Tribunal Confirms Findings of Cartelization in Government Tender for Sewing Machines
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has upheld a Rs. 10 lakh penalty imposed by the Competition Commission of India (CCI) on M/S Klassy Enterprises for engaging in anti-competitive practices, specifically bid rigging and cartelization. The judgment, delivered by Justice Mohd. Faiz Alam Khan and Member Naresh Salecha, affirms CCI's findings that Klassy Enterprises, along with other entities, manipulated the tender process for sewing machines intended for distribution among marginalized communities in Pune.
The case originated from a complaint filed by a registered society, alleging that Klassy Enterprises and other authorized dealers of Usha International colluded to rig bids for a government tender. The complaint highlighted suspiciously close bid prices and the use of common resources such as IP addresses and bank accounts, suggesting a concerted effort to undermine fair competition.
The Director General's (DG) investigation revealed substantial evidence of bid rigging, including price parallelism, shared IP addresses, and coordinated tender fee payments, leading to the conclusion that there was a prior agreement among the entities to manipulate the tender process. The CCI's decision, based on the DG's report, found Klassy Enterprises guilty under Section 3(3)(d) of the Competition Act, 2002, which presumes an appreciable adverse effect on competition (AAEC) from such agreements.
Klassy Enterprises challenged the CCI's order, arguing that there was no direct evidence of cartelization and that the reduction in their quoted prices indicated competitive behavior. However, the NCLAT dismissed these claims, noting the overwhelming circumstantial evidence, including frequent communications between involved parties and the use of a single IP address for bid submissions.
The tribunal emphasized that direct evidence of cartel formation is rare and that the circumstantial evidence presented was sufficient to establish an illegal agreement between the parties. The judgment reinforces the principle that once an agreement is established under Section 3(3) of the Act, the burden shifts to the accused to disprove its adverse impact on competition, a burden Klassy Enterprises failed to meet.
Furthermore, the NCLAT confirmed that the penalty imposed was proportionate, aligning with the Supreme Court's guidelines in the Excel Crop Care case for determining penalties based on relevant turnover. The revenue generated from the sale of sewing machines by Klassy Enterprises during the relevant period justified the penalty imposed, ensuring it remained under 10% of the relevant turnover.
This ruling underscores the stringent stance taken by Indian competition authorities against anti-competitive practices, particularly in public procurement, and serves as a deterrent to entities contemplating similar conduct in the future.
Bottom Line:
Competition law - Establishment of cartelization and bid rigging - Presumption under Section 3(3) of the Competition Act, 2002 - Evidence of price parallelism, use of common IP address, and coordination among bidders upheld.
Statutory provision(s): Competition Act, 2002 Sections 3(1), 3(3)(d), 27(a), 48
