ICFAI UNIVERSITY, DEHRADUN
ICFAI LAW SCHOOL
Final Draft
Subject: Competition Law
PROJECT REPORT
Bid Rigging
Submitted To:
Mr. Sourabh Siddharth
Assistant Professor (Law)
ICFAI Law School
Submitted By:
Abhinav Kumar Dewaliya
Enrollment no.- 17FLICDDN02003
Session – 2017-22
Year – 4th year
Course – BA.LLB(HONS.)
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Acknowledgements
I, Abhinav Kumar Dewaliya, take extreme pleasure in expressing my profound gratitude
towards my Competition Law teacher Mr. Sourabh Siddharth(Assistant Professor, Law)
for inspiring me and giving me the invaluable guidance and constant support throughout the
course of my project work. I have taken efforts in thus kind project. However, it would not
have been possible without the kind support of my teacher, friends, colleagues and many
more individual persons, writers, college staffs, librarians and other sources of e-resource. I
would like to sincere thanks to all of them.
I thank my parents for providing me everything whatever be required for the completion of
this project.
Finally, I would like to thanks all Kith & Kins who are a little bit part in helping me for this
kind project.
Abhinav Kumar Dewaliya
B.A. LL.B. (Hons.) - 7th Sem.
17FLICDDN02003
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Table of Content
S.NO. CONTENT PAGE NUMBER
01. Bid Rigging 04
02. The Competition Act, 2002 04
03. The Anti-Competitive Nature of Bid Rigging 04
04. Suspicious Behaviour Patterns In Bid-Rigging 06
05. Inquiry Into Bid Rigging 07
06. Powers of The Commission 07
06. Penalty 08
08. Interim order 08
09. Appeals 08
10. Re: Suo Moto Case Against LPG Cylinder Manufactures 09
11. Bibliography 12
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BID RIGGING
Competitive bidding is important for the contesting and winning of public contracts in order
to enable the procuring body to get it at the lowest best price. A large percentage of the
Indian GDP is devoted to the public spending on goods and services.
THE COMPETITION ACT, 2002
The Competition Act, 2002, (as amended), follows the philosophy of recent competition laws
and aims at fostering competition and at protecting Indian markets against anticompetitive
practices by enterprises. The Act prohibits anti-competitive agreements, abuse of dominant
position by enterprises, and regulates combinations (mergers, amalgamations and
acquisitions) with a view to make sure that there's no adverse effect on competition in India.
The Act prohibits any agreement which causes, or is probably going to cause, appreciable
adverse effect on competition in markets in India. Any such agreement is void.
An agreement may be horizontal i.e. between enterprises, persons, associations, etc. engaged
in identical or similar trade of products or provision of services, or it's going to be vertical i.e.
amongst enterprises or persons at different stages or levels of the assembly chain in several
markets.
Bid rigging or collusive bidding is one among the horizontal agreements that shall be
presumed to possess appreciable adverse effect on competition under Section 3 of the Act.
The explanation to sub-section (3) of Section 3, of the Act defines , “bid rigging” as “any
agreement, between enterprises or persons referred to in sub-section (3) engaged in identical
or similar production or trading of products or provision of services, which has the effect of
eliminating or reducing competition for bids or adversely affecting or manipulating the
method for bidding.”
THE ANTI-COMPETITIVE NATURE OF BID RIGGING
Bid rigging takes place when bidders collude and keep the bid amount at a pre-determined
level. Such pre-determination is by way of intentional manipulation by the members of the
bidding group. Bidders might be actual or potential ones, but they collude and act together .
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Bidding, as a practice, is meant to enable the procurement of products or services on the
foremost favourable terms and conditions. Invitation of bids is resorted to both by
government (and government entities) and private bodies (companies, corporations, etc.). But
the target of securing the foremost favourable prices and conditions could also be negated if
the potential bidders collude or act together . Such collusive bidding or bid rigging
contravenes the very purpose of inviting tenders and is inherently anti-competitive.
Collusive bidding or bid rigging may occur in various ways. Some of the most commonly
adopted ways are: an agreement to submit identical bids, an agreement as to who shall submit
the lowest bid, agreements for the submission of cover bids (voluntarily inflated bids), an
agreement not to bid against each other, an agreement on common norms to calculate prices
or terms of bids an agreement to squeeze out outside bidder, an agreements designating bid
winners in advance on a rotational basis, or on a geographical or customer allocation basis, an
agreement as to the bids which any of the parties may offer at an auction for the sale of
products or any agreement through which any party agrees to abstain from bidding for any
auction for the sale of goods, which eliminates or distorts competition. They affect the
tendering process and when the procuring body is denied the benefits of a healthy
competition, it can result in significant financial or even social harm. There are various forms
in which bid rigging can take place such as:
1. BID SUPRESSION
In the scheme of bid suppression, one or more competitors who otherwise would be expected
to bid, or who have previously bid, agree to refrain from bidding or withdraw a previously
submitted bid in order that the designated winning competitor’s bid are going to be accepted.
2. COMPLEMENTARY BIDDING
Complementary bidding (also referred to as ‘cover’ or ‘courtesy’ bidding) occurs when some
competitors comply with submit bids that are either too high to be accepted or contain special
terms that will not be acceptable to the buyer. Such bids aren't intended to secure the buyer’s
acceptance, but are merely designed to offer the looks of genuine competitive bidding.
Complementary bidding schemes are the foremost frequently occurring sorts of bid rigging,
and that they defraud purchasers by creating the looks of competition to hide secretly inflated
prices.
3. BID ROTATION
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In bid rotation schemes, all conspirators submit bids but alternate to be rock bottom bidder.
The terms of the rotation may vary; for instance , competitors may alternate on contracts
consistent with the dimensions of the contract, allocating equal amounts to every conspirator
or allocating volumes that correspond to the size of each conspirator. A strict bid rotation
pattern defies the law of chance and suggests that collusion is happening .
4. SUB-CONTRACTING
Subcontracting arrangements are often a part of a bid rigging scheme. Competitors, who
agree to not bid or to submit a losing bid, frequently receive subcontracts or supply contracts
in exchange from the successful bidder. In some schemes, a coffee bidder will comply with
withdraw its bid in favour of subsequent low bidder in exchange for a lucrative subcontract
that divides the illegally obtained higher price between them.
Almost all sorts of bid rigging schemes have one thing in common: an agreement among
some or all of the bidders, which predetermines the winning bidder and limits or eliminates
competition among the conspiring vendors.
Inherent in some of these agreements, is a compensation system to the unsuccessful bidders
by dividing a certain percentage of profits of successful bidders.
If bid rigging takes place in government tenders, it's likely to possess severe adverse effects
on its purchases and on public spending.
Bid rigging or collusive bidding is treated with severity within the law. The presumptive
approach reflects the severe treatment.
SUSPICIOUS BEHAVIOUR PATTERNS IN BID-RIGGING
Bid rigging can be difficult to detect. However, suspicions may be aroused by unusual
bidding or something a bidder says or does. An agreement (in collusion) not to respond to an
invitation to tender until after discussions with other persons invited to tender, is also a bid
rigging offence. Certain patterns in bids can give rise to suspicion of collusion. Situations of
suspicious behaviour include the subsequent (illustrative and not exhaustive):
1. The bid offers by different bidders contain same or similar errors and irregularities
(spelling, grammatical and calculation). This may indicate that the designated bid winner has
prepared all other bids (of the losers).
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2. Bid documents contain the same corrections and alterations indicating last minute changes.
3. A bidder seeks a bid package for himself/herself and also for the competitor.
4. A bidder submits his/her bid and also the competitor’s bid.
5. A party brings multiple bids to a bid opening and submits its bid after coming to know who
else is bidding.
6. A bidder makes a statement indicating advance knowledge of the offers of the competitors.
7. A bidder makes a press release that a bid may be a ‘complementary’, ‘token’ or ‘cover’
bid.
8. A bidder makes a statement that the bidders have discussed prices and reached an
understanding.
INQUIRY INTO BID-RIGGING
In exercise of powers vested under Section 19 of the Act, the Commission may inquire into
any alleged contravention under subsection (3) of Section 3 of the Act that proscribes bid
rigging.
The Commission, on being satisfied that there exists a clear case of bid rigging, shall direct
the director general to cause an investigation and furnish a report. The Commission has the
powers vested during a Civil Court under the Code of Civil Procedure in respect of matters
like summoning or enforcing attendance of a person and examining him on oath, requiring
discovery and production of documents and receiving evidence on affidavit. The director
general, for the aim of completing investigation, is additionally vested with powers of civil
court besides powers to conduct ‘search and seizure’.1
POWERS OF THE COMMISSION
After the inquiry, the Commission may pass inter- alia any or all of the subsequent orders
under section 27 of the Act:
1. direct the parties to discontinue and to not re-enter such agreement;
2. direct the enterprise concerned to switch the agreement.
1
https://guide.iacrc.org/case-example-of-collusive-bidding-by-contractors-2
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3. direct the enterprises concerned to abide by such other orders because the Commission
may pass and suits the directions, including payment of costs, if any; and
4. pass such other orders or issue such directions because it may deem fit.
PENALTY
The Commission may impose such penalty because it deems fit. The penalty are often up to
10% of the typical turnover for the last three preceding financial years upon each of such
persons or enterprises which are parties to bid-rigging or collusive bidding. In case the bid-
rigging or collusive bidding agreement mentioned in sub-section (3) of section 3 has been
entered into by a cartel, the Commission may impose upon each producer, seller, distributor,
trader or service provider included therein cartel, a penalty of up to three times of its profit
for every year of the continuance of such agreement or 10% of its turnover for every year of
the continuance of such agreement, whichever is higher. The penalty can therefore be severe,
and end in heavy financial and other cost on the erring party.
Section 46 of the Act empowers the Commission to impose lesser penalty upon a celebration
during a cartel if it makes true, full and vital disclosure resulting in busting of the cartel.
However, during the investigation if it's found that the party has not complied with the
condition on which lesser penalty was imposed or disclosure isn't vital or false evidence has
been furnished, the party may not receive the leniency.
INTERIM ORDER
Under section 33 of the Act, during the pendency of an inquiry into bid rigging, the
Commission may temporarily restrain any party from carrying on the offending act until
conclusion of the inquiry or until further orders, without giving notice to such party, where it
deems necessary.
APPEALS
The National Company Law Appellate Tribunal (NCLAT) is established under Section 53A
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.
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An appeal has got to be filed within 60 days of receipt of the order / direction / decision of the
Commission.2
Re: Suo moto case against LPG Cylinder Manufacturers3
There was a case of price fixing and bid-rigging present in this case, Indian Oil Corporation
had come out with the tender for the supply of 14,2 kg. gas cylinders. Nearly 50 persons
applied for the tenders and the DG found that at the time of submitting the tender documents
the application on their behalf was submitted by six agents of the different suppliers. These
agents were the agents of the cylinder manufacturers and the tender documents must have
been filled in by them after interacting among themselves as well as the principals. There are
only three buyers of 14.2 kg cylinders and they are IOC, BP and HP. Before the tenders were
opened all the members used to meet and discuss the details of the tenders submitted by them
and naturally the rates at which the tenders were given. Indian Oil in the tender documents
took upon itself the right of allotting cylinders to the bidder but the rates were normally
lowered by Indian Oil to a rate below the bid price. As each of the bidders did not have the
capacity to supply all the cylinders demanded by the Indian Oil, Indian Oil used to contact L2
and L3 bidders and asked them to supply gas cylinders at the rates fixed for the L1 bidder.
Investigations revealed that the rates increased from the financial year 2006-07 to 2010-11 by
an amount of 36%. Even between the years 2009-10 to 2010-11 there was an increase in the
rates
of supply. Incidentally it was discovered during the course of hearing that the rates at which
cylinders were supplied to Indian Oil were lower than the rates at which the cylinders were
supplied to HP and BP. Incidentally HP and BP handle the tenders through a process of E-
bidding. The DG also found that the cylinder manufacturers had an Association and further
that the manufacturers used to hold a meeting prior to the opening of the tender, in the view
of the D.G., holding of such a meeting amounted to an agreement in respect of fixing prices
or bid rigging.
It was argued during the course of hearing that only 19 persons had attended the meeting held
prior to the opening of the bid, whereas the tenderers were so in number. It was therefore
argued that all the persons could not be part of a consortium for bid rigging. The majority has
2
https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/Bid%20Rigging.pdf
3
(2012) CCI 11
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held that though the other persons who did not attend the dinner could not be meeting of
minds even though the persons did not attend the dinner. Thus, there appears to be a case of
price-fixing also.
Under section 3(3) of the Competition Act any agreement entered between
enterprises/association of enterprises or persons/association of persons or between any person
or enterprise is presumed to cause an appreciable adverse effect on competition provided
clauses (a), (b), (c), and (d) of the section are found to exist. The section also presumes and
brings into force a legal fiction according to which decision taken by an association of
enterprises/persons or a practice carried on by them is placed on par with agreement. The
section then brings in a rebuttable presumption according to which the infarction of law is
established. But if the parties discharge the onus cast on them by law that they are not
covered under the relevant section reads as follows:
Explanation- For the purposes of this sub-section, “bid rigging" means any agreement
between enterprises or persons referred to in sub-section (3) engaged in identical or similar
production or trading of goods or provision of services, which has the effect of eliminating or
reducing competition for bids or adversely affecting or manipulating the process for bidding
either competition has been eliminated or reduced.
A case is made out not only under section 3(3)(d) of the act but also under section (3) of the
act. This procedure of bidding is going on for the last many years and as this procurement
practice is followed every year it can also be regarded as a practice under the Competition
Act. If it is a practice, then also it is covered under Section 3(3) of the Act. In case of price
parallelism it is necessary to show plus factors. In this case, plus factors exist as the tenders
papers were submitted by a total number of six brokers. Further, meetings were held at the
time of the opening of the bids where prices and tender details were discussed. There was
therefore in existence an idea on the part of the bidders to defeat the whole process of bidding
by quoting the same rates. As far as practices concerned, if the Commission established that
there was a practice, then it is not necessary to establish that there was a concerted practice.
Under the American and European jurisdictions concerted practice can be regarded as an
anticompetitive behaviour if it creates an anticompetitive situation. But under the Indian
competition laws, is not necessary to establish concerted behaviour. The only issue to be seen
is whether it creates any appreciable adverse effect on competition in India. But under
Section 3(3) of the Act if practice and bid rigging are established, then the onus is on the
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opposite parties to establish that they have not indulged in such practice as bid rigging. If the
onus is not discharged then appreciable adverse effect on competition is established.
The next issue to be decided is as to whether the bidders had discharged the case, on the basis
of the material gathered there is material to hold that a practice was being followed by the
bidders every year. Further, no reason was given as to why identical prices were offered in
the bids. This is further compounded by the fact that the bidders held meetings before the
bids were opened where prices were discussed. This leads to the conclusion that an
agreement existed among the bidders. There is also material to hold that this practice was
carried out by the bidders at the time of every tender. The onus cast by law has not been
discharged by the cylinder manufacturers. As the onus has not been discharged, rebuttal does
not exist.
Therefore under the presumption in Section 3(3) of the Act, as price fixing and bid rigging
were established, it was presumed that there has been appreciable adverse effect on
competition.
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BIBLIOGRAPHY
1. https://www.cci.gov.in/sites/default/files/advocacy_booklet_document/Bid
%20Rigging.pdf
2. The Competition Commission of India (Procedure in regard to the Transaction of
Business relating to Combinations) Regulations, 2011
3. https://www.cci.gov.in/sites/default/files/SMC032011.pdf
4. The Competition Commission of India (Meeting for Transaction of Business)
Regulations, 2009; 4 (No. 3 of 2009)
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