Jurisdiction - India
Reports and Analysis
India – CCI’s Bid To Curb Bid-Rigging Cartels In India.

23 September, 2013

 

 

In 2004, the Ministry of Health and Family Welfare (‘Ministry’), Government of India invited bids for the supply of 8 million pieces of female contraceptives. In response, Hindustan Latex Limited (‘HLL’) and five competing private sector companies quoted the same price: INR$ 25 per piece. HLL offered to supply 0.7 million pieces (when it could produce 17.75 million pieces), and the others together bid for the remaining 7.3 million pieces. Despite what appeared to be fairly clear signs of a case of possible bid-rigging, in the absence of an effective competition law regime, the Ministry was limited to seeking an explanation from the contraceptive suppliers.


Public procurement accounts for nearly 12% of India’s gross domestic product, but is plagued by practices such as collusion and bid rigging. Since the introduction of the Act in 2009, it seemed only natural for CCI to focus its efforts on bid-rigging cartels in public procurement. Though the competition concerns arising from bid-rigging tend to be similar, regardless of the type of industry, anti-competitive practices that undermine the process of public procurement have a far more pernicious outcome on account of the huge amount of public expenditure and taxpayers’ money that is used to purchase goods and services. From cartridge explosives to medical equipment, CCI has cracked down on several cases of bid-rigging in quick succession. Only a month ago, CCI imposed a penalty of INR$ 62.5 million (approximately US$0.9 million) on 11 shoe manufacturers for engaging in collusive and restrictive bidding for a tender floated by a department of the Ministry of Commerce for the procurement of ankle boot soles.


Bid-rigging, prohibited under Section 3(3)(d) of the Act, typically involves competitors agreeing to artificially increase the price of goods and/or services offered in a bid to potential customers. Sometimes, bid-rigging occurs when two or more persons agree that, in a response to a call for bids or tenders, one or more of them will not submit a bid or withdraw their bids. However, given that cartel operators often work in secret, getting direct evidence of an agreement to manipulate bids can be difficult. Competition regulators often rely on circumstantial evidence to prove the existence of an agreement to rig bids. CCI follows a similar approach and in fact, in the recent cartel decision involving 11 shoe makers, acknowledged that when faced with limited explicit evidence of unlawful conduct, “it is often necessary to reconstitute certain details by deduction”.


In the case pertaining to bid-rigging by manufacturers of Aluminum Phosphide Tablet, all three companies participating in the tender process floated by the Food Corporation of India (‘FCI’) quoted an identical bid price. This was in spite of a marked difference in each company’s cost of production. The entries in the visitors’ register at the offices of FCI showed that all three participants entered the premises at the same time, with one signing in for the group. CCI inferred the bidders had the opportunity to discuss the prices, and when combined with the other factors listed above, was sufficient to prove the existence of an agreement to maintain prices at a certain level.


In another case, which concerned the supply and installation of medical equipment to Sports Injury Centre, Safdarjung Hospital, CCI identified a cartel on the basis of evidence from the bid documents themselves. Only three firms participated in the tender process and the contract was awarded to MDD Medical Systems Pvt. Ltd. (‘MDD’) as the lowest bidder. The initial estimated cost was INR$ 100 million (approximately US$1.5 million), but MDD was awarded the work for INR$ 160 million (approximately US$2.4 million). CCI discovered many common typographical errors in the separate bids submitted by PSE Installations Pvt. Ltd. (‘PSE’), MDD, and Medical Products Services (‘MPS’). The companies tried to explain the identical errors by claiming they all visited the same cyber café, and unsurprisingly, CCI did not accept this explanation. CCI also analysed the bidding patterns of these three companies and found that PSE won a contract for similar work at JPNA Hospital with MDD and MPS submitting complementary, i.e. higher bids. This indicated a typical case of rotating bids when all firms, except one, quote artificially inflated prices, and this process is repeated with different bidders winning each time. Under somewhat similar circumstances in the bid-rigging case filed by Coal India Limited (‘CIL’) against 10 explosives manufacturers, two manufacturers (Gulf Oil Corporation Limited and Blastec India Limited) wrote identical letters to CIL explaining their reasons for not taking part in the auction. To CCI, these were proof of a “meeting of minds”.


The bid-rigging cases so far have been relatively simple, with CCI having the advantage of seemingly conclusive circumstantial evidence. However, as the competition law regime in India matures, cartel participants will resort to more sophisticated means, and CCI will be required to employ other tactical methods of investigation and enforcement. Internationally, dawn raids are a popular method for cartel discovery and enforcement. Thus far, CCI has yet to employ its dawn raid powers, but with the enhanced powers of search and seizure that may be conferred on the Director General under the Competition (Amendment) Bill, 2012, dawn raids may become a popular tool for CCI.

 

While CCI has been pro-active in its enforcement endeavours with respect to bid-rigging in public procurement, the question remains whether it has been able to do so without breaching the parameters set out in the Act. Section 3(3)(d) of the Act permits prosecution of a bid-rigging cartel only if there exists an “agreement” amongst the competitors to eliminate or reduce competition for bids, or adversely affect or manipulate the bid-process. These are early days of competition law jurisprudence in India, and any interpretation of these provisions by CCI is likely to have a lasting impact on the future implementation and enforcement. In spite of the underlying public policy concerns, CCI as a neutral competition regulator must establish objective criteria to make out a case of bid-rigging. Moreover, given the number of bid-rigging complaints CCI has already received, it will be interesting to see how the more complex cases are eventually dealt with.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 

shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 

percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

Comments are closed.