CCI probe reveals presence of cartels in deciding railway contracts

New Delhi: On 4 April, the Competition Commission of India (CCI)—while penalising 11 companies that used to indulge in cartelisation to secure Indian Railways tenders—uncovered a well-established modus operandi under which the bidders would put up shell companies that, though owned by them, would bid for a tender as if they were separate entities and thereby ultimately corner the bid for themselves through one of their own companies.
The CCI also found that the companies were coordinating with each other to ensure that the bid price was quoted in a way that only one of them from their cartel got the contract, the proceeds of which would be either divided proportionally or the other party of the cartel would get the next contract through similar tactics.
As per the 86-page order delivered by Chairperson Ashok Kumar Gupta and members, Sangeeta Verma and Bhagwant Singh Bishnoi, the CCI found that 14 individuals from 11 entities were liable for the anti-competitive conduct done by their respective companies, in terms of the provisions of Section 48 of the Act.
“CCI found these companies/ firms to have indulged in cartelisation in the supply of High-Performance Polyamide Bushes (HPPA) and Self Lubricating Polyester Resin Bushes (SLPR) to the Indian Railways by means of directly or indirectly determining prices, allocating tenders, controlling supply and market, co-ordinating bid prices and manipulating the bidding process,” the CCI said in its order while directing the parties to pay penalties totalling approximately Rs 1.16 crore, besides issuing a cease-and-desist order.
The CCI was apprised of the alleged cartelization on the complaint filed by Chief Materials Manager, North-Western Railway in July 2018 for a tender that was opened in September 2016. Interestingly, after filing the initial complaint, no submissions were filed on behalf of the Ministry of Railways, nor anyone appeared on behalf of the ministry suggesting that the cartel was able to influence the officials concerned in the ministry not to follow up the matter, which ensured that the companies that were indulging in the cartelization were not penalised any further or barred permanently from taking part in any railway contract.
Many of the owners of the companies, while being investigated by the Director General (DG) of the CCI, in lieu of lower penalties, provided vital disclosures and extended full, continuous, and expeditious co-operation. In fact, one of the owners of the companies told the DG about the existence of another cartel arrangement that was working to get lucrative railway contracts.
The Competition Law Review Committee, in July 2019, while acknowledging the challenges faced by the Commission in cartel detection and enforcement, had recommended that where an applicant makes full, true and vital disclosure with respect to another cartel, he may be granted a lower penalty.
In the present case, the DG of CCI analysed the evidence in the form of price parallelism in various tenders across different railway zones, commonality of IP addresses and common login time and date of a bunch of parties, common directorship/partnership of some groups of parties, and e-mail exchanges and WhatsApp communications between representatives of various parties.
As per the DG’s finding, there was a clear understanding between the parties with respect to determination of prices regarding the tenders floated by Indian Railways for procurement of HPPA/SLPR Bushes. Further, there were also discussions regarding revision in prices and e-mails where members can be seen pressuring other members to quote only the decided prices and not lower; the parties had an agreement and understanding wherein the intention was to inflate or increase the prices of HPPA/SLPR Bushes in the tendering process. The parties also discouraged each other to quote lower rates in the bids and encouraged each other to quote higher prices; the parties could be seen asking other parties to withdraw their offers which showed that the parties, in agreement with each other, were controlling and limiting the supply of HPPA/SLPR Bushes as these were the only approved vendors of the said product; the tenders were distributed among the parties on the basis of different railway zones and accordingly, the parties were sharing the market by way of allocation of the tenders by geographical area of the market.
Brake Bushes are spherical linings used in brake hangers of railway coaches for reducing friction while connecting the hanger to the Chassis and Brake Shoe. Passenger coaches that were earlier made by the Indian Railways had braking systems which used Bronze Bushes. Thereafter, Brake Bushes made of acetal, nylon and lastly Phenolic Bushes were used. However, in 2004-05, the Indian Railways initiated field trials with SLPR Brake Bushes.
Since the same gave promising results, Indian Railways gave approval to SLPR Bushes and divided Brake Bushes Kit into two parts—Brake Bushes for critical locations and Brake Bushes for non-critical locations. SLPR Bushes were approved for critical locations and Phenolic Bushes continued to be used for non-critical locations. Ultimately, due to the poor performance of Phenolic Bushes, SLPR Bushes were approved for all locations despite their high cost. Simultaneously, trials were also approved for non-critical locations in HPPA Bushes. Thereafter, Indian Railways passed an order to procure SLPR Bushes and HPPA Bushes as alternates to each other depending on the price that the lowest bidder was offering.
The CCI found that five companies, which were declared as sister companies before the Research Designs and Standards Organization (RDSO) were participating in the same tenders for the same products as competitors. The CCI also found that three companies had placed their bids from a common address in Mumbai through a common user, even though the entities displayed their registered offices in different states.
Research Designs and Standards Organization (RDSO) is the nodal agency of Indian Railways for vendor approval. Private companies forming a cartel to secure railway tenders, according to a CBI official, is quite common and a process which seldom gets completed without inside help. The Sunday Guardian had recently revealed (Rail ministry probing ‘irregularities’ in RailTel contracts, 25 December) that the Ministry of Railways was examining alleged financial irregularities that were done while awarding contracts in RailTel, a PSU under the railway ministry in which RailTel officials “manipulated” an April 2020 tender for supply, installation and testing of technology that was floated to augment the existing Dense Wavelength Division Multiplexing (DWDM) technology over railway tracks and railway stations in the country. DWDM is a technology used to increase bandwidth over existing fibre networks.