Heavy penalties for bid rigging cylinder manufacturers


The Competition Commission of India (CCI) recently imposed penalties of ₹1.65 billion (US$30.9 million) on 48 manufacturers of cylinders for liquefied petroleum gas (LPG) which were found to have colluded while bidding to supply cylinders to the Indian Oil Corporation (IOC).

Gas_cylindersIn Re: suo moto case against LPG cylinder manufacturers, the CCI found that a cartel of 48 companies had rigged the bidding process by providing similar quotations for the cylinders in spite of different costs. In their defence, the companies argued that the market in question is oligopolistic and while price parallelism is a common feature of such a market, parallel conduct by itself does not create a presumption of collusion and cartelization.

The CCI took up the case following the submission of an investigation report by the director general (DG) in another case relating to supply of gas cylinders. In that case, the DG had reported that LPG cylinder manufacturers had quoted identical rates in different states during the bidding process initiated by IOC for supply of 10.5 million LPG cylinders in 2010-11. This indicated that there was an agreement and understanding among bidders to manipulate the bidding process.

Agreeing with the report of the DG, the CCI noted that bid rigging takes place when bidders agree among themselves to eliminate competition in the procurement process so that prices are higher and the procuring agency pays more. The CCI also noted that the bidders knew each other well and had met before submitting the bids.

For 47 of the companies the penalty imposed was calculated as 7% of average turnover and for one company it was 2.1 times net profit. All 48 companies were also directed to cease and desist from indulging in such anti-competitive conduct.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.