The purpose Competition law is to ensure that competitors compete with one another for business and not cooperate with one another to distort the process of competition. Collusive tendering is a form of cartelization - firms agree amongst themselves over their response to invitations to tender. This collusion does not yield competitive prices to the buyer and has a danger of creating monopoly in favour of certain players in the market.

The simplest form of collusive tendering is an agreement to quote identical prices.  The prices are quoted in the hope that in the end each bidder will receive its fair share of orders.

STATUTORY PRESUMPTION:

In India, Section 3 of the Competition Act prohibits any agreement between or among competitors in respect of production or supply or distribution which causes or is likely to cause an appreciable adverse effect on competition within India.

The Section further creates a presumption that competition would be appreciably adversely effected by, interalia, price-fixing agreements (i.e., agreements between identically placed competitors which directly or indirectly have the effect of fixing or determining purchase or sale prices); or bid-rigging agreements (i.e., agreements between identically placed competitors that have the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process of bidding). 

Thus, the Indian law presumes adverse effect on competition through bid rigging. If in a tender process, the parties quote identical figures, and if it is found that there has been a tacit or overt understanding between the parties, the law presumes that such an act is anti – competitive. Thereafter, it is for the parties concerned to justify how they ended up submitting identical bids.

IDENTICAL QUOTATIONS ARE ANTI - COMPETITIVE:

In earlier orders, the CCI has found that quoting of identical rates – despite bidders being in different locations and having different production costs – to be sufficient evidence for a conviction where collaboration or additional factors (e.g., pre-bid meetings or active industry association) exist.

In Shoe Cartel case, where polyester blended duck ankle boots rubber sole had to be supplied to Wool and Leather (WL) Directorate of DG S&D, it was held by the CCI that quotation of near identical prices despite these units having been located in different geographical locations with varying tax structure and different margins; possession by one bidder of the Performance Statements of other bidders; meetings under the platform of Trade Federation; and failure on the part of the opposite parties to provide any plausible explanation for the same, was sufficient to deduce that the opposite parties entered into an agreement to determine prices besides rigging the bid. The COMPAT is yet to deliver its judgment on the appeals filed against the order of the CCI.

In Excel Crop Care vs. CCI, (Aluminium Phosphide Cartel case), the COMPAT vide its judgment dated 29.10.2013 upheld the conclusions of the CCI and held that submitting identical price bids amounted to a practice for the purpose of Section 3(3) of the Act and that the appellant not having discharge their onus, it could be deduced that there was consultation inter se between the appellant before quoting the identical price.

The CCI had considered that all three companies participating in the tender process floated by the Food Corporation of India (FCI) quoted an identical bid price, despite a marked difference in each company’s cost of production. The entries in the visitors’ register at the offices of the FCI showed that all three participants entered the premises at the same time, with one signing in for the entire group. It was inferred that the bidders had the opportunity to discuss the prices and evidence was sufficient to prove the existence of an agreement to maintain prices at a certain level.

TWIST IN THE LAW:  

However, the latest judgment of the COMPAT in case related to tenders for Axle Mounted Disk Brake System (AMDBS) called by Rail Coach Factory, Kapurthala, Punjab whittles down the statutory presumption. A broad and sweeping observation has been made in para 30 of the judgment:

“30. We may add that in an oligopolistic market like the one in question, the identity of price quoted by the bidders is not an unusual feature. The players in a limited market are aware of the price quoted by each other in one or the other bid and it is a normal tendency to quote the same price in response to the next tender.”

The conclusion of the Tribunal cannot be faulted in the peculiar facts of that case. The actions of agency which called the bid, i.e, Rail Coach Factory, Kapurthala, Punjab itself were found to be faulty. It was found that policies of the Railways did not create an environment conducive for competition for the following reasons:

• The bidding process did not assure the lowest bidder of the full award. The supply requirement was split between two lowest bidders. The second lowest bidder was coaxed to supply a portion of the Railways’ requirement at lowest bidder’s rate. Thus, the bidders were aware that they would not get the entire order and they were forced to quote at a higher rate to maximize their profits.

• The Railways had an option to vary the supply requirement to the extent of +/- 30%, as a result of which the supplier was either forced to make more supplies at the same rate or the supplies got curtailed.

• Time taken for negotiations discouraged competitive quotes since negotiation was a regular feature and bidders quoted inflated rates anticipating reduced rates in negotiation process.

It was also found that Railways could not convincingly counter that:

• The price quoted was done at informal suggestion of the Railways to avoid unnecessary delay since it was emergency tender.

• The Railways had also informally communicated that rates would be subject to final rates in regular tenders and therefore quotations were a mere formality.

Thus, on facts, it was held that

 “…identical price quoted by the respondents for the items of AMDBS did not constitute sufficient evidence of cartel formation and in the absence of other plus-factors, it is not possible to record a finding that the respondents had acted in violation of Section 3(3)(d) read with Section 3(1) of the Act.”

The Tribunal also relied upon its earlier judgment dated 18.12.2015 in the context of supply of C2N feed valves to Diesel Loco Modernization Works, Patiala, wherein it was held that despite identical bids made by 3 bidders in one tender and similar bids made in three other tenders, allegation of cartelization was not sustainable.

Both these judgments, in turn rely on the judgment of the Supreme Court in Union of India vs. Hindustan Development Corporation and others, reported (1993) 1 SCC 467 [facts and conclusions] and (1993) 3 SCC 499 [detailed reasons in support of various conclusions], which was in pre – Competition Act era. In the said judgment it had been held that “mere offering of a lower price by itself, though appears to be predatory, cannot be a factor for inferring formation of a cartel unless an agreement amounting to conspiracy is also proved.”

Interestingly, in the same very judgment, the Supreme Court had also noted that “though the attitude of these three big manufacturers gave rise to a suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such formation of a cartel…”

IMPLICATION YET TO BE TESTED:

In their book on Competition Law, Whish & Bailey have given several illustrations indicating how cartels go to great lengths to suppress evidence of their illegal activities. In one instance, codes and encryption software were used to conceal companies names and protect secrecy of emails and telephone conversations. In another instance, consultancy firm was hired to oversee and conceal illicit arrangements. Thus, globally courts have accepted that competition authorities are at a disadvantage in proving existence of cartels. To prove such existence inferences from circumstantial evidence is required.

It is thus debatable as to whether reliance on the Supreme Court judgment by the COMPAT is correct in view of the current statutory presumption. The fact that Supreme Court itself had held that the conduct of the bidders was suspicious has not been properly appreciated. Furthermore, the judgment raises the bar for the investigation wing of the CCI. It would be interesting to see what additional evidence would be required to prove an anti – competitive agreement, even if the parties state that submission for identical bids was mere providence.