India’s competition watchdog is investigating if 10 condom makers that bid for a government tender in 2014 had formed a cartel to secure higher prices, said two people familiar with the matter.
The Competition Commission of India (CCI) is investigating TTK Protective Devices Ltd, Suretex Prophylactics (India) Ltd, Anondita Healthcare, Cupid Ltd, Mercator Healthcare Ltd, Convex Latex Pvt. Ltd, JK Ansell Ltd, Universal Prophylactics Pvt. Ltd, Indus Medicare Ltd and Hevea Fine Products Pvt. Ltd, the people cited above said on condition of anonymity. The health ministry had floated the tender for 504 million male latex condoms in 2014.
“Currently, the Director General (DG) is conducting an investigation and is in the process of collecting evidence and is expected to table his report to the chairman in the next couple of months,” the first of the two people mentioned above said on condition of anonymity. “Once CCI gets the report, it will call the parties for the hearing before passing any order.”
On 30 November 2014, CCI’s then chairperson Ashok Chawla and four members—M.L. Tayal, S.L. Bunker, Sudhir Mittal and U.C. Nahta—had asked the DG investigation to look into the matter.
“The overall cost of production of male latex condom is around 75 paisa a unit but the parties who were involved in the bidding quoted the sale price of around Rs1.80 per piece, which is more than 150% of the manufacturing cost,” said CCI’s primary order, which asked the DG to probe the cartelization allegations. Mint has reviewed a copy of the order.
The primary order, based on a suo moto investigation conducted by the regulator, observed that the prices quoted by each bidder had a minor difference of 1 to 2 paisa a unit.
According to the order, the regulator has sought details from the health ministry about companies which had participated in 2013 and the earlier three years as well, besides their names, addresses and bid details.
Before 2013, the health ministry used to procure condoms through its social obligation programme. Under this, it would buy 75% of its annual requirement or 75% of the installed capacity of Hindustan Latex Ltd (HLL), whichever was lower. (HLL is a public sector company under the health ministry.) The rest was bought from private companies through a tender process.
“The price differential between the lowest and the highest bid in the case of each of the 14 variants were around 9 to 10 paisa only,” the regulator observed in its primary order.
The fair trade regulator is investigating the matter under the relevant sections prohibiting cartelization. A cartel typically implies arrangements among more than two firms aimed at increasing prices through tactics such as a cut in production. Cartelization leads to high prices, poor quality and less choice.
According to the Competition Act, the maximum penalty for cartelization is three times a company’s annual profit or 10% of its revenue, whichever is higher.
TTK Protective Devices makes Skore condoms, Raymond makes Kama Sutra, Anondita Healthcare sells Midnight and BSE-listed Cupid Ltd markets its products under the Cupid brand.
An existing policy mandates central ministries to procure at least a fifth of their annual requirements from small scale industries (SSIs); however, in 2013, the health ministry was allowed to procure even higher quantities from HLL in exceptional circumstances.
An email query and several phone calls made to CCI’s DG were not answered.
“We are a very small manufacturer and we are protected under the SSI policy; despite that, we were brought under the investigation by the CCI because we had participated in the tender. We are cooperating with authorities and have given them all the required details that investigators had sought,” a senior executive at Universal Prophylactics Pvt. Ltd said on condition of anonymity.
Durgesh Garg, chief operating officer of Cupid Ltd, and Rahul Goel, a partner at law firm Cyril Amarchand Mangaldas who is representing the company in the investigation, confirmed the development, but declined to give details, saying the matter is sub judice. A Raymond spokesperson said in an email response, “We will not be able to offer any comment on the matter as it is sub judice.”
Emails and phone calls to TTK Protective Devices Ltd, Anondita Healthcare, Suretex Prophylactics, Indus Medicare Ltd and Hevea Fine Products were not answered. Emails to Convex Latex Pvt. Ltd and Mercator Healthcare Ltd remained unanswered till press time.