Reference Case No. 06 of 2013. Case: Deputy Chief Materials Manager, Rail Coach Factory Vs Faiveley Transport India Limited and Ors.. Competition Commision of India
| Case Number | Reference Case No. 06 of 2013 |
| Counsel | For Appellant: D.K. Kingra, Deputy Chief Materials Manager and For Respondents: Guru Krishnakumar, Senior Advocate, Nisha Bagchi, Sujeeta Srivastava, Pooja Sharma, Sneha Iyer, S.K. Mongia, Advocates, N. Mahadevan, N.S. Prakash, Shantilal Jain and Gurudev Singh |
| Judges | Ashok Chawla, Chairperson, S.L. Bunker, Sudhir Mital, Augustine Peter, U.C. Nahta and M.S. Sahoo, Members |
| Issue | Competition Act, 2002 - Sections 19(1)(b), 26(1), 3(1), 3(3)(d) |
| Judgement Date | September 08, 2015 |
| Court | Competition Commision of India |
Order:
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The present reference has been filed before the Commission under section 19(1)(b) of the Competition Act, 2002 (hereinafter referred to as 'the Act') by the Deputy Chief Materials Manager, Rail Coach Factory (RCF), Kapurthala (hereinafter referred to as the 'Informant') against M/s. Faiveley Transport India Ltd. (the Opposite Party 1/OP 1) and M/s. Knorr Bremse India Pvt. Ltd. (the Opposite Party 2/OP 2) collectively referred to as 'the Opposite Parties or OPs'. It has been alleged that the Opposite Parties have colluded between themselves and quoted identical prices in various tenders floated by the Informant for supply of Axle Mounted Disc Brake System (AMDBS) required for Linke-Hofmann-Busch (LHB) Design AC and Non-AC coaches and Power Cars. The Informant has alleged that the conduct of OPs is in violation of the provisions of section 3(1) read with section 3(3)(d) of the Act.
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Brief Facts and Allegations
2.1 The Informant is the Deputy Chief Materials Manager, RCF, Kapurthala which is a unit of Indian Railways that manufactures rail coaches. The Informant procures 2 types of AMDBS which is used in LHB Design AC/Non-AC coaches and Power Cars.
2.2 OP 1 is stated to be a wholly owned subsidiary of Faiveley Transport Malmo AB, Sweden which has its registered office at Hosur in Tamil Nadu and another unit at Baddi in Himachal Pradesh. It is engaged in the business of manufacturing and supply of a number of products to Indian Railways which includes brake systems, couplers, pantographs etc.
2.3 OP 2, a wholly owned subsidiary of Knorr Bremse Group of Germany, has its registered office and unit at Palwal, Haryana. It is engaged in the business of manufacturing and supply of a wide range of products to Indian Railways.
2.4 It has been submitted that AMDBS is used in LHB Design AC/Non-AC coaches and Power Cars. AMDBS is a critical safety item and is different from the conventional braking system which is used in railway coaches. AMDBS for ALSTOM LHB design AC/Non-AC coaches as per PL 33501427 specification is referred to as Item 1. AMDBS for ALSTOM LHB design Power Car coaches as per PL 33501439 specification is referred to as Item 2. As per the information, AMDBS is procured by Indian Railways by way of floating open tender. Only two firms i.e. OP 1 and OP 2 have the expertise and technology to manufacture these items. The quantity to be procured is normally split between both OPs as per guidelines laid down by the Railway Board to ensure regular and uninterrupted supply.
2.5 It is submitted that the Informant floated a tender for purchase of braking systems for Item 1 and Item 2 which were opened on 01.10.2010 (hereinafter referred to as the 'Regular Tender 1'). OP 1 and OP 2 were found to be suitable for regular orders as per the conditions laid down in the said tender. OPs quoted different rates for the said tender. After the tender was opened, negotiations took place with OP 2, the lowest acceptable bidder and following rates were offered by OP 2:
a) Item 1 - Rs. 21, 64,111.74 (inclusive of duties and taxes).
b) Item 2 - Rs. 28, 42,682.64 (inclusive of duties and taxes).
2.6 The proposal with recommendations of the Tender Committee was submitted to the Railway Board on 23.05.2011 to obtain the approval of the Competent Authority i.e. Minister of Railways. However, owing to urgent requirement of the items for production of LHB coaches, an Emergency Purchase Tender (hereinafter referred to as 'EP1') for three months' requirement was opened on 13.06.11. The rates quoted by both OPs for Item 1 and 2 in EP1 were allegedly identical and the Informant claims to have placed the order for 50% of the tender quantity on each of them on the said price for both items.
2.7 Another Emergency Purchase Tender (hereinafter referred to as 'EP2') was floated and opened on 24.08.2011. It is averred that OPs again quoted identical rates for both the items. The Informant placed orders for 50% quantity to each OP 1 and OP 2 on the quoted price. Thereafter, another emergency purchase tender (hereinafter referred to as 'EP3') required for three months was opened on 08.12.2011. The rates quoted in EP3 tender were also alleged to be same/identical. However, the Tender Committee found the alternate offer made by OP 1 in EP3 (i.e. alternate offer with a lower price with indigenisation) to be technically suitable and recommended placing of 60% quantity of order on OP 1 and 40% on OP 2 for Item 1. For Item 2, the rates offered by OPs were same and Tender Committee recommended placing 50% quantity to each OP 1 and OP 2.
2.8 Thereafter, a regular tender was floated by the Informant which was opened on 30.01.2012 (hereinafter referred to as 'Regular Tender 2'). The rates quoted by OP 1 and OP 2 in Regular Tender 2 were:
2.9 Further on 21.05.2012, another emergency tender was opened (hereinafter referred to as 'EP4'). The rates quoted and rates at which orders were placed were as under:
Emergency Tender No. 2405110731 opened on 21.05.2012 (EP4)
2.10 Since, the price quoted by OP 1 and Op 2 were identical in the various emergency tenders, the Tender Committee asked OPs on 17.08.2012 to provide details like cost break-up, percentage of imported components and proforma invoice of imported components for both the items i.e. Item 1 and Item 2 for the regular tenders opened on 01.10.2010 and 30.01.2012. OPs, however, did not provide any details to the Informant.
2.11 Another Emergency Purchase Tender (hereinafter referred to as 'EP5') was opened on 28.08.2012. The participating firms were specifically required to submit detailed cost break-up, country of origin of imported components, the Original Equipment Manufacturer (OEM) and also proof of percentage of import content, but this information was also not provided by OPs. After negotiations, the lowest bidder for EP5 i.e. OP2 reduced its price to Rs. 22,69,365 for Item 1 and Rs. 30,19,864 for Item 2. The Informant placed orders on OP 2 and OP 1 for both the items in the ratio of 60:40.
2.12 Based on the above facts, the Informant alleged that OPs have colluded between themselves for three consecutive emergency tenders i.e. EP1, EP2 and EP3 for purchase of Item 1 and Item 2 in the year 2011. The Informant alleged that OPs created a cartel and shared the quantity for supply of these items, taking undue advantage of the limited competition as well as the fact that railway coaches cannot be manufactured without the brake system. The Informant has further submitted that OP 1 and OP 2 never submitted the information solicited by it i.e., cost break-up, justification for quoted rates, Price Variation Clause (PVC), submission of pro-forma invoice for imported component of the product etc. which made it difficult for the Informant to assess the reasonableness of the rates quoted by OPs in the tenders.
2.13 As such, the Informant has alleged that the cartel of OPs has reduced competition and violated the provisions of section 3(3)(d) read with section 3(1) of the Act.
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DG's Investigation and Findings
3.1 The Commission vide its prima facie order dated 29.11.2013, passed under section 26(1) of the Act, directed the DG to investigate the case and submit a report. Accordingly, the DG submitted its investigation report on 03.03.2015.
3.2 The primary allegation was that OPs have indulged in collusive bidding for supply of Item 1 and Item 2 to the Informant in EP1, EP2 and EP3. It was further alleged that OPs refused to reduce the price of the items during regular purchase but reduced and quoted identical price in emergency tenders. Despite requests made by the Informant, OPs did not provide information related to the cost break-up, extent of imports etc. During investigation, the DG sought details about the tenders floated during previous years, prices quoted by the OPs and status of previous tenders. The Informant provided details of tenders from the year 2005 vide letter dated 11.11.2014. The findings and observations of the DG are briefly discussed in the succeeding paragraphs.
3.3 To investigate the allegations, the DG examined as to whether OPs have indulged in collusive bidding in tenders floated by the Informant for supply of Item 1 and Item 2, thus violating the provisions of section 3(1) read with section 3(3)(d) of the Act.
3.4 The DG observed that the conventional bogies/coaches of passenger trains were designed for speed upto 110 km/h and used Bogie Mounted Tread Brake System (BMTBS) in which the brakes are fitted on every wheel of the train including the locomotive and the brake blocks press against the wheels to stop it. Around 1995, locomotives with speed more than 110 km/h were introduced in India and for these locomotives, LHB design coaches were initially imported from Germany. As compared to BMTBS, in AMDBS used in...
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