RAJASTHAN CYLINDERS AND CONTAINERS LIMITED versus UNION OF INDIA AND ANOTHER on 1 October 2018

[2018] 12 S.C.R. 495

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED

v.

UNION OF INDIA AND ANOTHER

(Civil Appeal No. 3546 of 2014)

OCTOBER 01, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Competition Act, 2002:

ss. 3, 19 and 27 – Cartelisation, bid-rigging and collusivebidding – Suo-motu proceedings initiated by Competition Commissionof India – Against bidders/manufacturers of LPG Gas Cylinders –Investigating into complaint about unfair conditions in the tenderfloated by Indian Oil Corporation Ltd. (IOCL) for supply of LPGGas Cylinders – Competition Commission held that there was collusivebidding – Competition Appellate Tribunal affirmed the findings ofCompetition Commission – On appeal, held: It is duty of theCommission to ensure that the conditions which have tendency tokill the competition are to be curbed – There may not be directevidence on the basis of which cartelisation or such agreementbetween the parties can be proved – The standard of proof for suchagreement is one of probability – There is a presumption that fourtypes of agreements mentioned in s. 3(3) will have an appreciableeffect on competition – However, the presumption is rebuttable asthese agreements are not conclusive proof of the fact that it wouldresult in appreciable adverse effects on competition – If evidence isled which rebuts the presumption, the Commission shall take intoconsideration the factors mentioned in s. 19 – If the evidencecollected by the Commission leads to one or more or all the factorsmentioned in s. 19(3), it would again be treated as an agreementwhich may cause or likely to cause an appreciable adverse effecton competition – In the present case, inferences drawn by theCommission, on the basis of the evidence collected by it, have beenduly rebutted by the appellants/manufacturers – They have beenable to discharge the onus that shifted upon them – However, atthat stage, the Commission failed to carry the matter further – Thus,there is no sufficient evidence to hold that there was any agreementbetween the appellants for bid rigging – Appeals by the manufactures

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Aare allowed – Since no penalty is payable, appeals of the Commissionare dismissed as infructuous – Evidence.

Words and Phrases:

“bid rigging” and “collusive rigging” – Meaning of, in thecontext of Competition Act, 2002.BAllowing the appeals filed by the manufactures anddismissing the appeals filed by the Competition Commission, theCourt HELD: 1. On the one hand the economic policy of the nationChas ushered in the era of liberalisation and globalisation therebygiving freeplay to the private sector in the manner of conductingbusiness, at the same time, in public interest and in the interestof consumers, a regime of regulators has also been brought toensure certain checks and balances. Since competition amongthe enterprises or businessmen is treated as service for a publicDpurpose and, therefore, there is a need to curb anti-competitivepractices. The Competition Commission of India (CCI) is giventhe task (as a regulator) to ensure that no such anti-competitivepractices are undertaken. In fact, Section 18 of the Act casts aspecific and positive obligation on CCI to ‘eliminate’ anti-Ecompetitive practices and promote competition, interest of theconsmuer and free trade. [Para 72] [536-G-H; 537-A-B]

Competition Commission of India vs. Steel Authority ofIndia Limited and Another (2010) 10 SCC 744 : [2010]11 SCR 112 – relied on.

F2. One of the anti-competitive practices is cartelisation,the essential postulate whereof is agreement between enterprisesor association of enterprises or persons or associations of personsin respect of production, supply, distribution, storage, acquisitionor control of goods or provisions of service, which causes or islikely to cause an appreciable adverse effect on competition withinGIndia. Such an agreement is treated as void. The types ofagreement which may fall foul of Section 3 are mentioned in sub-section (3) thereof. These include sharing the market by way ofallocation of geographical areas of market [clause (c)] and theagreements which result in bid-rigging or collusive biddingHwhether directly or indirectly [clause (d)]. There is a presumption that four types of agreements mentioned in sub-section (3) willhave an appreciable adverse effect on competition. [Para 73] [537-F-H]

3. Section 19(3) of the Act mentions the factors which areto be examined by the CCI while determining whether anagreement has an appreciable adverse effect on competition underSection 3. However, this inquiry would be needed in those caseswhich are not covered by clauses (a) to (d) of sub-section (3) ofSection 3. Reason is simple. The agreeements of naturementioned in sub-section (3) are presumed to have an appreciableeffect and, therefore, no further exercise is needed by the CCIonce a finding is arrived at, that a particular agreement fell in anyof the aforesaid four categories. Agreements mentioned in Section3(3) raise a presumption that such agreements shall have anappreciable adverse effect on competition. It follows, as afortiorari, that the presumption is rebuttable as these agreementsare not treated as conclusive proof of the fact that it would resultin appreciable adverse effect on competition. What follows isthat once the CCI finds that case is covered by one or more ofthe clauses mentioned in sub-section (3) of Section 3, it need notundertake any further enquiry and burden would shift upon suchenterprises or persons etc. to rebut the said presumption byleading adequate evidence. In case such an evidence is led, whichdispels the presumption, then the CCI shall take intoconsideration the factors mentioned in Section 19 of the Act andto see as to whether all or any of these factors are established. Ifthe evidence collected by the CCI leads to one or more or allfactors mentioned in Section 19(3), it would again be treated asan agreement which may cause or is likely to cause an appreciableadverse effect of competition, thereby compelling the CCI to takefurther remedial action in this behalf as provided under the Act.That, is the broad scheme when Sections 3 and 19 are to be readin conjuction. [Para 74] [538-A-F]

4. Explanation to Section 3, assigns meaning to ‘bidrigging’. The necessary ingredients of bid rigging, are: (a)agreement between the parties; (b) these parties are engagedin idential or similar production or trading of goods or provisionsof services; and (c) the agreement has the effect of eliminatingor reducing competition of bids or adversely affect or manipulating A

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Athe process for bidding. Though the expression ‘collusive bidding’is not defined in the Act, it appears that both ‘bid rigging’ and‘collusive bidding’ are overlapping concepts. [Paras 75, 77] [538-G; 539-B-C]

5. Having regard to the scheme of the Act, it cannot beBsaid that there is no possibility of a competition in the presentcases and, therefore, CCI had no jurisdiction to carry out anysuch investigation. Section 3 prohibits anti-competitiveagreements and brings about the prime objective of theCompetition Act. The purpose of the Act is not only to illuminatepractices having adverse effect on the competition but also toCpromote and sustain competition in the market. Enforcementprovides remedies to avoid situation that will lead to decreasecompetition in the market. Therefore, effective enforcement isimportant not only to sanction anti-competitive conduct but alsoto deter future competitive practices. In the present case itself,Dthere are sixty suppliers of the product for which there are threebuyers. After all, each supplier would like to be L-1 or L-2 sothat it is able to get order for larger quantities than the other. Inthis 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. [ParasE78 and 79] [543-D; 544-C-E]

6. It is the duty of the CCI to ensure that the conditionswhich have tendency to kill the competition are to be curbed. Itis also the function of the CCI to ensure that there is acompetition so that benefits of such competition are reaped byFthe consumers. [Para 79] [544-E]

7. The CCI and Competition Appellate Tribunal (COMPAT)have held that there was collusive bidding in the present case inview of the fact that there is an active trade association of thesuppliers; a meeting took place couple of days before the date ofGbidding; common changes were pointed out by these appellantswho submitted bids on their behalf; and bids were of identicalamounts despite varying cost, which were repetitive in nature.The respondents may be right in their submission that there maynot be a direct evidence on the basis of which cartelisation orsuch agreement between the parties can be proved as theseH

agreements are normally entered into in closed doors. Thestandard of proof which is required is one of probability. [Para80] [544-G-H; 545-A]

Technip SA v. SMS Holding (P) Ltd. & Ors. (2205) 5SCC 465 : [2005] 1 Suppl. SCR 223; Commissioner ofIncome Tax, Bombay City I, Bombay v. Jubilee MillsLtd., Bombay (1963) 48 ITR 9 – relied on.

8. Even in the absence of proof of concluded formalagreement, when there are indicators that there was practicalco-operation between the parties which knowingly substitute therisk of competition, that would amount to anti-competitivepractices.[Para 83] [549-D]

9. The manner in which tendering process takes placewould show that in such a competitive scenario, the bid whichthe different bidder would be submitting becomes obvious. Ithas come on record that just a few days before the tender inquestion, another tender was floated by BPCL and on opening ofthe said tender the rates of L-1, L-2 etc. came to be known. In ascenario like this, that obviously becomes a guiding factor forthe bidders to submit their bids. Keeping in mind the aforesaidfact situation, the very factors on the basis of which the CCI hascome to the conclusion that there was cartelisation, in fact,become valid explanations to the indicators pointed out by theCCI. [Paras 90 and 91] [555-F-G]

10. Identical products along with market conditions for whichthere would be only three buyers, in fact, would go in favour ofthe appellants. The factor of repetitive bidding, though appearsto be a factor against the appellants, was also possible in theaforesaid scneario. The prevailing conditions in fact rule out thepossibility of much price variations and all the manufacturers arevirtually forced to submit their bid with a price that is quite closeto each other. Therefore, it became necessary to sustainthemselves in the market. Hence, the factor that these suppliersare from different region having different cost of manufacturewould lose its significance. It is a situation where prime conditionis to quote the price at which a particular manufacturer can bag

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Aan order even when its manufacturing cost is more than themanufacturing cost of others. The main purpose for such amanufacuring would be to remain in the fray and not to lose out.Therefore, it would be ready to accept lesser margin. This wouldanswer why there were near identical bids despite varying cost.[Para 91] [556-A-D]B

11. Insofar as meeting of bidders in Mumbai just beforethe date of submission of tender is concerned, some aspectspointed out by the appellants are not considered by the CCI orthe COMPAT at all. No doubt, the meeting took place a coupleof days before the date of tender. No doubt, the absence of agendaCcoming on record would not make much difference. However,only 19 appellants had attended that meeting. Many others werenot even members or did not attend the meeting. In spite thereof,even they quoted almost same rates as the one who attended themeeting. This would lead the Court to the inference that reasonDfor quoting similar price was not the meeting but something else.[Para 92] [556-D-E]

12. Monopsony consists of a market with a single buyer.When there are only few buyers the market is described as anoligopsony. In such a situation, a manufacturer with no buyersEwill have to exit from the trade. Therefore, first condition ofoligopsony stands fulfilled. The other condition for the existenceof oligopsony is whether the buyers have some influence overthe price of their inputs. It is also to be seen as to whether theseller has any ability to raise prices or it stood reduced/eliminatedby the aforesaid buyers. [Para 95] [558-G-H; 559-A]F

13. On a hollistic view of the matter, it is clear that theappellants have been able to discharge the onus by referring tovarious indicators which go on to show that parallel behaviourwas not the result of any concerted practice. [Para 96] [559-A-B]

14. Parallel behaviour does not, by itself, amount to aconcerted practice, though it may provide a strong evidence ofsuch a practice. Nevertheless, it is a strong evidence of such apractice. However, before such an inference is drawn it has tobe seen that this parallel behaviour has led to conditions ofcompetition which do not correspond to the normal conditions of G

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RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v.UNION OF INDIA AND ANOTHER

the market, having regard to the nature of the products, size andvolume of the undertaking of the said market. [Para 97] [559-B-C]

15. Whenever there is a situation of oligopsony, parallelpricing simplicitor would not lead to the conclusion that therewas a concerted practice there has to be other credible andcorroborative evidence to show that in an oligopoly a reductionin price would swiftly attract the customers of the other two orthree rivals, the effect upon whom would be so devastating thatthey would have to react by matching the cut. [Para 97] [559-D-E]

16. The inferences drawn by the CCI on the basis ofevidence collected by it are duly rebutted by the appellants andthe appellants have been able to discharge the onus that shiftedupon them on the basis of factors pointed out by the CCI.However, at that stage, the CCI failed to carry the matter furtherby having required and necessary inquiry that was needed in theinstant case. [Para 102] [563-F-G]

17. In such a watertight tender policy of IOCL which gaveIOCL full control over the tendering process, it was necessaryto summon IOCL. This would have cleared many aspects whichare shrouded in mystery and the dust has not been cleared. [Para103] [563-G-H]

18. Thus, there is no sufficient evidence to hold that therewas any agreement between the appellants for bid rigging. As aconsequence, since no penalty is payable, appeals of the CCI arerendered infructuous and dismissed as such. [Para 104] [564-A-B]

Union of India vs. Hindustan Development Corporation(1993) 3 SCC 499 : [1993] 3 SCR 128; AshokaSmokeless Coal India (P) Ltd. v. Union of India (2007)2 SCC 640 : [2006] 9 Suppl. SCR 954; Excel Crop CareLimited v. Competition Commission of India & Anr.(2017) 8 SCC 47 : [2017] 5 SCR 901; Union of Indiav. Hindustan Development Corporation (1993) 1 SCC467 : [1993] 3 SCR 108; Union of India v. HindustanDevelopment Coproration (1993) 3 SCC 499 : [1993]3 SCR 128; Punjab Land Developement & ReclamationCorporation Ltd. v. Presiding Officer, LabourCourt A

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[2018] 12 S.C.R.

From the Judgment and Order dated 20.12.2013 of the CompetitionAppellate Tribunal in Appeal No. 59 of 2012.

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WITH

Civil Appeal Nos. 4280/2014, 4346/2014, 4649/2014, 4342/2014,4879/2014, 4868/2014, 6033/2014, 5771/2014, 5772/2014, 5035/2014,5773/2014, 5649/2014, 5650/2014, 5651/2014, 4972/2014, 6661/2014,7214/2014, 7102/2014, 6365/2014, 6025/2014, 5993-5994/2014, 6868/2014,5774/2014, 5775/2014, 5776/2014, 5832-5833/2014, 5777/2014, 5778/2014,6371/2014, 8953/2014, 6372/2014, 6373/2014, 6366/2014, 6367/2014,6374/2014, 6368/2014, 6364/2014, 6369/2014, 6370/2014, 10579/2014,1724/2015, 5277-5278/2016, 5281-5315/2016, 7359/2016.

Salman Khurshid, Prashanto Sen, Sr. Advs., Manan Verma, Ms.Nidhi Khanna, Mrs. Sarla Chandra, Ms. Diksha Rai, Arjun Krishnan, O.P. Gaggar, Aditya Gaggar, Sudipto Sircar, Annam D. N. Rao, AnnamVenkatesh, Rahul Mishra, Amol Sinha, Ms. Anshum Jain, Rahul Kochar,Naveen Kumar, Deepak Anand, N. S. Nandakumar, N. Krishn Kumar,K. Krishna Kumar, Sarad Kumar Singhania, Ms. Ruchi Kohli, Ms. PallaviLangar, Jaiveer Shergill, Amit Goyal, Rajesh Sharma, Ms. Nidhi SinghDubey, Shafiq Khan, Ms. Shalu Sharma, R. Satish Kumar, V. Susheetha,P. V. Yogeswaran, Rameshwar Prasad Goyal, S. Nanda Kumar, R. SathisKumar, M. S. Saron Kumar, Ms. N. Deepika Nanda Kumar, NareshKumar, Praveen Mahajan, Arjun Krishnan, Ankur Singh, Sumit Srivastava,Kaustav Som, Ms. Gitanjali Kapur, Antony Julian, Arpit Shukla, UdayanVerma, Sarvesh Mishra, Amit Sharma, Raj Bahadur, Ms. Anil Katiyar,Kedar Nath Tripathy, Girija Ballav Das, B. B. Pradhan, Gaurav Agrawal,Manan Verma, Ms. Diksha Rai, Ms. Palak Mahajan, Kuljeet Rawal,Ashwani Kumar, Ms. Iti Sharma, Pradeep Aggarwal, Karan Khanna,Aniket Bhattacharya, Arjun Agggarwal, Advs. for the appearing parties.

The Judgment of the Court was delivered by

The Judgment of the Court was delivered by

A. K. SIKRI, J. 1. All these appeals are filed against the ordersdated 20[th] December, 2013 passed by the Competition Appellate Tribunal(hereinafter referred to as ‘COMPAT’). The COMPAT by the saidjudgment has upheld the findings of the Competition Commission of India(for short, ‘CCI’) that the appellants/suppliers of Liquefied PetroleumGas (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 penaltiesin the form of fines under Section 27 of the Act. While maintaining the A

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Aorder of the CCI insofar as it found the appellants guilty of contraventionof Section 3(3)(d) and also under Section 3(3)(a) of the Act, theCOMPAT has reduced the amount of penalty. These suppliers havefiled the instant appeals on the ground that there was no cartilisation andthey have not contravened the provisions of the Act. On the other hand,CCI has also come up in appeal challenging latter part of the orderBwhereby penalties inflicted on the suppliers stand reduced. For the sakeof convenience these suppliers will be referred to as the appellantshereinafter.

2. We may point out at the outset that all these appellants aremanufacturing gas cylinders of a particular specification having capacityCof 14.2 kg which are needed for use by the three oil companies in India,namely, IOCL, Bharat Petroleum Corporation Ltd. (BPCL) andHindustan Petroleum Corporation Ltd. (HPCL) [all public sectorcompanies]. It is also a matter of record that apart from the aforesaidthree companies there are no other buyers for these cylindersDmanufactured by the appellants. Insofar as IOCL is concerned, it is aleading market player in LPG as its market share is 48%. Thus, in casea particular manufacturer is not able to supply its cylinders to the aforesaidthree companies, there is no other market for these cylinders and it mayforce that company to exit from its operations. We may also point out atthis stage itself that inquiry was started against 47 companies. The CCIEexonerated two companies and found that 45 companies had enteredinto an arrangement/agreement insofar as statements of bids pursuantto tenders issued by IOCL are concerned. Out of these 45 companiesone did not challenge the orders before the COMPAT and other 44 hadfiled appeals which have been decided by the COMPAT.F

3. The manner in which the inquiry was undertaken by the CCI,culminating into the finding of guilt and imposition of penalty, is succintlyand sequally recorded by the COMPAT in its impugned order. As thereis no dispute about the said factual narration, it would be convenient toborrow the said discussion as recorded by the COMPAT.G

4. The suo-motu proceedings were started by the CCI on thebasis 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 thatcase a complaint was made by M/s. Pankaj Gas Cylinders before theCCI complaining about unfair conditions in the tender floated by IOCL

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for the supply of 105 lakh 14.2 Kg. capacity LPG Cylinders with SCvalves 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 CaseNo. 10 of 2010, the CCI in pursuance of its duties under Section 18 feltthat investigation was necessary in the case of all bidders who were thesuppliers of 14.2 kg. LPG cylinders in that tender. In the investigationreport in the said case, the Director General had noted that out of 63bidders who participated in the tender, 50 bidders were qualified foropening of price bids, while 12 bidders were qualified as new vendorswho were not required to submit price bids and one bidder was notqualified for the opening of the price bid. The technical bid of the subjecttender was opened on 3.3.2010 and the price bids of 50 qualified bidderswere opened on 23.3.2010. According to the Director General, therewas a similar pattern in the bids by all the 50 bidders who submittedprice bids for various States. The bids of a large number of parties wereexactly identical or near to identical for different States. The DirectorGeneral had observed that there were strong indications of some sort ofagreement and understanding amongst the bidders to manipulate theprocess of bidding.

It was on this basis the CCI directed further investigation in thematter. The Director General after careful consideration submitted adetailed investigation report to the CCI. After the CCI considered thefreshly ordered investigation report, it directed that a copy of the reportbe sent to the parties seeking their objections. In all, 44 opposite partiessubmitted their objections. After giving them the opportunity to be heard,the CCI passed the order in question.

As per the Director General’s report, the process of biddingfollowed by the IOCL in the tender was as under :-

i) The bidders would submit their quotations with the biddocuments.

ii) The existing bidders, who were existing suppliers, were requiredto submit the price bids and technical bids.

iii) The bidders were to quote for supplies in different States ofIndia in keeping with their installed capacity.

iv) After price bids were opened the bidders were arrangedaccording to the rates in the categories of L-1, L-2 and L-3.

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Av) The rates for the supplies in different States were approvedafter negotiations with L-1 bidder. In case the L-1 bidder couldnot supply a required number of cylinders in a particular State, theorders of supplies went to L-2 and also L-3 bidder or likewisedepending upon the requirement in that State as per fixed formulaprovided in the bid documents.B

vi) Certain bidders were called new parties. They were requiredto submit only technical bids and to supply as per L-1 ratesdetermined after the negotiations.

vii) One bidder could quote for maximum eight States.C

7. The Director General after analyzing the bids came to theconclusion that there was not only a similarity of pattern in the price bidssubmitted by the 50 bidders for making supply to the IOCL but the bidsof large number of parties were exactly identical or near to identical indifferent States. It was also found that bidders, who belonged to sameDgroup, might have submitted identical rates. It was found that not onlythere was identical pricing in case of group concerns but the rates ofother entities not belonging to the group were also found to be identical.The D.G. painstakingly noted the names of group companies as well asnon-group companies. He came to the conclusion that in all 37 entitiescould not be said to be belonging to any single group and wereEindependently controlled. The Director General found it unusual thatunrelated firms had quoted identical rates in different States. The D.G.had analyzed the bidding pattern for the various parties for all the 25States. He found that :-

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

b. The contracts were awarded to the sets of bidders who hadquoted identical rates or near to identical rates in a particular patternin almost all the States.

c. There was a common pattern for quotation depending upon theState. In case of North East the rates were highest, quoted at Rs.G1240 whereas in case of others rates were Rs.1100, Rs.1127 andRs. 1151.

d. It was found that only for Andaman and Nicobar Islands therewas a single party who had quoted the L-1 rate and got the formal H

contract. In other States the contracts were bagged in a group onthe basis of identical or near to identical rates.

e. The similarity of the rates was found even in case of bidderswhose factories and offices were not located at one and the sameplace in the States and where they were required to supply wasfar off from their factories located in different place.

8. The D.G. had found further that though the factors like marketconditions and small number of companies were different, there was alarge scale collusion amongst the bidding parties. He also arrived at afinding to the effect that the LPG Cylinder Manufacturers had formedan Association in the name of Indian LPG Cylinders ManufacturersAssociation and the members were interacting through this Associationand were using the same as a platform. The date for submitting the bidsin the case of the concerned tender was 3.3.2010 and just two daysprior to it, two meetings were held on 1st and 2[nd] March, 2010 in HotelSahara Star in Mumbai. As many as 19 parties took part and discussedthe tender and, in all probability, prices were fixed there in collusion witheach other. The D.G. reported that the bidders had agreed for allocationof territories, e.g., the bidders who quoted the bids for Western Indiahad not generally quoted for Eastern India and that largely the bidderswho quoted the lowest in the group in Northern India, had not quotedgenerally in Southern India. The D.G. also concluded that this behaviorcreated entry barrier and that there was no accrual of benefits ofconsumers nor were there any plus factors like improved production ordistribution of the goods or the provision of services.

9. Ultimately, the D.G. came to the conclusion that there was acartel like behavior on the part of the bidders and that the factorsnecessary for the formation of cartel existed in the instant case. It wasalso found that there was certainly a ground to hold concerted action onthe part of the bidders. The D.G. had also noted that the rates quoted forthe year 2009-10 and in years previous to that were also identical insome cases. Thus, he came to the conclusion that the bids for the year2010-11 had been manipulated by 50 participating bidders. It wasthereafter that the CCI decided to supply the D.G.’s investigation reportto 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 fordetermination:- A

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A“Whether there was any collusive agreement between theparticipating bidders which directly or indirectly resulted in bidrigging of the tender floated by IOCL in March 2010 forprocurement of 14.2 kg. LPG cylinders in contravention of Section3(3)(d) read with Section 3(1) of the Act?”

B11. After considering the oral as well as written submissions, theCCI answered the issue against the Cylinders Manufacturers and inflictedthe penalties against the present appellants. In its impugned order, whiledetermining the issue, the CCI, in the first instance, considered thecommon replies to the DG’s report filed by as many as 44 oppositeparties. It was more or less pleaded that every part of LPG Cylinder isCregulated by the Rules through various Notifications and that the priceof steel constitutes 50% of the total manufacturing cost, so also theprice of the paint, it being an essential raw material. All these factors,including the taxes which vary from State to State, determine the overallbidding pattern of the bidders. In para-5.2.3 of the common objection, itDwas added that these 44 parties had nominated six agents for depositingtheir bids on their behalf and it was a common practice amongst thebidders to direct their agents to keep close watch on the rates offered bytheir competitors in respect of a particular State and this led to thepossibility of copying and matching of the rates quoted in the price bidsby many suppliers in a particular State, who may have appointed commonEagents. Due to this reason, cutting and over-writing in the price bids forthe tender in question was noticed by the Director General.

12. It was further pointed out that there were only 62 qualifiedtenderers in the whole country, out of whom 12 bidders were classifiedas new parties, meaning thereby that they had not supplied Cylinders inFlast three years and were not required to bid in the tender. Out of theremaining 50 bidders, there were group companies controlled by singlemanagement.

13. The CCI in its detailed order began with considering the scopeof constructed bid rigging agreement and cartel. In that the CCI alsoGconsidered the 18 famous observations by Lord Denning in case of RRTAvs. W. H. Smith & Sons Limited regarding the quiet and secret natureof the agreement between the parties. The CCI then went on to recordits inference holding that there was element of agreement and consideredthe following factors in coming to the conclusion. They being:- H

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 theconclusion that it did suggest collusive bidding. Thereafter, the CCIanalyzed these bids for each States and found that all 50 participatingbidders had secured the order; that the orders were placed on the said50 bidders who had quoted identical rates or near to identical rates in aparticular pattern common to all the parties. CCI also highlighted thefacts of absence of business justification. According to the CCI, thematerial revealed that the supplies were effected at the higher cost.After discussing the concepts of standards of proof and appreciableadverse effect on competition, the CCI considered the various argumentsand repelled those arguments. The CCI then went on to consider thecase law, and in particular the judgment of this Court in Union of Indiavs. Hindustan Development Corporation[1]. It also took into considerationthe arguments raised by the individual parties and then came to recordthat cases of M/s. JBM Industries and Punjab Cylinders, however, wereexceptional ones and they could be exonerated. After this the CCI wenton to decide the penalty factor under Section 27 of the Act.

15. The COMPAT after discussing the findings of the CCI andalso taking note of the arguments of the appellants which were advancedbefore the CCI, proceeded with its own discussion. It started with theadmitted facts of the case, and took note of the following such facts:

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(A) The tender offers were to be made at Mumbai on 03.03.2010.Admittedly there were meetings in Hotel Sahara Star, Mumbai on1[st] and 2[nd] March, 2010 which were attended by some of theappellants. The D.G. has held that 19 appellants were representedby various persons in that meeting. The fact of the meeting havingbeen held was not disputed.

Though some of the appellants stated that they did not attendthe meeting and those who attended the meeting maintained thatnothing was disucssed about the tender, the same was not believedby the COMPAT and it held that these meetings did relate to thetender offers which were to be submitted on 03.03.2010. Thisfinding is premised on the basis that nobody came with theexplanation as to what transpired in the meeting or gave any proofthat prices were discussed. Minutes of the meeting were also notproduced.

(B) There is an association of the cylinder manufacturers. All theparties, except few competing with each other, stated that theywere not the members of that association. A feeble argumentwas also raised by some appellants that though they were themembers but they were not the active members thereof. Some ofthe appellants also argued that they had abandoned the membershipby not contributing the subscription in the later years. However,the appellants could not deny the position that there was anassociation called Indian LPG Cylinder Manufacturers’Association.

It was a registered association, its Memorandum ofAssociation provided that one of the objectives was to prtoectcommon interest and welfare of LPG cylinder manufacturers.According to COMPAT, there was a definite platform availablefor all cylinder manufacturers and practically all the appllantsappear to be the members of that Association.

(C) A common written reply was submitted by as many as 44parties. Further, the appellants had nominated six agents fordepositing bids on their behalf. These common agents wereinstructed to keep a close watch on the price quoted by thecompetitors in a particular State.

Though some of the appellants had contended that they hadnot appointed the common agents, the plea was not accepted bythe COMPAT. The COMPAT, therefore, proceeded on the‘admitted grounds’ that there was an association of cylinermanufactures; practically all the appellants were members of thesaid association; this association was an active association; it heldmeetings on the eve of entry tender obviously for discussingtenders, its conditions etc.; these meetings were attended byrepresentatives of at least 19 appellants; and these appellants hadsix common agents at Mumbai who were instructed to watch theprices offered by the others. A dinner meeting as also a lunchwere held and one Mr. Chandi Prasad Bhartia of M/s. HaldiaPrecision Engineering Private Limited paid the bill for the same.Dinner and lunch held in Sahara hotel were attended by about 50persons in all. From this the COMPAT inferred that there was noreason to disbelieve that the parties had an access to each otherthrough their association which was an active association. Theexistence of such an association under the aegis of which meetingstook place just before the submission of tender has been noted asa very relevant factor by the COMPAT in affirming the findingsof CCI on cartelisation and it summed up the position in thefollowing manner:

“26. What is important is not whether a particular appellantwas a member of the association or not. The existence of anassociation is by itself sufficient, as it gives opportunity to thecompetitors to interact with each other and discuss the tradeproblems. There will be no necessity to prove that any partyactually discussed the prices by actively taking part in themeeting. If there is a direct evidence to that effect that iscertainly a pointer towards the fact that such party had a tacitagreement with its competitors. However, the existence of anassociation and further holding of the meetings just one or twodays prior to the last date of making offers and furtheradmission that the parties had appointed common agents withthe instructions to keep watch on the prices quoted by thecompetitors would go a long way in providing plus factors infavour of the agreement between the parties. All these factorswould form a back drop, in the light of which, the further AB

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evidence about agreement would have to be appreciated. Wehave seen the comments of Director General as also thefindings of the CCI. We are convinced that CCI has notcommitted any error in considering all these factors as plusfactors to come to the conclusion that there was a concertedagreement between the parties on the basis of which theidentical or near identical prices came to be quoted in tendersfor the supply of cylinders to the 25 States. In view of this, weneed not dilate on the individual claims by some of the appellantsthat they were not the members of the association or that theywere only the dormant members or that they had abdicatedtheir membership. We also need not go on the claim that whilethe meeting was attended by the 19 parties as held by the D.G.and confirmed by the CCI, it was not attended by the rest ofthe appellants because that would be of no consequence. Oncethere was a meeting, there was every opportunity to discussor to communicate to each other whatever transpired in themeeting.

27. We have seen the order of the CCI and while commentingabout the meeting, the CCI has painstakingly noted the detailsof that meeting. The CCI has referred to the evidence of Mr.Dinesh Goyal, who was an active member of the Indian LPGCylinder Manufacturers’ Association and noted that he hadattended the meeting. He has also referred to the statement ofMr. Sandeep Bhartia of Carbac Group though initially he deniedto have organized the conference, he later on had confirmedabout such a conference having been held along with Mr.Sandeep Bhartia of Carbac Group. The CCI also noted thathe admitted that in such meetings there were discussions onpre-bid issues. He also admitted that though there are about50 competitors, in fact about 25 persons control the wholeaffairs. From this evidence, the CCI correctly deduced thatpre-bid issues were discussed in that meeting. The CCI hasthen referred to the evidence of Mr. Manvinder Singh ofBhiwadi Cylinders Limited, Mr. Chandi Prasad Bhartia ofHaldia Precision Engineering P. Ltd., Mr. Vijay Kumar Agarwalof SM Sugar Pvt. Ltd., Mr. S. Kulandhaiswamy, MD of LiteContainers 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 notonly was the meetings held on 1st and 2nd March, but thoroughdiscussions went on in those meeting on the pre-bid issue ofthe concerned tender. The CCI has also correctly noted aboutthe agenda of the meeting and has also referred to an admissionmade by one of the witnesses that the matching of the quotationwas a matter of co-incidence and telephonic discussions dotake place amongst the parties regarding the trends. We arethus thoroughly convinced about holding of the meeting, thediscussion held therein and also the discussion regarding thepre-bid issue having been taken place in that meeting.”

16. The COMPAT thereafter took up for discussion the argumentof the appellants that the CCI should have enquired IOCL also. Butrejected the same. Another significant argument which was canvassedbefore us also with great emphasis was that it was an oligopolistic marketwherein there was a likelihood of each player being aware of actions ofthe other and in such a situation price parallelism would be a commonphenomena. Thus, merely because there was a price parallalism, itwould not be construed as evidence of collusion. The COMPAT rejectedthis 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 aconstant demand for cylinders not only by IOCL but by other two oil manufacutring companies as well. Therefore, there was aconstant need for the cylinders which facilitated factor for thecollusion.

(2) There was small number of suppliers. Among the 50participating companies, only 37 companies could be said to beindependant bidding companies and there were seven groupsconsisting of 20 participating companies. This small number ofsuppliers should also be a facilitating factor.

(3) There were very few new entrants.

(4) The existence of an active trade association in which all thebidders, except seven companies, were members would be anotherfacilitating factor.

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A(5) Few other factors like repetitive bidding, identical products,few or no substitutes and no significant technological changeswere the additional factors which persuaded the CCI to arrive atsuch a conclusion.

(6) These manufacturing companies had their factories at differentBplaces in India, where the costs of the components would differfrom State to State. Even the taxing structure, the labour conditionsand other factors like cost of electricity etc. were bound to bedifferent. Still the prices quoted were almost identical.

(7) On the above considerations, the defence of the appellantsCwas rejected as unconvincing, thereby undergoing the factorsconsidered by the CCI.

17. According to the COMPAT all these could not have beenpossible unless there were internal agreements between the appellants.The COMPAT has approved the finding of the CCI that owing to theDcollusion, the IOCL could not get lower or the competitive prices. Therates quoted in 2010-2011 were higher as compared to the rate quoted in2009-10. From the year 2006-07, the prices had collectively been raisedon an average of 30% for making supplies in different states.

18. According to the COMPAT, the CCI was right in concludingEthat it had appreciable adverse effect on competition as the conduct ofthe LPG cylinder manufacturers in coming together on a commonplatform and fixing the bid prices ensures that no new player could enterthe relevant market and quote the prices independently. Thus, thesemanufacturers would make entry of a new player into the relevant marketdifficult, because such new player would necessarily have to firstFnegotiate with the existing players to get the business profitably. Otherfactors were driving existing competitiors out of the market andforeclosure of competition by hindering entry into the market.

19. It negated the argument of the appellants that when the IOCLwas placing orders on the basis of negotiated rates there could be noGpossibility of incentive to collude. According to it, even where the ratesare fixed, the bid rigging can still take place to keep the big amounts to apre-determined level. Such pre-determination can be by way of intentionalmanipulation by members of the bidding group and where the L-1 ratesthemselves get fixed like in the present case at higher level even if thereare negotations the negotiators would have to take into consideration theH

benchmark rates. There is aslo a possibility that such benchmark ratescould go higher in the subsequent tenders; known as rippel effect in longterm.

20. The COMPAT also took note of the provisions of Section 3,as per which once the agreement is proved there is a presumption aboutthe appreciable adverse effect on competition on the mere proof of theagreement. Thus, onus shifts on the other side to prove otherwise whichaccording to the COMPAT was not discharged by the appellants. TheCOMPAT thereafter took note of some arguments by certain counselspecific to their cases but did not find any substance in them.

21. Having examined the relevant provisions whereupon theseappeals centre around, we proceed to take note of the arguments thatwere advanced by various counsel appearing for the appellants and themanner in which respondents endeavoured to meet the same.

22. Ms. Madhavi Divan, learned counsel appearing in the appealfiled by Rajasthan Cylinders and Containers Ltd., attacked the very basisand foundation on which CCI came to conclusion that there was anagreement or cartelisation by the appellants aimed at bid rigging. Shepremised her case on the following three propositions:

(i) the inherent nature of the market of cylinder manufacturersitself precludes the possibility of competition;

(ii) alternatively, there is no collusive agreement or bid-rigging inthe present case; and

(iii) further, in the alternative, even assuming that there is a collusiveagreement or bid-rigging in the present case, there is noappreciable adverse effect on competition.

23. On the first proposition, argument developed by Ms. Divanwas that the Act prohibits anti-competitive practices, which would implythat there has to be a competition in the market, in the first place. As acorrolary, if there is no such competition, Section 3(1) of the Act doesnot get triggered. According to her, in the instant case, the fact wouldshow 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. Shestressed that the conditions of monopsony/oligopsony prevailed. For theexistence of monopsony/oligopsony, she referred to the Glossary ofIndustrial Organization Economics and Competition Law published by A

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Athe 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 anoligopsony. In general, when buyers have some influence over the priceof their inputs they are said to have monopsony power. The ability of afirm to raise prices, even when it is a monopolist, can be reduced orBeliminated by monopsony or oligopsony buyers. To the extent that inputprices can be controlled in this way, consumers may be better off.

24. According to her, these conditions were adequately present inthe instant case. In her attempt to make this propositoin good, shehighlighed the following features and conditions surrounding the contract:C

(i) Extremely limited number of buyers and for this particular kindof market - a sole buyer, i.e., IOCL. IOCL controls 48% of themarket share. There are no other purchasers of 14.2 Kg gascylinders except for HPCL and BPCL, both of whom invite e-tenders, having a market share of 26% and 25% respectively.D(ii) The product is standardized and special to the extent that it istightly controlled and regulated by the Government and also thereare no other takers for it.

(iii) There are entry barriers in the market. As per the TenderEconditions, only those manufacturers having valid approval fromthe Chief Controller of Explosives (CCOE) and Bureau of IndianStandards (BIS) license for manufacture of 14.2 kg LPG cylindersas per IS-3196 (Part 1) could submit bids for the tender.

(iv) Even the machinery used to manufacture this product is specialand will become obsolete and reduceable to scrap if IOCL andFthe aforesaid two players were to discontinue contracts for supplyof 14.2 kg cylinders. She pointed out that this was accepted inthe Expert Report of Dr. Rughvir K.S. Khemani.

(v) The tender conditions state that it can be rejected withoutfurnishing reasons. Therefore, the lowest price is not sacrosanctG(clause 11 of the contract).

(vi) L2 and L3 have also been granted contracts irrespective ofthe price they have quoted.

(vii) Effective price has no sanctity since not only L2 and L3 alsoHget contracts in addition to or in exclusion of L1 but further, the final negotiated price is determined on the basis of privatelyconducted negotiations with individual bidders for which thebenchmark is not the price quoted by them but the internal estimatesarrived on the basis of objective criteria.

(viii) In most States, the final negotiated price was concluded at arate lower than the internal estimate. The internal estimate hadabsolutely no correlation with the quoted rates by L1 or any otherparty. In this behalf, she pointed out that the IOCL had carriedout the exercise of ascertaining the estimated cost of the cylinderthrough its experts. In the report given by the expert, the estimatedcost per cylinder was arrived at Rs. 1106.61 paisa per cylinder.As against this, the final negotiated price at which the appellantshad supplied cylinders to the IOCL was much lesser. Accordingto her, in the whole process the price determination was on thebasis of internal estimates by IOCL which could not be influencedby the appellants at all. In fact, even after the tenderers submittedtheir bids, final price was the price negotiated by IOCL whichfact was accepted by Mr. Y. Ramana Rao of IOCL in his depositionrecorded by the Director General of CCI. This, according to thelearned counsel, clearly proved that there was no adverse effecton competition, in any case.

(ix) The internal estimates were drawn up long after the pricebids were made, i.e., on 5[th] May, 2010. Price bids were openedon 23[rd] March, 2010 and negotiations were held only after thesubmission of Mott MacDonald Report on 05.05.2010.

(x) The pattern shows that since L1, L2 and even L3 were awardedthe contract and not merely L1, quoting the lowest price did noteven determine the identity of the parties who were to get thecontract, therefore, the manner in which the process wasconducted or controlled by IOCL, completely leaves no scopefor either determination of price or the identity of the parties whowould get the contract.

25. She submitted that in such market conditions where on accountof the vertical agreement there is virtually no scope of competitive forcesbetween horizontal players, the question of anti-competitive conduct byvirture of horizontal agreements does not arise. There is no competitionin the market even before a player enters the fray. Therefore, the first A

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Apremise for the applciation of Section 3, i.e., the presence of an otherwisecompetitive market is absent. The burden of proof is on the respondent—CCI to establish that there is competition in the market before it canjustify invoking Section 3. There is no automatic presumption underSection 3 that there is competition in the market.B26. From the aforesaid factors, Ms. Divan tried to deduce thatprice control was entirely in the hands of IOCL and in a situation likethis, question of entering into any agreement with the motive of bid riggingor collusive bidding did not arise.

27. She also referred to LPG (Regulation of Supply andCDistribution) Order, 2000 published vide Notification dated 26[th] April,2000 as per which only Government oil companies can supply LPG todomestic consumer of 14.2 kg LPG cylinders with dimensions as specifiedtherein. Predicated thereupon, her submission was that the LPG supplyin 14.2 kg gas cylinders is an essential commodity; the distribution ofsuch cylinders takes place only through Government oil companies; theDprice to the consumer is controlled by the Government; and parallelmarketeers, supplier and distributor of LPG cylinders may do so only forcylinders and specifications other than 14.2 kg cylinders. This control ofthe Government, insofar as supply of 14.2 kg gas cylinders is concerned,would also show tight control over the pricing. In such a statutorily tightEcontrol price fixing mechanism there could not be bid rigging, was thesubmission of Ms. Divan. She supported this submission by drawing theattention of the Court to the following observations in Ashoka SmokelessCoal India (P) Ltd. v. Union of India[2] :

“109. It may be true that prices are required to be fixed havingFregard to the market forces. Demand and supply is a relevantfactor as regards fixation of the price. In a market governed byfree economy where competition is the buzzword, producers mayfix their own price. It is, however, difficult to give effect to theconstitutional obligations of a State and the principles leading to afree economy at the same time. A level playing field is the keyGfactor for invoking the new economy. Such a level playing fieldcan be achieved when there are a number of suppliers and whenthere are competitors in the market enabling the consumer toexercise choices for the purpose of procurement of goods. If the 2 (2007) 2 SCC 640H

policy of the open market is to be achieved the benefit of theconsumer must be kept uppermost in mind by the State.

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127. While fixing a fair and reasonable price in terms of theprovisions of the Essential Commodities Act (although the price isnot dual), it is essential that price is actually fixed. Such pricefixation is necessary in view of the fact that coal is an essentialcommodity. It is, therefore, vital that price is actually fixed andnot kept variable. Fixation of price of coal is of utmost necessityas it is a mineral of grave national importance. Non-availability ofcoal and consequently, the other products may lead to hardship toa section of citizens. It may entail closure of factories and otherindustries which in turn would lead to loss to the State exchequer;as they would be deprived of its taxes. It will lead to loss ofemployment of a large number of employees and would bedetrimental to the avowed object of the Central Government toencourage small-scale industries.”

28. She also referred to the following discussion in Excel CropCare Limited v. Competition Commission of India & Anr.[3]:

“52. We are here concerned with parallel behaviour. We areconscious of the argument put forth by Mr Venugopal that in anoligopoly situation parallel behaviour may not, by itself, amount toa concerted practice. It would be apposite to take note of thefollowing observations made by European Court of Justice inDyestuffs [Imperial Chemical Industries Ltd. v. Commission ofEuropean Communities, 1972 ECR 619 (ECJ)] :

“By its very nature, then, the concerted practice does not haveall the elements of a contract but may inter alia arise out ofcoordination which becomes apparent from the behaviour ofthe participants. Although parallel behaviour may not itselfbe identified with a concerted practice, it may howeveramount to strong evidence of such a practice if it leads toconditions of competition which do not respond to the normalconditions of the market, having regard to the nature of theproducts, the size and number of the undertakings, and the A

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Avolume of the said market. Such is the case especially wherethe parallel behaviour is such as to permit the parties to seekprice equilibrium at a different level from that which wouldhave resulted from competition, and to crystallise the statusquo to the detriment of effective freedom of movement of theproducts in the [internal] market and free choice by consumersBof their suppliers.”

(emphasis supplied)

At the same time, the Court also added that the existence of aconcerted practice could be appraised correctly by keeping inmind the following test:

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“If the evidence upon which the contested decision is based isconsidered, not in isolation, but as a whole, account being takenof the specific features of the products in question.”

29. The learned counsel also referred to various judgments ofother jurisdictions, primarily that of European Commission and the CourtDof Justice of European Union, which we shall discuss at the appropriatestage.

30. Ms. Divan, also highlighted that in this entire scenario, it wasnecessary to have the views of IOCL. However, in a suo motu case,IOCL was not even served with any notice and therefore no evidenceEwas elicited from IOCL on the issue whether there was any autnomyleft to the manufacturer in the matter of price determination.

31. She, thus, argued that merely because there was priceparallelism, it could not have been the reason to arrive at a conclusionthat there was a collusive agreement or bid rigging. She submitted thatFin a monopsonistic market where there are few buyers, the price is setby the buyers, and the conditions are such that sellers can predict demand,there is a repetitive bidding process and the products are identical andspecilized, the likelihood of price parallelism is natural.

32. Further, price parallelism is inevitable where the buyer has a Ghigh degree of control and determines price, quantity, and even theidentities of the awardees at its discretion. Referring to the followingdiscussion in Union of India v. Hindustan Development Corporation[4],she argued that mere identical pricing cannot lead to the conclusion ofcartelisation:

H4 (1993) 1 SCC 467

“7. [….] (1) There is not enough of material to conclude that M/s H.D.C., Mukand and Bhartiya formed a cartel. Because ofmere quoting identical tender offers by the said threemanufacturers for which there is some basis, the conclusion thatthe said manufacturers had formed a cartel does not appear to becorrect. However since the offers of the said three tendererswere identical and the price was somewhat lower, the TenderCommittee entertained a suspicion that a cartel had been formedand the same got further strengthened by the post-tender attitudeof the said manufacturers which further resulted in entertainingthe same suspicion by the other authorities in the hierarchy ofdecision making body including the Minister of Railways. [….]

33. She pointed out that this principle has also been stated inparagraph 17 of the Union of India v. Hindustan DevelopmentCoproration[5]. Her submission was that identical pricing may be furtherexplained by the fact that, given the high degree of predictability of prices,bidders may take a business decision to mirror prices of competitors incertain States, by adjusting or averaging prices in others.

34. The learned counsel pointed out that the CCI arrived at aninference of a collusive agreement based, inter alia, on the presence ofcircumstances 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

(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 standardisedproduct in repsect of which there has been no change or alteration indesign.

35. Her reply was that these are the characteristics which definethe industry. Yet these very factors are relied upon to come to the5 (1993) 3 SCC 499

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Aconsclusion that there is ‘collusion’ and ‘bid rigging’. She submitted thatif the very nature of the industry is such that there are very small numbersof suppliers, very few new entrants and a standard product being suppliedto the same party year after year, such factors are beyond the control ofthe individual manufacturers and cannot be relied upon as factors tolead to a presumption that there is collusive conduct. In other words, theBvery nature of the industry cannot be used as a factor to presumecollusion because collusion itself requires a state of mind or intent whereasin this case, most of these factors are inherent in the nature of the industryas described by the CCI itself.

36. Adverting to her 2[nd] proposition, namely, there was no collusiveCagreement or bid rigging in the present case, her submission was thatCCI 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 fixingagreement. Her response was that the factum of meetings of anassociation by itself in any case cannot lead to a conclusion of collusion.DLikewise, the COMPAT also upheld that inference based on the factumof the meetings of the Associaiton. The COMPAT went to the extent ofholding that it is irrelevant whether a particular party was a member ofthe Association or not and the existence of Association is by itselfsufficient. This approach was attacked as contrary to the fundamentalright to form an association under Article 19(1)(c)(g) of the ConstitutionEof India.

37. So far as the meetings over dinner and lunch are concerned,both were hosted by individual members. In the case of the dinnermeeting on 1[st] March, 2010, it was hosted by Mr. C.P. Bhartiya, MD ofNorth India Wires. The lunch on 2[nd] March, 2010 was hosted by Mr.FSantosh Bhartiya of Haldia Precision. It is not as if that the Associationpaid or the expenses were shared by all members who attended.

38. She also submitted that insofar as appellant – RajasthanCylinders and Containers Limited is concerned, no representatives ofappellant attended the said meeting. Further, many other members didGnot attend the meeting. Even as per the findings of the Director General,only 12 persons representing 19 parties are said to have attended themeeting. Her submission was that as per the allegations, 45 persons hadentered into an agreement of cartelisation which should not be establishedonly with the said meeting which was not attended by all and in fact veryfew members.H

39. In any case, according to her, it was expressly stated by atleast 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 inferencedrawn on the basis of six agents being nominated for depositing 44 bidswas also misconceived. The CCI holds that ‘this might have held to thepossibility of copying and matching of the rates quoted in the price bidsby 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 forthe conduct?

“126. Following that analysis, it must be stated that, in this case,concertation is not the only plausible explanation for the parallelconduct. To begin with, the system of price announcements maybe regarded as constituting a rational response to the fact that thepulp market constituted a long-term market and to the need feltby both buyers and sellers to limit commercial risks. Further, thesimilarity in the dates of price announcements may be regardedas a direct result of the high degree of market transparency, whichdoes not have to be described as artificial. Finally, the parallelismof prices and the price trends may be satisfactorily explained bythe oligopolistic tendencies of the market and by the specificcircumstances prevailing in certain period. Accordingly, the parallelconduct established by the Commission does not constituteevidence of concertation.

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

42. Her third proposition was that in any case there was noappreciable adverse effect on competition. She tried to make thissubmission good by contending that when industry is an oligopoly, theprice parallel or a finding of identical quoting of price does not by itselflead to the conclusion of a conerted price. Moreoever, in the instantcase, number of entrants had increased as 12 new entrants submittedtheir bid for the year 2010-11. Therefore, the finding of the CCI, upheld 6 31.3.1993, ECJ (paragraph 115, Internal P.1611) (“Woodpulp“)

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Aby the COMPAT, that there has been a creation of barriers for newentrants is without any basis.

43. Other counsel who appeared on behalf of the appellants madetheir submission almost on the same lines, albeit, with further elaborationson certain aspects, some of which are taken note of hereafter. Mr.BJaiveer Shergil, who argued for the appellant—Om Containers (C.A.No. 6369 of 2014) submitted that in order to attract the presumptioncontained in Section 3(3) about the appreciable adverse effect oncompetition, in the first instance, there has to be a finding that there hasbeen 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 inCbid rigging and case is covered under Section 3(3)(d) of the Act, it wasnecessary that there is a positive finding to the aforesaid effect, namely,that there was agreement which had resulted in bid rigging. Accordoingto 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 andDno other meaning can be assigned to the expression than is put down inthe definition, as held in Punjab Land Developement & ReclamationCorporation Ltd. vs. Presiding Officer, Labour Court[7]in the followingwords:

“72. The definition has used the word ‘means’. When a statutesays that a word or phrase shall “mean”— not merely that it shallE“include” — certain things or acts, “the definition is a hard-and-fast definition, and no other meaning can be assigned to theexpression than is put down in definition” (per Esher, M.R., Goughv. Gough [(1891) 2 QB 665 : 65 LT 110] ). A definition is anexplicit statement of the full connotation of a term.”F44. Thus, according to him, for it to be a case of bid rigging, theagreement must be such which is defined in the Explanation to Section3(3)(d) creating the effect of:

a. Eliminating or reducing competition for bids or

b. Adversely affecting the process for bidding orGc. 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.:

7 (1990) 3 SCC 682H8 (1985) 1 SCC 591

“46. We have now to consider as to what is the impact of theExplanation on the proviso which deals with the question of willfuldefault. Before, however, we embark on an inquiry into this difficultand delicate question, we must appreciate the intent, purpose andlegal effect of an Explanation. It is now well settled that anExplanation added to a statutory provision is not a substantiveprovision in any sense of the term but as the plain meaning of theword itself shows it is merely meant to explain or clarify certainambiguities which may have crept in the statutory provision. Sarathiin Interpretation of Statutes while dwelling on the various aspectsof an Explanation observes as follows:

(a) The object of an Explanation is to understand the Act in thelight of the explanation.

(b) It does not ordinarily enlarge the scope of the original sectionwhich it explains, but only makes the meaning clear beyonddispute.”

46. He submitted that there is no positive evidence of this natureat all and the CCI as well as COMPAT has proceeded on inferences asregards bid rigging and, therefore, such orders cannot be sustained.

47. In the absence thereof, submitted the learned counsel, doctrineof reverse burden which was put on the appellants would not apply. Hereferred 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-competitiveagreements, abuse of dominant position and a combination oracquisition falling within the provisions of the said Act. Since themajority view of CCI also accepted that the impugned activitiesof the Coordination Committee did not amount to abuse of dominantposition, and it treated the same as anti-competitive havingappreciable adverse effect on competition, our discussion wouldbe focused only on anti-competitive agreements. Section 3 of the 9 (i) Babu v. State of Kerala: [(2010) 9 SCC 189]

(ii) Noor Aga v. State of Punjab; [(2008) 16 SCC 417]

(iii) CCI v. Artistes & Technicians of W. B. Film & Television: [(2017) 5 SCC 17]

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AAct is the relevant section in this behalf. It is intended to curb orprohibit certain agreements. Therefore, in the first instance, it isto be found out that there existed an “agreement” which wasentered into by enterprise or association of enterprises or personor association of persons. Thereafter, it needs to be determinedas to whether such an agreement is anti-competitive agreementBwithin the meaning of the Act. Once it is found to be so, otherprovisions relating to the treatment that needs to be given theretoget attracted.”

49. Taking aid of the aforesaid legal principle, it was submittedthat in the present case it will be seen that the CCI, rather arriving at aCfinding with focus on the aforesaid factors, proceeded to analyse factorswhich attach to the general market conditions of the industry to ‘infer’the ‘possibility’ of bid rigging and then concluded that the ‘facilitatingfactors’ which may be ‘considered conducive for cartelisation’ arepresent. The D.G. found that ‘in all the probability, prices were fixedDthere at the meeting in Bombay in collusion with each other. Such aninference and assumption based on ‘higher chances’, ‘probability’,‘tendencies’ or ‘likelihood’ by the CCI does not meet the requirement ofthe definition contained in Explanation to Section 3(3) and certainly doesnot constitute a finding of ‘bid rigging’ as defined therein. The Tribunalhas also proceeded on the basis that it ‘is to be deduced....that theseEmeetings did relate to the tender offers’. There was, thus, not clearcut,precise and consistent evidence to support that the alleged bid riggingtook place.

50. Next submission of Mr. Shergil was that apart from the completeabsence of a finding of bid rigging, in the present IOCL tender, as aFmatter 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 forbids, the report of D.G. itself finds that out of the 60 bidding parties 37entities were not belonging to any single group and are independentlycontrolled. Hence, straight away there is no case of ‘eliminating orGreducing competition for bids’ which is one of the possible ingredients ofbid rigging as there were 37 entities who were free of mind to participateand 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 H

that the submission of bids by the appellant (even if identical) can haveno 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/baseprocurement price of Rs. 1106.61 per cylinder. IOCL then works out anestimated rate per State based on certain factors peculiar to that Statesuch as octroi, freight etc. The bid offered by the L1 (lowest bidder) isthen subject to further downward negotiations by IOCL as per the tenderclause and a further finalised rate is arrived at. Such finalised rate iseventually even lower[10] than the L1 bid amount. Thus, factually, logicallyand in reality any bid submitted by any party can never be one which issaid to adversely affect or manipulate the bidding process. All of thisinformation is with IOCL as part of its bidding process preparations,estimates and financial workings and could easily have been taken intoconsideration. In support, Mr. Shergil also referred to the terms andconditions of the IOCL tender.

52. His further submission was that CCI, or for that matterCOMPAT, were wrong in getting influenced by the submissions ofidentical bids by the appellants as it could not be, ipso facto, inferanceof bid rigging. Such identical prices could be for various reasons and heshared that the reasons given by Ms. Divan predicated her submissionson oligopsony/monopsony. In addition, he relied upon the judgment ofthis 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 ofa cartel by some of the manufacturers which amounts to an unfairtrade practice, depends upon the available evidence and thesurrounding circumstances. In the instant case, initially the TenderCommittee formed the opinion that the three big manufacturersformed a cartel on the ground that the price initially quoted bythem 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 muchlesser price. As noticed above it cannot positively be concludedon the basis of these two circumstances alone. In the past these 10 With the sole exception of the Andaman & Nicobar Islands as it has unique implication of transport related costs.11 (1993) 3 SCC 499

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Athree big manufacturers also offered their own quotations andthey were allotted quantities on the basis of the existing practice.However, a mere quotation of identical price and an offer of furtherreduction by themselves would not entitle them automatically tocorner the entire market by way of monopoly since the finalallotment of quantities vested in the authorities who in theirBdiscretion can distribute the same to all the manufacturers includingthese three big manufacturers on certain basis. No doubt therewas an apprehension that if such predatory price has to beaccepted the smaller manufacturers will not be in a position tocompete and may result in elimination of free competition. ButCthere again the authorities reserved a right to reject such lowerprice. Under these circumstances though the attitude of thesethree big manufacturers gave rise to a suspicion that they formeda cartel but there is not enough of material to conclude that in factthere was such formation of a cartel. However, such an opinionentertained by the concerned authorities including the MinisterDwas not malicious nor was actuated by any extraneousconsiderations. They entertained a reasonable suspicion based onthe record and other surrounding circumstances and only acted ina bona fide manner in taking the stand that the three bigmanufacturers formed a cartel.”

E53. Some literature on the ‘theory of oligopolistic interdependence’as well as judgments of the European Union and European Commissionwere also cited.

54. Mr. Pradeep Aggarwal, in addition, argued that though therewas no positive finding of cartelisation and the conclusion was merelyFpresumptive, even if it is accepted that there was such an agreement ofbid rigging or collusive bidding, there was no presumption of ‘appreciableadverse effect on competiiton’. In the alternative, he submitted thatthere was, in fact, no appreciable adverse effect on competition in thepresent case and the said presumption totally was rebutted by producingGsufficient evidence on record.

55. Various other counsel also argued on the same lines and inaddition referred to facts or their specific cases and it is not necessaryto state all those arguments to avoid repetition.

56. Per contra, Mr. Salman Khurshid, learned senior counsel H

appearijng for CCI highlighted the purpose for which the Act is enactedand, in particular, objective behind Section 3 of the Act, whch is takennote of by this Court in Excel Crop Care Limited as well as WestBengal Artists Association. Insofar as instant case is concerned, hissubmission was that it is a stark and clear-cut case of bid rigging as aresult of anti-competitive agreement amongst LPG manufacturers inrespect of a tender (Tender No. LPG-O/M/PT-03/09-10) floated byIOCL for procurement of approximately 1,05,00,000 (105 laks) LPGCylinders. This is a matter of serious public concern because thesecylinders were to be used to supply Liquefied Petroleum Gas (LPG) fordomestic consumption across 25 States. A rise in price resulting fromanti-competitive activities would affect the cost of living for the commonman, and has serious ramifications for the economy as a whole.

57. Mr. Khurshid referred to the findings of the CCI as approvedby COMPAT and submitted that there was a strong economic evidenceof collusion which is evident from the following aspects:

(a) Identical or near-identical bidding by all 50 empaneled LPGvendors resulting in bid rigging.

(b) Results of the tender revealed that these bids were made insuch a way that all the bidders were awarded some portion of thetender and no bidder was left empty handed, i.e., Market SharingArrangement.

(c) Geographical/Territorial allocation of market, i.e., the bids wereplaced in such a way that entities located in the northern parts ofthe country were awrded the tender in the northern States, entitieslocated in the southern parts were awarded the tender in respectof southern States etc.

(d) No plausible economic rationale or explanation was forthcomingfor the identical bids, despite obvious difference in cost ofproduction, location, input cost etc.

(e) The overall effect of increase in price of procurement of LPGCylinders over previous years.

58. He also submitted that pattern of identical and near identicalbids, which was all pervasive through out, could not be brushed asidelightly as that was the clear indicator of price bidding as a result ofagreement between the parties. The analysis of the bids also shows A

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Athat it had already been decided amongst the LPG Cylindermanufacturers as to who the L1 and L2 bidders were going to be priorto submission of bids. For instance, in the State of Punjab, the L1 bidder(Shri Ram Cylinders) bid Rs. 1080 whereas the four L2 bidders placedidentical bids at Rs, 1080.50, i.e., a difference of only 50 paise from theL-1 bid. Similarly, in Rajasthan, the L-1 bidder (M/s. Rajasthan Cylinders)Bquoted Rs. 1130, whereas nine L2 bidders quoted identically by just 50paise more, at Rs. 1130.50. This pattern is repeated across a number ofStates.

59. Not only this, in order to achieve the pre-decided outcome,some of the bidders hastily made corrections to their bid documents.COne such case is that of M/s. Jesmajo Industrial Fabrications (appellantin C.A. No. 4868 of 2014). In the bid documents, the bid of Rs. 1103was cut-corrected to make it Rs. 1103.60 even though the calculation ofVAT was done only on the figure of |Rs. 1103. The Director Generalhas commented on this aspect as follows:D“6.13…...That bids were submitted after mutual discussion isapparent from the tender documents of Jesmajo IndustrialFabricators P. Ltd. (Exhibit 4P). There are cuttings in the tenderdocuments and financial bids of the company. Since, there werediscussions among all oil companies, the company might haveEdecided to make alterations in the financial bids. However, evenin the financial bids of the company, it is noted that despitealterations, errors have remained. It seems that the company had-originally quoted Rs. 1103/ as the rate. Subsequently it changedthe rates to Rs. 1103.60. However, VAT rate in the bid had beencalculated on Rs. 1103/- only instead of Rs. 1103.60. Thus, whileFother component of rates has been changed/altered, the calculationof VAT has been done on Rs. 1103 (originally quoted) instead ofRs. 1103.60 (altered quote). This appears to have been done tomatch rates with other bidders who have quoted the similar ratesin the State of Karnataka and to let Sanghvi group be L-1 in thatGState.”

60. Mr. Khurshid also refuted the submisison of the appellantsthat there was no competition and, therefore, Section 3 was not applicable.According to him, if the matters are examined on such basis most of theculprits will get away. The purpose of the Act was not only to eliminateHcartelisation but also to promote competition. His submission was that once the findings of the CCI and COMPAT are accepted that there wasan agreement, such an agreement was obviously for the purpose ofcurbing the competition.

61. Answering the argument of ‘price parallelism’ which accordingto the appellants resulted in identical and near identical bids, Mr. Khurshidargued that legal submission in this respect was settled by this Court inExcel Crop Care case wherein such an argument was rejected in thefollowing words:

“48…It was argued that since dominant position is enjoyed by thebuyer, it leads to parallel pricing and this conscious parallelismtakes place leading to quoting the same price by the suppliers.The explanation, thus, given for quoting identical price was theaforesaid economic forces and not because of any agreement orarrangement between the parties. It was submitted that merelybecause same price was quoted by the appellants in respect ofthe 2009 FCI tender, one could not jump to the conclusion thatthere was some “agreement” as well between these parties, inthe absence of any other evidence corroborating the said factumof quoting identical price. In respect of this submission, MrVenugopal had also referred to a few judgments.

49. The aforesaid argument is highly misconceived. A neat andpellucid reply of Mr. Kaul, which commands acceptance, is thatargument of parallelism is not applicable in bid cases and it fits inthe realm of market economy. It is for this reason that entirehistory of quoting identical price before coming into operation ofSection 3 and which continued much after Section 3 of the Actwas enforced, has been highlighted...”

62. He also referred to the following findings of COMPAT withthe submission that finding of facts need to be accepted:- “36. We are thoroughly convinced by this analysis that all thiscould not have been possible unless there were internal agreementsbetween the concerns. What shocks us is that the quotations ofthe price did match to the last decimal and the quotations in somecases 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 insome of the oral statements of the representatives of these parties,who were examined by the DG, some of them could not even A

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Ajustify these identical prices and tried to say that it was a merecoincidence. We cannot accept the argument of coincidence aswas rightly rejected by CCI. There can be no explanation for thiskind of identical or near identical pricing. The CCI has rightlyconsidered that the manufacturing cost of per cylinder varies in awide spectrum ranging from Rs.870 to Rs.1095.89. If this wasBthe case, the prices had to be different, if they had been offered ina competitive spirit. Either before the CCI or before us no materialwas produced, which would be able to rebut the presumption arisingfrom the identity of rates. The CCI, therefore, rightly concludedthat this identity of prices was sinister and anti-competitive inCnature.”

63. Another feature which Mr. Salman Khurshid pointed out wasthat the analysis of bids revealed that there was a market sharing andterritorial allocation of bids. This, according to him, could be discernedfrom the following evidence emerging from record:

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“Firstly, the economic evidence indicates that there was anunderstanding or arrangement or agreement by which each andevery bidder would get some part of the allocation under the tender.This is clear from the fact that each and every one of the 50bidders who submitted price bids received some part of theEallocation in one or more states, and no one went empty handed.In other words, the purpose of quoting identical bids in manyinstances was to achieve the objective of sharing the market, i.e.,the IOCL requirement across 25 states was ‘shared’ by each ofthe 50 bidders, through concerted action and pre-decidedunderstanding.F

64. Mr. Khurshid also highlighed that in spite of there beingdifference in location of appellant’s units and their input cost, the bidssubmitted by various tenderers were identical and there canot be anyplausible economic rationale for such identical bidding. Therefore, theinference drawn by the CCI as well as COMPAT based on the aforesaidGfeatures and factors was justified and valid in law. He also referred tocertain judgements of this Court as well as other jurisdictions, such as,European Commission and the Court of Justice of European Union towhich 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 alsocounsel for IOCL, we would like to reproduce the relevant provisions ofthe 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 amongstthemselves, limit, control or attempt to control the production,distribution, sale or price of, or, trade in goods or provision ofservices;

67. Section 3 of the Act deals with and prohibits those agreementswhich cause and are likely to cause an appreciable adverse effect oncompetition within india. It reads as under:

“Section 3 : Anti-competitive agreements:-

(1) No enterprise or association of enterprises or person orassociation of persons shall enter into any agreement in respectof production, supply, distribution, storage, acquisition or controlof goods or provision of services, which causes or is likely tocause an appreciable adverse effect on competition within India.

(2) Any agreement entered into in contravention of the provisionscontained in sub-section (1) shall be void.

(3) Any agreement entered into between enterprises or associationsof enterprises or persons or associations of persons or betweenany person and enterprise or practice carried on, or decision takenby, any association of enterprises or association of persons,including cartels, engaged in identical or similar trade of goods orprovision of services, which—

(a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technicaldevelopment, investment or provision of services;

(c) shares the market or source of production or provision ofservices by way of allocation of geographical area of market, ortype of goods or services, or number of customers in the marketor any other similar way; A

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A(d) directly or indirectly results in bid rigging or collusive bidding,shall be presumed to have an appreciable adverse effect oncompetition: Provided that nothing contained in this sub-sectionshall apply to any agreement entered into by way of joint venturesif such agreement increases efficiency in production, supply,distribution, storage, acquisition or control of goods or provision ofBservices.

Explanation.—For the purposes of this sub-section, “bid rigging”means any agreement, between enterprises or persons referredto in sub-section (3) engaged in identical or similar production ortrading of goods or provision of services, which has the effect ofCeliminating or reducing competition for bids or adversely affectingor manipulating the process for bidding.”

68. Certain factors are mentioned in Section 19 of the Act whichhave to be kept in mind while determining whether an agreement has anappreciable adverse effect on competition under Section 3. We reproduceDthis Section hereinbelow:

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

(3) The Commission shall, while determining whether an agreementhas an appreciable adverse effect on competition under section 3,Ehave 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; F

(e) improvements in production or distribution of goods or provisionof services; (f) promotion of technical, scientific and economic developmentby means of production or distribution of goods or provision ofGservices.”

69. In Excel Crop Care Limited, scope of Section 3 of the Actwhich prohibits three kinds of practices as anti-competitive, was takennote of as follows:

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

which are treated as anti-competitive and prohibited. These are: (a) where agreements are entered into by certain personswith a view to cause an appreciable adverse effect on competition; (b) where any enterprise or group of enterprises, which enjoysdominant position, abuses the said dominant position; and

(c) regulating the combination of enterprises by means ofmergers or amalgamations to ensure that such mergers oramalgamations do not become anti-competitive or abuse thedominant 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 aview to cause an appreciable adverse effect of competition. Purposebehind 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 andpurpose of the Act:- “21. In the instant case, we are concerned with the first type ofpractices, namely, anti-competitive agreements. The Act, whichprohibits anti-competitive agreements, has a laudable purposebehind it. It is to ensure that there is a healthy competition in themarket, as it brings about various benefits for the public at largeas well as economy of the nation. In fact, the ultimate goal ofcompetition policy (or for that matter, even the consumer policies)is to enhance consumer well-being. These policies are directed atensuring that markets function effectively. Competition policytowards the supply side of the market aims to ensure thatconsumers have adequate and affordable choices. Another purposein curbing anti-competitive agreements is to ensure “level playingfield” for all market players that helps markets to be competitive.It sets “rules of the game” that protect the competition processitself, rather than competitors in the market. In this way, the pursuitof fair and effective competition can contribute to improvementsin economic efficiency, economic growth and development ofconsumer welfare………..

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proposition that competition is beneficial for the economy.Economists agree that it has an important role to play in improvingproductivity and, therefore, the growth prospects of aneconomy…..

24. Productivity is increased through competition by puttingpressure on firms to control costs as the producers strive to lowertheir production costs so that they can charge competitive prices.It also improves the quality of their goods and services so thatthey correspond to consumers’ demands.

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26. When we recognise that competition has number of benefits,it clearly follows that cartels or anti-competitive agreements causeharm to consumers by fixing prices, limiting outputs or allocatingmarkets. Effective enforcement against such practices has directvisible effects in terms of reduced prices in the market and this isalso supported by various empirical studies.

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27. Keeping in view the aforesaid objectives that need to beachieved, Indian Parliament enacted the Competition Act, 2002.Need to have such a law became all the more important in thewake of liberalisation and privatisation as it was found that thelaw prevailing at that time, namely, Monopolies and RestrictiveTrade Practices Act, 1969 was not equipped adequately enoughto tackle the competition aspects of the Indian economy. The lawenforcement agencies, which include CCI and COMPAT, have toensure that these objectives are fulfilled by curbing anti-competitiveagreements.”

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71. The Court also mentioned, in particular, that competition leadsto economic efficiency, economic growth and development as well asconsumers welfare. The Court also spelled out the manner in whichcompetition contributed to increase economic growth and increasedGproductivity.

72. It follows from the above that whereas on the one hand theeconomic policy of the nation has ushered in the era of liberalisation andglobalisation thereby giving freeplay to the private sector in the mannerof conducting business, at the same time, in public interest and in the H

interest of consumers, a regime of regulators has also been brought toensure certain checks and balances. Since competition among theenterprises or businessmen is treated as service for a public purposeand, therefore, there is a need to curb anti-competitive practices, theCCI is given the task (as a regulator) to ensure that no such anti-competitive practices are undertaken. In fact, Section 18 of the Actcasts a specific and positive obligation on CCI to ‘eliminate’ anti-competitive practices and promote competition, interest of the consmuerand free trade. This objective was also emphasised by this Court inCompetition Commission of India vs. Steel Authority of India Limitedand 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 theyseem to change and evolve over the time. However, it will beuseful to refer to some of the common objectives of competitionlaw. The main objective of competition law is to promote economicefficiency using competition as one of the means of assisting thecreation of market responsive to consumer preferences. Theadvantages of perfect competition are threefold: allocativeefficiency, which ensures the effective allocation of resources,productive efficiency, which ensures that costs of production arekept at a minimum and dynamic efficiency, which promotesinnovative practices. These factors by and large have beenaccepted all over the world as the guiding principles for effectiveimplementation of competition law.”

73. As mentioned above, one of the anti-competitive practices iscartelisation, the essential postulate whereof is agreement betweenenterprises or association of enterprises or persons or associations ofpersons in respect of production, supply, distribution, storage, acquisitionor control of goods or provisions of service, which causes or is likely tocause an appreciable adverse effect on competition within India. Suchan agreement is treated as void. The types of agreement which may fallfoul of Section 3 are mentioned in sub-section (3) thereof. These includesharing the market by way of allocation of geographical areas of market[clause (c)] and the agreements which result in bid-rigging or collusivebidding whether directly or indirectly [clause (d)]. There is a presumptionthat four types of agreements mentioned in sub-section (3) will have anappreciable adverse effect on competition.

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A74. We may also state at this stage that Section 19(3) of the Actmentions the factors which are to be examined by the CCI whiledetermining whether an agreement has an appreciable adverse effecton competition under Section 3. However, this inquiry would be neededin 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, theBagreements of nature mentioned in sub-section (3) are presumed to havean appreciable effect and, therefore, no further exercise is needed bythe CCI once a finding is arrived at that a particular agreement fell inany of the aforesaid four categories. We may hasten to add, however,that agreements mentioned in Section 3(3) raise a presumption that suchCagreements shall have an appreciable adverse effect on competition. Itfollows, as a fortiorari, that the presumption is rebuttable as theseagreements are not treated as conclusive proof of the fact that it wouldresult in appreciable adverse effect on competition. What follows isthat once the CCI finds that case is covered by one or more of theclauses mentioned in sub-section (3) of Section 3, it need not undertakeDany further enquiry and burden would shift upon such enterprises orpersons etc. to rebut the said presumption by leading adequate evidence.In case such an evidence is led, which dispels the presumption, then theCCI shall take into consideration the factors mentioned in Section 19 ofthe Act and to see as to whether all or any of these factors are established.EIf the evidence collected by the CCI leads to one or more or all factorsmentioned in Section 19(3), it would again be treated as an agreementwhich may cause or is likely to cause an appreciable adverse effect ofcompetition, thereby compelling the CCI to take further remedial actionin this behalf as provided under the Act. That, according to us, is thebroad scheme when Sections 3 and 19 are to be read in conjuction.F

75. In these appeals, the Court is concerned with the allegedagreement entered into between the appellants falling in clause (d) ofsub-section (3) of Section 3, which talks of bid rigging or collusive bidding.Therefore, it would be necessary to understand the meaning of theexpression ‘bid rigging’ and ‘collusive bidding’. Explanation to SectionG3, 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 referredto in sub-section (3) engaged in identical or similar production or H

trading of goods or provision of services, which has the effect ofeliminating or reducing competition for bids or adversely affectingor 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 identicalor similar production or trading of goods or provisions of services; and(c) the agreement has the effect of eliminating or reducing competitionof bids or adversely affect or manipulating the process for bidding.

77. Though the expression ‘collusive bidding’ is not defined in theAct, it appears that both ‘bid rigging’ and ‘collusive bidding’ areoverlapping concepts. This position stands accepted in Excel CropCare Limited case which should be found from the following discussiontherefrom:

“38. Mr Neeraj Kishan Kaul, learned Additional Solicitor General,refuted the aforesaid submission with vehemence by urging thatbid rigging and collusive bidding are not mutually exclusive andthese are overlapping concepts. Illustratively, he referred to thefindings of CCI, as approved by COMPAT, in the instant case itselfto the effect that the appellants herein had “manipulated theprocess of bidding” on the ground that bids were submitted on8-5-2009 collusively, which was only the beginning of the anti-competitive agreement between the parties and this continuedthrough the opening of the price bids on 1-6-2009 and thereafternegotiations on 17-6-2009 when all the parties reduced their bidsby same figure of Rs 2 to bring their bid down to Rs 386 per kgfrom Rs 388 per kg. From this example, he submitted that on 8-5-2009 there was a collusive bidding but with concerted negotiationson 17-6-2009, in the continued process, it was rigging of the bidthat was practiced by the appellants. We are inclined to agreewith this pellucid submission of the learned Additional SolicitorGeneral.

39. Richard Whish and David Bailey [Competition Law, 7th Edn.,p. 536.] , in their book, have given illustrations of various forms ofcollusive bidding/bid rigging, which include:

(a) Level tendering/bidding (i.e. bidding at same price — as in thepresent case).

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A(b) Cover bidding/courtesy bidding.

(c) Bid rotation.

(d) Bid allocation.

40. Even internationally, “collusive bidding” is not understood asbeing different from “bid rigging”. These two expressions havebeen used interchangeably in the following internationalcommentaries/glossaries and websites of competition authorities:

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(a) UNCTAD Competition Glossary dated 22-6-2016

“Bid rigging or collusive tendering is a manner in which conspiringcompetitors may effectively raise prices where business contractsare awarded by means of soliciting competitive bids. Essentially,it relates to a situation where competitors agree in advance whowill win the bid and at what price, undermining the very purposeof inviting tenders which is to procure goods or services on themost favourable prices and conditions.”

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(b) OECD Glossary of Industrial Organisation Economics andCompetition Law “Bid rigging is a particular form of collusive price-fixing behaviourby which firms coordinate their bids on procurement or projectcontracts. There are two common forms of bid rigging. In thefirst, firms agree to submit common bids, thus eliminating pricecompetition. In the second, firms agree on which firm will be thelowest bidder and rotate in such a way that each firm wins anagreed upon number or value of contracts.

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Since most (but not all) contracts open to bidding involveGovernments, it is they who are most often the target of bid rigging.Bid rigging is one of the most widely prosecuted forms of collusion.”

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Collusive bidding (tendering) — See “bid rigging”.

(This shows collusive bidding and bid rigging are treated as oneand the same.)

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(c) OECD Guidelines for fighting bid rigging “Bid rigging (or collusive tendering) occurs when businesses, thatwould otherwise be expected to compete, secretly conspire to raise prices or lower the quality of goods or services for purchaserswho wish to acquire products or services through a biddingprocess.”

(d) United States Office of the Inspector General,Investigations (Fraud Indicators Handbook)

“Collusive bidding, price fixing or bid rigging, are commonly usedinterchangeable terms which describe many forms of an illegalanti-competitive activity. The common thread throughout all theseactivities is that they involve any agreements or informalarrangements among independent competitors, which limitcompetition. Agreements among competitors which violate thelaw 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 onquantity, type or size of product.”

(e) Australian Competition and Consumer Commission “Bid rigging, also referred to as collusive tendering, occurs whentwo or more competitors agree they will not compete genuinelywith each other for tenders, allowing one of the cartel membersto ‘win’ the tender. Participants in a bid rigging cartel may taketurns to be the ‘winner’ by agreeing about the way they submittenders, including some competitors agreeing not to tender.”

41. As the Liegeman of the law, it is our task, nay a duty, to giveproper meaning and effect to the aforesaid “Explanation”. It caneasily be discussed that the legislature had in mind that the twoexpressions are interchangeably used. It is also necessary to keepin mind the purport behind Section 3 and the objective it seeks toachieve:

41.1. Sub-section (1) of Section 3 is couched in the negative termswhich mandates that no enterprise or association of enterprisesor person or association of persons shall enter into any agreement, A

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when such agreement is in respect of production, supply,distribution, storage, acquisition or control of goods or provision ofservices and it causes or is likely to cause an appreciable adverseeffect on competition within India. It can be discerned that firstpart relates to the parties which are prohibited from entering intosuch an agreement and embraces within it persons as well asenterprises thereby signifying its very wide coverage. Thisbecomes 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 theagreement. Again it is very wide in its ambit and scope as it coversproduction, supply, distribution, storage, acquisition or control ofgoods or provision of services. The third part pertains to the effectof such an agreement, namely, “appreciable adverse effect oncompetition”, and if this is the effect, purpose behind this provisionis not to allow that. Obvious purpose is to thwart any suchagreements which are anti-competitive in nature and this salubriousprovision aims at ensuring healthy competition. Sub-section (2) ofSection 3 specifically makes such agreements as void.

41.2. Sub-section (3) mentions certain kinds of agreements whichwould be treated as ipso facto causing appreciable adverse effecton 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 couldnever be the intention of the legislature to exclude “collusivebidding” by construing the expression “bid rigging” narrowly. Nodoubt, clause (d) of sub-section (3) of Section 3 uses both theexpressions “bid rigging” and “collusive bidding”, but theExplanation thereto refers to “bid rigging” only. However, it cannotbe said that the intention was to exclude “collusive bidding”. Evenif 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 areinclined to give this meaning to “collusive bidding”. It is more sowhen the expressions “bid rigging” and “collusive bidding” wouldbe overlapping, under certain circumstances which was concededby the learned counsel for the appellants as well.

42. We are, therefore, of the opinion that the two expressions areto be interpreted using the principle of noscitur a sociis i.e. whentwo or more words which are susceptible to analogous meaningsare 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 ofGujarat [Thakorlal D. Vadgama v. State of Gujarat, (1973) 2SCC 413 : 1973 SCC (Cri) 835] and M.K. Ranganathan v. Stateof Madras[M.K. Ranganathan v. State of Madras, (1955) 2SCR 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 ofthe CCI to deal with such matters and the other is factual, which is to beexamined on the basis of facts in these cases. Insofar as the firstcomponent is concerned, having regard to the aforesaid scheme of theAct, we are not convinced with the argument of Ms. Madhavi Divanthat there is no possibility of a competition in these cases and, therefore,CCI had no jurisdiction to carry out any such investigation. The scopeand ambit of the provisions of Section 3 have been considered in detail inExcel Crop Care Limited case. This Section prohibits anti-competitiveagreements and brings about the prime objective of the CompetitionAct. These aspects were noted in Excel Crop Care Limited, relevantportions whereof are already extracted above. We may also quote thefollowing portion from the judgment of this Court in Steel Authority ofIndia Limited wherein objective behind the Act was highlighted in thefollowing manner:

“125. We have already noticed that the principal objects of theAct, in terms of its Preamble and the Statement of Objects andReasons, are to eliminate practices having adverse effect on thecompetition, to promote and sustain competition in the market, toprotect the interest of the consumers and ensure freedom of tradecarried on by the participants in the market, in view of the economicdevelopments in the country. In other words, the Act requires notonly protection of free trade but also protection of consumerinterest. The delay in disposal of cases, as well as unduecontinuation of interim restraint orders, can adversely and AB

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Aprejudicially affect the free economy of the country. Efforts toliberalise the Indian economy to bring it on a par with the best ofthe economies in this era of globalisation would be jeopardised iftime-bound schedule and, in any case, expeditious disposal by theCommission is not adhered to. The scheme of various provisionsof the Act which we have already referred to including SectionsB26, 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 isnot only to illuminate practices having adverse effect on the competitionCbut also to promote and sustain competition in the market. Enforcementprovides remedies to avoid situation that will lead to decrease competitionin the market. Therefore, effective enforcement is important not only tosanction anti-competitive conduct but also to deter future competitivepractices. In the present case itself, there are sixty suppliers of the productDfor which there are three buyers. After all, each supplier would like tobe L-1 or L-2 so that it is able to get order for larger quantities than theother. 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 theelements of healthy competition persists in the market. In any case, it isthe duty of the CCI to ensure that the conditions which have tendency toEkill the competition are to be curbed. It is also the function of the CCI toensure that there is a competition so that benefits of such competitionare reaped by the consumers. However, insofar as certain factual aspectshighlighted by the appellants are concerned, they would be dealt withwhile examining the third proposition, as we deem it more appropriate toFdiscuss these two aspects together.

80. Second proposition of Ms. Divan was that there was nocollusive bidding in the present case. The CCI and COMPAT haverejected this argument in view of the fact that there is an active tradeassociation of the suppliers; a meeting took place couple of days beforeGthe date of bidding; common changes were pointed out by these appellantswho submitted bids on their behalf; and bids were of identical amountsdespite varying cost, which were repetitive in nature. The respondentsmay be right in their submission that there may not be a direct evidenceon the basis of which cartelisation or such agreement between the partiescan be proved as these agreements are normally entered into in closedH

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 thefollowing manner:

“54. The standard of proof required to establish such concert isone of probability and may be established “if having regard to their relation etc., their conduct, and theircommon interest, that it may be inferred that they must beacting together: evidence of actual concerted acting is normallydifficult to obtain, and is not insisted upon” [CIT v. East CoastCommercial Co. Ltd., (1967) 1 SCR 821 : AIR 1967 SC 768]. (SCR p. 829 H)

55. While deciding whether a company was one in which thepublic were substantially interested within the meaning of Section23-A of the Income Tax Act, 1922 this Court said:

“The test is not whether they have actually acted in concertbut whether the circumstances are such that human experiencetells us that it can safely be taken that they must be actingtogether. It is not necessary to state the kind of evidence thatwill prove such concerted actings. Each case must necessarilybe 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 PLCand Distillers Company PLC (Panel hearing on 25-8-1987 and2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)] thequestion before the Takeover Panel was whether Guinness hadacted in concert with Pipetec when Pipetec purchased shares inDistillers Company PLC. Various factors were taken intoconsideration to conclude that Guinness had acted in concert withPipetec to get control over Distillers Company. The Panel said:

“The nature of acting in concert requires that the definition bedrawn in deliberately wide terms. It covers an understandingas well as an agreement, and an informal as well as a formalarrangement, which leads to cooperation to purchase sharesto acquire control of a company. This is necessary, as such A

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Aarrangements are often informal, and the understanding mayarise from a hint. The understanding may be tacit, and thedefinition covers situations where the parties act on the basisof a ‘nod or a wink’…. Unless persons declare this agreementor understanding, there is rarely direct evidence of action inconcert, and the Panel must draw on its experience andBcommon sense to determine whether those involved in anydealings have some form of understanding and are acting incooperation with each other.” [Guinness PLC and DistillersCompany PLC (Panel hearing on 25-8-1987 and 2-9-1987 atp. 10052 — Reasons for decisions of the Panel.)]C81. We would also like to reproduce the following discussion inCommissioner of Income Tax, Bombay City I, Bombay vs. JubileeMills Ltd., Bombay[14]:

“19. At the hearing a point was raised that it has to be proved asa fact that the persons constituting the group which owns sharesDcarrying more than seventy-five per cent of the voting power,were acting in unison. The test is not whether they have actuallyacted in concert but whether the circumstances are such thathuman experience tells us that it can safely be taken that theymust be acting together. It is not necessary to state the kind ofEevidence that will prove such concerted actings. Each case mustnecessarily be decided on its own facts. The exclusion of “public”in the manner indicated generally from more than 75% of theshares and the concentration of such a holding in a single personor a group acting in concert is what attracts Section 23(A).”

F82. It is also significant to state that respondents had drawnattention of this Court to OECD Policy Roundtables Prosecuting Cartelswithout Direct Evidence 2006 which discussed the nature of evidencethat is required for proving cartel agreement, relevant portion thereofcontained in para 2 of the said Policy is reproduced below:

G“Available evidence for proving cartel agreements 2.1 Categories of evidence Evidence used to prove a cartel agreement can be classified intotwo types: direct and circumstantial. Circumstantial evidence, in 14 (1963) 48 ITR 9H

turn, consists of “communication” evidence and economicevidence, which include firm conduct, market structure, andevidence 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 identifyingthe parties to it.

- Oral or written statements by co-operative cartel participantsdescribing the operation of the cartel and their participation in it.

There are different types of circumstantial evidence. One isevidence that cartel operators met or otherwise communicatedbut does not describe the substance of their communications. Itmight be called communication evidence for purposes of thisdiscussion. It includes:

- Records of telephone conversations between competitors(but not their substance), or of travel to a common destination orof participation in a meeting, for example during a tradeconference.

- other evidence that the parties communicated about thesubject e.g., minutes or notes of a meeting showing that prices,demand or capacity utilisation were discussed; internal documentsevidencing knowledge or understanding of a competitors pricingstrategy, such as an awareness of a future price increase by arival.

A broader category of circumstantial evidence is often calledeconomic evidence. Economic evidence identifies primarily firmconduct that suggests that an agreement was reached, but alsoconduct of the industry as a whole, elements of market structurewhich suggest that secret price fixing was feasible, and certainpractices that can be used to sustain a cartel agreement.

Conduct evidence is the single most important type of economicevidence. As noted earlier, observation of certain, suspiciousconduct frequently triggers an investigation of a possible cartel.And as the section in this paper on economics highlights 11 carefulanalysis of the conduct of parties is important to identify behaviours A

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Athat can be characterised as contrary to the parties’ unilateralself-interest and which therefore supports the inference of anagreement. 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 otherBforms of parallel conduct, such as capacity reductions, adoptionof 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:

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-stable market shares

-A history of competition law violations.

Evidence related to market structure can be used primarily toDmake the finding of a cartel agreement more plausible, even thoughmarket structure factors do not prove the existence of such anagreement. Relevant economic evidence relating to marketstructure includes:

-high concentration;

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-low concentration on the opposite side of the market; -high barriers to entry; -high degree of vertical integration; -Standardised or homogeneous product.

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The evidentiary value of structural evidence can be limited,however. There can be highly concentrated industries sellinghomogeneous products in which all parties compete. Conversely,the absence of such evidence cannot be used to show that a carteldid not exist. Cartels are known to have existed in industries withGnumerous competitors and differentiated products.

A specific kind of economic conduct evidence is facilitatingpractices – practices that can make it easier for competitors toreach or sustain an agreement. It is important to note that conductdescribed as facilitating practices is not necessarily unlawful. But H

where a competition authority has found other circumstantialevidence pointing to the existence of a cartel agreement, theexistence of facilitating practices can be an important complement.They can explain what kind of arrangements the parties set up tofacilitate the formation of a cartel agreement, monitoring, detectionof defection, and/or punishment, thus supporting the ‘collusionstory’ put together by the competition law enforcer. Facilitatingpractices 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 formalagreement, when there are indicators that there was practical cooperationbetween the parties which knowingly substitute the risk of competition,that would amount to anti-competitive practices. This has been discussedin Coordination Committee of Artistes and Technicians of WestBengal Film and Television & Ors. (see paras 44 and 45). Then,there are guidelines on the applicability of Article 101 of the Treaty onthe functioning of the E.U. to horizontal cooperation agreements whichrecords as under:

“60. Information exchange can only be addressed under Article101 if it establishes or is part of an agreement, a concerted practiceor a decision by an association of undertakings. The existence ofan agreement, a concerted practice or decision by an associationof undertakings does not prejudge whether the agreement,concerted practice or decision by an association of undertakingsgives rise to a restriction of competition within the meaning ofArticle 101(1). In line with the case-law of the Court of Justiceof the European Union, the concept of a concerted practice refersto a form of coordination between undertakings by which, withoutit having reached the stage where an agreement properly so-calledhas been concluded, practical cooperation between them isknowingly substituted for the risks of competition. The criteria ofcoordination and cooperation necessary for determining the A

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existence of a concerted practice, far from requiring an actualplan to have been worked out, are to be understood in the light ofthe concept inherent in the provisions of the Treaty on competition,according to which each company must determine independentlythe policy which it intends to adopt on the internal market and theconditions which it intends to offer to its customers.

61. This does not deprive companies of the right to adapt themselvesintelligently to the existing or anticipated conduct of theircompetitors. It does, however, preclude any direct or indirectcontact between competitors, the object or effect of which is tocreate conditions of competition which do not correspond to thenormal competitive conditions of the market in question, regardbeing had to the nature of the products or services offered, thesize and number of the undertakings, and the volume of the saidmarket. This precludes any direct or indirect contact betweencompetitors, the object or effect of which is to influence conducton the market of an actual or potential competitor, or to discloseto such competitor the course of conduct which they themselveshave 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 itreduces strategic uncertainty in the market thereby facilitating collusion, that is to say, if the data exchanged is strategic.Consequently, sharing of strategic data between competitorsamounts to concentration, because it reduces the independenceof competitors’ conduct on the market and diminishes theirincentives to compete.

62. A situation where only one undertaking discloses strategicinformation to its competitor(s) who accept(s) it can also constitutea concerted practice. Such disclosure could occur, for example,through contacts via mail, emails, phone calls, meetings etc. It isthen irrelevant whether only one undertaking unilaterally informsits competitors of its intended market behaviour, or whether allparticipating undertakings inform each other of the respectivedeliberations and intentions. When one undertaking alone revealsto its competitors strategic information concerning its futurecommercial policy, that reduces strategic uncertainty as to the

future operation of the market for all the competitors involvedand increases the risk of limiting competition and of collusivebehaviour. For example, mere attendance at a meeting where acompany disclose its pricing plans to its competitors is likely to becaught by Article 101, even in the absence of an explicit agreementto raise prices. When a company receives strategic data from acompetitor (be it in a meeting, by mail or electronically), it will bepresumed to have accepted the information and adapted its marketconduct accordingly unless it responds with a clear statement thatit does not wish to receive such data.”

(emphasis added)

84. According to us, the real question in the present case is as towhether there was a possibility of such an agreement having regard tomarket conditions even when we proceed on the basis that meeting didtake place. Possibility of such an agreement has been inferred by theCCI on the grounds that identical bidding takes place thereafter andvarious suppliers gave such a bid despite varying cost and also that theyhave appoined common changes etc. as pointed out above.

85. The first and foremost issue which needs to be considered isthat whether there was a situation of monopsony or oligopsony.

86. From the aforesaid discussion, it is clear that as far as CCI isconcerned, it has come to the conclusion that there was a cartelisationamong the appellants herein and a concerted decision was taken to rigthe bids which were submitted persuant to the tenders issued by IOCL.On the other hand, the appellants argue that there was no such agreementand even if the bids of many bidders were identical in nature, the bidswere driven by market conditions. Their plea is that there was a situationof oligopsony and the modus which was adopted by IOCL in floating thetenders and awarding the contracts would show that the determinationof price was entirely within the control of the IOCL. As per them, theway price was determined for supply of these cylinders, it had becomean open secret known to everybody. Therefore, there was no questionof any competition and no possibility of adversely affecting thatcompetition by entering into any contract.

87. The factors which have influenced the authorities below incoming to the conclusion that the appellants had colluded and formed a A

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Acartel which led to bid rigging have already been noted above. Torecaptulate, the authorities below have been influenced by the followingfactors:

1. Market conditions

2. Small number of suppliersB

3. Few new entrants

4. Active trade association

5. Repetitive bidding

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7. Few or no substitutes

8. No significant technological changes

9. Meeting of bidders in Mumbai and its agenda.

D10. Appointing common agents

11. Identical bids despite varying cost.

After deliberating on the aforesaid aspects, the CCI has concludedthat there is an active trade association in which many of the appellantsare members. That product in question, namely, gas cylinder is of aEparticular specification which is needed by IOCL in large numbers everyyear and there are very few manufacturers and suppliers of this productto IOCL and two other buyers. For this identical product which is to besupplied by all the suppliers, there is no substitute and no significanttechnology change. Further, there is an active trade association in whichFmost of the appellants are the members. Their interest is to ensure thatno new entrants are able to join. Further, the trade association alsoensures that all the members are able to get some order. It is for thisreason the bids submitted in various standards which are floated by IOCLat different places are almost identical despite varying cost. Theauthorities below attributed this identical bidding to the concerted actionGof the appellants. This has been inferred from the fact that 2-3 daysbefore the submission of bids, meeting of the association took placewhich most of the appellants attended. Not only this, common agents,six in number, were appointed who submitted the bids on behalf of theseappellants.

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88. We may say at the outset that if these factors are taken intoconsideration by themselves, they may lead to the inference that therewas bid rigging. We may, particularly, emphasise the fact that there isan active trade association of the appellants and a meeting of the bidderswas held in Mumbai just before the submission of the tenders. Anothervery important fact is that there were identical bids despite varying cost.Further, products are identical and there are small number of supplierswith few new entrants. These have become the supporting factors whichpersuaded the CCI to come to the conclusion that these are suggestiveof collusive bidding.

89. However, that is only one side of the coin. The aforesaidfactors are to be analysed keeping in mind the ground realities that wereprevailing, which are pointed out by the appellants. These attendantcircumstances are argued in detail by the counsel for the appellantswhich have already been taken note of. We may recapitulate the samein 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 amatter of record that all these appellants are manufacturers of14.2 kg gas cylinders to the three buyers who are available in themarket, namely, IOCL, HPCL and BPCL. If these three buyersdo not purchase from any of the appellants, that particular appellantwould not be in a position to sell those cylinder to any other entityas there are no other buyers.

(ii) There are only three buyers, it may not attract many to enterthe field and manufacture these cylinders. It is because of limitednumber of buyers and for some reason if they do not purchase,the manufacturer would be nowhere. That may deter the personsto enter the field.

(iii) The manner in which the tenders are floated by IOCL and therates at which these are awarded, are an indicator that it is theIOCL which calls the shots insofar as price control is concerned.It has come in evidence that the IOCL undertakes the exercise ofhaving its internal estimates about the cost of these cylinders.Their own expert arrived at a figue of Rs. 1106.61 paisa percylinder. All the tenders which have been accepted are for aprice lesser than the aforesaid estimate of IOCL itself. That apart, AB

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the modus adopted by the IOCL is that that final price is negotiatedby it and the contract is not awarded at the rate quoted by bidderwho turns out to be L-1. Negotiations are held with such a bidderwho is L-1 which generaly leads to further reduction of price thanthe one quoted by L-1. Thereafter, the other bidders who may beL-2 or L-3 etc. are awarded the contract at the rate at which it isawarded to L-1. Thus, ultimately, all the bidders supply the goodsat the same rate which is fixed by the IOCL after negotiating withL-1 bidder. The only difference is that bidder who is L-1 wouldbe able to receive the order for larger quantity than L-2 and L-2may 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 thefray and 12 new entrants were admitted. Number of 12, in sucha scenario, cannot be treated as less. Therefore, the conclusionof CCI that the appellants ensured that there should not be entryof new entrant may not be correct.

(v) Since there are not many manufacturers and supplies areneeded by the three buyers on regular basis, IOCL ensures thatall those manufacturers whose bids are technically viable, aregiven some order for the supply of specific cylinder. For thispurpose, it has framed its broad policy as well. This also showsthat control remains with IOCL.

Thus, the appellants appear to be correct when they say thatall the participants in the bidding process were awarded contractsin some State or the other which was aimed at ensuring a biggerpool of manufacturers so that the supply of this essential productis always maintained for the benefit of the general public. HadIOCL left some manufacturers empty handed, in all likelihood,they would have shut their shops. However, IOCL wanted allmanufacturers to be in the fray in its own interest. Therefore, itwas necessary to keep all parties afloat and this explains why all50 parties obtained order along with 12 new entrants.

(vi) There is another very relevant factor pointed out by theappellants, viz., the governmental control which is regulated bylaw. As pointed out above, it is not only the three oil companieswhich 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 EssentialCommodities Act, 1955, even the price at which the LPG cylinderis to be supplied to the consumer is controlled by the Government.Following features of the aforesaid LPG Order, 2000, aresignificant:

• The LPG supplied in 14.2 kg gas cylinders is an essentialcommodity.

• The distribution of LPG in 14.2 kgs cylinders takes place aspart of a public distribution system defined under clause 2(1) ofthe Order as “the system of distribution, marketing or selling ofliquified petroleum gas by a Government Oil Company at theGovernment controlled or declared price through a distributionsystem 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 onlyin 14.2 kg gas cylinders.

• According to clauses 4 and 5 read with Schedule III of theLPG Order, parallel marketeers who supply and distribute LPGcylinders, may do so only for cylinders with size and specificationsother than those specified in Schedule II.

90. The manner in which tendering process takes place wouldshow that in such a competitive scenario, the bid which the differentbidder would be submitting becomes obvious. It has come on record thatjust a few days before the tender in question, another tender was floatedby 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 aguiding factor for the bidders to submit their bids.

91. When we keep in mind the aforesaid fact situation on theground, those very factors on the basis of which the CCI has come tothe conclusion that there was cartelization, in fact, become validexplanations to the indicators pointed out by the CCI. We have alreadycommented about the market conditions and small number of suppliers.We have also mentioned that 12 new entrants cannot be considered as A

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Aentry of very few new suppliers where the existing suppliers were only50. Identical products along with market conditions for which there wouldbe only three buyers, in fact, would go in favour of the appellants. Thefactor of repetitive bidding, though appears to be a factor against theappellants, was also possible in the aforesaid scneario. The prevailingconditions in fact rule out the possibility of much price variations and allBthe manufacturers are virtually forced to submit their bid with a pricethat is quite close to each other. Therefore, it became necessary tosustain themselves in the market. Hence, the factor that these suppliersare from different region having different cost of manufacture wouldlose its significance. It is a situation where prime condition is to quoteCthe price at which a particular manufacturer can bag an order evenwhen its manufacturing cost is more than the manufacturing cost ofothers. The main purpose for such a manufacuring would be to remainin the fray and not to lose out. Therefore, it would be ready to acceptlesser margin. This would answer why there were near identical bidsdespite varying cost.D

92. Insofar as meeting of bidders in Mumbai just before the dateof submission of tender is concerned, some aspects pointed out by theappellants are not considered by the CCI or the COMPAT at all. Nodoubt, the meeting took place a couple of days before the date of tender.No doubt, the absence of agenda coming on record would not makeEmuch difference. However, only 19 appellants had attended that meeting.Many others were not even members or did not attend the meeting. Inspite thereof, even they quoted almost same rates as the one who attendedthe meeting. This would lead us to the inference that reason for quotingsimilar price was not the meeting but something else. The question isFwhat would be the other reason and whether the appellants have beenable to satisfactorily explain that and rebut the presumption against them?

93. The explanation is market conditions leading to the situationof oligopsony that prevailed because of limited buyers and influence ofbuyers in the fixation of prices was all prevalent. This seems to beGconvincing in the given set of facts. The situation of oligopsony can beboth ways. There may be a situation where the sellers are few and theymay control the market and by their concerted action indulge intocartelization. It may also be, as in the present case, a situation wherebuyers are few and that results in the situation of oligopsony with thecontrol of buyers.

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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 almost the same rates in their bids. The parameters on the basisof which these aspects are to be judged are stated in Excel Crop CareLimited as follows:

“50. It needs to be emphasised that collusive tendering is a practicewhereby firms agree amongst themselves to collaborate over theirresponse to invitations to tender. Main purpose for such collusivetendering is the need to concert their bargaining power, though,such a collusive tendering has other benefits apart from the factthat it can lead to higher prices. Motive may be that fewercontractors actually bother to price any particular deal so thatoverheads are kept lower. It may also be for the reason that acontractor can make a tender which it knows will not be accepted(because it has been agreed that another firm will tender at alower price) and yet it indicates that the said contractor is stillinterested in doing business, so that it will not be deleted from thetenderee’s list. It may also mean that a contractor can retain thebusiness of its established, favoured customers without worryingthat they will be poached by its competitors.

51. Collusive tendering takes many forms. Simplest form is toagree to quote identical prices with the hope that all will receivetheir fair share of orders. That is what has happened in the presentcase. However, since such a conduct becomes suspicious andwould easily attract the attention of the competition authorities,more subtle arrangements of different forms are also madebetween colluding parties. One system which has been noticedby certain competition authorities in other countries is to notifyintended quotes to each other, or more likely to a Central secretariat,which will then cost the order and eliminate those quotes that itconsiders would result in a loss to some or all members of thecartel. Another system, which has come to light, is to rotate orders.In such a case, the firm whose turn is to receive an order willensure that its quote is lower than the quotes of others.

52. We are here concerned with parallel behaviour. We areconscious of the argument put forth by Mr Venugopal that in an A

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oligopoly situation parallel behaviour may not, by itself, amount toa concerted practice. It would be apposite to take note of thefollowing observations made by European Court of Justice inDyestuffs:

“By its very nature, then, the concerted practice does not haveBall the elements of a contract but may inter alia arise out ofcoordination which becomes apparent from the behaviour ofthe participants. Although parallel behaviour may not itselfbe identified with a concerted practice, it may howeveramount to strong evidence of such a practice if it leads toconditions of competition which do not respond to the normalCconditions of the market, having regard to the nature of theproducts, the size and number of the undertakings, and thevolume of the said market. Such is the case especially wherethe parallel behaviour is such as to permit the parties to seekprice equilibrium at a different level from that which wouldDhave resulted from competition, and to crystallise the statusquo to the detriment of effective freedom of movement of theproducts in the [internal] market and free choice by consumersof their suppliers.”

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At the same time, the Court also added that the existence of aconcerted practice could be appraised correctly by keeping inmind the following test:

“If the evidence upon which the contested decision is based isconsidered, not in isolation, but as a whole, account being takenFof the specific features of the products in question.”

Having regard to the aforesaid principles in mind, we deal withthe arugment on oligopsony raised by the appellants.

95. Monopsony consists of a market with a single buyer. Whenthere are only few buyers the market is described as an oligopsony.GWhat is emphasised is that in such a situation a manufacturer with nobuyers will have to exit from the trade. Therefore, first condition ofoligopsony stands fulfilled. The other condition for the existence ofoligopsony is whether the buyers have some influence over the price oftheir inputs. It is also to be seen as to whether the seller has any ability H

to raise prices or it stood reduced/eliminated by the aforesaid buyers.

96. On a hollistic view of the matter, we find that the appellantshave been able to discharge the onus by referring to various indicatorswhich go on to show that parallel behaviour was not the result of anyconcerted practice.

97. In Dyestuffs, the European Court held that parallel behaviourdoes not, by itself, amount to a concerted practice, though it may providea strong evidence of such a practice. Nevertheless, it is a strong evidenceof such a practice. However, before such an inference is drawn it hasto be seen that this parallel behaviour has led to conditions of competitionwhich do not correspond to the normal conditions of the market, havingregard to the nature of the products, size and volume of the undertakingof the said market. Thus, we examine the matter from the stand point ofmarket economy where question of oligopsony assumes relevance.Whenever there is a situation of oligopsony, parallel pricing simplicitorwould not lead to the conclusion that there was a concerted practicethere has to be other credible and corroborative evidence to show that inan oligopoly a reduction in price would swiftly attract the customers ofthe other two or three rivals, the effect upon whom would be sodevastating that they would have to react by matching the cut. In RichardWhish & 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 thecustomers of the other two or three rivals, the effect upon whomwould be so devastating that they would have to react by matchingthe cut. Similarly an oligopolist could not increase its priceunilaterally, because it would be deserted by its customers if it didso. Thus the theory runs that in an oligopolistic marketrivals are interdependent: they are acutely aware of eachother’s presence and are bound to match one another’smarketing strategy. The result is that price competitionbetween them will be minimal or non-existent; oligopolyproduces non-competitive stability…..

...Oligopolists recognize their interdependence as well as theirown self-interest. By matching each other’s conduct they 15 Seventh Edition; Chapter 14-Horizontal agreements (w)-oligopoly, tacit collusion and collective dominance; Pg 561-562, 565-566

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will be able to achieve and charge a profit-maximising pricewhich will be set at a supra-competitive level, withoutactually communicating with one another. There does notneed to be any communication: the structure of the marketis such that, through interdependence and mutual self-awareness, prices will rise towards the monopolistic level….

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…..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 bydeconcentrating the market. Unless this is done, there will be anarea of consciously parallel action in pricing strategies which isbeyond the reach of laws against cartels and yet which has seriousimplications for consumers welfare.

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(iii) A regulatory approach

A different possibility would be to regulate the prices ofundertakings that operate in an oligopolistic environment. This,however, would be a counsel of despair. As a matter of policydirect regulation should be a remedy of last resort. CompetitionEauthorities should not be price regulators; they should be theguardians of the competitive process. Where markets areoligopolistic and entry is limited, competition authoritiesshould be concerned with the question of whether thereare barriers to entry and whether the state itself, for examplethrough restrictive licensing rules, regulation or legislation,Fis responsible for a lack of competition.”

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98. In Theatre Enterprises v. Paramount Films[16], the SupremeCourt of United States held as under:

“1-3 The crucial question is whether respondents’ conduct towardGpetitioner stemmed from independent decision or from anagreement, tacit or express. To be sure, business behavior isadmissible circumstantial evidence from which the fact finder mayinfer agreement. Interstate Circuit.

But this Court has never held that proof of parallel business behaviorconclusively establishes agreement or, phrased differently, thatsuch behavior itself constitutes a Sherman Act offence.Circumstantial evidence of consciously parallel behavior may havemade heavy inroads into the traditional judicial attitude towardconspiracy; but “conscious parallelism” has not yet read conspiracyout of the Sherman Act entirely.”

99. In this regard, the test laid down by the Supreme Court ofUnited States in Monsanto Co. v. Spray-Rite Service Corp.[17]is relevantand is reproduced hereunder:

“The correct standard is thatthere must be evidence that tendsto exclude the possibilitythat the manufacturer and non-terminated distributors were acting independently. That is, theremust be direct or circumstantial evidence that reasonably tends toprove that the manufacturer and others had a consciouscommitment to a common schemedesigned to achieve anunlawful objective.”

100. This test was reiterated by the Supreme Court of UnitedStates in Matsushita v. Zenith Ratio Corp.[18]:

“…..But antitrust law limits the range of permissible inferencesfrom ambiguous evidence in a 1 case. Thus, in Monsanto Co. v.Spray-Rite Service Corp., 465 U.S. 752 (1984), we held thatconduct as consistent with permissible competition as with illegalconspiracy does not, standing alone, support an inference ofantitrust conspiracy. Id., at 764. See also Cities Service, supra, at280. To survive a motion for summary judgment or for a directedverdict, a plaintiff seeking damages for a violation of 1 must presentevidence “that tends to exclude the possibility” that the allegedconspirators 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 hadevery incentive not to engage in the conduct with which they arecharged, for its likely effect would be to generate losses forpetitioners with no corresponding gains. Cf. Cities Service, 391U.S., at 279 . The Court of Appeals did not take account of the 17 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984)

18 475 U.S. 574 (1986)

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absence of a plausible motive to enter into the alleged predatorypricing conspiracy. It focused instead on whether there was “directevidence of concert of action.” 723 F.2d, at 304. The Court ofAppeals erred in two respects: (i) the “direct evidence” on whichthe court relied had little, if any, relevance to the alleged predatorypricing conspiracy; and (ii) the court failed to consider the absenceof a plausible motive to engage in predatory pricing…..

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Lack of motive bears on the range of permissible conclusions thatmight be drawn from ambiguous evidence: if petitioners had norational economic motive to conspire, and if their conduct isconsistent 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 bya contract, combination, or conspiracy,” CopperweldCorp. v. Independence Tube Corp.,467 U.S. 752,775(1984),“[t]he crucial question” is whether the challenged anticompetitiveconduct “stem[s] from independent decision or from an agreement,tacit or express,” Theatre Enterprises, 346 U. S., at 540. Whilea showing of parallel “business behavior is admissible circumstantialevidence from which the fact finder may infer agreement,” itfalls short of “conclusively establishing agreement or … itselfconstituting a Sherman Act offense.” Id., at 540–541. Even“conscious parallelism,” a common reaction of “firms in aconcentrated market [that] recogniz[e] their shared economicinterests and their interdependence with respect to price and outputdecisions” is “not in itself unlawful.” Brooke Group Ltd. v. Brown& Williamson Tobacco Corp., 509 U. S. 209,227(1993) ; see 6P. Areeda & H. Hovenkamp, Antitrust Law 1433a, p. 236 (2d ed.2003) (hereinafter Areeda & Hovenkamp) (“The courts are nearlyunanimous in saying that mere interdependent parallelism doesnot establish the contract, combination, or conspiracy required by Sherman Act §1”); Turner, The Definition of Agreement Underthe Sherman Act: Conscious Parallelism and Refusals to Deal,75Harv. L. Rev. 655, 672 (1962) (“[M]ere interdependence ofbasic price decisions is not conspiracy”).

[4-6] The inadequacy of showing parallel conduct orinterdependence, without more, mirrors the ambiguity of thebehavior: consistent with conspiracy, but just as much in line witha wide swath of rational and competitive business strategyunilaterally 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 fromFantasy, Related Publication 06–08, pp. 3–4 (2006) (discussingproblem of “false positives” in §1 suits). Accordingly, we havepreviously hedged against false inferences from identical behaviorat a number of points in the trial sequence. An antitrust conspiracyplaintiff with evidence showing nothing beyond parallel conduct isnot entitled to a directed verdict, see Theatre Enterprises,supra; proof of a §1 conspiracy must include evidence tending toexclude the possibility of independent action, see MonsantoCo. v. Spray-Rite Service Corp., 465 U. S. 752 (1984); and atthe summary judgment stage a §1 plaintiff’s offer of conspiracyevidence must tend to rule out the possibility that the defendantswere acting independently, see Matsushita Elec. IndustrialCo. v. Zenith Radio Corp., 475 U.S. 574(1986).”

102. After taking note of the test that needs to be applied in suchcases, which was laid down in Dyestuffs and accepted in Excel CropCare Limited, we come to the conclusion that the inferences drawn bythe CCI on the basis of evidence collected by it are duly rebutted by theappellants and the appellants have been able to discharge the onus thatshifted upon them on the basis of factors pointed out by the CCI.However, at that stage, the CCI failed to carry the matter further byhaving required and necessary inquiry that was needed in the instantcase.

103. We are emphasising here that in such a watertight tenderpolicy of IOCL which gave IOCL full control over the tendering process,it was necessary to summon IOCL. This would have cleared manyaspects which are shrouded in mystery and the dust has not been cleared.

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A104. We, thus, arrive at a conclusion that there is no sufficientevidence to hold that there was any agreement between the appellantsfor bid rigging. Accordingly, we allow these appeals and set aside theorder of the Authorities below. As a consequence, since no penalty ispayable, appeals of the CCI are rendered infructuous and dismissed assuch. All the pending applications stand disposed of.

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No orders as to costs.

Kalpana K. Tripathy

Appeals disposed of.

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