RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. UNION OF INDIA AND ANOTHER

74Copy pinpoint74. We may also state at this stage that Section 19(3) of the Act mentions the factors which are to be examined by the CCI while determining whether an agreement has an appreciable adverse effect on competition under Section 3. However, this inquiry would be needed in those cases which are not covered by clauses (a) to (d) of sub-section (3) of Section 3. Reason is simple. As already pointed out above, the agreements of nature mentioned in sub-section (3) are presumed to have an appreciable effect and, therefore, no further exercise is needed by the CCI once a finding is arrived at that a particular agreement fell in any of the aforesaid four categories. We may hasten to add, however, that agreements mentioned in Section 3(3) raise a presumption that such agreements shall have an appreciable adverse effect on competition. It follows, as a fortiorari, that the presumption is rebuttable as these agreements are not treated as conclusive proof of the fact that it would result in appreciable adverse effect on competition. What follows is that once the CCI finds that case is covered by one or more of the clauses mentioned in sub-section (3) of Section 3, it need not undertake any further enquiry and burden would shift upon such enterprises or persons etc. to rebut the said presumption by leading adequate evidence. In case such an evidence is led, which dispels the presumption, then the CCI shall take into consideration the factors mentioned in Section 19 of the Act and to see as to whether all or any of these factors are established. E If the evidence collected by the CCI leads to one or more or all factors mentioned in Section 19(3), it would again be treated as an agreement which may cause or is likely to cause an appreciable adverse effect of competition, thereby compelling the CCI to take further remedial action in this behalf as provided under the Act. That, according to us, is the broad scheme when Sections 3 and 19 are to be read in conjuction. F

75Copy pinpoint75. In these appeals, the Court is concerned with the alleged agreement entered into between the appellants falling in clause (d) of sub-section (3) of Section 3, which talks of bid rigging or collusive bidding. Therefore, it would be necessary to understand the meaning of the expression ‘bid rigging’ and ‘collusive bidding’. Explanation to Section G 3, which is reproduced, assigns meaning to ‘bid rigging’ and states : “S. 3: Explanation.—For the purposes of this sub-section, “bid rigging” means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 539 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”

76Copy pinpoint76. The necessary ingredients of bid rigging, thus, are: (a) agreement between the parties; (b) these parties are engaged in identical or similar production or trading of goods or provisions of services; and B (c) the agreement has the effect of eliminating or reducing competition of bids or adversely affect or manipulating the process for bidding.

77Copy pinpoint77. Though the expression ‘collusive bidding’ is not defined in the Act, it appears that both ‘bid rigging’ and ‘collusive bidding’ are overlapping concepts. This position stands accepted in Excel Crop C Care Limited case which should be found from the following discussion therefrom: “38. Mr Neeraj Kishan Kaul, learned Additional Solicitor General, refuted the aforesaid submission with vehemence by urging that bid rigging and collusive bidding are not mutually exclusive and these are overlapping concepts. Illustratively, he referred to the findings of CCI, as approved by COMPAT, in the instant case itself to the effect that the appellants herein had “manipulated the process of bidding” on the ground that bids were submitted on 8-5-2009 collusively, which was only the beginning of the anti- competitive agreement between the parties and this continued through the opening of the price bids on 1-6-2009 and thereafter negotiations on 17-6-2009 when all the parties reduced their bids by same figure of Rs 2 to bring their bid down to Rs 386 per kg from Rs 388 per kg. From this example, he submitted that on 8-5- 2009 there was a collusive bidding but with concerted negotiations on 17-6-2009, in the continued process, it was rigging of the bid that was practiced by the appellants. We are inclined to agree with this pellucid submission of the learned Additional Solicitor General.

39. Richard Whish and David Bailey [Competition Law, 7th Edn., G p. 536.] , in their book, have given illustrations of various forms of collusive bidding/bid rigging, which include: (a) Level tendering/bidding (i.e. bidding at same price — as in the present case). H

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A (b) Cover bidding/courtesy bidding. (c) Bid rotation. (d) Bid allocation.

40. Even internationally, “collusive bidding” is not understood as being different from “bid rigging”. These two expressions have been used interchangeably in the following international commentaries/glossaries and websites of competition authorities: (a) UNCTAD Competition Glossary dated 22-6-2016 “Bid rigging or collusive tendering is a manner in which conspiring competitors may effectively raise prices where business contracts are awarded by means of soliciting competitive bids. Essentially, it relates to a situation where competitors agree in advance who will win the bid and at what price, undermining the very purpose of inviting tenders which is to procure goods or services on the most favourable prices and conditions.” (b) OECD Glossary of Industrial Organisation Economics and Competition Law “Bid rigging is a particular form of collusive price-fixing behaviour by which firms coordinate their bids on procurement or project contracts. There are two common forms of bid rigging. In the first, firms agree to submit common bids, thus eliminating price competition. In the second, firms agree on which firm will be the lowest bidder and rotate in such a way that each firm wins an agreed upon number or value of contracts. F Since most (but not all) contracts open to bidding involve Governments, it is they who are most often the target of bid rigging. Bid rigging is one of the most widely prosecuted forms of collusion.” Collusive bidding (tendering) — See “bid rigging”. (This shows collusive bidding and bid rigging are treated as one G and the same.) (c) OECD Guidelines for fighting bid rigging “Bid rigging (or collusive tendering) occurs when businesses, that would otherwise be expected to compete, secretly conspire to H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 541 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process.” (d) United States Office of the Inspector General, Investigations (Fraud Indicators Handbook) “Collusive bidding, price fixing or bid rigging, are commonly used interchangeable terms which describe many forms of an illegal anti-competitive activity. The common thread throughout all these activities is that they involve any agreements or informal arrangements among independent competitors, which limit competition. Agreements among competitors which violate the law include but are not limited to: (1) Agreements to adhere to published price lists. (2) Agreements to raise prices by a specified increment.(3) Agreements to establish, adhere to, or eliminate discounts. D (4) Agreements not to advertise prices. (5) Agreements to maintain specified price differentials based on quantity, type or size of product.” (e) Australian Competition and Consumer Commission “Bid rigging, also referred to as collusive tendering, occurs when E two or more competitors agree they will not compete genuinely with each other for tenders, allowing one of the cartel members to ‘win’ the tender. Participants in a bid rigging cartel may take turns to be the ‘winner’ by agreeing about the way they submit tenders, including some competitors agreeing not to tender.” F

41. As the Liegeman of the law, it is our task, nay a duty, to give proper meaning and effect to the aforesaid “Explanation”. It can easily be discussed that the legislature had in mind that the two expressions are interchangeably used. It is also necessary to keep in mind the purport behind Section 3 and the objective it seeks to G achieve: 41.1. Sub-section (1) of Section 3 is couched in the negative terms which mandates that no enterprise or association of enterprises or person or association of persons shall enter into any agreement, H

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A when such agreement is in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services and it causes or is likely to cause an appreciable adverse effect on competition within India. It can be discerned that first part relates to the parties which are prohibited from entering into such an agreement and embraces within it persons as well as enterprises thereby signifying its very wide coverage. This becomes manifest from the reading of the definition of “enterprise” in Section 2(h) and that of “person” in Section 2(l) of the Act. The second part relates to the subject-matter of the agreement. Again it is very wide in its ambit and scope as it covers production, supply, distribution, storage, acquisition or control of goods or provision of services. The third part pertains to the effect of such an agreement, namely, “appreciable adverse effect on competition”, and if this is the effect, purpose behind this provision is not to allow that. Obvious purpose is to thwart any such agreements which are anti-competitive in nature and this salubrious provision aims at ensuring healthy competition. Sub-section (2) of Section 3 specifically makes such agreements as void. 41.2. Sub-section (3) mentions certain kinds of agreements which would be treated as ipso facto causing appreciable adverse effect on competition. It is in this backdrop and context that “Explanation” E beneath sub-section (3), which uses the expression “bid rigging”, has to be understood and given an appropriate meaning. It could never be the intention of the legislature to exclude “collusive bidding” by construing the expression “bid rigging” narrowly. No doubt, clause (d) of sub-section (3) of Section 3 uses both the F expressions “bid rigging” and “collusive bidding”, but the Explanation thereto refers to “bid rigging” only. However, it cannot be said that the intention was to exclude “collusive bidding”. Even if the Explanation does contain the expression “collusive bidding” specifically, while interpreting clause (d), it can be inferred that “collusive bidding” relates to the process of bidding as well. G Keeping in mind the principle of purposive interpretation, we are inclined to give this meaning to “collusive bidding”. It is more so when the expressions “bid rigging” and “collusive bidding” would be overlapping, under certain circumstances which was conceded by the learned counsel for the appellants as well. H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 543 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

42. We are, therefore, of the opinion that the two expressions are A to be interpreted using the principle of noscitur a sociis i.e. when two or more words which are susceptible to analogous meanings are coupled together, the words can take colour from each other. (See Leelabai Gajanan Pansare v. Oriental Insurance Co. Ltd.[Leelabai Gajanan Pansare v. Oriental Insurance Co. Ltd., B (2008) 9 SCC 720] , Thakorlal D. Vadgama v. State of Gujarat [Thakorlal D. Vadgama v. State of Gujarat, (1973) 2 SCC 413 : 1973 SCC (Cri) 835] and M.K. Ranganathan v. State of Madras[M.K. Ranganathan v. State of Madras, (1955) 2 SCR 374 : AIR 1955 SC 604] .)” C

78Copy pinpoint78. The first proposition of Ms. Divan, viz. there is no competition, has two facets. First, the legal one which concerns the jurisdiction of the CCI to deal with such matters and the other is factual, which is to be examined on the basis of facts in these cases. Insofar as the first component is concerned, having regard to the aforesaid scheme of the Act, we are not convinced with the argument of Ms. Madhavi Divan D that there is no possibility of a competition in these cases and, therefore, CCI had no jurisdiction to carry out any such investigation. The scope and ambit of the provisions of Section 3 have been considered in detail in Excel Crop Care Limited case. This Section prohibits anti-competitive agreements and brings about the prime objective of the Competition E Act. These aspects were noted in Excel Crop Care Limited, relevant portions whereof are already extracted above. We may also quote the following portion from the judgment of this Court in Steel Authority of India Limited wherein objective behind the Act was highlighted in the following manner: F “125. We have already noticed that the principal objects of the Act, in terms of its Preamble and the Statement of Objects and Reasons, are to eliminate practices having adverse effect on the competition, to promote and sustain competition in the market, to protect the interest of the consumers and ensure freedom of trade carried on by the participants in the market, in view of the economic G developments in the country. In other words, the Act requires not only protection of free trade but also protection of consumer interest. The delay in disposal of cases, as well as undue continuation of interim restraint orders, can adversely and H

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A prejudicially affect the free economy of the country. Efforts to liberalise the Indian economy to bring it on a par with the best of the economies in this era of globalisation would be jeopardised if time-bound schedule and, in any case, expeditious disposal by the Commission is not adhered to. The scheme of various provisions of the Act which we have already referred to including Sections B 26, 29, 30, 31, 53-B(5) and 53-T and Regulations 12, 15, 16, 22, 32, 48 and 31 clearly show the legislative intent to ensure time- bound disposal of such matters.”

79Copy pinpoint79. We would like to reemphasise that the purpose of the Act is not only to illuminate practices having adverse effect on the competition but also to promote and sustain competition in the market. Enforcement provides remedies to avoid situation that will lead to decrease competition in the market. Therefore, effective enforcement is important not only to sanction anti-competitive conduct but also to deter future competitive practices. In the present case itself, there are sixty suppliers of the product for which there are three buyers. After all, each supplier would like to be L-1 or L-2 so that it is able to get order for larger quantities than the other. In this sense, there would be a competition among them. Further, it would also be in the interest of the buyers like IOCL etc. that the elements of healthy competition persists in the market. In any case, it is the duty of the CCI to ensure that the conditions which have tendency to kill the competition are to be curbed. It is also the function of the CCI to ensure that there is a competition so that benefits of such competition are reaped by the consumers. However, insofar as certain factual aspects highlighted by the appellants are concerned, they would be dealt with while examining the third proposition, as we deem it more appropriate to discuss these two aspects together.

80Copy pinpoint80. Second proposition of Ms. Divan was that there was no collusive bidding in the present case. The CCI and COMPAT have rejected this argument in view of the fact that there is an active trade association of the suppliers; a meeting took place couple of days before the date of bidding; common changes were pointed out by these appellants who submitted bids on their behalf; and bids were of identical amounts despite varying cost, which were repetitive in nature. The respondents may be right in their submission that there may not be a direct evidence on the basis of which cartelisation or such agreement between the parties can be proved as these agreements are normally entered into in closed H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 545 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

doors. The standard of proof which is required is one of probability, A which is a principle accepted in Technip SA vs. SMS Holding (P) Ltd. & Ors.13 wherein the Court stated and discussed this aspect in the following manner: “54. The standard of proof required to establish such concert is one of probability and may be established B “if having regard to their relation etc., their conduct, and their common interest, that it may be inferred that they must be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon” [CIT v. East Coast Commercial Co. Ltd., (1967) 1 SCR 821 : AIR 1967 SC 768] C . (SCR p. 829 H)

55. While deciding whether a company was one in which the public were substantially interested within the meaning of Section 23-A of the Income Tax Act, 1922 this Court said: “The test is not whether they have actually acted in concert D but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts.” [CIT v. Jubilee Mills Ltd., (1963) E 48 ITR 9 (SC), p. 20]

56. In Guinness PLC and Distillers Co. PLC [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)] the question before the Takeover Panel was whether Guinness had acted in concert with Pipetec when Pipetec purchased shares in Distillers Company PLC. Various factors were taken into consideration to conclude that Guinness had acted in concert with Pipetec to get control over Distillers Company. The Panel said: “The nature of acting in concert requires that the definition be drawn in deliberately wide terms. It covers an understanding as well as an agreement, and an informal as well as a formal arrangement, which leads to cooperation to purchase shares to acquire control of a company. This is necessary, as such 13 (2005) 5 SCC 465 H

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A arrangements are often informal, and the understanding may arise from a hint. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a ‘nod or a wink’…. Unless persons declare this agreement or understanding, there is rarely direct evidence of action in concert, and the Panel must draw on its experience and B common sense to determine whether those involved in any dealings have some form of understanding and are acting in cooperation with each other.” [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)]

81Copy pinpoint81. We would also like to reproduce the following discussion in Commissioner of Income Tax, Bombay City I, Bombay vs. Jubilee Mills Ltd., Bombay14: “19. At the hearing a point was raised that it has to be proved as a fact that the persons constituting the group which owns shares carrying more than seventy-five per cent of the voting power, were acting in unison. The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts. The exclusion of “public” in the manner indicated generally from more than 75% of the shares and the concentration of such a holding in a single person or a group acting in concert is what attracts Section 23(A).”

82Copy pinpoint82. It is also significant to state that respondents had drawn attention of this Court to OECD Policy Roundtables Prosecuting Cartels without Direct Evidence 2006 which discussed the nature of evidence that is required for proving cartel agreement, relevant portion thereof contained in para 2 of the said Policy is reproduced below:

G “Available evidence for proving cartel agreements 2.1 Categories of evidence Evidence used to prove a cartel agreement can be classified into two types: direct and circumstantial. Circumstantial evidence, in 14 (1963) 48 ITR 9 H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 547 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

turn, consists of “communication” evidence and economic evidence, which include firm conduct, market structure, and evidence of facilitating practices. Common types of direct evidence include: - A document or documents (including email messages) essentially embodying the agreement, or parts of it, and identifying the parties to it. - Oral or written statements by co-operative cartel participants describing the operation of the cartel and their participation in it. There are different types of circumstantial evidence. One is evidence that cartel operators met or otherwise communicated but does not describe the substance of their communications. It might be called communication evidence for purposes of this discussion. It includes: - Records of telephone conversations between competitors D (but not their substance), or of travel to a common destination or of participation in a meeting, for example during a trade conference. - other evidence that the parties communicated about the subject e.g., minutes or notes of a meeting showing that prices, demand or capacity utilisation were discussed; internal documents evidencing knowledge or understanding of a competitors pricing strategy, such as an awareness of a future price increase by a rival. A broader category of circumstantial evidence is often called economic evidence. Economic evidence identifies primarily firm conduct that suggests that an agreement was reached, but also conduct of the industry as a whole, elements of market structure which suggest that secret price fixing was feasible, and certain practices that can be used to sustain a cartel agreement. Conduct evidence is the single most important type of economic evidence. As noted earlier, observation of certain, suspicious conduct frequently triggers an investigation of a possible cartel. And as the section in this paper on economics highlights 11 careful analysis of the conduct of parties is important to identify behaviours H

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A that can be characterised as contrary to the parties’ unilateral self-interest and which therefore supports the inference of an agreement. Conduct evidence includes, first and foremost: - Parallel pricing – changes in prices by rivals that are identical, or nearly so, and simultaneous, or nearly so. It includes other B forms of parallel conduct, such as capacity reductions, adoption of standardised terms of sale, and suspicious bidding patterns, e.g., a predictable rotation of winning bidders. Industry performance could also be described as conduct evidence. It includes: C - abnormally high profits; - stable market shares - A history of competition law violations. Evidence related to market structure can be used primarily to D make the finding of a cartel agreement more plausible, even though market structure factors do not prove the existence of such an agreement. Relevant economic evidence relating to market structure includes: - high concentration; E - low concentration on the opposite side of the market; - high barriers to entry; - high degree of vertical integration; - Standardised or homogeneous product. F The evidentiary value of structural evidence can be limited, however. There can be highly concentrated industries selling homogeneous products in which all parties compete. Conversely, the absence of such evidence cannot be used to show that a cartel did not exist. Cartels are known to have existed in industries with G numerous competitors and differentiated products. A specific kind of economic conduct evidence is facilitating practices – practices that can make it easier for competitors to reach or sustain an agreement. It is important to note that conduct described as facilitating practices is not necessarily unlawful. But H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 549 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

where a competition authority has found other circumstantial evidence pointing to the existence of a cartel agreement, the existence of facilitating practices can be an important complement. They can explain what kind of arrangements the parties set up to facilitate the formation of a cartel agreement, monitoring, detection of defection, and/or punishment, thus supporting the ‘collusion story’ put together by the competition law enforcer. Facilitating practices include: - information exchanges; - price signalling; - freight equalisation; C

- price protection and most favoured nation policies; - Unnecessarily restrictive product standards.”

83Copy pinpoint83. Thus, even in the absence of proof of concluded formal agreement, when there are indicators that there was practical cooperation between the parties which knowingly substitute the risk of competition, that would amount to anti-competitive practices. This has been discussed in Coordination Committee of Artistes and Technicians of West Bengal Film and Television & Ors. (see paras 44 and 45). Then, there are guidelines on the applicability of Article 101 of the Treaty on the functioning of the E.U. to horizontal cooperation agreements which records as under: “60. Information exchange can only be addressed under Article 101 if it establishes or is part of an agreement, a concerted practice or a decision by an association of undertakings. The existence of an agreement, a concerted practice or decision by an association of undertakings does not prejudge whether the agreement, concerted practice or decision by an association of undertakings gives rise to a restriction of competition within the meaning of Article 101(1). In line with the case-law of the Court of Justice of the European Union, the concept of a concerted practice refers to a form of coordination between undertakings by which, without it having reached the stage where an agreement properly so-called has been concluded, practical cooperation between them is knowingly substituted for the risks of competition. The criteria of coordination and cooperation necessary for determining the H

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A existence of a concerted practice, far from requiring an actual plan to have been worked out, are to be understood in the light of the concept inherent in the provisions of the Treaty on competition, according to which each company must determine independently the policy which it intends to adopt on the internal market and the conditions which it intends to offer to its customers. B

61. This does not deprive companies of the right to adapt themselves intelligently to the existing or anticipated conduct of their competitors. It does, however, preclude any direct or indirect contact between competitors, the object or effect of which is to create conditions of competition which do not correspond to the normal competitive conditions of the market in question, regard being had to the nature of the products or services offered, the size and number of the undertakings, and the volume of the said market. This precludes any direct or indirect contact between competitors, the object or effect of which is to influence conduct on the market of an actual or potential competitor, or to disclose to such competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market, thereby facilitating a collusive outcome on the market. Hence, information exchange can constitute a concerted practice if it reduces strategic uncertainty in the market thereby facilitating collusion, that is to say, if the data exchanged is strategic. Consequently, sharing of strategic data between competitors amounts to concentration, because it reduces the independence of competitors’ conduct on the market and diminishes their incentives to compete.

F 62. A situation where only one undertaking discloses strategic information to its competitor(s) who accept(s) it can also constitute a concerted practice. Such disclosure could occur, for example, through contacts via mail, emails, phone calls, meetings etc. It is then irrelevant whether only one undertaking unilaterally informs G its competitors of its intended market behaviour, or whether all participating undertakings inform each other of the respective deliberations and intentions. When one undertaking alone reveals to its competitors strategic information concerning its future commercial policy, that reduces strategic uncertainty as to the

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 551 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

future operation of the market for all the competitors involved A and increases the risk of limiting competition and of collusive behaviour. For example, mere attendance at a meeting where a company disclose its pricing plans to its competitors is likely to be caught by Article 101, even in the absence of an explicit agreement to raise prices. When a company receives strategic data from a B competitor (be it in a meeting, by mail or electronically), it will be presumed to have accepted the information and adapted its market conduct accordingly unless it responds with a clear statement that it does not wish to receive such data.” (emphasis added) C

84Copy pinpoint84. According to us, the real question in the present case is as to whether there was a possibility of such an agreement having regard to market conditions even when we proceed on the basis that meeting did take place. Possibility of such an agreement has been inferred by the CCI on the grounds that identical bidding takes place thereafter and various suppliers gave such a bid despite varying cost and also that they have appoined common changes etc. as pointed out above.

85Copy pinpoint85. The first and foremost issue which needs to be considered is that whether there was a situation of monopsony or oligopsony.

86Copy pinpoint86. From the aforesaid discussion, it is clear that as far as CCI is concerned, it has come to the conclusion that there was a cartelisation among the appellants herein and a concerted decision was taken to rig the bids which were submitted persuant to the tenders issued by IOCL. On the other hand, the appellants argue that there was no such agreement and even if the bids of many bidders were identical in nature, the bids were driven by market conditions. Their plea is that there was a situation of oligopsony and the modus which was adopted by IOCL in floating the tenders and awarding the contracts would show that the determination of price was entirely within the control of the IOCL. As per them, the way price was determined for supply of these cylinders, it had become an open secret known to everybody. Therefore, there was no question of any competition and no possibility of adversely affecting that competition by entering into any contract.

87Copy pinpoint87. The factors which have influenced the authorities below in coming to the conclusion that the appellants had colluded and formed a H

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A cartel which led to bid rigging have already been noted above. To recaptulate, the authorities below have been influenced by the following factors:

1. Market conditions

2. Small number of suppliers B

3. Few new entrants

4. Active trade association

5. Repetitive bidding

6. Identical products C

7. Few or no substitutes

8. No significant technological changes

9. Meeting of bidders in Mumbai and its agenda.

D 10. Appointing common agents

11. Identical bids despite varying cost. After deliberating on the aforesaid aspects, the CCI has concluded that there is an active trade association in which many of the appellants are members. That product in question, namely, gas cylinder is of a E particular specification which is needed by IOCL in large numbers every year and there are very few manufacturers and suppliers of this product to IOCL and two other buyers. For this identical product which is to be supplied by all the suppliers, there is no substitute and no significant technology change. Further, there is an active trade association in which most of the appellants are the members. Their interest is to ensure that no new entrants are able to join. Further, the trade association also ensures that all the members are able to get some order. It is for this reason the bids submitted in various standards which are floated by IOCL at different places are almost identical despite varying cost. The authorities below attributed this identical bidding to the concerted action of the appellants. This has been inferred from the fact that 2-3 days before the submission of bids, meeting of the association took place which most of the appellants attended. Not only this, common agents, six in number, were appointed who submitted the bids on behalf of these appellants. H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 553 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

88Copy pinpoint88. We may say at the outset that if these factors are taken into A consideration by themselves, they may lead to the inference that there was bid rigging. We may, particularly, emphasise the fact that there is an active trade association of the appellants and a meeting of the bidders was held in Mumbai just before the submission of the tenders. Another very important fact is that there were identical bids despite varying cost. B Further, products are identical and there are small number of suppliers with few new entrants. These have become the supporting factors which persuaded the CCI to come to the conclusion that these are suggestive of collusive bidding.

89Copy pinpoint89. However, that is only one side of the coin. The aforesaid factors are to be analysed keeping in mind the ground realities that were C prevailing, which are pointed out by the appellants. These attendant circumstances are argued in detail by the counsel for the appellants which have already been taken note of. We may recapitulate the same in brief hereinbelow: (i) In the present case there are only three buyers. Among them, D IOCL is the biggest buyer with 48% market share. It is also a matter of record that all these appellants are manufacturers of 14.2 kg gas cylinders to the three buyers who are available in the market, namely, IOCL, HPCL and BPCL. If these three buyers do not purchase from any of the appellants, that particular appellant would not be in a position to sell those cylinder to any other entity as there are no other buyers. (ii) There are only three buyers, it may not attract many to enter the field and manufacture these cylinders. It is because of limited number of buyers and for some reason if they do not purchase, the manufacturer would be nowhere. That may deter the persons to enter the field. (iii) The manner in which the tenders are floated by IOCL and the rates at which these are awarded, are an indicator that it is the IOCL which calls the shots insofar as price control is concerned. G It has come in evidence that the IOCL undertakes the exercise of having its internal estimates about the cost of these cylinders. Their own expert arrived at a figue of Rs. 1106.61 paisa per cylinder. All the tenders which have been accepted are for a price lesser than the aforesaid estimate of IOCL itself. That apart, H

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A the modus adopted by the IOCL is that that final price is negotiated by it and the contract is not awarded at the rate quoted by bidder who turns out to be L-1. Negotiations are held with such a bidder who is L-1 which generaly leads to further reduction of price than the one quoted by L-1. Thereafter, the other bidders who may be L-2 or L-3 etc. are awarded the contract at the rate at which it is B awarded to L-1. Thus, ultimately, all the bidders supply the goods at the same rate which is fixed by the IOCL after negotiating with L-1 bidder. The only difference is that bidder who is L-1 would be able to receive the order for larger quantity than L-2 and L-2 may get an order of more quantity than L-3. C (iv) It has also come on record that there are very few suppliers. For the tender in question, there were 50 parties already in the fray and 12 new entrants were admitted. Number of 12, in such a scenario, cannot be treated as less. Therefore, the conclusion of CCI that the appellants ensured that there should not be entry of new entrant may not be correct. (v) Since there are not many manufacturers and supplies are needed by the three buyers on regular basis, IOCL ensures that all those manufacturers whose bids are technically viable, are given some order for the supply of specific cylinder. For this purpose, it has framed its broad policy as well. This also shows that control remains with IOCL. Thus, the appellants appear to be correct when they say that all the participants in the bidding process were awarded contracts in some State or the other which was aimed at ensuring a bigger pool of manufacturers so that the supply of this essential product is always maintained for the benefit of the general public. Had IOCL left some manufacturers empty handed, in all likelihood, they would have shut their shops. However, IOCL wanted all manufacturers to be in the fray in its own interest. Therefore, it was necessary to keep all parties afloat and this explains why all G 50 parties obtained order along with 12 new entrants. (vi) There is another very relevant factor pointed out by the appellants, viz., the governmental control which is regulated by law. As pointed out above, it is not only the three oil companies which can supply LPG to domestic consumers in 14.2 kg LPG H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 555 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

cylinders as mandated in the LPG (Regulation and Distribution) A Order, 2000 which is issued under the provisions of Essential Commodities Act, 1955, even the price at which the LPG cylinder is to be supplied to the consumer is controlled by the Government. Following features of the aforesaid LPG Order, 2000, are significant: B • The LPG supplied in 14.2 kg gas cylinders is an essential commodity. • The distribution of LPG in 14.2 kgs cylinders takes place as part of a public distribution system defined under clause 2(1) of the Order as “the system of distribution, marketing or selling of C liquified petroleum gas by a Government Oil Company at the Government controlled or declared price through a distribution system approved by the Central or State Government”. • The price to the consumer is controlled by the Government. D • The supply of LPG to domestic consumers shall be made only in 14.2 kg gas cylinders. • According to clauses 4 and 5 read with Schedule III of the LPG Order, parallel marketeers who supply and distribute LPG E cylinders, may do so only for cylinders with size and specifications other than those specified in Schedule II.

90Copy pinpoint90. The manner in which tendering process takes place would show that in such a competitive scenario, the bid which the different bidder would be submitting becomes obvious. It has come on record that just a few days before the tender in question, another tender was floated by BPCL and on opening of the said tender the rates of L-1, L-2 etc. came to be known. In a scenario like this, that obviously becomes a guiding factor for the bidders to submit their bids.

91Copy pinpoint91. When we keep in mind the aforesaid fact situation on the ground, those very factors on the basis of which the CCI has come to the conclusion that there was cartelization, in fact, become valid explanations to the indicators pointed out by the CCI. We have already commented about the market conditions and small number of suppliers. We have also mentioned that 12 new entrants cannot be considered as H

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A entry of very few new suppliers where the existing suppliers were only

50. Identical products along with market conditions for which there would be only three buyers, in fact, would go in favour of the appellants. The factor of repetitive bidding, though appears to be a factor against the appellants, was also possible in the aforesaid scneario. The prevailing conditions in fact rule out the possibility of much price variations and all the manufacturers are virtually forced to submit their bid with a price that is quite close to each other. Therefore, it became necessary to sustain themselves in the market. Hence, the factor that these suppliers are from different region having different cost of manufacture would lose its significance. It is a situation where prime condition is to quote the price at which a particular manufacturer can bag an order even when its manufacturing cost is more than the manufacturing cost of others. The main purpose for such a manufacuring would be to remain in the fray and not to lose out. Therefore, it would be ready to accept lesser margin. This would answer why there were near identical bids despite varying cost. D

92Copy pinpoint92. Insofar as meeting of bidders in Mumbai just before the date of submission of tender is concerned, some aspects pointed out by the appellants are not considered by the CCI or the COMPAT at all. No doubt, the meeting took place a couple of days before the date of tender. No doubt, the absence of agenda coming on record would not make much difference. However, only 19 appellants had attended that meeting. Many others were not even members or did not attend the meeting. In spite thereof, even they quoted almost same rates as the one who attended the meeting. This would lead us to the inference that reason for quoting similar price was not the meeting but something else. The question is what would be the other reason and whether the appellants have been able to satisfactorily explain that and rebut the presumption against them?

93Copy pinpoint93. The explanation is market conditions leading to the situation of oligopsony that prevailed because of limited buyers and influence of buyers in the fixation of prices was all prevalent. This seems to be convincing in the given set of facts. The situation of oligopsony can be both ways. There may be a situation where the sellers are few and they may control the market and by their concerted action indulge into cartelization. It may also be, as in the present case, a situation where buyers are few and that results in the situation of oligopsony with the control of buyers. H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 557 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

94Copy pinpoint94. To recapitulate, the two prime factors against the appellants, A which are discussed by the CCI, are that there was a collusive tendering, which is inferred from the parallel behaviour of the appellants, namely, quoting almost the same rates in their bids. The parameters on the basis of which these aspects are to be judged are stated in Excel Crop Care Limited as follows: B “50. It needs to be emphasised that collusive tendering is a practice whereby firms agree amongst themselves to collaborate over their response to invitations to tender. Main purpose for such collusive tendering is the need to concert their bargaining power, though, such a collusive tendering has other benefits apart from the fact that it can lead to higher prices. Motive may be that fewer contractors actually bother to price any particular deal so that overheads are kept lower. It may also be for the reason that a contractor can make a tender which it knows will not be accepted (because it has been agreed that another firm will tender at a lower price) and yet it indicates that the said contractor is still interested in doing business, so that it will not be deleted from the tenderee’s list. It may also mean that a contractor can retain the business of its established, favoured customers without worrying that they will be poached by its competitors.

51. Collusive tendering takes many forms. Simplest form is to agree to quote identical prices with the hope that all will receive their fair share of orders. That is what has happened in the present case. However, since such a conduct becomes suspicious and would easily attract the attention of the competition authorities, more subtle arrangements of different forms are also made between colluding parties. One system which has been noticed by certain competition authorities in other countries is to notify intended quotes to each other, or more likely to a Central secretariat, which will then cost the order and eliminate those quotes that it considers would result in a loss to some or all members of the cartel. Another system, which has come to light, is to rotate orders. G In such a case, the firm whose turn is to receive an order will ensure that its quote is lower than the quotes of others.

52. We are here concerned with parallel behaviour. We are conscious of the argument put forth by Mr Venugopal that in an H

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A oligopoly situation parallel behaviour may not, by itself, amount to a concerted practice. It would be apposite to take note of the following observations made by European Court of Justice in Dyestuffs: “By its very nature, then, the concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent from the behaviour of the participants. Although parallel behaviour may not itself be identified with a concerted practice, it may however amount to strong evidence of such a practice if it leads to conditions of competition which do not respond to the normal conditions of the market, having regard to the nature of the products, the size and number of the undertakings, and the volume of the said market. Such is the case especially where the parallel behaviour is such as to permit the parties to seek price equilibrium at a different level from that which would have resulted from competition, and to crystallise the status quo to the detriment of effective freedom of movement of the products in the [internal] market and free choice by consumers of their suppliers.” (emphasis supplied) E At the same time, the Court also added that the existence of a concerted practice could be appraised correctly by keeping in mind the following test: “If the evidence upon which the contested decision is based is considered, not in isolation, but as a whole, account being taken F of the specific features of the products in question.” Having regard to the aforesaid principles in mind, we deal with the arugment on oligopsony raised by the appellants.

95Copy pinpoint95. Monopsony consists of a market with a single buyer. When there are only few buyers the market is described as an oligopsony. G What is emphasised is that in such a situation a manufacturer with no buyers will have to exit from the trade. Therefore, first condition of oligopsony stands fulfilled. The other condition for the existence of oligopsony is whether the buyers have some influence over the price of their inputs. It is also to be seen as to whether the seller has any ability H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 559 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

to raise prices or it stood reduced/eliminated by the aforesaid buyers. A

96Copy pinpoint96. On a hollistic view of the matter, we find that the appellants have been able to discharge the onus by referring to various indicators which go on to show that parallel behaviour was not the result of any concerted practice.

97Copy pinpoint97. In Dyestuffs, the European Court held that parallel behaviour does not, by itself, amount to a concerted practice, though it may provide a strong evidence of such a practice. Nevertheless, it is a strong evidence of such a practice. However, before such an inference is drawn it has to be seen that this parallel behaviour has led to conditions of competition which do not correspond to the normal conditions of the market, having regard to the nature of the products, size and volume of the undertaking of the said market. Thus, we examine the matter from the stand point of market economy where question of oligopsony assumes relevance. Whenever there is a situation of oligopsony, parallel pricing simplicitor would not lead to the conclusion that there was a concerted practice there has to be other credible and corroborative evidence to show that in an oligopoly a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut. In Richard Whish & David Bailey in Oxford’s Competition Law15 discussed the “Theory of Oligopolistic Interdependence” as under: E “In an oligopoly a reduction in price would swiftly attract the customers of the other two or three rivals, the effect upon whom would be so devastating that they would have to react by matching the cut. Similarly an oligopolist could not increase its price unilaterally, because it would be deserted by its customers if it did F so. Thus the theory runs that in an oligopolistic market rivals are interdependent: they are acutely aware of each other’s presence and are bound to match one another’s marketing strategy. The result is that price competition between them will be minimal or non-existent; oligopoly produces non-competitive stability….. G ...Oligopolists recognize their interdependence as well as their own self-interest. By matching each other’s conduct they 15 Seventh Edition; Chapter 14-Horizontal agreements (w)-oligopoly, tacit collusion and collective dominance; Pg 561-562, 565-566 H

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A will be able to achieve and charge a profit-maximising price which will be set at a supra-competitive level, without actually communicating with one another. There does not need to be any communication: the structure of the market is such that, through interdependence and mutual self- awareness, prices will rise towards the monopolistic level…. B …..The logical conclusion of the case against oligopoly is that, since it is the market structure itself which produces the problem, structural measures should be taken to remedy it by deconcentrating the market. Unless this is done, there will be an area of consciously parallel action in pricing strategies which is C beyond the reach of laws against cartels and yet which has serious implications for consumers welfare. xxx xxx xxx xxx xxx xxx D (iii) A regulatory approach A different possibility would be to regulate the prices of undertakings that operate in an oligopolistic environment. This, however, would be a counsel of despair. As a matter of policy direct regulation should be a remedy of last resort. Competition E authorities should not be price regulators; they should be the guardians of the competitive process. Where markets are oligopolistic and entry is limited, competition authorities should be concerned with the question of whether there are barriers to entry and whether the state itself, for example through restrictive licensing rules, regulation or legislation, is responsible for a lack of competition.”

98Copy pinpoint98. In Theatre Enterprises v. Paramount Films16, the Supreme Court of United States held as under: “1-3 The crucial question is whether respondents’ conduct toward petitioner stemmed from independent decision or from an agreement, tacit or express. To be sure, business behavior is admissible circumstantial evidence from which the fact finder may infer agreement. Interstate Circuit.

16 346 US 357 H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 561 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

But this Court has never held that proof of parallel business behavior conclusively establishes agreement or, phrased differently, that such behavior itself constitutes a Sherman Act offence. Circumstantial evidence of consciously parallel behavior may have made heavy inroads into the traditional judicial attitude toward conspiracy; but “conscious parallelism” has not yet read conspiracy out of the Sherman Act entirely.”

99Copy pinpoint99. In this regard, the test laid down by the Supreme Court of United States in Monsanto Co. v. Spray-Rite Service Corp.17 is relevant and is reproduced hereunder: “The correct standard is that there must be evidence that tends to exclude the possibility that the manufacturer and non- terminated distributors were acting independently. That is, there must be direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others had a conscious commitment to a common scheme designed to achieve an unlawful objective.” D

100Copy pinpoint100. This test was reiterated by the Supreme Court of United States in Matsushita v. Zenith Ratio Corp.18: “…..But antitrust law limits the range of permissible inferences from ambiguous evidence in a 1 case. Thus, in Monsanto Co. v. E Spray-Rite Service Corp., 465 U.S. 752 (1984), we held that conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy. Id., at 764. See also Cities Service, supra, at

280. To survive a motion for summary judgment or for a directed verdict, a plaintiff seeking damages for a violation of 1 must present evidence “that tends to exclude the possibility” that the alleged conspirators acted independently. 465 U.S., at 764 ……. …...petitioners had no motive to enter into the alleged conspiracy. To the contrary, as presumably rational businesses, petitioners had every incentive not to engage in the conduct with which they are charged, for its likely effect would be to generate losses for petitioners with no corresponding gains. Cf. Cities Service, 391 U.S., at 279 . The Court of Appeals did not take account of the 17 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984) 18 475 U.S. 574 (1986) H

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A absence of a plausible motive to enter into the alleged predatory pricing conspiracy. It focused instead on whether there was “direct evidence of concert of action.” 723 F.2d, at 304. The Court of Appeals erred in two respects: (i) the “direct evidence” on which the court relied had little, if any, relevance to the alleged predatory pricing conspiracy; and (ii) the court failed to consider the absence of a plausible motive to engage in predatory pricing….. xxx xxx xxx Lack of motive bears on the range of permissible conclusions that might be drawn from ambiguous evidence: if petitioners had no rational economic motive to conspire, and if their conduct is consistent with other, equally plausible explanations, [475 U.S. 574, 597] the conduct does not give rise to an inference of conspiracy. See Cities Service, supra, at 278-280.”

101Copy pinpoint101. Similarly, in Bell Atlantic Corp v. Twombly19, the U.S. D Supreme Court held as under: “[1-3] Because §1 of the Sherman Act “does not prohibit [all] unreasonable restraints of trade … but only restraints effected by a contract, combination, or conspiracy,” Copperweld Corp. v. Independence Tube Corp.,467 U.S. 752, 775(1984), E “[t]he crucial question” is whether the challenged anticompetitive conduct “stem[s] from independent decision or from an agreement, tacit or express,” Theatre Enterprises, 346 U. S., at 540. While a showing of parallel “business behavior is admissible circumstantial evidence from which the fact finder may infer agreement,” it falls short of “conclusively establishing agreement or … itself F constituting a Sherman Act offense.” Id., at 540–541. Even “conscious parallelism,” a common reaction of “firms in a concentrated market [that] recogniz[e] their shared economic interests and their interdependence with respect to price and output decisions” is “not in itself unlawful.” Brooke Group Ltd. v. Brown G & Williamson Tobacco Corp., 509 U. S. 209, 227 (1993) ; see 6 P. Areeda & H. Hovenkamp, Antitrust Law 1433a, p. 236 (2d ed. 2003) (hereinafter Areeda & Hovenkamp) (“The courts are nearly unanimous in saying that mere interdependent parallelism does not establish the contract, combination, or conspiracy required by 19 550 U.S. 544 H

RAJASTHAN CYLINDERS AND CONTAINERS LIMITED v. 563 UNION OF INDIA AND ANOTHER [A. K. SIKRI, J.]

Sherman Act §1”); Turner, The Definition of Agreement Under A the Sherman Act: Conscious Parallelism and Refusals to Deal, 75Harv. L. Rev. 655, 672 (1962) (“[M]ere interdependence of basic price decisions is not conspiracy”). [4-6] The inadequacy of showing parallel conduct or interdependence, without more, mirrors the ambiguity of the behavior: consistent with conspiracy, but just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market. See, e.g., AEI-Brookings Joint Center for Regulatory Studies, Epstein, Motions to Dismiss Antitrust Cases: Separating Fact from Fantasy, Related Publication 06–08, pp. 3–4 (2006) (discussing problem of “false positives” in §1 suits). Accordingly, we have previously hedged against false inferences from identical behavior at a number of points in the trial sequence. An antitrust conspiracy plaintiff with evidence showing nothing beyond parallel conduct is not entitled to a directed verdict, see Theatre Enterprises, D supra; proof of a §1 conspiracy must include evidence tending to exclude the possibility of independent action, see Monsanto Co. v. Spray-Rite Service Corp., 465 U. S. 752 (1984); and at the summary judgment stage a §1 plaintiff’s offer of conspiracy evidence must tend to rule out the possibility that the defendants were acting independently, see Matsushita Elec. Industrial E Co. v. Zenith Radio Corp., 475 U.S. 574(1986).”

102Copy pinpoint102. After taking note of the test that needs to be applied in such cases, which was laid down in Dyestuffs and accepted in Excel Crop Care Limited, we come to the conclusion that the inferences drawn by F the CCI on the basis of evidence collected by it are duly rebutted by the appellants and the appellants have been able to discharge the onus that shifted upon them on the basis of factors pointed out by the CCI. However, at that stage, the CCI failed to carry the matter further by having required and necessary inquiry that was needed in the instant case. G

103Copy pinpoint103. We are emphasising here that in such a watertight tender policy of IOCL which gave IOCL full control over the tendering process, it was necessary to summon IOCL. This would have cleared many aspects which are shrouded in mystery and the dust has not been cleared. H

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104Copy pinpoint104. We, thus, arrive at a conclusion that there is no sufficient evidence to hold that there was any agreement between the appellants for bid rigging. Accordingly, we allow these appeals and set aside the order of the Authorities below. As a consequence, since no penalty is payable, appeals of the CCI are rendered infructuous and dismissed as such. All the pending applications stand disposed of. B No orders as to costs.

Kalpana K. Tripathy Appeals disposed of.