not substantiate, through any evidence, that the OP's had quoted identical/similar rates with a view to achieve overall increase in rates of supply of the cables to the Informant. Furthermore, the DG did not present sufficient evidence to establish any collusion between the OP's achieving the above-mentioned objective.  
  • The Commission noted that although there were close quotations of bids by the Opposite parties of the 5 sub-sets, the DG's report had failed to substantiate existence of a prior agreement or 'meeting of minds' between theses 5 sub sets of the 11 OP's to engage in collusive bidding. It was also noted that the pattern in increase in rates was not just exhibited by the five sub-sets of OPs but by all OPs.
  • The Commission observed that identical and similar pricing by bidders in tenders coupled with other factors such as common management, sharing of premises, common IP addresses, and frequent phone calls, common representative in the meetings of Association, etc. do raise suspicion of collusive behaviour between the bidders. However, the facts presented in the instant case were not suggestive of the same and hence the Commission did not rely on the presumption of collusion. The DG had failed to present any evidence for of anti-competitive agreement or arrangement amongst five sub-sets of bidders nor any circumstantial evidence to establish tacit collusion. Despite his findings of certain instances of identical/similar pricing, the Investigation does not bring out that the same was an outcome of collusion and on that basis it was concluded that the 11 OPs had not acted in contravention of the provisions of Section 3(3)(a) and 3(3)(d) read with Section 3(1) of the Act.
  • The Commission, however, advised the Railways to modify its procurement policies in accordance with the competition law principles, primarily by reassessing the rules with respect to participation of sister concerns in the tenders floated by Railways for procurement of products from various RDSO approved suppliers, to ensure efficiency, transparency and accountability of participants in tenders.

Comment: The CCI order in this case assumes significance since the investigation based its finding on identical and similar pricing by bidders in tenders coupled with other factors such as common management, sharing of premises, common IP addresses, and frequent phone calls, common representative in the meetings of Association, etc. which do raise suspicion of collusive behaviour between the bidders yet during careful scrutiny in the inquiry it was found that there was no evidence of any anti-competitive agreement or arrangement amongst five sub-sets of bidders nor any circumstantial evidence to establish tacit collusion. Thus, CCI rejected the view that mere structural links or common directors was sufficient to constitute bid rigging /cartel in the absence of any direct or circumstantial evidence pointing towards any collusive behaviour. (The author represented the first sub set of the OPs (Paramount group) before CCI.) 

Note : The above article first appeared on the Antitrust & Competition Law Blog

© 2018, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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