Competition Commission Comes Down Hard on Insurance PSUs
Insurance PSUs The Competition Commission of India has imposed penalty amounting to Rs 671 crore on four PSUs it found guilty of indulging in anti-competition practices in bidding for Rashtriya Swasthya Bima Yojna (RSBY), an insurance scheme brought forth by Kerala government aimed at people below the poverty line.
The penalty is divided between four companies — National Insurance Co Ltd (Rs 162.80 crore), New India Assurance Co Ltd (Rs 251.07 crore), Oriental Insurance Co Ltd (Rs.100.56 crore) and United India Insurance Co Ltd (Rs 156.62 crore) — who were found in breach of Section 3(1) read with Section 3(3)(d) of the Competition Act, 2002.
The commission found that these four PSUs had contravened Section 3 (1) of the Act by entering into an agreement among themselves, thus forming a cartel, which adversely affects competition. They were in breach of Section 3(3) (d) related to bid rigging.
The commission took up the case suo moto following an anonymous complaint it received under Section 19 (1) of the Act against these four PSUs, alleging anti-competition agreements and bid rigging. It was alleged that these companies had rigged the tender floated by the Kerala government on November 18, 2009, for selection the insurance service provider for the implementation of RSBY for the year 2010-11. It was also alleged that the companies had formed a cartel by coming to an agreement among themselves, and quoted higher premium rates in response to the tender. STARTUPS IN INDIA
Insurance PSUs The Director-General, under instruction from the Competition Commission, conducted a detailed investigation and submitted its report on February 3, 2015. The report found that the said PSUs had agreed that United India Insurance Co Ltd would secure the tender. In turn, United India Insurance Co Ltd would share the business with the remaining PSUs. It further noted that United India Insurance Co Ltd had sought an increase in the price of insurance premiums from the government and had invoked the exit clause under the contract at the end of the year (2010-11) when this request was turned down.
The same process was repeated in 2011-12 and 2012-13, with United India Insurance Co Ltd winning the bid, albeit at a higher insurance premium than the preceding year, and had exited the contract at the end of each year.
The companies involved vehemently opposed the findings of the report and contended that they form a single economic entity under the government of India.
The Competition Commission of India dismissed this claim, stating that the bidding decision was taken at the company level without involving the Ministry of Finance and those PSUs do not constitute a single economic entity.
Subsequently, the commission, considering bid rigging in the public procedure for a social welfare scheme that was at people below the poverty line as an aggravating factor, imposed a penalty of 2 per cent of the average turnover of these PSUs in 2010-13 amounting to Rs 671 crore under Section 27(b) of the Act.