2016 (12) TMI 1734 - AT - Indian Laws

Anti-Competitive act - Quantum of penalty - The Commission has calculated the penalty at the rate of 2% against the maximum of 10% on the average turnover of the Appellants for the years 2010-2011, 2011-2012 and 2012-2013 - Held that - The term turnover is interpreted for the purposes of Section 27(b) of the Act to mean value of goods and services which are made subject matter of investigation under Section 26 of the Act and hence liable for punishment under Section 27 of the Act - Penalty has to be calculated with reference to the gross premium received by UIICL as insurance provider under RSBY/CHIS scheme and penalty for each of the Appellants will be a proportion of their share in such premium. In determining the rate of penalty at 2%, the Commission has considered the peculiarities of the insurance sector and the importance of insurer solvency for the consumer, as a mitigating circumstance. Bid rigging in public procurement for a social welfare scheme was treated to be an aggravating circumstance. The aggravating circumstance identified by the Commission does not apply to the facts of this case. It cannot be denied, and the Commission had taken cognizance of the internal note of OICL(reproduced in paragraph 6.6 of this Order) indicating that the Appellants were aware of the likelihood of incurring losses and OICL actually refused to share business, but despite that, UIICL proceeded to bid for the tender. From such conduct, it is evident that the Appellants who were Public Sector Companies, in their zeal to participate in a Government sponsored Health Insurance Scheme benefiting the poor, ignored prudence and the restraints of the competition law. Such conduct cannot constitute an aggravating circumstance. However, the burden of penalty will ultimately be transferred to public, as the Appellants are owned by the Government - the penalty be restricted to 1% of the relevant turnover. Appeal allowed in part.

Issues Involved:
1. Whether the Appellants were a 'single economic entity'.
2. Whether the meeting of 7.12.2009 and the conduct of the Appellants evidenced bid rigging.
3. Whether the Appellants can escape the presumption of bid rigging having appreciable adverse effect on competition.
4. Whether the Investigation by the DG and the impugned Order of the Commission went beyond the period covered by the Order under Section 26(1) of the Act.
5. Whether the principles of natural justice were violated by non-signing of the order by the Chairman.
6. Whether the finding of the Commission of virtual fraud is valid.
7. Whether the penalty was leviable and if so, whether the quantum was to be calculated with reference to the total turnover or with reference to the turnover of the transactions relating to bid rigging.

Issue-wise Detailed Analysis:

1. Single Economic Entity:
The Appellants argued that they constituted a 'single economic entity' controlled by the Department of Financial Services (DFS), Government of India, and thus could not engage in anti-competitive agreements. They cited various provisions of the General Insurance Business (Nationalization) Act, 1972 (GIBNA), and instances of DFS's control over their operations. However, the Tribunal found that the Appellants, despite being wholly owned by the Government, operated independently and were expected to compete with each other. The statutory framework encouraged competition among them, and they were not considered a single economic entity under the Competition Act, 2002.

2. Evidence of Bid Rigging:
The Tribunal analyzed the meeting held on 7.12.2009, where it was decided that UIICL would be the lowest bidder ('L1') for the tender floated by the Government of Kerala. The Appellants' conduct in subsequent tenders showed a pattern of bid rigging. The Tribunal rejected the argument that the meeting was for co-insurance purposes, as the arrangement was not disclosed to the Government of Kerala, and separate bids were submitted by each Appellant, creating an illusion of competition.

3. Presumption of Adverse Effect on Competition:
The Tribunal held that bid rigging is a per se contravention of the Competition Act, and the presumption of appreciable adverse effect on competition is irrefutable. The Appellants failed to establish any joint venture or efficiency benefits that could rebut this presumption. The Tribunal upheld the Commission's conclusion that the Appellants' agreement had an appreciable adverse effect on competition.

4. Scope of Investigation:
The Appellants contended that the Director General (DG) exceeded the mandate by investigating tenders beyond the one dated 18.11.2009. However, the Tribunal noted that the anonymous letter triggering the investigation alleged cartelization and premium increases "every year." The Commission's order under Section 26(1) of the Act referred to rigging bids in tenders, justifying the investigation of tenders for the years 2010-11, 2011-12, and 2012-13.

5. Principles of Natural Justice:
The Appellants argued that the Chairman's participation in deliberations but not signing the final order violated natural justice principles. The Tribunal found no merit in this argument, as the Appellants failed to show any personal interest of the Chairman or how his presence influenced the decision. The impugned order was signed by the Members who heard the Appellants, ensuring fairness.

6. Finding of Virtual Fraud:
The Tribunal examined the Commission's finding of 'virtual fraud' due to UIICL's repeated exits from contracts and seeking higher premiums. It noted that UIICL's exits were due to genuine losses, acknowledged by the Government of Kerala, and there was no evidence of fraud. The Tribunal set aside the finding of 'virtual fraud.'

7. Penalty Imposition and Quantum:
The Appellants challenged the penalty on grounds of serving social needs and lack of malafide intent. The Tribunal upheld the imposition of penalty but found the quantum disproportionate. It reiterated that penalties should be based on the relevant turnover related to the contravention. The Tribunal reduced the penalty to 1% of the relevant turnover, considering the mitigating circumstances and the public ownership of the Appellants.

Conclusion:
The Tribunal partly allowed the appeals, modifying the impugned order by reducing the penalty to 1% of the relevant turnover, while upholding the findings of bid rigging and the contravention of the Competition Act by the Appellants.

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