Case No. 15 of 2010. Case: Jupiter Gaming Solutions Private Limited Vs Government of Goa and Anr.. Competition Commision of India
| Case Number | Case No. 15 of 2010 |
| Issue | Competition Act, 2002 - Sections 2, 3, 3(1), 3(3), 4, 4(2), 19, 19(5), 19(6), 19(7), 26(1) and 41; Lotteries (Regulation) Act, 1998 - Sections 4 and 5; Consumer Protection Act, 1986 - Section 2(o); Industrial Disputes Act, 1947 - Section 2; Regulation of combinations - Section 6; Lotteries (Regulation) Rules, 2010 - Rule 4 |
| Judgement Date | May 12, 2011 |
| Court | Competition Commision of India |
Order:
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The present information has been filed under Section 19 of the Competition Act, 2002 ('the Act') on 05.04.2010 by M/s Jupiter Gaming Solutions Private Limited ('the informant') against the Government of Goa ('the opposite party No. 1') and M/s Martin Lottery Agency Limited ('the opposite party No. 2') alleging, inter alia, abuse of dominant position by the opposite party No. 1 in formulating the pre-qualification terms and conditions of the lottery tender floated on 11.03.2010 whereby expressions of interest were invited for Goa Brand Lottery Schemes (Online and Paper Lotteries) ('the Lottery Tender').
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A brief summary of the facts as mentioned in the information is as under:
2.1. The informant has stated that the opposite party No. 1 floated the Lottery Tender with, inter alia, the following pre-qualification terms and conditions:
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The participating entity should be an income tax Assessee;
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The participating entity should be either a proprietorship, partnership firm or a private limited company;
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The minimum gross turnover of the participating entity should have been Rs. 4000 crore per annum during the last three financial years;
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The participating entity should have experience of at least three years working directly with minimum two State Governments during the last five years;
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The participating entity should not have any dues pending towards any State Government in which it operates or had worked in the preceding five years. The said proposal was required to be supported by a certificate issued by the concerned State Government;
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That the participating entity should have a minimum net worth of Rs. 40 crore as on 31.03.2009, duly certified by a certificate from the Auditor/ Chartered Accountant;
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Minimum guaranteed revenue to be offered had been stipulated as Rs. 12 crore per annum; and
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A No Dues Certificate from the State Government where it was operating was required to be produced.
2.2. The informant has stated that the failure to meet one or more of the pre-qualification terms and conditions of the Lottery Tender would render the proposal of a participating entity liable to be rejected. As per the information, the last date for purchase of proposal form for the Lottery Tender was 25.03.2010, the last date for submission of the proposal was 05.04.2010 and the evaluation was fixed for 08.04.2010.
2.3. The informant has alleged that the Lottery Tender conditions had been formulated in order to favor only one entity, viz., the opposite party No. 2 which was evident from the fact that among all the lottery service providers in the country, only the opposite party No. 2 had a minimum gross turnover of Rs. 4000 crores during the last three financial years.
2.4. It is further alleged that the entry barrier in terms of the high capital cost of entry had been designed to benefit the opposite party No. 2 and to the detriment and prejudice of smaller entities including the informant who otherwise fulfilled all other conditions of the Lottery Tender and had been successfully providing the marketing and support services to the various State Governments for the past several years. Furthermore, it has been alleged that the opposite party No. 1 has abused its dominant position by imposing unfair and discriminatory conditions in the Lottery Tender, which in turn have limited/ denied market access to all other entities involved in providing similar services including the informant.
2.5. The informant has, inter alia, prayed for deletion of the pre-condition requiring the participating entity to have had a minimum gross turnover of Rs. 4000 crore per annum during the last three financial years from the Lottery Tender.
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The Commission after hearing the informant, and on perusing the information and the documents filed in support thereof formed an opinion that there exists a prima facie case and directed the Director General ('the DG') to cause an investigation to be made into the matter vide its order dated 22.04.2010 under Section 26(1) of the Act.
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The DG completed investigation and submitted a report dated 06.08.2010. The report of the DG has analyzed the lottery market in India with special emphasis on lottery operations in the State of Goa. The DG has noted that the bids received for the Lottery Tender were opened by the opposite party No. 1 on 08.04.2010 and on 06.05.2010 the contract was awarded to an entity named Sugal and Damani Enterprises Private Limited ('Sugal & Damani').
4.1. The report of the DG concludes that the opposite party No. 1 has abused its dominant position in violation of the provisions of Section 4(2)(c) of the Act as it deprived the smaller parties from participating in the Lottery Tender. As per the report of the DG, the inclusion of the term requiring a high turnover of Rs. 4000 crore as a pre-qualification condition of the Lottery Tender denied market access to the other players in the relevant market. Therefore, as per the report of the DG, the opposite party No. 1, in formulating and designing the terms of the Lottery Tender had abused its dominant position.
4.2. The report of the DG also discusses facts relating to the bidding process in the present case and concludes that there is circumstantial evidence to suggest that there has been a bid manipulation in the form of complementary bidding or cover bidding by the opposite party No. 2 and Sugal & Damani in contravention of the provisions of Section 3(3)(d) of the Act.
4.3. The DG, inter alia, relied on the following facts which according to his findings rendered the tendering process doubtful:
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The bid documents for more than one company were purchased by the same person;
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An additional clause was inserted in ink in the financial proposal; and,
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The use of whitener on the date of the proposal.
As per the observations made by the DG in the report, the opposite parties were not able to provide any satisfactory explanation on these facts.
4.4. The report of the DG further states that owing to the tacit understanding between opposite party No. 2 and Sugal & Damani, the former submitted a defective bid which resulted in rejection of the same and consequently the tender was awarded to Sugal & Damani. This, as per the report of the DG, caused a loss to the opposite party No. 1. According to the report of the DG, if two parties were awarded the contract, the opposite party No. 1 would have got revenue of Rs. 24 crore (approx.). However, as per report of the DG, the opposite party No. 2 intentionally and deliberately filed a defective bid with an extra condition inserted in ink to facilitate awarding of the tender to Sugal & Damani. Consequently, the opposite party No. 1 awarded the contract to one operator only and, the net revenue in this case, as per the DG report, would be Rs. 14.5 crore (approx.).
4.5. In view of the aforesaid observations, the DG has concluded that the acts of the opposite party No. 1 amount to an abuse of dominant position in contravention of the provisions of Section 4(2)(c) of the Act and the opposite party No. 2 along with Sugal & Damani have manipulated the bidding process in contravention of the provisions of Section 3(3) of the Act.
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The opposite party No. 1 in its reply/ comments/ objections to the report of the DG has denied all the observations and findings in so far as the same relate to it.
5.1. The opposite party No. 1 has argued that the findings of the DG are not correct and are based on mis-appreciation of the entire factual situation relating to the tender process adopted by it. The opposite party No. 1 has contended that the adverse findings of the DG cannot be sustained in law or otherwise.
5.2. It was further submitted that the DG failed to take into consideration the motive of the informant for initiating these proceedings as, in fact, it had not even purchased the bid form and therefore had no reason to feel aggrieved. The opposite party No. 1 has further argued that the matter had become in fructuous as the information was sought to be withdrawn by the informant on 11.05.2010.
5.3. The opposite party No. 1 in its reply to the report of the DG has submitted that the lotteries are to be marketed or operated as per the Lotteries (Regulation) Act, 1998 ('the Lotteries Act') and the rules made there under. The opposite party No. 1 explained in detail the process adopted by it in the Lottery Tender. and stated that the interested parties were required to submit their proposals along with the requisite EMD and other relevant documents as specified.
5.4. The opposite party No. 1 has submitted that the conditions of the Lottery Tender including the following had been designed as per the market conditions:
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The minimum turnover of the participating entity should be Rs. 4000 crore per annum during the last three financial years;
ii. The minimum experience of the participating entity should be three years during the last five years in the capacity of marketing agent/ distributor directly with minimum two State Governments;
iii. The minimum net worth of the participating entity should not be less then Rs. 40 crore as on 31.03.2009 and for that a certificate should be submitted from a Chartered Accountant; and
iv. The proposal must be submitted along with an EMD of Rs. 5.00 crore.
5.5. As per the opposite party No. 1, it had notified that an interested party may purchase the proposal form along with terms and conditions from the office of the Joint Secretary, Finance Department by making a payment of Rs. 25,000.
5.6. It has been averred that in response to the Lottery Tender, nine parties had purchased the proposal form from the opposite party No. 1 and only two parties submitted their proposals for appointment as marketing agent viz., Future Gaming Solutions Pvt. Ltd. (earlier known as M/s Martin Lottery Agency Limited) i.e., the opposite party No. 2 and Sugal & Damani.
5.7. As per the opposite party No. 1, a participating entity had to offer a net guaranteed...
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