CCI decided not to proceed against LPG cylinder manufacturers in the alleged LPG cylinder cartel for bid-rigging in a tender floated by Hindustan Petroleum Corporation Limited (‘HPCL’), after an investigation by the DG, because of the nature of the market (monopsony / oligopsony) where prices tend to be similar.[1]

Background

CCI took suo motu cognizance of alleged cartelization by 8 manufacturers of LPG cylinders in response to a tender dated August 4, 2010 (‘Tender’) floated by HPCL for supply of 36 lakh LPG cylinders for 18 States. In August 2014, CCI analyzed the price bids submitted by the vendors for each of the 18 States and found that similar price patterns emerged which could indicate collusion (‘August Order’).[2] Accordingly, it directed the DG to investigate.

Subsequently, five LPG manufacturers challenged the August Order before the DHC on the ground that they were already investigated for cartelization by CCI in a previous case and penalized, and therefore the current investigation against them should be quashed. The DHC agreed with the contentions presented and set aside the August Order and remanded the matter for fresh consideration by the CCI. The CCI also saw merit in the arguments of the LPG manufacturers who were previously penalized and accordingly directed an investigation into the role of the remaining three LPG manufacturers, viz. Prathima Industries Private Limited (‘PIPL’), Prestige Fabricators Private Limited (‘PFPL’), and Pankaj Gas Cylinders Limited (‘PGCL’). In the DG’s investigation, PFPL and PGCL were not found in contravention of the Act.

CCI’s assessment

In respect of quotation of identical prices by PIPL, CCI noted that PIPL’s quoted price bid in the Tender was identical with the bid of Andhra Cylinders, GDR Cylinders Private Limited, Hyderabad Cylinders Private Limited, Balaji Pressure Vessels Limited, Kurnool Cylinders Private Limited, R.M. Cylinders Private Limited, and Shri Shakti Cylinders Private Limited. PIPL could not provide any justification for submitting identical bids.

Noting that it is the procurer (in this case, HPCL) who decides the final price (the quoted price is not the final price) at which the tender has to be awarded in a monopsony / oligopsony (price is regulated by the OMCs depending upon their internal estimates and negotiations), and relying on the judgment of the SC in the case of Rajasthan Cylinders and Containers Ltd. v. Union of India & Anr.[3] (‘Cylinder Judgment’),[4] the CCI decided to not proceed against any of the parties or their individuals / officers.

[1] Suo Moto Case No. 04 of 2014.
[2] Suo Moto Case No. 03 of 2011.
[3] Civil Appeal No. 3546 of 2014
[4] The Cylinder Judgment noted that despite presence of identical prices, exchange of information among bidders, pre-bid meetings prior to tender, active association, it was found that there was no evidence of cartelisation in such a case, as the nature of market was an oligopsony.