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THE FOOTING OF BID RIGGING IN CONTEMPORARY JURISDICTION: A COMPARATIVE STUDY BETWEEN EU AND INDIA.
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THE FOOTING
OF BID RIGGING IN CONTEMPORARY JURISDICTION: A COMPARATIVE STUDY BETWEEN EU AND
INDIA.
AUTHORED BY - NEELANJANA GHOSH
3RD YEAR STUDENT AT SCHOOL OF LAW,
CHRIST (DEEMED TO BE
UNIVERSITY), BANGALORE
The author in this essay examines bid rigging, which
is one of the anti-competitive behaviours forbidden
under the 2002 Competition Act of India. This essay will assist in elucidating
the notion of bid-rigging via the use
of numerous case laws including the recent FCI judgement and will attempt
to clarify the many acts that comprise
bid-rigging as well as those
that do not.
It's illegal for two or more parties to work together to pick the winner
of a bidding procedure, according
to Investopedia.[1] Collaborating with other bidders
to manipulate the bidding process
results in an anticompetitive collusion and may result in a price that
exceeds the price that would have been acquired
in a free market, competitive bidding procedure. To the prejudice of customers and
taxpayers, manipulating the bidding process may result in higher prices for goods and services. Commercial contracts
can be awarded via a competitive bidding process in any area where bid manipulation is possible
[2].
As
such, bid manipulation is possible in auctions for “automobiles and real estate, building
projects, and government procurement contracts. Although bid rigging may take various
forms, one of the most
typical types happens when firms choose who will win a bidding process in advance”.[3]
To do this, firms may take turns submitting the lowest offer, refrain from
bidding entirely, or submit purposefully uncompetitive bids in order to manipulate the result and ensure the preset bidder wins.
Another method of bid rigging
is to hire a competitor as a subcontractor in order to manipulate the bidding process. Additionally, a
corporation may choose to create a joint venture with a competitor, but only for the purpose of making a single bid and with no intention
of collaborating with the other company to save money
by pooling resources or expertise.
The notion of bid rigging has indirect legitimacy under the Indian
Competition Law system. Section 3 of
Competition Act, 2002[4],
entails the concept of anti-competitive agreements, empowering the Competition Commission of India to prohibit
any agreement between
enterprises or individuals engaged in identical or similar trade of
goods or services that results in
bid rigging or collusive bidding directly or indirectly. These agreements have
an “adverse impact on market
competition, on the economy”, and so are illegal by law. Entering into anti- competitive agreements under Section 3
of the Competition Act [Act] are one of the practices that restrict adequate competition in the market and are said
to have an Appreciable Adverse Effect
on Competition [AAEC]. In the case of bid rigging, enterprises/bidders with
identical businesses enter
into agreements to determine purchase/sale, hindering entry of competitors in the
market, conspiring to improve production/distribution of goods/provision of
services, controlling market
shares by way of allocation of resources, i.e., goods and services to relevant product
or geographic market during a ‘Tendering Process’.
To determine whether
the agreement has a material
detrimental impact on competition, one must consider
all the determinants aforesaid. [5]
Section 3(4)[6]
envisages multiple kinds of agreements – both vertical and horizontal that the CCI has recognised to have an AAEC. Bid Rigging is read into Section 3(3)[7] of
the Act. Recently, the CCI held 6 companies in Violation of Section 3(1) of the
Act.[8] This
blog aims to analyse the judgement of CCI imposing a penalty onto these
companies and understand the position of law relating
to bid rigging in India and also in the European Union.
It was held by CCI that six companies had violated Section 3(1) of the
Competition Act, 2002 read with Section 3(3)(d)
of that act, which prohibits
anticompetitive agreements, and the CCI acted against them on October 29, 2021.
A statement from the Competition Commission of India (CCI) on cartelization in the supply
of Low-Density Poly Ethylene Covers (LDPE) to Food Corporation of India (FCI) revealed that these
companies had manipulated the bidding process
by determining prices directly or indirectly,
allocating tenders, coordinating bid prices, and so on. FCI had a Reference
filed on its behalf, and that's how the case
got started, according to the press release.
“In this backdrop, CCI issued a
cease-and-desist order against the firms found guilty of bid rigging and cartelization in the said
tenders floated by FCI. However, CCI refrained from imposing any monetary penalty considering that four out of six
firms had filed lesser penalty applications
and admitted their conduct, confessed their modus operandi during investigation thereby fully cooperated with CCI,” read the release.
“Moreover, the firms were also MSMEs with limited
staff/ turnover and the
prevailing economic situation arising
due to the outbreak of COVID-19, stress wrought upon the MSME sector
in the wake of the said pandemic,” it added.
FCI was held liable for purchasing LDPE covers that safeguarded huge food grain stocks from rain
and fumigation. FCI purchased these covers through a rate running contract
entered into with a variety of
suppliers by inviting bids through tenders. The CCI passed an order under Section 26(1) of the Act holding that
there exists a prima facie case of
contraventions of provisos under the Act – Section
3(3)(d) read with Section 3(1).
The Director General
through its investigation caught
hold of multiple WhatsApp conversations between the six companies and tracked down the history
of these companies involving in fixing
the price of LDPE covers,
Limiting and Restricting the supply of LDPE covers,
Sharing the quantities of the tenders
over the years, thereby rigging the bids vis a vis the tenders
floated by FCI.
The CCI, while understanding the legality of the arrangement between the companies, examined the definition of “agreement” under Section 2(b)[9]
and due to the inclusive nature of the
definition, multiple wide interpretations shall be drawn. They opined that the
provision covers those situations
where the parties act “on the basis of a nod or a wink”. This was done to prove that the Act does attract civil
liability. Held that the standard of proof to prove the existence of an agreement would not be on the basis of it being
beyond reasonable doubt but of it being on the basis of preponderance of probabilities. Therefore
proving that an agreement existed
between the companies. The CCI subsequently after perusing through
multiple evidences held that
the companies were involved in an anti-competitive practice, i.e., Section 3(3)(d)
r/w 3(1) and held that a direct contravention of these provisions fulfils the criteria
of
proving an Appreciable Adverse Effect in Competition
within India. The Companies could not sufficiently prove that the
contraventions committed by them did not fulfil Section 19[10]
and that their acts were done without
the knowledge or that
they had exercised
enough due diligence to prevent such
violations of the Act and were eventually held liable under Section 48(1) and 48(2) of the Act. CCI, under Section 27(a)[11]
of the Act, passed a cease and desist order against the companies.
Bid rigging costs taxpayers money and prevents more efficient rivals from
participating in the process. Bid rigging may also result
in a lack of incentives for suppliers, resulting in a decrease
in the quality and innovation that come from healthy competition. The
Competition Act, 2002 defines bid
rigging as any arrangement between firms or individuals involved in comparable manufacturing or trade of products or services. The agreement defines
bid rigging as the act of manipulating or eliminating competition
for bids, as well as the unfavourable impact or manipulation of the process itself. The Act is intended to
prohibit anticompetitive conduct, to promote and sustain competition in
markets, to safeguard consumer interests, and to ensure other market players'
freedom of trade. Cartels' emergence in the market results
in the suffocation of a healthy market, and they have been dubbed
'cancers of the open market economy.'
Such arrangements aimed at stifling market competition are specifically
prohibited under Indian competition law. Bid manipulation is thought to be particularly prevalent in public
procurement[12].
Indian law
provides for the appointment of an impartial commission to investigate
allegations of infringement. The Commission places a premium
on two fundamental principles: enforcement and advocacy. The “Competition Commission of India” is tasked with the responsibility of
eradicating such practices. It has the authority to discover anti-competitive agreements and to “levy a penalty of up to 10% of the enterprise's average revenue for
the prior three years”.
Additionally, “the Commission has the
authority to impose a penalty on each cartel
member (manufacturer, seller, distributor, and/or service provider)”. Additionally,
it has the authority to prosecute directors/officials of any corporation
that violates India's competition
rules. The Commission may launch an investigation into any violation of a provision of the Act according to Section
3(3) of the Act. In such cases, the Commission has the same authority
as a civil court of the country.
The Indian Constitution guarantees a fair and equitable market.
Bid rigging is likewise prohibited in the EU and is a direct violation of
the European Union's “Treaty on the
Functioning of the European Union (TFEU)”.[13]
The EU approach makes no distinction between bid rigging in private and public procurement and treats it the same as other
market-wide infractions such as market sharing. Certain EU member
states, such as Germany and the
United Kingdom, have enacted particular criminal punishments against bid
rigging. “The European Commission” has the authority
to impose fines on defaulters (up to 10% of the prior
business year's global revenue). This is computed particularly based on a
variety of parameters such as the seriousness of the infringement, the value of sales, and the length of the infringement.
The policy is founded on deterrence concepts, both particular and general. Additionally, the policy protects
whistle-blowers (in terms of penalties) and allows for fee reductions in exchange for cooperation.
Additionally, an infringing party may be barred from participating in public
procurement. This exclusion
may be required or optional,
depending on the applicable national legislation.
This exclusion must be proportionate to the nature of the offence. If no time term is specified in
the ruling, it shall not exceed three years from the date of the relevant occurrences[14].
Bid rigging takes many forms and may be found in every market.
The most prevalent
variations include[15]:
Suppression of bids, Additional or cover bids, Bid Rotating, Subcontracting.
The market is divided among the
competitors based on a variety of factors. These elements might include geographic location, tender type
or size, price, and other factors. A cartel is distinct from collusion in that it is a productive organisation that includes a large number of
participants. These manufacturers have a monopoly
on the market because they work together. Territorial cartels (division based on geography), syndicates
(a unified group of competitors against
new entrants), and customer cartels (division of consumers) are all common in
India and the EU.
Because of the prevalence of corruption in India's economy,
unethical business activities, such as bid rigging, are both encouraged and exacerbated. Understanding and evaluating inconsistencies in public procurement is essential to tackling corruption. The overall competitiveness of the Indian products and
services industry is impacted by the size of the country's public procurement market share. However,
this does not imply that bid-rigging does
not take place in
industrialised countries.
An effective legal system, identification of indicators of bidding-rigging,
and the design of tenders to minimise
bidding-rigging are all recommended measures against bid-rigging Signs of bidding rigging
include geographical allocation, sudden withdrawal from the process,
never winning
any of the bids,
winning all the time, very close bids that defy chance, joint bids despite
having the resources to bid alone, repeated subcontracting to losing
bidders, and holding meetings or
communications between competitors before placing bids. Bid-rigging is a high probability in cases when
patterns defy the odds.
Remember that the severity of a crime should be proportional to the severity
of its consequences. There should be no additional constraints or a
complicated system that fails to operate,
like in India.
There should be no barriers
to participation, such as the size, composition, or type of businesses, in procurements of all sizes and scopes.
Additionally, a decrease in the number
of international participants may help develop a healthy competition. So that
there is less room for collusion, it
is important that bidders' qualifications are not pre-determined. A decrease
in the cost of preparing a bid also encourages new participants to participate. Streamlining processes across services, items,
or industries may help. Bid-rigging is often
blamed on India's
lack of streamlining. Smaller or mid-level enterprises might benefit from the project's distribution or allocation of
lots, provided that this is done with care. Predictability should be reduced as much as possible in
all situations. There should be no contact between the bidders throughout the tender process, or at least limited
communication. One of the most effective
ways to combat bid-rigging is to raise
awareness amongst your employees.
Bid rigging is detrimental to the country's competitive environment since
it might result in erroneous price
escalation. In India, the majority of bids are solicited by the public, and bid manipulation may result in the loss of
public funds. Bid manipulation may also result in the awarding of critical
projects to inept
parties, which can have severe effects. The preceding case law demonstrates that the Commission has been proactive in punishing cartels
engaged in bid- rigging.
In these digital times, it is critical that the Commission's investigative
powers be strengthened and that the
Commission is granted broader authority to examine bid-rigging in many areas of the economy.
[1] Will Kelton, Bid Rigging,
INVESTOPEDIA (October 14, 2021), Bid Rigging Definition (investopedia.com)
[2] ‘CCI issues
order against firms
guilty
of bid-rigging and
cartelization’ Business Standard
[5] Estate R, ‘FCI tender: CCI issues cease and desist order against firms found
guilty of bid rigging and cartelisation’ BUSINESSLINE /www.thehindubusinessline.com/news/fci-tender-cci-issues-cease-and- desist-order-against-firms-found-guilty-of-bid-rigging-and-cartelisation/article37279244.ece>.
[8] In Re: Food Corporation of India, Ref. Case
No. 07 of 2018.
[12] ‘CCI issues
cease and desist order against six firms guilty of bid rigging and
cartelization in FCI tender’ Indiainfoline /www.indiainfoline.com/article/news-top-story/cci-issues-cease-and-desist-order-against- six-firms-guilty-of-bid-rigging-and-cartelization-in-fci-tender-121110200296_1.html>.
[13] The Treaty on the Functioning of the European
Union, C 326/49 (1957).
[14] Competition Comission of India, Advocacy Booklet 2021
[15] iPleaders.
2021. Bid rigging in public procurement sector : a comparative analysis of
India and EU - iPleaders. [online] Available
at: analysis-of-india-and-eu/> [Accessed 18 November 2021].
Article Information
THE FOOTING OF BID RIGGING IN CONTEMPORARY JURISDICTION: A COMPARATIVE STUDY BETWEEN EU AND INDIA.
Authors: NEELANJANA GHOSH
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/04/24
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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