Case No. 42 of 2013. Case: Builders Association of India (Kerala Chapter) Vs The State of Kerala and Ors.. Competition Commision of India

Case NumberCase No. 42 of 2013
CounselFor Appellant: Shweta Bharti, Shantanu, Sachin Sharma and Mishika Singh, Advocates and For Respondentst: Reegan S. Bel and Jogi Scaria, Advocates
JudgesAshok Chawla, Chairperson, S.L. Bunker, Sudhir Mital, Augustine Peter and U.C. Nahta, Members
IssueCompetition Act, 2002 - Sections 19(1)(a), 19(6), 19(7), 2(h), 2(r), 2(s), 2(t), 26(3), 3, 3(1), 3(3), 3(3)(d), 3(4), 4
Judgement DateMay 12, 2015
CourtCompetition Commision of India

Order:

  1. The present information has been filed before the Commission under section 19(1)(a) of the Competition Act, 2002 (hereinafter referred to as the 'Act') by the Builders Association of India (Kerala Chapter) (hereinafter referred to as the "Informant") against the State of Kerala (hereinafter referred to as the "Opposite Party No. 1"), Kerala Public Works Department (hereinafter referred to as the "Opposite Party No. 2"), Kerala State Construction Corporation Limited (hereinafter referred to as the "Opposite Party No. 3"), and Finance Department, State of Kerala (hereinafter referred to as the "Opposite Party No. 4") [collectively, hereinafter referred to as the "Opposite Parties"], inter alia, alleging contravention of the provisions of sections 3 and 4 of the Act.

  2. Facts, in Brief

    2.1 The Informant is an association of contractors, real estate developers, manufacturers and dealers of construction machineries and materials in India. The Opposite Party No. 1 is the State Government of Kerala and the Opposite Party No. 2 is the statutory authority under the Opposite Party No. 1 and is responsible for design, implementation and maintenance of all public works undertaken by the Opposite Party No. 1. The Opposite Party No. 3 is a registered company of the Government of Kerala (under the administrative control of the Opposite Party No. 2) and is engaged in undertaking construction works of the Government of Kerala such as roads, bridges, national highways, dams, canals and other public structures. The Opposite Party No. 4 is one of the departments of the Government of Kerala and is responsible for all financial and budgetary allocations of the State of Kerala.

    2.2 As per the Informant, public works such as construction of roads, bridges, national highways, dams etc. in Kerala are executed by the Opposite Party No. 1 through the Opposite Party No. 2 by floating tenders and inviting bids from various contractors. It is stated in the information that by virtue of its 100% market share in terms of the total number of tenders floated, the Opposite Party No. 2 is in a dominant position in the market for tender procurements relating to construction works in Kerala. Further, owing to its substantial size and resources, the Opposite Party No. 2 has been stated to enjoy a position of dominance in the said market. It has been alleged that because of its dominance, the Opposite Party No. 2 was acting in collusion with the Opposite Party No. 3 with the intention to oust other contactors from the market. As per the Informant, because of the preferential treatment given by the Opposite Party Nos. 1 and 2, the Opposite Party No. 3 is getting all the tenders floated in Kerala for construction of public works.

    2.3 The Informant highlighted clause 1901 of the Kerala Public Works Department (PWD) manual which classified contractors into four categories on the basis of their financial resources, professional experience and past records. As per the PWD manual, 'A Category' contractors are entitled to apply for tender for all works in any office, 'B Category' contractors are entitled to apply for tender for all works upto Rs. 55 lakhs in any office, 'C Category' contractors are entitled to tender for works up to Rs. 15 lakhs in any office, and 'D Category' contractors are entitled to tender for works up to Rs. 6 lakhs in any office. Further, clause 1404.2.6 of the said manual states that any registered contactor can bid for the works in two rounds viz. pre-qualification and post-qualification.

    2.4 It is the case of the Informant that for many years the Opposite Party No. 1 had been exempting the Opposite Party No. 3 from applying for pre-qualification for various works tendered by the State Government Departments, State Public Undertakings, Local Bodies etc. The Informant alleged that the Opposite Party No. 1, through the Opposite Party No. 2, had also issued orders declaring the Opposite Party No. 3 as an 'A Category' contractor. Further, exemption was granted to the Opposite Party No. 3 with respect to earnest money deposit, payment of cash deposit of Rs. 50,000/- for getting 'A' Class registration, declaring it as eligible for 'pre-qualification' to undertake civil works, allowing a price preference of 10% over the lowest quoted rate, etc.

    2.5 As per the Informant, the above exemptions and preferential treatment accorded to the Opposite Party No. 3 distorted competition in the relevant market by ousting private contractors at the time of awarding tenders. Further, it is stated that the Opposite Party No. 3 had recently started sub-contracting the tenders to private contractors by accepting illegal gratification from those contractors due to which the Opposite Party No. 1 is losing about 10% on all projects. It is also alleged that due to preferential status granted to the Opposite Party No. 3, it receives civil works even if another contractor has quoted lowest bid and after securing the tenders/contracts, the Opposite Party No. 3 sub-contracts the work to its empanelled private contractors/sub-contractors which also includes members of the Informant. As per the Informant, the conduct of the Opposite Party No. 3 in sub-contracting the works to its empanelled private contractors by entering into MoU (Memorandum of Understanding) with them amounts to collusive bidding in contravention of the provisions of section 3(3)(d) read with section 3(1) of the Act.

  3. The Commission prima facie found merit in the allegations raised by the Informant and accordingly, vide its order dated 08.10.2013, directed the Director General (hereinafter referred to as the 'DG') to investigate into the matter for contravention of the provisions of the Act.

  4. DG's Findings

    4.1 In terms of section 26(3) of the Act, the DG has submitted a detailed investigation report in the matter to the Commission on 24.11.2014.

    4.2 In line with the facts and circumstances of the case, the DG has first examined whether the Opposite Parties are covered under the definition of 'enterprise' in terms of section 2(h) of the Act before proceeding to examine any infraction of the provisions of section 4 of the Act in the matter. The DG has also examined possible violation of the provisions of section 3 of the Act in the matter.

    4.3 The DG has reported that the Opposite Party No. 1 and the Opposite Party No. 4 are not engaged in any activities enumerated in section 2(h) of the Act and therefore, are not covered within the definition of enterprise. As per the DG report, the nature of activities performed by the Opposite Party Nos. 1 and 4 are not relating to production, storage, supply, distribution, acquisition or control of articles or goods or provision of services and the functions discharged by them are in the nature of sovereign functions undertaken by a welfare State. With regard to the Opposite Party No. 2, it was observed in the DG report that it is a department of the Government of Kerala responsible for design, implementation and maintenance of all public works, construction of roads, bridges, buildings etc. The Opposite Party No. 2 is undertaking civil construction works as per its budget and these activities do not comprise of any commercial venture, despite the fact that these activities involve financial transactions. As such, the Opposite Party No. 2 was found to be not falling within the definition of 'enterprise'. However, the DG has reported that the Opposite Party No. 3 is an enterprise...

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