Recently, the Competition Commission of India [“CCI”] in In Re: Eastern Railway, Kolkata and M/s Chandra Brothers has issued cease and desist order against eight firms pronounced guilty of bid-rigging and cartelization in a tender floated by Eastern Railway, Kolkata in the supply of Axle Bearings by means of directly or indirectly determining prices, allocating tenders, coordinating bid prices and manipulating the bidding process which constitutes as a contravention of the provisions of Section 3(3) read with Section 3(1) of the Competition Act, 2002 [“the Act”]. In this case, despite finding explicit evidence of cartelization, the CCI did not impose any monetary penalty considering the firms being Micro, Small, and Medium Enterprises [“MSMEs”] and due to hardship caused by the COVID-19 pandemic.
The article seeks to critically analyze the CCI’s approach while dealing with the MSMEs allegations pertaining to cartels in the light of the COVID-19 pandemic. It highlights the change in the CCI’s position from being a roadblock for the cartels operating well before the COVID-19 pandemic to taking an extremely lenient stance for the hard-core cartels.
FACTUAL CIRCUMSTANCES OF THE CASE:
In this case, the CCI received information from Eastern Railway (Informant) against the M/s Chandra Brothers & Others [“Ops”]alleging contravention of the provisions of Section 3 of the Act. The Informant is the only buyer for Axle Bearings in India amounting to hold monopsony in the market and on the other side, are the Ops Research Designs and Standards Organization [“RDSO”] approved vendors who are engaged in the manufacture and supply of the Axle Bearings used in EMU/DMU motor coaches to assist in the rotations of axle motors.
Furthermore, in course of an investigation directed by the Informant in the division based on the purchase cases of Axle Bearings used in EMU trains, it was found that the Ops had cited the identical price in response to the three tenders which are Tender No. 20125122, Tender No. 20131138 and Tender No. 20141116, floated between August 2012 to August 2014. In the loop of the said investigation, the informant suspected the dirt of cartelization and bid-rigging approached the CCI. After which, the CCI analyzed the submitted bids with an observation that this is no coincidence of quoting the same price to the said tenders. Hence, prima facie was established to contain the agreement and passed an order under Section 26(1) of the Act.
Having said that, the DG delivered his investigation report which states the evidence collected in the matter included e-mails exchanged, call records coupled up with SMS among the competitors, and statements of the representatives of the Ops which formulates the discussed quantity allocation with respect to the tenders and that the Ops were engaged in big rigging and cartelization constitutes as a contravention of the provisions of Section 3 of the Act.
The CCI relying upon the overwhelming evidence submitted by the DG sensed the presence of agreement amongst the suppliers of Axle Bearings and the involvement of Ops in cartelization and bid-rigging concerning the tenders of the Indian Railways. In addition, the vendors also agreed upon the compensation mechanism if some of them did not win the allocated quantities, as from previous or earlier tenders. The CCI also mentioned that on account of the Indian Railways being a monopsony buyer and the approval process of RDSO, there were limited sellers in the market which caused high market concentration. But one should understand that because of the mere difficulties in market conditions in isolation, we cannot ignore the actual conduct of an enterprise rather it could be considered while levying penalty.
The CCI held that the e-mail exchanges and call records coupled up with SMS among the competitors were enough to establish a cartel, which is presumed to cause an Appreciable Adverse Effect on Competition [“AAEC”] in the market for Axle Bearings in India. Adding additional information to support the point, the CCI pointed that in the Rajasthan Cylinders and Containers Ltd. v. Union of India case, [“Rajasthan Cylinders case”] the Hon’ble Supreme court delivered the necessary ingredients of bid-rigging and the presumption of AAEC in a case involving contravention of the provisions of Section 3(3) of the Act. Provided that, the CCI held the Ops liable under Section 48 of the Act and ordered them to cease and desist from such activities. However, in the present case, the CCI did not impose any monetary penalty due to the firms being MSMEs, their cooperative and non-adversarial approach in acknowledging their involvement, lack of awareness of the law, and the economic stress caused by the COVID-19 pandemic. In addition, one should understand that the CCI has the power to impose a penalty upon a market player for contravention of the provisions of the Act which is not rigid but flexible in nature. This case sets the tone that the CCI can take flexible measures that may be appropriate in a given market situation to address market distortions that arise from the behaviour of the market players.
In the present case, the CCI noted the high market concentration and difficulties in market conditions but due to overwhelming evidence, they decided that the actual conduct of the Ops cannot be ignored. Public procurement is an important aspect of all competitive authorities around the globe but in this case, the CCI delivered that it cannot ignore bid-rigging in case of small procurement nor can it consider small procurements unimportant. The case relates to the Diesel Loco Modernisation Works [“DLMW”] case, where the CCI followed the same principle for deciding price collusion – bid-rigging and imposed a penalty of Rs. 62.31 crore on vendors quoting identical prices for violation of the Act forming a cartel in a tender floated by Indian Railway undertaking.
Furthermore, the Rajasthan Cylinder case plays an important role in deciding the judgment because the case lays down requisites of bid-rigging causing AAEC. But on the other hand, the case gives a chance for representation to the opposite party “the presumption of AAEC in a case involving contravention of the provisions of Section 3(3) of the Act can be rebutted by the parties by placing evidence to the contrary on record” and underlines the requirement to assess market structures before returning a finding of contravention of the Act, more particularly in a highly concentrated market. In the present case, the Rajasthan Cylinder case simplified various notions for CCI to pass the said judgment. Ideally thinking, the DLMW case and Rajasthan Cylinder case will continue to act as a key in the future while deciding cases based on peculiar markets where prices were decided by the procurer, for instance in this case (bid-rigging matter). The paramount settled by these two judgments set a core understanding for India’s cartel jurisprudence by pointing to the requisites to assess a case of collusive bidding of peculiar nature without diving into other jurisprudence for such matters.
Consciously, the CCI considered the MSME sector in India already being under economic stress due to the COVID-19 pandemic and decided not to impose any monetary penalty. In recent times, many regulatory bodies are trying to act in solidarity to sustain business in India. If we look around, multiple relaxations have been delivered to embrace the small scale business and partnerships, like the recent relaxation from theMinistry of Corporate Affairs [“MCA”] in paying additional fees in case of delay in filing Form 8 (the Statement of Account and Solvency) by Limited Liability Partnerships [“LLP”], Pre-packaged Insolvency Resolution Process for MSMEs, Norms for Startups Medium Enterprises in Public Procurement and statutory compliances like filing of GST returns in time act as a long term strategy for sustainability of MSMEs by government. The CCI’s encouraging corporatization to not levy any monetary penalty, in this case, points to its positive position as a market regulator to promote competition in the market over the monetary remedy. This positive approach to provide economic stimulus may help the MSMEs to sustain in the market and grow during a difficult economic period. This also adds up to the measures taken up by the Government of India to support the liquidity and credit needs of viable MSMEs to help them withstand the impact of economic shock.
Another key thing to remember is that this is not the first instance where the CCI has refrained from imposing a monetary penalty to meet the ends of justice. In In Re: Cartelisation in Industrial and Automotive Bearings which is the reflection of the present case, the CCI did not impose any monetary penalty because of the leniency application filed under Section 46 of the Act, disclosing the existence of a cartel. Importantly, did not elaborate on the rationale for not imposing a penalty on the enterprises, but in the present case, the CCI has provided certain rational considerations for not imposing a penalty on the enterprises.
CCI’s LENIENT STANCE TOWARDS MSMEs:
This decision is extremely important for MSMEs out there facing problems due to the COVID-19 pandemic and has ramifications for Axle Bearings & OEM manufacturers who promote such anti-competitive activities in India. In the present case, the enterprises were merely warned and directed to cease and desist their anti-competitive activities. In addition, the CCI has demonstrated how their impugned conduct resulted in economic development. Furthermore, in the light of the COVID-19 pandemic, there’s no doubt that the enterprises have been facing losses and economic hardships because of that, the CCI has issued various guidelines and relaxation measures in the wake of the COVID-19 pandemic. But, the CCI’s advisory to businesses at the time of the COVID-19 pandemic has no application to the cases in question, as it only aims to consider coordination between competitors arising due to the COVID-19 pandemic.
Certainly, the CCI in this case has considered a more rational way to assess the penalty by an assessment of the financial condition of the Ops. In Commerce Commission v. International Racehorse Transport NZ Case, the High Court of New Zealand did not penalize the defendant based on a detailed analysis of the financial condition of the defendant and economic repercussions caused by the COVID-19 pandemic. Similarly, the CCI in the present case has considered the assessment of financial condition which resulted in a conclusion that the Ops would not be able to pay the penalty on account of the current circumstances. This case narrates the CCIs approach of proper assessment as case-by-case financial analysis of the enterprises was done to assess their ability to pay the penalty. This approach could also lead to fewer leniency applications, setting a precedent for escapism through a cease-and-desist order. Because of that, enterprises are warned to not take advantage of the present circumstances by cartelizing or abusing their dominant positions.
There is no denying that the CCI took the holistic approach while passing the present judgment. The CCI noted the “lack of awareness” of the provisions of law from the side of the Ops which is reflected from the explicit communications and arrangements. The consideration extends the understanding of the Indian judicial system where it carved out as an exception to the legal maxim “Ignorance of law: Can it be an excuse” which is crept into English Common law and applies to India as far as legal maxims are concerned. In the case of Motilal Padampat Mills Ltd v. State of Uttar Pradesh observed that “It must be remembered that there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statement: there is no such maxim known to the law.” Provided that, it will not be out of place to comment at this juncture that the CCI has showcased itself as a standing exception to the said legal maxim. In addition to that, from the instant case, the CCI delivered its gesture to consider ignorance of the law as an excuse to impose a penalty when there is a violation of law that was not deliberate or was innocently violated.
The author is a fourth-year student at ILS Law College, Pune