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The Supreme Court yesterday held that price parallelism does not, by itself, amount to a concerted practice and will not be sufficient to conclude bid rigging. It may, however, provide a strong evidence of such a practice, it said.
It thus went on to set aside orders passed by the Competition Commission of India (CCI) and (then) Competition Appellate Tribunal (Compat), which had held suppliers of Liquefied Petroleum Gas (LPG) Cylinders guilty of bid rigging in violation of Section 3(3)(d) of the Competition Act, 2002.
Rejecting arguments based on collusive price parallelism put forth by CCI, the Court observed,
“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 a different region having different cost of manufacture would lose its significance.”
The judgment was pronounced by a Division Bench comprising Justices AK Sikri and Ashok Bhushan, in a batch of appeals against CCI conclusion that as many as 45 LPG cylinder manufactures had entered into an arrangement to collude bids that were submitted pursuant to tenders issued by Indian Oil Corporation Ltd (IOCL).
Absolving all the cylinder manufactures, the Court stated,
“..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.”
CCI had reached its conclusion keeping in mind the prevailing market conditions wherein there was a constant demand for cylinders not only by IOCL but also by two other oil manufacturing companies, “small” number of suppliers, very few new entrants.
The CCI had also observed that in spite of the difference in costs incurred by the LPG cylinder manufactures due to different taxing structure, the labour conditions and other factors like cost of electricity etc, the prices quoted by them for the bid, were almost identical.
It had also relied upon the organization of a meeting of the bidders, held just before the submission of the tenders, to conclude that the LPG manufactures indulged in collusive bidding.
Calling it “one side of the coin”, the Supreme Court said that these factors were “to be analysed keeping in mind the ground realities that were prevailing”.
It noted that the manner in which the tenders were floated and the rates at which it was awarded, indicated that it was IOCL which “called the shots insofar as price control is concerned”. The modus adopted by the IOCL was that the final price was negotiated by it and the contract was not awarded at the rate quoted by the highest bidder.
It, therefore, agreed with the Appellants’ submission that the control over the tender process was maintained by IOCL itself, and not by the LPG cylinder manufactures collusively.
It consequently justified the reason why all the LPG cylinder manufacturers got the tender in one state or another.
“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.. IOCL wanted all manufacturers to be in the fray in its own interest. Therefore, it was necessary to keep all parties afloat and this explains why all 50 parties obtained order along with 12 new entrants.”
The court also rejected CCI’s finding that the market was marked with “few entrants”.
“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.”
The Court further remarked that the competition regulator failed to “carry the matter further” by summoning IOCL to clear many aspects “which are shrouded in mystery and the dust“.
It thus decreed,
“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.“
The Appellants were represented by Advocates Madhavi Diwan, Jaiveer Shergill, and Pradeep Aggarwal.
CCI was represented by Senior Advocate Salman Khurshid.
Read the judgement: