Bid Rigging or Collusive Rigging in Competition Law

The competition, in general, is simply the ‘right to win’. One can use fair or unfair means to sustain competition.

Competition in the market is the economic rivalry between the market players to attract customers. For example, different mobile brands availing different means such as innovation, quality improvisation to attract customers and to sustain competition. Whereas, market players can also use an unfair means such as predatory pricing, restricting suppliers and abuse of dominant position to sustain competition.

Hence, the Competition Act was enacted to avoid unfair means and to promote fair means to sustain competition in the market and to protect the interests of consumers. The Competition Law prevents practices having an appreciable adverse effect on the competition in the market.

Anti-competitive Agreements

Section 3 of the Competition Act, 2002 provides that any agreement which causes or likely to cause an appreciable adverse effect on competition is prohibited and void.

The anti-competitive agreement is of two types - Horizontal agreement and Vertical agreement.

Under Section 3(3) the horizontal agreement means an agreement between enterprises each of which operates at the same level in the production or distribution chain, for example, manufacturer A to manufacturer B or wholesaler A to wholesaler B. Whereas, the vertical agreement under Section 3 (4) means an agreement between enterprises or persons at different level of production chain in different markets for e.g. manufacturer  to a retailer.

What is Bid-Rigging

Bid-rigging or collusive rigging is one of the horizontal agreements, it is an illegal practice, occurs when two or more competitors or bidders collude and act in concert to keep the bid amount at the pre-determined level and agrees that in reality, they will not compete with each other for a particular tender.

Forms of Bid- Rigging

It may involve many techniques, for example:

Cover bid or complementary bidding: Parties agreeing to submit cover bids i.e. high bids that are intended not to be successful where the unsuccessful bidders may get kickbacks.

Bid Suppression- Where the parties agree that only one of them will submit a bid to win contracts.

Bid rotation - Where the parties to the agreement agree to take turns to win contracts.

Subcontracting- Where one party refrains from bidding or submit a losing bid frequently receives a lucrative subcontract from the successful bidder.

More than one of these bid-rigging practices can occur at the same time.

Behavior Patterns of Bid Rigging:

As bid rigging is hard to detect, any unusual bidding made in collusion or in concert can lead to suspicion of bid-rigging. Certain patterns can give rise to suspicion of collusion which is as follows:

  • The bid offered by different bidders contains the same errors or grammatical mistakes or calculation errors which indicate that the same bidder has prepared all the other bids.
  • The bid contains similar corrections or alterations.
  • The bidder submits his bid and also the bid of other competitors.
  • A party brings multiple bids to a bid opening and submits its bid to other bidders who are bidding.
  • A bidder makes a statement that the prices were discussed by the other bidders and reached an understanding, or the bid is a cover bid or a complementary bid or having advance knowledge of the offer of the other competitors.

Inquiry into bid-rigging:

Whenever a prima facie case of bid-rigging arises, the Competition Commission of India directs the Director-General to call for an investigation and provide the report. The commission has the power vested in the civil court under the Code of Civil Procedure in respect of matters like summoning, appearance in the court, production of documents and evidence.

Powers of the commission:

Under Section 27 of the Act, the commission can pass any orders after the inquiry as stated below:

  • The commission directs the party not to enter into such agreements that are anti-competitive or cause appreciable adverse effect to the competition.
  • The commission directs the enterprises to manipulate or modify the agreement or comply with the orders passed or abide by the directions issued.
  • The commission can pass such orders or issue any directions as it may deem fit.

Penalties:

The competition commission of India (“CCI”) not only investigates the breach of competition law in India but also imposes penalties upon infringement of the provisions of the Act.

CCI may impose penalties such as 10% (ten percent) of the average turnover for the three consecutive financial years on each of such persons or enterprises which are the parties to bid-rigging or collusive rigging.

In case of cartelization, CCI imposes a penalty of up to three times the profits or up to 10% of turnover, whichever is higher, on each member of a cartel.

‘Cartel’, as defined in the Competition Law, means any group or association of traders, sellers, distributors, producers or service providers who come under an agreement by themselves to control or limit the production, distribution or sale or price of or trade in goods and provision of services.

Non- compliance of any order or directions issued by CCI or where a person fails to pay the fine imposed by CCI within the stipulated time can lead to an imprisonment of three years.

Appeals:

The appeal can be filed within 60 days of the receipt of the order, direction or decision of the Competition Commission of India before the Competition Appellate Tribunal (COMPAT) established under Section 53A of the Act to hear and dispose of appeals against any direction, order or decision made by CCI.

The Competition Act, 2002 was introduced and promulgated to put an end to monopolistic trade practices. The Act has succeeded in achieving its preamble to some extent, nevertheless, a more rigid law and implementation of its provisions is the need of the day.

By: Navin Kumar Jaggi & Monika Verma

 

Navin Kumar Jaggi 
on 09 October 2019
Published in Others
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