Bid-Rigging/Collusive Rigging and the role of Competition Commission of India.
The Competition Commission of India (CCI) established under the Competition Act, 2002 (Act) supervises the economic development of the nation. It aims to develop a fair market and eliminate or rectify any practice which causes or may cause an adverse effect on competition. Hence, the purpose of the Commission is the identification and rectification of practices termed “anti-competitive” under the Act.
Bid-rigging or collusive rigging is explicitly termed as an “anti-competitive” practise under Sec. 3 (3) of the Act. The Act defines it as an agreement between persons engaged in similar or identical trade or production which is capable of reducing competition or even manipulating the process of bidding. The definition keeps the ambit of the expression wide. This ensures no malpractice affecting the bidding process escapes the purview of bid-rigging or collusive rigging.
Bid-rigging or collusive rigging affects competition and is a horizontal agreement. It is an agreement between persons, associations, or enterprises involved in similar or identical trade.
The difference between collusive rigging and bid-rigging
In Excel Crop Care Limited v. Competition Commission of India, a global tender involving a two-process bid was floated. The first was a techno-commercial bid and followed by a financial bid. The Additional Solicitor General expounded that when the appellant sent in their bid for the techno-commercial step whilst colluding, it amounted to collusive bidding and when they sent their bids for the financial step by concerted negotiations, it amounted to bid-rigging. In Rajasthan Cylinders v. Union of India, the Supreme Court while referring to the earlier judgment, elucidated that the expressions ‘bid-rigging’ and ‘collusive rigging’ are not mutually exclusive but overlapping concepts and are used interchangeably.
Types of bid-rigging and what makes them anti-competitive
The common methods of bid-rigging or collusive bidding are:
Bid Suppression – Under this method, a prospective applicant intentionally refuses to proceed with the tendering process or refuses to apply for the tender. A collusive agreement exists such that the designated victor among the colluding bidders wins the tender.
Complementary Bidding – This is the most often occurring type of rigging. This method of bidding is also known as ‘cover’ or ‘courtesy bidding’ wherein the bidders, acting under the collusion agreement, would put up a façade of genuine competitive bidding by providing conditions or bids which are clearly unfavourable to the buyer to ensure the victory of the designated victor.
Bid Rotation – Under this scheme the conspirators take turns in emerging the victor of the bid. This could be based on the worth of the tender and the compensation provided to them under the collusive agreement.
Sub-Contracting – Under this scheme, the conspirators who did not win the bid enter contracts with the victor and are hence, indirectly benefit from the tender.
Market Division – Under this type of rigging, the conspirators divide the market among themselves through a collusive agreement. The way of distribution is such that they would not compete against each other for specific allocated customers.
The anti-competitive nature of bid rigging is in the intention to enable the procurement of goods or services under the most favourable terms and conditions. The collusion in this precinct contradicts the purpose of tenders being floated.
The inquiry and powers of CCI
Section 19 of the Act gives powers to the CCI for conduction of inquiry in case of contraventions of Section 3.
Based on information received along with a fee
Upon reference made by the Central or State Government
Or even suo moto.
To determine alleged anti-competitive agreements, the CCI considers a wide array of factors enlisted under Section 19 of the Act. Upon concluding that there exists a prima facie case of bid-rigging, the Commission directs the Director-General to conduct an investigation and produce a report.
The CCI has similar powers as that of the Civil Court. The CCI may procure the attendance of persons, examine them under oath and need them to produce documents.
Under Section 27 of the Act upon the report received the Commission may:
Direct the parties to dissolve the agreement
Modify the existing agreement
Direct the parties to abide by orders of the CCI
Any other arrangement the CCI deems fit.
The CCI may, in certain cases, also impose a penalty on the enterprises involved in bid-rigging. The penalty is the higher of 10% of the annual turnover of the 3 preceding financial years or 10% of the turnover per year when in the continuance of such an agreement for each enterprise. Under Sec. 46 of the Act, the CCI may even reduce the penalty based on honest complete disclosure on the rigging.
In recent years, the CCI has played a proactive role in the identification and imposition of fines on the conspirators. In 2017, the CCI imposed a total penalty of nearly Rs. 206 Crore on 7 cement companies for rigging in a tender floated by Haryana Agency. In 2019, the CCI had imposed a total penalty of Rs. 2.7 Crore on three companies who colluded to rig the bid for a tender floated by the Pune Municipal Corporation. Again in 2019, the CCI imposed a total penalty of Rs. 39.74 Crore on 51 entities for rigging the tender floated by Hindustan Petroleum Company Limited. The tender was for the supply of cylinders to its bottling plants.
In India, public procurement accounts for 30% of the country’s GDP. This provides a large market for enterprises and encourages competitive strategies. The presence of rigging in the market would adversely affect competition. It leads to low-quality goods, swindling of competitors, and deceiving consumers. Public procurement has a direct impact on society. Generally, the nation’s infrastructure develops using the bidding process. Rigging is construed as theft or fraud against organizations and even the nation.
The CCI is playing a proactive role in the maintenance of a fair market. Detection of anti-competitive agreements requires a thorough investigation and analysis. This is an analysis of circumstances as well as facts. The Act lists but a few factors which are examined by the Commission. The purchasers offering the tender, for fair competition, should study the prospective applicants and their dossier to reach a cogent competitive scenario. Any anomaly which follows should not be left unanswered.
The author is a B.E (Mechanical Engineering) Graduate and a 2nd year LLB (with honours in Intellectual Property) student at the Indian Institute of Technology, Kharagpur.