Funding Rival Bids, Using Same IP Proves Bid Rigging, NCLAT Upholds CCI Penalty Against Klassy Enterprises

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently upheld a Rs 10 lakh penalty imposed by the Competition Commission of India on Klassy Enterprises, holding that paying the tender costs of rival bidders and submitting bids from the same IP address was enough to show bid rigging, even without a written cartel agreement.

A bench of Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha dismissed Klassy Enterprises' appeal against the CCI's March 17, 2021 order.

The tribunal said that “direct evidence of formation of any cartelization or bid rigging is seldom available” and that such arrangements are usually uncovered through surrounding facts.

In this case, those facts showed the bidders “were not fairly competitive with each other and rather they have formed a cartelization.”

The case revolved around a 2015 e-tender issued by the Pune Zila Parishad to procure Pico-fall-cum-Sewing Machines with ISI marks. The machines were meant to be distributed under a welfare scheme for backward classes, women and persons with disabilities in rural Pune.

Three authorised dealers of Usha International, Klassy Enterprises, Nayan Agencies and Jawahar Brothers, submitted bids that were strikingly close. Klassy quoted Rs 12,621 per machine, while the other two quoted Rs 12,649 and Rs 12,638.

The CCI later concluded that the dealers had worked together to rig the bidding process, holding them guilty under Section 3(3)(d) of the Competition Act, 2002. Challenging that decision, Klassy Enterprises told the tribunal that the small difference in prices was only because all bidders operated in Pune and faced similar costs.

It also claimed that the shared IP address was because it ran a cybercafé that others used. Klassy further pointed to the fact that it had reduced its price to Rs 12,250 during negotiations, arguing that this showed genuine competition.

The tribunal was not convinced. Going through what it called the “entire trail of movement of the funds,” it found that Klassy Enterprises had transferred more than Rs 38 lakh through third-party accounts to pay the tender fees and earnest money deposits for all three bidders.

When the two unsuccessful bidders got their earnest money back from the Pune Zila Parishad, the money eventually returned to Klassy Enterprises. The tribunal said this was clear evidence that there was a prior agreement of formation of a cartel.

It also rejected the cybercafé explanation, calling it “highly unlikely” that independent competitors would use the same IP address to upload their bids on the same day. Call records showed that the bidders were in regular touch, with 51 calls exchanged in the two days just before the bids were submitted.

On the argument that there was no direct proof of collusion, the tribunal said that in cases like these, the agreement or understanding is to be inferred from the conduct of the parties. It added that once such an agreement is shown under Section 3(3) of the law, a presumption of harm to competition follows, and Klassy had failed to dislodge that presumption.

While upholding the penalty, the tribunal noted that the collusion had affected a welfare scheme funded by public money. It said the Rs 10 lakh penalty was proportionate and dismissed the appeal.