Suo Moto Case No. 04 of 2013. Case: In Re: Sheth & Co. Vs. Competition Commision of India
| Case Number | Suo Moto Case No. 04 of 2013 |
| Counsel | For Appellant: Payel Chatterjee and M.S. Ananth, Advocates |
| Judges | Ashok Chawla, Chairperson, S.L. Bunker, Sudhir Mital, Augustine Peter and U.C. Nahta, Members |
| Issue | Competition Act, 2002 - Sections 19(1), 19(3), 2(b), 26(1), 27, 27(b), 3, 3(1), 3(2), 3(3), 3(3)(a), 3(3)(b), 3(3)(d), 36(4), 48 |
| Judgement Date | June 10, 2015 |
| Court | Competition Commision of India |
Order:
Order under Section 27 of the Competition Act, 2002
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The present case relates to suo-moto cognizance taken by the Commission against allegations of suspected cartelization by thirteen manufacturers/suppliers of CN container? i.e., 'containers with disc required for 81 mm bomb? (hereinafter, the Product') to the three ordnance factories namely, Ammunition Factory, Khadki, Pune (hereinafter, AFK'); Ordnance Factory Dehu Road, Pune (hereinafter, OFDR'); and Ordnance Factory, Chanda, Chandrapur, Maharashtra (hereinafter, OFCH'). The manufacturers/suppliers which were suspected to be acting in a cartel like manner, are as under: -
i) Sheth & Company (hereinafter Opposite Party No. 1/OP1)
ii) Veekay Enterprises (hereinafter Opposite Party No. 2/OP2)
iii) Sai Trading (hereinafter Opposite Party No. 3/OP3)
iv) Sai Industries (hereinafter Opposite Party No. 4/OP4)
v) Shree Polymers (hereinafter Opposite Party No. 5/OP5)
vi) Sai Enterprises (hereinafter Opposite Party No. 6/OP6)
vii) Mac Polymer (hereinafter Opposite Party No. 7/OP7)
viii) Miltech Industrial Pvt. Limited (hereinafter Opposite Party No. 8/OP8)
ix) Nityanand Udyog (hereinafter Opposite Party No. 9/OP9)
x) Interplas (India) Private Limited (hereinafter Opposite Party No. 10/OP10)
xi) M/s. Baijnath Plastic Products Private Limited (hereinafter Opposite Party No. 11/OP11)
xii) Narendra Explosive Limited (hereinafter Opposite Party No. 12/OP12)
xiii) Narendra & Company (hereinafter Opposite Party No. 13/OP13)
The above manufacturers/suppliers are hereinafter collectively referred to as the Opposite Parties?
Facts of the Case
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The Commission took suo-moto cognizance in the present matter under section 19(1) of the Competition Act, 2002 (hereinafter, the Act?) on the basis of a report of the Comptroller and Auditor General (hereinafter, CAG?) on Defence Sector, i.e., report number 15 of 2010-2011, Chapter VI - Price Discovery Process for Procurement?.
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Inquiry letters under section 36(4) of the Act were issued by the Commission to the ordnance factories, seeking factory wise and tender wise information. Information sought by the Commission was duly provided by all the three ordnance factories.
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The tender wise information as supplied by the ordnance factories is briefly discussed hereunder:-
Ammunition Factory, Khadki
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AFK replied that in response to tender enquiry at serial No. 1, order for the Product was placed on OP1, OP2, OP3, OP7, OP8, OP9 and OP10, @ Rs. 14.47 per set. For tender enquiry at serial No. 2, only one firm i.e., OP11 was found to be eligible and after negotiations, the order was placed on it @ Rs. 9.50 per set. For tender enquiry at serial No. 3, OP12 quoted a rate of Rs. 9.50 per set and accordingly the order was placed on it. For tender enquiry at serial No. 4, the order was placed on OP12 @ Rs. 10.50 per set. AFK further informed the Commission that two enterprises OP1 and OP2 shared a common fax No. 022-26237710.
Ordnance Factory, Chanda
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In response to the Commission's inquiry, OFCH replied that for tender enquiry at serial No. 1, two entities submitted bids. Both of them could not qualify in capacity verification and accordingly, the bid was not finalized. Another bid received from M/s. Aurangabad Auto Ancillary Pvt. Ltd. was not opened. For tender enquiry at serial No. 2, OFCH replied that five out of ten Opposite Parties, i.e. OP1, OP3, OP5, OP7 and OP9 quoted identical rate of Rs. 14.47 per set. It was further brought to the notice of the Commission that OP3 and OP7 used the same Fax No. 022-26237710 which is also the same Fax No. used by OP1 and OP2 as has been mentioned in the reply of AFK. The tender enquiry at serial No. 2 was dropped as OP1, OP3, OP5, OP7 and OP9 did not accept the counter offer of Rs. 9.50 per set. Tender enquiry at serial No. 3 was re-tendered vide Tender No. 200900970 dated 17.02.2010 as five L1 parties i.e., OP1, OP3, OP4, OP7 and OP8 refused to accept the lower counter offer. Tender enquiry at serial No. 4 was also re-tendered vide tender No. 201000039 dated 13.04.2010. For tender enquiry at serial No. 5, five out of eleven Opposite Parties had quoted identical rate Rs. 10.50 and the supply orders were placed on OP8, OP7 and OP1 in the ratio of 50:30:20 as per tender condition based on vendor rating.
Ordnance Factory, Dehu Road
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As per OFDR, for tender enquiry at serial No. 1, six out of the eight Opposite Parties i.e., OP1, OP2, OP3, OP7, OP8 and OP9 quoted identical rate of Rs. 14.47 per set. The contract was awarded to OP12 @ Rs. 9.50 per set for 50% of the tendered quantity i.e., 9.2850 sets. Upon non-acceptance of counter offer @ Rs. 9.50 per set by OP1, OP2 and OP9, the quantity of supply order was increased to 185700 sets on OP12. OFDR further stated that two enterprises i.e., OP1 and OP2 used common Fax No. 022-26237710. OFDR stated that tender enquiry at serial No. 2 was re-tendered vide TE2008000790. For tender enquiry at serial No. 3, the order was placed on OP12 for 50% of the tendered quantity i.e., 187727 sets. Upon non-acceptance of counter offer @ Rs. 9.50 per set by OP8 and OP9, supply order quantity was increased to 375453 sets on OP12. For tender enquiry at serial No. 4, the order was placed on OP12 for 50% of the tendered quantity i.e., 192925 sets. Upon non-acceptance of counter offer @ Rs. 10.50 per set by OP1, OP2 and OP9, supply order quantity was increased to 375453 sets on OP12. Against tender enquiry at serial No. 5, six Opposite Parties i.e. OP2, OP3, OP6, OP7, OP9, and OP12 had quoted identical rate of Rs. 14.47 per set. However, on negotiation, only OP12, revised its rate to Rs. 10.50 per set whereas the other firms refused to supply the Product at this rate. Accordingly, the entire order was placed on OP12.
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From the information provided by the Ordnance factories, the Commission observed that even though the Opposite Parties were located at different places, some of them quoted identical prices in response to few tenders while others have refrained from participating in the tender process. Based on the above, the Commission was of the prima facie view that a cartel existed amongst the Opposite Parties for supply of CN Container to the three ordnance factories named above. Accordingly, vide its order dated 03.05.2013 under section 26(1) of the Act, the Commission directed the Director General (hereinafter, the DG?) to investigate into the matter.
Investigation by the Director General
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The DG has submitted its investigation report to the Commission on 07.08.2014. During the course of investigation, DG framed three issues in the present matter. These issues framed are: (i) whether the peculiar market conditions encouraged collusive action by the bidders; (ii) whether the bidders acted pursuant to an agreement to quote identical/similar bid prices in contravention of the provisions of section 3(1) read with section 3(3) of the Act; and (iii) whether the bidders had also colluded to impose any quantity restrictions.
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On the issue of market conditions, the DG has noted that only few sellers controlled the entire product market and there were no significant fluctuations in demand for the Product which was attributable to the fact that out of the 41 ordnance factories, only three factories engage in the production of 81 mm bomb. Further, these factories lacked the in-house capacity to produce 81 mm disc with container which is one of the essential raw materials required for producing 81 mm bomb. As such, the Product was procured from other sources.
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The DG has noted that the high installed capacities of the existing players discouraged the entry of new players into the market. Further, during the last 5-6 years, no new player except OP13 had entered into the market. Moreover, OP13 was found to be a group company of OP12. The DG also noted that out of above thirteen players, only eleven were supplying the Product. Further, the products manufactured by each of the Opposite Parties were homogeneous in nature, the reason being that the Product, which is an...
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