National Insurance Company LTD and Ors V Competition Commission of India

National Insurance Company Ltd. And Ors. V.
Competition Commission Of India
Competition Appellate Tribunal. New Delhi

Appeal Nos. 94, 95, 96 and 97/2015
Judgment Date:
09-12-2016
National Insurance Company Ltd. And Ors. ..Petitioner
Competition Commission Of India ..Respondent

Bench:
{G.S. Singhvi , Rajeev Kher , Anita Kapur, Members }
Citation:
1. These appeals have been filed against a common Order dated 10.7.2015 passed by the Competition Commission
of India (for short "the Commission") under Section 27 of the Competition Act (for short, the Act). The
Commission was of the view that National Insurance Company Limited (NIICL), New India Assurance Company
Limited (NIACL), Oriental Insurance Company Limited (OICL),United India Insurance Company Limited(UIICL),
(henceforth collectively referred as Appellants) had manipulated the bidding process initiated by the Government of
Kerala in regard to the Rashtriya Swasthya Bima Yojna [RSBY]/Comprehensive Health Insurance Scheme [CHIS], in
contravention of the provisions of Section 3(1) read with Section 3(3)(d) of the Act. Resultantly, the Commission
directed the Appellants to cease and desist from indulging in the practices found anti-competitive and also
imposed a penalty on each of the Appellant at the rate of 2% of its average turnover of the last three financial
years.
1.1 NIICL was incorporated on 5th December, 1906, NIACL on 23rd July, 1919, UIICL on 18th February, 1938,
and OICL on 12th September, 1974. Management of all the undertakings engaged in general insurance business,
pending nationalisation of such business, was vested with Government of India by virtue of The General Insurance
(Emergency Provisions) Ordinance, 1971. Thereafter, General Insurance Business (Nationalization) Act, 1972
(hereinafter, "GIBNA"), nationalized the general insurance business and various companies were merged with the
Appellants and the four Appellants became wholly owned subsidiaries of the General Insurance Corporation of
India (hereinafter referred to as "GIC"). The Appellants and GIC had the exclusive privilege of carrying on general
insurance business in India, which ceased with the commencement of Insurance Regulatory and Development
Authority Act, 1999, when Section 24A was inserted in GIBNA. The General Insurance Business (Nationalization)
Amendment Act of 2002, transferred the shares of the four Appellants held by GIC to the Central Government,
and GIC ceased to carry on general insurance business.
2. The Commission decided to inquire into the alleged contravention, on its own motion, after it received an
anonymous letter in September 2013. This letter was addressed to the Chief Minister of Kerala with endorsement
to various authorities in Government of Kerala and Government of India as also to the Chairperson, Competition
(Page 1 of 30) Printed For: Chirag Agrawal 18-06-2022 On: 04:31:PM

National Insurance Company Ltd. And Ors. V. Competition Commission Of India
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 one of the signatories is presently working as CVO of one of the public sector insurance
companies. By signing the cartelization agreement he has also violated competition Act and thus lost his
institutional integrity. The Supreme Court in P.J. Thomas case has said "the touchstone for the appointment of the
CVC is the institutional integrity as well as the personal integrity of the candidate." This is applicable to CVO's
also. "
3. The attached document referred to in the anonymous letter is reproduced below:
"UNITED INDIA INSURANCE COMPANY LIMITED
REGIONAL OFFICE:KOCHI
Inter Company co-ordination Committee (PSU General Insurance Companies)
Minutes of the ICCC Meeting Held at United India Insurance Limited Regional Office, Kochi on 07.12.2009.
THE MEETING WAS ATTENDED BY FOLLOWING OFFICERS:
1. Sri B.Krishnamurthy, DGM, United India Ins. Co. Ltd. RO Kochi
2. Sri Girish Raj.CRM, New India Insurance Co. Ltd. RO Kochi
3. Sri Rajasekharan CRM, National Insurance Co. Ltd., RO Kochi
4. Sri Ramamurthy, Regional manager, Oriental Ins. Co. Ltd. & Other Officer.
Re: Tender Notice on RSBY dated 18/11/2009 of Govt. of Kerala
This ICCC Meeting was held to discuss about sharing of business and submission of quotation for the above
business.
It was decided to share the business among the four PSUs with United India as Leader with 70% and other
Companies with 10% each. This decision is subject to the approval of Committee of General managers of all four
PSU Companies.

As per the above decision United India will be L1 and other three PSUs will be L2 to L4 in the quotation being
submitted on 8th December 2009.
4. The Commission decided to consider the matter and in response to a query letter dated 18.10.2013 from the
Secretary of the Commission, the Appellants confirmed that the minutes of the ICCC meeting of 7.12.2009 were
authentic and that the officers of their respective companies had signed the minutes, and that they had
participated in the tender dated 18.11.2009. As regards the purpose of the meeting, the response of the
Appellants had the same tenor i.e., the ICCC meetings were held when major tenders, with large premium and
large foreseen claims, were expected and as the RSBY scheme of the Government of Kerala was a mass health
insurance scheme, a local level meeting was organized at the Kochi regional office 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 Government of
Kerala inviting competitive bids for implementation of these schemes.
6.1 Government of India had, in June 2008, launched RSBY for BPL workers in the unorganized sector as defined
by the Planning Commission, and their families. Government of Kerala (GOK) vide its order dated 4th July 2008,
announced the modalities for implementing RSBY and a Comprehensive Health Insurance Scheme (CHIS) which
was extended to all the families other than the BPL families covered under the RSBY. As per this order -
"? RSBY would provide annual insurance cover for a maximum amount of Rs. 30,000 for a family of five,
including the worker, spouse, children and dependent parents (included in the BPL family list), and the annual
insurance premium not exceeding Rs. 750/- was to be decided through tender process.
? Under the scheme, the Union Government was to meet 75 percent of the premium (not exceeding Rs. 565), and
also the cost of a Smart Card for each family, estimated at Rs. 60 per card.
? The beneficiaries had to pay an annual registration charge of Rs. 30/- per family (which was part of the
insurance premium to be paid to the insurance provider), and the State Government was to pay the rest of the
premium, together with the administrative cost.
? The scheme was to be implemented in all the 14 districts of the State.
? Non-RSBY population was covered under CHIS and was to be divided into two categories: (a) those belonging
to the BPL (Poor) list of the State Government but not in the list as per definition of the Planning Commission
and (b) the APL families that belong neither to the State Government list nor to the list prepared as per
guidelines of the Planning Commission. The beneficiary contribution was to be Rs. 100 per annum per family for
families belonging to category (a), with the State Government meeting the balance including for the smart card.
The entire amount of premium plus the cost of smart card, for families belonging to category (b) was to be met
by them.
? Insurance provider companies in both public and private sector were to be considered with the selection
through tender process.

? Bulk of insurance premium paid by the Central Government and State Government would flow-back to the
public healthcare system itself which was to be used for improving the system. For this: (i) each Public
Healthcare 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 Agreement was entered into between
Government of Kerala and UIICL on 2.10.2008 which was to remain in force for one year, but was later extended
upto 31.3.2010. On 18.11.2009, CHIAK issued a tender for selecting the Insurer for a period of three years
commencing from 1.4.2010 under RSBY/CHIS schemes and the closing date for submission of the completed bid
documents was 8.12.2009.
6.3 A day before the closing of bid, i.e., 7.12.2009, officers of the Appellants met at Kochi and the minutes of
the said meeting have been extracted in paragraph 3 above. Seven insurance companies including the four
Appellants submitted the tender documents. Of the four Appellants, UIICL quoted the lowest price and this was in
accordance with the decision taken in the ICCC meeting on 7.12.2009. All the bidders were considered as
qualifying in the first meeting of the Technical Evaluation Committee (TEC) but in its second meeting on
21.12.2009, the TEC evaluated the bids on the basis of a scoring system and decided that bidders scoring 50%
and above would be declared successful in the technical rounds. UIICL and OICL were declared successful in the
technical rounds and the financial bid of UIICL at Rs. 464 being the lowest was accepted for implementation of
RSBY and CHIS scheme in Kerala for a period of three years with effect from 1.4.2010 subject to yearly renewal.
In September 2010, UIICL wrote to CHIAK for a review of the premium payable under the scheme for the
coming years, claiming adverse claim experience during the past year and the current year. Vide another letter
dated 10.11.2010, UIICL reiterated to re-consider the position on the ground that it would be impossible to
continue with the scheme in view of the alarming claims experience which was projected to cause a deficit of
nearly Rs. 50 crores over premium income. However, since there was no legal provision to allow a premium
increase, UIICL exited the scheme under clause 31 (Term and Termination) (ii) (c) of the Agreement dated
11.8.2010.
6.4 CHIAK issued a fresh tender on 21.11.2010, in response to which it received tender bids of seven insurance
companies including the four Appellants. The TEC in its first meeting held on 6.12.2010 decided on the
parameters to evaluate the bids and in its second meeting of 13.12.2010 evaluated all the seven bids and
following the earlier year's benchmark of minimum 50% marks or above, UIICL and NIACL were declared
technically qualified. Since the bids at Rs. 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 Rs. 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, inter alia, recorded that considering the projected losses

and information from CHIAK that, the Government had refused to include the premium adjustment clause in the
final Agreement, CHIAK should be informed that unless increased premium was paid, it would exit the scheme
under clause 18 of the Interim Agreement. This Office Note concludes with the following:
"7. If we exit the Scheme, CHIAK may go for re-tendering. We may again participate in the process quoting
appropriate higher premium jointly with other PSUs.
8. In the above circumstances we may seek Head Office approval for our following recommendations:
a. To issue a formal letter to CHIAK asking for increased premium for our continuation in the Scheme for the
next year.
b. If CHIAK/State Government does not agree to the above, to exit the Scheme through the Cancellation Provision
of the Agreement."
6.5 On 6.12.2011 a final Agreement without the premium adjustment clause was executed. UIICL vide letter dated
9.12.2011 gave a termination notice as per clause 21(ii) (c) of the said Agreement on the ground that they were
making losses and their request for increase of premium to Rs. 1100 was not accepted.
6.6 Thereafter, CHIAK issued fresh tender with last date for submission of bids being 30.12.2011. An internal
Office Note of OICL signed on 28.12.2011, after the fresh tender was published, is reproduced below:
OFFICE NOTE
RE:RSBY FOR THE YEAR 2012-13
The RSBY Scheme of Kerala Government was insured by United India Insurance company right from 2008. In
2010-11, Oriental took a 15% share. From the beginning, the scheme was making loss to the insurance
companies. The ICR for the past three polices is as follows :
2008-2009 -- 116.23%
2010-11 -- 189%
2011-12 -- 133.80%
In view of heavy losses, UIIC demanded increase in premium per family from Rs. 748 to Rs. 1100 and on the
government refusing to pay the increased amount. UIIC terminated the policy vide their letter dated 09.12.2011.
Subsequently, CHIAK (the authority designated for running the scheme) called for fresh tenders. The last date for
submission of tender is 30.12.2011.
As far as Oriental is concerned, we had a 15% share in 2010-11 and the ICR was 189%. There were some
difficulties in getting the correct claim figures from UIIC anticipating continued losses in 2011-12, we refrained
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 Rs. 1274 which it
agreed to reduce to Rs. 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 kept in the RSBY fund for infrastructure development.
6.8 GOK invited fresh tenders for the years 2013-2016. The Appellants bid again. UIICL was the lowest bidder
amongst the Appellants at Rs. 1150 but the bid was won by Reliance General Insurance Company Limited with a
quote of Rs. 738.
7. We now revert to the proceedings in the Commission. Pursuant to the Order of the Commission under Section
26(1) of the Act, the DG conducted investigation into the actions of the Appellants relating to the tenders issued
by the GOK for the years 2010-11 to 2012-13. DG's findings were as follows:
"1. The authenticity of the ICCC document was established.
2. The conduct of the Appellants was clearly collusive in nature and as decided in the ICCC meeting, UIICL
quoted the lowest bid amount amongst the Appellants for the year 2010-11 to 2012-13 to win the bid and cut the
competition among themselves. The bid amount quoted for these years and even the increase in the bid amount
by the Appellants showed a clear pattern of growth as evident from the table below:
3. In a competitive environment in a tendering process for selection, those who were not placed as L1 would
have a tendency to competitively outbid the L1 i.e UIICL, to get the business. However, in this case the other
Appellants rather increased their quote price at higher percentage in subsequent years, showing a clear pattern of
formation of cartel which was in violation of Section 3(3) (d) of the Act.
4. The Appellants not only formed a cartel, but also shared the business amongst themselves in the ratio which
was decided in the ICCC meeting. The argument of co-insurance was not acceptable as the RSBY scheme did not
allow for any sharing of business through coinsurance. Any sharing of business through co-insurance had to be
done, if any, with the express approval of the client (in this case CHIAK). However, the Executive Director of
CHIAK had specifically stated on Oath that no such communication or approval was taken by the Appellants. This
was also confirmed by Shri V. Sajan, DGM, UIICL, Kochi in his statement.
5. The role of CHIAK was not above board as it adopted certain parameters which were not mentioned in the
tender documents to select the insurer and an arbitrary marking system was followed.
6. The contravention of competition laws was not only done at regional level 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 Rs. 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 Rs. 1274 (subsequently reduced
to Rs. 1100 on negotiation). Reliance General Insurance Co. Ltd. had informed that the scheme was running well
at Rs. 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."
7.1 The DG concluded that, it was a case of contravention of Section 3(3)(a) and Section 3(3)(d) of the Act as
the Appellants had discussed the bid price for RSBY scheme, decided that UIICL will be L1 and shared the
business among themselves in a predetermined ratio, and thereby rigged the bids, which was explicitly prohibited
under the Act. In his view, this was a case of per se violation of competition laws, presumed to have an
appreciable adverse effect on competition and did not require a test of rule of reason to establish the
contravention.
8. The Commission after receiving the DG's report considered the same and forwarded electronic copies to the
Appellants and they were asked to file their response. The Appellants filed preliminary objections challenging the
DG's report on the ground that it suffered from a fundamental error of failure to consider that all the Appellants
being controlled by the same parent i.e Government of India, through the Department of Financial Services (DFS)
were part of a 'single economic entity' and hence there could not be any collusion between them under Section
3(3) of the Act. The Commission, however, asked the Appellants to file their objections on the merits of the
report also. The Appellants filed their objections to the main report and the parties were admittedly heard on
14.5.2015 over various aspects including the issue of single economic entity. Copies of letter dated 14.5.2015
which was sent by DFS to the office of the DG in another case of investigation against the Public Sector General
Insurance Companies, was also submitted to support the position that the Appellants formed part of a single
economic entity. The Commission has summarized the arguments of the Appellants regarding they being a single
economic entity and rejected those in paragraph 23 to 26 of the impugned Order, reproduced below:
"23. The Commission notes that OPs have vehemently opposed the DG's findings on the basis that they constitute
a single economic entity. OPs have claimed that until 2002, all OPs were owned by General Insurance Company.
It was also submitted that pursuant to the enactment of the General Insurance Business (Nationalization)
Amendment Act, 2002, Government of India holds 100% shares of each of the OPs and controls the management
and affairs of the companies through Department of Financial Services (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 regulatory changes were ushered in to allow the public sector
insurance companies to act independently and to compete with the private players to offer better services to
consumers.
25. The Commission notes that although the public sector insurance companies are presently under the overall
supervision of the Central Government, each of the OPs placed a separate bid in response to the tenders issued
by the Government of Kerala for implementation of RSBY/CHIS schemes. Further, parties themselves have
admitted before the DG that all decisions relating to submission of bids, determination of bid amounts, business
sharing arrangements, etc. were taken internally at company level without any ex ante approval/directions from
Ministry of Finance. Even the decisions taken by the companies were not notified ex post to the Ministry. Thus, it
is apparent that the OPs participated in the impugned tenders independent of Ministry of Finance and the DG
also did not come across any contra evidence.
26. In view of the above, the Commission notes that the conducts of OPs in relation to the RSBY/CHIS tenders

issued by the Government of Kerala during the period between 2010-11 and 2012-13 were based on their own
volition and the Ministry of Finance had no role to play. On this basis, the Commission holds that the ministry of
Finance did not exercise any de facto or de jure control over OPs' business decision in submitting bids for
impugned tenders. As such, OPs cannot be said to constitute a single economic unit. Accordingly, the Commission
rejects OPs' claims."
8.1 Further, the Commission held that decision of the Appellants in the ICCC meeting dated 7.12.2009 at Kochi,
which was the basis for initiating the suo moto case was, implemented by the Appellants. The reasons adduced
by the Commission to support this finding in paragraphs 34 to 38 of the impugned Order, are as follows:
"34. In this regard, the Commission notes the financial bids submitted by the participating bidders in response to
the 2009 tender. A comparison of the financial bids submitted by the OPs is set out below:
35. It is clear from the above; OPs quoted price bids in accordance with the decision taken in the ICCC meeting
held on 7.12.2009. The Commission notes that in line with the decision taken in the ICCC meeting, OP-4 was the
L-1 bidder.
36. Further, the Commission notes 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, they also entered into an anti-competitive agreement to manipulate the tendering
process initiated by the Government of Kerala for the implementation of RSBY and CHIS schemes."
8.2 The Commission scrutinized the Appellants' conduct relating to tenders issued by the Government of Kerala in
the year 2011-12 to 2012-13 also and concluded that a clear bidding pattern was evident and in this context
tabulated the rate bids of the Appellants in the following table in paragraph 47 of the impugned Order:
"Details of OP's rates bids in relation to the tenders of 2011-2012 and 2012-2013 "
8.3 The Commission supported its finding of clear bidding pattern by noting that in relation to both the tenders-
(i) The Appellants had quoted substantially higher premium and no plausible explanation to explain the rise was
forthcoming;
(ii) UIICL repeatedly secured the L1 position and entered into business sharing arrangements with, National
Insurance Co. Ltd. and New India Assurance Co. Ltd.
(iii) While the contracts were awarded for a period of three years but UIICL repeatedly invoked the exit clause of
the contracts, thereby, forcing the Government of Kerala to initiate re-tendering after completion of the first year
of the contract."

8.4 The Commission analyzed two internal documents i.e. internal Office Note dated 1.12.2011 of UIICL and
internal office note dated 28.12.2011 of OICL in order to examine whether the bidding pattern was an outcome of
an anticompetitive agreement. Based on these documents, the Commission's findings were as follow:
"52. The Commission is of the opinion that OP-4's office note dated 01.12.2011 clearly demonstrates the public
sector insurance companies, i.e., OPs were cartelizing to fix higher insurance premium rates. Relevant extract
from the aforementioned office note is set out below :
7. If we exit the scheme CHIAK may go for re-tendering. We may again participate in the process quoting
appropriate higher premium jointly with other PSUs.
53. From OP-3's office note dated 28.12.2011, the Commission notes that collective action of the public sector
insurance companies is clearly and unequivocally established. For ready reference, the relevant excerpts therefrom
are quoted below:
'After the fresh tender was published, UIICL called for a meeting of all the four PSUs and discussed the 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 General Insurance
Company Limited, the insurer under the RSBY/CHIS tender of 2013-14. The Commission notes that this tender
was awarded to Reliance General Insurance Company Limited at an annual premium of Rs. 738/- per family for a
period of three years and this contract was renewed for the year 2014-15 at the same price. The Commission
also notes that representatives of Reliance General Insurance Company Limited have confirmed that the company
is not incurring any losses for providing health insurance services under the RSBY/CHIS schemes. On this basis,
the Commission holds that the explanations offered by OPs are false assertions.
56. Thus, the agreement amongst OPs to manipulate the tendering process initiated by the Government of
Kerala/CHIAK for implementation of RSBY and CHIS for the years 2010-11, 2011-12, 2012-13 in accordance with
the provisions of Section 2(b) of the Act is clearly and unequivocally established."
8.6 The Commission also held that, "The entire modus operandi resorted to by OP-4 in concert with the other
PSUs to exit from the tender year after year forcing re-tendering and consequent quotation of higher quotation of
premium in collusion is a virtual fraud perpetrated upon the State of Kerala with regard to a social welfare
scheme which was directed at BPL families".
8.7 The Commission concluded that, the conduct of the Appellants had resulted in manipulation of the bidding
process, initiated by the Government of Kerala, in contravention of the provision of Section 3(1) read with Section
3(3)(d) of the Act. It held that in the case of agreements listed in Section 3(3) of the Act, it was presumed that
the 'agreement' had an appreciable adverse effect on competition and the Appellant could not rebut this
presumption as they could not show as to how the impugned conduct resulted into accrual of benefits to
consumers or made improvements in production of distribution of services or did not foreclose competition. The

Commission, accordingly, ordered the Appellants to cease & desist from indulging in anti-competitive practices.
Further, the Commission found the case fit for imposition of penalty. It considered the collective, anti-competitive
conduct of the Appellant affecting the State of Kerala and the beneficiaries of the RSBY/CHIS scheme i.e. BPL
and other poor families to be the aggravating circumstances. The "peculiarities 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 Rs. 162.80 crore on NICL, Rs. 251.07 crore on NIACL, Rs. 100.56 crore on OICL and Rs. 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 meeting of 7.12.2009 and the conduct of the Appellants in regard to various tenders, evidenced
bid rigging in terms of Section 3 of the Act or a co- insurance arrangement;
3. Whether the Appellants have any escape from the presumption of bid rigging having appreciable adverse effect
on competition;
4. Whether Investigation by the DG and the impugned Order of the Commission went beyond the period covered
by the Order under Section 26(1) of the Act passed by the Commission;
5. Whether the principles of natural justice were violated, vitiating the impugned Order, by non-signing of the
order by the Chairman who was present during the deliberation in the Commission;
6. Whether finding of the Commission of virtual fraud is valid;
7. Whether the penalty was leviable and if so whether the quantum was to be calculated with reference to the
total turnover or with reference to the turnover of the transactions relating to bid rigging."
11. The provisions of the Act and the General Insurance Business (Nationalization) Act, 1972,(GIBNA) which are
relevant for adjudicating the aforesaid issues, are extracted below:
The Competition Act, 2002
Section 2
Definitions - In this Act, unless the context otherwise requires, - ...................
(b) "agreement" includes any arrangement or understanding or action in concert, -
(i) whether or not, such arrangement, understanding or action is formal or in writing; or
(ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings;
(h) "enterprise" means a person or a department of the Government, who or which is, or has been, engaged in

any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or
the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or
dealing with shares, debentures or other securities of any other body corporate, either directly or through one or
more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same
place where the enterprise is located or at a different place or at different places, but does not include any
activity of the Government relatable to the sovereign functions of the Government including all activities carried
on by the departments of the 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 cooperative societies;
(ix) a local authority;
(x) every artificial juridical person, not falling within any of the preceding sub-clauses;
............................................
(z) words and expressions used but not defined in this Act and defined in the Companies Act, 1956 (1 of 1956)
shall have the same meanings respectively assigned to them in that Act.
Section 3

Anti-competitive agreements -
(1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement
in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services,
which causes or is likely to cause an appreciable adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in subsection (1) shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of
persons or between any person and enterprise or practice carried on, or decision taken by, any association of
enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision
of services, which-
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment or provision of services;
(c) shares the market or source of production or provision of services by way of allocation of geographical area
of market, or type of goods or services, or number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable
adverse effect on competition:
Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint
ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control
of goods or provision of services.
Explanation - For the purposes of this sub-section, "bid rigging" means any agreement, between enterprises or
persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision
of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or
manipulating the process 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 commencement of
the General Insurance Business (Nationalisation) Amendment Act, 2002, shall be performed by the Central
Government.
(2) In issuing any directions under sub-section (1), Central Government shall keep in mind the desirability of
encouraging competition amongst the acquiring companies as far as possible in order to render their services
more efficient.
Section 19 - Functions of acquiring companies.
(1) Subject to the rules, if any, made by the Central Government in this behalf and to its memorandum and
articles of association, it shall be the duty of every acquiring company to carry on general insurance business.
(2) Each acquiring company shall so function under this Act as to secure that general insurance business is
developed to the best advantage of the community.
(3) In the discharge of any of its functions, each acquiring company shall act so far as may be on business
principles and where any directions have been issued by the Central Government or the Insurance Regulatory and
Development Authority established under sub-section (1) of Section 3 of the Insurance Regulatory and
Development Authority Act, 1999 [41 of 199] shall be guided by such directions.
(4) For the removal of doubt it is hereby declared that the Corporation and any acquiring company may, subject
to the rules, if any, made by the Central Government in this behalf, enter into such contracts of re-insurance or
reinsurance treaties as it may think fit for the protection of its interests.
Section 10A - Transfer to Central Government of shares vested in Corporation- All the shares in the capital of the
acquiring companies, being -
(a) the National Insurance Company Limited;
(b) the New India Assurance Company Limited;
(c) the Oriental Insurance Company Limited;
(d) the United India Insurance Company Limited,
and vested in the Corporation before the commencement of the General Insurance Business (Nationalisation)
Amendment Act, 2002 shall, on such commencement, stand transferred to the Central Government.
Section 24A - Exclusive privilege of Corporation and acquiring companies to cease.
Notwithstanding anything contained in this Act, the exclusive privilege of the Corporation and the acquiring
companies of carrying on general insurance business in India shall cease on and from the commencement of the
Insurance Regulatory and 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 Appellants and, therefore, had decisive control over
them.
(ii) The Central Government under Article 77 of the Constitution of India allocates business to various ministries.
Ministries in turn allocate work to their various departments which execute business either directly or through
their instrumentalities like the Appellants in the present case.
(iii) Various provisions of GIBNA make it clear that apart from the corporate control, the Government of India,
has statutory control over the Appellants and therefore there can be no dispute that they constituted a single
economic enterprise. GIBNA was enacted for securing the development of general insurance business for the best
interest of the community and to ensure that the operation of the economic system did not result in concentration
of wealth to the common detriment, as postulated in Article 39(c) of the Constitution of India. This intention was
reflected in the Preamble and the declaration of the policy under Section 2 of GIBNA. Section 2 of the GIBNA
makes it clear that the Appellants were actually carrying out the obligation of the State for serving a social
welfare scheme, and no penalty could be levied upon the Government Companies for implementing the scheme of
the Government to carry out obligations cast on the State under Article 39 of the Constitution of India. Sections
4, 9,10 and 10A of GIBNA describe how 107 insurance companies were merged together to form the present day
four Appellants. 100% shares were taken over first by the Government of India and then they were vested in
General Insurance Corporation (GIC) and later by an Amendment Act of 2002, the said shares were re-vested in
the Government of India. Section 10A was added to the GIBNA for the aforesaid purpose. Since Government of
India stepped into the shoes of GIC, the superintending, controlling and carrying on the business of general
insurance referred to in Section 9(1) of the GIBNA was then carried out by the Government of India through
DFS. Section 18(1) and 18(2) are further illustrative of the fact that functions of GIC were taken over by the
Government of India, which through DFS now issues directions to Appellants in relation to the conduct of general
insurance business.
(iv) Government issued instructions towards business strategies and in fact forbade Appellants from entering into
unhealthy competition or to undercut 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 abolition of motor pool & shifting
to declined motor pool and other factors, the Public Sector Insurance Companies to be incurring losses to an
extent of Rs. 1500 crores and above every year on Group Health Insurance policies is totally unacceptable. This
is especially when the total dividend declared by these Companies during 2010-11 was only Rs. 30 crores.
A closer examination of these losses and a relative comparison with the private sector, it is clear that that these
losses are due to the lack of prudent underwriting and a very unhealthy and self-destructive inter-company
competition among these four Companies. Heavy discounts are being offered on premiums, so as to snatch the
business from the other Public Sector Undertaking Companies. Such unhealthy competition has led to a state
where premiums for Group Health Insurance policies are settling down to a very low level and such policies
become loss making the very moment they are underwritten.
Health insurance is one of the most important upcoming segment in the non- life sector and the business in
Health Insurance is only going to grow up in coming years. While the desire to increase the GDPI by
underwriting new premium policies including those in the Health Insurance business is understandable, this cannot
be done by seriously compromising the bottom line. Growth in premiums portfolio cannot be at the expense of
the bottom line and would make the entire Health Insurance Sector unviable in the long run. It is, therefore,
necessary that a proper mechanism be put in place whereby an appropriate pricing mechanism for pricing Group
Health Insurance is adopted which takes into consideration the existing ICR, management expenses, medical
inflation, commissions, likely increase in the quantum of claims due to ageing of the covered group, cost of
underwriting the business and other such associated factors."
All such instructions were issued with a warning that deviation would be viewed seriously. Government of India
acted as a single parent head and had control over the activities of the Appellants. Minutes of the Review dated
10.1.2007 of performance of the Appellants by the Finance Minister reproduced below evidenced the influence of
the Government
"Ministry of Finance
Sub: Performance of Public Sector Insurance Companies and GIC On the basis of the performance review done on
10th January, 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 must be suitably reflected in the new SOI from 2007-2008 onwards.
4. The employee strength of PSICs is extremely high. This is a legacy issue. Because of huge recruitment in the
mid 1980s the present date of attrition is low.
Issue that needs to be addressed by the PSICs.
5. There is a huge backlog in suit claims and non-suit claims. Every year, a larger number of suit claims and

non-suit claims are filed. The number of claims settled in each year should be more than the new claims filed
each year, otherwise, they backlog will never be liquidated.
So far as suit claims are concerned, PSICS must review their panels of lawyers, the performance of each lawyer
measured by the number of cases disposed of and put in place a system where more suits are heard and decided
by the Tribunals. In addition, they must examine the possibility of settling up Adalats to dispose of these claims.
If they approach the Chief Justice of the High Court concerned, he/she would direct the Judge Incharge of the
Lok Adalats and Adalats could be held in every district and a large number of MACT cases could be disposed of.
As regards non-suit claims, perhaps there is reluctance on the part of the individual manager to settle these
claims. An alternative course would be to constitute 2/3 member teams which will go around the districts, fix
dates for settlement, hear the parties and settle as many claims as possible on the spot.
In conclusion, I would advise them to make a determined effort to liquidate the backlog and work out a time
frame for doing so.
6. There are huge disparities in the technologies employed in the four PSICs. The main indicators of technology
adoption may be listed and the progress made by each of the four PSICs against each indicator may be graded
on a scale of 0 to 10 (zero means no beginning and 10 means full achievement). Thereafter, each PSIC must
work out a timeframe by which it will achieve 10 points against each technology indicator/parameter.
7. PSICs must begin work on dematerializing insurance policies. A suitable date may be fixed in the financial year
2007-08 (say, 1st October, 2007) with effect from which only dematerialized policies will be issued. All old
(material) policies should be dematerialized over a period of time.
8. Treasury management of PSICs is extremely poor. It is possible that the PSICs are extremely conservative. 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 the Government.

(viii) Transfer and postings of the officers inter se among the Appellants took place routinely under the directions
of DFS, in terms of Section 22 of the GIBNA.
(ix) The Appellants were 'State' under Article 12 of the Constitution and participation in health insurance scheme,
irrespective of the losses suffered, was in discharge of mandatory obligations under the Constitution and could not
be considered as a conspiracy. The fact of Appellants implementing the social sector schemes of the Government
was noted in all the Annual Reports tabled by the Ministry of Finance in Parliament and special reference be
made to Annual Report for the year 2008-2009 which recorded participation by the Appellants in Universal Health
Insurance Schemes. Annual Report for the year 2012-2013 took a stock of operational losses in general by the
Appellants and noted that the "Government had issued advisory to the companies to formulate strategy to be
adopted by the companies in order to improve upon the pricing of these products viz. Health, Fire and Motor
insurance.". It was, therefore evident that as a single parent head the Department of Financial Services, Ministry
of Finance was very much in control over the operational aspects of the companies and it reviewed their
performance from time to time. It took note of the losses, it informed the Parliament about the same and also
issued advisories for improving the said positions.
(x) Finding of the Tribunal in the case of Wing Cdr. (Retd.) Dr. Biswanath Prasad Singh v. Director General of
Health Services (DGHS) (Appeal No. 63 of 2014), as extracted below was equally applicable to the case of the
Appellant.
"CGHS is clearly an enterprise which provides healthcare services to the target group and in order to do so, in
view of the constraints on its capacity, it laterally complements its resources by empaneling hospitals which
include private hospitals as well..."
(xi) The European Commission in its Guidelines on the applicability of Article 101 of the Treaty on the functioning
of the European Union to horizontal co-operation agreements (Ref. No. 2011/C11/01) has laid down that:
"Companies that form part of the same 'undertaking' within the meaning of Article 101(1) are not considered to
be competitors for the purposes of these guidelines. Article 101 only applies to agreements between 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. 183 (2010, Case No.
COMP/M.6113-DSM/SINOCHEM/JV. of the European Union, Consten and Grundig Case 56 [1966] ECR 299, of the
European Court of Justice, Case T-102/92, Viho Europe BV v. Commission [1995] ECR II-117, Case C-73/95 P,
Viho Europe BV v. Commission [1996] ECR 1-5457,S/V v. Commission [1992] ECR-II 1403, UAB Milsa and UAB
Torita of the Lithuanian Competition Council, supported the case of the Appellant."
12.2 Another facet of a 'single economic entity' presented by Shri Krishnan Venugopal, Learned Senior Counsel
for the Oriental Insurance company was that DFS was engaged in providing general insurance services through
the Appellants, and DFS together with the Appellants formed a single 'enterprise' and therefore, the Commission
was bereft of jurisdiction under Section 3 of the Act because there could not be a prohibited 'agreement' between
persons who were part of a single enterprise. Following arguments were advanced in support of this proposition:
"(i) Article 39(c) of the Constitution read together with GIBNA and the Articles of Association of the Appellants
clearly established that the Central Government through the DFS was providing general insurance services through

the Appellants. The term 'subsidiary' in Section 2(h) of the Act had to be construed as including companies that
were wholly owned and controlled by the Central Government.
(ii) GIBNA nationalized the entire general insurance business and vested it with the Central Government. Section
2 of GIBNA expressly declared that it was "for giving effect to the policy of the State towards securing the
principles specified in Article 39(c) of the Constitution i.e "The State shall, in particular, direct its policy towards
securing.......that the operation of the economic system does not result in the concentration of wealth and the
means of production to the common detriment.......". It was, therefore, that the Central Government, as the 'State'
for the purposes of the Directive Principles of State Policy in part IV of the Constitution had been entrusted with
the provision of general insurance services throughout India through its instrumentalities, namely, the Appellants.
(iii) The Appellants were 'State' under Article 12 of the Constitution as held in the case of United Insurance Co.
Ltd. v. Manubhaidharamsinhbhai Gajera : (2008)10 SCC 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 Central Government had the power to transfer employees among the Appellant
Insurance Companies as it chooses;
(v) The Articles of Association of the four Appellants further reinforced the conclusion that the Central
Government wholly owned and controlled the Appellants. Not only does the Central Government appoint the
Directors and the Chairmen and Managing Directors of the Appellant Insurance Companies, it can also remove
them, fill vacancies, etc.
(vi) Section 18(2) of GIBNA is for the Central Government to keep in view, but that cannot vest Commission with
jurisdiction under Section 3 of the Act because there could not be a prohibited 'agreement' between persons who
were part of a single enterprise.
(vii) Section 2 of the Act must be read by applying principles of statutory interpretation such as (a) purposive
interpretation in light of the mischief rule (b) an interpretation to make a provision effective and operative. The
interpretation of the term 'enterprise' in S. 2(h) of the Act, by the Commission would result in (a) fastening a
charge of cartelization on Government companies or corporations involved in producing the same goods or
providing the same services where they were under the control of the same department of Government, (b)

immunizing departments of the Government that control multiple companies in producing the same product or
providing the same service, from allegations of abuse of dominance under Section 4 of the Act because these
would not be considered as 'enterprise' for the purposes of section 4 of the Act, thereby frustrating the intent of
the Act, of, inter alia, countering the mischief of dominance of the public sector."
12.3 Shri Rajshekhar Rao, Advocate for the Commission made the following arguments to rebut the contention of
a 'single economic entity':
"? Statement of objects and reasons to the GIBNA clearly stated the intent in regard to creation of the Appellants
being as "only four companies, so situated as to promote competition between them so that effective services in
the field of general insurance may be rendered by them in all parts of India". (emphasis supplied)
? Section 18(2) of GIBNA statutorily mandates the encouragement of competition to the extent possible and if the
four Appellants were part of a 'single economic entity', then even the possibility of 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 was effected through GIBNA in 1972. The Preamble to GIBNA reads
as follows:
"An Act to provide for the acquisition and transfer of shares of Indian insurance companies and undertakings of
other existing insurers in order to serve better the needs of the economy by securing the development of general
insurance business in the best interests of the community and to ensure that the operation of the economic
system does not result in the concentration of wealth to the common detriment, for the regulation and control of
such business and for matters connected therewith or incidental thereto."
13.1 Intent of GIBNA as stated in the Preamble is reiterated in Section 2 of the said Act which declares that the
said Act is to give effect to the policy of the State towards securing the principles specified in clause (c) of
Article 39 of the Constitution. Article 39(c) which figures under Chapter IV titled 'Directive Principles of State
Policy' directs that the State shall, in particular, direct its policy towards securing "that the operation of the
economic system does not result in the concentration of wealth and the means of production to the common
detriment". So the GIBNA targeted concentration of wealth, and in terms of the Preamble aimed to get the
insurers serve better the need of the economy and develop general insurance business in the best interests of the
community. In terms of Section 4 of GIBNA the shares of every existing Insurance company were transferred to
the Central Government and Section 10 of GIBNA provided the transfer of these shares to GIC on its formation
under the Companies Act. Section 16(1) of GIBNA, vested the Central Government with the power to frame one
or more schemes for merger of existing companies with a rider under Section 16(2) of GIBNA, that "In framing
schemes under sub-section (1), the object of the Central Government shall be to ensure that ultimately there are
only four companies (excluding the Corporation) in existence and that they are so situate as to render their
combined services effective in all parts of India". In terms of Section 18(1) of GIBNA, GIC could carry on general
insurance business, and its functions included aiding, assisting, advising and issuing directions to the 'acquiring
companies' i.e the Appellants, in the matters listed in clauses (b) to (e) of the said Section.

13.2 This signified 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 insurance business and the Appellants have a separate right to
do insurance business. This is further reinforced by Section 18(2) of GIBNA, which circumscribes the powers of
Central Government to issue directions and Section 19 of GIBNA, which lists functions of the Appellants and
requires the Appellants to be guided by the directions issued by the Central Government or the IRDA and Section
23 of GIBNA, which vests Central Government to issue directions in matters of policy involving public interest.
Therefore, DFS which is the part of the Ministry of Finance discharging functions of the Central Government, is
separated by a statutory wall from the Appellants.
13.4 The statutory scheme also enunciates the applicability of business principles in the operations of the
Appellants, including the need of competition among the Appellants, demolishing their claim of a 'single economic
entity'. As pointed out by the counsel for the Commission, the Statement of Objects and Reasons of the GIBNA,
inter alia, stated that "only four companies, so situated as to promote competition between them so that effective
services in the field of general insurance may be rendered by them in all parts of India".
(emphasis supplied).
13.5 The reason for creating four companies by the process of mergers, as indicated above was to encourage
competition, which was reinforced in Section 18(2) of GIBNA which mandated Central Government to keep in
mind "the desirability of encouraging competition amongst the Appellants", while issuing directions "in order to
render their services more efficient". This is a statutory recognition of the principle that competition among the
Appellants would promote efficiency and is in sync with the Statement of Objects and Reasons of GIBNA (ibid).
Further, Section 19(2) and 19(3) of the GIBNA, directs the Appellants to secure that general insurance business is
developed to the best advantage of the community and to act so far as may be 'on business principles'. Business
principles include competition, and confirm the legislative intent to stimulate efficiency in public interest, through
competition amongst the Appellants. The acknowledgment of need for competition is manifest in the very fact that
instead of merging all the companies under one entity with various units or divisions, the legislature created a
structure of 4 companies.
13.6 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 apprised the Commission
that the advisories were not to undermine competition, in the following words:

"Therefore, although the advisories referred to in your aforementioned letter are towards regulating the
operational activities of the four Public Sector General Insurance Companies (PSGICs) the same were sent out
with a view to protect and safeguard them against any imprudent business action, and achieving the above
objective of the Government.
It is also pertinent to mention here that these advisories are consistent with regulations issued by the Sector
Regulator (IRDAI) from time to time in the area of health insurance and are not intended to undermine and do
not undermine the healthy, fair and competitive functioning of the sector.
The advisories issued by this Department vide letter dated 24.05.2012 to the four PSGICs are a part of our
efforts as discussed in the preceding paragraphs. The said advisories do not affect competition in the market in
any manner, which the Government of India, through its own legislation, wishes to protect and promote amongst
business enterprises."
(emphasis supplied)
13.7 Further, the definition of 'enterprise' under Section 2(h) of the Act, which is an exhaustive definition,
stipulates that enterprise is a person or a department of Government engaged in the stated activities either
"directly or through one or more of its units, or divisions or subsidiaries". Each of the Appellant is directly
engaged in the activities of providing insurance services. It is not the argument that they are each other's unit,
division or subsidiary. So every Appellant is an 'enterprise' under Section 2(h) of the Act, and an aggregation of
'persons' operating independently of each other, cannot be characterized as an 'enterprise'. Therefore, any
agreement between them is an agreement between enterprises.
13.8 We have in paragraph 13.3 of this Order given reasons as to why DFS, in view of the provisions of GIBNA
cannot be considered as directly engaged in providing insurance services. We also see no force in the argument
of Sh. Krishnan Venugopal, Learned Senior Counsel for the Oriental Insurance Company Ltd. that DFS was
engaged in providing insurance services, through its subsidiaries and hence was an 'enterprise', for the purposes
of Section 2(h) of the Act. The definition of 'enterprise' 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 of this Act have the same voting rights in all respects as the holders of
equity shares, exercises or controls more than half of the total voting power of such company;
(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its equity
share capital; or
(c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary.

ILLUSTRATION ............
(2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be
controlled by another company if, but only if, that other company by the exercise of some power exercisable by it
at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all
or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to
have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is
to say -
(a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such a
power as aforesaid;
(b) that a person's appointment thereto follows necessarily from his appointment as director [***] or manager of,
or to any other office or employment in, that other company; or
(c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof.
(3) In determining whether one company is a subsidiary of another -
(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not
held or exercisable by it;
(b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable -
(i) by any person as a nominee for that other company (except where that other is concerned only in a fiduciary
capacity); or
(ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which is concerned only
in a fiduciary capacity, shall be treated as held or exercisable by that other company;
(c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the first-
mentioned company or of a trust deed for securing any issue of such debentures shall be disregarded;
(d) any shares held or power exercisable by, or by a nominee for, that 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 incorporated outside India, which, if incorporated
in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act
to be a subsidiary of a public company if the entire share capital in that private company is not held by that

body corporate whether alone or together with one or more other bodies corporate incorporated outside India."
13.9 Subsidiary status is available only to companies or a body corporate. A department of the Government is
neither a company nor a body corporate, and by its very nature cannot have subsidiaries. Any extended or altered
meaning of the term subsidiary will mean a departure from the clear language of law under Section 2(h) read
with Section 2(z) of the Act. Purposive rule and Mischief rule of interpretation cited by the counsel are not
applicable in this case as these aids to interpretation of a statute are deployed where the language is unclear,
ambiguous and the interpretation canvassed would support intent of the legislature and curb the mischief that
was sought to be corrected through the new legislation replacing an earlier legislation. In the present case, the
legislative history in relation to the MRTP Act and the background in which the Competition Act replaced the
MRTP Act validate the proposition that except for the activities of the Government relatable to sovereign functions
and activities of the departments of the Central Government specifically listed in Section 2(h) of the Act, activities
of public sector will be subjected to the discipline of competition law. We do not agree that a literal
interpretation of the word 'Subsidiaries' be discarded in favour of an interpretation which would make public
sector undertakings immune from the charge of cartelization. Further, we find no force in the argument that if
the term 'enterprise' in not to include the department aggregated with the public sector enterprise that it
controls, then Section 4 of the Act has no force. Section 4 of the Act prohibits abuse of dominant position by
'enterprise' or 'group'. An 'enterprise' as defined in Section 2(h) of the Act means 'a person or a department of
the Government ......' and 'person' as defined in Section 2 of the Act (l) includes individuals, HUFs, Companies
etc. So every company, even a public sector company, comes within the purview 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 itself is sufficient to hold that it is not required to follow the
constitutional or statutory norms?
24. If it is a 'State' its action must be fair and reasonable. It has been so held in a catena of decisions of the
Court as for example Peacock Plywood Plywood (P) Ltd. v. Oriental Insurance Co. Ltd. [: (2006) 12 SCC 673
paragraphs 57 at page 691] and Life Insurance Corporation of India v. Consumer Education and Research Centre
[: (1995) 5 SCC 482 ].
25. There cannot be any doubt that Directive Principles of State policy by themselves per se are not enforceable
in a court of law. [See Kesavananda Bharati v. State of Kerala [: (1974) 3 SCC 225].
26. We would assume that it is one thing to say that the State is to make all endeavours to improve the public
health but the same by itself would not mean that a contract of insurance governed by statute must receive
construction in terms of the said provision or otherwise, the endeavour of the State should have been to direct
compulsory insurance for all its citizens. Improvement of public health has been held to mean an obligation on
the part of the State to put forth its policy to ecological balance and hygienic environment, the later being an
indirect facet of the right to healthy life. {Virinder Gaur and others v. State of Haryana and others [: (1995) 2
SCC 577 ]}. {[See also Kirloskar Brothers Ltd.s. v. Employees' State Insurance Corporation [: (1996) 2 SCC 682
]}.
27. Even otherwise the term "health" may be given a wider meaning in the context of insurance. It may mean

sound health. Collins English Dictionary defines "health" as :- "Health: the state of being bodily and mentally
vigorous and free from disease, the general condition of body and mind: in poor health, the condition of any unit,
society, etc.: the economic health of a nation, a toast to a person, wishing him or her good health, happiness,
etc., (modifier) of or relating to food or other goods reputed to be beneficial to the health: health food; a health
store., (modifier) of or relating to health, esp. to the administration of health: a health committee; health resort;
health service., an exclamation wishing someone good health as part of a toast (in the phrases your health, good
health, etc.)."
28. The functions of the insurance companies are governed by statute. A contract of insurance, therefore, must
subserve the statutory provisions. 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 option but to proceed on the
assumption that the public sector insurance companies being a State have a different role to play. It is not to say
that as a matter of policy statutory or otherwise the insurance companies are bound to regulate all contracts of
insurance having the statement of Directive Principles in mind but there cannot be any doubt whatsoever that
fairness or reasonableness on the part of the insurance companies must appear in all of its dealings."
(emphasis supplied)
13.11 Thus while acting as 'State', the only obligation of the Appellants in regard to insurance contracts was to
be fair and reasonable and to be governed by the larger public policy but that did not mean that they were to
necessarily provide health insurance by bidding for the GOK tenders or were in terms of GIBNA read with Article
39(c) of the Constitution mandated to participate in the health insurance schemes. It is also important to note
that Article 39(c) of the Constitution provides that the State shall direct its policy towards securing that the
operation of the economic system does not result in the concentration of wealth and means of production to the
common detriment. Nationalisation of general insurance business, as specifically stated in Section 2 of GIBNA was
for giving effect to the policy of the State under Article 39(c) of the Constitution. GIBNA does not make any
reference to Article 39(e) of the Constitution which provides that the State should direct its policy towards
securing "that the health and strength of workers, men and women, and the tender age of children are not
abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or
strength".
13.12 Various international cases cited by the Appellants were based on legal provisions applicable in those
jurisdictions. Further, the concept of 'single economic entity' was confirmed in those cases as also in Lamborgni
case (ibid), as the subsidiaries did not enjoy real autonomy in their operational decisions, and along with their
parent represented a single aggregation of economic power. In the present case, the Appellants are Board
managed companies, with autonomy in operational matters and cannot be aggregated with DFS, which is not
engaged in any activities relating to good or services. Besides, the fact that the Appellants were competing inter
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 are not a 'single economic entity', we have to assess their conduct in the
tender process and analyze the agreement recorded in the minutes dated 7.12.2009 extracted in paragraph 2 of
this Order, to determine whether there was a contravention of Section 3 of the Act on account of bid rigging.
The admitted facts reveal that, senior officials of the Appellants held a meeting on 7.12.2009 wherein it was
agreed that UIICL would be 'L1' with respect to the tender floated by the Government of Kerala for the year
2010-11. UIICL did in fact emerge as the lowest qualifying bidder in terms of the aforesaid Agreement for
subsequent tenders too, where all the four Appellants bid. The contention of the Appellants is that, UIICL had
incurred huge losses from the first year of the scheme and having already suffered losses in the previous years,
the sister companies discussed about the capacity building, risk improvement measures and sharing of burden of
losses while serving a social sector scheme. It was submitted that, since UIICL had a strong presence and large
infrastructure in South, the minutes actually presented the decision to serve the social sector scheme by UIICL
and for other sister companies to provide support as co-insurers in the loss making scheme. A chart was handed
over to us during the arguments to show that in the year 2008-2010, UIICL had suffered losses of Rs. 7.88
crores which got enhanced to Rs. 70 crores in the year 2010-11 and Rs. 42.63 crores in 2011-12 and it was in
the year 2012-13 that UIICL could make profit of Rs. 92.05 crores. This profit was stated to be on account of
restriction imposed by the Government on the complaint of UIICL on staff incentives. It was emphasized that the
real result of the Agreement was that, UIICL had reduced share of losses due to cooperation of sister Appellant
companies. It was impressed upon us that, the Appellants were not the only bidders as private sector companies
were also eligible to bid and actually did bid, and hence bid manipulation to ensure success of UIICL was not
possible. It was urged that, there was no intention to make supernormal profit and the exit from the Agreements
was for valid reason of losses.
14.1 According to the counsel of the respondent, the uncontroverted fact of the Agreement followed by repeated
success of UIICL in various tenders was sufficient 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 was far from the truth.
14.2 We agree with the conclusion of the Commission that, the Appellants did enter into an Agreement as defined
in Section 2(b) of the Act, in contravention of Section 3 of the Act, which resulted in bid rigging. The minutes of
the meeting which caused the initiation of inquiry by the Commission are a contemporaneous record of the intent
of the meeting and decisions taken. There is no mention of co-insurance. The Office Notes quoted in paragraph
52 and 53 of the impugned order confirm the continuation of the Agreement recorded in the said minutes.
Besides, a co-insurance Agreement dated 20.2.2009, which was entered into between the existing IRDA-licensed

non-life insurers operating in the Indian market including the Appellants, inter alia included the following under
the title 'system of co-insurance':
"The term of coinsurers shall contain a lead insurer and coinsurers who will be name by the insured according to
their choice at the time of placing their proposal with the lead insurer. The client shall name the percentage of
the risk allotted to the lead insurer and Coinsurer, at the time of placing the business with the lead insurer. In
writing, clearly specifying the share of business amongst them'.
This agreement which governed the co-insurance arrangement required that GOK should have been apprised of
the said arrangement and only one of the Appellants should have bid, which admittedly is not the position. So
the plea of co-insurance is not tenable.
14.3 An argument was made that, the Agreement of 7.12.2009 was not implemented because ratio of business
share differed from the ratio recorded in the Minutes and all the Appellants actually incurred losses, except in
2012-2013. However, this variation and incurring of losses will not undermine the anti-competitive nature of the
Agreement. The fact is that, all the Appellants bid for the tenders, though OICL, did not share the business after
2010-2011 and sharing ratio deviated from the ratio agreed at in the minutes. Bid rigging as defined in
Explanation to sub-section (3) of Section 3 of the Act, inter alia, means manipulating the process of bidding. Such
manipulation does not require sharing of business and there is no assumption that bid rigging is for making
profits. Anti-competitive Agreement resulting in bid rigging is a per se contravention.
14.4 The 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 The Appellants, if they wanted to share risks could have bid as a consortium without contravening Section 3
of the Act. There is no bar on their forming a consortium and as per information in public domain they did form
a consortium under the lead of NIACL and won a bid for insuring the fleet of Air India.
14.6 We are of the view that, there was no constitutional or statutory requirement for the Appellants to
participate in each tender regarding the health insurance. There was no direction or even advice from DFS to
participate in the tenders issued by GOK. Further, if they wanted to spread their risks, they had an option to
either enter into a formal co-insurance arrangement or to bid as a consortium. Statutorily, as brought out by us
in earlier part of this Order, they were expected to compete and operate on business principles. On the facts of
this case, we have no hesitation in concluding that anti-competitive agreement was entered into by the Appellants
in contravention of Section 3(1) of the Act, which constituted bid rigging in terms of Section 3(3) of the Act.
15. The next issue is as to whether the Appellant can escape the presumption of appreciable adverse effect on
competition on account of bid rigging. The Appellants argued that agreement, if any between the Appellants could
not have had any appreciable adverse effect on competition in the market, which is the sine qua non for the
contravention under Section 3(3) of the Act, for the following reasons:
"(a) It was an Agreement between sister concerns controlled by a single parent head or the common shareholder.
(b) Not all the Appellants qualified for the financial evaluation of the bids each year.

(c) Factors enumerated in Section 19(3) of the Act were sufficient to establish that this was not the case where
there was any appreciable adverse effect on the competition in the market. On the contrary, there was substantial
benefit to the consumers and there was also increase in efficiency as a result of the Agreement of co-insurance
entered into between the parties.
(d) The fact that the Appellants suffered heavy losses was indicative of there being no appreciable adverse effect
on the competition.
(e) The fact that prices were increased by the Appellants while quoting for tender each year was of no
consequence since the prices were increased even by the private players. DG 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, contravention of Section 3(1) of the Act is also
established. We see no reason to interfere in the conclusion of the Commission that the Appellants entered into
an Anti-competitive Agreement, resulting in bid rigging which had an appreciable adverse effect on competition.
16. The next issue pertains to the claim of the Appellants that the DG exceeded his mandate of investigation by
including tenders for the years 2011-12 and 2012-13 when the order to investigate the matter under Section
26(1) of the Act dated 12.2.2014, mentioned only bid rigging of tender dated 18.11.2009 based on the photocopy
of the minutes of the meeting dated 7.12.2009. It was argued that the Commission too went beyond the mandate
contained in its prima facie order under Section 26(1) of the Act.
16.1 We do not agree with the Appellants. The minutes of the meeting dated 7.12.2009 which were admittedly
authentic and based on which the Commission took up the matter suo moto under Section 19(1) of the Act, were
annexed to a letter, which has been reproduced in paragraph 2 of this Order. This letter specifically alleged that
the "Insurance Companies have formed a cartel and increased the premium for RSBY every year". (emphasis
supplied). The minutes of the meeting dated 7.12.2009 were attached as a documentary proof. In the Order under
Section 26(1) of the Act, in para 9, the Commission held as follows:
"In view of the above, prima facie there appears to be an agreement or arrangement between the OPs as bidders
for rigging bid in tenders issued by the Government of Kerala for RSBY Scheme in contravention of the
provisions of Section 3(3) of the Act. The Commission considers it appropriate that this matter be sent to the DG
for thorough investigation under Section 26(1) of the Act".
(emphasis supplied).
16.2 Therefore, the allegation was in regard to the conduct of the insurance companies for increase of premium
through cartelization "every year" and the order of the Commission was in regard to rigging bid in regard to
'tenders'. Accordingly, the DG and the Commission validily examined the tender process for the years 2010-11,
2011-12 and 2012-13.
17. The Appellants have sought quashing of the impugned order on the ground of violation of the principles of
natural justice. It was stated that, all the members of the Commission and the Chairman were present for the

hearing dated 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 was that, the entire order was
vitiated on account of Quorum Non Judice and on account of the violation of the important principle of 'one who
hears must decide without any influence'. Reliance was placed on our decision in the case of 'Lafarge v. CCI'
(Case No. 103 of 2012), which, inter alia, referred to the Supreme Court judgement in the case of 'A.K. Kraipak
v. Union of India' [: (1969) 2 SCC 262 ], to claim that this violation was a fatal irregularity. Further, it was
stated that in a case of similar irregularity, the King's Bench Division in the case of R V Sussex [1924] 1 KB
256, had also set-aside the order under challenge with the following observation:
"The answer to that question depends not upon what actually was done but upon what might appear to be done.
Nothing is to be done which creates even a suspicion that there has been an improper interference with the
course of justice."
17.1 In the course of the oral arguments, it was repeatedly asserted that the Chairman of the Commission had
earlier functioned as Finance Secretary in the Government of India and held the additional charge of DFS for
some time and was well aware of the relationship of DFS with the Appellants. The suggestion was that, the
participation of such a person in deliberations and his not signing the final Order fatally vitiated the Order.
17.2 We see no merit in the arguments of the Appellants. Vitiation of an Order on account of influence, based on
the principle that 'one who hears must decide without any influence', requires possibility of influence by an
interested person to the prejudice of the party challenging the Order. The Appellants in the present case have
failed to establish any personal interest of the Chairman in the proceedings or how his presence in some
deliberations and not being party to the impugned Order, caused any prejudice to their case. Reference to the
judgment of the Supreme Court in the case of A.K. Kraipak(ibid), referred by us in the Lafarge case (ibid) is
misplaced as in that case a person who was himself a candidate for selection from the State Service to an All
India Service, was a member of the Selection Committee. The Supreme Court was of the view that, though such
an interested person may not have participated in the deliberation when his own case was being considered, his
bias could have operated in 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 other Appellants to exit from the tender
year after year forcing re-tendering and consequent quotation of higher quotation of premium in collusion, was a
virtual fraud perpetrated upon the State of Kerala with regard to a social welfare scheme directed at BPL
families. The counsel for the Respondent defended these observations as being warranted and appropriate. He

pointed out that, the word 'fraud' was qualified by the word 'virtual', thereby nuancing the finding to that extent
and that the conduct had to be viewed more seriously when the Appellants were public sector enterprises.
18.1 We have examined this finding of 'virtual fraud' emanating from UIICL exiting twice from contracts and
seeking increased premium in re-tender bids, in the context of admitted facts. The Appellants had submitted
before us that, UIICL did not exit from the contract relating to the year 2012-2013 in which it made profits but
the GOK decided to re-tender and this submission was not controverted by the counsel for the Respondent. Every
contract that UIICL exited, was causing losses as the claim amount exceeded the premium receipt, a fact not
disputed by the Respondent. The internal correspondence of GOK in regard to re-tendering and request of UIICL
for premium adjustment show that the GOK found the losses to be genuine. It is also a fact that, when UIICL
decided to terminate the contract after having provided the service for 1 year in regard to the contracts for the
years 2010-11, 2011-12, by exercising the option of termination, which was available to it in terms of the contract
itself, GOK did not question the bona-fide of UIICL. UIICL was allowed to bid again without being blacklisted and
contracts were awarded to it at a higher premium with due consideration at the highest level in the State, which
proves that the raising of premium rates was considered justified by GOK, in view of the claims being higher
than the premium. In these circumstances we hold that, the finding of 'virtual fraud' was unjustified and set aside
the same.
19. That brings us to the last question of validity of penalty imposed. The Appellants questioned imposition of
penalty on the ground that, the agreement was necessary to serve the needs of the society better and it was not
a case of contumacious disregard of law and no malafide could be attributed to the Appellants. 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 of penalty imposed was challenged on the ground of it being totally disproportionate to the
turnover under the RSBY Scheme in Kerala. It was contended that, the Commission had ignored the principle of
"relevant turnover" upheld in a series of judgment viz.-(a) Excel Crop Care Limited v Competition Commission of
India and Ors, (Appeal No. 79/2012, Order dated 29.10.2013); (b) ECP Industries Ltd. v. Competition Commission
of India & Anr., (Appeal No. 47/2015, Order dated 1 March 2016) at paras 22-23; (c)Dr. L.H. Hiranandani
Hospital v. Competition Commission of India & Anr, (Appeal No. 19/2014, Order dated 18 December 2015) at
para 38; and (d) Escorts Ltd. v. Competition Commission of India & Anr, (Appeal No. 13/2014, Order dated 18
December 2015) at para. 27(ii).
19.2 The counsel for the Respondent justified the penalty as being appropriate and not warranting any judicial
interference by us. His argument was that, there was serious cartelization and bid rigging indulged in by the
Appellants, which from the factual perspective had gone virtually unchallenged before the Commission and also
the Tribunal. He stated that, the Commission had appropriately analyzed the mitigating and aggravating
circumstances. It was further argued that, the penalty may seem large but the total turnover of the Appellant
could not be ignored if the penalty was to serve the purpose of effectively deterring the wrong-doer in question
as well as other potential offenders which might be tempted to act in similar fashion. His stance was that,
penalty must bear a reasonable relationship to the turnover (and therefore financial power) of such wrongdoer.
19.3 We, as discussed in this Order, have 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 the penal consequences. Law was breached and the legal conclusive presumption is that
there was an appreciable adverse effect on competition. We have perused the record of the Commission and its
Order dated 14.5.2015 records that, the Appellants were heard with regard to the merits of the case and also on
penalty. Therefore, the Appellants were afforded an opportunity to present their case with regard to penalty.
19.4 The only issue requiring our consideration is the quantum of penalty imposed 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 circumstance. While we agree
with the conclusion of the Commission in regard to the mitigating circumstance, we are of the view that the
aggravating circumstance 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. We also recognize that the burden of penalty
will ultimately be transferred to public, as the Appellants are owned by the Government. We, therefore consider it
appropriate that penalty be restricted to 1% of the relevant turnover as calculated below:
19.7 In the result, the Appeals are partly allowed and the impugned Order is modified in the manner indicated
hereinabove.
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National Insurance Company LTD and Ors V Competition Commission of India

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National Insurance Company LTD and Ors V Competition Commission of India

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National Insurance Company Ltd. And Ors. V.

Competition Commission Of India

Competition Appellate Tribunal. New Delhi

National Insurance Company Ltd. And Ors. ..Petitioner

Competition Commission Of India ..Respondent

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Commission of India. The relevant extract from the letter is as follows:

"Reg: Cartelization of public sector insurance companies in quoting RSBY Premium

3. The attached document referred to in the anonymous letter is reproduced below:

"UNITED INDIA INSURANCE COMPANY LIMITED

Inter Company co-ordination Committee (PSU General Insurance Companies)

THE MEETING WAS ATTENDED BY FOLLOWING OFFICERS:

1. Sri B.Krishnamurthy, DGM, United India Ins. Co. Ltd. RO Kochi

2. Sri Girish Raj.CRM, New India Insurance Co. Ltd. RO Kochi

3. Sri Rajasekharan CRM, National Insurance Co. Ltd., RO Kochi

Re: Tender Notice on RSBY dated 18/11/2009 of Govt. of Kerala

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? The scheme was to be implemented in all the 14 districts of the State.

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RE:RSBY FOR THE YEAR 2012-13

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"1. The authenticity of the ICCC document was established.

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Details of Business Sharing Arrangement relating to the Tender dated 08.12.2009

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10. The issues which require determination are as follows:

6. Whether finding of the Commission of virtual fraud is valid;

The Competition Act, 2002

Definitions - In this Act, unless the context otherwise requires, - ...................

(b) "agreement" includes any arrangement or understanding or action in concert, -

(i) whether or not, such arrangement, understanding or action is formal or in writing; or

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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 -

(l) person" includes-

(ii) a Hindu undivided family;

(ix) a local authority;

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(a) directly or indirectly determines purchase or sale prices;

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

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Section 19 - Functions of acquiring companies.

(a) the National Insurance Company Limited;

(b) the New India Assurance Company Limited;

(c) the Oriental Insurance Company Limited;

(d) the United India Insurance Company Limited,

Section 24A - Exclusive privilege of Corporation and acquiring companies to cease.

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(Nationalisation) Amendment Act, 2002, cease to carry on general insurance business."

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Issue that needs to be addressed by the PSICs.

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(ii) advice in controlling expenses;