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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3546 OF 2014

RAJASTHAN  CYLINDERS  AND CONTAINERS LIMITED

.....APPELLANT(S)

VERSUS

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

W I T H

CIVIL APPEAL NO. 4280 OF 2014

CIVIL APPEAL NO. 4346 OF 2014

CIVIL APPEAL NO. 4649 OF 2014

CIVIL APPEAL NO. 4342 OF 2014

CIVIL APPEAL NO. 4879 OF 2014

CIVIL APPEAL NO. 4868 OF 2014

CIVIL APPEAL NO. 6033 OF 2014

CIVIL APPEAL NO. 5771 OF 2014

CIVIL APPEAL NO. 5772 OF 2014

CIVIL APPEAL NO. 5035 OF 2014

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CIVIL APPEAL NO. 5773 OF 2014

CIVIL APPEAL NO. 5649 OF 2014

CIVIL APPEAL NO. 5650 OF 2014

CIVIL APPEAL NO. 5651 OF 2014

CIVIL APPEAL NO. 4972 OF 2014

CIVIL APPEAL NO. 6661 OF 2014

CIVIL APPEAL NO. 7102 OF 2014

CIVIL APPEAL NO. 6868 OF 2014

CIVIL APPEAL NO. 7214 OF 2014

CIVIL APPEAL NO. 6025 OF 2014

CIVIL APPEAL NO. 6365 OF 2014

CIVIL APPEAL NOS. 5993-5994 OF 2014

CIVIL APPEAL NO. 5774 OF 2014

CIVIL APPEAL NO. 5775 OF 2014

CIVIL APPEAL NO. 5776 OF 2014

CIVIL APPEAL NOS. 5832-5833 OF 2014

CIVIL APPEAL NO. 5777 OF 2014

CIVIL APPEAL NO. 5778 OF 2014

CIVIL APPEAL NO. 6317 OF 2014

CIVIL APPEAL NO. 8953 OF 2014

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CIVIL APPEAL NO. 6372 OF 2014

CIVIL APPEAL NO. 6373 OF 2014

CIVIL APPEAL NO. 6366 OF 2014

CIVIL APPEAL NO. 6367 OF 2014

CIVIL APPEAL NO. 6374 OF 2014

CIVIL APPEAL NO. 6368 OF 2014

CIVIL APPEAL NO. 6364 OF 2014

CIVIL APPEAL NO. 6369 OF 2014

CIVIL APPEAL NO. 6370 OF 2014

CIVIL APPEAL NO. 10579 OF 2014

CIVIL APPEAL NO. 1724 OF 2015

CIVIL APPEAL NOS. 5277-5278 OF 2016

CIVIL APPEAL NOS. 5281-5315 OF 2016

AND

CIVIL APPEAL NO. 7359 OF 2016

J U D G M E N T

A.K. SIKRI, J.

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All these appeals are filed against the orders dated 20 th December,

2013 passed by the Competition Appellate Tribunal (hereinafter referred to

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

appellants hereinafter.

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

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

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

Bharat  Petroleum  Corporation  Ltd.  (BPCL)  and  Hindustan  Petroleum

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

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

buyers for  these cylinders manufactured by the appellants.   Insofar  as

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

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

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

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

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

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

companies  had  entered  into  an  arrangement/agreement  insofar  as

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

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

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

COMPAT.  

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

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

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

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

discussion as recorded by the COMPAT.

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

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

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

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

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

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

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

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

pursuance  of  its  duties  under  Section  18  felt  that  investigation  was

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

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

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

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

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

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

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

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

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

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

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

States.  The  Director  General  had  observed  that  there  were  strong

indications of  some sort  of  agreement  and understanding amongst  the

bidders to manipulate the process of bidding.

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

Director  General  after  careful  consideration  submitted  a  detailed

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

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

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

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

passed the order in question.

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

IOCL in the tender was as under :-

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

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

submit the price bids and technical bids.

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

keeping with their installed capacity.

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

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

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

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

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

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

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

documents.

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

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

negotiations.

vii) One bidder could quote for maximum eight States.

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

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

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

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

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

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

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

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

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

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

said  to  be  belonging  to  any  single  group  and  were  independently

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

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

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

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

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

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

the States.

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

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

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

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

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

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

or near to identical rates.

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

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

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

factories located in different place.

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

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

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

effect that the LPG Cylinder Manufacturers had formed an Association in

the  name  of  Indian  LPG Cylinders  Manufacturers  Association  and  the

members were interacting through this  Association and were using the

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

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

were held on 1st and 2nd March, 2010 in Hotel Sahara Star in Mumbai. As

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

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

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

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

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

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

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

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

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

services.  

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

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

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

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

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

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

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

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

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

objections.

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

considering  the  same,  the  CCI  formulated  the  following  issue  for

determination:-

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

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

answered the issue against the Cylinders Manufacturers and inflicted the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

was noticed by the Director General.

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

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

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

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

bidders, there were group companies controlled by single management.  

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

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

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

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

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

inference holding that there was element of agreement and considered the

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

1. Market conditions  

2. Small number of suppliers  

3. Few new entrants

4. Active trade association

5. Repetitive bidding  

6. Identical products  

7. Few or no substitutes  

8. No significant technological changes  

9. Meeting of bidders in Mumbai and its agenda.  

10. Appointing common agents  

11. Identical bids despite varying cost.    

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

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

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

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

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

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

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

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

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

considered the various arguments and repelled those arguments. The CCI

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

this Court in Union of India vs. Hindustan Development Corporation1. It

also took into consideration the arguments raised by the individual parties

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

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

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

the Act.  

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

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

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

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

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

Admittedly there were meetings in Hotel Sahara Star, Mumbai on 1st and 1 (1993) 3 SCC 499

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2nd March, 2010 which were attended by some of the appellants.  The D.G.

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

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

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

meeting and those who attended the meeting maintained that nothing was

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

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

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

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

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

also not produced.

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

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

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

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

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

abandoned the membership by not contributing the subscription in the later

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

an association called Indian LPG Cylinder Manufacturers’ Association.

It  was  a  registered  association,  its  Memorandum  of  Association

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

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

a definite platform available for all cylinder manufacturers and practically

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

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

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

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

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

 Though some of  the appellants had contended that  they had not

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

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

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

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

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

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

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

common  agents  at  Mumbai  who  were  instructed  to  watch  the  prices

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

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

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

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

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

access  to  each  other  through  their  association  which  was  an  active

association.   The existence of  such an association under  the aegis  of

which meetings took place just before the submission of tender has been

noted as a very relevant factor by the COMPAT in affirming the findings of

CCI  on  cartelisation  and  it  summed  up  the  position  in  the  following

manner:

“26. What is important is not whether a particular appellant was  a  member  of  the  association  or  not.  The  existence  of  an association  is  by  itself  sufficient,  as  it  gives  opportunity  to  the competitors  to  interact  with  each  other  and  discuss  the  trade problems. There will be no necessity to prove that any party actually discussed the prices by actively taking part in the meeting. If there is a direct evidence to that effect that is certainly a pointer towards the fact  that  such  party  had  a  tacit  agreement  with  its  competitors. However, the existence of an association and further holding of the meetings just one or two days prior to the last date of making offers and  further  admission  that  the  parties  had  appointed  common agents with the instructions to keep watch on the prices quoted by the competitors would go a long way in providing plus factors in favour of the agreement between the parties. All these factors would form a back drop, in the light of which, the further evidence about agreement  would  have  to  be  appreciated.  We  have  seen  the comments of Director General as also the findings of the CCI. We are convinced that CCI has not committed any error in considering all these factors as plus factors  to  come  to  the  conclusion  that  there  was  a  concerted agreement between the parties on the basis of which the identical or near identical prices came to be quoted in tenders for the supply of cylinders to the 25 States. In view of this, we need not dilate on the individual claims by some of the appellants that they were not the members  of  the  association  or  that  they  were  only  the  dormant members  or  that  they had abdicated their  membership.  We also

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need not go on the claim that while the meeting was attended by the 19 parties as held by the D.G. and confirmed by the CCI, it was not attended by the rest of the appellants because that would be of no consequence.  Once  there  was  a  meeting,  there  was  every opportunity to discuss or to communicate to each other whatever transpired in the meeting.

27. We have seen the order of the CCI and while commenting about the  meeting,  the  CCI  has  painstakingly  noted  the  details  of  that meeting. The CCI has referred to the evidence of Mr. Dinesh Goyal, who  was  an  active  member  of  the  Indian  LPG  Cylinder Manufacturers’  Association  and  noted  that  he  had  attended  the meeting.  He  has  also  referred  to  the  statement  of  Mr.  Sandeep Bhartia  of  Carbac  Group  though  initially  he  denied  to  have organized the conference, he later on had confirmed about such a conference having  been held  along with  Mr.  Sandeep Bhartia  of Carbac Group. The CCI also noted that he admitted that in such meetings  there  were  discussions  on  pre-bid  issues.  He  also admitted that though there are about 50 competitors, in fact about 25 persons control the whole affairs. From this evidence, the CCI correctly  deduced  that  pre-bid  issues  were  discussed  in  that meeting.  The  CCI  has  then  referred  to  the  evidence  of  Mr. Manvinder Singh of Bhiwadi Cylinders Limited, Mr. Chandi Prasad Bhartia  of  Haldia  Precision  Engineering  P. Ltd.,  Mr.  Vijay  Kumar Agarwal of SM Sugar Pvt. Ltd., Mr. S. Kulandhaiswamy, MD of Lite Containers Pvt. Ltd. and Secretary of the Association, Mr. Ramesh Kumar Batra, Director of Surya Shakti Vessels Pvt. Ltd. and on that basis came to the correct conclusion that not only was the meetings held on 1st and 2nd March, but thorough discussions went on in those meeting on the pre-bid issue of the concerned tender. The CCI has also correctly noted about the agenda of the meeting and has also referred to an admission made by one of the witnesses that the  matching  of  the  quotation  was  a  matter  of  co-incidence and telephonic discussions do take place amongst the parties regarding the trends. We are thus thoroughly convinced about holding of the meeting,  the  discussion  held  therein  and  also  the  discussion regarding  the  pre-bid  issue  having  been  taken  place  in  that meeting.”    

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

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

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same.  Another significant argument which was canvassed before us also

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

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

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

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

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

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

on the following factors:

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

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

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

for the cylinders which facilitated factor for the collusion.

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

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

companies and there were seven groups consisting of  20 participating

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

factor.

(3) There were very few new entrants.

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

except  seven  companies,  were  members  would  be  another  facilitating

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factor.

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

substitutes and no significant technological changes were the additional

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

(6) These  manufacturing  companies  had  their  factories  at  different

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

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

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

quoted were almost identical.

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

rejected as unconvincing, thereby undergoing the factors considered by

the CCI.  

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

unless  there  were  internal  agreements  between  the  appellants.  The

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

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

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

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

average of 30% for making supplies in different states.

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

21

appreciable  adverse  effect  on  competition  as  the  conduct  of  the  LPG

cylinder  manufacturers  in  coming  together  on  a  common platform and

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

market and quote the prices independently.  Thus, these manufacturers

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

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

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

existing competitiors out of the market and foreclosure of competition by

hindering entry into the market.

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

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

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

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

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

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

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

are negotations the negotiators would have to take into consideration the

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

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

term.  

22

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

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

appreciable  adverse  effect  on  competition  on  the  mere  proof  of  the

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

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

COMPAT thereafter  took  note  of  some  arguments  by  certain  counsel

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

21) Having examined the relevant provisions whereupon these appeals

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

advanced by various counsel appearing for the appellants and the manner

in which respondents endeavoured to meet the same.   

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

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

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

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

case on the following three propositions:  

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

precludes the possibility of competition;

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

present case; and

23

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

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

adverse effect on competition.

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

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

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

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

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

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

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

conditions  of  monopsony/oligopsony  prevailed.  For  the  existence  of

monopsony/oligopsony,  she  referred  to  the  Glossary  of  Industrial

Organization  Economics  and  Competition  Law  published  by  the

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

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

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

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

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

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

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

24

controlled in this way, consumers may be better off.

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

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

the following features and conditions surrounding the contract:

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

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

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

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

and 25% respectively.

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

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

takers for it.

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

only those manufacturers having valid approval from the Chief Controller

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

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

submit bids for the tender.

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

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

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

25

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

K.S. Khemani.

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

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

contract).

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

they have quoted.

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

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

price is determined on the basis of privately conducted negotiations with

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

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

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

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

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

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

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

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

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

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

26

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

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

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

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

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

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

adverse effect on competition, in any case.

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

made, i.e., on 5th May, 2010.  Price bids were opened on 23rd March, 2010

and negotiations were held only after the submission of Mott MacDonald

Report on 05.05.2010.

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

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

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

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

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

the identity of the parties who would get the contract.

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

the vertical  agreement  there is  virtually no scope of  competitive forces

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

27

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

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

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

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

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

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

that there is competition in the market.

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

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

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

collusive bidding did not arise.    

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

Order, 2000 published vide Notification dated 26th April, 2000 as per which

only Government oil companies can supply LPG to domestic consumer of

14.2 kg LPG cylinders with dimensions as specified therein.  Predicated

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

cylinders  is  an  essential  commodity;  the  distribution  of  such  cylinders

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

consumer  is  controlled  by  the  Government;  and  parallel  marketeers,

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

28

specifications  other  than  14.2  kg  cylinders.   This  control  of  the

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

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

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

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

attention of the Court to the following observations in Ashoka Smokeless

Coal India (P) Ltd. v. Union of India2 :

“109.  It  may be  true  that  prices  are  required  to  be  fixed  having regard to the market forces. Demand and supply is a relevant factor as  regards  fixation  of  the  price.  In  a  market  governed  by  free economy where  competition  is  the  buzzword,  producers  may fix their  own  price.  It  is,  however,  difficult  to  give  effect  to  the constitutional obligations of a State and the principles leading to a free economy at the same time. A level playing field is the key factor for  invoking the new economy. Such a level  playing field can be achieved when there are a number of suppliers and when there are competitors  in  the  market  enabling  the  consumer  to  exercise choices for the purpose of procurement of goods. If the policy of the open market is to be achieved the benefit of the consumer must be kept uppermost in mind by the State.

xxx xxx xxx

127. While  fixing  a  fair  and  reasonable  price  in  terms  of  the provisions of the Essential Commodities Act (although the price is not  dual),  it  is  essential  that  price  is  actually  fixed.  Such  price fixation is  necessary in  view of  the fact  that  coal  is  an essential commodity. It is, therefore, vital that price is actually fixed and not kept variable. Fixation of price of coal is of utmost necessity as it is a mineral of grave national importance. Non-availability of coal and consequently, the other products may lead to hardship to a section of  citizens.  It  may entail  closure of  factories and other  industries which in turn would lead to loss to the State exchequer;  as they would be deprived of its taxes. It will lead to loss of employment of a

2 (2007) 2 SCC  640

29

large number of employees and would be detrimental to the avowed object  of  the  Central  Government  to  encourage  small-scale industries.”

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

Limited v. Competition Commission of India & Anr.3:

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

“By its very nature, then, the concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent  from the behaviour  of the participants. Although parallel behaviour may not itself be identified with a concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of competition which do not respond to the normal conditions of the market,  having regard to the nature of  the products,  the size and number of the undertakings, and the volume of the said  market.  Such is  the  case especially  where  the  parallel behaviour  is  such  as  to  permit  the  parties  to  seek  price equilibrium  at  a  different  level  from  that  which  would  have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers.”

(emphasis supplied)

At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test:

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

3 (2017) 8 SCC 47

30

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

jurisdictions,  primarily  that  of  European  Commission  and  the  Court  of

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

stage.

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

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

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

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

manufacturer in the matter of price determination.

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

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

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

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

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

bidding  process  and  the  products  are  identical  and  specilized,  the

likelihood of price parallelism is natural.   

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

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

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

31

Union of  India v. Hindustan Development Corporation4,  she argued

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

“7. [….]  (1) There is not enough of material to conclude that M/s H.D.C.,  Mukand  and  Bhartiya  formed  a  cartel.  Because  of  mere quoting identical tender offers by the said three manufacturers for which  there  is  some  basis,  the  conclusion  that  the  said manufacturers had formed a cartel does not appear to be correct. However since the offers of the said three tenderers were identical and  the  price  was  somewhat  lower,  the  Tender  Committee entertained a suspicion that a cartel had been formed and the same got  further  strengthened  by  the  post-tender  attitude  of  the  said manufacturers  which  further  resulted  in  entertaining  the  same suspicion by the other authorities in the hierarchy of decision making body including the Minister of Railways. [….]

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

17 of the Union of India v. Hindustan Development Coproration5.  Her

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

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

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

adjusting or averaging prices in others.

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

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

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

These factors which describe the nature of the industry are:

4 (1993) 1 SCC 467 5 (1993) 3 SCC 499

32

(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  standardised

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

design.

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

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

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

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

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

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

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

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

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

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

33

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

described by the CCI itself.

36) Adverting  to  her  2nd proposition,  namely,  there  was  no  collusive

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

has relied on a dinner attended by some manufacturers on 1st March, 2010

and a lunch on 2nd March, 2010 as evidence of a price fixing agreement.

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

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

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

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

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

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

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

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

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

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

1st March, 2010, it  was hosted by Mr. C.P. Bhartiya, MD of North India

Wires.  The lunch on 2nd  March, 2010 was hosted by Mr. Santosh Bhartiya

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

were shared by all members who attended.

34

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

and  Containers  Limited  is  concerned,  no  representatives  of  appellant

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

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

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

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

into an agreement of cartelisation which should not be established only

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

members.

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

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

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

Singh of Bhiwadi Cylinders Ltd.       

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

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

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

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

suppliers in a particular state.”

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

Commission6 is: Is the concertation the only plausible explaination for the 6 31.3.1993, ECJ (paragraph 115, Internal P.1611) (“Woodpulp”)

35

conduct?   

“126.  Following that analysis, it must be stated that, in this case, concertation  is  not  the  only  plausible  explanation  for  the  parallel conduct.  To begin with, the system of price announcements may be regarded as constituting a rational response to the fact that the pulp market constituted a long-term market and to the need felt by both buyers and sellers to limit commercial risks.  Further, the similarity in the  dates  of  price  announcements  may be  regarded  as  a  direct result  of  the high degree of  market transparency, which does not have to be described as artificial.  Finally, the parallelism of prices and  the  price  trends  may  be  satisfactorily  explained  by  the oligopolistic  tendencies  of  the  market  and  by  the  specific circumstances prevailing in certain period.  Accordingly, the parallel conduct  established  by  the  Commission  does  not  constitute evidence of concertation.

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

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

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

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

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

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

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

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

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

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

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

36

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

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

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

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

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

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

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

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

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

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

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

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

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

Punjab  Land  Developement  &  Reclamation  Corporation  Ltd.  vs.

Presiding Officer, Labour Court7 in the following words:

“72. The definition has used the word ‘means’. When a statute says that  a  word  or  phrase  shall  “mean”—  not  merely  that  it  shall “include” — certain things or acts, “the definition is a hard-and-fast definition, and no other meaning can be assigned to the expression than is put down in definition” (per Esher, M.R.,  Gough v.  Gough [(1891) 2 QB 665 : 65 LT 110] ). A definition is an explicit statement of the full connotation of a term.”

7 (1990) 3 SCC 682

37

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

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

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

a. Eliminating or reducing competition for bids or

b. Adversely affecting the process for bidding or

c. Manipulating the process for bidding.

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

Pattabiraman8, on the purpose of an ‘Explanation’, viz.:

“46. We have  now to  consider  as  to  what  is  the  impact  of  the Explanation on the proviso which deals with the question of willful default. Before, however, we embark on an inquiry into this difficult and delicate question, we must appreciate the intent, purpose and legal  effect  of  an  Explanation.  It  is  now  well  settled  that  an Explanation  added  to  a  statutory  provision  is  not  a  substantive provision in any sense of the term but as the plain meaning of the word  itself  shows it  is  merely  meant  to  explain  or  clarify  certain ambiguities which may have crept in the statutory provision. Sarathi in Interpretation of Statutes while dwelling on the various aspects of an Explanation observes as follows:

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

(b) It does not ordinarily enlarge the scope of the original section which  it  explains,  but  only  makes  the  meaning  clear  beyond dispute.”

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

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

8 (1985) 1 SCC 591

38

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

In the absence thereof, submitted the learned counsel, doctrine of reverse  burden which was put on the appellants would not apply. He referred to the  following judgments9 in support.

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

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

“31. The Competition  Act,  2002,  as  amended in  2007 and 2009, deals  with  anti-trust  issues  viz.  regulation  of  anti-competitive agreements,  abuse  of  dominant  position  and  a  combination  or acquisition falling within the provisions of  the said Act.  Since the majority view of CCI also accepted that the impugned activities of the Coordination Committee did not amount to abuse of dominant position,  and  it  treated  the  same  as  anti-competitive  having appreciable adverse effect on competition, our discussion would be focused only on anti-competitive agreements. Section 3 of the Act is the relevant section in this behalf. It is intended to curb or prohibit certain agreements. Therefore, in the first instance, it is to be found out  that  there existed an “agreement”  which was entered into by enterprise or association of enterprises or person or association of persons. Thereafter, it needs to be determined as to whether such an agreement is anti-competitive agreement within the meaning of the Act. Once it is found to be so, other provisions relating to the treatment that needs to be given thereto get attracted.”

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

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

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

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

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

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

9

39

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

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

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

not  meet  the  requirement  of  the  definition  contained  in  Explanation  to

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

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

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

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

the alleged bid rigging took place.

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

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

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

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

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

not  belonging  to  any  single  group  and  are  independently  controlled.

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

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

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

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

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

40

adversely effecting or manipulating the bidding process, he argued that

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

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

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

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

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

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

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

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

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

even lower10 than the L1 bid  amount.   Thus,  factually, logically and in

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

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

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

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

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

tender.   

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

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

the appellants as it could not be, ipso facto, inferance of bid rigging.  Such 10

41

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

reasons  given  by  Ms.  Divan  predicated  her  submissions  on

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

Court in Union of India vs. Hindustan Development Corporation11 and,

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

“17. Therefore, whether in a given case, there was formation of a cartel  by some of  the  manufacturers  which  amounts  to  an  unfair trade  practice,  depends  upon  the  available  evidence  and  the surrounding circumstances. In the instant case, initially the Tender Committee  formed  the  opinion  that  the  three  big  manufacturers formed a cartel on the ground that the price initially quoted by them was identical and was only a cartel price. This, in our view, was only a suspicion which of course got strengthened by post-tender attitude of  the  said  manufacturers  who  quoted  a  much  lesser  price.  As noticed above it cannot positively be concluded on the basis of these two circumstances alone. In the past these three big manufacturers also offered their own quotations and they were allotted quantities on the  basis  of  the  existing  practice.  However,  a  mere  quotation  of identical price and an offer of further reduction by themselves would not entitle them automatically to corner the entire market by way of monopoly  since  the  final  allotment  of  quantities  vested  in  the authorities who in their discretion can distribute the same to all the manufacturers  including these three  big  manufacturers  on  certain basis. No doubt there was an apprehension that if such predatory price has to be accepted the smaller manufacturers will not be in a position to compete and may result in elimination of free competition. But there again the authorities reserved a right to reject such lower price. Under these circumstances though the attitude of these three big manufacturers gave rise to a suspicion that they formed a cartel but there is not enough of material to conclude that in fact there was such formation of a cartel. However, such an opinion entertained by the concerned authorities including the Minister was not malicious nor  was  actuated  by  any  extraneous  considerations.  They entertained a reasonable suspicion based on the record and other

11

42

surrounding circumstances and only acted in a bona fide manner in taking the stand that the three big manufacturers formed a cartel.”

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

well as judgments of the European Union and European Commission were

also cited.

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

positive  finding  of  cartelisation  and  the  conclusion  was  merely

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

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

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

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

case and the said presumption totally was rebutted by producing sufficient

evidence on record.

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

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

those arguments to avoid repetition.

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

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

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

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

43

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

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

anti-competitive agreement amongst LPG manufacturers in respect of a

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

procurement of approximately 1,05,00,000 (105 laks) LPG Cylinders. This

is a matter of serious public concern because these cylinders were to be

used to supply Liquefied Petroleum Gas (LPG) for domestic consumption

across 25 States. A rise in price resulting from anti-competitive activities

would  affect  the  cost  of  living  for  the  common  man,  and  has  serious

ramifications for the economy as a whole.

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

COMPAT and submitted that  there was a strong economic evidence of

collusion which is evident from the following aspects:

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

resulting in bid rigging.

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

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

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

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

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

44

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

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

etc.

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

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

input cost etc.

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

over previous years.

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

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

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

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

already been decided amongst the LPG Cylinder manufacturers as to who

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

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

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

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

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

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

pattern is repeated across a number of States.

45

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

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

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

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

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

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

commented on this aspect as follows:

“6.13…...That  bids  were  submitted  after  mutual  discussion  is apparent  from  the  tender  documents  of  Jesmajo  Industrial Fabricators P. Ltd. (Exhibit  4P).  There are cuttings in the tender documents and financial bids of the company.  Since, there were discussions  among  all  oil  companies,  the  company  might  have decided to make alterations in the financial bids.  However, even in the financial bids of the company, it is noted that despite alterations, errors  have  remained.  It  seems that  the  company  had  originally quoted Rs. 1103/- as the rate.  Subsequently it changed the rates to Rs. 1103.60.  However, VAT rate in the bid had been calculated on Rs.  1103/-  only  instead  of  Rs.  1103.60.   Thus,  while  other component  of  rates  has been changed/altered,  the calculation of VAT has  been done on Rs. 1103 (originally quoted) instead of Rs. 1103.60 (altered quote).  This appears to have been done to match rates with other bidders who have quoted the similar rates in the State of Karnataka and to let Sanghvi group be L-1 in that State.”

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

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

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

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

cartelisation but also to promote competition.  His submission was that

46

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

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

the competition.

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

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

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

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

following words:

“48…It was argued that since dominant position is enjoyed by the buyer, it leads to parallel pricing and this conscious parallelism takes place  leading  to  quoting  the  same  price  by  the  suppliers.  The explanation, thus, given for quoting identical price was the aforesaid economic forces and not because of any agreement or arrangement between the parties.  It  was submitted that merely because same price  was  quoted  by  the  appellants  in  respect  of  the  2009  FCI tender, one could not jump to the conclusion that there was some “agreement” as well between these parties, in the absence of any other  evidence corroborating the  said  factum of  quoting  identical price. In respect of this submission, Mr Venugopal had also referred to a few judgments.

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

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

submission that finding of facts need to be accepted:-

47

“36. We are thoroughly convinced by this analysis that all this could not  have  been  possible  unless  there  were  internal  agreements between the concerns. What shocks us is that the quotations of the price  did  match  to  the  last  decimal  and  the  quotations  in  some cases were in odd figures like Rs.1127 in the State of Tamil Nadu. The record is replete with such odd figures. It was strange that in some of the oral statements of the representatives of these parties, who were examined by the DG, some of them could not even justify these  identical  prices  and  tried  to  say  that  it  was  a  mere coincidence. We cannot accept the argument of coincidence as was rightly rejected by CCI. There can be no explanation for this kind of identical or near identical  pricing. The CCI has rightly considered that the manufacturing cost of per cylinder varies in a wide spectrum ranging from Rs.870 to Rs.1095.89. If this was the case, the prices had to be different, if they had been offered in a competitive spirit. Either before the CCI or before us no material was produced, which would be able to rebut the presumption arising from the identity of rates.  The  CCI,  therefore,  rightly  concluded  that  this  identity  of prices was sinister and anti-competitive in nature.”

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

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

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

following evidence emerging from record:

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

48

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

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

various  tenderers  were  identical  and  there  canot  be  any  plausible

economic rationale for  such identical  bidding.   Therefore,  the inference

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

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

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

Commission  and  the  Court  of  Justice  of  European  Union  to  which

reference would be made at the appropriate stage.

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

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

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

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

the light of which these appeals are to be decided:

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

“”Cartel” includes an association of producers, sellers, distributors, traders  or  service  providers  who,  by  agreement  amongst themselves,  limit,  control  or  attempt  to  control  the  production, distribution,  sale  or  price  of,  or,  trade  in  goods  or  provision  of services;

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

49

cause  and  are  likely  to  cause  an  appreciable  adverse  effect  on

competition within india. It reads as under:

“Section 3 :  Anti-competitive agreements:-

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

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

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

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

(b)  limits  or  controls  production,  supply, markets,  technical development, investment or provision of services;

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

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

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

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

be  kept  in  mind  while  determining  whether  an  agreement  has  an

appreciable adverse effect on competition under Section 3. We reproduce

this Section hereinbelow:

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

(3)  The  Commission  shall,  while  determining  whether  an agreement  has  an  appreciable  adverse  effect  on  competition under section 3, have due regard to all  or any of the following factors, namely:—  

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

(b) driving existing competitors out of the market;

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

(d) accrual of benefits to consumers;

(e)  improvements  in  production  or  distribution  of  goods  or provision of services;

(f) promotion of technical, scientific and economic development by means  of  production  or  distribution  of  goods  or  provision  of services.”

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

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

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follows:

“20.  Chapter II of the Act deals with three kinds of practices which are  treated as anti-competitive  and prohibited.  These are:  (a) where agreements are entered into by certain persons with  a  view  to  cause  an  appreciable  adverse  effect  on competition;  (b)  where  any  enterprise  or  group  of  enterprises,  which enjoys dominant position, abuses the said dominant position; and

(c) regulating the combination of enterprises by means of mergers  or  amalgamations  to  ensure  that  such  mergers  or amalgamations do not become anti-competitive or abuse the dominant position which they can attain.”

    69) In  that  case also the Court  was concerned with  the 1st category,

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

view to  cause  an  appreciable  adverse  effect  of  competition.   Purpose

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

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

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

purpose of the Act:-  

“21.  In  the  instant  case,  we  are  concerned with  the  first  type  of practices,  namely,  anti-competitive  agreements.  The  Act,  which prohibits  anti-competitive  agreements,  has  a  laudable  purpose behind it.  It  is to ensure that there is a healthy competition in the market, as it brings about various benefits for the public at large as well  as  economy  of  the  nation.  In  fact,  the  ultimate  goal  of competition policy (or for that matter, even the consumer policies) is to  enhance  consumer  well-being.  These  policies  are  directed  at ensuring  that  markets  function  effectively.  Competition  policy towards  the  supply  side  of  the  market  aims  to  ensure  that

52

consumers have adequate and affordable choices. Another purpose in curbing anti-competitive  agreements is  to ensure “level  playing field” for all market players that helps markets to be competitive. It sets “rules of the game” that protect the competition process itself, rather than competitors in the market. In this way, the pursuit of fair and  effective  competition  can  contribute  to  improvements  in economic efficiency, economic growth and development of consumer welfare………..

xxx xxx xxx

23.   In  fact,  there  is  broad  empirical  evidence  supporting  the proposition  that  competition  is  beneficial  for  the  economy. Economists agree that it has an important role to play in improving productivity and, therefore, the growth prospects of an economy…..

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

xxx xxx xxx

26.  When we recognise that competition has number of benefits, it clearly  follows  that  cartels  or  anti-competitive  agreements  cause harm to  consumers by fixing  prices,  limiting  outputs  or  allocating markets.  Effective  enforcement  against  such  practices  has  direct visible effects in terms of reduced prices in the market and this is also supported by various empirical studies.

xxx xxx xxx

27.  Keeping  in  view  the  aforesaid  objectives  that  need  to  be achieved,  Indian  Parliament  enacted  the  Competition  Act,  2002. Need to have such a law became all the more important in the wake of  liberalisation  and  privatisation  as  it  was  found  that  the  law prevailing  at  that  time,  namely, Monopolies  and Restrictive Trade Practices Act, 1969 was not equipped adequately enough to tackle the competition aspects of the Indian economy. The law enforcement agencies, which include CCI and COMPAT, have to ensure that these objectives are fulfilled by curbing anti-competitive agreements.”

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

economic  efficiency,  economic  growth  and  development  as  well  as

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

competition  contributed  to  increase  economic  growth  and  increased

productivity.   

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

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

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

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

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

certain checks and balances. Since competition among the enterprises or

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

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

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

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

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

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

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

Steel Authority of India Limited and Another12  which can be found in 12

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the following observations:

“6. As far as the objectives of competition laws are concerned, they vary from country to country and even within a country they seem to change and evolve over the time. However, it will be useful to refer to some of  the common objectives of  competition law. The main objective of competition law is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive  to  consumer  preferences.  The  advantages  of  perfect competition are threefold:  allocative efficiency, which ensures the effective  allocation  of  resources,  productive  efficiency,  which ensures  that  costs  of  production  are  kept  at  a  minimum  and dynamic  efficiency,  which  promotes  innovative  practices.  These factors by and large have been accepted all over the world as the guiding principles for effective implementation of competition law.”

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

cartelisation,  the  essential  postulate  whereof  is  agreement  between

enterprises  or  association  of  enterprises  or  persons  or  associations  of

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

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

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

agreement is treated as void.  The types of agreement which may fall foul

of  Section  3  are  mentioned  in  sub-section  (3)  thereof.  These  include

sharing the market by way of allocation of geographical areas of market

[clause (c)]  and the agreements which result  in  bid-rigging or  collusive

bidding whether directly or indirectly [clause (d)].  There is a presumption

that four types of agreements mentioned in sub-section (3) will have an

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appreciable adverse effect on competition.

73) We  may  also  state  at  this  stage  that  Section  19(3)  of  the  Act

mentions  the  factors  which  are  to  be  examined  by  the  CCI  while

determining whether an agreement has an appreciable adverse effect on

competition under Section 3.  However, this inquiry would be needed in

those cases which are not covered by clauses (a) to (d) of sub-section (3)

of  Section  3.   Reason  is  simple.   As  already  pointed  out  above,  the

agreements of nature mentioned in sub-section (3) are presumed to have

an appreciable effect and, therefore, no further exercise is needed by the

CCI once a finding is arrived at that a particular agreement fell in any of

the aforesaid  four  categories.    We may hasten to  add,  however, that

agreements  mentioned  in  Section  3(3)  raise  a  presumption  that  such

agreements shall have an appreciable adverse effect on competition.  It

follows,  as  a  fortiorari,  that  the  presumption  is  rebuttable  as  these

agreements are not treated as conclusive proof of the fact that it would

result in appreciable adverse effect on competition.  What follows is that

once the CCI finds that case is covered by one or more of the clauses

mentioned  in  sub-section  (3)  of  Section  3,  it  need  not  undertake  any

further enquiry and burden would shift upon such enterprises or persons

etc. to rebut the said presumption by leading adequate evidence.  In case

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such an evidence is led, which dispels the presumption, then the CCI shall

take into consideration the factors mentioned in Section 19 of the Act and

to see as to whether all  or  any of  these factors are established. If  the

evidence  collected  by  the  CCI  leads  to  one  or  more  or  all  factors

mentioned in Section 19(3), it  would again be treated as an agreement

which may cause or is likely to cause an appreciable adverse effect of

competition, thereby compelling the CCI to take further remedial action in

this behalf as provided under the Act.  That, according to us, is the broad

scheme when Sections 3 and 19 are to be read in conjuction.    

74) In these appeals, the Court is concerned with the alleged agreement

entered into between the appellants falling in clause (d) of sub-section (3)

of Section 3, which talks of bid rigging or collusive bidding.  Therefore, it

would be necessary to understand the meaning of the expression  ‘bid

rigging’  and  ‘collusive  bidding’.  Explanation  to  Section  3,  which  is

reproduced, assigns meaning to ‘bid rigging’ and states :

“S. 3:

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

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75) The necessary ingredients of bid rigging, thus, are: (a) agreement

between the parties;  (b) these parties are engaged in idential or similar

production  or  trading  of  goods  or  provisions  of  services;  and  (c)  the

agreement has the effect of eliminating or reducing competition of bids or

adversely affect or manipulating the process for bidding.

76) Though the expression ‘collusive bidding’ is not defined in the Act, it

appears  that  both  ‘bid  rigging’  and  ‘collusive  bidding’  are  overlapping

concepts.   This position stands accepted in  Excel Crop Care Limited

case which should be found from the following discussion therefrom:

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

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

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

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(b) Cover bidding/courtesy bidding.

(c) Bid rotation.

(d) Bid allocation.

40. Even  internationally,  “collusive  bidding”  is  not  understood  as being different from “bid rigging”. These two expressions have been used  interchangeably  in  the  following  international commentaries/glossaries and websites of competition authorities:

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

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

(b) OECD  Glossary  of  Industrial  Organisation  Economics  and Competition Law

“Bid rigging is a particular form of collusive price-fixing behaviour by which  firms  coordinate  their  bids  on  procurement  or  project contracts. There are two common forms of bid rigging. In the first, firms  agree  to  submit  common  bids,  thus  eliminating  price competition.  In the second,  firms agree on which firm will  be the lowest bidder and rotate in such a way that each firm wins an agreed upon number or value of contracts.

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

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

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

(c) OECD Guidelines for fighting bid rigging

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“Bid rigging (or  collusive tendering)  occurs when businesses,  that would otherwise be expected to compete, secretly conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process.”

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

“Collusive bidding,  price fixing or  bid rigging,  are commonly used interchangeable  terms  which  describe  many  forms  of  an  illegal anti-competitive  activity. The common thread throughout  all  these activities  is  that  they  involve  any  agreements  or  informal arrangements  among  independent  competitors,  which  limit competition. Agreements among competitors which violate the law include but are not limited to:

(1) Agreements to adhere to published price lists. (2)  Agreements  to  raise  prices  by  a  specified  increment.(3) Agreements to establish, adhere to, or eliminate discounts. (4) Agreements not to advertise prices. (5)  Agreements  to  maintain  specified  price  differentials  based  on quantity, type or size of product.”

(e) Australian Competition and Consumer Commission

“Bid rigging, also referred to as collusive tendering, occurs when two or more competitors agree they will not compete genuinely with each other for tenders,  allowing one of  the cartel  members to ‘win’  the tender. Participants in a bid rigging cartel may take turns to be the ‘winner’ by agreeing about the way they submit tenders, including some competitors agreeing not to tender.”

41. As the Liegeman of the law, it  is  our task, nay a duty, to give proper  meaning  and  effect  to  the  aforesaid  “Explanation”.  It  can easily  be discussed that  the legislature had in  mind that  the two expressions are interchangeably used. It is also necessary to keep in mind the purport behind Section 3 and the objective it seeks to achieve:

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

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when  such  agreement  is  in  respect  of  production,  supply, distribution, storage, acquisition or control of goods or provision of services and it causes or is likely to cause an appreciable adverse effect on competition within India. It can be discerned that first part relates to the parties which are prohibited from entering into such an agreement and embraces within it  persons as well  as enterprises thereby signifying its  very wide coverage.  This  becomes manifest from the reading of the definition of “enterprise” in Section 2(h) and that of “person” in Section 2(l) of the Act. The second part relates to the subject-matter of the agreement. Again it is very wide in its ambit and  scope  as  it  covers  production,  supply,  distribution,  storage, acquisition or control of goods or provision of services. The third part pertains to the effect  of such an agreement,  namely, “appreciable adverse  effect  on  competition”,  and  if  this  is  the  effect,  purpose behind  this  provision  is  not  to  allow that.  Obvious  purpose  is  to thwart  any such agreements  which  are  anti-competitive  in  nature and this salubrious provision aims at ensuring healthy competition. Sub-section (2) of Section 3 specifically makes such agreements as void.

41.2. Sub-section (3)  mentions certain kinds of  agreements which would be treated as ipso facto causing appreciable adverse effect on competition.  It  is  in  this  backdrop  and  context  that  “Explanation” beneath  sub-section  (3),  which  uses the expression “bid  rigging”, has to be understood and given an appropriate meaning. It  could never be the intention of the legislature to exclude “collusive bidding” by construing the expression “bid rigging” narrowly. No doubt, clause (d) of sub-section (3) of Section 3 uses both the expressions “bid rigging” and “collusive bidding”, but the Explanation thereto refers to “bid rigging” only. However, it cannot be said that the intention was to exclude “collusive bidding”. Even if the Explanation does contain the expression “collusive bidding” specifically, while interpreting clause (d), it can be inferred that “collusive bidding” relates to the process of bidding  as  well.  Keeping  in  mind  the  principle  of  purposive interpretation,  we  are  inclined  to  give  this  meaning  to  “collusive bidding”.  It  is  more  so  when  the  expressions  “bid  rigging”  and “collusive  bidding”  would  be  overlapping,  under  certain circumstances which was conceded by the learned counsel for the appellants as well.

42. We are, therefore, of the opinion that the two expressions are to be interpreted using the principle of noscitur a sociis i.e. when two or more  words  which  are  susceptible  to  analogous  meanings  are

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coupled  together,  the  words  can  take  colour  from  each  other. (See Leelabai  Gajanan  Pansare v. Oriental  Insurance  Co.  Ltd. [Leelabai Gajanan Pansare v. Oriental Insurance Co. Ltd., (2008) 9 SCC 720] , Thakorlal D. Vadgama v. State of Gujarat [Thakorlal D. Vadgama v. State of Gujarat,  (1973) 2 SCC 413 : 1973 SCC (Cri) 835]  and M.K.  Ranganathan v. State  of  Madras[M.K. Ranganathan v. State of Madras, (1955) 2 SCR 374 : AIR 1955 SC 604] .)”

77) The first proposition of Ms. Divan, viz. there is no competition, has

two facets.  First, the legal one which concerns the jurisdiction of the CCI

to deal with such matters and the other is factual, which is to be examined

on the basis of facts in these cases.  Insofar as the first component is

concerned, having regard to the aforesaid scheme of the Act, we are not

convinced  with  the  argument  of  Ms.  Madhavi  Divan  that  there  is  no

possibility  of  a competition  in  these cases and,  therefore,  CCI  had no

jurisdiction to carry out any such investigation.  The scope and ambit of

the provisions of Section 3 have been considered in detail in Excel Crop

Care  Limited case.  This  Section  prohibits  anti-competitive  agreements

and  brings  about  the  prime  objective  of  the  Competition  Act.   These

aspects  were  noted  in  Excel  Crop  Care  Limited,  relevant  portions

whereof are already extracted above.  We may also quote the following

portion  from  the  judgment  of  this  Court  in  Steel  Authority  of  India

Limited wherein objective behind the Act was highlighted in the following

manner:

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“125. We have already noticed that the principal objects of the Act, in terms of its Preamble and the Statement of Objects and Reasons, are to eliminate practices having adverse effect on the competition, to  promote and sustain  competition in  the market,  to  protect  the interest of the consumers and ensure freedom of trade carried on by the  participants  in  the  market,  in  view  of  the  economic developments in the country. In other words, the Act requires not only protection of free trade but also protection of consumer interest. The delay in disposal of cases, as well  as undue continuation of interim restraint  orders,  can adversely and prejudicially affect  the free economy of the country. Efforts to liberalise the Indian economy to bring it on a par with the best of the economies in this era of globalisation would be jeopardised if time-bound schedule and, in any case, expeditious disposal by the Commission is not adhered to.  The scheme of  various  provisions  of  the  Act  which  we  have already referred to including Sections 26, 29, 30, 31, 53-B(5) and 53-T and Regulations 12, 15, 16, 22, 32, 48 and 31 clearly show the legislative intent to ensure time-bound disposal of such matters.”

78) We would like to reemphasise that the purpose of the Act is not only

to illuminate practices having adverse effect on the competition but also to

promote and sustain competition in  the market.   Enforcement  provides

remedies to avoid situation that will lead to decrease competition in the

market.  Therefore, effective enforcement is important not only to sanction

anti-competitive conduct but also to deter future competitive practices. In

the present case itself, there are sixty suppliers of the product for which

there are three buyers.  After all, each supplier would like to be L-1 or L-2

so that it is able to get order for larger quantities than the other.  In this

sense, there would be a competition among them.  Further, it would also

be in the interest of the buyers like IOCL etc. that the elements of healthy

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competition persists in the market.  In any case, it is the duty of the CCI to

ensure that the conditions which have tendency to kill the competition are

to be curbed.  It is also the function of the CCI to ensure that there is a

competition  so  that  benefits  of  such  competition  are  reaped  by  the

consumers.  However, insofar as certain factual aspects highlighted by the

appellants are concerned, they would be dealt with while examining the

third proposition, as we deem it  more appropriate to discuss these two

aspects together.

79) Second proposition of  Ms. Divan was that  there was no collusive

bidding in the present case.  The CCI and COMPAT have rejected this

argument in view of the fact that there is an active trade association of the

suppliers; a meeting took place couple of days before the date of bidding;

common changes were pointed out  by these appellants who submitted

bids on their behalf; and bids were of identical amounts despite varying

cost, which were repetitive in nature.  The respondents may be right in

their submission that there may not be a direct evidence on the basis of

which cartalisation or such agreement between the parties can be proved

as  these  arguments  are  normally  entered  into  in  closed  doors.   The

standard  of  proof  which  is  required  is  one  of  probability,  which  is  a

principle  accepted in  Technip SA vs.  SMS Holding (P)  Ltd.  & Ors.13

13

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wherein  the  Court  stated  and  discussed  this  aspect  in  the  following

manner:

“54. The standard of proof required to establish such concert is one of probability and may be established

“if having regard to their relation etc., their conduct, and their common interest,  that  it  may be  inferred  that  they  must  be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon” [CIT v. East Coast Commercial Co. Ltd., (1967) 1 SCR 821 : AIR 1967 SC 768] . (SCR p. 829 H)

55. While deciding whether a company was one in which the public were substantially interested within the meaning of Section 23-A of the Income Tax Act, 1922 this Court said:

“The test is not whether they have actually acted in concert but whether  the  circumstances are  such that  human experience tells us that it  can safely be taken that  they must  be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts.” [CIT v. Jubilee Mills Ltd., (1963) 48 ITR 9 (SC), p. 20]

56. In  Guinness PLC and Distillers Co. PLC  [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)] the question before  the  Takeover  Panel  was  whether  Guinness  had  acted  in concert  with Pipetec when Pipetec purchased shares in Distillers Company  PLC.  Various  factors  were  taken  into  consideration  to conclude that  Guinness had acted in concert  with  Pipetec to get control over Distillers Company. The Panel said:

“The nature of acting in concert requires that the definition be drawn in deliberately wide terms. It covers an understanding as well  as  an  agreement,  and an informal  as  well  as  a  formal arrangement, which leads to cooperation to purchase shares to acquire  control  of  a  company.  This  is  necessary,  as  such arrangements are often informal, and the understanding may arise  from a  hint.  The understanding  may be  tacit,  and  the definition covers situations where the parties act on the basis of a ‘nod or a wink’…. Unless persons declare this agreement or understanding,  there  is  rarely  direct  evidence  of  action  in

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concert,  and  the  Panel  must  draw  on  its  experience  and common sense  to  determine  whether  those  involved  in  any dealings have some form of understanding and are acting in cooperation  with  each  other.”  [Guinness  PLC  and  Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)]

 80) We  would  also  like  to  reproduce  the  following  discussion  in

Commissioner of  Income Tax,  Bombay City I,  Bombay vs.  Jubilee

Mills Ltd., Bombay14:

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

81) It is also significant to state that respondents had drawn attention of

this Court to OECD Policy Roundtables Prosecuting Cartels without Direct

Evidence 2006 which discussed the nature of evidence that is required for

proving cartel agreement, relevant portion thereof contained in para 2 of

the said Policy is reproduced below:

“Available evidence for proving cartel agreements

2.1  Categories of evidence 14

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Evidence used to prove a cartel agreement can be classified into two  types:  direct  and circumstantial.   Circumstantial  evidence,  in turn, consists of “communication” evidence and economic evidence, which  include  firm  conduct,  market  structure,  and  evidence  of facilitating practices.   

Common types of direct evidence include:

- A  document  or  documents  (including  email  messages) essentially embodying the agreement, or parts of it, and identifying the parties to it.

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

There  are  different  types  of  circumstantial  evidence.   One  is evidence that cartel operators met or otherwise communicated but does not describe the substance of their communications.  It might be called communication evidence for purposes of this discussion. It includes:

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

- other  evidence  that  the  parties  communicated  about  the subject  e.g.,  minutes or  notes of  a  meeting  showing  that  prices, demand or capacity utilisation were discussed; internal documents evidencing  knowledge  or  understanding  of  a  competitors  pricing strategy, such as an awareness of a future price increase by a rival.

A  broader  category  of  circumstantial  evidence  is  often  called economic  evidence.   Economic  evidence  identifies  primarily  firm conduct  that  suggests  that  an  agreement  was  reached,  but  also conduct of  the industry as a whole,  elements of  market structure which  suggest  that  secret  price  fixing  was  feasible,  and  certain practices that can be used to sustain a cartel agreement.

Conduct  evidence is  the single  most  important  type of  economic evidence.  As  noted  earlier,  observation  of  certain,  suspicious conduct frequently triggers an investigation of a possible cartel.  And as  the  section  in  this  paper  on  economics  highlights  11 careful

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analysis of the conduct of parties is important to identify behaviours that  can  be  characterised  as  contrary  to  the  parties’  unilateral self-interest  and  which  therefore  supports  the  inference  of  an agreement.  Conduct evidence includes, first and foremost:

- Parallel pricing – changes in prices by rivals that are identical, or nearly so, and simultaneous, or nearly so.  It includes other forms of  parallel  conduct,  such  as  capacity  reductions,  adoption  of standardised terms of sale, and suspicious bidding patterns, e.g., a predictable rotation of winning bidders.

Industry performance could also be described as conduct evidence. It includes:

- abnormally high profits; - stable market shares - A history of competition law violations.

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

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

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

A specific kind of economic conduct evidence is facilitating practices –  practices  that  can  make  it  easier  for  competitors  to  reach  or sustain an agreement.  It is important to note that conduct described as facilitating practices is  not  necessarily unlawful.   But  where a competition  authority  has  found  other  circumstantial  evidence

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pointing to the existence of  a cartel  agreement,  the existence of facilitating practices can be an important complement.   They can explain what kind of arrangements the parties set up to facilitate the formation of a cartel agreement, monitoring, detection of defection, and/or punishment, thus supporting the ‘collusion story’ put together by the competition law enforcer.  Facilitating practices include:

- information exchanges; - price signalling; - freight equalisation; - price protection and most favoured nation policies; - Unnecessarily restrictive product standards.”

82) Thus, even in the absence of proof of concluded formal agreement,

when there are indicators that there was practical cooperation between the

parties  which  knowingly  substitute  the  risk  of  competition,  that  would

amount  to  anti-competitive  practices.   This  has  been  discussed  in

Coordination Committee of Artistes and Technicians of West Bengal

Film and Television & Ors. (see paras 44 and 45).   Then,  there are

guidelines  on  the  applicability  of  Article  101  of  the  Treaty  on  the

functioning  of  the  E.U.  to  horizontal  cooperation  agreements  which

records as under:

“60.  Information exchange can only be addressed under Article 101 if it establishes or is part of an agreement, a concerted practice or a decision by an association of  undertakings.  The existence of  an agreement,  a concerted practice or decision by an association of undertakings does not prejudge whether the agreement, concerted practice or decision by an association of undertakings gives rise to a restriction of competition within the meaning of Article 101(1).  In line with the case-law of the Court of Justice of the European Union, the concept  of  a  concerted  practice  refers  to  a  form of  coordination between undertakings by which, without it having reached the stage

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where  an  agreement  properly  so-called  has  been  concluded, practical cooperation between them is knowingly substituted for the risks of competition.  The criteria of coordination and cooperation necessary for determining the existence of a concerted practice, far from requiring an actual plan to have been worked out, are to be understood in the light of the concept inherent in the provisions of the Treaty on competition, according to which each company must determine independently the policy which it intends to adopt on the internal  market  and the conditions which it  intends to offer  to its customers.

61.   This  does  not  deprive  companies  of  the  right  to  adapt themselves intelligently to the existing or anticipated conduct of their competitors. It does, however, preclude any direct or indirect contact between  competitors,  the  object  or  effect  of  which  is  to  create conditions of  competition which do not  correspond to  the normal competitive conditions of the market in question, regard being had to  the  nature  of  the  products  or  services  offered,  the  size  and number  of  the undertakings,  and the volume of  the said  market. This precludes any direct or indirect contact between competitors, the object or effect of which is to influence conduct on the market of an actual or potential competitor, or to disclose to such competitor the course of conduct which they themselves have decided to adopt or  contemplate  adopting  on  the  market,  thereby  facilitating  a collusive outcome on the market.  Hence, information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion, that is to say, if  the data exchanged  is  strategic.   Consequently,  sharing  of  strategic  data between competitors amounts to concentration, because it reduces the  independence  of  competitors’  conduct  on  the  market  and diminishes their incentives to compete.

62.   A situation  where  only  one  undertaking  discloses  strategic information to its competitor(s) who accept(s) it can also constitute a concerted  practice.   Such  disclosure  could  occur,  for  example, through contacts via mail, emails, phone calls, meetings etc.  It is then irrelevant whether only one undertaking unilaterally informs its competitors  of  its  intended  market  behaviour,  or  whether  all participating  undertakings  inform  each  other  of  the  respective deliberations and intentions.  When one undertaking alone reveals to  its  competitors  strategic  information  concerning  its  future commercial policy, that reduces strategic uncertainty as to the future operation  of  the  market  for  all  the  competitors  involved  and

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increases the risk of limiting competition and of collusive behaviour. For  example,  mere  attendance  at  a  meeting  where  a  company disclose its pricing plans to its competitors is likely to be caught by Article 101, even in the absence of an explicit agreement to raise prices.  When a company receives strategic data from a competitor (be it in a meeting, by mail or electronically), it will be presumed to have  accepted  the  information  and  adapted  its  market  conduct accordingly unless it responds with a clear statement that it does not wish to receive such data.”

(emphasis added)   

83) According  to  us,  the  real  question  in  the  present  case  is  as  to

whether there was a possibility of such an agreement having regard to

market conditions even when we proceed on the basis that meeting did

take place.  Possibility of such an agreement has been inferred by the CCI

on the grounds that identical bidding takes place thereafter and various

suppliers gave such a bid despite varying cost and also that they have

appoined common changes etc. as pointed out above.

84) The first and foremost issue which needs to be considered is that

whether there was a situation of monopsony or oligopsony.  

85) From  the  aforesaid  discussion,  it  is  clear  that  as  far  as  CCI  is

concerned, it  has come to the conclusion that there was a cartelisation

among the appellants herein and a concerted decision was taken to rig the

bids which were submitted persuant to the tenders issued by IOCL.  On

the other hand, the appellants argue that there was no such agreement

and even if  the bids of many bidders were identical in nature, the bids

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were driven by market conditions.  Their plea is that there was a situation

of oligopsony and the modus which was adopted by IOCL in floating the

tenders and awarding the contracts would show that the determination of

price was entirely within the control of the IOCL.  As per them, the way

price was determined for supply of these cylinders, it had become an open

secret  known to  everybody.  Therefore,  there  was  no  question  of  any

competition and no possibility of adversely affecting that competition by

entering into any contract.

86) The factors which have influenced the authorities below in coming to

the conclusion that the appellants had colluded and formed a cartel which

led to bid rigging have already been noted above.  To  recaptulate, the

authorities below have been influenced by the following factors:  

1. Market conditions  2. Small number of suppliers 3. Few new entrants 4. Active trade association 5. Repetitive bidding 6. Identical products 7. Few or no substitutes 8. No significant technological changes 9. Meeting of bidders in Mumbai and its agenda. 10. Appointing common agents 11. Identical bids despite varying cost.

After deliberating on the aforesaid aspects, the CCI has concluded

that there is an active trade association in which many of the appellants

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are  members.   That  product  in  question,  namely,  gas  cylinder  is  of  a

particular specification which is needed by IOCL in large numbers every

year and there are very few manufacturers and suppliers of this product to

IOCL and two other  buyers.   For  this  identical  product  which  is  to  be

supplied  by  all  the  suppliers,  there  is  no  substitute  and  no  significant

technology change. Further, there is an active trade association in which

most of the appellants are the members.  Their interest is to ensure that

no  new entrants  are  able  to  join.   Further,  the  trade  association  also

ensures that all  the members are able to get some order.  It  is for this

reason the bids submitted in various standards which are floated by IOCL

at  different  places  are  almost  identical  despite  varying  cost.   The

authorities below attributed this identical bidding to the concerted action of

the appellants.  This has been inferred from the fact that 2-3 days before

the submission of bids, meeting of the association took place which most

of the appellants attended.  Not only this, common agents, six in number,

were appointed who submitted the bids on behalf of these appellants.   

87) We may  say  at  the  outset  that  if  these  factors  are  taken  into

consideration by themselves,  they may lead to the inference that there

was bid rigging.  We may, particularly, emphasise the fact that there is an

active trade association of the appellants and a meeting of the bidders

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was held in Mumbai just before the submission of the tenders. Another

very important fact is that there were identical bids despite varying cost.

Further, products are identical and there are small  number of suppliers

with few new entrants. These have become the supporting factors which

persuaded the CCI to come to the conclusion that these are suggestive of

collusive bidding.   

88) However, that is only one side of the coin.  The aforesaid factors are

to be analysed keeping in mind the ground realities that were prevailing,

which are pointed out by the appellants.  These attendant circumstances

are argued in detail by the counsel for the appellants which have already

been taken note of.  We may recapitulate the same in brief hereinbelow:

(i) In the present case there are only three buyers.  Among them, IOCL

is the biggest buyer with 48% market share.  It is also a matter of record

that all these appellants are manufacturers of 14.2 kg gas cylinders to the

three buyers who are available in the market, nanely, IOCL, HPCL and

BPCL.  If these three buyers do not purchase from any of the appellants,

that particular appellant would not be in a position to sell those cylinder to

any other entity as there are no other buyers.

(ii) There are only three buyers, it may not attract many to enter the field

and  manufacture  these  cylinders.   It  is  because  of  limited  number  of

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buyers and for some reason if  they do not purchase, the manufacturer

would be nowhere.  That may deter the persons to enter the field.

(iii) The manner in which the tenders are floated by IOCL and the rates

at which these are awarded, are an indicator that it is the IOCL which calls

the shots insofar as price control is concerned.  It has come in evidence

that  the  IOCL undertakes  the  exercise  of  having  its  internal  estimates

about the cost of these cylinders.  Their own expert arrived at a figue of

Rs. 1106.61 paisa per cylinder.  All the tenders which have been accepted

are for  a price lesser  than the aforesaid estimate of  IOCL itself.   That

apart, the modus adopted by the IOCL is that that final price is negotiated

by it and the contract is not awarded at the rate quoted by bidder who

turns out to be L-1.  Negotiations are held with such a bidder who is L-1

which generaly leads to further reduction of price than the one quoted by

L-1.  Thereafter, the other bidders who may be L-2 or L-3 etc. are awarded

the contract at the rate at which it is awarded to L-1.  Thus, ultimately, all

the bidders supply the goods at the same rate which is fixed by the IOCL

after negotiating with L-1 bidder.  The only difference is that bidder who is

L-1 would be able to receive the order for larger quantity than L-2 and L-2

may get an order of more quantity than L-3.

(iv) It has also come on record that there are very few suppliers.  For the

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tender in question, there were 50 parties already in the fray and 12 new

entrants were admitted.   Number of  12,  in such a scenario,  cannot be

treated  as  less.   Therefore,  the  conclusion  of  CCI  that  the  appellants

ensured that there should not be entry of new entrant may not be correct.

(v) Since there are not many manufacturers and supplies are needed by

the  three  buyers  on  regular  basis,  IOCL  ensures  that  all  those

manufacturers whose bids are technically viable, are given some order for

the supply of specific cylinder.  For this purpose, it has framed its broad

policy as well.  This also shows that control remains with IOCL.

Thus, the appellants appear to be correct when they say that all the

participants in the bidding process were awarded contracts in some State

or the other which was aimed at ensuring  a bigger pool of manufacturers

so that the supply of this essential product is always maintained for the

benefit of the general public.  Had IOCL left some manufacturers empty

handed,  in  all  likelihood,  they would  have shut  their  shops.   However,

IOCL  wanted  all  manufacturers  to  be  in  the  fray  in  its  own  interest.

Therefore, it was necessary to keep all parties afloat and this explains why

all 50 parties obtained order along with 12 new entrants.

(vi) There is another very relevant factor pointed out by the appellants,

viz., the governmental control which is regulated by law.  As pointed out

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above, it  is  not  only the three oil  companies which can supply LPG to

domestic consumers in 14.2 kg LPG cylinders as mandated in the LPG

(Regulation  and  Distribution)  Order,  2000  which  is  issued  under  the

provisions of Essential Commodities Act, 1955, even the price at which the

LPG  cylinder  is  to  be  supplied  to  the  consumer  is  controlled  by  the

Government.  Following features of the aforesaid LPG Order, 2000, are

significant:

• The LPG suppliedin 14.2 kg gas cylinders is an essential commodity.

• The distribution of  LPG in 14.2 kgs cylinders takes place as part  of  a

public distribution system defined under clause 2(1) of the Order as “the

system of distribution, marketing or selling of liquefied petroleum gas by a

Government Oil Company at the Government controlled or declared price

through  a  distribution  system  approved  by  the  Central  or  State

Government”.

• The price to the consumer is controlled by the Government.

• The supply of LPG to domestic consumers shall be made only in 14.2 kg

gas cylinders.

• According to clauses 4 and 5 read with Schedule III  of the LPG Order,

parallel marketeers who supply and distribute LPG cylinders, may do so

only for cylinders with size and specifications other than those specified in

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Schedule II.

89) The manner in which tendering process takes place would show that

in such a competitive scenariao, the bid which the different bidder would

be submitting becomes obvious. It  has come on record that just  a few

days before the tender in question, another tender was floated by BPCL

and on opening of the said tender the rates of L-1, L-2 etc. came to be

known.  In a scenario like this, that obviously becomes a guiding factor for

the bidders to submit their bids.

90) When we keep in mind the aforesaid fact situation on the ground,

those  very  factors  on  the  basis  of  which  the  CCI  has  come  to  the

conclusion that there was cartelization, in fact, become valid explanations

to the indicators pointed out by the CCI.  We have already commented

about the market conditions and small number of suppliers. We have also

mentioned that 12 new entrants cannot be considered as entry of very few

new  suppliers  where  the  existing  suppliers  were  only  50.  Identical

products along with market conditions for which there would be only three

buyers,  in  fact,  would  go  in  favour  of  the  appellants.   The  factor  of

repetitive bidding, though appears to be a factor against the appellants,

was also possible in the aforesaid scneario.  The prevailing conditions in

fact  rule  out  the  possibility  of  much  price  variations  and  all  the

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manufacturers are virtually forced to submit their bid with a price that is

quite  close  to  each  other.  Therefore,  it  became necessary  to  sustain

themselves in the market.  Hence, the factor that these suppliers are from

different  region  having  different  cost  of  manufacture  would  lose  its

significance. It is a situation where prime condition is to quote the price at

which  a  particular  manufacturer  can  bag  an  order  even  when  its

manufacturing cost is more than the manufacturing cost of others.  The

main purpose for such a manufacuring would be to remain in the fray and

not to lose out.  Therefore, it would be ready to accept lesser margin.  This

would answer why there were near identical bids despite varying cost.

91) Insofar  as  meeting  of  bidders  in  Mumbai  just  before  the  date  of

submission  of  tender  is  concerned,  some  aspects  pointed  out  by  the

appellants are not considered by the CCI or the COMPAT at all.  No doubt,

the meeting took place a couple of days before the date of tender. No

doubt, the absence of agenda coming on record would not make much

difference.  However, only 19 appellants had attended that meeting.  Many

others were not even members or did not attend the meeting.  In spite

thereof, even they quoted almost same rates as the one who attended the

meeting.   This  would  lead  us  to  the  inference  that  reason for  quoting

similar price was not the meeting but something else. The question is what

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would be the other reason and whether the appellants have been able to

satisfactorily explain that and rebut the presumption against them?

92) The  explanation  is  market  conditions  leading  to  the  situation  of

oligopsony  that  prevailed  because  of  limited  buyers  and  influence  of

buyers  in  the  fixation  of  prices  was  all  prevalent.   This  seems  to  be

convincing in the given set of facts.  The situation of oligopsony can be

both ways. There may be a situation where the sellers are few and they

may  control  the  market  and  by  their  concerted  action  indulge  into

cartelization.  It may also be, as in the present case, a situation where

buyers  are  few and that  results  in  the situation of  oligopsony with  the

control of buyers.

93) 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 basis of which

these aspects are to be judged are stated in Excel Crop Care Limited as

follows:

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“50. It needs to be emphasised that collusive tendering is a practice whereby firms agree amongst themselves to collaborate over their response to invitations to tender. Main purpose for such collusive tendering  is  the  need  to  concert  their  bargaining  power,  though, such a collusive tendering has other benefits apart from the fact that it can lead to higher prices. Motive may be that fewer contractors actually bother to price any particular deal so that overheads are kept lower. It may also be for the reason that a contractor can make a tender which it knows will not be accepted (because it has been agreed  that  another  firm  will  tender  at  a  lower  price)  and  yet  it indicates that the said contractor is still interested in doing business, so that it  will  not  be deleted from the tenderee's list.  It  may also mean that a contractor can retain the business of its established, favoured customers without worrying that they will be poached by its competitors.

51.  Collusive tendering takes many forms. Simplest form is to agree to quote identical prices with the hope that all will receive their fair share of orders. That is what has happened in the present case. However,  since  such  a  conduct  becomes  suspicious  and  would easily attract the attention of the competition authorities, more subtle arrangements of different forms are also made between colluding parties. One system which has been noticed by certain competition authorities in other countries is to notify intended quotes to each other, or more likely to a Central secretariat, which will then cost the order and eliminate those quotes that it considers would result in a loss to some or all members of the cartel. Another system, which has come to light, is to rotate orders. In such a case, the firm whose turn is to receive an order will ensure that its quote is lower than the quotes of others.

52.   We  are  here  concerned  with  parallel  behaviour.  We  are conscious of  the argument  put  forth  by Mr  Venugopal  that  in  an oligopoly situation parallel behaviour may not, by itself, amount to a concerted practice. It would be apposite to take note of the following observations made by European Court of Justice in Dyestuffs:

“By its very nature, then, the concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent  from the behaviour  of the participants. Although parallel behaviour may not itself be identified with a concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of

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competition which do not respond to the normal conditions of the market,  having regard to the nature of  the products,  the size and number of the undertakings, and the volume of the said  market.  Such is  the  case especially  where  the  parallel behaviour  is  such  as  to  permit  the  parties  to  seek  price equilibrium  at  a  different  level  from  that  which  would  have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers.”

(emphasis supplied)

At  the  same time,  the  Court  also  added that  the  existence of  a concerted practice could be appraised correctly by keeping in mind the following test:

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

Having regard to the aforesaid principles in mind, we deal with the

arugment on oligopsony raised by the appellants.

94) Monopsony consists of a market with a single buyer.  When there

are only few buyers the market is described as an oligopsony. What is

emphasised is that in such a situation a manufacturer with no buyers will

have to exit from the trade. Therefore, first condition of oligopsony stands

fulfilled.  The other condition for the existence of oligopsony is whether the

buyers have some influence over the price of their inputs.  It is also to be

seen as to whether the seller has any ability to raise prices or it  stood

reduced/eliminated by the aforesaid buyers.

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95) On a hollistic view of the matter, we find that the appellants have

been able to discharge the onus by referring to various indicators which go

on to show that parallel  behaviour was not the result  of any concerted

practice.

96) In Dyestuffs, the European Court held that parallel behaviour does

not,  by itself,  amount to a concerted practice,  though it  may provide a

strong evidence of such a practice. Nevertheless, it is a strong evidence of

such a practice.  However, before such an inference is drawn it has to be

seen that this parallel behaviour has led to conditions of competition which

do not correspond to the normal conditions of the market, having regard to

the nature of the products, size and volume of the undertaking of the said

market.   Thus,  we examine the matter  from the stand point  of  market

economy where question of oligopsony assumes relevance.   Whenever

there is a situation of oligopsony, parallel pricing simplicitor would not lead

to the conclusion that there was a concerted practice there has to be other

credible  and  corroborative  evidence  to  show  that  in  an  oligopoly  a

reduction in price would swiftly attract the customers of the other two or

three rivals, the effect upon whom would be so devastating that they would

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have to react by matching the cut. In  Richard Whish & David Bailey in

Oxford’s  Competition  Law15 discussed  the  “Theory  of  Oligopolistic

Interdependence” as under:

“In  an  oligopoly  a  reduction  in  price  would  swiftly  attract  the customers of the other two or three rivals,  the effect upon whom would be so devastating that they would have to react by matching the  cut.   Similarly  an  oligopolist  could  not  increase  its  price unilaterally, because it would be deserted by its customers if it did so.  Thus the theory runs that in an oligopolistic market rivals are  interdependent:  they  are  acutely  aware  of  each  other’s presence  and  are  bound  to  match  one  another’s  marketing strategy.  The result is that price competition between them will be  minimal  or  non-existent;  oligopoly  produces non-competitive stability…..

...Oligopolists recognize their interdependence as well as their own self-interest.   By matching  each other’s conduct  they will  be able to achieve and charge a profit-maximising price which will be  set  at  a  supra-competitive  level,  without  actually communicating with one another.  There does not need to be any communication: the structure of the market is such that, through interdependence and mutual self-awareness, prices will rise towards the monopolistic level….

…..The logical conclusion of the case against oligopoly is that, since it  is  the  market  structure  itself  which  produces  the  problem, structural  measures  should  be  taken  to  remedy  it  by deconcentrating the market.  Unless this is done, there will be an area  of  consciously  parallel  action  in  pricing  strategies  which  is beyond the reach of laws against cartels and yet which has serious implications for consumers welfare.

xxx xxx xxx

xxx xxx xxx  

(iii) A regulatory approach

15

84

A  different  possibility   would  be  to  regulate  the  prices  of undertakings  that  operate  in  an  oligopolistic  environment.   This, however, would be a counsel of despair.  As a matter of policy direct regulation  should  be  a  remedy  of  last  resort.   Competition authorities  should  not  be  price  regulators;  they  should  be  the guardians  of  the  competitive  process.   Where  markets  are oligopolistic  and  entry  is  limited,  competition  authorities should be concerned with the question of whether there are barriers  to  entry  and  whether  the  state  itself,  for  example through restrictive licensing rules, regulation or legislation, is responsible for a lack of competition.”        

97) In  Theatre Enterprises v. Paramount Films16,  the Supreme Court

of United States held as under:

“1-3 The crucial question is whether respondents’ conduct toward petitioner  stemmed  from  independent  decision  or  from  an agreement,  tacit  or  express.  To  be  sure,  business  behavior  is admissible circumstantial evidence from which the fact finder may infer agreement. Interstate Circuit.

But  this  Court  has  never  held  that  proof  of  parallel  business behavior conclusively establishes agreement or, phrased differently, that  such  behavior  itself  constitutes  a  Sherman  Act  offence. Circumstantial evidence of consciously parallel behavior may have made  heavy  inroads  into  the  traditional  judicial  attitude  toward conspiracy; but “conscious parallelism” has not yet read conspiracy out of the Sherman Act entirely.”

98) In this regard, the test laid down by the Supreme Court of United

States in Monsanto Co. v. Spray-Rite Service Corp.17 is relevant and is

reproduced hereunder:

16 17

85

“The correct standard is that there must be evidence that tends to exclude the possibility that the manufacturer and non-terminated distributors were acting independently.  That is, there must be direct or circumstantial evidence that reasonably tends to prove that the manufacturer  and  others  had  a  conscious  commitment  to  a common scheme designed to achieve an unlawful objective.”

99) This test was reiterated by the Supreme Court of United States in

Matsushita v. Zenith Ratio Corp.18:

“…..But antitrust law limits the range of permissible inferences from ambiguous  evidence  in  a  1  case.  Thus,  in  Monsanto  Co.  v. Spray-Rite Service Corp., 465 U.S. 752 (1984), we held that conduct as consistent with permissible competition as with illegal conspiracy does  not,  standing  alone,  support  an  inference  of  antitrust conspiracy. Id.,  at 764. See also Cities Service, supra, at 280. To survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for a violation of 1 must present evidence "that tends to exclude the possibility" that the alleged conspirators acted independently. 465 U.S., at 764 …….

…...petitioners had no motive to enter into the alleged conspiracy. To the  contrary,  as  presumably  rational  businesses,  petitioners  had every incentive not to engage in the conduct with which they are charged,  for  its  likely  effect  would  be  to  generate  losses  for petitioners with no corresponding gains. Cf. Cities Service, 391 U.S., at 279 . The Court of Appeals did not take account of the absence of a  plausible  motive  to  enter  into  the  alleged  predatory  pricing conspiracy. It focused instead on whether there was "direct evidence of concert of action." 723 F.2d, at 304. The Court of Appeals erred in two respects: (i) the "direct evidence" on which the court relied had little, if  any, relevance to the alleged predatory pricing conspiracy; and (ii) the court failed to consider the absence of a plausible motive to engage in predatory pricing…..

xxx xxx xxx

Lack of motive bears on the range of permissible conclusions that might  be  drawn  from  ambiguous  evidence:  if  petitioners  had  no rational  economic  motive  to  conspire,  and  if  their  conduct  is

18

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Publication  06–08,  pp. 3–4  (2006)  (discussing  problem  of  “false  positives”  in  §1  suits).  Accordingly,  we  have  previously  hedged against  false  inferences  from  identical  behavior  at  a  number  of points  in  the  trial  sequence.  An  antitrust  conspiracy  plaintiff  with evidence showing nothing beyond parallel conduct is not entitled to a  directed  verdict,  see Theatre  Enterprises,  supra; proof  of  a  §1 conspiracy must include evidence tending to exclude the possibility of  independent  action,  see Monsanto  Co. v. Spray-Rite  Service Corp., 465 U. S. 752 (1984); and at the summary judgment stage a  §1 plaintiff’s offer of conspiracy evidence must tend to rule out the possibility  that  the  defendants  were  acting  independently, see Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574(1986).”

101) After taking note of the test that needs to be applied in such cases,

which  was  laid  down  in  Dyestuffs  and  accepted  in  Excel  Crop  Care

Limited, we come to the conclusion that the inferences drawn by the CCI

on the basis of evidence collected by it are duly rebutted by the appellants

and the appellants have been able to discharge the onus that shifted upon

them on the basis of  factors pointed out  by the CCI.  However, at  that

stage, the CCI failed to carry the matter further by having required and

necessary inquiry that was needed in the instant case.

102) We are emphasising here that in such a watertight tender policy of

IOCL which  gave  IOCL full  control  over  the  tendering  process,  it  was

necessary  to  summon  IOCL.   This  would  have  cleared  many aspects

which are shrouded in mystery and the dust has not been cleared.

88

103) We, thus, arrive at a conclusion that there is no sufficient evidence to

hold that there was any agreement between the appellants for bid rigging.

Accordingly,  we  allow  these  appeals  and  set  aside  the  order  of  the

Authorities below. As a consequence, since no penalty is payable, appeals

of  the  CCI  are  rendered  infructuous  and  dismissed  as  such.   All  the

pending applications stand disposed of.

No orders as to costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; OCTOBER 01, 2018.