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National Company Law Appellate Tribunal reduces penalty on a soil sample testing company in a bid rigging case
On April 4, 2022, CCI penalised 9 (nine) companies including M/s Toyfort for indulging in a bid rigging cartel in the e-tenders floated by the Department of Agriculture, Government of Uttar Pradesh for soil sample testing, in contravention of Section 3(3) of the Competition Act ("CCI Order"). For a summary of the CCI Order, refer to JSA Competition Law Newsletter for April 2022.
Proceedings before National Company Law Appellate Tribunal ("NCLAT")
Aggrieved, Toyfort challenged the CCI Order before the NCLAT where it inter alia contended that CCI wrongly: (a) found Toyfort guilty due to the familial relations connecting Toyfort with other bidders, M/s Austere System Pvt. Ltd ("Austere System") and Fimo Info Solutions Private Limited ("Fimo"); and (b) imposed penalty on its total turnover as opposed to the relevant turnover.
NCLAT Observations
NCLAT while upholding the CCI Order observed that: (a) Toyfort, engaged in sale of toys, was ineligible to participate in the tenders for soil testing. Its participation was merely to create a façade of competition with an objective to ensure that Austere System wins the tenders; and (b) Toyfort's relevant turnover (i.e. from soil testing business) would have been nil since it was a first-time bidder and hence, no penalty would have been possible for Toyfort having acted as a cover bidder for Austere System. Therefore, the concept of relevant turnover was not applicable in this case.
However, considering that Toyfort only played a supporting role by submitting cover bids for Austere System, the penalty imposed on it would be lesser than the penalty imposed on an entity orchestrating the cartel. Accordingly, NCLAT reduced the penalty from 5% to 3% of the total turnover of Toyfort.
(Source: NCLAT Order dated July 2, 2024)
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