By: Arryan Mohanty
Published on: March 16, 2022 at 10:04 IST
Introduction
When Bids are led to reach an agreement with a firm, the bidders demonstrate coordination, which has negative effects for the offering measure as well as the free and fair market competition, which is why Bid Rigging is deemed illegal.
There are various sorts of bid-fixing, but the most commonly seen variety is when the outcome of a bid is already decided by market participants.
The several sorts of bid gear can be shown, such as bidders agreeing not to engage in an offering round, or to make inadequate offers, or to take low turns, and so on.
Subcontracting the main Bidding Contract to a Company that has agreed to lose the bid, or when two or more competitors join forces to make a single bid, are examples of Bid Rigging.
The next step is bid suppression, in which enterprises that have previously participated in the bid or are expected to participate in the bid reach an agreement under which they withdraw a previously submitted bid or refrain from participating in the bid so that the bid of the already determined winner can be accepted.
Corresponding offering, also known as graciousness offering or cover offering, is another sort of bid rigging.
This occurs when the bidder’s bids contain some arrangement or other stipulation that isn’t acceptable to the buyer or is too expensive to be accepted.
Such offers are designed to provide the impression of a genuine bid and are not made with the intention of gaining the buyers’ acceptance.
This is the form of bid rigging that occurs frequently, and it is intended to deceive customers by implying that there is certified competition on the horizon.
Bid rigging is a violation of antitrust rules, and such occurrences are common in horizontal agreements. Bid rigging necessitates market firms bidding competitively on business contracts.
Bid rigging is a highly prevalent occurrence in the education and government sectors, as agencies are expected to accept the lowest bid.
Bid rigging is difficult to detect, similar to price fixing, and it occurs frequently in the market. The only indication that bid rigging has occurred is when there is an inaccuracy in the bid.
The Sherman Antitrust Act of 1890 made bid rigging illegal in the United States. Bid rigging is a crime that can result in jail, a fine, or both.
This is detrimental not only to consumers, but also to taxpayers, who are forced to endure the costs of procurement and increased pricing.
The Competition Commission of India is working on a number of requests that are in opposition to the arrangement that allows for bid manipulation.
It is engaged to offer bearings to the Director-General to investigate the subject and deliver the report when an at first sight instance of bid gear can be made according to the Commission’s general inclination.
The Commission is given powers that are comparable to those of a civil court as defined by the Civil Procedure Code.
Receiving evidence by affidavit, producing and requiring documents under oath, imposing or summoning attendance of any person under oath, and so on are some of the authorities that can be enumerated.
Also read: The Competition Act, 2002
Section 27 of the Competition Act of 2002 gives the Commission the authority to issue orders.
It may give headings to the gatherings to end the current understanding or never return to any such arrangement, or it may give bearings to make adjustments to the arrangements, or it may give bearings to the concerned endeavours to follow all of the Commission’s orders or stand all of the headings passed by it, alongside the instalment of expenses.
In addition, the Commission is tasked with passing any other requests that may be required by the circumstances. The Commission also has the power to penalize those who are found guilty.
On that load of ventures or the people who are related to such bid rigging offences, the measure of punishment can go up to 10% of the typical turnover of the organization during the last three financial years.
There may be other circumstances where ventures have committed such offences with the assistance of cartels, in which case the Commission has the authority to impose a penalty of multiple times the benefit for the load of years during which the agreement was carried out, or 10% of the turnover for the load of years during which the agreement was carried out, whichever is higher, on each of the people who are gatherings to the agreement.
This indicates that the Commission’s punishments can be severe, resulting in large monetary losses for the wrongdoers.
However, if a company makes a full, honest, and important disclosure that allows cartels to be busted, the Commission has the authority to show mercy to such businesses and decrease their punishment.
The Commission may choose not to demonstrate any leniency if it is discovered that the party made partial disclosure or provided incorrect evidence, or if the disclosure is not crucial in nature.
Meaning of Bid-Rigging
Bid rigging is an illegal conduct in which two or more competing parties work together to decide the winner of a bidding procedure.
When bidders cooperate, it undermines the bidding process and can result in a rigged price that is greater than what would have occurred from a free market, competitive bidding process.
Consumers and taxpayers may be harmed by bid rigging because they may be compelled to pay higher pricing and procurement costs.
In an industry where company contracts are awarded through the solicitation of competitive bids, bid rigging can occur.
As a result, bid-rigging can occur in vehicle and home auctions, construction projects, and government procurement contracts.
Although bid-rigging can take many different forms, one of the most typical kinds is when corporations pick who will win a bidding process ahead of time.
Companies may take turns submitting the lowest price, a corporation may decide to forego bidding altogether, or companies may purposefully make uncompetitive bids in order to manipulate the process and ensure that the preset bidder wins.
Hiring a competitive company as a subcontractor to disrupt the bidding process is another form of bid rigging.
A company may also choose to form a joint venture with a competitor, but only for the purpose of making a single proposal, with no intention of collaborating with the other company to save money by pooling resources or expertise.
Bid rigging can be classified in a few different ways:
- Bid rotation: Bid rotation is a type of Market allocation in which competing enterprises alternate being the winning bidder.
- Bid suppression: Bid suppression happens when one (or more) bidders refuse to participate in a bidding procedure so that another party is certain to win.
- Complementary bidding: Complementary bidding occurs when corporations purposefully submit uncompetitive bids in order to ensure that their proposal is not chosen and that another preselected bidder is. This is also known as cover bidding or courtesy bidding.
- Phantom bidding: In auctions, phantom bidding is used to persuade actual bidders to bid higher than they would usually.
- Buyback: Buyback is a deceptive method employed in no-reserve auctions in which the auction item is purchased by the seller to prevent it from selling at a low price.
How Competition Commission of India deals with Bid-Rigging?
Bid Rigging is defined as 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, that has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding, according to the explanation to sub-section (3) of Section 3 of the Competition Act, 2002 (herein known as the ‘Act’).
Bid rigging or collusive bidding can take several forms. An agreement to submit identical bids is one of the most regularly used methods.
The following are some of the most widely used methods:
- Agreement to submit proposals that are identical
- Agreement stating who will submit the lowest offer, a contract stating who will submit cover bids (voluntarily inflated bids)
- Agreement not to compete with each other in bidding,
- Agreement establishing similar standards for calculating bid pricing or terms
- Agreement to keep outside bidders at bay
- Agreement as to the bids which any of the parties may give at an auction for the sale of goods, or any agreement by which any party agrees to abstain from bidding for any auction for the sale of goods, which eliminates or distorts competition
A Compensation Scheme for unsuccessful bids is included in some of these agreements, which divides a specific amount of the income of successful bidders.
If bid manipulation occurs in government tenders, it is likely to have a significant negative impact on government procurement and spending.
Bid rigging, also known as collusive bidding, is punishable under the law. Because of the harsh punishment, the presumption method is used.
Inquiry
The Commission may investigate any alleged violation of Section 3(3) of the Act, which prohibits bid rigging, in the exercise of powers granted by Section 19 of the Act.
If the Commission determines that there is a prima facie case of bid rigging, the Director General is directed to conduct an inquiry and provide a report.
The Commission has the same powers as a Civil Court under the Code of Civil Procedure in subjects such as calling or compel presence of any person and interrogating him under oath, demanding discovery and production of documents, and receiving affidavit testimony. In addition to the right to conduct ‘search and seizure,’ the Director General has civil court powers for the purpose of conducting investigations.
Also read: What is Competition Commission of India?
Powers of the CCI
Following the investigation, the Commission may issue any or all of the following directions under section 27 of the Act:
- Instruct the Parties to terminate the agreement and not to re-enter it.
- Direct the firm to Alter the agreement.
- Direct the Enterprises in question to abide by any additional orders the Commission may issue and to follow the directions, including paying any expenses that may be incurred
- Pass any other orders or issue any directions it deems appropriate.
Penalty
The Commission has the authority to impose any Penalty it sees fit. Bid-Rigging or Collusive Bidding can result in a Penalty of up to ten percent of the average turnover for the previous three financial years for each individual or Company involved.
If a cartel enters into the bid-rigging or collusive bidding agreement referred to in sub-section (3) of section 3, the Commission may impose a penalty on each Producer, Seller, Distributor, Trader, or Service Provider included in that cartel of up to 3 times its profit for each year of the agreement’s continuation, or 10% of its turnover for each year of the agreement’s continuation, whichever is higher.
As a result, the penalty might be harsh, resulting in significant financial and other costs for the wrongdoer.
Section 46 of the Act allows the Commission to impose a lower penalty on a cartel party who makes true, full, and crucial disclosure that leads to the cartel’s busting.
However, if it is discovered during the investigation that the party has not cooperated with the condition that a lighter punishment was imposed, that disclosure is not necessary, or that false evidence has been provided, the party may not be granted leniency.
Interim Order
During the pendency of an inquiry into bid rigging, the Commission may, without giving notice to the offending party, provisionally stop any party from carrying on the offending act until the conclusion of the inquiry or until further orders, if it thinks it necessary.
Appeal against the Order
The Competition Appellate Tribunal (COMPAT) was created under Section 53A of the Act to hear and decide appeals against any direction, decision, or order issued by the Commission under certain parts of the Act.
An appeal must be submitted within 60 days of receiving the Commission’s order, instruction, or determination.
Landmarks Cases related to Bid-Rigging in India
Excel Crop Care Ltd v. Competition Commission of India and Anr
In this case, The CCI opened an investigation after receiving a Letter/Complaint from the FCI Chairman.
The four APT manufacturers were accused of forming an Anti-Competitive Pact amongst themselves. It was claimed that they had been quoting the same charges for the past eight years.
The Commission recognized a prima facie case and ordered an inquiry by the DG, who concluded that monopolistic behaviour was present.
They were found guilty of anti-competitive behaviour by the CCI and COMPAT. The case was appealed to the Supreme Court.
The Supreme Court found that the Appellants’ argument that parallel pricing in an Oligopoly market does not constitute a breach of the Competition Act does not hold water, because there are multiple instances of identically priced bids being submitted, despite each bidder’s varying cost of production.
The Supreme Court also called attention to the fact that all of the Opposing Parties withdrew their bids in 2011 in a coordinated manner.
The Supreme Court cited the case of CCI vs. Coordination Committee of West Bengal Cine Artists to rule that no formal proof of an anti-competitive agreement is required before action against the defaulting party can be initiated.
Lord Denning’s opinions in Registrar of Restrictive Trade Agreements vs WH Smith & Sons also mentioned:
“People who establish a Cartel do not shout from the rooftops.” In a cellar, they construct their own arrangements and go about their business silently. Even a wink or a nod will suffice.”
Western Coal Fields Ltd. v. SSV Coal Carriers Pvt Ltd.
Here, Coal India has a subsidiary company called Informant. It is a key coal supplier to businesses around the country. Its customers include a huge number of power plants.
In the transportation bids, OP’S, a group of coal carriers, were quoting identical quotes. In their actions, the DG discovered indications of cartelization.
The Commission concluded that stating the same price for different bids, even at varying production costs, is extremely questionable.
The Op’s stated that the prices they offered were bench marked against earlier prices, but there was no evidence to back this up.
There were also regular social gatherings and business dealings. According to Section 3 of the Competition Act of 2002, they were found guilty of collusive bidding.
Chief Material Manager, North Indian Railways v. Bic Auto Pvt Ltd.
Here, the informant claimed that the Opposing Parties were violating Section 3 of the Competition Act of 2002.
The Opposing Parties were accused of acting as a cartel and engaging in bid-rigging and collusive bidding.
The Opposing Parties’ strategy was to quote identical rates for the Railway Tenders that were presented to them. Despite geographical disparities, the rates were identical.
The Commission ordered the DG to investigate after forming a prima-facie opinion.
The DG’s investigation revealed that OP’S officials were coordinating with one another to rig the bids.
They would decide on the numbers to be distributed ahead of time, and if a bidder was given less than the pre-determined amount, they would be given a larger portion in the following round of bidding.
The OP’S referenced the instance of Rajasthan Cylinders to claim that they had effectively rebutted the presumption of Adverse Effect of Competition inferred automatically under Section 3 of the Act, but the Commission disagreed, stating that no evidence of rebuttal had been shown.
The OPS were found to have violated Section 3 of the Act.
The decision goes into the numerous ways that bids can be manipulated. It can be shown that parties quoting identical pricing for the same set of duties, even when the cost required to complete these jobs may differ for the Opposite Parties owing to their size, is seen by the regulator as anti-competitive behaviour and will be investigated. It’s also worth noting that, because these operations are carried out secretly and quietly, the standard of proof in these circumstances is Preponderance of possibilities. It’s also worth noting that once such an agreement is considered to exist, it’s assumed that it will have a Appreciable unfavorable effect on competition.
Rajasthan Cylinders and Containers Ltd. v. Union of India
In this case, the appellants manufacture LPG cylinders, which are largely sold to four government-owned companies.
According to the Informant, despite considerable variances in cost of production, location, and input costs, all 50 bidders for the LPG cylinders submitted identical or almost similar bids.
They were also said to have an active association, with all of their representatives meeting in Mumbai immediately before the bidding
. They were found guilty by CCI and COMPAT of entering into an agreement to engage in bid-rigging, which is illegal under Section 3 of the Act. The case was taken to the Supreme Court.
The Supreme Court, relying on the Excel Corp decision, agreed with the CCI’s contentions that direct evidence in cartel proceedings may or may not be admissible.
When it comes to demonstrating misconduct in cartel cases, the burden of proof is still preponderance of possibilities.
The Appellants’ actions in meeting shortly before the bid and quoting nearly identical prices was the natural outcome of a monopolist market, according to the Apex Court, and the burden of proof that had been placed on them had been successfully rebutted by them, as quoting identical prices in a monopolist market is a natural outcome.
Conclusion
Bid rigging is bad for the Country’s Competitive environment since it might lead to deceptive price increases.
In India, the majority of bids are solicited from the General Public, and bid manipulation can result in the loss of public funds.
Bid rigging can also result in significant projects being awarded to inexperienced parties, which can have disastrous results.
The above-mentioned case-laws demonstrate that the Commission has taken an active role in pursuing bid-rigging cartels.
In these digital times, it is critical that the Commission’s investigative powers be strengthened and that the Commission’s powers to examine bid-rigging in many areas of the economy be expanded.
Also read:
What is Competition Commission of India?
The Competition Appellate Tribunal
Edited By: Advocate Komal Sharma, Publishing Editor at Law Insider
References
Everything you need to know about bid rigging
Provisions Related to Bid Rigging
Excel Crop Care Ltd v. Competition Commission of India and Anr., AIR 2017 SC 2734
Western Coal Fields Ltd. v. SSV Coal Carriers Pvt Ltd., Case No. 34 of 2015
Chief Material Manager, North Indian Railways v. Bic Auto Pvt Ltd., Reference Case No. 03 of 2016
Rajasthan Cylinders and Containers Ltd. v. Union of India ,2018 SCC OnLine SC 1718.