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INDIAN RAILWAYS: A NICHE FOR BID-RIGGING

INTRODUCTION

The Indian Railways continue to be a major driver in the Indian economy, but the practice of bid rigging has plagued it. Bid rigging happens when bidders collude to reduce competition in the bidding process, depriving the consumers of a fair price. Indian Railway attempts to handle bid rigging by keeping an eagle’s eye on any questionable bids, procedures, or behaviors of its service suppliers via its security and monitoring approach. This article briefly deals with the existing laws relating to bid rigging, followed by which essentials of bid rigging are discussed. Further, it briefly analyzes the recent case of Cartelisation in the Supply of Protective Tubes to Indian Railways vs. Polyset Plastics Private Ltd. and Ors[1] and concludes with suggestions to remove flaws in the existing system and to promote a healthy competitive environment in the railway bidding process.  

EXISTING LAWS IN INDIA

Section 3 of the Competition Act, 2002[2] seeks to make anti-competitive agreements void. Section 3(3)[3] specifically addresses and prohibits bid rigging. Further, under this Act, the Competition Commission of India (Hereinafter referred to CCI) has the authority to inquire into the cases of anti-competitive agreements and cartels either on its own motion, i.e., by taking Suo Moto cognizance, or upon receipt of information made to it by the state or the central government. If the CCI finds that there is a prima facie case, it will tell the Director General (Hereinafter referred to DG) to look into it and give a report. Many measures of the Public Procurement Bill, of 2012 are specifically intended to address the anti-competitive concerns faced in the procurement process. By addressing structural and behavioral concerns in the procurement process, the long title of the Public Procurement Bill, 2012 and the Preamble of the Competition Act, 2002 complement and contribute to each other to maximize competition in public procurement.

THE ESSENTIALS OF BID RIGGING

After perusing Section 3[4], it is found that the following are the essentials of bid-rigging:-

  • Bid-rigging parties should be “enterprises”[5].
  • Section 2 (b)[6] requires an agreement between companies trading the same or identical products or services, directly or indirectly.
  • Such an agreement should be anti-competitive, i.e., it should prohibit new entities from entering the bidding process.
  • Such an agreement causes appreciable adverse effects or is likely to cause appreciable adverse effects[7].

If all the foregoing elements are met, such enterprises are liable to bid rigging. Section 27[8] provides remedies for bid-rigging.

A BRIEF SUMMARY OF THE RECENT CASE

Recently, in the case of Cartelisation In The Supply Of Protective Tubes To Indian Railways Vs. Polyset Plastics Private Ltd. And Ors[9], the CCI took suo moto proceedings against seven entities who were involved in an anti-competitive agreement by forming a cartel. The CCI also directed the DG to make an investigation report on the same. The reports submitted by the DG showed that the seven entities came under the definition of Section 2(h)[10] and they coordinated and colluded and engaged in bid rigging against protective tube tenders issued by the Indian Railways for procurement of protective tubes by quoting mutually agreed prices and allocating tenders amongst themselves. The DG found that the entities were conversing with each other through email about what prices to put in the tenders, how many tenders to put out, and how to share the tenders among themselves; how to get other businesses to pull their bids from the tenders, and how to manipulate the bidding process by forming a pool or cartel of vendors, even if they were new to the market. Some of the arguments taken by the entities involved were that they were ignorant of the existing laws; that they were already suffering heavy losses due to COVID-19; and also, since heavy penalties were already being imposed on the entities, in other cases, further penalties must not be imposed on them; that since Indian Railway is a monopsony, there is no way the entities can control the market, etc. The CCI, after hearing the parties and examining the evidence, concluded that the entities were engaged in bid rigging by forming a cartel through an anti-competitive agreement. This had an appreciable adverse effect on the market. Also, the entities failed to show that positive effects were emanating from cartel activity. Thus, CCI found them in contravention of the provisions of Section 3[11] and subsequently imposed a penalty.

AN ANALYSIS OF THE CASE

An interesting fact in the above case is that one of the entities was a Lesser Penalty Applicant and it gave substantial evidence and information to the CCI regarding the formation of the cartel. Thus, the applicant was given a 100% reduction in the penalty imposed. Although the authors acknowledge the fact that such informers are essential to identify anti-competitive practices since it is very difficult to prove the same, a 100% reduction of the penalty would encourage other entities to continue such practices and would not have a deterrent effect. Another point that deserves criticism could be that the CCI showed certain leniency while imposing penalties on the ground that heavy penalties were already imposed on the entities. But such leniency shouldn’t have been shown to stop any other enterprise from doing the same in the future. Also, this is not the first time that bid rigging has occurred. It has long been pervasive, as evidenced by the overwhelming number of bid rigging cases concerning railway procurement. In the previous years, state authorities and public-sector agencies have proactively brought incidents of bid rigging to the CCI. One such instance is Chief Materials Manager, South Eastern Railway v. Hindustan Composites Ltd.,[12] wherein tenders were issued for the delivery of composite brake blocks in several railway zones. Despite regional disparities, it was claimed that bidders in the South Eastern Railway tenders stated similar bids and offered equal estimates in quoted prices. While referencing the parties and their anti-competitive behaviour, the CCI recognized their collaboration and directed the parties to stop and abstain from anti-competitive conduct without imposing any penalty fee. Another case to mention is Shri B P Khare, Principal Chief Engineer, South Eastern Railway, Kolkata v Orissa Concrete and Allied Industries Ltd and Ors [13]wherein the Railway published tenders for Anti-Theft Elastic Rail Clips. In this case, things like the same handwriting on tender documents, the division of quantities, past behaviour, and so on showed that parties had price-control arrangements, which is against the Section 3(3)(d)[14] and Section 3(1)[15]. So, the CCI concluded that the parties’ actions constituted bid rigging.

CONCLUSION

From the preceding discussion about bid rigging in Indian railways, with particular reference to the recent case, the authors concluded that, even though there are several guidelines linked to bid rigging, there is a lack of a specific comprehensive public procurement law which could curb bid rigging. As a consequence, seemingly constant anti-competitive activities prevail in public procurement, particularly in the Indian Railways. As a corollary, the authors make the following recommendations:

  • The fundamental issue is that India has no specific public procurement law. The public procurement bill is still a bill and not a law. As a result, there is an urgent need to adopt legislation on the subject.
  • Also, the tender process should be set up so that bidders can’t contact each other or can only contact each other at a certain level.
  • There seems to be a need to increase openness in the procurement process by notifying losing bidders about the shortfalls in their offers that caused them to lose the bid as well as the specifics of the winning bids.
  • Furthermore, in any situation in which there is even the faintest possibility of bid rigging, the public procurers must take necessary measures against such bidders.
  • While deciding cases, the CCI should be less lenient and should make sure of the fact that its decisions have a deterrent effect on the future bidders so that competition in the market can be protected and consumer welfare can be ensured.

Authors Name: Medha R Lakshmi & Vanshika Singh Jaiswal (National Law institute University, Bhopal)

References:

[1] Cartelisation in the Supply of Protective Tubes to Indian Railways Vs. Polyset Plastics Private Ltd. and Ors, 2022, MANU/CO/0039/2022

[2]The Competition Act, 2002, Section 3.

[3] The Competition Act, 2002, Section 3(3).

[4] The Competition Act, 2002, s 3

[5] The  Competition Act, 2002, s 2(h).

[6] The Competition Act, 2002, s 2 (b)

[7] The  Competition Act, 2002, s 19.

[8] The Competition Act, 2002, s 27

[9] Cartelisation in the Supply of Protective Tubes to Indian Railways (n 1)

[10]The Competition Act, 2002, s 2(h)

[11] The Competition Act, 2002, s 3

[12]  Chief Materials Manager, South Eastern Railway v. Hindustan Composites Ltd. 2020,  MANU/CO/0024

[13] Shri B P Khare, Principal Chief Engineer, South Eastern Railway, Kolkata v Orissa Concrete and Allied Industries Ltd and Ors 2013, MANU/CO/0017

[14] The Competition Act, 2002, s 3(3)(d)

[15] The Competition Act, 2002, s 3 (1)