Article by MM Sharma, Head Competition Law &
Policy Practice, Vaish Associates, Advocates, New Delhi,
By an order dated July 10 20151 the Competition
Commission penalised four public sector insurers (ie, National
Insurance Co Ltd, New India Assurance Co Ltd, Oriental Insurance Co
Ltd and United India Insurance Co Ltd) for participating in a
cartel and bid rigging tenders held by the Kerala government. They
were fined Rs1.6 billion, Rs2.5 billion, Rs1 billion, and Rs1.6
billion respectively, representing 2% of their average turnover for
the previous three financial years. This is the second time that
the commission has penalised public sector
The commission initiated an investigation following an anonymous
tip regarding the insurers' alleged contravention of Section 3
of the Competition Act. It was alleged that the insurers had rigged
the tender held by the Kerala government on November 18 2009 to
choose an insurance service provider for the implementation of the
National Health Insurance Programme (Rashtriya Swasthya Bima Yojna)
for 2010 to 2011. It was further alleged that the insurers had
formed a cartel and quoted higher premium rates. A copy of the
minutes from the Inter Company Coordination Committee's (ICCC)
December 7 2009 meeting – which the insurers attended in
Kochi – was also included in the information. The companies
had allegedly agreed on a business-sharing model.
The commission formed a prima facie opinion and
referred the matter to the director general of competition for
further investigation and analysis.
Director general investigation
The director general noted that the insurers had colluded and
manipulated the tender process for the implementation of the
insurance programme. The ICCC meeting minutes showed that that the
insurers had met on December 7 2009 (ie, one day before they
submitted their bids) and agreed on their respective positions in
the tender. The director general thus concluded that there was a
clear bidding pattern and that the insurers had colluded to
increase insurance premiums steadily by quoting higher premiums.
Further, the insurers had not only formed a cartel and quoted
higher insurance premium bids in response to the tenders for 2010
to 2011, 2011 to 2012 and 2012 to 2013, but also forced the Kerala
government to hold new tenders every year, despite the fact that
the tenders were held for three-year periods. Thus, the director
general held that the insurers' conduct contravened Section
3(3)(a) and Section 3(3)(d) of the Competition Act.
While penalising the insurers, the commission observed that even
though they were under the central government's supervision,
they had each made separate bids for the tenders. Further, they
admitted that all decisions in relation to their bids and
business-sharing arrangements were made at the company level,
without interference from the Ministry of Finance. As such, the
Ministry of Finance exercised no de facto or de
jure control over the insurers' decisions regarding the
submission of bids. Thus, it was apparent that the insurers had
participated in the impugned tenders independently of the Ministry
of Finance. As such, they could not be said to constitute a single
economic unit. Further, the ICCC meeting minutes, the financial
bids submitted by the insurers before the tender was finalised and
the business-sharing arrangement concluded after the tender was
finalised clearly and unequivocally established that the insurers
not only met one day before they submitted their bids, but also
entered into anti-competitive agreements in order to manipulate the
tender process. Thus, the commission observed that the
insurers' conduct resulted in the manipulation of the bidding
process in contravention of Section 3(1), read with Section 3(3)(d)
of the Competition Act. In addition to the imposition of fines, the
commission imposed cease and desist orders on the insurers.
This is the second time that the commission has penalised public
sector entities for bid rigging and cartelisation. The insurers
were collectively fined Rs6.7 billion for their conduct. This
severe fine was imposed in order to deter future infringements by
public sector entities.
(1) Suo moto case, February 2014.
(2) Cases 3, 11 and 59 of 2012.
Originally published by International Law Office.
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