CCI penalizes 3 producers of aluminium phosphide tablets

By Suchitra Chitale & Sayan Chakraborty, Chitale & Chitale Partners
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The Competition Commission of India (CCI), by an order dated 23 April, has again reiterated its commitment towards cracking down on cartels. It has imposed a collective penalty of ₹3.17 billion (US$59 million) on United Phosphorus Limited (UPL), Excel Crop Care Limited and Sandhya Organic Chemicals Private Limited for cartelization, indulging in collusive bidding in tenders and also for collectively refraining from bidding in a tender floated by Food Corporation of India (FCI).

Suchitra Chitale Managing partner Chitale & Chitale Partners
Suchitra Chitale
Managing partner
Chitale & Chitale Partners

Letter of complaint

The CCI took up the case after it received a letter from the chairman cum managing director (CMD) of FCI complaining of difficulties that FCI was facing with respect to purchase of aluminium phosphide tablets. FCI alleged that UPL, Excel and Sandhya had quoted identical rates on tenders floated by FCI for purchase of tablets and after negotiation had also reduced the rates identically. This had resulted in an increase in the cost of acquiring tablets by FCI.

The CCI after considering the letter was of the opinion that there was a prima facie case, and passed an order under section 26(1) of the Competition Act, 2002, directing the director general (DG) to investigate the alleged contraventions of the Competition Act.

The DG after investigating the matter concluded that the companies had acted in a concerted manner to eliminate competition among them by indulging in collusive bidding in 2009 and also had collectively refrained from bidding in a tender floated by FCI in 2011, which was in violation of section 3 of the Competition Act.

Companies’ arguments

The companies refuted the allegations, contending that the global tender in question was beyond the jurisdiction of the Competition Act as it was floated in 2009 and the bids were submitted before the act came into force. The companies submitted that the tablets under the tender were supplied long before the letter was sent by the CMD and so there was an absence of cause of action when the letter was sent.

The companies further submitted that the e-tender which was collectively boycotted by the companies could not be enquired into as it was neither a part of the letter sent by the CMD nor the order passed by the CCI directing the DG to initiate investigation against the companies.

CCI’s findings

The CCI after considering the submissions of all the parties concerned observed that:

(1) With respect to the tender that was floated in 2009, the price bids by the companies which were identical were opened on 1 June 2009. Since the opening of the price bids took place after the relevant provisions of the Competition Act came into force, the CCI had jurisdiction to enquire into the alleged contraventions of the provisions of the act.

(2) With respect to the submission that the tablets were already supplied before the letter was sent by the CMD, the provisions of the Competition Act would apply because the subject matter of the enquiry was the conduct of the companies and not the terms and conditions of the tender. Under the act, the CCI could undertake an enquiry for anti-competitive conduct even if the supply or provision of goods and services had already been completed.

(3) The CCI could conduct an enquiry regarding the e-tender floated by FCI in 2011 as the order under section 26 of the Competition Act directing the DG to initiate investigation was general in nature and not event specific.

Sayan Chakraborty Associate Chitale & Chitale Partners
Sayan Chakraborty
Associate
Chitale & Chitale Partners

Documentary evidence

The companies had further contended before the CCI that in order to establish cartelization among the companies, it was important to ascertain that there was an agreement among the companies. Rejecting the contention, the CCI observed that in cases of clandestine understanding, it is difficult to find any evidence documenting an agreement between the parties.

The CCI further noted that under the Competition Act, an agreement is not necessarily required to be documented. An agreement under the act would include an informal and unwritten understanding between the parties.

The CCI after providing its observations held under section 27 of the Competition Act that the conduct of the companies was in contravention of section 3 of the act and imposed the penalty on the companies, which was 9% of the average of their turnover of the preceding three years. The CCI also passed orders directing the companies to cease and desist from engaging in such practices.

Suchitra Chitale, the managing partner of Chitale & Chitale Partners, heads the competition team of the firm, which advises and acts for clients in Indian competition law matters. She has been in practice for more than 24 years. Sayan Chakraborty is an associate at Chitale & Chitale Partners.

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