By way of a December 9 2016 order,(1) the Competition Appellate Tribunal (COMPAT) upheld a Competition Commission of India (CCI) order dated July 10 2015 which found four public sector insurers guilty of bid rigging under Section 27 of the Competition Act, but reduced the penalty from Rs6.7 billion to Rs20 million. This new penalty was calculated based on the relevant turnover of the product in question.

When issuing this new penalty, COMPAT observed that the:

"penalty has to be calculated with reference to the gross premium received by United India Insurance Company Limited (UIICL) as insurance provider under Rashtriya Swasthya Bima Yojna (RSBY) scheme and penalty for each of the Appellants will be a proportion of their share in such premium."

In the case at hand, after performing an investigation, the CCI found National Insurance Co Ltd, New India Assurance Co Ltd, Oriental Insurance Co Ltd and United India Insurance Co Ltd guilty of cartelisation and manipulation of a bidding process held by the Kerala government to choose an insurance service provider for the implementation of the National Health Insurance Programme (Rashtriya Swasthya Bima Yojna) for 2010 to 2011, 2011 to 2012 and 2012 to 2013.

COMPAT observed that the appellants had "no hesitation in confirming that bid rigging constituting contravention of section 3 of the Act did take place and on the facts of the case and the legal position, we agree that the appellants should suffer penal consequences".

COMPAT, confirming the CCI's decision, held that in terms of the General Insurance Business (Nationalisation) Act 1972, the four companies were created in order to encourage competition and function according to business principles. COMPAT further held that the influence of the Department of Financial Services did not detract from the independent, commercially and economically separate status of the four companies which, as per the General Insurance Business (Nationalisation) Act, were created as independent entities in order to compete with each other in the interest of efficiency. Accordingly, the four insurers were not a single economic entity. Further, COMPAT recognised that the penalty's burden would ultimately be transferred to the public, as the insurers were owed by the government. As such, COMPAT reduced the penalty to 1% of the relevant turnover for the relevant period and imposed reduced penalties of:

  • Rs15.6 million on United India Insurance;
  • Rs2 million on National Insurance; and
  • Rs400,000 on Oriental Insurance.

For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4929 2525) or email ([email protected]). The Vaish Associates website can be accessed at www.vaishlaw.com.

Endnotes

(1) COMPAT order of December 9 2016. For the full text see http://compat.nic.in/Judgements.aspx.

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