CCI imposes penalty on Nair Coal Services Pvt. Ltd., Karam Chand Thapar & Bros. (CS) Ltd. and Naresh Kumar & Co. Pvt. Ltd. for engaging in collusive conduct*

By way of its order dated January 10, 2018, CCI imposed a penalty of ₹7,16,00,000, ₹16,92,00,000 and  ₹111,60,00,000  on  Nair  Coal  Services  Pvt. Ltd. (‘NCSL’), Naresh  Kumar  &  Co. Pvt. Ltd. (‘NKC’) and Karam Chand Thapar & Bros. (CS) Ltd. (‘KCT’) respectively for engaging in collusive bid rigging in contravention of Sections 3 and 4 of the Act. The information was filed by Shri Surendra Prasad (‘SP’), an advocate purportedly aggrieved by the sudden rise in electricity charges in the state of Maharashtra, against Maharashtra State Power Generation Co. Ltd. (‘MA- HAGENCO’), NCSL, KCT and NKC alleging collusive bid-rigging and geographical bid allocation under Section 3(3) and denial of market access under Section 4 of the Act.

MAHAGENCO is a state-owned company engaged in the business of generating power in the state of Maharashtra. It runs seven thermal power stations (‘TPS’) and obtains raw coal from various subsidiaries of Coal India Limited (‘CIL’) through liasoning agents, who are responsible for ensuring quality coal procurement. NCSL, KCT and NKC are all coal liasoning agents (collectively referred to as ‘CL Agents’).

CCI had originally dismissed the information under Section 26(2) of the Act by way of its order dated December 11, 2013. SP then appealed to the erstwhile Competition Appellate Tribunal (‘COMPAT’). By way of its order dated September 15, 2015, COMPAT then set aside CCI’s closure order and directed the DG to investigate the allegations raised by SP.

After considering the DG investigation report and the preliminary objections raised by the CL Agents, CCI stated that in the absence of a Section 26(1) order, the DG investigation was void. CCI held that once COMPAT had directed the DG to investigate, it could not sit in appeal over COM- PAT’s direction. It opined that doing so would constitute an act of judicial indiscipline that would border on contempt. CCI also considered the allegation that SP had approached CCI with unclean hands, as SP was associated with the advocates representing B.S.N. Joshi & Sons Ltd. (‘BSN’), a rival of the defendant CL Agents. It was noted that SP had fraudulently circulated a copy of the DG’s investigation report to BSN, who was not a party to the investigation. However, further to an apology tendered by SP’s advocate, CCI didn’t penalize SP for making fraudulent statements.

On the issue of illegal/unwarranted expansion of investigation by the DG, CCI agreed with the CL Agents that the DG had exceeded the scope of its investigation by considering the conduct of the CL Agents also in respect of tenders issued by various power generation companies other than MAHAGENCO. CCI noted that absent any material on record to prove that the CL Agents had cartelized in these tenders, the DG was wrong in drawing speculative and conjectural observations in respect of such other tenders. On this basis, CCI did not consider evidence relating to tenders in the DG Report that were not issued by MAHAGENCO.

CCI then examined several factors to conclude that the CL agents had entered into an arrangement in respect of the tenders floated by MAHAGENCO and had rigged the bid: (i) identical basic rates quoted by both NCSL and NKC; (ii) a pattern of geographical allocation of TPS in response to the tenders floated by MAHAGENCO; (iii) purchasing of the tender documents by NCSL and NKC on the same day; (iv) NCSL and NKC were engaged in discussions with each other at every stage of tendering process through exchange of letters/pre-bid queries for MAHAGENCO tenders; (v) NCSL and NKC had various financial transactions which were done to share profits or make payments for cover bids; and (vi) bogus expenses shown by NCSL and NKC in order to show less profits arising out of the MAHAGENCO tenders. As apparent from the above, apart from price parallelism, CCI also referred to the above factors to conclude that the parties had engaged in collusive bid rigging.

CCI noted the mitigating factors asserted by NKC: (i) NKC had a very limited role to play; (ii) no appreciable adverse effect on the competition (‘AAEC’) as a result of the cartel  agreement; (iii) NKC was a small and medium enterprise company, and any penalty would ruin its viability; and (iv) NKC was engaged in various other businesses apart from coal liasoning services, and therefore, only the revenue pertaining to coal liasoning services should be considered for deter- mining the penalty. CCI was however of the opinion that the contention of NCSL and NKC that only the revenue generated from the impugned tender alone would constitute relevant turnover was not tenable. CCI then, without considering the mitigating factors, held that the CL Agents had engaged in market allocation and bid rigging in respect of MAHAGENCO tenders during the period between 2005 and 2013, amounting to hard core cartel, in violation of Sections 3(3)(c) and 3(3)(d) read with Section 3(1) of the Act. It thus directed them to cease and desist from the cartel activity. The present case is one of the rare cases (after the cement cartel case[1]) where CCI ignored the mitigating factors and imposed a high penalty on the parties involved.

CCI was of opinion that the present case falls in the category of hard core cartels as NCSL and NKC reached an agreement to submit collusive tenders and to divide the markets. CCI also specifically noted that while the investigation was for the period between 2005 and 2013, the findings of CCI are limited to the conduct that occurred after 20 May 2009 to 2013. Further, it noted that “relevant turnover” did not mean the relevant turnover from the impugned tender alone, and in line with the Excel Crop decision of the Supreme Court[2], held that it was the total revenue generated from all coal liasoning services which should be considered as the “blemished product” and relevant for the purposes of calculating the turnover. Accordingly, CCI imposed a penalty at the rate of 2 times the profits of the CL Agents between 2010-11 and 2012-13.


* Case No. 61 of 2013
[1] Case No. 29 of 2010
[2] Appeal No. 79 of 2012

Published In:Inter Alia - Special Edition CompetitionLaw February 2018 [ English
Date: February 7, 2018