Suo Moto Case No. 02 of 2014. Case: Government of Kerala Vs National Insurance Co. Ltd. and Ors.. Competition Commision of India

Case NumberSuo Moto Case No. 02 of 2014
CounselFor Appellant: A.N. Haksar, Senior Advocate, Udayan Jain, Chitra Parande, K.K. Sharma, Anand Shree and Hetu Arora Sethi, Advocates and For Respondents: Anand Sharma, Regional Manager and A.K. Singhal, General Manager
JudgesS.L. Bunker, Sudhir Mital, Augustine Peter and U.C. Nahta, Members
IssueCompetition Act, 2002 - Sections 19(1), 2(b), 26(1), 27, 27(b), 3, 3(1), 3(2), 3(3), 3(3)(a), 3(3)(d)
Judgement DateJuly 10, 2015
CourtCompetition Commision of India


Order under Section 27 of the Competition Act, 2002

  1. The present matter was taken up suo moto pursuant to an anonymous information received by the Commission under section 19(1) of the Competition Act, 2002 ('Act') against M/s. National Insurance Co. Ltd. ('OP-1'), New India Assurance Co. Ltd. ('OP-2'), Oriental Insurance Co. Ltd. ('OP-3') and United India Insurance Co. Ltd. ('OP-4') (collectively, 'OPs'/'Public Sector Insurance Companies') alleging contravention of the provisions of section 3 of the Act.


  2. It was alleged in the anonymous information that the above named public sector insurance companies rigged the tender floated by the Government of Kerala on 18.11.2009 for selecting insurance service provider for implementation of the 'Rashtriya Swasthya Bima Yojna' ('RSBY') for the year 2010-11. It was also alleged that OPs formed a cartel and quoted higher premium rates in response to the aforementioned tender. A copy of the minutes of the 'Inter Company Coordination Committee' ('ICCC') meeting dated 07.12.2009 attended by the officials of OPs in Kochi was also enclosed with the anonymous information where OPs allegedly agreed on a business sharing model.

    Directions to the DG

  3. The Commission, after considering the entire material available on record, directed the Director General ('DG') to cause an investigation into the matter through its order dated 12.02.2014 passed under section 26(1) of the Act. The DG, in accordance with the Commission's directives, conducted an investigation and submitted the investigation report ('DG Report') on 03.02.2015.

    Investigation by the DG

  4. The DG conducted a detailed investigation into the actions of OPs relating to the tenders issued by the Government of Kerala in the years 2010-11, 2011-12 and 2012-13 for the implementation of RSBY and 'Comprehensive Health Insurance Scheme' ('CHIS').The DG came to the conclusion that OPs colluded with each other and manipulated the tendering process initiated by the Government of Kerala.

  5. While conducting the investigation, the DG examined RSBY scheme, implementation of the scheme in the State of Kerala, tendering process of the Government of Kerala and the nature of ICCC meetings of OPs. The DG specifically looked into the events and circumstances that culminated into the ICCC meeting held on 07.12.2009 and examined witnesses (i.e., company officials closely related to the bidding process), internal documents of OPs, emails exchanged among the officials of OPs, etc.

  6. From the minutes of the said ICCC meeting, the DG found that the representatives of OPs met on 07.12.2009, i.e., one day prior to the submission of bids, and agreed that OP-4 would secure the L1 position in relation to the tender for 2010-11, while OP-1, OP-2 and OP-3 would secure the L2, L3 and L4 positions respectively. The DG also found that OP-4 actually won the tender for 2010-11 and later on shared its business with OP-1, OP-2 and OP-3.

  7. The DG also pointed out that the said tender was issued for a period of three years. However, towards the end of the first year of the contract, OP-4 sought for an upward revision of the premium citing losses. When this request of OP-4 was turned down by the Government of Kerala, OP-4 invoked the exit clause of the contract, thereby, compelling retendering.

  8. The DG also reviewed the conducts of OPs in relation to the subsequent tenders issued by the Government of Kerala and found that the OPs had colluded to steadily raise the insurance premiums by quoting higher premiums. Further, the DG noted that a clear bidding pattern emerged from OPs' actions. In relation to the tenders issued by the Government of Kerala for the years 2011-12 and 2012-13, the DG found that: (a) OP-4 secured the L1 position and became the supplier under the RSBY and CHIS schemes; (b) OP-4 entered into business sharing arrangements with OP-1 and OP-2; (c) towards the completion of a year, OP-4 requested for an upward price revision and when such requests were denied, OP-4 invoked the exit clause of the contracts, thereby, compelling re-tendering by the Government of Kerala.

  9. Further, the DG noted that the price rise effected by OPs could not have been based on any rational business justification as the tender for the year 2013-14 was won by Reliance General Insurance Company Limited at a much lower premium. The awarded contract was even extended with the same premium for the year 2014-15.

  10. As per the DG report, OPs formed a cartel and not only quoted higher insurance premium bids in response to the tenders issued for the years 2010-11, 2011-12 and 2012-13; but they also forced the Government of Kerala to issue fresh tenders every year despite the fact that the said tenders were issued for a period of three years. On this basis, the DG concluded that this was clearly a case of contravention of the provisions of sections 3(3)(a) & 3(3)(d) of the Act.

  11. The DG also noted that 'Comprehensive Health Insurance Agency of Kerala' ('CHIAK'), the agency entrusted to implement RSBY and CHIS schemes in letter and spirit, had actually facilitated continuance of OP-4 as the insurer under these schemes by employing an arbitrary and irrational selection criteria for the period between 2010-2011 to 2012-13.

    Consideration of the DG report by the Commission

  12. The Commission in its ordinary meeting held on 19.02.2015 considered the investigation report submitted by the DG and decided to forward copies thereof to the parties for filing their respective replies/objections thereto. The Commission also directed the parties to appear for oral hearing on 07.04.2015 when the counsel for OPs made preliminary submissions. Subsequently, the arguments of OPs were heard by the Commission on 14.05.2015.

    Replies/Objections/Submissions of the OPs

  13. Besides making oral submissions, all OPs have submitted their objections/responses to the DG Report, raising common issues, by way of, preliminary and substantive submissions followed by para-wise replies. Set out below is a brief summary of the common grounds raised by OPs in their objections/responses to the DG Report.

  14. At the outset, OPs have submitted that the entire DG Report is flawed and is liable to be rejected as the DG committed a fundamental error by not considering that the OPs constituted a 'single economic entity'. OPs have claimed that Government of India holds 100% shares of each of the OPs. Further, management and affairs of OPs are controlled by the Government of India through Department of Financial Services (Insurance Division), Ministry of Finance.

  15. OPs have made detailed submissions on the peculiarities of the insurance sector and the differential treatment accorded to this sector in other jurisdictions.

  16. OPs have also disputed the findings of the DG on the basis that the conclusions drawn by the DG were solely based on a photocopy of the minutes of an alleged ICCC meeting of the representatives of OPs. OPs have submitted that the DG did not find any other additional documentary or circumstantial evidence establishing cartelization by OPs. Further, the DG failed to consider the fact that the aforementioned minutes clearly recorded that the decision in the ICCC meeting was subject to the approval of a Committee of General Managers of OPs; and that no such approval was taken/given. The DG also failed to appreciate that the decision taken by representatives of OPs during the ICCC meeting was not implemented as there is nothing to suggest that OP-1, OP-2 and OP-3 were designated as L2 to L4 respectively.

  17. OPs have submitted that the DG had erroneously found cartelization by four of OPs when there were seven participants in the tender issued by the Government of Kerala in 2009. Further, the DG failed to consider that bidding process initiated by the Government of Kerala for the implementation of the RSBY Scheme was free and fair. In this regard, OPs have pointed out that in relation to the aforementioned tender of 2010-11, ICICI Lombard General Insurance Co. Ltd. would have secured L1 position had it...

To continue reading

Request your trial