The Competition Commission of India ("CCI/Commission"), by way of order dated 09.08.2019, has found two Japanese Original Equipment Suppliers (OES) , namely NSK Limited, Japan ("NSK") and JTEKT Corporation ("JTEKT"), Japan and their Indian subsidiaries i.e. Rane NSK Steering Systems Ltd ("RNSS") and JTEKT Sona Automotive India Limited ("JSAI") to be engaging in cartelization in the Electric Power Steering (EPS) market.
A Power Steering is a device that helps the drivers steer by augmenting steering effort of the Steering Wheel so that the driver needs to make less effort to turn the steered wheels when driving at typical speed and reduce considerably physical effort necessary to turn the wheels when a vehicle is stopped or moving slowly. Power Steering Systems can further be categorized into – Hydraulic and Electric. An Electric Power Steering ('EPS') System is mechanically less complex than its traditional counterparts and has fewer working parts and no fluids. In an EPS System, the steering movement of the vehicle is assisted by an electric motor. NSK and JTEKT are considered to be amongst the top 5 players (globally) in the EPS market in terms of revenue.
The present case was initiated on the basis of a lesser penalty application by NSK which revealed the existence of the cartel. Later on, during the investigation by the Director General ("DG") JTEKT also approached the Commission by filing a leniency application.
It is pertinent to mention here that pursuant to the submission of the investigation report by the DG, a confidentiality ring was created in the matter upon mutual agreement between the parties. The blog is based on the publicly made available version of the CCI order.
The DG had found that the parties continuously engaged in communications with each other in the form of meetings and telephonic conversations of their employees and executives on receipt of Request for Information (RFI) and Request for Quotations (RFQ) from three automobile OEMs for the supply of EPS systems to their subsidiaries situated in various regions including in India.
Such interactions/communications were aimed at coordinating prices, allocating the market on the basis of geographical regions, allocating the market on the basis of type of vehicles/platform/product, and consequently, rig the bidding process.
CCI noted that the interactions/communications between the employees and executives of NSK and JTEKT were with respect to RFQs of three automobile OEMs. Since the CCI order, being confidential, doesn't contain details of the OEMs or the region for which the supplies were required, the RFQs are categorized as RFQ -'A', RFQ- 'B' and RFQ- 'C'.
The Commission noted that the parties have admitted that a representative(s) of NSK had met with the representative(s) of JTEKT at NSK's office and had discussed pricing information for India and other regions in which they were submitting their bids. They also admitted having discussions on telephone. It was observed that the purpose of these communications was to fix the price to be quoted in such a way that NSK would be chosen to supply brush type C-EPS System and JTEKT for brushless EPS system.
After two RFI's, a formal RFQ was issued to NSK and JTEKT which included various regions but not India. However, quotations for Indian market were also sought for reference purpose. In response to the RFQ, JTEKT, after consultation with NKS, gave a quotation which was only in respect of brushless EPS system as the RFQ did not include brush type EPS system as a targeted product.
In response to the RFQ issued for the brush type EPS, quotations were given only by RNSS and JSAI had not participated and consequently RNSS was selected and supply order was issued to it. The Commission noted that NSK had admitted before the DG that the response to RFQs for Indian market requirements are made directly by RNSS, however in consultation with NSK. The Commission also took note of the admission of NSK that the price quoted by RNSS for the RFQ was based on the discussions held between NSK and JTEKT.
The Commission observed that NSK had admitted to having been benefited by the contacts with JTEKT as it was able to avoid significant reduction in prices quoted in India for brush type EPS system. The Commission concluded that NSK and JTEKT has indulged in cartelization with respect to RFQ-A.
JTEKT/JSAI had contented in their objections to the DG report that JSAI cannot be held to be a part of the cartel as it was not directly involved in the contacts and meetings between NSK and JTEKT and being a subsidiary of JTEKT it was not involved in the decisions related to the rates to be quoted to the OEMs for the global RFQ. They also contended that the RFQ was handled independently by JSAI on a competitive basis without any support from the individuals of JTEKT. However, the CCI noted that no reasonable justification was provided by JTEKT/JSAI for JSAI refraining to quote in response to the RFQ for brush type EPS system and in absence of any reasonable justification such non-participation in India has to be seen holistically in the light of the existence of a cartel between NSK and JTEKT which only leads to one inference that JSAI did not quote because it was a part of the cartel.
CCI noted that representatives of NSK and JTEKT used to have discussions at NSK's office or telephonically pursuant to which an agreement on minimum bid level was reached. NSK had told JTEKT that it was unlikely to secure an order because it was not in a position to meet the OEMs schedule for development as it did not have a C-EPS Systems manufacturing base in India. The DG noted that eventually NSK did not submit a quotation. The tender was given to JTEKT. For another RFQ for brush type EPS systems, the DG had noted that NSK did not have the necessary technology to fulfil the order, however, it colluded with JTEKT that it would submit a high quote in such RFQ and will later withdraw its bid and hence JTEKT won the RFQ.
CCI observed that NSK despite not having the necessary technical requirements gave a quotation which, in essence, was a cover bid. Moreover, the Commission observed that NSK and JTEKT had also come to an agreement with respect to the minimum bid level. Accordingly, CCI held that NSK and JTEKT had indulged in cartelization in RFQ-B.
CCI observed that representative of NSK, upon instructions from his boss, used to have frequent meetings with representative of JTEKT at a Karaoke Box during which specific price information was exchanged and market was allocated by way of deciding jurisdiction in which supplies would be made by NKS and JTEKT. The CCI also took note of an internal memorandum of JTEKT wherein it was written that 'JTEKT would lose by a narrow margin in India'. Although the market allocation strategy did not succeed as the OEM decided to procure EPS from a single supplier only and on submission of quotations by NSK and JTEK, NSK was awarded the supply order. However, CCI noted that the contacts with JTEKT had benefitted NSK as it was able to obtain orders by predicting the price which would be quoted by JTEKT, and this fact was also admitted by NSK.
The Commission concluded NSK and JTEKT and their India subsidiaries RNSS and JSAI respectively indulged in cartelization in the EPS system market from at least 2005 to 25.07.11 by means of directly or indirectly determining price, allocating markets, coordinating bid response and manipulating the bidding process of automobile OEMs which resulted in appreciable adverse effect on competition in India.
The Commission imposed a penalty @ of 4% of the relevant turnover of RNSS on NSK/RNSS which amounted to INR 8, 43, 91,066/-. However, being the first leniency applicant, they were granted 100% reduction in penalty.
As regards JTEKT/JSAI, the Commission decided to imposed @1 times of the relevant profit of JSAI for each year of continuance of the agreement which amounted to INR 34,14,62,886/-. However, being the second leniency applicant and cooperating with the investigation, they were granted 50% reduction on penalty and consequently the penalty payable is INR17,07,31,443/-.
COMMENT: This is the first international cartel of Original Equipment Suppliers (OES) involving supply of Electric Power Steering to OEMs .The cartel was busted due to leniency applications filed by both the OES . The case illustrates the growing success of the leniency regime to detect and punish cartels in India.
Note: This article first appeared on the Antitrust & Competition Law Blog
On 25 October 2019
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