UNVEILING BID RIGGING: LEGAL PERSPECTIVES AND ECONOMIC IMPLICATIONS BY - ANSHU GUPTA & KARTHIKEY SUYAL
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Faculty
of Law, University of Delhi
ABSTRACT
The concept of competition plays a
pivotal role in ensuring that consumers have access to a wide array of goods
and services at competitive prices, fostering a healthy market environment.
However, anti-competitive practices, particularly cartels and bid rigging, pose
significant threats to market fairness and economic efficiency. This article
delves into the legal and economic implications of bid rigging, a form of
cartel behaviour that involves collusion among bidders to manipulate the
outcome of competitive bidding processes. By exploring the definitions, types,
and detection methods of bid rigging, this article sheds light on the
motivations behind such collusive behavior and its detrimental effects on both
developed and developing economies. Through a global lens, the article examines
how various jurisdictions, including India, tackle the challenges posed by bid
rigging, with a particular focus on the Competition Commission of India’s
approach and its Leniency Programme. The article emphasizes the importance of
distinguishing between pro-competitive and anti-competitive horizontal
agreements to better understand and combat the economic and legal challenges
presented by bid rigging.
1.
Introduction
The term ‘competition’ carries various
meanings depending on the context. The Competition Commission of India refers
to competition as “the best means of
ensuring that the ‘Common Man’ or ‘Aam Aadmi’ has access to the broadest range
of goods and services at the most competitive prices.” The term competition has not been explicitly
defined anywhere in the Competition Act, 2002, but in the corporate world, it
is generally understood as a process where companies compete to attract and retain customers,
often by eliminating rivals by deploying various methods. It is important to
note that competition is
not good for the business, but it is good for the consumer, and it is a basic
tenet of capitalism. Without legitimate competition, a business has too much
power over the market, and the market is no longer "free". From an
economist’s viewpoint, competition
is characterized by the rivalry between businesses as they vie for customers by
minimizing costs and prices creating new products or services, or leveraging
specific strengths, skills, or other advantages to better meet customer needs
compared to their competitors.[1]
Anti-competitive practices
are actions taken by businesses or organizations to unfairly dominate the
market. These actions disrupt fair competition and manipulate market conditions
to maintain a superior market position. Anti-competitive behaviour employed by businesses and governments seeks to
reduce competition within markets enabling monopolies and dominant firms to earn
excessive profits and hinder new competitors. Due to its significant impact on
the market, this behaviour is heavily regulated and subject to legal penalties.
There are two primary types of anti-competitive practices. The first
type, horizontal agreements, involves anti-competitive activities among
competitors at the same level of the supply chain, such as mergers, cartels,
collusion, price-fixing, price discrimination, and predatory pricing. The
second type, vertical agreements, concerns restrictive practices between firms
at different levels of the supply chain, such as those between suppliers and
distributors. These practices include exclusive dealing, refusal to deal or
sell, and resale price maintenance.
However, it is important to note that not
all the horizontal agreements are detrimental to competition. Some horizontal
agreements can yield significant
benefits by enhancing efficiencies, reducing risks, facilitating the creation
of new or improved products or methods of distribution, and improving information
flow, which can collectively enhance the competitive functioning of a market.
It is therefore crucial to distinguish between horizontal agreements that have
pro-competitive effects and those that are anti-competitive[2].
A cartel
is a type of horizontal agreement. It is an intentional arrangement aimed at
reducing competition. Section 2(c) of The Competition Act,2002
defines ‘cartel’ as follows:
“Cartel”
includes an association of producers, sellers, distributors, traders,
or service providers, who by agreement
themselves limit, control or attempt to control the production, distribution,
sale or price of or trade in goods or provisions of services.
2.
Understanding Cartels: Definition and its Types
“There are
certain agreements or practices which, because of their pernicious effects on
competition and lack of any redeeming virtue, are conclusively presumed to be
unreasonable, and therefore illegal without any elaborate enquiry as to the
precise harm they have caused or the business excuse for their use.”[3] Cartels
fall into the category of pernicious agreements that can significantly damage
both consumers and the overall economy.
It entails
competitors engaging in unfair practices like price collusion, thereby
resulting into reduced choices for consumers. Cartelization has an adverse
impact on the overall competitive structure in the market and it also leads to
distortion of prices that is why cartels are subjected to the highest penalty
under The Competition Act, 2002.[4] The Supreme Court of India in the case of
Union of India v Hindustan Development Corporation observed that a cartel “is
an association of producers who by agreement among themselves attempt to
control production, sale and prices of the product to obtain a monopoly.[5]” After
the removal of competition in the market thereby creating the condition of
monopoly, the cartel of businessman tries to increase their own profits by
increasing the prices of the goods or reducing their output leading to a
condition of scarcity for raising prices of the goods. Therefore, to sum it up
we can say that the direct effect of a cartel is that the consumers are forced
to pay more for goods and services than they would’ve otherwise paid in an
efficient competitive market.
Cartels
can be classified into different types starting from:
Ø
International
cartels: These are the cartels operating across
national boundaries and involve producers, manufacturers, sellers,
distributors, traders, or service providers from various countries who
collaborate to limit competition in multiple markets. The classical example of an
international cartel is the Organization of the Petroleum Exporting Countries
(OPEC).
Ø
Domestic
cartels: Domestic cartels are agreements between
competing firms within one country, affecting national industries. These
agreements can be made by either private or public enterprises within the same
industry.
Ø
Export Cartel:
Export cartels involve domestic firms colluding on strategies beneficial for
exporting products. Such cartels often receive exemptions from competition
laws.
Ø
Import Cartel:
Import cartels involve domestic firms colluding on import strategies, such as
limiting imports or setting purchase terms. These are typically prohibited by
competition laws.
Ø
Rebate Cartel:
Rebate cartels involve competitors agreeing on standardized rebate strategies
for customers.
Ø
Hub and Spoke Cartel: Hub and spoke cartels involve a third-party facilitating
collusion between competitors, commonly seen in US and UK but not covered by
Indian competition law.
The cartel
conduct can be further classified into 4 types i.e. price fixing, market
sharing, output controls/limiting production, and bid rigging.[6]
3.
Decoding
Bid Rigging: What It Is and How It Works
To
understand bid rigging, we need to first understand the terms “bid” and
“rigging.” “Bid”
means ‘an offer to give for an article about to be sold on auction’[7] and ‘rig’ ‘means to manage or conduct
fraudulently so as to gain an advantage.’[8] The Organisation for Economic
Co-operation and Development (OECD) defines bid rigging as “Bid rigging occurs when firms collude
and conspire to raise prices or lower the quality of goods and services for
purchasers who wish to acquire products or services through a bidding
process."[9] According
to the European Commission, “Bid rigging is a specific form of collusion where
companies agree among themselves on the bids they will submit in response to a
tender, thereby distorting the bidding process."[10]
Connor has
defined bid rigging as “a manipulative strategy employed by firms where they
conspire to decide in advance who will win a bid and at what price, undermining
competitive market processes."[11]
In simple
terms, bid rigging or collusive bidding is a process that occurs when two or
more competitors have an agreement that they will not compete with each other
in the bidding for particular tenders. The participants who are the part of
these agreements may take turns and be the winner on different occasions or
they can act as subcontractors for the winner of the bid.
The terms
of the agreement regarding the tenderer's winning bid might include that the
bid must be the lowest among all submitted bids or the only one with acceptable
terms. Additionally, it could be the only bid submitted, indicating that no
other participants entered the tender process.[12]
Bid
rigging is a fraud upon the agency, which is seeking the bids, and upon the
public who ultimately bear the costs as taxpayers or consumers. It always
results in higher prices and is beneficial to the contractors as everything is
stage managed by them.
4.
Different Forms of Bid Rigging
Bid
rigging can manifest in various ways, but most conspiracies typically fit into
one or more of the following categories:
·
Bid Suppression:
Bid
suppression agreements are those agreements wherein one or more companies agree
not to bid or to withdraw a previously submitted bid, ensuring that the chosen
winner's bid is accepted. The competitors come to an agreement about which contracts
each participant will submit bids for and which ones they will avoid bidding
on. For instance, a buyer might request bids
from three suppliers A, B&C, but bidders B and C may opt not to submit a
bid. In the next round, bidders A and C might refuse to bid. This form of
collusion is quite obvious, and it's more probable that bidders A and C would
place bids, but with terms so unfavorable that only bidder B's proposal would
be acceptable to the buyer.
·
Complementary
Bidding: It is
also known as courtesy bidding, cover bidding, token bidding, or symbolic
bidding. It happens when bidders submit uncompetitive or irregular bids
intentionally to let the other conspirator win the contract. For example, these
cover bids might feature prices that are less competitive than those of the
chosen winner, or they might include terms that the bidders are aware will be
unacceptable to the agency soliciting the bids. Typically, this is followed by
the designated "winner" making monetary payments to the designated
"losers" as a form of compensation. Complementary bidding schemes are
the most common types of bid rigging. They deceive buyers by giving the illusion
of competition while covertly
increasing prices.
·
Bid
Rotation: In bid-rotation, participating companies still submit bids but conspire to rotate the
position of the lowest, winning bid amongst themselves. The implementation of
these agreements can differ; for instance, firms may agree to distribute a
roughly equal value of contracts from a specific set, or they might divide the
contracts in a way that reflects each firm's size.
·
Subcontracting:
Subcontracting deals often play a role in
bid-rigging conspiracies. Competitors who decide not to place a bid or who
intentionally submit a higher bid may, in return, secure subcontracts or supply
agreements from the bidder who wins with the lowest bid. In certain variations
of these schemes, the initial low bidder might agree to retract their bid to
let the following lowest bidder win, in exchange for a profitable subcontract
that allows them to share in the illicitly elevated price. This can be clearly
understood with the help of the following example: Let us suppose Three
construction companies bid to build a bridge that a government wants to build.
The cost of the bridge would normally be Rs 100 Crores, but the bidding
companies enter into an agreement for collusive bidding. Company A bids Rs 215
Crores, Company B bids Rs 215 Crores, Company C bids Rs 200 Crores. Due to the
bids being fairly close to each other the government thinks if it allocates the
work to Company C then it will get a good deal.
Company C
then hires Company A and B as subcontractors to build the bridge and they all
share the Rs 200 Crores between them. The government (the general public) has paid
Rs100 Crores too much for the bridge.
·
Market
Allocation: In this, competitors divide the market among
themselves, establishing agreements to avoid competing for particular customers
or within specified regions. For instance, they may assign certain customers or
customer categories exclusively to specific firms. As part of the agreement, these
firms agree to avoid submitting competitive bids or only place nominal bids for
contracts from customers assigned to another firm. Correspondingly, that firm
will also refrain from bidding competitively on customers designated to others
in the pact.
5.
What drives Collusion: Key Factors
There are three broad factors in a market
which makes it easier for the firms to collude. The foremost being the
elasticity of demand. The second factor is how competitive a market is. In case
of fierce competition in the market, the prices are lower; in such situation,
the greater would be the benefits from collusion. Finally, the third factor is
the barriers to entry in a market. If there are high barriers to entry or
expansion in a given market and market is not open for new players or expansion
of capacity by existing players, it will be easy to sustain collusion.
Market concentration refers
to the proportion of an industry's production, controlled by a few firms that
is to say when just few businesses produce most of an industry’s goods. When
the market is dominated by a few players, it can be easier to get together
secretly and agree on prices, especially when there are no small businesses
around to disrupt things.
Businesses selling similar or homogeneous products, sharing similar cost
structures and efficiency levels, are also to be more likely to lean towards collusion.
Homogenous products and same quality products are easier to collude on, as
their similarities drive focus solely on pricing.[13] A similar cost structure and efficiency level reduces conflicts arising
from price setting, making collusion more feasible.
Excessive capacity is detrimental to collusion. Firms that can produce
more than they currently need have incentives to cheat by undercutting
competitors. However, in markets with little to no excess capacity, firms are
less likely to cheat, which leads to collusion.[14]
Market transparency with respect to prices and sales terms, frequent
interactions among competitors and institutional links between firms also pave
the way for collusion. Transparent markets allow firms to keep an eye on each
other and detect deviations from collusive agreements, while frequent
interactions and institutional links create bonds, encouraging collusion.
If consumers heavily rely
on a product, regardless of price, and if the product doesn't change much over
time, then the chances of businesses agreeing on prices increases. When
consumers depend heavily on a product and demand is inelastic, firms have a
greater chance to charge higher prices. More customers and slower technological
advancements make it easier to maintain collusion due to the to the huge
customer base and less pressure to innovate.
The history of collusion,
active trade associations, and the degree of rivalry are also influencing
factors. Industries which have colluded in the past are more likely to repeat
that behaviour in the future. Active trade associations, though useful for
setting standards and growing the industry, can unfortunately also serve as
hubs for collusion. Lower degrees of rivalry increase the chances of collusion.[15]
Markets with
well-established technologies and where setting up a business is expensive, are
more prone to collusion. Established technologies limit innovation
opportunities, making collusion easier. Expensive setup costs act as entry
barriers, limiting competition and creating a favourable environment for
collusion.
The absence of a buyer's
power or practices also increases collusion prospects. If buyers have less
influence or customer groups don't work actively, then collusion is more
likely. Also, when the chances of getting caught and penalized are low, it's
easier for firms to agree on prices. Factors such as stable demand and supply,
and links between firms like joint ownership or licensing, help sustain these
collusions as they reduce risks and improve predictability.
6.
The Impact of Bid Rigging
In competitive markets,
companies are focused on producing as much as possible to maximize their
profits. In such markets, there are a lot of businesses and customers, and no
single entity owns a major share of the market. On the other hand, in a monopoly,
a single business rules the market. Here, the seller recognizes that the higher
its output, the lowers will be the price, which it can charge; he therefore
adjusts output and price to maximise his return. However, it's worth noting that
perfect competition and monopolies are rare in real life. It is an oligopoly,
which persists mostly. In oligopoly, there are only a small number of
businesses which are present, and they have a significant impact on each other.
Therefore, in forming plans about production and pricing, these businesses have
to consider the reaction of their competitors. The theory suggests that such
businesses focus mostly on making forecasts and coordinating efforts. In
certain scenarios, these businesses cooperate and agree on a game plan
regarding production and costs, similar to the way a monopolist would. As a
result, the overall output of the industry decreases, which in turn would shoot
the prices, resulting in higher industry-wide and firm-wise profit. In essence,
when competitors collude, they act like a monopoly and aim to make as much
profit as a monopoly would. Upon collusion, the ideal product amount and price
move to the levels seen in a monopoly; so, the collusion produces an output
where marginal cost is equal to marginal revenue, however, price is much
higher. During collusion, the price exceeds the competitive level, and each
member essentially finds themselves in the same condition as a monopolist. So,
in simpler terms, when companies work together in a market to determine output
and pricing, they can manipulate the market like a monopoly, leading to higher
prices and profits.
6.1.Economic
Detriments of Bid Rigging
Bid rigging causes
significant harm to the economy as it often leads to higher prices for goods
and services. The people who make the bids most of the time end up paying more
than they normally would and as a result, this extra cost is borne by the
consumers. Studies suggest that bid
rigging can inflate the price of a service or product by more than 10%.[16] The high cost of bid rigging leaves the buyer with less money for
other needs.
In some cases, the person winning the bid
has to give some sort of payment (money or work) to those who didn’t win as a
part of a prior agreement between them. To make up for this loss, they may then
raise prices, increase charge for labor and materials, or compromise with the
quality or quantity.[17] Bid rigging also has a detrimental
effect on business competition. It leads to the targeting and removal of local
and international competition, which ends up slowing down economic growth.
Furthermore, bid rigging prevents qualified bidders from competing, which may
lead to reduction in quality standards. While there may be situations where bid
rigging doesn’t result in higher prices or lower efficiency, it still hurts in
the long run by preventing competition and barring new entrants from
participating. Bid rigging, specifically bid rotation in a collusion, can
sometimes result in the best producer at the moment getting the bid. But even
then, this lack of competition and exclusion of new companies can lead to
negative impacts in the long run, especially when it comes to repeat purchases.
Bid rigging is also often used in anti-competitive ways by international
groups. In some parts of the world where a few companies rule local markets,
bid-rigging groups are widespread and significantly increase prices.[18]
An estimate of the harm caused by such cartels exceeds billions of
dollars per year. Although it’s hard to precisely measure the damage caused
only by bid rigging, this rough calculation hints at the considerable damage it
does to the economy.
6.2. Impact
on developing countries
Sometimes governments may allocate a huge
amount of money for public work projects with the goal of making specific
social and economic changes. Bid rigging negatively impacts these public
projects by making everything more expensive and disrupting the distribution of
resources. This interferes with the funding for other projects. The wasting of
resources in such a way hinders the effectiveness of development initiatives.
Given the type of the projects involved, the low quality of work often linked
with bid rigging affects the entire community. Moreover, it also negatively
impacts the poor in particular since many projects are conceptualised for their
exclusive benefit. When developing countries lose development bank funds due to
practices such as bid rigging, the taxpayers of these countries are still
obligated to repay the development banks. Therefore, not only are the less
fortunate deprived of the potential benefits of development projects but at the
same time, they are also forced to repay the resultant debts to these banks.[19]
Developing countries are prone to risks
of bid-rigging due to their frequent engagement in government procurement, lack
of a strong legal and regulatory framework for antitrust enforcement, and
general absence of awareness. Moreover, these nations often don’t have the
means to carry out large projects by themselves and need to solicit bids from
foreign companies. In addition, developing countries often seek bids for
imports from more developed nations. When these
international deals involve bid rigging, governments in these poorer countries
have a hard time taking effective action. This difficulty arises not just
because their law enforcement is weaker, but also because of the political
power dynamics.
It's especially tough when the companies involved in the bid rigging are
from wealthier countries.
7.
How the Competition Commission of
India addresses Bid Rigging
Administrative enforcement authority
under the Competition Act, 2002 rests with the Competition Commission of India
(CCI), which has sole jurisdiction to investigate and adjudicate. Section 18 of
the Act casts a primary duty on the Commission to achieve the objectives of the
Act which means that the Commission is accountable for successful
implementation of the Act. Certain CCI
orders, including those imposing penalties, finding infringements as well as
closing inquiries, can be appealed first, before the NCLAT, and then on to the
Supreme Court.
The CCI is vested with significant powers
to investigate, adjudicate, and dispose of a case, and sanction infringements
of the Act which are discussed herein below:
Inquiry into bid rigging (Section 19)
As per Section 19 of The Competition
Act,2002 the commission may inquire into any alleged contravention of the
provision of Section 3(1) either by taking sou moto cognizance or on receipt of
any information accompanied by a prescribed fee[20] from any person, consumer, or consumer
association or trade association or by any reference made to it by the central
or state government.[21]
Procedure of Inquiry under Section 19
(Section 26)
On receipt of information or on its
knowledge, if the commission is of the opinion that there exists a prima facie
case, it shall direct the Director General to cause an investigation to be made
into the matter.[22] The Director General is required to
submit a report on his findings within the period specified by the Commission.[23] However, if the Commission believes that
there exists no prima facie case, it shall close the matter forthwith and pass
the order as it deems fit.
If the report submitted by the Director
General reveals contravention of the
Power to issue directions (Section 27)
Section 27 of the Act empowers the
Commission to pass inter-alia any or all of the following orders:
a) direct
the erring parties to discontinue and not to re-enter into such agreement;
b) direct
the erring parties to modify the agreement;
c) impose
a penalty on erring parties;
d) direct
the erring enterprises to abide by such other orders as the Commission may pass
and comply with the directions, including payment of costs, if any; and
e) pass
such other orders or issue such directions as the Commission may deem fit.
Power
to Impose Penalty
If the Commission finds that any
agreement is in contravention of the provisions contained in Section 3 of the
Act, it can impose penalty up to ten percent of the average turnover for the
last three preceding financial years upon each of such persons or enterprises
that are parties to bid rigging.[24] The Commission can impose on each member
of a cartel or each of such persons or enterprises that are party to an
anti-competitive agreement including bid rigging or collusive bidding, a
penalty of up to three times its profit for each year of the continuance of
such agreement, or ten percent of the turnover for all years during the
continuance of such agreement, whichever is higher.[25]
If any person, without any reasonable
cause, fails to comply with directions of Commission and Director General, the
CCI may impose a fine extending up to rupees one lakh for each day during which
such non-compliance occurs to a maximum of rupees one crore, as may be
determined by CCI.[26]
Power to Issue Interim Orders (Section
33)
Upon satisfaction that an act in
contravention with Section 3(3) has been committed or about to be committed,
the Commission may issue an order, to restrain any party temporarily from
carrying on anti-competitive act until the conclusion of inquiry of bid rigging
or until further orders, without giving notice to such party where it deems
necessary.[27] However, the Commission has to hear the
party against whom such an interim order has been made as soon as possible.
Further, the Commission has to pass a final order within ninety days from the
date of an interim order.[28]
In the case of Competition
Commission of India v. Steel Authority of India Limited[29], the Supreme Court held that while
recording a reasoned order under Section 33 of the Act, the Commission should,
inter alia, ensure fulfillment of the following conditions: ?a) record its
satisfaction (which has to be of much higher degree than formation of a prima
facie view under Section 26(1) of the Act) in clear terms that an act in
contravention of the stated provisions has been committed and continues to be
committed or is about to be committed; b) it is necessary to issue order of
restraint; and c) from the record before the Commission, there is every
likelihood that the party to the lis would suffer irreparable and irretrievable
damage, or there is definite apprehension that it would have adverse effect on
competition in the market. It was also observed that the power to pass
temporary restraint order can only be exercised by the Commission when it has
formed prima facie opinion and directed investigation in terms of section 26(1)
of the Act.
8. APPEALS
Section 53A provides the National Company Law Appellate Tribunal,
established under Section 410 of the Companies Act, 2013 to hear and dispose of
appeals against any direction issued or decision made or order passed by the
Commission under specified sections of the Act.[30] An appeal has to be filed within 60 days of receipt of the order /
direction / decision of the Commission.[31]
8.1.Leniency
Programme
Leniency has been an effective tool for
regulators worldwide. Regulators opt for such “leniency” due to the extremely
secret nature of cartels where it is challenging to get evidence. Section 46 of
the Competition Act read with the Competition Commission of India (Lesser
Penalty) Regulations, 2009 governs the law on leniency concerning cartel and
bid rigging in India.
Section 46 of the Act provides that if any
enterprise included in any cartel, which has allegedly violated the provisions
of Section 3(3) of the Act, has made a complete, true, and vital disclosure in
respect of alleged violations, the Commission may impose upon such enterprise a
lesser penalty. The CCI is empowered to grant a reduction in penalty
of up to 100 percent to the first leniency applicant, up to 50 percent to the
second leniency applicant, and up to 30 percent to any subsequent leniency
applicant, if the applicant provides additional valuable information that was
previously unknown to the CCI.
According to a study
conducted by CCI, from 2009 through 2018, only seven leniency applications were
received by it. The first application of the leniency regime was filed after
five years of its adoption in the case of Brushless DC Fans[32]. One of the parties filed
a leniency application and received a partial waiver of 75% in penalty. In Sports
Broadcasters, the CCI granted 100% immunity to Globecast India Private
Limited and its employees, who were engaged in bid-rigging with Essel Shyam
Communication Limited (ESCL). Globecast was granted total immunity based on vital
evidence that disclosed the modus operandi of the cartel, the role of
ex-employees, e-mail correspondence, etc. ESCL filed a leniency application during the pendency of the
investigation and received a 30% reduction in penalty.
The
disparity in the implementation of the leniency policy and the low turnout in
the number of applications led to the introduction of the Competition
Commission of India (Lesser Penalty) Regulations, 2024 hereinafter referred to
as LPR 2024. LPR 2024 has introduced the ‘lesser penalty plus’ facility wherein
a leniency applicant of an existing cartel (Existing Applicant) is incentivized
to disclose details of collusive conduct that is unrelated to the existing
cartel and not yet known to the CCI. The Existing Applicant availing Leniency
Plus Facility will have the following benefits:
(1) an
additional penalty reduction of up to or equal to 30 percent, namely a further
reduction on the penalty imposed in the first cartel; and
(2) being
eligible for up to or equal to 100 percent penalty reduction in the newly
disclosed cartel.
LPR 2024 clarifies that
Leniency Plus benefits will be granted only to the first applicant unless the
CCI rejects their application. The CCI will, however, before rejection grant an
opportunity for a hearing. It has also introduced the option for leniency or
Leniency Plus applicants to withdraw their applications before the DG submits
the investigation report to the CCI. However, the information and evidence
submitted by the applicant (except the admission of guilt by the applicant)
before withdrawing, can be used by the DG and CCI in the proceedings. It also
requires all leniency and Leniency Plus applications to be made in writing
earlier, as opposed to oral applications, which were permitted earlier.
9.
Legal Precedents on Bid Rigging
The CCI’s decisional practice elucidates that there is a
presumption that agreements under Section 3(3) will have an AAEC and thus,
there is no further need to prove an AAEC.[33] However, it is a rebuttable presumption and the onus is on
the enterprise that is facing allegations of bid rigging to rebut this
presumption. In Rajasthan Cylinders, the Supreme Court of India (Supreme
Court) stated that the standard of proof required to establish cartelisation is
that of probability. In Western Coalfields, the CCI noted that “proceedings
under the Act in [the] context of anti-competitive agreements, including
bid-rigging, do not involve criminal punishments but only monetary penalties.”
Hence, the standard of proof of “beyond reasonable doubt”
which is relevant in criminal proceedings cannot be made applicable to CCI
proceedings. Accordingly, the CCI evaluates the sufficiency of evidence on the
benchmark of “preponderance of probabilities.”
The Supreme Court’s decision in Rajasthan Cylinders v. Union of India[34], marks
the first instance where the market structure was considered to determine a
contravention of the Act. In this case, the appellants were suppliers of LPG cylinders to
Indian Oil Corporation Limited (IOCL), HPCL, and BPCL. It was alleged
that the appellants indulged in bid rigging by quoting the same prices in their
bids. The Director General after analyzing the bids concluded that there was
not only a similarity of pattern in the price bids submitted by the 50 bidders
for making supply to the IOCL but discerned a pattern wherein parties submitted
their bids in various states at the identical level which demonstrated price
parallelism. Based on these findings, the Competition Commission of India (CCI)
confirmed the allegation of bid rigging. Competition Appellate Tribunal
(COMPAT) upheld these findings and imposed severe penalties under Section 27 of
the Act.
The issue was thus whether there was any collusive
agreement between the participating bidders which directly or indirectly
resulted in bid rigging of the tender floated by IOCL in March 2010.
The
Supreme Court held that the first and foremost step is to determine the market
situation whether there was monopsony or oligopsony. Monopsony consists of a
market with a single buyer while in the case of oligopsony, there are few
buyers in the market who have the power to control the prices of the goods
being sold by the seller. In such situations, the onus of anti-competitive
behaviour cannot be placed solely on the seller to mark him as an offender. The
Court based its decision on the European Court’s ruling in Imperial Chemical
Industries Ltd. v. Commission of European Communities[35], which was upheld in the
case of Excel Crop Care Limited that in an oligopolistic market, the
competitors are aware of one other’s presence and so, to survive in the market
they have to match each other’s marketing strategy. This is one of the plausible
reasons that in such a market, the prices of competitors are almost similar.
Although parallel pricing in an oligopolistic market may provide strong
evidence of a concerted practice, it is not conclusive. The same test was
reiterated by the Supreme Court of the United States in Monsanto Company v.
Spray-Rite Service Corpn[36]. The Apex Court thus set aside the order of the above authorities and
therefore, the Supreme Court’s decision in this case marks the first instance
where the market structure was considered to determine a contravention of the
Act.
Xyz v. Hindalco Industries Ltd and Another[37]: In this case, the informant revealed that the
two enterprises, namely Hindalco Industries Limited and Vedanta Limited, were
engaged in bid rigging/collusive tendering which is a violation of Section 3(1)
read with Section 3(3)(a), Section 3(3)(c) and Section 3(3)(d) of the
Competition Act,2002. It was alleged that the opposite parties issue their
price circulars to buyers almost simultaneously and give discounts to their
customers after discussions between them to maintain parity in the market. It
was further alleged that the additional charges mentioned in their price
circulars remain almost identical and they have also carved out certain
customers amongst themselves.
The Commission observed that "price-parallelism is
insufficient to order a probe in the absence of any documentary/oral evidence
on record from which collusion or concert between the parties can be
inferred." The Informant failed to substantiate the allegations made
in the Information and therefore, the commission finds no case of contravention
of Section 3 of the Act in the instant case.
Chief Material Manager, North Indian Railways v. Bic Auto Pvt Ltd.[38]: In this case, five references
were filed alleging that the opposite parties had violated Section 3 of The
Competition Act, 2002, where the other party functioned as a cartel and
indulged themselves in bid-rigging. The parties used to bid for similar prices
and held control over the bids offered by the railway authorities. The DG
during the investigation found that one of the employees of OP-1 used to keep
the records of the allocation of tender quantities amongst the Opposite
Parties, which were modified over time according to the inputs received, and
the opposite parties used to exchange screenshots of their financial bids to
ensure quoting of pre-decided prices. The
Commission observed that the e-mails and other evidence collected by the DG
revealed the modus operandi of the cartel and held that “merely putting emphasis on market conditions in
isolation ignoring the actual conduct in the teeth of overwhelming evidence
meticulously pieced together by the DG, the parties have been selective in
projecting their submissions. Further,
as a consumer, the Indian Railways is free to make a choice as far as selection
of goods or services provider is concerned. This has to be also considered in
view of direct accrual of benefits to the consumer i.e. the
Government of India and the passengers using railway services. Negotiating
terms and conditions with the opposite parties to procure CBB on the best
possible bargain price amounts to nothing but ensuring benefit to itself and
its end consumers i.e. railway passengers. Therefore, the
Indian Railways cannot allow the opposite parties to fix any arbitrary prices
and/or quantities.” The Commission also opined that the opposing
parties had no substantial evidence in their defense. Therefore, the opposite
parties were held liable for the contravention of the provisions concerning the
anti-competitive agreements under the Act.
Excel Crop Care Ltd v. Competition Commission of India and Ors[39] In this case, the chairman of the Food Corporation of India wrote a letter
to the Competition Commission of India complaining that four companies namely
M/s Excel Crop Care, M/s United Phosphorus Limited, M/s Sandhya Organics Chemicals Private Limited, and M/s Agrosynth
Chemicals Limited had come into an anti-competitive agreement in relation with
the tenders issued for the APT by the FCI. It was stated that similar bids were quoted
for the past eight years. Upon investigation, the DG found prima facie evidence
of bid-rigging leading to monopolistic behavior. The Commission, along with the
Appellate Tribunals, held the manufacturers of APT guilty under Section 3 of
the Act. An appeal was made to the Apex Court wherein the court observed that
the dispute of the Appellants that equivalent pricing in an Oligopoly market by
itself did not amount to a breach of the Competition Act does not hold much
water, as there are numerous incidents of identical priced bids being
submitted, despite the varying price of manufacture of every bidder. Supreme
Court also drew attention to the concerted withdrawal of bidding in 2011 by all
the Opposite Parties. The Supreme Court referred to the case of CCI v.
Coordination Committee of West Bengal Cine Artists to hold that no
written proof of an anti-competitive agreement needs to be there before action
can be taken against the defaulting party. Reference was also made to the
observations of Lord Denning in Registrar of Restrictive Trade Agreements vs.
WH Smith & Sons - "People who form a Cartel do not shout from
the rooftops. They make their arrangements in a cellar and go about their
business quietly. Even a nod or a wink will do".
The Supreme Court, further, clarified that penalty should be determined
based on the “relevant turnover” of the enterprise. The term relevant turnover
of the company refers to the turnover relating to product/service, in respect
of which the contravention took place, and not the “total turnover” of the
company covering all its products.
Western
Coal Fields Ltd. v. SSV Coal Carriers Pvt Ltd.[40]: In this case the Informant, Western Coalfields Limited, had approached
the Competition Commission of India (Commission) alleging bid-rigging
by SSV Coal Carriers Private Limited, M/s Bimal Kumar Khandelwal, M/s
Pravin Transport, M/s Khandelwal Transport, M/s Khandelwal Earth Movers, M/s
Khanduja Coal Transport Co., M/s Punya Coal Road Lines, M/s B. Himmatlal
Agrawal, M/s Punjab Transport Co. and Avaneesh Logistics Private Limited, upon
noticing identical price quotes given by them in four tenders. The
Commission observed that there was repeated quoting of identical prices for
dissimilar bids which was highly susceptible. The coal transporters had formed
a cartel in which they admitted that the prices were already benchmarked
against earlier prices and also had business dealings with each other. In its order, the Commission noted that such conduct
in public procurement besides defeating the tendering process has an adverse
impact on the competition process, causing deprivation of efficient outcomes
that would have followed otherwise. The Commission has held the said parties to
be in contravention of the provisions of Section 3(3)(d) of the Act.
10. Conclusion
Competition
keeps markets efficient and innovative. It encourages new ideas, makes sure
prices are fair, enhances quality, and allows for a wider variety of options
for customers. However, anti-competitive practices such as bid rigging and
cartels severely compromise this leading to steep prices, limited options for
consumers, and economic slump. To combat this, many countries worldwide,
including India, have implemented strict laws and regulatory bodies like the
Competition Commission of India. These bodies conduct rigorous investigations,
impose significant penalties, and offer leniency programs to combat these
practices. While progress has been made, efforts to tackle unfair competition
aren't over. We need continued surveillance, strict management, and a deep
understanding of market structures to maintain fair competition.
Further,
enhancing public awareness and cooperation between international competition
authorities will also be key in addressing this issue. A frequently mentioned
approach is the leniency program which encourages companies involved in
anti-competitive practices to come forward in exchange for reduced penalties.
This program has found varying degrees of success globally and forms an
essential part of regulatory strategies. It helps in uncovering complex cartels
and is also a key tool in dismantling hidden networks. While tougher sanctions
are needed to deter anti-competitive practices, the focus should also be on
promoting a culture of competition and encouraging more businesses to come
forward under the leniency program.
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[21] The Competition Act, 2002, § 19(1),
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[22] The Competition Act, 2002, § 26(1),
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[23] The Competition Act, 2002, § 26(3),
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[24] The Competition Act, 2002, § 27(b),
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[25] The Competition Act, 2002, § 27(b)
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[26] The Competition Act, 2002, § 43,
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[27] The Competition Act, 2002, § 33,
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[28] The Competition Commission
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[30] The Competition Act, 2002, § 53A,
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[31] The Competition Act, 2002, § 53B
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[32] Brushless DC Fans, Suo Moto Case
No. 03 of 2014
[33]Competition Commission of India v.
Coordination Committee of Artistes and Technicians of West Bengal Film and
Television & Ors., (2017) 5 SCC 17
[34] Rajasthan Cylinders v Union of
India, 2020 16 SCC 615
[35] Imperial Chemical Industries Ltd.
v Commission of European Communities, 1972 ECR 619 (ECJ)
[36] Monsanto Company v Spray-Rite
Service Corpn., 1984 SCC OnLine US SC 56
[37] Xyz v Hindalco Industries Ltd. and
Anr., 2020 SCC OnLine CCI 39
[38] Chief Material Manager, Northern
India Railways v Bic Auto Pvt. Ltd., 2020 SCC
OnLine CCI 28
[39] Excel Crop Care Ltd. v Competition
Commission of India and Ors, (2017) 8 SCC 47
[40] Western Coal Fields Ltd. v SSV
Coal Carriers Pvt. Ltd., 2017 CCI
0795