In an order passed by the Competition Commission of India (Commission), 11 shoe manufacturing companies have been held liable for anti-trust conduct. A cease and desist order coupled with a high penalty of 5% of the total turnover of the defaulting companies was issued on August 06, 2013. (Order available here)
The companies were alleged to have contravened Section 3 of the Competition Act by indulging in collusive bid-rigging and market allocation while bidding against the Tender Enquiry floated by DG S&D in June 2011 for Rate Contracts. The relevant product here was Polyester Blended Duck Ankle Boot Rubber Sole. The quoted prices by the opposite parties in the case were within a narrow band for 45 types of different sizes and colours of the product to be supplied despite differential cost structure and limitations were put on the supply by all but one supplier. Thus, a prima facie case was formed and the matter was referred to the Director-General (DG) for further investigation.
Observations made by the Commission
Having heard the arguments from the DG and the opposite parties, the Commission made some observations which are pertinent to note. It firstly re-emphasised on the concept of “agreement”, as envisaged in Section 2(b) of the Act , to be a mere arrangement, understanding or an action in concert whether or not formal or in writing or intended to be legally enforceable. This inclusive definition covers within in its ambit tacit agreements. The Commission also noted that sufficiency of evidence will be measured on the standard of ‘preponderance of probabilities’.
It then evaluated the facts of the case to conclude that all the opposite parties had quoted similar prices for all the categories of products with a mere difference of 1%. It observed that even conscious price parallelism is not illegal but the same should not be a result of prior consultation between competitors and should be completely ‘unassisted’, thus making it important to establish that such similarity can only arise from an agreement. Considering that there were major differences in various factors of production which contribute to the cost of the product like size of operations and turnover, production capacity, and geographical location (having a bearing on transportation and other compliance costs), similar prices could not be due to similar raw material and plant operation costs as argued by the opposite parties. It was also noted that the applicable tax rates in different states to which the parties belonged are also largely different. The cost of raw material which is the most important factor in calculation of cost for such a product also varies across time, yet the parties which applied in a time frame spanning across a year had quoted similar prices. It finally observed that similarity could be achieved only by altering the profit margins which varies from 2% to 15% which countered the justification of the opposite parties that the manufacturing costs of all the companies was identical.
Further, the parties were members of Federation of Industries of India (FII), Delhi which allowed for exchange of information. All the above factors coupled with the unexplained possession of Performance Statements of all bidders with each other, made it safely deducible that the opposite parties had entered into an agreement to determine prices besides rigging the bid.
The Commission also ruled that restriction on the offered quantity of products by all parties except one despite higher installed capacity meant that the production and supply were restricted and market was being shared through mutual allocation. These restrictions were not imposed earlier and the trend began only from 2010-2011. This could happen only in presence of an agreement between competing companies to not compete or to restrict the competition.
Finally, the Commission noted that Section 3(1) prohibits enterprises to enter into any agreement in respect of production, supply, distribution, acquisition or control of goods or provision of services which is likely to have an appreciable adverse effect on competition within India. Section 3(3) further creates a presumption regarding any agreement entered into by group of enterprises or cartels etc. which directly or indirectly determines price of goods or; limits supply or distribution of goods or; engaging in bid rigging or collusive bidding amongst other things.
Decision of the Commission
Thus, once it is established that an agreement satisfying the conditions under Section 3(3) exists, it will be presumed to have an appreciable adverse effect on competition. Since the opposite parties could not rebut this presumption in this case, they were held to be indulging in bid rigging or collusive bidding and thus contravening Section 3(1) read with Section 3(3).
This post has been written by Roopali Adlakha, Editor-in-chief of SITC Blog and a 4th-year student of West Bengal National University of Juridical Sciences, Kolkata.
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