In an fascinating judgement the Competition Commission of India (CCI) has, in a recent order, let go 10 companies found guilty of cartelisation and rigging railway tenders for around 12 years, with a warning to desist from any such activity in future and no penalty at all.
Interestingly, the commission did not impose a penalty citing the cooperation from offenders during the investigation and the economic impact of the pandemic.
The order passed by the anti-trust body in July was largely unnoticed so far. The 10 companies found guilty in cartelisation and rigging procurement of 'Composite Brake Blocks' (CBB) by the railways include Sundaram Brake Lining Limited, a TVS Group company and Escorts Limited (Railway Equipment Division), an Escorts Group company.
The companies are Hindustan Composites Ltd, Industrial Laminates (India) Pvt Ltd, BIC Auto Pvt Ltd (now Masu Brake Pads Private Limited), Rane Brake Lining Ltd, Om Besco Super Friction Pvt Ltd, Cemcon Engineering Co, Bony Polymer Pvt Ltd, Daulat Ram Brakes Mfg Co.
Understanding the Indian Railways' procurement methodology and going through evidence collected, the Director General who investigated the matter concluded that the companies were indulging in cartelisation during the period 2009 to 2017.
"The DG found that OP-1 (Opposite Party) to OP-10 used to decide the prices and quantities to be quoted by them in the various tenders floated by Indian Railways and other entities for the procurement of CBBs," the order said.
The DG also found that officials of eight of the 10 companies admitted that they had formed a cartel to rig the bids of different tenders of CBBs floated by the Indian Railways and other entities. Further, with regard to the remaining two companies, though they did not admit to be a part of the cartel, they did admit that they had exchanged bid-related information through e-mails and messages.
It was found that an employee of a company used to keep the records of allocation of tender quantities amongst all the concerned parties by maintaining excel sheets, which were modified from time to time according to the inputs received from the companies based on lower or higher quantities allotted to them in a particular tender.
"Furthermore, the DG found that OP-1 to OP-10 used to exchange screenshots of their financial bids to ensure that all of them stuck to their promise of quoting the pre-decided prices. It was found by the DG that OP-1 to OP-10 used to meet at different locations to decide the strategy and the modus operandi of their cartel and to resolve the differences amongst them," the 66-page order said.
Taking into account all evidences collected by the DG, the Commission concluded that the companies and their respective individuals had indulged in cartelisation in the Composite Brake Blocks (CBB) market in India, at least from 2009 till 2017, by means of directly or indirectly determining prices, allocating markets, co-ordinating bid response and manipulating the bidding process, which had an AAEC within India.
"The Commission therefore, holds OP-1 to OP-10 guilty of contravention of the provisions of Section 3 (3) (a), 3 (3) (c) and 3 (3) (d) read with Section 3 (1) of the Act," it said.
The Commission, in terms of Section 27 (a) of the Act, directed the concerned companies and their respective officials who have been held liable in terms of the provisions of Section 48 of the Act, to "cease and desist in future" from indulging in such practices.
The order said that in such a wide ranging and complex investigation carried by the DG spanning across various tenders floated by various zones and divisions of Indian Railways over a long period of time, "the concerned parties have not only cooperated but have even admitted their respective role/conduct in the said tenders as brought out by the DG".
"It cannot be gainsaid that cooperation to such an extent by the parties concerned is one of the consideration which may be taken into account by the Commission in quantifying the penalties," it said.
Further, it noted that some of the concerned parties are MSMEs and most of the companies have small annual turnover in the CBB segment.
The Commission said that it is cognisant of the prevailing economic situation arising due to the outbreak of global pandemic (COVID-19) and the various measures undertaken by the government of India to support the liquidity and credit needs of viable MSMEs to help them withstand the impact of the current shock.
"In this backdrop, considering the matter holistically and cumulatively, the Commission, in the interest of justice, refrains from imposing any monetary penalty in the peculiar circumstances of the case, as noted above," it said.
The order has raised eyebrows due to its lenient nature. Sumit Batra, Partner at India Law Alliance said the "leniency" will only encourage more such cartels to continue and flourish.
"While recognising the efforts of the Director General who collected direct evidences meticulously in form of WhatsApp messages and emails, the commission observed that 'nothing can be more incriminating than these', leaving with only a warning defeats the very purpose why such laws are enacted," he said. Sonam Chandwani, Managing Partner at KS Legal & Associates, however, was of the view the leniency is backed by a strict warning from the regulator threatening the offenders against recidivism and ultimately facilitating discipline in the behaviour of the market participants.