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Judgment
The present reference dated 06.09.2019, has been filed by CP Cell, Directorate General Ordnance Service, Master General of Ordnance Service ("Informant") under Section 19(1)(b) of the Competition Act, 2002 (the "Act") against M/s HP State Handicraft & Handloom Corporation ("OP-1"/ "HP Handicraft"), M/s Standard Gram Udyog Sansthan ("OP-2"/ "Standard Gram") and M/s Integrated Defence Product Pvt Ltd.,("OP-3"/ "Integrated Defence") alleging contravention of the provisions of Section 3 of the Act, in the tender for procurement of Durries IT OG, issued by it.
The Informant in the present case had floated a Request for Proposal ("RFP") No. A/59876/Durries/ Clo-1/DGOS/OS-PII/Proc Sec dated 15.12.2015 for procurement of 8,18,009 Durries IT OG ("Item").
The Informant averred that 09 firms participated in the said tender including Standard Gram/OP-2 and out of the said 09 firms, only 06 qualified for opening of commercial bids. As stated by the Informant, Standard Gram/OP-2 could not qualify in technical evaluation as the firm was not registered with Association of Corporations and Apex Societies of Handlooms/Khadi Village Industries Commission ("ACASH/KVIC") which was a pre-requisite. It is further stated that while the contract was under progress, Standard Gram/OP-2 merged with Integrated Defence/OP-3. Subsequently, the L1 firm (HP Handicraft/OP-1) sublet the manufacture of the Item to Integrated Defence/OP-3 vide Letter No. HPSHHC:173/10(EM)/Durries/838081 dated 23.03.2018.
As per information available in public domain, HP Handicraft/OP-1 is a Himachal Pradesh State Government Undertaking which came into being in the year 1974 with the objective to assist and promote the interests of weavers and artisans of the state. Whereas, Integrated Defence/OP-3 is a Non-Government company, based in Kanpur, involved in manufacture of textiles.
It is further stated that being participants in the Tender, Standard Gram/OP-2 and Integrated Defence/ OP-3 were fully aware of clauses of RFP whereby subcontracting of contract is prohibited, yet they entered into the collaboration with HP Handicraft to supply the Item.
On the basis of the above information, the Informant has alleged that all the three OPs i.e., HP Handicraft, Integrated Defence and Standard Gram formed a cartel to help and support each other to win the order.
The Informant has prayed that the Commission may direct the Director General to conduct an investigation into the matter under Section 26(1) of the Act and to examine if there is any contravention of the provisions of Section 3 of the Act, so that further action may be taken.
The Commission has perused the information forming part of record along with other information available in the public domain.
The Commission considered the matter in its ordinary meeting held on 01.10.2019, and observed that the information provided is not sufficient and decided to seek additional information from the Informant. Accordingly, the Commission vide its order dated 01.10.2019, sought additional information form the Informant. In response, thereto the Informant vide its letter dated 08.11.2019, filed certain information which was received on 14.11.2019.
The Commission notes that as per the Informant, the technical bid of the Impugned Tender was opened on 12.01.2016, and commercial bid was opened on 22.11.2016, pursuant to which HP Handicraft / OP-1 won the said tender. The Impugned Tender was issued for the procurement of Durrie which is authorised to Junior Commissioned Officers ("JCOs") and 'OR' of the Indian Army. The shelf life of the item is 60 months. The Informant also submitted a copy of the terms and conditions of the tender document. After winning this tender, HP Handicraft/ OP-1 sub-contracted the manufacture of the Item to Integrated Defence/ OP-3, which was in violation of clause of RFP, according to the Informant. In the meanwhile, the firm Standard Gram/OP-2 merged with Integrated Defence/OP-3, while the contract was under progress. Further, the Informant has alleged that, the firm 'Standard Gram/OP-2' had also participated in the said Tender, but could not qualify as it did not fulfil the pre requisite criterion.
On the basis of above conduct of said three firms, the Informant has alleged that all the above mentioned firms had formed a cartel to help and support each other to win the tender dated 15.12.2015.
As per the information, the Commission notes that 09 firms participated in the above mentioned tender, of which 06 qualified for commercial bid opening, the rest were not found to be compliant with the prequalification criteria. The commercial bid of these 06 RFP firms were opened on 22.11.2016. HP Handicraft/OP-1 was the lowest bidder at Rs. 428.00. The benchmark price was fixed at Rs. 450.00 per piece in the Commercial Negotiation Committee (CNC) meeting held on 02.02.2017. Out of 06 bidders one firm did not technically qualify for the ranking as the bid form was not properly filled. Based on the rates quoted by remaining 05 RFP compliant firms, CNC ranked these firms as under in the meeting held on 02.02.2017:
Table 1: RFP Compliant firm in the tender for procurement of Durries
S.
No.
Firm Name
Basic
Excise
Duty (%)
VAT (%)
Total
Rate (Rs)
Qty Offered
Ranking
(a)
M/s HP State Handicraft & Handloom Corporation Ltd.,
Shimla
428.00
Nil
Nil
428.00
8,18,009
L1
(b)
M/s UP State Handloom
Corporation Ltd., Kanpur
646.00
Nil
Nil
646.00
4,15,000
L2
(c)
M/s Jammu and Kashmir State Handloom
Development
648.00
Nil
Nil
648.00
1,35,000
L3
(d)
M/s Women's Development
Organisation, New Delhi
649.00
Nil
Nil
649.00
2,68,009
L4
(e)
M/s UP Industrial Co-operative Association Ltd.,
Kanpur
655.00
Nil
Nil
655.00
8,18,009
L5
Further, minutes of CNC meeting mentioned that the basic rate quoted by L1 firm was lower than benchmark rate and in such a case there was no requirement of calling L1 firm for negotiation of price and therefore, recommended L1 firm be 'loaded with full quantity'.
Further, the Informant submitted that HP Handicraft/OP-1 acted in contravention of Para 11 of Part III of the supply order wherein it was clearly stated that the seller has no right to give, bargain, sell, assign or sublet or otherwise dispose of the supply order or any part thereof, as well as to give or to let a third party take benefit or advantage of the present supply order or any part thereof. The Informant has further averred that HP Handicraft / OP-1 stated that they had tied-up with Integrated Defence / OP-3 for supply against the order as intimated vide letter dated 23.03.2018. The Informant has annexed letter dated 23.03.2018, wherein HP Handicraft/OP-1 wrote to JDOS (P-II) GOI, Ministry of Defence that it has tied up with Integrated Defence / OP-3 for making the supplies against the supply order.
The Commission observes that as per the Informant, Standard Gram/OP-2 had merged with Integrated Defence/ OP-3, while the contract was under progress. However, no details have been provided with regard to merger between the said two companies. Even otherwise, the allegation is related to breach of tender contract/RFP conditions wherein HP Handicraft/OP-1 has allegedly violated the clause of RFP by subletting the contract to Integrated Defence/OP-3. However, this alleged conduct of the said firms may not raise a competition concern under the present case as there is no evidence of collusion at prima facie stage between HP Handicraft/OP-1 and Integrated Defence/OP-3 to win the tender.
In light of the above observations and analysis, the Commission notes that the impugned conduct of the said three firms does not seem to be in contravention of any of the provisions of the Act. Breach of supply order (contract), if any, does not amount to violation of the Competition Act. Thus, the Commission is of the opinion that no anti-competitive conduct can be said to have arisen in the present case, warranting an investigation. If there is some breach of contract on the part of OPs, it is for the Informant to initiate due proceedings.
In view of the foregoing, the Commission is of the opinion that there exists no prima facie case, and the information filed is closed forthwith against the OPs under Section 26(2) of the Act.
The Secretary is directed to communicate to the Informant, accordingly.