India: CCI Dismisses Complaint Of Bid Rigging By Eastern Railways Against Laxven And Medha Servo In Procurement Of Microprocessor Systems

Last Updated: 21 May 2019

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

By way of its order dated 02.01.2019, the Competition Commission of India ("CCI/Commission) has exonerated M/s Laxven Systems ("Laxven") and M/s Medha Servo Drives Pvt. Ltd ("Medha") of allegations of bid rigging in the tenders floated by Eastern Railways for procurement of Microprocessor Control and Fault Diagnostics System ("System"). The allegations were brought in the notice of the Commission by way of a reference from the Chief Material Manager of Eastern Railways.

Background

Eastern Railways floated a tender on 13.07.2017 for procurement of Microprocessor Control and Fault Diagnostic systems for Electric Locos as per Research designs and Standard Organizations ("RDSO") Spec No. ELRS/SPEC/MPC/FDS/0001/Rev.3". The system is used to perform logical control of the Locomotive by continuously monitoring various digital and analog inputs and drive the electro-mechanical contractors, valves etc. and checks for abnormality in the operations of the locomotive. The procurement of the system was restricted only to the four vendors approved by Chittaranjan Locomotive Works ("CLW") viz. Medha, Laxven, M/s I C Electrical Co. Pvt. Ltd ("I C Electrical") and M/s Stone India Ltd ("Stone India"). However, this short list of vendors underwent a change by an amendment issued by CLW on 01.08.2017 pursuant to which only two firms/vendors remained in the approved list of vendors viz. Laxven and Medha.

In response to the tender dated 13.07.2017, only two firms submitted bids i.e. Mehda (approved vendor) and I C Electrical (Disqualified Vendor). The only other approved vendor i.e. Laxven did not submit its bid, due to which Medha acquired a monopoly status and allegedly quoted higher rates and refused to bring down the rate to an acceptable level, as the other bidder (IC Electrical) was a disqualified vendor. Pursuant to such conduct of Medha of quoting higher rates and refusing to reduce the price during negotiation, Eastern Railways was of the view that the only other bidder, Laxven had voluntarily suppressed its bids and , therefore , has indulged in the activity of bid rigging with Medha. It was also brought into the notice of the Commission that Laxven also did not participate in other contemporaneous tenders floated for procurement of similar systems by other Railway Zones viz. Central Railway, Western Railway and South Eastern Railway to make it look genuine.

CCI Analysis

CCI noted that the procurement of the machinery/instruments/items by the railways is based upon the technical specifications issued by RDSO and these specifications are revised via amendments by RDSO from time to time as per technological advancements and need of the hour. It was also acknowledged by the CCI that each revision is technically very different from its predecessor/successor which makes each version of the system unique.

The Informant had mentioned details of three other tenders floated by various Railway zones in which Laxven did not submit bids. It was observed by the CCI that Laxven had clarified to the tender committee that they have not developed prototype for Version- 3 (the latest revised standard required by the tender) as approved by the RDSO and , therefore, was not participating in the tender. In addition, CLW had also clarified that Laxven had not completed Development and Prototype Clearance of MPCS Version-3. Accordingly, CCI noted that the non-participation of Laxven appeared to be due to its inability to produce the required item and not due to collusion with Medha.

As regards the high quotes by Medha, the Commission observed that Revision-3 of the system had additional features of real time remote monitoring, BP and BC pressure measurement, one additional digital input card, one additional output card, bigger size TFT display, energy meter, long term event recording etc. and therefore the increased price quoted is due to the technical difference between Revision-2 and Revision-3 and the increase was ,therefore , justified.

The Commission, accordingly, decided that no case of bid rigging is made out in the said tender.

Comment: The CCI order is objective and fully justified. The case has been reported to show how the Railway Authorities are approaching the Commission without proper homework and studying the facts of the case. It is pertinent to note that this is the fourth such frivolous reference of allegations of bid rigging which have been closed by CCI after scrutiny. The earlier three cases were defended by me successfully and the allegations were found without substance by the CCI even though the DG had found them to be true after investigation. The details of two of the cases earlier defended by me can be read at:

  1. https://www.competitionlawyer.in/competition-commission-of-india-cci-dismisses-allegations-of-bid-rigging-against-in-supply-of-pvc-vinyl-flooring-to-railways/
  1. https://www.competitionlawyer.in/cci-closes-allegation-of-cartel-against-37-suppliers-of-signaling-cables-to-indian-railways/

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

On 15th May 2019 .

Specific Questions relating to this article should be addressed directly to the author.

© 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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