1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3546 OF 2014

RAJASTHAN CYLINDERS AND

CONTAINERS LIMITED

.....APPELLANT(S)

VERSUS

UNION OF INDIA AND ANOTHER .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 4280 OF 2014

CIVIL APPEAL NO. 4346 OF 2014

CIVIL APPEAL NO. 4649 OF 2014

CIVIL APPEAL NO. 4342 OF 2014

CIVIL APPEAL NO. 4879 OF 2014

CIVIL APPEAL NO. 4868 OF 2014

CIVIL APPEAL NO. 6033 OF 2014

CIVIL APPEAL NO. 5771 OF 2014

CIVIL APPEAL NO. 5772 OF 2014

CIVIL APPEAL NO. 5035 OF 2014

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CIVIL APPEAL NO. 5773 OF 2014

CIVIL APPEAL NO. 5649 OF 2014

CIVIL APPEAL NO. 5650 OF 2014

CIVIL APPEAL NO. 5651 OF 2014

CIVIL APPEAL NO. 4972 OF 2014

CIVIL APPEAL NO. 6661 OF 2014

CIVIL APPEAL NO. 7102 OF 2014

CIVIL APPEAL NO. 6868 OF 2014

CIVIL APPEAL NO. 7214 OF 2014

CIVIL APPEAL NO. 6025 OF 2014

CIVIL APPEAL NO. 6365 OF 2014

CIVIL APPEAL NOS. 5993-5994 OF 2014

CIVIL APPEAL NO. 5774 OF 2014

CIVIL APPEAL NO. 5775 OF 2014

CIVIL APPEAL NO. 5776 OF 2014

CIVIL APPEAL NOS. 5832-5833 OF 2014

CIVIL APPEAL NO. 5777 OF 2014

CIVIL APPEAL NO. 5778 OF 2014

CIVIL APPEAL NO. 6371 OF 2014

CIVIL APPEAL NO. 8953 OF 2014

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CIVIL APPEAL NO. 6372 OF 2014

CIVIL APPEAL NO. 6373 OF 2014

CIVIL APPEAL NO. 6366 OF 2014

CIVIL APPEAL NO. 6367 OF 2014

CIVIL APPEAL NO. 6374 OF 2014

CIVIL APPEAL NO. 6368 OF 2014

CIVIL APPEAL NO. 6364 OF 2014

CIVIL APPEAL NO. 6369 OF 2014

CIVIL APPEAL NO. 6370 OF 2014

CIVIL APPEAL NO. 10579 OF 2014

CIVIL APPEAL NO. 1724 OF 2015

CIVIL APPEAL NOS. 5277-5278 OF 2016

CIVIL APPEAL NOS. 5281-5315 OF 2016

AND

CIVIL APPEAL NO. 7359 OF 2016

J U D G M E N T

A.K. SIKRI, J.

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All these appeals are filed against the orders dated 20

th

December,

2013 passed by the Competition Appellate Tribunal (hereinafter referred to

as ‘COMPAT’). The COMPAT by the said judgment has upheld the findings

of the Competition Commission of India (for short, ‘CCI’) that the

appellants/suppliers of Liquefied Petroleum Gas (LPG) Cylinders to the

Indian Oil Corporation Ltd. (for short, ‘IOCL’) had indulged in cartilisation,

thereby influencing and rigging the prices, thus, violating the provisions of

Section 3(3)(d) of the Competition Act, 2002 (for short, the ‘Act’). The CCI,

as a result, imposed severe penalties in the form of fines under Section 27

of the Act. While maintaining the order of the CCI insofar as it found the

appellants guilty of contravention of Section 3(3)(d) and also under Section

3(3)(a) of the Act, the COMPAT has reduced the amount of penalty. These

suppliers have filed the instant appeals on the ground that there was no

cartilisation and they have not contravened the provisions of the Act. On

the other hand, CCI has also come up in appeal challenging latter part of

the order whereby penalties inflicted on the suppliers stand reduced. For

the sake of convenience these suppliers will be referred to as the

appellants hereinafter.

2)We may point out at the outset that all these appellants are manufacturing

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gas cylinders of a particular specification having capacity of 14.2 kg which

are needed for use by the three oil companies in India, namely, IOCL,

Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum

Corporation Ltd. (HPCL) [all public sector companies]. It is also a matter

of record that apart from the aforesaid three companies there are no other

buyers for these cylinders manufactured by the appellants. Insofar as

IOCL is concerned, it is a leading market player in LPG as its market share

is 48%. Thus, in case a particular manufacturer is not able to supply its

cylinders to the aforesaid three companies, there is no other market for

these cylinders and it may force that company to exit from its operations.

We may also point out at this stage itself that inquiry was started against

47 companies. The CCI exonerated two companies and found that 45

companies had entered into an arrangement/agreement insofar as

statements of bids pursuant to tenders issued by IOCL are concerned.

Out of these 45 companies one did not challenge the orders before the

COMPAT and other 44 had filed appeals which have been decided by the

COMPAT.

3)The manner in which the inquiry was undertaken by the CCI, culminating

into the finding of guilt and imposition of penalty, is succintly and sequally

recorded by the COMPAT in its impugned order. As there is no dispute

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about the said factual narration, it would be convenient to borrow the said

discussion as recorded by the COMPAT.

4)The suo-motu proceedings were started by the CCI on the basis of the

information received by it in Case No. 10 of 2010 titled M/s. Pankaj Gas

Cylinders Ltd. Vs. Indian Oil Corporation Ltd. in that case a complaint was

made by M/s. Pankaj Gas Cylinders before the CCI complaining about

unfair conditions in the tender floated by IOCL for the supply of 105 lakh

14.2 Kg. capacity LPG Cylinders with SC valves in the year 2010-11, the

tender No. being LPG-O/M/PT-03/09-10. While considering the Director

General’s investigation report in Case No. 10 of 2010, the CCI in

pursuance of its duties under Section 18 felt that investigation was

necessary in the case of all bidders who were the suppliers of 14.2 kg.

LPG cylinders in that tender. In the investigation report in the said case,

the Director General had noted that out of 63 bidders who participated in

the tender, 50 bidders were qualified for opening of price bids, while 12

bidders were qualified as new vendors who were not required to submit

price bids and one bidder was not qualified for the opening of the price bid.

The technical bid of the subject tender was opened on 3.3.2010 and the

price bids of 50 qualified bidders were opened on 23.3.2010. According to

the Director General, there was a similar pattern in the bids by all the 50

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bidders who submitted price bids for various States. The bids of a large

number of parties were exactly identical or near to identical for different

States. The Director General had observed that there were strong

indications of some sort of agreement and understanding amongst the

bidders to manipulate the process of bidding.

5)It was on this basis the CCI directed further investigation in the matter. The

Director General after careful consideration submitted a detailed

investigation report to the CCI. After the CCI considered the freshly

ordered investigation report, it directed that a copy of the report be sent to

the parties seeking their objections. In all, 44 opposite parties submitted

their objections. After giving them the opportunity to be heard, the CCI

passed the order in question.

6)As per the Director General’s report, the process of bidding followed by the

IOCL in the tender was as under :-

i) The bidders would submit their quotations with the bid documents.

ii) The existing bidders, who were existing suppliers, were required to

submit the price bids and technical bids.

iii) The bidders were to quote for supplies in different States of India in

keeping with their installed capacity.

iv) After price bids were opened the bidders were arranged according to

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the rates in the categories of L-1, L-2 and L-3.

v) The rates for the supplies in different States were approved after

negotiations with L-1 bidder. In case the L-1 bidder could not supply a

required number of cylinders in a particular State, the orders of supplies

went to L-2 and also L-3 bidder or likewise depending upon the

requirement in that State as per fixed formula provided in the bid

documents.

vi) Certain bidders were called new parties. They were required to submit

only technical bids and to supply as per L-1 rates determined after the

negotiations.

vii) One bidder could quote for maximum eight States.

7)The Director General after analyzing the bids came to the conclusion that

there was not only a similarity of pattern in the price bids submitted by the

50 bidders for making supply to the IOCL but the bids of large number of

parties were exactly identical or near to identical in different States. It was

also found that bidders, who belonged to same group, might have

submitted identical rates. It was found that not only there was identical

pricing in case of group concerns but the rates of other entities not

belonging to the group were also found to be identical. The D.G.

painstakingly noted the names of group companies as well as non-group

9

companies. He came to the conclusion that in all 37 entities could not be

said to be belonging to any single group and were independently

controlled. The Director General found it unusual that unrelated firms had

quoted identical rates in different States. The D.G. had analyzed the

bidding pattern for the various parties for all the 25 States. He found that :-

a.The orders were placed on all the 50 successful bidders.

b.The contracts were awarded to the sets of bidders who had quoted

identical rates or near to identical rates in a particular pattern in almost all

the States.

c. There was a common pattern for quotation depending upon the

State. In case of North East the rates were highest, quoted at Rs. 1240

whereas in case of others rates were Rs.1100, Rs.1127 and Rs. 1151.

d. It was found that only for Andaman and Nicobar Islands there was a

single party who had quoted the L-1 rate and got the formal contract. In

other States the contracts were bagged in a group on the basis of identical

or near to identical rates.

e. The similarity of the rates was found even in case of bidders whose

factories and offices were not located at one and the same place in the

States and where they were required to supply was far off from their

factories located in different place.

10

8)The D.G. had found further that though the factors like market conditions

and small number of companies were different, there was a large scale

collusion amongst the bidding parties. He also arrived at a finding to the

effect that the LPG Cylinder Manufacturers had formed an Association in

the name of Indian LPG Cylinders Manufacturers Association and the

members were interacting through this Association and were using the

same as a platform. The date for submitting the bids in the case of the

concerned tender was 3.3.2010 and just two days prior to it, two meetings

were held on 1st and 2

nd

March, 2010 in Hotel Sahara Star in Mumbai. As

many as 19 parties took part and discussed the tender and, in all

probability, prices were fixed there in collusion with each other. The D.G.

reported that the bidders had agreed for allocation of territories, e.g., the

bidders who quoted the bids for Western India had not generally quoted

for Eastern India and that largely the bidders who quoted the lowest in the

group in Northern India, had not quoted generally in Southern India. The

D.G. also concluded that this behavior created entry barrier and that there

was no accrual of benefits of consumers nor were there any plus factors

like improved production or distribution of the goods or the provision of

services.

9)Ultimately, the D.G. came to the conclusion that there was a cartel like

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behavior on the part of the bidders and that the factors necessary for the

formation of cartel existed in the instant case. It was also found that there

was certainly a ground to hold concerted action on the part of the bidders.

The D.G. had also noted that the rates quoted for the year 2009-10 and in

years previous to that were also identical in some cases. Thus, he came to

the conclusion that the bids for the year 2010-11 had been manipulated by

50 participating bidders. It was thereafter that the CCI decided to supply

the D.G.’s investigation report to the concerned parties and invite their

objections.

10) A common reply came to be filed as also the individual replies. After

considering the same, the CCI formulated the following issue for

determination:-

“Whether there was any collusive agreement between the participating

bidders which directly or indirectly resulted in bid rigging of the tender

floated by IOCL in March 2010 for procurement of 14.2 kg. LPG

cylinders in contravention of Section 3(3)(d) read with Section 3(1) of the

Act?”

11) After considering the oral as well as written submissions, the CCI

answered the issue against the Cylinders Manufacturers and inflicted the

penalties against the present appellants. In its impugned order, while

determining the issue, the CCI, in the first instance, considered the

common replies to the DG’s report filed by as many as 44 opposite

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parties. It was more or less pleaded that every part of LPG Cylinder is

regulated by the Rules through various Notifications and that the price of

steel constitutes 50% of the total manufacturing cost, so also the price of

the paint, it being an essential raw material. All these factors, including the

taxes which vary from State to State, determine the overall bidding pattern

of the bidders. In para-5.2.3 of the common objection, it was added that

these 44 parties had nominated six agents for depositing their bids on their

behalf and it was a common practice amongst the bidders to direct their

agents to keep close watch on the rates offered by their competitors in

respect of a particular State and this led to the possibility of copying and

matching of the rates quoted in the price bids by many suppliers in a

particular State, who may have appointed common agents. Due to this

reason, cutting and over-writing in the price bids for the tender in question

was noticed by the Director General.

12) It was further pointed out that there were only 62 qualified tenderers

in the whole country, out of whom 12 bidders were classified as new

parties, meaning thereby that they had not supplied Cylinders in last three

years and were not required to bid in the tender. Out of the remaining 50

bidders, there were group companies controlled by single management.

13) The CCI in its detailed order began with considering the scope of

13

constructed bid rigging agreement and cartel. In that the CCI also

considered the 18 famous observations by Lord Denning in case of RRTA

vs. W. H. Smith & Sons Limited regarding the quiet and secret nature of

the agreement between the parties. The CCI then went on to record its

inference holding that there was element of agreement and considered the

following factors in coming to the conclusion. They being:-

1. Market conditions

2. Small number of suppliers

3. Few new entrants

4. Active trade association

5. Repetitive bidding

6. Identical products

7. Few or no substitutes

8. No significant technological changes

9. Meeting of bidders in Mumbai and its agenda.

10. Appointing common agents

11. Identical bids despite varying cost.

14) After consideration of these factors, the CCI came to the conclusion

that it did suggest collusive bidding. Thereafter, the CCI analyzed these

bids for each States and found that all 50 participating bidders had

14

secured the order; that the orders were placed on the said 50 bidders who

had quoted identical rates or near to identical rates in a particular pattern

common to all the parties. CCI also highlighted the facts of absence of

business justification. According to the CCI, the material revealed that the

supplies were effected at the higher cost. After discussing the concepts of

standards of proof and appreciable adverse effect on competition, the CCI

considered the various arguments and repelled those arguments. The CCI

then went on to consider the case law, and in particular the judgment of

this Court in Union of India vs. Hindustan Development Corporation

1

. It

also took into consideration the arguments raised by the individual parties

and then came to record that cases of M/s. JBM Industries and Punjab

Cylinders, however, were exceptional ones and they could be exonerated.

After this the CCI went on to decide the penalty factor under Section 27 of

the Act.

15) The COMPAT after discussing the findings of the CCI and also taking

note of the arguments of the appellants which were advanced before the

CCI, proceeded with its own discussion. It started with the admitted facts

of the case, and took note of the following such facts:

(A)The tender offers were to be made at Mumbai on 03.03.2010.

Admittedly there were meetings in Hotel Sahara Star, Mumbai on 1

st

and

1 (1993) 3 SCC 499

15

2

nd

March, 2010 which were attended by some of the appellants. The D.G.

has held that 19 appellants were represented by various persons in that

meeting. The fact of the meeting having been held was not disputed.

Though some of the appellants stated that they did not attend the

meeting and those who attended the meeting maintained that nothing was

disucssed about the tender, the same was not believed by the COMPAT

and it held that these meetings did relate to the tender offers which were

to be submitted on 03.03.2010. This finding is premised on the basis that

nobody came with the explanation as to what transpired in the meeting or

gave any proof that prices were discussed. Minutes of the meeting were

also not produced.

(B)There is an association of the cylinder manufacturers. All the parties,

except few competing with each other, stated that they were not the

members of that association. A feeble argument was also raised by some

appellants that though they were the members but they were not the active

members thereof. Some of the appellants also argued that they had

abandoned the membership by not contributing the subscription in the later

years. However, the appellants could not deny the position that there was

an association called Indian LPG Cylinder Manufacturers’ Association.

It was a registered association, its Memorandum of Association

16

provided that one of the objectives was to prtoect common interest and

welfare of LPG cylinder manufacturers. According to COMPAT, there was

a definite platform available for all cylinder manufacturers and practically

all the appllants appear to be the members of that Association.

(C)A common written reply was submitted by as many as 44 parties.

Further, the appellants had nominated six agents for depositing bids on

their behalf. These common agents were instructed to keep a close watch

on the price quoted by the competitors in a particular State.

Though some of the appellants had contended that they had not

appointed the common agents, the plea was not accepted by the

COMPAT. The COMPAT, therefore, proceeded on the ‘admitted grounds’

that there was an association of cyliner manufactures; practically all the

appellants were members of the said association; this association was an

active association; it held meetings on the eve of entry tender obviously for

discussing tenders, its conditions etc.; these meetings were attended by

representatives of at least 19 appellants; and these appellants had six

common agents at Mumbai who were instructed to watch the prices

offered by the others. A dinner meeting as also a lunch were held and one

Mr. Chandi Prasad Bhartia of M/s. Haldia Precision Engineering Private

Limited paid the bill for the same. Dinner and lunch held in Sahara hotel

17

were attended by about 50 persons in all. From this the COMPAT inferred

that there was no reason to disbelieve that the parties had an access to

each other through their association which was an active association. The

existence of such an association under the aegis of which meetings took

place just before the submission of tender has been noted as a very

relevant factor by the COMPAT in affirming the findings of CCI on

cartelisation and it summed up the position in the following manner:

“26. What is important is not whether a particular appellant

was a member of the association or not. The existence of an

association is by itself sufficient, as it gives opportunity to the

competitors to interact with each other and discuss the trade

problems. There will be no necessity to prove that any party actually

discussed the prices by actively taking part in the meeting. If there is

a direct evidence to that effect that is certainly a pointer towards the

fact that such party had a tacit agreement with its competitors.

However, the existence of an association and further holding of the

meetings just one or two days prior to the last date of making offers

and further admission that the parties had appointed common

agents with the instructions to keep watch on the prices quoted by

the competitors would go a long way in providing plus factors in

favour of the agreement between the parties. All these factors would

form a back drop, in the light of which, the further evidence about

agreement would have to be appreciated. We have seen the

comments of Director General as also the findings of the CCI. We

are convinced that CCI has not committed any error in considering

all these factors as plus

factors to come to the conclusion that there was a concerted

agreement between the parties on the basis of which the identical or

near identical prices came to be quoted in tenders for the supply of

cylinders to the 25 States. In view of this, we need not dilate on the

individual claims by some of the appellants that they were not the

members of the association or that they were only the dormant

members or that they had abdicated their membership. We also

need not go on the claim that while the meeting was attended by the

19 parties as held by the D.G. and confirmed by the CCI, it was not

18

attended by the rest of the appellants because that would be of no

consequence. Once there was a meeting, there was every

opportunity to discuss or to communicate to each other whatever

transpired in the meeting.

27. We have seen the order of the CCI and while commenting about

the meeting, the CCI has painstakingly noted the details of that

meeting. The CCI has referred to the evidence of Mr. Dinesh Goyal,

who was an active member of the Indian LPG Cylinder

Manufacturers’ Association and noted that he had attended the

meeting. He has also referred to the statement of Mr. Sandeep

Bhartia of Carbac Group though initially he denied to have

organized the conference, he later on had confirmed about such a

conference having been held along with Mr. Sandeep Bhartia of

Carbac Group. The CCI also noted that he admitted that in such

meetings there were discussions on pre-bid issues. He also

admitted that though there are about 50 competitors, in fact about

25 persons control the whole affairs. From this evidence, the CCI

correctly deduced that pre-bid issues were discussed in that

meeting. The CCI has then referred to the evidence of Mr.

Manvinder Singh of Bhiwadi Cylinders Limited, Mr. Chandi Prasad

Bhartia of Haldia Precision Engineering P. Ltd., Mr. Vijay Kumar

Agarwal of SM Sugar Pvt. Ltd., Mr. S. Kulandhaiswamy, MD of Lite

Containers Pvt. Ltd. and Secretary of the Association, Mr. Ramesh

Kumar Batra, Director of Surya Shakti Vessels Pvt. Ltd. and on that

basis came to the correct conclusion that not only was the meetings

held on 1st and 2nd March, but thorough discussions went on in

those meeting on the pre-bid issue of the concerned tender. The

CCI has also correctly noted about the agenda of the meeting and

has also referred to an admission made by one of the witnesses that

the matching of the quotation was a matter of co-incidence and

telephonic discussions do take place amongst the parties regarding

the trends. We are thus thoroughly convinced about holding of the

meeting, the discussion held therein and also the discussion

regarding the pre-bid issue having been taken place in that

meeting.”

16) The COMPAT thereafter took up for discussion the argument of the

appellants that the CCI should have enquired IOCL also. But rejected the

same. Another significant argument which was canvassed before us also

19

with great emphasis was that it was an oligopolistic market wherein there

was a likelihood of each player being aware of actions of the other and in

such a situation price parallelism would be a common phenomena. Thus,

merely because there was a price parallalism, it would not be construed as

evidence of collusion. The COMPAT rejected this argument as well. In

the process, it analysed the order of CCI, conclusion whereof was founded

on the following factors:

(1)The prevailing market conditions were such that there was a

constant demand for cylinders not only by IOCL but by other two oil

manufacutring companies as well. Therefore, there was a constant need

for the cylinders which facilitated factor for the collusion.

(2)There was small number of suppliers. Among the 50 participating

companies, only 37 companies could be said to be independant bidding

companies and there were seven groups consisting of 20 participating

companies. This small number of suppliers should also be a facilitating

factor.

(3)There were very few new entrants.

(4)The existence of an active trade association in which all the bidders,

except seven companies, were members would be another facilitating

factor.

20

(5)Few other factors like repetitive bidding, identical products, few or no

substitutes and no significant technological changes were the additional

factors which persuaded the CCI to arrive at such a conclusion.

(6)These manufacturing companies had their factories at different

places in India, where the costs of the components would differ from State

to State. Even the taxing structure, the labour conditions and other factors

like cost of electricity etc. were bound to be different. Still the prices

quoted were almost identical.

(7)On the above considerations, the defence of the appellants was

rejected as unconvincing, thereby undergoing the factors considered by

the CCI.

17) According to the COMPAT all these could not have been possible

unless there were internal agreements between the appellants. The

COMPAT has approved the finding of the CCI that owing to the collusion,

the IOCL could not get lower or the competitive prices. The rates quoted

in 2010-2011 were higher as compared to the rate quoted in 2009-10.

From the year 2006-07, the prices had collectively been raised on an

average of 30% for making supplies in different states.

18) According to the COMPAT, the CCI was right in concluding that it had

appreciable adverse effect on competition as the conduct of the LPG

21

cylinder manufacturers in coming together on a common platform and

fixing the bid prices ensures that no new player could enter the relevant

market and quote the prices independently. Thus, these manufacturers

would make entry of a new player into the relevant market difficult,

because such new player would necessarily have to first negotiate with the

existing players to get the business profitably. Other factors were driving

existing competitors out of the market and foreclosure of competition by

hindering entry into the market.

19) It negated the argument of the appellants that when the IOCL was

placing orders on the basis of negotiated rates there could be no

possibility of incentive to collude. According to it, even where the rates are

fixed, the bid rigging can still take place to keep the big amounts to a pre-

determined level. Such pre-determination can be by way of intentional

manipulation by members of the bidding group and where the L-1 rates

themselves get fixed like in the present case at higher level even if there

are negotations the negotiators would have to take into consideration the

benchmark rates. There is aslo a possibility that such benchmark rates

could go higher in the subsequent tenders; known as rippel effect in long

term.

20) The COMPAT also took note of the provisions of Section 3, as per

22

which once the agreement is proved there is a presumption about the

appreciable adverse effect on competition on the mere proof of the

agreement. Thus, onus shifts on the other side to prove otherwise which

according to the COMPAT was not discharged by the appellants. The

COMPAT thereafter took note of some arguments by certain counsel

specific to their cases but did not find any substance in them.

21) Having examined the relevant provisions whereupon these appeals

centre around, we proceed to take note of the arguments that were

advanced by various counsel appearing for the appellants and the manner

in which respondents endeavoured to meet the same.

22) Ms. Madhavi Divan, learned counsel appearing in the appeal filed by

Rajasthan Cylinders and Containers Ltd., attacked the very basis and

foundation on which CCI came to conclusion that there was an agreement

or cartelisation by the appellants aimed at bid rigging. She premised her

case on the following three propositions:

(i)the inherent nature of the market of cylinder manufacturers itself

precludes the possibility of competition;

(ii)alternatively, there is no collusive agreement or bid-rigging in the

present case; and

(iii)further, in the alternative, even assuming that there is a collusive

23

agreement or bid-rigging in the present case, there is no appreciable

adverse effect on competition.

23) On the first proposition, argument developed by Ms. Divan was that

the Act prohibits anti-competitive practices, which would imply that there

has to be a competition in the market, in the first place. As a corrolary, if

there is no such competition, Section 3(1) of the Act does not get

triggered. According to her, in the instant case, the fact would show that

there was a tight control and regulation by the IOCL and, thus, it did not

lead any scope of competition at the very threshold. She stressed that the

conditions of monopsony/oligopsony prevailed. For the existence of

monopsony/oligopsony, she referred to the Glossary of Industrial

Organization Economics and Competition Law published by the

Organisation for Economic Co-operation and Development (OECD), as

per which a monopsony consists of a market with a single buyer. When

there are only a few buyers, the market is described as an oligopsony. In

general, when buyers have some influence over the price of their inputs

they are said to have monopsony power. The ability of a firm to raise

prices, even when it is a monopolist, can be reduced or eliminated by

monopsony or oligopsony buyers. To the extent that input prices can be

controlled in this way, consumers may be better off.

24

24) According to her, these conditions were adequately present in the

instant case. In her attempt to make this propositoin good, she highlighed

the following features and conditions surrounding the contract:

(i) Extremely limited number of buyers and for this particular kind of

market - a sole buyer, i.e., IOCL. IOCL controls 48% of the market share.

There are no other purchasers of 14.2 Kg gas cylinders except for HPCL

and BPCL, both of whom invite e-tenders, having a market share of 26%

and 25% respectively.

(ii)The product is standardized and special to the extent that it is tightly

controlled and regulated by the Government and also there are no other

takers for it.

(iii) There are entry barriers in the market. As per the Tender conditions,

only those manufacturers having valid approval from the Chief Controller

of Explosives (CCOE) and Bureau of Indian Standards (BIS) license for

manufacture of 14.2 kg LPG cylinders as per IS-3196 (Part 1) could

submit bids for the tender.

(iv) Even the machinery used to manufacture this product is special and

will become obsolete and reduceable to scrap if IOCL and the aforesaid

two players were to discontinue contracts for supply of 14.2 kg cylinders.

She pointed out that this was accepted in the Expert Report of Dr. Rughvir

25

K.S. Khemani.

(v) The tender conditions state that it can be rejected without furnishing

reasons. Therefore, the lowest price is not sacrosanct (clause 11 of the

contract).

(vi)L2 and L3 have also been granted contracts irrespective of the price

they have quoted.

(vii) Effective price has no sanctity since not only L2 and L3 also get

contracts in addition to or in exclusion of L1 but further, the final negotiated

price is determined on the basis of privately conducted negotiations with

individual bidders for which the benchmark is not the price quoted by them

but the internal estimates arrived on the basis of objective criteria.

(viii)In most States, the final negotiated price was concluded at a rate

lower than the internal estimate. The internal estimate had absolutely no

correlation with the quoted rates by L1 or any other party. In this behalf,

she pointed out that the IOCL had carried out the exercise of ascertaining

the estimated cost of the cylinder through its experts. In the report given

by the expert, the estimated cost per cylinder was arrived at Rs. 1106.61

paisa per cylinder. As against this, the final negotiated price at which the

appellants had supplied cylinders to the IOCL was much lesser. According

to her, in the whole process the price determination was on the basis of

26

internal estimates by IOCL which could not be influenced by the appellants

at all. In fact, even after the tenderers submitted their bids, final price was

the price negotiated by IOCL which fact was accepted by Mr. Y. Ramana

Rao of IOCL in his deposition recorded by the Director General of CCI.

This, according to the learned counsel, clearly proved that there was no

adverse effect on competition, in any case.

(ix)The internal estimates were drawn up long after the price bids were

made, i.e., on 5

th

May, 2010. Price bids were opened on 23

rd

March, 2010

and negotiations were held only after the submission of Mott MacDonald

Report on 05.05.2010.

(x) The pattern shows that since L1, L2 and even L3 were awarded the

contract and not merely L1, quoting the lowest price did not even

determine the identity of the parties who were to get the contract,

therefore, the manner in which the process was conducted or controlled

by IOCL, completely leaves no scope for either determination of price or

the identity of the parties who would get the contract.

25) She submitted that in such market conditions where on account of

the vertical agreement there is virtually no scope of competitive forces

between horizontal players, the question of anti-competitive conduct by

virture of horizontal agreements does not arise. There is no competition in

27

the market even before a player enters the fray. Therefore, the first

premise for the applciation of Section 3, i.e., the presence of an otherwise

competitive market is absent. The burden of proof is on the respondent—

CCI to establish that there is competition in the market before it can justify

invoking Section 3. There is no automatic presumption under Section 3

that there is competition in the market.

26) From the aforesaid factors, Ms. Divan tried to deduce that price

control was entirely in the hands of IOCL and in a situation like this,

question of entering into any agreement with the motive of bid rigging or

collusive bidding did not arise.

27) She also referred to LPG (Regulation of Supply and Distribution)

Order, 2000 published vide Notification dated 26

th

April, 2000 as per which

only Government oil companies can supply LPG to domestic consumer of

14.2 kg LPG cylinders with dimensions as specified therein. Predicated

thereupon, her submission was that the LPG supply in 14.2 kg gas

cylinders is an essential commodity; the distribution of such cylinders

takes place only through Government oil companies; the price to the

consumer is controlled by the Government; and parallel marketeers,

supplier and distributor of LPG cylinders may do so only for cylinders and

specifications other than 14.2 kg cylinders. This control of the

28

Government, insofar as supply of 14.2 kg gas cylinders is concerned,

would also show tight control over the pricing. In such a statutorily tight

control price fixing mechanism there could not be bid rigging, was the

submission of Ms. Divan. She supported this submission by drawing the

attention of the Court to the following observations in Ashoka Smokeless

Coal India (P) Ltd. v. Union of India

2

:

“109. It may be true that prices are required to be fixed having

regard to the market forces. Demand and supply is a relevant factor

as regards fixation of the price. In a market governed by free

economy where competition is the buzzword, producers may fix

their own price. It is, however, difficult to give effect to the

constitutional obligations of a State and the principles leading to a

free economy at the same time. A level playing field is the key factor

for invoking the new economy. Such a level playing field can be

achieved when there are a number of suppliers and when there are

competitors in the market enabling the consumer to exercise

choices for the purpose of procurement of goods. If the policy of the

open market is to be achieved the benefit of the consumer must be

kept uppermost in mind by the State.

xxxxxxxxx

127. While fixing a fair and reasonable price in terms of the

provisions of the Essential Commodities Act (although the price is

not dual), it is essential that price is actually fixed. Such price

fixation is necessary in view of the fact that coal is an essential

commodity. It is, therefore, vital that price is actually fixed and not

kept variable. Fixation of price of coal is of utmost necessity as it is

a mineral of grave national importance. Non-availability of coal and

consequently, the other products may lead to hardship to a section

of citizens. It may entail closure of factories and other industries

which in turn would lead to loss to the State exchequer; as they

would be deprived of its taxes. It will lead to loss of employment of a

large number of employees and would be detrimental to the avowed

2 (2007) 2 SCC 640

29

object of the Central Government to encourage small-scale

industries.”

28) She also referred to the following discussion in Excel Crop Care

Limited v. Competition Commission of India & Anr.

3

:

“52.We are here concerned with parallel behaviour. We are

conscious of the argument put forth by Mr Venugopal that in an

oligopoly situation parallel behaviour may not, by itself, amount to a

concerted practice. It would be apposite to take note of the following

observations made by European Court of Justice in Dyestuffs

[Imperial Chemical Industries Ltd. v. Commission of European

Communities, 1972 ECR 619 (ECJ)] :

“By its very nature, then, the concerted practice does not have

all the elements of a contract but may inter alia arise out of

coordination which becomes apparent from the behaviour of

the participants. Although parallel behaviour may not itself be

identified with a concerted practice, it may however amount to

strong evidence of such a practice if it leads to conditions of

competition which do not respond to the normal conditions of

the market, having regard to the nature of the products, the

size and number of the undertakings, and the volume of the

said market. Such is the case especially where the parallel

behaviour is such as to permit the parties to seek price

equilibrium at a different level from that which would have

resulted from competition, and to crystallise the status quo to

the detriment of effective freedom of movement of the products

in the [internal] market and free choice by consumers of their

suppliers.”

(emphasis supplied)

At the same time, the Court also added that the existence of a

concerted practice could be appraised correctly by keeping in

mind the following test:

“If the evidence upon which the contested decision is based is

considered, not in isolation, but as a whole, account being

taken of the specific features of the products in question.”

3 (2017) 8 SCC 47

30

29) The learned counsel also referred to various judgments of other

jurisdictions, primarily that of European Commission and the Court of

Justice of European Union, which we shall discuss at the appropriate

stage.

30) Ms. Divan, also highlighted that in this entire scenario, it was

necessary to have the views of IOCL. However, in a suo motu case, IOCL

was not even served with any notice and therefore no evidence was

elicited from IOCL on the issue whether there was any autnomy left to the

manufacturer in the matter of price determination.

31) She, thus, argued that merely because there was price parallelism, it

could not have been the reason to arrive at a conclusion that there was a

collusive agreement or bid rigging. She submitted that in a monopsonistic

market where there are few buyers, the price is set by the buyers, and the

conditions are such that sellers can predict demand, there is a repetitive

bidding process and the products are identical and specilized, the

likelihood of price parallelism is natural.

32) Further, price parallelism is inevitable where the buyer has a high

degree of control and determines price, quantity, and even the identities of

the awardees at its discretion. Referring to the following discussion in

Union of India v. Hindustan Development Corporation

4

, she argued

4 (1993) 1 SCC 467

31

that mere identical pricing cannot lead to the conclusion of cartelisation:

“7. [….] (1) There is not enough of material to conclude that M/s

H.D.C., Mukand and Bhartiya formed a cartel. Because of mere

quoting identical tender offers by the said three manufacturers for

which there is some basis, the conclusion that the said

manufacturers had formed a cartel does not appear to be correct.

However since the offers of the said three tenderers were identical

and the price was somewhat lower, the Tender Committee

entertained a suspicion that a cartel had been formed and the same

got further strengthened by the post-tender attitude of the said

manufacturers which further resulted in entertaining the same

suspicion by the other authorities in the hierarchy of decision making

body including the Minister of Railways. [….]

33) She pointed out that this principle has also been stated in paragraph

17 of the Union of India v. Hindustan Development Coproration

5

. Her

submission was that identical pricing may be further explained by the fact

that, given the high degree of predictability of prices, bidders may take a

business decision to mirror prices of competitors in certain States, by

adjusting or averaging prices in others.

34) The learned counsel pointed out that the CCI arrived at an inference

of a collusive agreement based, inter alia, on the presence of

circumstances which have acted as ‘facilitating factors’ for collusion.

These factors which describe the nature of the industry are:

(i)Predictability of demand

(ii)Small number of suppliers

5 (1993) 3 SCC 499

32

(iii)Few new entrants

(iv)Active trade association

(v)Repetitive bidding

(vi)Identical products

(vii)Few or no substitutes

(viii)No significant technological changes, i.e, a standardised

product in repsect of which there has been no change or alteration in

design.

35) Her reply was that these are the characteristics which define the

industry. Yet these very factors are relied upon to come to the consclusion

that there is ‘collusion’ and ‘bid rigging’. She submitted that if the very

nature of the industry is such that there are very small numbers of

suppliers, very few new entrants and a standard product being supplied to

the same party year after year, such factors are beyond the control of the

individual manufacturers and cannot be relied upon as factors to lead to a

presumption that there is collusive conduct. In other words, the very

nature of the industry cannot be used as a factor to presume collusion

because collusion itself requires a state of mind or intent whereas in this

case, most of these factors are inherent in the nature of the industry as

described by the CCI itself.

33

36) Adverting to her 2

nd

proposition, namely, there was no collusive

agreement or bid rigging in the present case, her submission was that CCI

has relied on a dinner attended by some manufacturers on 1

st

March, 2010

and a lunch on 2

nd

March, 2010 as evidence of a price fixing agreement.

Her response was that the factum of meetings of an association by itself

in any case cannot lead to a conclusion of collusion. Likewise, the

COMPAT also upheld that inference based on the factum of the meetings

of the Associaiton. The COMPAT went to the extent of holding that it is

irrelevant whether a particular party was a member of the Association or

not and the existence of Association is by itself sufficient. This approach

was attacked as contrary to the fundamental right to form an association

under Article 19(1)(c)(g) of the Constitution of India.

37) So far as the meetings over dinner and lunch are concerned, both

were hosted by individual members. In the case of the dinner meeting on

1

st

March, 2010, it was hosted by Mr. C.P. Bhartiya, MD of North India

Wires. The lunch on 2

nd

March, 2010 was hosted by Mr. Santosh Bhartiya

of Haldia Precision. It is not as if that the Association paid or the expenses

were shared by all members who attended.

38) She also submitted that insofar as appellant – Rajasthan Cylinders

and Containers Limited is concerned, no representatives of appellant

34

attended the said meeting. Further, many other members did not attend

the meeting. Even as per the findings of the Director General, only 12

persons representing 19 parties are said to have attended the meeting.

Her submission was that as per the allegations, 45 persons had entered

into an agreement of cartelisation which should not be established only

with the said meeting which was not attended by all and in fact very few

members.

39) In any case, according to her, it was expressly stated by at least two

persons who attended the meeting that price was not discussed. These

are Mr. Chandi Prasad Bhartia from Haldia Precision and Mr. Manvinder

Singh of Bhiwadi Cylinders Ltd.

40) Her further submission on this aspect was that the inference drawn

on the basis of six agents being nominated for depositing 44 bids was also

misconceived. The CCI holds that ‘this might have held to the possibility

of copying and matching of the rates quoted in the price bids by many

suppliers in a particular state.”

41) The test as laid down in the case of Ahlstrom Osakeyhtio v.

Commission

6

is: Is the concertation the only plausible explaination for the

conduct?

6 31.3.1993, ECJ (paragraph 115, Internal P.1611) (“Woodpulp”)

35

“126. Following that analysis, it must be stated that, in this case,

concertation is not the only plausible explanation for the parallel

conduct. To begin with, the system of price announcements may be

regarded as constituting a rational response to the fact that the pulp

market constituted a long-term market and to the need felt by both

buyers and sellers to limit commercial risks. Further, the similarity in

the dates of price announcements may be regarded as a direct

result of the high degree of market transparency, which does not

have to be described as artificial. Finally, the parallelism of prices

and the price trends may be satisfactorily explained by the

oligopolistic tendencies of the market and by the specific

circumstances prevailing in certain period. Accordingly, the parallel

conduct established by the Commission does not constitute

evidence of concertation.

This test is not met in the present case for reasons that are

enumerated.

42) Her third proposition was that in any case there was no appreciable

adverse effect on competition. She tried to make this submission good by

contending that when industry is an oligopoly, the price parallel or a finding

of identical quoting of price does not by itself lead to the conclusion of a

conerted price. Moreoever, in the instant case, number of entrants had

increased as 12 new entrants submitted their bid for the year 2010-11.

Therefore, the finding of the CCI, upheld by the COMPAT, that there has

been a creation of barriers for new entrants is without any basis.

43) Other counsel who appeared on behalf of the appellants made their

submission almost on the same lines, albeit, with further elaborations on

certain aspects, some of which are taken note of hereafter. Mr. Jaiveer

36

Shergil, who argued for the appellant—Om Containers (C.A. No. 6369 of

2014) submitted that in order to attract the presumption contained in

Section 3(3) about the appreciable adverse effect on competition, in the

first instance, there has to be a finding that there has been an agreement

of the kind set out in Section 3(3)(a) to (d). Since, the allegation against

the appellants was that the agreement resulted in bid rigging and case is

covered under Section 3(3)(d) of the Act, it was necessary that there is a

positive finding to the aforesaid effect, namely, that there was agreement

which had resulted in bid rigging. Accordoing to him, since the definition of

bid rigging in Explanation to Section 3(3) uses the words ‘means’, the

definition is a hard and fast definition and no other meaning can be

assigned to the expression than is put down in the definition, as held in

Punjab Land Developement & Reclamation Corporation Ltd. vs.

Presiding Officer, Labour Court

7

in the following words:

“72. The definition has used the word ‘means’. When a statute says

that a word or phrase shall “mean”— not merely that it shall

“include” — certain things or acts, “the definition is a hard-and-fast

definition, and no other meaning can be assigned to the expression

than is put down in definition” (per Esher, M.R., Gough v. Gough

[(1891) 2 QB 665 : 65 LT 110] ). A definition is an explicit statement

of the full connotation of a term.”

44) Thus, according to him, for it to be a case of bid rigging, the

7 (1990) 3 SCC 682

37

agreement must be such which is defined in the Explanation to Section

3(3)(d) creating the effect of:

a.Eliminating or reducing competition for bids or

b.Adversely affecting the process for bidding or

c.Manipulating the process for bidding.

45) He referred to the judgment in S. Sundaram Pillai vs. V.R.

Pattabiraman

8

, on the purpose of an ‘Explanation’, viz.:

“46. We have now to consider as to what is the impact of the

Explanation on the proviso which deals with the question of willful

default. Before, however, we embark on an inquiry into this difficult

and delicate question, we must appreciate the intent, purpose and

legal effect of an Explanation. It is now well settled that an

Explanation added to a statutory provision is not a substantive

provision in any sense of the term but as the plain meaning of the

word itself shows it is merely meant to explain or clarify certain

ambiguities which may have crept in the statutory provision. Sarathi

in Interpretation of Statutes while dwelling on the various aspects of

an Explanation observes as follows:

(a) The object of an Explanation is to understand the Act in the light

of the explanation.

(b) It does not ordinarily enlarge the scope of the original section

which it explains, but only makes the meaning clear beyond

dispute.”

46) He submitted that there is no positive evidence of this nature at all

and the CCI as well as COMPAT has proceeded on inferences as regards

bid rigging and, therefore, such orders cannot be sustained.

8 (1985) 1 SCC 591

38

47)

In the absence thereof, submitted the learned counsel, doctrine of reverse

burden which was put on the appellants would not apply. He referred to the

following judgments

9

in support.

48) The counsel relied upon the following observations in CCI v.

Artistes & Technicians of W.B. Film & Television:

“31. The Competition Act, 2002, as amended in 2007 and 2009,

deals with anti-trust issues viz. regulation of anti-competitive

agreements, abuse of dominant position and a combination or

acquisition falling within the provisions of the said Act. Since the

majority view of CCI also accepted that the impugned activities of

the Coordination Committee did not amount to abuse of dominant

position, and it treated the same as anti-competitive having

appreciable adverse effect on competition, our discussion would be

focused only on anti-competitive agreements. Section 3 of the Act is

the relevant section in this behalf. It is intended to curb or prohibit

certain agreements. Therefore, in the first instance, it is to be found

out that there existed an “agreement” which was entered into by

enterprise or association of enterprises or person or association of

persons. Thereafter, it needs to be determined as to whether such

an agreement is anti-competitive agreement within the meaning of

the Act. Once it is found to be so, other provisions relating to the

treatment that needs to be given thereto get attracted.”

49) Taking aid of the aforesaid legal principle, it was submitted that in the

present case it will be seen that the CCI, rather arriving at a finding with

focus on the aforesaid factors, proceeded to analyse factors which attach

9

39

to the general market conditions of the industry to ‘infer’ the ‘possibility’ of

bid rigging and then concluded that the ‘facilitating factors’ which may be

‘considered conducive for cartelisation’ are present. The D.G. found that

‘in all the probability, prices were fixed there at the meeting in Bombay in

collusion with each other. Such an inference and assumption based on

‘higher chances’, ‘probability’, ‘tendencies’ or ‘likelihood’ by the CCI does

not meet the requirement of the definition contained in Explanation to

Section 3(3) and certainly does not constitute a finding of ‘bid rigging’ as

defined therein. The Tribunal has also proceeded on the basis that it ‘is to

be deduced....that these meetings did relate to the tender offers’. There

was, thus, not clearcut, precise and consistent evidence to support that

the alleged bid rigging took place.

50) Next submission of Mr. Shergil was that apart from the complete

absence of a finding of bid rigging, in the present IOCL tender, as a matter

of fact there canot be any bid rigging as defined in Section 3(3). To take

the first ingredient, i.e., eliminating or reducing competition for bids, the

report of D.G. itself finds that out of the 60 bidding parties 37 entities were

not belonging to any single group and are independently controlled.

Hence, straight away there is no case of ‘eliminating or reducing

competition for bids’ which is one of the possible ingredients of bid rigging

40

as there were 37 entities who were free of mind to participate and bid of

their own accord in the absence of any control by any cartel.

51) As regards the second and third requirement of bid rigging, i.e.,

adversely effecting or manipulating the bidding process, he argued that

the submission of bids by the appellant (even if identical) can have no

effect of ‘adversely effecting or manipulating the bidding process’ this

being on account of the very nature of the present tender process.

Although, bids are invited from bidders, IOCL has a fixed/base

procurement price of Rs. 1106.61 per cylinder. IOCL then works out an

estimated rate per State based on certain factors peculiar to that State

such as octroi, freight etc. The bid offered by the L1 (lowest bidder) is then

subject to further downward negotiations by IOCL as per the tender clause

and a further finalised rate is arrived at. Such finalised rate is eventually

even lower

10

than the L1 bid amount. Thus, factually, logically and in

reality any bid submitted by any party can never be one which is said to

adversely affect or manipulate the bidding process. All of this information

is with IOCL as part of its bidding process preparations, estimates and

financial workings and could easily have been taken into consideration. In

support, Mr. Shergil also referred to the terms and conditions of the IOCL

tender.

10

41

52) His further submission was that CCI, or for that matter COMPAT,

were wrong in getting influenced by the submissions of identical bids by

the appellants as it could not be, ipso facto, inferance of bid rigging. Such

identical prices could be for various reasons and he shared that the

reasons given by Ms. Divan predicated her submissions on

oligopsony/monopsony. In addition, he relied upon the judgment of this

Court in Union of India vs. Hindustan Development Corporation

11

and,

in particular, para 17 thereof, which is as under:

“17. Therefore, whether in a given case, there was formation of a

cartel by some of the manufacturers which amounts to an unfair

trade practice, depends upon the available evidence and the

surrounding circumstances. In the instant case, initially the Tender

Committee formed the opinion that the three big manufacturers

formed a cartel on the ground that the price initially quoted by them

was identical and was only a cartel price. This, in our view, was only

a suspicion which of course got strengthened by post-tender attitude

of the said manufacturers who quoted a much lesser price. As

noticed above it cannot positively be concluded on the basis of these

two circumstances alone. In the past these three big manufacturers

also offered their own quotations and they were allotted quantities on

the basis of the existing practice. However, a mere quotation of

identical price and an offer of further reduction by themselves would

not entitle them automatically to corner the entire market by way of

monopoly since the final allotment of quantities vested in the

authorities who in their discretion can distribute the same to all the

manufacturers including these three big manufacturers on certain

basis. No doubt there was an apprehension that if such predatory

price has to be accepted the smaller manufacturers will not be in a

position to compete and may result in elimination of free competition.

But there again the authorities reserved a right to reject such lower

price. Under these circumstances though the attitude of these three

11

42

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. However, such an opinion entertained by

the concerned authorities including the Minister was not malicious

nor was actuated by any extraneous considerations. They

entertained a reasonable suspicion based on the record and other

surrounding circumstances and only acted in a bona fide manner in

taking the stand that the three big manufacturers formed a cartel.”

53) Some literature on the ‘theory of oligopolistic interdependence’ as

well as judgments of the European Union and European Commission were

also cited.

54) Mr. Pradeep Aggarwal, in addition, argued that though there was no

positive finding of cartelisation and the conclusion was merely

presumptive, even if it is accepted that there was such an agreement of

bid rigging or collusive bidding, there was no presumption of ‘appreciable

adverse effect on competiiton’. In the alternative, he submitted that there

was, in fact, no appreciable adverse effect on competition in the present

case and the said presumption totally was rebutted by producing sufficient

evidence on record.

55) Various other counsel also argued on the same lines and in addition

referred to facts or their specific cases and it is not necessary to state all

those arguments to avoid repetition.

56) Per contra, Mr. Salman Khurshid, learned senior counsel appearijng

for CCI highlighted the purpose for which the Act is enacted and, in

43

particular, objective behind Section 3 of the Act, whch is taken note of by

this Court in Excel Crop Care Limited as well as West Bengal Artists

Association. Insofar as instant case is concerned, his submission was

that it is a stark and clear-cut case of bid rigging as a result of anti-

competitive agreement amongst LPG manufacturers in respect of a tender

(Tender No. LPG-O/M/PT-03/09-10) floated by IOCL for procurement of

approximately 1,05,00,000 (105 laks) LPG Cylinders. This is a matter of

serious public concern because these cylinders were to be used to supply

Liquefied Petroleum Gas (LPG) for domestic consumption across 25

States. A rise in price resulting from anti-competitive activities would affect

the cost of living for the common man, and has serious ramifications for

the economy as a whole.

57) Mr. Khurshid referred to the findings of the CCI as approved by

COMPAT and submitted that there was a strong economic evidence of

collusion which is evident from the following aspects:

(a) Identical or near-identical bidding by all 50 empaneled LPG vendors

resulting in bid rigging.

(b)Results of the tender revealed that these bids were made in such a

way that all the bidders were awarded some portion of the tender and no

bidder was left empty handed, i.e., Market Sharing Arrangement.

44

(c)Geographical/Territorial allocation of market, i.e., the bids were

placed in such a way that entities located in the northern parts of the

country were awrded the tender in the northern States, entities located in

the southern parts were awarded the tender in respect of southern States

etc.

(d)No plausible economic rationale or explanation was forthcoming for the

identical bids, despite obvious difference in cost of production, location,

input cost etc.

(e)The overall effect of increase in price of procurement of LPG Cylinders

over previous years.

58) He also submitted that pattern of identical and near identical bids,

which was all pervasive through out, could not be brushed aside lightly as

that was the clear indicator of price bidding as a result of agreement

between the parties. The analysis of the bids also shows that it had

already been decided amongst the LPG Cylinder manufacturers as to who

the L1 and L2 bidders were going to be prior to submission of bids. For

instance, in the State of Punjab, the L1 bidder (Shri Ram Cylinders) bid

Rs. 1080 whereas the four L2 bidders placed identical bids at Rs, 1080.50,

i.e., a difference of only 50 paise from the L-1 bid. Similarly, in Rajasthan,

the L-1 bidder (M/s. Rajasthan Cylinders) quoted Rs. 1130, whereas nine

45

L2 bidders quoted identically by just 50 paise more, at Rs. 1130.50. This

pattern is repeated across a number of States.

59) Not only this, in order to achieve the pre-decided outcome, some of

the bidders hastily made corrections to their bid documents. One such

case is that of M/s. Jesmajo Industrial Fabrications (appellant in C.A. No.

4868 of 2014). In the bid documents, the bid of Rs. 1103 was cut-

corrected to make it Rs. 1103.60 even though the calculation of VAT was

done only on the figure of |Rs. 1103. The Director General has

commented on this aspect as follows:

“6.13…...That bids were submitted after mutual discussion is

apparent from the tender documents of Jesmajo Industrial

Fabricators P. Ltd. (Exhibit 4P). There are cuttings in the tender

documents and financial bids of the company. Since, there were

discussions among all oil companies, the company might have

decided to make alterations in the financial bids. However, even in

the financial bids of the company, it is noted that despite alterations,

errors have remained. It seems that the company had originally

quoted Rs. 1103/- as the rate. Subsequently it changed the rates to

Rs. 1103.60. However, VAT rate in the bid had been calculated on

Rs. 1103/- only instead of Rs. 1103.60. Thus, while other

component of rates has been changed/altered, the calculation of

VAT has been done on Rs. 1103 (originally quoted) instead of Rs.

1103.60 (altered quote). This appears to have been done to match

rates with other bidders who have quoted the similar rates in the

State of Karnataka and to let Sanghvi group be L-1 in that State.”

60) Mr. Khurshid also refuted the submisison of the appellants that there

was no competition and, therefore, Section 3 was not applicable.

According to him, if the matters are examined on such basis most of the

46

culprits will get away. The purpose of the Act was not only to eliminate

cartelisation but also to promote competition. His submission was that

once the findings of the CCI and COMPAT are accepted that there was an

agreement, such an agreement was obviously for the purpose of curbing

the competition.

61) Answering the argument of ‘price parallelism’ which according to the

appellants resulted in identical and near identical bids, Mr. Khurshid

argued that legal submission in this respect was settled by this Court in

Excel Crop Care case wherein such an argument was rejected in the

following words:

“48…It was argued that since dominant position is enjoyed by the

buyer, it leads to parallel pricing and this conscious parallelism takes

place leading to quoting the same price by the suppliers. The

explanation, thus, given for quoting identical price was the aforesaid

economic forces and not because of any agreement or arrangement

between the parties. It was submitted that merely because same

price was quoted by the appellants in respect of the 2009 FCI

tender, one could not jump to the conclusion that there was some

“agreement” as well between these parties, in the absence of any

other evidence corroborating the said factum of quoting identical

price. In respect of this submission, Mr Venugopal had also referred

to a few judgments.

49. The aforesaid argument is highly misconceived. A neat and

pellucid reply of Mr. Kaul, which commands acceptance, is that

argument of parallelism is not applicable in bid cases and it fits in

the realm of market economy. It is for this reason that entire history

of quoting identical price before coming into operation of Section 3

and which continued much after Section 3 of the Act was enforced,

has been highlighted...”

47

62) He also referred to the following findings of COMPAT with the

submission that finding of facts need to be accepted:-

“36. We are thoroughly convinced by this analysis that all this could

not have been possible unless there were internal agreements

between the concerns. What shocks us is that the quotations of the

price did match to the last decimal and the quotations in some

cases were in odd figures like Rs.1127 in the State of Tamil Nadu.

The record is replete with such odd figures. It was strange that in

some of the oral statements of the representatives of these parties,

who were examined by the DG, some of them could not even justify

these identical prices and tried to say that it was a mere

coincidence. We cannot accept the argument of coincidence as was

rightly rejected by CCI. There can be no explanation for this kind of

identical or near identical pricing. The CCI has rightly considered

that the manufacturing cost of per cylinder varies in a wide spectrum

ranging from Rs.870 to Rs.1095.89. If this was the case, the prices

had to be different, if they had been offered in a competitive spirit.

Either before the CCI or before us no material was produced, which

would be able to rebut the presumption arising from the identity of

rates. The CCI, therefore, rightly concluded that this identity of

prices was sinister and anti-competitive in nature.”

63) Another feature which Mr. Salman Khurshid pointed out was that the

analysis of bids revealed that there was a market sharing and territorial

allocation of bids. This, according to him, could be discerned from the

following evidence emerging from record:

“Firstly, the economic evidence indicates that there was an

understanding or arrangement or agreement by which each and

every bidder would get some part of the allocation under the tender.

This is clear from the fact that each and every one of the 50 bidders

who submitted price bids received some part of the allocation in one

or more states, and no one went empty handed. In other words, the

purpose of quoting identical bids in many instances was to achieve

the objective of sharing the market, i.e., the IOCL requirement

48

across 25 states was ‘shared’ by each of the 50 bidders, through

concerted action and pre-decided understanding.

64) Mr. Khurshid also highlighed that in spite of there being difference in

location of appellant’s units and their input cost, the bids submitted by

various tenderers were identical and there canot be any plausible

economic rationale for such identical bidding. Therefore, the inference

drawn by the CCI as well as COMPAT based on the aforesaid features

and factors was justified and valid in law. He also referred to certain

judgements of this Court as well as other jurisdictions, such as, European

Commission and the Court of Justice of European Union to which

reference would be made at the appropriate stage.

65) Before we deal with the arguments advanced by various counsel

who appeared for the appellants and rebuttal thereto by Mr. Salman

Khurshid, learned senior counsel who appeared for CCI as also counsel

for IOCL, we would like to reproduce the relevant provisions of the Act in

the light of which these appeals are to be decided:

66) Section 2(c) defines “cartel” and reads as under:

“”Cartel” includes an association of producers, sellers, distributors,

traders or service providers who, by agreement amongst

themselves, limit, control or attempt to control the production,

distribution, sale or price of, or, trade in goods or provision of

services;

49

67) Section 3 of the Act deals with and prohibits those agreements which

cause and are likely to cause an appreciable adverse effect on

competition within india. It reads as under:

“Section 3 : Anti-competitive agreements:-

(1)No enterprise or association of enterprises or person or

association of persons shall enter into any agreement in

respect of production, supply, distribution, storage,

acquisition or control of goods or provision of services, which

causes or is likely to cause an appreciable adverse effect on

competition within India.

(2) Any agreement entered into in contravention of the

provisions contained in sub-section (1) shall be void.

(3) Any agreement entered into between enterprises or

associations of enterprises or persons or associations of

persons or between any person and enterprise or practice

carried on, or decision taken by, any association of

enterprises or association of persons, including cartels,

engaged in identical or similar trade of goods or provision of

services, which—

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical

development, investment or provision of services;

(c) shares the market or source of production or provision of

services by way of allocation of geographical area of market,

or type of goods or services, or number of customers in the

market or any other similar way;

(d) directly or indirectly results in bid rigging or collusive

bidding, shall be presumed to have an appreciable adverse

effect on competition: Provided that nothing contained in this

sub-section shall apply to any agreement entered into by way

of joint ventures if such agreement increases efficiency in

50

production, supply, distribution, storage, acquisition or control

of goods or provision of services.

Explanation.—For the purposes of this sub-section, "bid

rigging" means any agreement, between enterprises or

persons referred to in sub-section (3) engaged in identical or

similar production or trading of goods or provision of

services, which has the effect of eliminating or reducing

competition for bids or adversely affecting or manipulating the

process for bidding.”

68) Certain factors are mentioned in Section 19 of the Act which have to

be kept in mind while determining whether an agreement has an

appreciable adverse effect on competition under Section 3. We reproduce

this Section hereinbelow:

“Section 19(3) in the Competition Act, 2002:

(3) The Commission shall, while determining whether an

agreement has an appreciable adverse effect on competition

under section 3, have due regard to all or any of the following

factors, namely:—

(a) creation of barriers to new entrants in the market;

(b) driving existing competitors out of the market;

(c) foreclosure of competition by hindering entry into the market;

(d) accrual of benefits to consumers;

(e) improvements in production or distribution of goods or

provision of services;

(f) promotion of technical, scientific and economic development by

means of production or distribution of goods or provision of

services.”

51

69) In Excel Crop Care Limited, scope of Section 3 of the Act which

prohibits three kinds of practices as anti-competitive, was taken note of as

follows:

“20. Chapter II of the Act deals with three kinds of practices

which are treated as anti-competitive and prohibited. These

are:

(a) where agreements are entered into by certain persons

with a view to cause an appreciable adverse effect on

competition;

(b) where any enterprise or group of enterprises, which

enjoys dominant position, abuses the said dominant position;

and

(c) regulating the combination of enterprises by means of

mergers or amalgamations to ensure that such mergers or

amalgamations do not become anti-competitive or abuse the

dominant position which they can attain.”

70) In that case also the Court was concerned with the 1

st

category,

namely, those cases where certain persons enter into agreements with a

view to cause an appreciable adverse effect of competition. Purpose

behind curbing such anti-competitive practices was mentioned in detail. It

is not necessary to re-state the same in that expansive manner, however,

we would still like to quote certain portions to capture the essence and

purpose of the Act:-

“21. In the instant case, we are concerned with the first type of

practices, namely, anti-competitive agreements. The Act, which

prohibits anti-competitive agreements, has a laudable purpose

behind it. It is to ensure that there is a healthy competition in the

market, as it brings about various benefits for the public at large as

52

well as economy of the nation. In fact, the ultimate goal of

competition policy (or for that matter, even the consumer policies) is

to enhance consumer well-being. These policies are directed at

ensuring that markets function effectively. Competition policy

towards the supply side of the market aims to ensure that

consumers have adequate and affordable choices. Another purpose

in curbing anti-competitive agreements is to ensure “level playing

field” for all market players that helps markets to be competitive. It

sets “rules of the game” that protect the competition process itself,

rather than competitors in the market. In this way, the pursuit of fair

and effective competition can contribute to improvements in

economic efficiency, economic growth and development of consumer

welfare………..

xxx xxx xxx

23. In fact, there is broad empirical evidence supporting the

proposition that competition is beneficial for the economy.

Economists agree that it has an important role to play in improving

productivity and, therefore, the growth prospects of an economy…..

24. Productivity is increased through competition by putting pressure

on firms to control costs as the producers strive to lower their

production costs so that they can charge competitive prices. It also

improves the quality of their goods and services so that they

correspond to consumers' demands.

xxx xxx xxx

26. When we recognise that competition has number of benefits, it

clearly follows that cartels or anti-competitive agreements cause

harm to consumers by fixing prices, limiting outputs or allocating

markets. Effective enforcement against such practices has direct

visible effects in terms of reduced prices in the market and this is

also supported by various empirical studies.

xxx xxx xxx

27. Keeping in view the aforesaid objectives that need to be

achieved, Indian Parliament enacted the Competition Act, 2002.

Need to have such a law became all the more important in the wake

of liberalisation and privatisation as it was found that the law

prevailing at that time, namely, Monopolies and Restrictive Trade

53

Practices Act, 1969 was not equipped adequately enough to tackle

the competition aspects of the Indian economy. The law enforcement

agencies, which include CCI and COMPAT, have to ensure that these

objectives are fulfilled by curbing anti-competitive agreements.”

71) The Court also mentioned, in particular, that competition leads to

economic efficiency, economic growth and development as well as

consumers welfare. The Court also spelled out the manner in which

competition contributed to increase economic growth and increased

productivity.

72) It follows from the above that whereas on the one hand the

economic policy of the nation has ushered in the era of liberalisation and

globalisation thereby giving freeplay to the private sector in the manner of

conducting business, at the same time, in public interest and in the interest

of consumers, a regime of regulators has also been brought to ensure

certain checks and balances. Since competition among the enterprises or

businessmen is treated as service for a public purpose and, therefore,

there is a need to curb anti-competitive practices, the CCI is given the task

(as a regulator) to ensure that no such anti-competitive practices are

undertaken. In fact, Section 18 of the Act casts a specific and positive

obligation on CCI to ‘eliminate’ anti-competitive practices and promote

competition, interest of the consmuer and free trade. This objective was

54

also emphasised by this Court in Competition Commission of India vs.

Steel Authority of India Limited and Another

12

which can be found in

the following observations:

“6. As far as the objectives of competition laws are concerned, they

vary from country to country and even within a country they seem to

change and evolve over the time. However, it will be useful to refer

to some of the common objectives of competition law. The main

objective of competition law is to promote economic efficiency using

competition as one of the means of assisting the creation of market

responsive to consumer preferences. The advantages of perfect

competition are threefold: allocative efficiency, which ensures the

effective allocation of resources, productive efficiency, which

ensures that costs of production are kept at a minimum and

dynamic efficiency, which promotes innovative practices. These

factors by and large have been accepted all over the world as the

guiding principles for effective implementation of competition law.”

73) As mentioned above, one of the anti-competitive practices is

cartelisation, the essential postulate whereof is agreement between

enterprises or association of enterprises or persons or associations of

persons in respect of production, supply, distribution, storage, acquisition

or control of goods or provisions of service, which causes or is likely to

cause an appreciable adverse effect on competition within India. Such an

agreement is treated as void. The types of agreement which may fall foul

of Section 3 are mentioned in sub-section (3) thereof. These include

sharing the market by way of allocation of geographical areas of market

[clause (c)] and the agreements which result in bid-rigging or collusive

12

55

bidding whether directly or indirectly [clause (d)]. There is a presumption

that four types of agreements mentioned in sub-section (3) will have an

appreciable adverse effect on competition.

74) We may also state at this stage that Section 19(3) of the Act

mentions the factors which are to be examined by the CCI while

determining whether an agreement has an appreciable adverse effect on

competition under Section 3. However, this inquiry would be needed in

those cases which are not covered by clauses (a) to (d) of sub-section (3)

of Section 3. Reason is simple. As already pointed out above, the

agreements of nature mentioned in sub-section (3) are presumed to have

an appreciable effect and, therefore, no further exercise is needed by the

CCI once a finding is arrived at that a particular agreement fell in any of

the aforesaid four categories. We may hasten to add, however, that

agreements mentioned in Section 3(3) raise a presumption that such

agreements shall have an appreciable adverse effect on competition. It

follows, as a fortiorari, that the presumption is rebuttable as these

agreements are not treated as conclusive proof of the fact that it would

result in appreciable adverse effect on competition. What follows is that

once the CCI finds that case is covered by one or more of the clauses

mentioned in sub-section (3) of Section 3, it need not undertake any

56

further enquiry and burden would shift upon such enterprises or persons

etc. to rebut the said presumption by leading adequate evidence. In case

such an evidence is led, which dispels the presumption, then the CCI shall

take into consideration the factors mentioned in Section 19 of the Act and

to see as to whether all or any of these factors are established. If the

evidence collected by the CCI leads to one or more or all factors

mentioned in Section 19(3), it would again be treated as an agreement

which may cause or is likely to cause an appreciable adverse effect of

competition, thereby compelling the CCI to take further remedial action in

this behalf as provided under the Act. That, according to us, is the broad

scheme when Sections 3 and 19 are to be read in conjuction.

75) In these appeals, the Court is concerned with the alleged agreement

entered into between the appellants falling in clause (d) of sub-section (3)

of Section 3, which talks of bid rigging or collusive bidding. Therefore, it

would be necessary to understand the meaning of the expression ‘bid

rigging’ and ‘collusive bidding’. Explanation to Section 3, which is

reproduced, assigns meaning to ‘bid rigging’ and states :

“S. 3:

Explanation.—For the purposes of this sub-section, "bid rigging"

means any agreement, between enterprises or persons referred to

in sub-section (3) engaged in identical or similar production or

57

trading of goods or provision of services, which has the effect of

eliminating or reducing competition for bids or adversely affecting or

manipulating the process for bidding.”

76) The necessary ingredients of bid rigging, thus, are: (a) agreement

between the parties; (b) these parties are engaged in identical or similar

production or trading of goods or provisions of services; and (c) the

agreement has the effect of eliminating or reducing competition of bids or

adversely affect or manipulating the process for bidding.

77) Though the expression ‘collusive bidding’ is not defined in the Act, it

appears that both ‘bid rigging’ and ‘collusive bidding’ are overlapping

concepts. This position stands accepted in Excel Crop Care Limited

case which should be found from the following discussion therefrom:

“38. Mr Neeraj Kishan Kaul, learned Additional Solicitor General,

refuted the aforesaid submission with vehemence by urging that bid

rigging and collusive bidding are not mutually exclusive and these

are overlapping concepts. Illustratively, he referred to the findings of

CCI, as approved by COMPAT, in the instant case itself to the effect

that the appellants herein had “manipulated the process of bidding”

on the ground that bids were submitted on 8-5-2009 collusively,

which was only the beginning of the anti-competitive agreement

between the parties and this continued through the opening of the

price bids on 1-6-2009 and thereafter negotiations on 17-6-2009

when all the parties reduced their bids by same figure of Rs 2 to

bring their bid down to Rs 386 per kg from Rs 388 per kg. From this

example, he submitted that on 8-5-2009 there was a collusive

bidding but with concerted negotiations on 17-6-2009, in the

continued process, it was rigging of the bid that was practiced by the

appellants. We are inclined to agree with this pellucid submission of

the learned Additional Solicitor General.

58

39. Richard Whish and David Bailey [Competition Law, 7th Edn., p.

536.] , in their book, have given illustrations of various forms of

collusive bidding/bid rigging, which include:

(a) Level tendering/bidding (i.e. bidding at same price — as in the

present case).

(b) Cover bidding/courtesy bidding.

(c) Bid rotation.

(d) Bid allocation.

40. Even internationally, “collusive bidding” is not understood as

being different from “bid rigging”. These two expressions have been

used interchangeably in the following international

commentaries/glossaries and websites of competition authorities:

(a) UNCTAD Competition Glossary dated 22-6-2016

“Bid rigging or collusive tendering is a manner in which conspiring

competitors may effectively raise prices where business contracts

are awarded by means of soliciting competitive bids. Essentially, it

relates to a situation where competitors agree in advance who will

win the bid and at what price, undermining the very purpose of

inviting tenders which is to procure goods or services on the most

favourable prices and conditions.”

(b) OECD Glossary of Industrial Organisation Economics and

Competition Law

“Bid rigging is a particular form of collusive price-fixing behaviour by

which firms coordinate their bids on procurement or project

contracts. There are two common forms of bid rigging. In the first,

firms agree to submit common bids, thus eliminating price

competition. In the second, firms agree on which firm will be the

lowest bidder and rotate in such a way that each firm wins an agreed

upon number or value of contracts.

Since most (but not all) contracts open to bidding involve

Governments, it is they who are most often the target of bid rigging.

Bid rigging is one of the most widely prosecuted forms of collusion.”

59

Collusive bidding (tendering) — See “bid rigging”.

(This shows collusive bidding and bid rigging are treated as one and

the same.)

(c) OECD Guidelines for fighting bid rigging

“Bid rigging (or collusive tendering) occurs when businesses, that

would otherwise be expected to compete, secretly conspire to raise

prices or lower the quality of goods or services for purchasers who

wish to acquire products or services through a bidding process.”

(d) United States Office of the Inspector General, Investigations

(Fraud Indicators Handbook)

“Collusive bidding, price fixing or bid rigging, are commonly used

interchangeable terms which describe many forms of an illegal anti-

competitive activity. The common thread throughout all these

activities is that they involve any agreements or informal

arrangements among independent competitors, which limit

competition. Agreements among competitors which violate the law

include but are not limited to:

(1) Agreements to adhere to published price lists.

(2) Agreements to raise prices by a specified increment.(3)

Agreements to establish, adhere to, or eliminate discounts.

(4) Agreements not to advertise prices.

(5) Agreements to maintain specified price differentials based on

quantity, type or size of product.”

(e) Australian Competition and Consumer Commission

“Bid rigging, also referred to as collusive tendering, occurs when two

or more competitors agree they will not compete genuinely with each

other for tenders, allowing one of the cartel members to ‘win’ the

tender. Participants in a bid rigging cartel may take turns to be the

‘winner’ by agreeing about the way they submit tenders, including

some competitors agreeing not to tender.”

41. As the Liegeman of the law, it is our task, nay a duty, to give

proper meaning and effect to the aforesaid “Explanation”. It can

easily be discussed that the legislature had in mind that the two

expressions are interchangeably used. It is also necessary to keep

60

in mind the purport behind Section 3 and the objective it seeks to

achieve:

41.1. Sub-section (1) of Section 3 is couched in the negative terms

which mandates that no enterprise or association of enterprises or

person or association of persons shall enter into any agreement,

when such agreement is in respect of production, supply,

distribution, storage, acquisition or control of goods or provision of

services and it causes or is likely to cause an appreciable adverse

effect on competition within India. It can be discerned that first part

relates to the parties which are prohibited from entering into such an

agreement and embraces within it persons as well as enterprises

thereby signifying its very wide coverage. This becomes manifest

from the reading of the definition of “enterprise” in Section 2(h) and

that of “person” in Section 2(l) of the Act. The second part relates to

the subject-matter of the agreement. Again it is very wide in its ambit

and scope as it covers production, supply, distribution, storage,

acquisition or control of goods or provision of services. The third part

pertains to the effect of such an agreement, namely, “appreciable

adverse effect on competition”, and if this is the effect, purpose

behind this provision is not to allow that. Obvious purpose is to

thwart any such agreements which are anti-competitive in nature

and this salubrious provision aims at ensuring healthy competition.

Sub-section (2) of Section 3 specifically makes such agreements as

void.

41.2. Sub-section (3) mentions certain kinds of agreements which

would be treated as ipso facto causing appreciable adverse effect on

competition. It is in this backdrop and context that “Explanation”

beneath sub-section (3), which uses the expression “bid rigging”,

has to be understood and given an appropriate meaning. It could

never be the intention of the legislature to exclude “collusive bidding”

by construing the expression “bid rigging” narrowly. No doubt, clause

(d) of sub-section (3) of Section 3 uses both the expressions “bid

rigging” and “collusive bidding”, but the Explanation thereto refers to

“bid rigging” only. However, it cannot be said that the intention was to

exclude “collusive bidding”. Even if the Explanation does contain the

expression “collusive bidding” specifically, while interpreting clause

(d), it can be inferred that “collusive bidding” relates to the process of

bidding as well. Keeping in mind the principle of purposive

interpretation, we are inclined to give this meaning to “collusive

bidding”. It is more so when the expressions “bid rigging” and

“collusive bidding” would be overlapping, under certain

61

circumstances which was conceded by the learned counsel for the

appellants as well.

42. We are, therefore, of the opinion that the two expressions are to

be interpreted using the principle of noscitur a sociis i.e. when two or

more words which are susceptible to analogous meanings are

coupled together, the words can take colour from each other.

(See Leelabai Gajanan Pansare v. Oriental Insurance Co. Ltd.

[Leelabai Gajanan Pansare v. Oriental Insurance Co. Ltd., (2008) 9

SCC 720] , Thakorlal D. Vadgama v. State of Gujarat [Thakorlal D.

Vadgama v. State of Gujarat, (1973) 2 SCC 413 : 1973 SCC (Cri)

835] and M.K. Ranganathan v. State of Madras [M.K.

Ranganathan v. State of Madras, (1955) 2 SCR 374 : AIR 1955 SC

604] .)”

78) The first proposition of Ms. Divan, viz. there is no competition, has

two facets. First, the legal one which concerns the jurisdiction of the CCI

to deal with such matters and the other is factual, which is to be examined

on the basis of facts in these cases. Insofar as the first component is

concerned, having regard to the aforesaid scheme of the Act, we are not

convinced with the argument of Ms. Madhavi Divan that there is no

possibility of a competition in these cases and, therefore, CCI had no

jurisdiction to carry out any such investigation. The scope and ambit of

the provisions of Section 3 have been considered in detail in Excel Crop

Care Limited case. This Section prohibits anti-competitive agreements

and brings about the prime objective of the Competition Act. These

aspects were noted in Excel Crop Care Limited, relevant portions

whereof are already extracted above. We may also quote the following

62

portion from the judgment of this Court in Steel Authority of India

Limited wherein objective behind the Act was highlighted in the following

manner:

“125. We have already noticed that the principal objects of the Act,

in terms of its Preamble and the Statement of Objects and Reasons,

are to eliminate practices having adverse effect on the competition,

to promote and sustain competition in the market, to protect the

interest of the consumers and ensure freedom of trade carried on by

the participants in the market, in view of the economic

developments in the country. In other words, the Act requires not

only protection of free trade but also protection of consumer interest.

The delay in disposal of cases, as well as undue continuation of

interim restraint orders, can adversely and prejudicially affect the

free economy of the country. Efforts to liberalise the Indian economy

to bring it on a par with the best of the economies in this era of

globalisation would be jeopardised if time-bound schedule and, in

any case, expeditious disposal by the Commission is not adhered

to. The scheme of various provisions of the Act which we have

already referred to including Sections 26, 29, 30, 31, 53-B(5) and

53-T and Regulations 12, 15, 16, 22, 32, 48 and 31 clearly show the

legislative intent to ensure time-bound disposal of such matters.”

79) We would like to reemphasise that the purpose of the Act is not only

to illuminate practices having adverse effect on the competition but also to

promote and sustain competition in the market. Enforcement provides

remedies to avoid situation that will lead to decrease competition in the

market. Therefore, effective enforcement is important not only to sanction

anti-competitive conduct but also to deter future competitive practices. In

the present case itself, there are sixty suppliers of the product for which

there are three buyers. After all, each supplier would like to be L-1 or L-2

63

so that it is able to get order for larger quantities than the other. In this

sense, there would be a competition among them. Further, it would also

be in the interest of the buyers like IOCL etc. that the elements of healthy

competition persists in the market. In any case, it is the duty of the CCI to

ensure that the conditions which have tendency to kill the competition are

to be curbed. It is also the function of the CCI to ensure that there is a

competition so that benefits of such competition are reaped by the

consumers. However, insofar as certain factual aspects highlighted by the

appellants are concerned, they would be dealt with while examining the

third proposition, as we deem it more appropriate to discuss these two

aspects together.

80) Second proposition of Ms. Divan was that there was no collusive

bidding in the present case. The CCI and COMPAT have rejected this

argument in view of the fact that there is an active trade association of the

suppliers; a meeting took place couple of days before the date of bidding;

common changes were pointed out by these appellants who submitted

bids on their behalf; and bids were of identical amounts despite varying

cost, which were repetitive in nature. The respondents may be right in

their submission that there may not be a direct evidence on the basis of

which cartelisation or such agreement between the parties can be proved

64

as these agreements are normally entered into in closed doors. The

standard of proof which is required is one of probability, which is a

principle accepted in Technip SA vs. SMS Holding (P) Ltd. & Ors.

13

wherein the Court stated and discussed this aspect in the following

manner:

“54. The standard of proof required to establish such concert is one

of probability and may be established

“if having regard to their relation etc., their conduct, and their

common interest, that it may be inferred that they must be

acting together: evidence of actual concerted acting is normally

difficult to obtain, and is not insisted upon” [CIT v. East Coast

Commercial Co. Ltd., (1967) 1 SCR 821 : AIR 1967 SC 768] .

(SCR p. 829 H)

55. While deciding whether a company was one in which the public

were substantially interested within the meaning of Section 23-A of

the Income Tax Act, 1922 this Court said:

“The test is not whether they have actually acted in concert but

whether the circumstances are such that human experience

tells us that it can safely be taken that they must be acting

together. It is not necessary to state the kind of evidence that

will prove such concerted actings. Each case must necessarily

be decided on its own facts.” [CIT v. Jubilee Mills Ltd., (1963)

48 ITR 9 (SC), p. 20]

56. In Guinness PLC and Distillers Co. PLC [Guinness PLC and

Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987

at p. 10052 — Reasons for decisions of the Panel.)] the question

before the Takeover Panel was whether Guinness had acted in

concert with Pipetec when Pipetec purchased shares in Distillers

Company PLC. Various factors were taken into consideration to

conclude that Guinness had acted in concert with Pipetec to get

control over Distillers Company. The Panel said:

“The nature of acting in concert requires that the definition be

drawn in deliberately wide terms. It covers an understanding as

13

65

well as an agreement, and an informal as well as a formal

arrangement, which leads to cooperation to purchase shares to

acquire control of a company. This is necessary, as such

arrangements are often informal, and the understanding may

arise from a hint. The understanding may be tacit, and the

definition covers situations where the parties act on the basis of

a ‘nod or a wink’…. Unless persons declare this agreement or

understanding, there is rarely direct evidence of action in

concert, and the Panel must draw on its experience and

common sense to determine whether those involved in any

dealings have some form of understanding and are acting in

cooperation with each other.” [Guinness PLC and Distillers

Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p.

10052 — Reasons for decisions of the Panel.)]

81) We would also like to reproduce the following discussion in

Commissioner of Income Tax, Bombay City I, Bombay vs. Jubilee

Mills Ltd., Bombay

14

:

“19. At the hearing a point was raised that it has to be proved as a

fact that the persons constituting the group which owns shares

carrying more than seventy-five per cent of the voting power, were

acting in unison. The test is not whether they have actually acted in

concert but whether the circumstances are such that human

experience tells us that it can safely be taken that they must be

acting together. It is not necessary to state the kind of evidence that

will prove such concerted actings. Each case must necessarily be

decided on its own facts. The exclusion of “public” in the manner

indicated generally from more than 75% of the shares and the

concentration of such a holding in a single person or a group acting

in concert is what attracts Section 23(A).”

82) It is also significant to state that respondents had drawn attention of

this Court to OECD Policy Roundtables Prosecuting Cartels without Direct

Evidence 2006 which discussed the nature of evidence that is required for

14

66

proving cartel agreement, relevant portion thereof contained in para 2 of

the said Policy is reproduced below:

“Available evidence for proving cartel agreements

2.1 Categories of evidence

Evidence used to prove a cartel agreement can be classified into

two types: direct and circumstantial. Circumstantial evidence, in

turn, consists of “communication” evidence and economic evidence,

which include firm conduct, market structure, and evidence of

facilitating practices.

Common types of direct evidence include:

- A document or documents (including email messages)

essentially embodying the agreement, or parts of it, and identifying

the parties to it.

- Oral or written statements by co-operative cartel participants

describing the operation of the cartel and their participation in it.

There are different types of circumstantial evidence. One is

evidence that cartel operators met or otherwise communicated but

does not describe the substance of their communications. It might

be called communication evidence for purposes of this discussion.

It includes:

- Records of telephone conversations between competitors (but

not their substance), or of travel to a common destination or of

participation in a meeting, for example during a trade conference.

- other evidence that the parties communicated about the

subject e.g., minutes or notes of a meeting showing that prices,

demand or capacity utilisation were discussed; internal documents

evidencing knowledge or understanding of a competitors pricing

strategy, such as an awareness of a future price increase by a rival.

A broader category of circumstantial evidence is often called

economic evidence. Economic evidence identifies primarily firm

conduct that suggests that an agreement was reached, but also

conduct of the industry as a whole, elements of market structure

67

which suggest that secret price fixing was feasible, and certain

practices that can be used to sustain a cartel agreement.

Conduct evidence is the single most important type of economic

evidence. As noted earlier, observation of certain, suspicious

conduct frequently triggers an investigation of a possible cartel. And

as the section in this paper on economics highlights 11 careful

analysis of the conduct of parties is important to identify behaviours

that can be characterised as contrary to the parties’ unilateral self-

interest and which therefore supports the inference of an

agreement. Conduct evidence includes, first and foremost:

- Parallel pricing – changes in prices by rivals that are identical,

or nearly so, and simultaneous, or nearly so. It includes other forms

of parallel conduct, such as capacity reductions, adoption of

standardised terms of sale, and suspicious bidding patterns, e.g., a

predictable rotation of winning bidders.

Industry performance could also be described as conduct evidence.

It includes:

- abnormally high profits;

- stable market shares

- A history of competition law violations.

Evidence related to market structure can be used primarily to make

the finding of a cartel agreement more plausible, even though

market structure factors do not prove the existence of such an

agreement. Relevant economic evidence relating to market

structure includes:

- high concentration;

- low concentration on the opposite side of the

market;

- high barriers to entry;

- high degree of vertical integration;

- Standardised or homogeneous product.

The evidentiary value of structural evidence can be limited,

however. There can be highly concentrated industries selling

homogeneous products in which all parties compete. Conversely,

the absence of such evidence cannot be used to show that a cartel

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did not exist. Cartels are known to have existed in industries with

numerous competitors and differentiated products.

A specific kind of economic conduct evidence is facilitating practices

– practices that can make it easier for competitors to reach or

sustain an agreement. It is important to note that conduct described

as facilitating practices is not necessarily unlawful. But where a

competition authority has found other circumstantial evidence

pointing to the existence of a cartel agreement, the existence of

facilitating practices can be an important complement. They can

explain what kind of arrangements the parties set up to facilitate the

formation of a cartel agreement, monitoring, detection of defection,

and/or punishment, thus supporting the ‘collusion story’ put together

by the competition law enforcer. Facilitating practices include:

- information exchanges;

- price signalling;

- freight equalisation;

- price protection and most favoured nation policies;

- Unnecessarily restrictive product standards.”

83) Thus, even in the absence of proof of concluded formal agreement,

when there are indicators that there was practical cooperation between the

parties which knowingly substitute the risk of competition, that would

amount to anti-competitive practices. This has been discussed in

Coordination Committee of Artistes and Technicians of West Bengal

Film and Television & Ors. (see paras 44 and 45). Then, there are

guidelines on the applicability of Article 101 of the Treaty on the

functioning of the E.U. to horizontal cooperation agreements which

records as under:

“60. Information exchange can only be addressed under Article 101

if it establishes or is part of an agreement, a concerted practice or a

69

decision by an association of undertakings. The existence of an

agreement, a concerted practice or decision by an association of

undertakings does not prejudge whether the agreement, concerted

practice or decision by an association of undertakings gives rise to a

restriction of competition within the meaning of Article 101(1). In line

with the case-law of the Court of Justice of the European Union, the

concept of a concerted practice refers to a form of coordination

between undertakings by which, without it having reached the stage

where an agreement properly so-called has been concluded,

practical cooperation between them is knowingly substituted for the

risks of competition. The criteria of coordination and cooperation

necessary for determining the existence of a concerted practice, far

from requiring an actual plan to have been worked out, are to be

understood in the light of the concept inherent in the provisions of

the Treaty on competition, according to which each company must

determine independently the policy which it intends to adopt on the

internal market and the conditions which it intends to offer to its

customers.

61. This does not deprive companies of the right to adapt

themselves intelligently to the existing or anticipated conduct of their

competitors. It does, however, preclude any direct or indirect contact

between competitors, the object or effect of which is to create

conditions of competition which do not correspond to the normal

competitive conditions of the market in question, regard being had

to the nature of the products or services offered, the size and

number of the undertakings, and the volume of the said market.

This precludes any direct or indirect contact between competitors,

the object or effect of which is to influence conduct on the market of

an actual or potential competitor, or to disclose to such competitor

the course of conduct which they themselves have decided to adopt

or contemplate adopting on the market, thereby facilitating a

collusive outcome on the market. Hence, information exchange can

constitute a concerted practice if it reduces strategic uncertainty in

the market thereby facilitating collusion, that is to say, if the data

exchanged is strategic. Consequently, sharing of strategic data

between competitors amounts to concentration, because it reduces

the independence of competitors’ conduct on the market and

diminishes their incentives to compete.

62. A situation where only one undertaking discloses strategic

information to its competitor(s) who accept(s) it can also constitute a

concerted practice. Such disclosure could occur, for example,

70

through contacts via mail, emails, phone calls, meetings etc. It is

then irrelevant whether only one undertaking unilaterally informs its

competitors of its intended market behaviour, or whether all

participating undertakings inform each other of the respective

deliberations and intentions. When one undertaking alone reveals

to its competitors strategic information concerning its future

commercial policy, that reduces strategic uncertainty as to the future

operation of the market for all the competitors involved and

increases the risk of limiting competition and of collusive behaviour.

For example, mere attendance at a meeting where a company

disclose its pricing plans to its competitors is likely to be caught by

Article 101, even in the absence of an explicit agreement to raise

prices. When a company receives strategic data from a competitor

(be it in a meeting, by mail or electronically), it will be presumed to

have accepted the information and adapted its market conduct

accordingly unless it responds with a clear statement that it does not

wish to receive such data.”

(emphasis added)

84) According to us, the real question in the present case is as to

whether there was a possibility of such an agreement having regard to

market conditions even when we proceed on the basis that meeting did

take place. Possibility of such an agreement has been inferred by the CCI

on the grounds that identical bidding takes place thereafter and various

suppliers gave such a bid despite varying cost and also that they have

appoined common changes etc. as pointed out above.

85) The first and foremost issue which needs to be considered is that

whether there was a situation of monopsony or oligopsony.

86) From the aforesaid discussion, it is clear that as far as CCI is

concerned, it has come to the conclusion that there was a cartelisation

71

among the appellants herein and a concerted decision was taken to rig the

bids which were submitted persuant to the tenders issued by IOCL. On

the other hand, the appellants argue that there was no such agreement

and even if the bids of many bidders were identical in nature, the bids

were driven by market conditions. Their plea is that there was a situation

of oligopsony and the modus which was adopted by IOCL in floating the

tenders and awarding the contracts would show that the determination of

price was entirely within the control of the IOCL. As per them, the way

price was determined for supply of these cylinders, it had become an open

secret known to everybody. Therefore, there was no question of any

competition and no possibility of adversely affecting that competition by

entering into any contract.

87) The factors which have influenced the authorities below in coming to

the conclusion that the appellants had colluded and formed a cartel which

led to bid rigging have already been noted above. To recaptulate, the

authorities below have been influenced by the following factors:

1. Market conditions

2. Small number of suppliers

3. Few new entrants

4. Active trade association

5. Repetitive bidding

6. Identical products

7. Few or no substitutes

8. No significant technological changes

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9. Meeting of bidders in Mumbai and its agenda.

10. Appointing common agents

11. Identical bids despite varying cost.

After deliberating on the aforesaid aspects, the CCI has concluded

that there is an active trade association in which many of the appellants

are members. That product in question, namely, gas cylinder is of a

particular specification which is needed by IOCL in large numbers every

year and there are very few manufacturers and suppliers of this product to

IOCL and two other buyers. For this identical product which is to be

supplied by all the suppliers, there is no substitute and no significant

technology change. Further, there is an active trade association in which

most of the appellants are the members. Their interest is to ensure that

no new entrants are able to join. Further, the trade association also

ensures that all the members are able to get some order. It is for this

reason the bids submitted in various standards which are floated by IOCL

at different places are almost identical despite varying cost. The

authorities below attributed this identical bidding to the concerted action of

the appellants. This has been inferred from the fact that 2-3 days before

the submission of bids, meeting of the association took place which most

of the appellants attended. Not only this, common agents, six in number,

were appointed who submitted the bids on behalf of these appellants.

73

88) We may say at the outset that if these factors are taken into

consideration by themselves, they may lead to the inference that there

was bid rigging. We may, particularly, emphasise the fact that there is an

active trade association of the appellants and a meeting of the bidders

was held in Mumbai just before the submission of the tenders. Another

very important fact is that there were identical bids despite varying cost.

Further, products are identical and there are small number of suppliers

with few new entrants. These have become the supporting factors which

persuaded the CCI to come to the conclusion that these are suggestive of

collusive bidding.

89) However, that is only one side of the coin. The aforesaid factors are

to be analysed keeping in mind the ground realities that were prevailing,

which are pointed out by the appellants. These attendant circumstances

are argued in detail by the counsel for the appellants which have already

been taken note of. We may recapitulate the same in brief hereinbelow:

(i)In the present case there are only three buyers. Among them, IOCL

is the biggest buyer with 48% market share. It is also a matter of record

that all these appellants are manufacturers of 14.2 kg gas cylinders to the

three buyers who are available in the market, namely, IOCL, HPCL and

BPCL. If these three buyers do not purchase from any of the appellants,

74

that particular appellant would not be in a position to sell those cylinder to

any other entity as there are no other buyers.

(ii)There are only three buyers, it may not attract many to enter the field

and manufacture these cylinders. It is because of limited number of

buyers and for some reason if they do not purchase, the manufacturer

would be nowhere. That may deter the persons to enter the field.

(iii)The manner in which the tenders are floated by IOCL and the rates

at which these are awarded, are an indicator that it is the IOCL which calls

the shots insofar as price control is concerned. It has come in evidence

that the IOCL undertakes the exercise of having its internal estimates

about the cost of these cylinders. Their own expert arrived at a figue of

Rs. 1106.61 paisa per cylinder. All the tenders which have been accepted

are for a price lesser than the aforesaid estimate of IOCL itself. That

apart, the modus adopted by the IOCL is that that final price is negotiated

by it and the contract is not awarded at the rate quoted by bidder who

turns out to be L-1. Negotiations are held with such a bidder who is L-1

which generaly leads to further reduction of price than the one quoted by

L-1. Thereafter, the other bidders who may be L-2 or L-3 etc. are awarded

the contract at the rate at which it is awarded to L-1. Thus, ultimately, all

the bidders supply the goods at the same rate which is fixed by the IOCL

75

after negotiating with L-1 bidder. The only difference is that bidder who is

L-1 would be able to receive the order for larger quantity than L-2 and L-2

may get an order of more quantity than L-3.

(iv) It has also come on record that there are very few suppliers. For the

tender in question, there were 50 parties already in the fray and 12 new

entrants were admitted. Number of 12, in such a scenario, cannot be

treated as less. Therefore, the conclusion of CCI that the appellants

ensured that there should not be entry of new entrant may not be correct.

(v) Since there are not many manufacturers and supplies are needed by

the three buyers on regular basis, IOCL ensures that all those

manufacturers whose bids are technically viable, are given some order for

the supply of specific cylinder. For this purpose, it has framed its broad

policy as well. This also shows that control remains with IOCL.

Thus, the appellants appear to be correct when they say that all the

participants in the bidding process were awarded contracts in some State

or the other which was aimed at ensuring a bigger pool of manufacturers

so that the supply of this essential product is always maintained for the

benefit of the general public. Had IOCL left some manufacturers empty

handed, in all likelihood, they would have shut their shops. However,

IOCL wanted all manufacturers to be in the fray in its own interest.

76

Therefore, it was necessary to keep all parties afloat and this explains why

all 50 parties obtained order along with 12 new entrants.

(vi) There is another very relevant factor pointed out by the appellants,

viz., the governmental control which is regulated by law. As pointed out

above, it is not only the three oil companies which can supply LPG to

domestic consumers in 14.2 kg LPG cylinders as mandated in the LPG

(Regulation and Distribution) Order, 2000 which is issued under the

provisions of Essential Commodities Act, 1955, even the price at which the

LPG cylinder is to be supplied to the consumer is controlled by the

Government. Following features of the aforesaid LPG Order, 2000, are

significant:

The LPG supplied in 14.2 kg gas cylinders is an essential commodity.

The distribution of LPG in 14.2 kgs cylinders takes place as part of a

public distribution system defined under clause 2(1) of the Order as “the

system of distribution, marketing or selling of liquified petroleum gas by a

Government Oil Company at the Government controlled or declared price

through a distribution system approved by the Central or State

Government”.

The price to the consumer is controlled by the Government.

The supply of LPG to domestic consumers shall be made only in 14.2 kg

77

gas cylinders.

According to clauses 4 and 5 read with Schedule III of the LPG Order,

parallel marketeers who supply and distribute LPG cylinders, may do so

only for cylinders with size and specifications other than those specified in

Schedule II.

90) The manner in which tendering process takes place would show that

in such a competitive scenario, the bid which the different bidder would be

submitting becomes obvious. It has come on record that just a few days

before the tender in question, another tender was floated by BPCL and on

opening of the said tender the rates of L-1, L-2 etc. came to be known. In

a scenario like this, that obviously becomes a guiding factor for the bidders

to submit their bids.

91) When we keep in mind the aforesaid fact situation on the ground,

those very factors on the basis of which the CCI has come to the

conclusion that there was cartelization, in fact, become valid explanations

to the indicators pointed out by the CCI. We have already commented

about the market conditions and small number of suppliers. We have also

mentioned that 12 new entrants cannot be considered as entry of very few

new suppliers where the existing suppliers were only 50. Identical

products along with market conditions for which there would be only three

78

buyers, in fact, would go in favour of the appellants. The factor of

repetitive bidding, though appears to be a factor against the appellants,

was also possible in the aforesaid scneario. The prevailing conditions in

fact rule out the possibility of much price variations and all the

manufacturers are virtually forced to submit their bid with a price that is

quite close to each other. Therefore, it became necessary to sustain

themselves in the market. Hence, the factor that these suppliers are from

different region having different cost of manufacture would lose its

significance. It is a situation where prime condition is to quote the price at

which a particular manufacturer can bag an order even when its

manufacturing cost is more than the manufacturing cost of others. The

main purpose for such a manufacuring would be to remain in the fray and

not to lose out. Therefore, it would be ready to accept lesser margin. This

would answer why there were near identical bids despite varying cost.

92) Insofar as meeting of bidders in Mumbai just before the date of

submission of tender is concerned, some aspects pointed out by the

appellants are not considered by the CCI or the COMPAT at all. No doubt,

the meeting took place a couple of days before the date of tender. No

doubt, the absence of agenda coming on record would not make much

difference. However, only 19 appellants had attended that meeting. Many

79

others were not even members or did not attend the meeting. In spite

thereof, even they quoted almost same rates as the one who attended the

meeting. This would lead us to the inference that reason for quoting

similar price was not the meeting but something else. The question is what

would be the other reason and whether the appellants have been able to

satisfactorily explain that and rebut the presumption against them?

93) The explanation is market conditions leading to the situation of

oligopsony that prevailed because of limited buyers and influence of

buyers in the fixation of prices was all prevalent. This seems to be

convincing in the given set of facts. The situation of oligopsony can be

both ways. There may be a situation where the sellers are few and they

may control the market and by their concerted action indulge into

cartelization. It may also be, as in the present case, a situation where

buyers are few and that results in the situation of oligopsony with the

control of buyers.

94) To recapitulate, the two prime factors against the appellants, which

are discussed by the CCI, are that there was a collusive tendering, which

is inferred from the parallel behaviour of the appellants, namely, quoting

80

almost the same rates in their bids. The parameters on the basis of which

these aspects are to be judged are stated in Excel Crop Care Limited as

follows:

“50. It needs to be emphasised that collusive tendering is a practice

whereby firms agree amongst themselves to collaborate over their

response to invitations to tender. Main purpose for such collusive

tendering is the need to concert their bargaining power, though,

such a collusive tendering has other benefits apart from the fact that

it can lead to higher prices. Motive may be that fewer contractors

actually bother to price any particular deal so that overheads are

kept lower. It may also be for the reason that a contractor can make

a tender which it knows will not be accepted (because it has been

agreed that another firm will tender at a lower price) and yet it

indicates that the said contractor is still interested in doing business,

so that it will not be deleted from the tenderee's list. It may also

mean that a contractor can retain the business of its established,

favoured customers without worrying that they will be poached by its

competitors.

51. Collusive tendering takes many forms. Simplest form is to agree

to quote identical prices with the hope that all will receive their fair

share of orders. That is what has happened in the present case.

However, since such a conduct becomes suspicious and would

easily attract the attention of the competition authorities, more subtle

arrangements of different forms are also made between colluding

parties. One system which has been noticed by certain competition

authorities in other countries is to notify intended quotes to each

other, or more likely to a Central secretariat, which will then cost the

order and eliminate those quotes that it considers would result in a

loss to some or all members of the cartel. Another system, which

has come to light, is to rotate orders. In such a case, the firm whose

turn is to receive an order will ensure that its quote is lower than the

quotes of others.

52. We are here concerned with parallel behaviour. We are

conscious of the argument put forth by Mr Venugopal that in an

oligopoly situation parallel behaviour may not, by itself, amount to a

81

concerted practice. It would be apposite to take note of the following

observations made by European Court of Justice in Dyestuffs:

“By its very nature, then, the concerted practice does not have

all the elements of a contract but may inter alia arise out of

coordination which becomes apparent from the behaviour of

the participants. Although parallel behaviour may not itself be

identified with a concerted practice, it may however amount to

strong evidence of such a practice if it leads to conditions of

competition which do not respond to the normal conditions of

the market, having regard to the nature of the products, the

size and number of the undertakings, and the volume of the

said market. Such is the case especially where the parallel

behaviour is such as to permit the parties to seek price

equilibrium at a different level from that which would have

resulted from competition, and to crystallise the status quo to

the detriment of effective freedom of movement of the products

in the [internal] market and free choice by consumers of their

suppliers.”

(emphasis supplied)

At the same time, the Court also added that the existence of a

concerted practice could be appraised correctly by keeping in mind

the following test:

“If the evidence upon which the contested decision is based is

considered, not in isolation, but as a whole, account being

taken of the specific features of the products in question.”

Having regard to the aforesaid principles in mind, we deal with the

arugment on oligopsony raised by the appellants.

95) Monopsony consists of a market with a single buyer. When there

are only few buyers the market is described as an oligopsony. What is

emphasised is that in such a situation a manufacturer with no buyers will

have to exit from the trade. Therefore, first condition of oligopsony stands

82

fulfilled. The other condition for the existence of oligopsony is whether the

buyers have some influence over the price of their inputs. It is also to be

seen as to whether the seller has any ability to raise prices or it stood

reduced/eliminated by the aforesaid buyers.

96) On a hollistic view of the matter, we find that the appellants have

been able to discharge the onus by referring to various indicators which go

on to show that parallel behaviour was not the result of any concerted

practice.

97) In Dyestuffs, the European Court held that parallel behaviour does

not, by itself, amount to a concerted practice, though it may provide a

strong evidence of such a practice. Nevertheless, it is a strong evidence of

such a practice. However, before such an inference is drawn it has to be

seen that this parallel behaviour has led to conditions of competition which

do not correspond to the normal conditions of the market, having regard to

the nature of the products, size and volume of the undertaking of the said

market. Thus, we examine the matter from the stand point of market

economy where question of oligopsony assumes relevance. Whenever

there is a situation of oligopsony, parallel pricing simplicitor would not lead

83

to the conclusion that there was a concerted practice there has to be other

credible and corroborative evidence to show that in an oligopoly a

reduction in price would swiftly attract the customers of the other two or

three rivals, the effect upon whom would be so devastating that they would

have to react by matching the cut. In Richard Whish & David Bailey in

Oxford’s Competition Law

15

discussed the “Theory of Oligopolistic

Interdependence” as under:

“In an oligopoly a reduction in price would swiftly attract the

customers of the other two or three rivals, the effect upon whom

would be so devastating that they would have to react by matching

the cut. Similarly an oligopolist could not increase its price

unilaterally, because it would be deserted by its customers if it did

so. Thus the theory runs that in an oligopolistic market rivals

are interdependent: they are acutely aware of each other’s

presence and are bound to match one another’s marketing

strategy. The result is that price competition between them will

be minimal or non-existent; oligopoly produces non-

competitive stability…..

...Oligopolists recognize their interdependence as well as their own

self-interest. By matching each other’s conduct they will be able

to achieve and charge a profit-maximising price which will be

set at a supra-competitive level, without actually

communicating with one another. There does not need to be

any communication: the structure of the market is such that,

through interdependence and mutual self-awareness, prices will

rise towards the monopolistic level….

…..The logical conclusion of the case against oligopoly is that, since

it is the market structure itself which produces the problem,

structural measures should be taken to remedy it by

deconcentrating the market. Unless this is done, there will be an

area of consciously parallel action in pricing strategies which is

15

84

beyond the reach of laws against cartels and yet which has serious

implications for consumers welfare.

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(iii)A regulatory approach

A different possibility would be to regulate the prices of

undertakings that operate in an oligopolistic environment. This,

however, would be a counsel of despair. As a matter of policy direct

regulation should be a remedy of last resort. Competition

authorities should not be price regulators; they should be the

guardians of the competitive process. Where markets are

oligopolistic and entry is limited, competition authorities

should be concerned with the question of whether there are

barriers to entry and whether the state itself, for example

through restrictive licensing rules, regulation or legislation, is

responsible for a lack of competition.”

98) In Theatre Enterprises v. Paramount Films

16

, the Supreme Court

of United States held as under:

“1-3 The crucial question is whether respondents’ conduct toward

petitioner stemmed from independent decision or from an

agreement, tacit or express. To be sure, business behavior is

admissible circumstantial evidence from which the fact finder may

infer agreement. Interstate Circuit.

But this Court has never held that proof of parallel business

behavior conclusively establishes agreement or, phrased differently,

that such behavior itself constitutes a Sherman Act offence.

Circumstantial evidence of consciously parallel behavior may have

made heavy inroads into the traditional judicial attitude toward

conspiracy; but “conscious parallelism” has not yet read conspiracy

out of the Sherman Act entirely.”

99) In this regard, the test laid down by the Supreme Court of United

16

85

States in Monsanto Co. v. Spray-Rite Service Corp.

17

is relevant and is

reproduced hereunder:

“The correct standard is that there must be evidence that tends to

exclude the possibility that the manufacturer and non-terminated

distributors were acting independently. That is, there must be direct

or circumstantial evidence that reasonably tends to prove that the

manufacturer and others had a conscious commitment to a

common scheme designed to achieve an unlawful objective.”

100)This test was reiterated by the Supreme Court of United States in

Matsushita v. Zenith Ratio Corp.

18

:

“…..But antitrust law limits the range of permissible inferences from

ambiguous evidence in a 1 case. Thus, in Monsanto Co. v. Spray-

Rite Service Corp., 465 U.S. 752 (1984), we held that conduct as

consistent with permissible competition as with illegal conspiracy

does not, standing alone, support an inference of antitrust

conspiracy. Id., at 764. See also Cities Service, supra, at 280. To

survive a motion for summary judgment or for a directed verdict, a

plaintiff seeking damages for a violation of 1 must present evidence

"that tends to exclude the possibility" that the alleged conspirators

acted independently. 465 U.S., at 764 …….

…...petitioners had no motive to enter into the alleged conspiracy. To

the contrary, as presumably rational businesses, petitioners had

every incentive not to engage in the conduct with which they are

charged, for its likely effect would be to generate losses for

petitioners with no corresponding gains. Cf. Cities Service, 391 U.S.,

at 279 . The Court of Appeals did not take account of the absence of

a plausible motive to enter into the alleged predatory pricing

conspiracy. It focused instead on whether there was "direct evidence

of concert of action." 723 F.2d, at 304. The Court of Appeals erred in

two respects: (i) the "direct evidence" on which the court relied had

little, if any, relevance to the alleged predatory pricing conspiracy;

and (ii) the court failed to consider the absence of a plausible motive

to engage in predatory pricing…..

17

18

86

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Lack of motive bears on the range of permissible conclusions that

might be drawn from ambiguous evidence: if petitioners had no

rational economic motive to conspire, and if their conduct is

consistent with other, equally plausible explanations, [475 U.S. 574,

597] the conduct does not give rise to an inference of conspiracy.

See Cities Service, supra, at 278-280.”

101)Similarly, in Bell Atlantic Corp v. Twombly

19

, the U.S. Supreme

Court held as under:

“[1-3] Because §1 of the Sherman Act “does not prohibit [all]

unreasonable restraints of trade … but only restraints effected by a

contract, combination, or conspiracy,” Copperweld

Corp. v. Independence Tube Corp.,467 U.S. 752,775(1984) , “[t]he

crucial question” is whether the challenged anticompetitive conduct

“stem[s] from independent decision or from an agreement, tacit or

express,” Theatre Enterprises, 346 U. S., at 540. While a showing of

parallel “business behavior is admissible circumstantial evidence

from which the fact finder may infer agreement,” it falls short of

“conclusively establishing agreement or … itself constituting a

Sherman Act offense.” Id., at 540–541. Even “conscious

parallelism,” a common reaction of “firms in a concentrated market

[that] recogniz[e] their shared economic interests and their

interdependence with respect to price and output decisions” is “not

in itself unlawful.” Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 509 U. S. 209, 227 (1993) ; see 6 P. Areeda & H.

Hovenkamp, Antitrust Law ¶1433a, p. 236 (2d ed. 2003) (hereinafter

Areeda & Hovenkamp) (“The courts are nearly unanimous in saying

that mere interdependent parallelism does not establish the

contract, combination, or conspiracy required by Sherman Act §1”);

Turner, The Definition of Agreement Under the Sherman Act:

Conscious Parallelism and Refusals to Deal, 75Harv. L. Rev. 655,

672 (1962) (“[M]ere interdependence of basic price decisions is not

conspiracy”).

19

87

[4-6] The inadequacy of showing parallel conduct or

interdependence, without more, mirrors the ambiguity of the

behavior: consistent with conspiracy, but just as much in line with a

wide swath of rational and competitive business strategy unilaterally

prompted by common perceptions of the market. See, e.g., AEI-

Brookings Joint Center for Regulatory Studies, Epstein, Motions to

Dismiss Antitrust Cases: Separating Fact from Fantasy, Related

Publication 06–08, pp. 3–4 (2006) (discussing problem of “false

positives” in §1 suits). Accordingly, we have previously hedged

against false inferences from identical behavior at a number of

points in the trial sequence. An antitrust conspiracy plaintiff with

evidence showing nothing beyond parallel conduct is not entitled to

a directed verdict, see Theatre Enterprises, supra; proof of a §1

conspiracy must include evidence tending to exclude the possibility

of independent action, see Monsanto Co. v. Spray-Rite Service

Corp., 465 U. S. 752 (1984); and at the summary judgment stage a

§1 plaintiff’s offer of conspiracy evidence must tend to rule out the

possibility that the defendants were acting independently,

see Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S.

574(1986).”

102)After taking note of the test that needs to be applied in such cases,

which was laid down in Dyestuffs and accepted in Excel Crop Care

Limited, we come to the conclusion that the inferences drawn by the CCI

on the basis of evidence collected by it are duly rebutted by the appellants

and the appellants have been able to discharge the onus that shifted upon

them on the basis of factors pointed out by the CCI. However, at that

stage, the CCI failed to carry the matter further by having required and

necessary inquiry that was needed in the instant case.

103)We are emphasising here that in such a watertight tender policy of

88

IOCL which gave IOCL full control over the tendering process, it was

necessary to summon IOCL. This would have cleared many aspects

which are shrouded in mystery and the dust has not been cleared.

104)We, thus, arrive at a conclusion that there is no sufficient evidence to

hold that there was any agreement between the appellants for bid rigging.

Accordingly, we allow these appeals and set aside the order of the

Authorities below. As a consequence, since no penalty is payable, appeals

of the CCI are rendered infructuous and dismissed as such. All the

pending applications stand disposed of.

No orders as to costs.

.............................................J.

(A.K. SIKRI)

.............................................J.

(ASHOK BHUSHAN)

NEW DELHI;

OCTOBER 01, 2018.