NCLAT Upholds CCI Penalty In Railway Tender Cartel Case, Says Silence On Emails Shows Tacit Participation

The National Company Law Appellate Tribunal (NCLAT) has recently held that the failure of Jaipur-based firm Hari Narayan Bihani and its partner Keshav Bihani to object to cartel-related emails, despite repeatedly receiving them, can be taken as evidence of their participation in bid rigging in railway tenders, while upholding penalties imposed by the Competition Commission of India.

A bench of Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha said the firm's conduct showed that it was aware of the cartel and chose not to distance itself.

The tribunal observed, “The receipt of the emails by the parties suggesting bid prices to be quoted and giving specific percentage of distribution of the order for each party, was not disputed or denied despite our pointed queries to the Appellants, on more than once, prima-facie holds sufficient evidence that an “agreement” (even tactical or even simple understanding) amongst the parties, including the Appellants, to indulge in a bid-rigging cartel.”

The case arose from proceedings initiated by the Competition Commission after a leniency application exposed collusion among seven vendors approved by the Research Designs and Standards Organisation to supply polyacetal protective tubes to Indian Railways.

These vendors coordinated prices, divided tenders among themselves, and decided in advance who would win which contracts. Emails showed that shares of orders were allocated, revised over time, and monitored within the group.

Hari Narayan Bihani became part of this arrangement after it was upgraded as an approved supplier in July 2019. It continued to receive such emails until June 2020.

The Competition Commission found that the firm and its partner were involved in bid rigging and imposed penalties. The firm was penalised based on its business turnover, while the partner was penalised at the same rate based on his income.

Challenging the findings, the firm and its partner argued that action against individuals can be taken only in cases involving punishment such as imprisonment and not monetary penalties.

They also said that individuals can be proceeded against only after a clear finding against the company. On penalty, they argued that the law refers to business turnover and not personal income, making the penalty on the partner unlawful.

They further claimed that they were denied a fair hearing as relevant material was not disclosed. They also questioned the validity of the proceedings on the ground that the order was passed without a judicial member.

The tribunal rejected these arguments. It said cartels are usually proved through conduct and surrounding circumstances since they are rarely recorded in formal agreements.

It found that the firm received multiple emails relating to price coordination and allocation of tenders. It never denied receiving them and never objected.

This showed that it was aware of the arrangement and chose to go along with it. The tribunal treated this conduct as a “tacit admission by omission”, noting that silence in the face of such communications cannot be treated as neutral.

The tribunal held that once such coordination between competitors is established, the law presumes that it harms competition unless the parties prove otherwise. It found that no such evidence was placed on record.

On the issue of liability of individuals, the tribunal held that those responsible for running a business can be penalised in the same proportion as the firm. It upheld the approach of applying a five percent penalty to the partner's average income, matching the five percent penalty imposed on the firm.

The tribunal also rejected reliance on earlier Supreme Court rulings, noting that those cases involved different facts and did not include direct evidence such as emails.

On procedural issues, the tribunal said proceedings do not become invalid merely because of vacancies in the Competition Commission.

It also rejected the claim of denial of cross-examination, noting that no such request was made.

It observed, “Incidentally, the right of cross-examination is not an absolute right under the Competition Act, 2002 as in terms of Section 36(1) of the Competition Act, the CCI is guided by the principles of natural justice and is not bound by the strict rules of the CPC, 1908. Further, Section 36(2) empowers the CCI to regulate its own procedure, including matters relating to summoning and examination of witnesses. Regulation 41(5) of the CCI (General) Regulations, 2009 provides that the CCI or the DG may grant an opportunity for cross-examination if it is considered necessary or expedient. The use of the term “may” clearly indicate that cross-examination is discretionary and not mandatory”

Finding no merit in the challenge, the tribunal dismissed the appeals and upheld the penalties imposed on the firm and its partner.

For Appellants: Advocates Anup Kumar, Achint Priya, Arshi Hayat and Neha Jaiswal

For Respondent: Advocates MM Sharma, Angira Singhvi Hodha & Anjali Singhvi