TMI Blog2016 (12) TMI 1734X X X X Extracts X X X X X X X X Extracts X X X X ..... umstance 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. - Appeal Nos. 94, 95, 96 and 97/2015 - - - Dated:- 9-12-2016 - G.S. Singhvi, J. (Chairman), Rajeev Kher and Anita Kapur, Members For the Appellant: A.N. Haksar, Senior Advocate assisted by Udayan Jain and K.K. Sharma, Advocates For the Respondent : Rajshekhar Rao, Rishad A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of Kerala with endorsement to various authorities in Government of Kerala and Government of India as also to the Chairperson, Competition Commission of India. The relevant extract from the letter is as follows: Reg: Cartelization of public sector insurance companies in quoting RSBY Premium Please see the attached document. It is the clear proof of cheating by four Public Sector Insurance Companies. These Insurance Companies have formed a cartel and increased the premium for RSBY every year and thus cheating the Govt. of Kerala and BPL people also. This type of cartelization is violation of competition Act. Violation of any act is punishable offence under IPC. The officials who have signed the document presently working in key positions of various public sector insurance companies. If you verify the records you will find that the premium is shared with private companies also, that means the cartelization is not only with public sector insurance but also with private companies. As citizen of India I request your good self to intervene in the matter and appropriate decision may be taken to desist the companies from this type of cheating. Please not that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of United India Insurance Company Limited (UIICL) to build capacity, and co-share business in order to share risks. 5. The Commission considered the information and the response of the Appellants and took the view that the Appellants were independent enterprises under Section 2(h) of the Act. Commission noted that, the minutes of the ICCC meeting showed discussion regarding submission of quotations for the tender notice for RSBY and prima facie there appeared to be an agreement or arrangement between the OPs as bidders for rigging bid in tenders issued by Government of Kerala for RSBY Scheme in contravention of the provisions of Section 3(3) of the Act. The Commission, vide its Order dated February 12, 2014, under Section 26(1) of the Act, directed the Director General (DG) to investigate the matter for violation of the provisions of the Act and also to investigate the role of the persons who at the time of such contravention were in-charge of and responsible for the conduct of the business of the Appellant, if any company was found contravening the provisions of the Act. 6. We may note some admitted facts regarding the RSBY/(CHIS) scheme and the tenders issued by Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Institution would be allowed to retain the insurance premium flow-back that it obtained, at least for the first year, after which the matter would be reviewed; (ii) a system of bonus for the medical staff and other staff in each public institution, based on the magnitude of flow-back, was to be worked out which provided incentives to the individual members of the institution. RSBY CHIS were to be implemented in all the district of State and a separate agency namely Comprehensive Health Insurance Agency of Kerala (CHIAK) was created for implementation of the scheme. A high level Committee of various senior officers was constituted to evaluate the technical bids and to negotiate with the insurance companies. A High Powered Supervisory Council consisting of Ministers of Labour Excise, Health and Social Welfare and various senior officers of Government of Kerala was also constituted. 6.2 GOK, in July 2008 invited bids from Insurance companies licensed and registered with the Insurance Regulatory and Development Authority (IRDA) and agencies enabled by any Central legislation to undertake health insurance related activities. The tender was awarded to UIICL and an Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rks or above, UIICL and NIACL were declared technically qualified. Since the bids at ₹ 825(with ST) and 827(with ST) were considered high, the matter was referred to the High Powered Supervisory Council (HPSC) which directed that the matter be discussed with UIICL because, though there was no scope for negotiation with reference to premium, there was room for discussion on the additional benefits which could be extended to the beneficiaries. UIICL agreed to offer certain additional benefits with maximum amount limited to ₹ 15 per enrolled family. HPSC decided that the scheme had to be continued and there was no alternative but to approve the premium which was based on the tender process. However, considering the high financial implication it directed that the matter be placed before the Council of Ministers for approval. Government sanction was granted vide Order dated 3.1.2011 for accepting the bid of UIICL for 3 years with effect from 2011-2012. In March, 2011 an interim Agreement was signed between CHIAK and UIICL providing adjustment of the premium on the basis of claims experience. While final Agreement was yet to be signed, UIICL in its Office Note dated 1.12.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from participating and informed the same to UIICL. After the fresh tender was published, UIIC called for a meeting of all the four PSUs and discussed the reason for the past loss makings. We participated in the meeting without any commitment to share the premium. From our experience, we feel that whatever be the rate charged the scheme will run into losses in view of the increased awareness of the scheme among the public. Loss control measures like surprise checks, hospital visit etc. undertaken by UIIC for the past three years have not yielded any result. In view of the above we may not participate in the tender either as a sole insurer or a co-insurer. (emphasis supplied) 6.7 However, all the Appellants bid in response to the tender. UIICL was the lowest bidder at ₹ 1274 which it agreed to reduce to ₹ 1100 and GOK accorded sanction to accept UIICL as the insurance provider for 2012-2013. At the request of UIICL that incentive to hospital staff be discontinued to eliminate wrong practices, GOK also ordered that incentive share of RSBY fund, received by the hospital from the Insurance provider, would be limited to 5% as demanded by UIICL and 95% be kep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el but at the Head Office level with proper planning and understanding and the Head Offices, which approved the financial bids, were fully aware of the cartel. 7. The complainant had alleged that the private insurance companies were also involved in the cartel, but no evidence for that could be found during investigation. 8. For the year 2013-14, CHIAK managed the tender process in a very transparent and competitive way leading to selection of Reliance General Insurance Co. Ltd. at a quote of ₹ 738/- for three years 2013-2016. This quote was much below the price quoted by the UIICL in the previous year 2012-13 i.e ₹ 1274 (subsequently reduced to ₹ 1100 on negotiation). Reliance General Insurance Co. Ltd. had informed that the scheme was running well at ₹ 738. 9. The available e-mails exchanged between key employees of the Appellants and also between key employees and top management of UIICL specifically discussed about the booking of premium for RSBY Scheme and sharing of business among the Appellants. However, email dumps were not furnished despite various opportunities and such conduct established the complicity of the Appellants in bid rigging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices (Insurance Division), Ministry of Finance. 24. To appreciate the issues projected in the present case, it would be appropriate to notice the regulatory reforms that were introduced in the insurance sector. In this regard, a reference may be had to the policy reforms introduced by the Government of India in 1991 which led to the de-regulation of the Indian economy. With the commencement of private participation, a need was felt to modify the existing market structure of certain select sectors, including, the insurance sector so as to promote orderly growth of these sectors. In this regard, the Government of India established a committee in the year 1993 under the chairmanship of Shri R.N. Malhotra (former Governor of the Reserve Bank of India) to propose reforms for the insurance sector. Pursuant to the recommendations of the Malhotra Committee, two major regulatory changes were introduced, including, ending the monopoly of General Insurance Company in the general insurance business and ending the control exercised by General Insurance Company over its four wholly owned subsidiaries, i.e., the four public sector insurance companies. The Commission notes that these regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is an admitted fact that OP-4 entered into a business sharing arrangement with other OPs in relation to the 2009 RSBY tender in the manners set out below : Details of Business Sharing Arrangement relating to the Tender dated 08.12.2009 37. The Commission notes that it is abundantly clear that the decision taken in the ICCC meeting held on 7.12.2009 relating to the business sharing arrangement was actually implemented by OPs and as such the submission made by the OPs that the decision taken during the ICCC meeting was not implemented is factually patently false and incorrect. 38. In view of the above, the Commission concludes that OPs colluded and rigged bids in response to the tender issued by the Government of Kerala. In coming to this conclusion, the Commission relies on (a) minutes of the meeting held by OPs on 7.12.2009 at Kochi (b) the financial bids submitted by OPs prior to finalization of the tender; and (c) the business sharing arrangement concluded subsequently after finalization of the tender. The Commission notes that the evidence clearly and unequivocally establishes that not only did the OPs meet one day prior to the submission of bids, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason for the past lossmaking. We participated in the meeting without any commitment to share the premium.' 54. In view of the above, the Commission holds that it is clearly borne out from the case records that the OPs were holding meetings prior to submission of bids in response to the tenders issued by the Government of Kerala for the implementation of RSBY and CHIS schemes. This, when viewed together with the past practice in relation to the RSBY/CHIS tender dated 08.12.2009 and the bidding pattern exhibited by OPs in relation to the subsequent tenders, singularly point to the only conclusion that the bidders were acting pursuant to an anticompetitive agreement to manipulate the tendering process initiated by the Government of Kerala. 8.5 The explanations given by the Appellants to explain the alleged agreement based on losses incurred by them as the quantum of claims disbursed outnumbered the quantum of premiums received and the flawed incentive scheme (for hospital staff), were rejected by the Commission in paragraph 55 of the impugned Order with the following findings : 55........a reference may be had to the statement made by the representatives of Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uliarities of the insurance sector which include importance of insurer's insolvency for the consumers were considered as mitigating circumstances and a penalty of 2% of the average turnover of the last three financial years was imposed on the Appellants which worked out to ₹ 162.80 crore on NICL, ₹ 251.07 crore on NIACL, ₹ 100.56 crore on OICL and ₹ 156.62 crore on UIICL. Aggrieved by the Order of the Commission, the Appellants have filed separate appeals. 9. Arguments were individually made by the counsels for the four Appellants and though they had different shades in certain aspects, the essential theme was the same. On conclusion of the oral arguments, we had permitted the parties to file short written notes vide our Order dated 8.11.2016, which were filed by all the Appellants and the Respondent on 15.11.2016. 10. The issues which require determination are as follows: 1. Whether the Appellants were a 'single economic entity' and hence there could not be any agreement in terms of Section 3 of the Act, amongst the companies which were part of the same enterprise, causing appreciable adverse effect on competition; 2. Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Government dealing with atomic energy, currency, defence and space. Explanation - For the purposes of this clause, - a) activity includes profession or occupation; b) article includes a new article and service includes a new service; c) unit or division , in relation to an enterprise, includes - (i) a plant or factory established for the production, storage, supply, distribution, acquisition or control of any article or goods; (ii) any branch or office established for the provision of any service; ............................................................... (l) person includes- (i) an individual; (ii) a Hindu undivided family; (iii) a company; (iv) a firm; (v) an association of persons or a body of individuals, whether incorporated or not, in India or outside India; (vi) any corporation established by or under any Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (vii) any body corporate incorporated by or under the laws of a country outside India; (viii) a co-operative society registered under any law relating to cooperati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess for bidding................................................................ Section 4 Abuse of dominant position - (1) No enterprise or group shall abuse its dominant position. ............................................ General Insurance Business (Nationalisation) Act, 1972 Section 18 - Functions of Corporation. (1) The functions of the Corporation shall include (a) the carrying on of any part of the general insurance business, if it thinks it desirable to do so; (b) aiding, assisting and advising the acquiring companies in the matter of setting up of standards of conduct and sound practice in general insurance business and in the matter of rendering efficient service to holders of policies of general insurance; (c) advising the acquiring companies in the matter of controlling their expenses including the payment of commission and other expenses; (d) advising the acquiring companies in the matter of the investment of their funds; (e) issuing directions to acquiring companies in relation to the conduct of general insurance business: Provided that all the functions of the Corporation specified in this sub-section, on and from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Development Authority Act, 1999 and the Corporation and the acquiring companies shall, thereafter, carry on general insurance business in India in accordance with the provisions of the Insurance Act, 1938 (4 of 1938). Provided that the Corporation shall, on and from the commencement of the General Insurance Business (Nationalisation) Amendment Act, 2002, cease to carry on general insurance business. 12. The issues listed in paragraph 10 above are adjudicated in seriatim in the following paragraphs. 12.1 The crux of the defense of the Appellants in regard to issue at no (i) is that they constituted 'a single economic entity', and because bid rigging under Section 3 of the Act required agreement between 'enterprises', any agreement between parts of the same enterprise would not be an anti-competitive agreement. The premise canvassed was that, the statutory scheme governing the Appellant established that they constituted a 'single economic entity', operated and controlled by the Insurance Division of DFS, Government of India, and the following arguments were made in support thereof : (i) The Central Government held 100% of the shares of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndercut each other, as was evident from various circulars and letters listed below:- The minutes of the meeting taken by the Secretary, Financial Services on 25th January, 2010 regarding the review of the performance of the Appellants particularly in para 3, as extracted below, prove the decisive influence :- Secretary (FS) felt that the performance of the companies is worrisome and underwriting losses are mounting. He observed that the companies are bitterly competing among themselves and are drifting from their aims. There are problems in the banking industry also but the problems in the working of general insurance companies are graver and the Ministry is worried about this. He called upon the companies to continuously devise and launch new products to match the demands of the insuring community on one hand and, on the other hand, formulate new strategies to compete with private players. He also exhorted the Companies to give requisite impetus to IT implementation plans. (v) Especially relevant in this regard were strategy direction dated 24.5.12 with the following statements: At a time, when there is a financial strain on these Companies on account of ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, 2007, I set down below some thoughts and points for action. 1. Overall, I am disappointed with the performance of the Public Sector Insurance Companies (PSICs) as well as GIC. Because they have been monopolies for nearly 30 years, they have been under no pressure to perform. As a result, total business, insurance penetration, premium as a percentage of GDP, per capita premium and all other parameters are extremely low compared to international bench mark standards. 2. My overall impression is that PSICs have not reflected on any plan for growth, for example, none of them seems to have Vision 2020 or Vision 2025 statement or a similar ambitious goal/programme. The first thing each PSIC should do is to get the top management together for a two-day brain storming session and work on Vision 2020 or a Vision 2025 statement/programme. 3. They have not focused on insurance penetration measured by the number of policies issued. Homes, properties, motor vehicles, factories, machinery etc. deserve to be insured. The spread of health insurance is a significant pointer to development. Therefore, the number of policies issued by each PSIC is indeed a measure of performance. This m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative. It is also possible that they do not have adequate expertise in this behalf. Treasury management must be strengthened, experts must be appointed and treasury management should aim to maximize profits. 9. On health insurance, I take a very strong view on the non-performance of three of the four PSICs. There is no reason why one PSIC should be able to show good progress while the remaining three PSICs are non-starters. Within four weeks from today, each of them should submit a time frame on how they will show progress on the matter of issuing more policies under universal health insurance scheme. 10. As regards, GSIC, there are several issues. It is over manned, it has survived on mandatory ceded insurance and is under no pressure to perform. GSIC should also present Vision 2020 or a Vision 2025 plan as soon as possible. Sd/- (P. Chidambaram) Finance Minister 11.01.2007 SECRETARY (FS) (vi) Control has to be seen from 100% shareholding and from facts and circumstances and instruction for each transaction to flow from the parent, was not required. (vii) Letter of DFS dated 14.5.15 confirmed the factual position of instruction being issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en independent undertakings. When a company exercises decisive influence over another company they form a single economic entity and, hence, are part of the same undertaking. The same is true for sister companies, that is to say, companies over which decisive influence is exercised by the same parent company. They are consequently not considered to be competitors even if they are both active on the same relevant product and geographic markets. The Appellants, under the decisive influence of DFS, were single economic entity. (xii) The concept of 'single economic entity' as applied to the private players in the order of the Competition Appellate Tribunal in the case of 'Exclusive Motors Pvt. Ltd. v. Automobile Lamborgini, SPA Ors. should also be applied to the Appellants as they were under the shadow of their 100% shareholder which controlled all aspects of their functioning. DFS held an all pervasive decisive influence over the functioning of the PSGICs and therefore they were part of the same enterprise. The rationale applied to confirm 'single economic entity' in international jurisprudence viz American Needle Inc. v. National Football League 560 U.S. 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 404 and also State under Article 36 of the Constitution for the purposes of the Directive Principles of State Policy. (iv) Various provisions of GIBNA confirmed the conclusion that the Central Government which provided general insurance services through the Appellants : (a) S. 16(2) provided that only four companies would remain and that they would be so situated as to render their combined services effective across India; (b) Under S. 18(1), as amended in 2002, the Central Government could not only directly carry on any part of the general insurance as it considered desirable, its functions in relation to the Appellants included: (i) aid, advise and assistance to the acquiring companies in setting up standards of conduct and sound practice in general insurance business and in rendering efficient services to holders; (ii) advice in controlling expenses; (iii) advice in investing funds; and (v) issuing directions in relation to the conduct of general insurance business. (c) Under Section 17A, the Central Government could regulate the terms and conditions of service of officers of the GIC and of all acquiring companies; (d) Under Section 22, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f competition could not exist. Section 19(3) of GIBNA in mandating the Appellants to 'act so far as may be on business principles' makes it even more untenable to assert that the Appellants could be exempted from the rigors of Section 3 of the Act, particularly when there were no governmental directions to this effect. An inevitable extension of accepting the arguments of 'single economic entity' would be the removal of the entire public sector from the reach of Section 3 of the Act, a result incompatible with the fundamental scheme of the Act, particularly when viewed in the light of legislative history under the Monopolies Restrictive Trade Practices Act, 1969. 13. In order to consider the arguments of the Appellants and the Respondent in regard to the 'single economic entity', it is necessary to first note the legal structure of the Appellants and the statutory framework in the form of GIBNA impacting their operations. It's an admitted position that the Appellants are Companies, with each of them having separate Memorandum and Articles of Association. Appellants were in existence when the nationalisation of general insurance business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified that the legislative intent was that the Central Government was not to engage in insurance business itself and such business was to be carried on by GIC and its four subsidiaries i.e the Appellants. No Department of the Central Government was authorized to engage in insurance business. The General Insurance Business(Nationalisation) Amendment Act, 2002, divested GIC of its shareholding of the Appellants and transferred that to the Central Government through insertion of Section 10A in GIBNA and also inserted a Proviso to Section 18(1) of GIBNA whereby functions of GIC as enumerated under Section 18(1) of GIBNA were to be performed by the Central Government. Therefore, by virtue of this amendment, Central Government could if it so desire, carry on general insurance business in terms of Section 18(1)(a) of GIBNA and also had to perform the functions of aiding, assisting, advising and issuing directions to the 'acquiring companies' i.e the Appellants in terms of Section 18(1) (b) to 18(1)(e) of GIBNA. 13.3 So in terms of Section 18(1) of GIBNA, the Central Government and the Appellants are distinct and separate entities. Central Government can independently do insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 The argument that Appellants would constitute economically a 'single entity' since DFS exercised control over each of the Appellants, through issue of letters regarding operational matters, review of their performance, transfer and posting of officers, appointment of Directors etc. has no force. DFS is not engaged in the business of insurance, though as stated earlier, the GIBNA authorized Central Government after the 2002 amendment to carry on insurance business. The Appellants, therefore, cannot economically form a single entity with DFS, which is not engaged in any commercial activity. They are not under each other's influence and do not hold any management or shareholder position in each other. The influence, if any, of the DFS does not detract from the independent, commercially and economically separate status of each of the Appellant, who as per GIBNA owe their separate existence to the need to compete in interest of efficiency. In fact, the letter of DFS dated 14.5.2015 on which strong reliance was placed to assert the confirmation by the Government of exercising decisive influence and hence supporting 'single economic entity' proposition, specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprise' in Section 2(h) of the Act does not support his claim because DFS which is a department of the Government is neither engaged in insurance business directly nor can it engage in such activities through 'subsidiaries'. Appellants cannot be considered as subsidiaries of DFS as the expression 'subsidiaries' not having been defined in the Act, has to take its meaning from the Companies Act because Section 2(z) of the Act, requires that the words and expressions used but not defined in the Act and defined in the Companies Act, shall have the same meaning as assigned in that Act. The definition of 'subsidiary' in the Companies Act, 1956 (which was applicable for the period of tenders) is as follows: 4. MEANING OF HOLDING COMPANY AND SUBSIDIARY (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, - (a) that other controls the composition of its Board of directors; or (b) that other - (i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t other or its subsidiary [not being held or exercisable as mentioned in clause (c)] shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. (4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary. (5) In this section, the expression company includes anybody corporate, and the expression equity share capital has the same meaning as in sub-section (2) of section 85. (6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not. (7) A private company, being a subsidiary of a body corporate incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rview of Section 4 of the Act. 13.10 The proposition that the Appellants were a 'single economic entity' because they were driven by a common objective of carrying out obligations of State and were 'State' in implementing the health insurance schemes and other social obligations under Directive Principles of the Constitution, is based on an incorrect premise. There is no constitutional obligation on the Appellants under the Directive Principles to provide health insurance to all. The following paragraphs from the Supreme Court Judgement in the case of Manubhaidharamsinhbhai Gajera (ibid) clarify as to what are the obligations of the Appellants when acting as 'State': 23. There is no escape from the fact that the appellant is a 'State' within the meaning of Article 12 of the Constitution. It has been created under the 1972 Act. The said Act, as the preamble shows, was enacted for achieving certain purposes, economic benefit of the people and/or group of people, being one of it. At the point of time when the 1972 Act was enacted the insurance companies enjoyed a monopoly status. But would it mean that only because it ceases to enjoy the same by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It must indisputably be construed having regard to the larger public policy and public interest guiding nationalization of the insurance companies. Insurance Sector is regulated. The provisions of the Insurance Act are applicable to all insurance companies irrespective of the fact as to whether they are in public sector or private sector. When a business is regulated, all concerned would be governed thereby. 30. It is one thing to say that the terms and conditions of a contract are statutory in nature but is another thing to say that the statute governs or controls the business itself. It is the latter which is applicable to the fact of the case. Two things are apparent. One, the Central Government has come out with a new economic policy. The monopoly status has been taken away from the General Insurance Corporation of India and its subsidiaries. The insurance companies are required to compete with others in the field, but the same may not necessarily mean that despite the statutory interdicts the public sectors insurance companies must have a level playing field with the private insurance companies. 31. We have, despite the new economic policy of the Central Government, no o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r se, was acknowledged in the letter of DFS dated 24.05.12, cited by the Appellants to support their case of control and influence of DFS and extracted in paragraph 12.1 (v) of this Order, though the competition was described as very unhealthy and self-destructive inter-company competition among these four Companies . 13.13 Our decision in the case of Wing Cdr. (Retd.) Dr. Biswanath Prasad Singh v. Director General of Health Services (DGHS) (Appeal No. 63 of 2014), cited by the Appellants to support their claim of DFS being an 'enterprise', is premised on different facts. In that case, the finding of fact was that DGHS was not just a facilitator for its target group to seek healthcare in empanelled hospitals but itself provided healthcare in its 273 allopathic dispensaries, 19 polyclinics, 73 labs and 85 Ayush hospitals. In the present case, DFS is not providing insurance services. 13.14 We do not agree that the Appellants are a 'single economic entity' or that DFS was an 'enterprise' in terms of Section 2(h) of the Act, engaged in providing general insurance services through its subsidiaries i.e the Appellants. 14. Once we hold that the Appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish bid-rigging on the part of the Appellants. He submitted that, it was entirely irrelevant in law that there were other bidders not party to the said Agreement, or that the Agreement did not ultimately result in abnormal profit (or, for that matter, any profit) for the participating Companies. The argument that the Appellants intended to engage in co-insurance was stated to be entirely untenable, since such an arrangement ought to have been disclosed to the Government of Kerala, and only one Company should have entered a bid in the tender process. It was stressed that even the coinsurance Agreement which was placed on record by the Appellant demonstrated that, 'Co-insurance necessarily required participation as a Consortium with pre-determined shares being disclosed to the Client and a lead Consortium Partner being identified to take on day-to-day responsibility for the transaction'. It was underlined that, no such common bid was tendered and the four purportedly independent bids were entered which created an illusion of competition which would have convinced the Government of Kerala that a robust market mechanism had determined the correct price, although this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bid rigging arrangement executed by the Appellants was in the nature of cover bidding whereby three of them agreed to submit bids which were higher than the bid of UIICL. The bidding pattern has been appropriately analyzed by the Commission in the impugned order and the relevant table and findings have been noted in paragraphs 8.2 and 8.3 of this Order. The Appellants, through their separate bids created an impression of genuine competition. This misleading facade resulted in UIICL not ending up as a lone qualifying bidder. It is relevant to note that the Kerala High Court, which was the jurisdictional court, had in its judgement in WA No. 3332 of 2001 dated 29.10.2001, held that when there was only one bidder and the contract was awarded to that bidder, there was demonstrable prejudice to public interest. On the facts of this case for the tender for the year 2010-2011, there were only 2 qualifying bidders i.e UIICL and OICL and for the year 2011-2012 also there were only two qualifying bidders i.e NIACL and UIICL. If OICL or NIACL had not bid, this would have been an instance of lone qualifying bidder. Viewed from this perspective, cartelization ensured success of UIICL. 14.5 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after investigation had found no evidence of any collusion between private and public sector companies. Therefore, since prices were not increased for bids by any collusive activities, there was no appreciable adverse effect on the competition in the market. 15.1 Sub-section 3 of Section 3 of the Act creates a presumption that any agreement which results in bid rigging, has an appreciable adverse effect on competition. The Proviso to this sub-section carves out an exception by stipulating that any agreement entered into by way of joint venture which increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services, is not covered by such presumption. The Appellants have not established as to how they constituted a joint venture or how even on the presupposition of a joint venture, they delivered the benefits as enumerated in the said Proviso. 15.2 The presumption under Section 3(3) of the Act takes away the applicability of rule of reason. Bid rigging has been statutorily determined to be anticompetitive. Presumption in a substantive law is irrefutable and conclusive. Once a conclusion of bid rigging is reached, contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 07.04.15, wherein counsel for the Appellants was heard for some time on the preliminary objection regarding the maintainability of the proceedings under Section 3(3) of the Act against companies forming a 'Single Economic Entity'. Further, it was submitted that a specific question was raised by the Chairman as to whether the Government of India supported the argument advanced by the Appellants that they were a 'Single Economic Entity' and the matter was adjourned for a final hearing on 14.05.15, on which date the Appellants filed a letter dated 14.05.15 issued by the DFS, responding to the Chairman's query, but a quorum of four members without the Chairman, heard the arguments and reserved the order. The Appellants asserted that on inspection, they had found that the Chairman participated in the internal deliberations of the Commission on 10.06.15 when submissions of the parties were considered and a decision to call for financial details was taken, which in effect meant a decision to impose penalty. Therefore, their stand is that the Chairman was part of deliberations and the decision making of the case but chose not to sign the final order. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a subtle manner in selection of other persons, including his competitors. Similarly, in the King's Bench decision (ibid), the court was considering challenge to an order convicting a person involved in a collision, of driving in a manner dangerous to public. The presence of Justices' clerk, who was interested in the proceedings, being member of the firm of solicitors representing a client in a civil suit for damages in respect of the same collision, while the justices were considering their decision, led to quashing of the conviction. In the present case, there is no material to indicate personal interest of the Chairman or how his presence in some of the meetings vitiated arriving at a just decision by the Members, or the kind of influence he allegedly exercised. The impugned Order is by the Members of the Commission, who heard the Appellants and the Chairman was rightly not party to the Order, as admittedly he was not present during all the proceedings when the Appellants were heard. 18. The Appellants have contested the observations of the Commission in paragraph 60 of the impugned Order that, the entire modus operandi resorted to by UIICL in concert with the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Our attention was drawn to various internal communications of GOK wherein the concerns of UIICL regarding increased losses in view of non-availability of premium adjustment clause were acknowledged as genuine by the State government while approving the re-tendering. It was submitted that there was no impact on competition in the State and consumers benefited and only because there was a power to impose penalty, it did not mean that a penalty must be imposed. Reliance was placed on judgement of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa, (1970) AIR 253 and our observations in the case of A.R. Polymers Private Limited v. Competition Commission of India and Anr.(Appeal No. 34/2013). Another argument was that, the Commission failed to give a show-cause notice regarding the penalty to be imposed, which should have been given after the Appellants had seen the impugned Order on the merits of the case. Further, it was pointed out by the counsel for OICL that the Commission did not even take into account the mitigating factor in the case of OICL which did not share business with UIICL after 2010-11 on the ground of losses being too heavy. 19.1 The quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed and the basis on which it was calculated. 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. 19.5 We have in a number of cases interpreted the term 'turnover' 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. Some of such cases have been cited by the Appellants as mentioned in paragraph 19.1 above and we see no reason to take a different view in this case. 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. 19.6 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 circu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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