India: CCI Imposes Penalty For Collusive Bidding In Tender Floated By Pune Municipal Corporation

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

By way of order dated 02.08.2019, the Competition Commission of India ("CCI/Commission") has fined SAAR IT Resources Pvt. Ltd ("SAAR"), CADD Systems and Services Pvt. Ltd("CADD") and Pentacle Consultants (I) Pvt. Ltd ("Pentacle") for collusive bidding in a tender floated by Pune Municipal Corporation ("PMC").

Background and allegations

PMC had floated a tender (Tender No. 338 of 2015 dated 11.01.2016) for 'Selection of agency for carrying out geo-enabled tree census using Geographical Information System (GIS) and Global Positioning System (GPS)' pursuant to the directions issued by the High Court of Bombay vide judgment dated 20.09.2013. SAAR won the tender with a price quote of INR 22.70/- per tree. This was the fourth tender floated by PMC. The first two tenders (Tender No. 2 & 3 of 2015 dated 12.08.2015)¹ were cancelled as no bids were received even after grant of three extensions. Thereafter a third tender (Tender No. 250 of 2015) was floated by PMC on 14.10.2015 which was also scrapped as only one bid was received in response to it.

Information was filed before the CCI by Nagrik Chetna Manch ("Informant") - a public charitable trust stated to be a socially spirited organization working for public causes alleging collusive bidding in Tender No. 338 of 2015 by SAAR, CADD, and Pentacle by having an arrangement with PMC. It was alleged that SAAR was a pre-determined winner and CADD and Pentacle were mere proxy bidders.

As per the informant, collusive bidding took place in three steps:

1. PMC gauged the capabilities of potential bidders through a pre-bid meeting held on 21.08.2015 in which CADD and Pentacle did not participate. Therein, PMC accepted four suggestions for modifications out of which three were from SAAR. One of the suggestions was to float a single tender for the entire area of PMC, pursuant to which Tender No.2 and 3 (zone-wise tenders) were scrapped. Thereafter, Tender No. 250 of 2015 was floated with revised eligibility criteria for all zones of PMC which was aimed to reduce competition from smaller players which were gauged in the pre-tender meeting. However, this tender too was cancelled due to non-adequate response. SAAR, CADD and Pentacle had not participated in this tender.

2. Eligibility condition were further revised in Tender No. 338 of 2015 to eliminate competition and narrow down the number of bidders, thus leaving only the pre-determined bidder i.e. SAAR and the two proxy bidders i.e. CADD and Pentacle. The eligibility conditions were:

(a) Bidder must have average annual turnover of more than INR 20 million for the past three financial years as opposed to the earlier requirement of INR 10 million.

(b) Bidder ought to have 100 permanent employees on its payroll for the last six months.

3. PMC ignored the shortfalls in technical bids submitted by CADD and Pentacle. CADD and Pentacle had not given the details of similar works undertaken although the same was required as per the bid format. Moreover, as per the tender conditions, the bidder had to have necessary software before bidding and should have demonstrated the same at the technical bid stage, however, this condition was waived off for CADD and Pentacle by PMC. By ignoring these shortcomings, PMC ensured that there would be a minimum of three technically qualified bidders as mandated by the tender conditions.

DG Investigation

The DG relied on information and evidences collected from the informant, opposite parties and third parties including call details records form Telecom Service Providers ('TSPs'), Internet Protocol ('IP') addresses of computers from where bid documents were submitted, emails and statements of key officials and WhatsApp communications between key person of the opposite parties.

The findings of the DG are summarized as under:

1. Understanding with respect to Demand Drafts (DD) for Earnest Money Deposit (EMD): DG found that the EMD of INR 6, 00,000/- each deposited by CADD and Pentacle was arranged from the resources of SARR.
2. Communication between SARR and CADD during tender period: DG found that there were frequent communications between Mr. Arun Rao (Director of SARR) and Mr. Sunil Kapri (Director and CEO of QSEAP Infotech Pvt. Ltd- a JV of SARR from whose account the DDs for CADD and Pentacle were prepared) around the time of preparation of DDs for EMD, cancellation of DD and submissions of bids. Moreover, Mr Ajay Rao and Mr. Abhishek Verma were also found to be communicating, particular, around the day of submissions of bids.
3. Exchange of messages between SAAR and CADD: The DG placed on record a screenshot of conversation between Late Preetam Singh Rahtore (MD of Apex Spatial Tech Solutions Pvt. Ltd) and Mr Ajay Rao (SAAR). Also, the DG found additional messages between Mr. Pankaj Bobra (MD of CADD) and Late Preetam Singh Rahtore. Mr. Pankaj Bobra (CADD) had also admitted that Late Preetam Singh Rathore was the link between CADD and SAAR for facilitating the collusion.
4. Common IP address used by SAAR and Pentacle: IP used by Pentacle to file its bid belonged to SARR and was located in its office premises and therefore it was possible that Pentacle's bid was submitted by SAAR.
5. Similarity in various documents of SAAR, CADD and Pentacle: The DG found similarities in various documents filed by SAAR, CADD and Pentacle such as date format, paragraph alignment, font, font size, line spacing. Also, the three bidders had mentioned tender no. as 338 of 2016 (instead of 2015) in the Pre-qualification Cover Letter, Format of Statement of Deviation from RFP requirements and Self-Declaration –No Blacklisting documents, however, all of them mentioned the correct tender number in Commercial Proposal Cover Letter.

The DG also examined the allegations levelled against PMC that the tender was designed to favor SAAR, however, as per the investigation the same was not established as PMC was able to justify the changes in the tender's eligibility criteria inter alia as recommendations from its Vigilance department.

CCI Analysis

Before deciding the case on merits, CCI first dealt with a preliminary issue raised by SAAR that final hearings cannot be conducted in any matter in the absence of a judicial member being part of such hearing in the light of the judgement the High Court of Delhi in the case of Mahindra Electric Mobility Limited and anr. V Competition Commission of India (W.P No. 11467 of 2018). The Commission placed reliance on the order of the High Court of Delhi in W.P (C) No. 6661/2019 (CADD Systems and Services pvt. Ltd case) in which it was held that the import of judgment in the Mahindra case cannot be that working of CCI be brought to a standstill until the judicial member is appointed. The Hon'ble Court in its decision had also observed Section 15 of the Competition Act, 2002 ("the Act") which states that the orders passed by the Commission cannot be called in question on account of any vacancy or any defect in the constitution of the Commission.

Coming to the merits of the case, the Commission observed that there was a tacit understanding between SAAR and CADD as well as SAAR and Pentacle, pursuant to which CADD and Pentacle merely acted as proxy bidders/ cover bidders for SAAR. Lack of proper scrutiny by PMC ensured that CADD and Pentacle qualify the technical round and be in reckoning so as to benefit SAAR, to get the tender. Also, SAAR by arranging DDs for CADD and Pentacle, from its own resources, and by facilitating submission of online bids of Pentacle from its own office ensured that sufficient number of bidders were available.

The Commission noted that the investigation showed similarities in documentation which strongly inferred that even the documentation for the bids was arranged by SAAR and CADD as well as by SAAR and Pentacle, in concert with each other. CCI also acknowledged the call records and screenshot of messages in the investigation report which revealed an understanding between key officials of SAAR and Late Preetam Singh Rathore in relation to submission of bids by CADD.

SAAR had contended that the DG has failed to show that the alleged conduct had created entry barriers and also that the quote of each of the bidders was independent as can been seem by the difference in such quotes. However, the CCI held that mere possibility that there were other players cannot be a ground of defense to state that they are no barriers to entry and as per the Explanation to Section 3(3) of the Act makes it clear that bid rigging even includes an agreement that has the effect of reducing competition for bids or adversely affecting or manipulating the process of bidding.

The CCI also rejected the submission of Pentacle that it was in constant touch with SAAR as the two were trying to form a joint venture to bid in common. CCI noted that it was a mere afterthought as no provision was found in the tender conditions whereby any joint bid was specifically allowed through a joint venture.

The Commission further held that even if it accepted the contention of Pentacle that it placed it bid at 10.42 AM on 29.01.2016, which was 36 hours prior to the bid placed by SAAR, Pentacle has not been able to justify as to why it used the IP address of SAAR to place its bid. The Commission took note of the fact that Pentacle having a full-fledged infrastructure instead of using it, placed it bid using the infrastructure of SAAR.

SAAR had also contended that the DG had failed to carry an analysis of Appreciable Adverse Effect on Competition (AAEC) to establish the alleged collusive conduct to which the CCI strongly rejected stating that the opposite parties have not been able to disprove the evidence against them and the thrust of SAAR has been to exhibit shortcomings in the investigation report. The CCI held that collusive conduct under Section 3(3) of the Act is presumed to have AAEC and no further analysis is required. The Commission noted that the threshold of applicability of factors under Section 19(3) of the Act and for the Commission to thereafter examine from the prism of "rule of reason" as opposed to "per se" rule, requires that the party charged with has to give some evidence which is adequate enough to dispel the presumption against it. CCI noted that the opposite parties have failed to demonstrate how their conduct had resulted in accrual of benefits to consumers or made improvements in production or distribution of goods/service in question or promotion of any technical, scientific and economic development by means of production or distribution of goods or provision of services.

Accordingly, CCI imposed penalty of INR 1.26 Crores on SAAR, INR 0.11 Crores on CADD and INR 1.33 Crores on Pentacle calculated @ 10% of the average turnover for the preceding three years. In addition, the Commission also imposed penalties on the office bearers calculated @ 10% of their average income for the preceding three years: Mr. Arun Rao (Director –SAAR): INR 2, 40, 258/- , Mr. Ajay Rao (Director- SAAR): INR 1, 69, 298/- , Mr. Pankaj Dobra (MD- CADD): INR 79,959/- and Mr. Chetan Pathare ( Director – Pentacle) : INR 57, 994/-.

As regards PMC, the Commission noted that the facts of the present case were similar to Case No. 50/2015 in which CCI had observed that PMC had failed to detect cartelization in its own tenders and had not exercised due diligence while scrutinizing the bid documents. With respect to the present case also, the DG had found enough evidence that PMC had failed to detect cartelization in its own tender. Shortlisting proxy bidders which did not satisfy the technical criteria and other systematic failures on the part of PMC indicated that the conduct of PMC might have facilitated the bid rigging. However, the CCI held that PMC's conduct need not be examined under the provisions of Section 3 of the Act, as it was a procurer.