Funding Rival Bids, Common IP Usage Sufficient To Prove Bid Rigging Even Without Written Cartel Agreement: NCLAT Upholds CCI Penalty Against Klassy Enterprises
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has upheld a ₹10 lakh penalty imposed by the Competition Commission of India (CCI) on Klassy Enterprises, holding that financing rival bids and submission of tenders from the same IP address were sufficient to establish bid rigging, even in the absence of a written cartel agreement. A Bench comprising Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha dismissed Klassy Enterprises’ appeal and affirmed the CCI’s order dated March 17, 2021, passed under Section 27 of the Competition Act, 2002.
The tribunal observed that “direct evidence of formation of any cartelization or bid rigging is seldom available” and that such anti-competitive arrangements are usually unearthed from surrounding circumstances and conduct of the parties. It held that, in the present case, the cumulative evidence clearly demonstrated that the bidders “were not fairly competitive with each other and rather they have formed a cartelization.”
The case arose out of a 2015 e-tender floated by the Pune Zila Parishad for procurement of Pico-fall-cum-Sewing Machines with ISI marks. The machines were intended to be distributed under a welfare scheme of the Government of Maharashtra for the benefit of backward classes, women, and persons with disabilities in rural areas of Pune district.
Three authorised dealers of Usha International Limited—Klassy Enterprises, Nayan Agencies, and Jawahar Brothers—participated in the tender. Their bids were found to be strikingly close. Klassy Enterprises quoted ₹12,621 per unit (inclusive of taxes), while Nayan Agencies and Jawahar Brothers quoted ₹12,649 and ₹12,638 respectively. After negotiations, Klassy reduced its price to ₹12,250, following which the contract was awarded to it.
Based on a detailed investigation by the Director General, the CCI concluded that the three dealers had colluded to rig the bidding process and held them guilty of contravention of Section 3(3)(d) read with Section 3(1) of the Competition Act. A penalty of ₹10 lakh was imposed on Klassy Enterprises. Challenging this finding, Klassy argued before the NCLAT that the marginal price differences were natural since all bidders operated in the same geographical area and faced similar cost structures.
Klassy Enterprises also sought to explain the use of a common IP address by stating that it operated a cybercafé and provided tender-filing services to other bidders. It further relied on the fact that it had reduced its quoted price during negotiations to contend that there was genuine competition and no prior agreement.
The appellate tribunal rejected these explanations. Examining what it described as the “entire trail of movement of the funds,” the NCLAT noted that Klassy Enterprises had transferred more than ₹38 lakh through third-party accounts to pay the tender fees and earnest money deposits for all three bidders. When the two unsuccessful bidders received refunds of their earnest money from the Pune Zila Parishad, the amounts ultimately flowed back to Klassy Enterprises. The tribunal held that this financial trail was “clear evidence that there was a prior agreement of formation of a cartel”
The NCLAT also found the cybercafé defence to be unconvincing. It observed that it was “highly unlikely” that independent and competing bidders would use the same IP address to upload their technical and financial bids on the same day. The tribunal additionally relied on call data records, which showed that the bidders were in frequent contact, with 51 calls exchanged between them in the two days immediately preceding the submission of bids.
Addressing the argument that there was no direct proof of collusion, the tribunal reiterated that agreements or understandings under Section 3 of the Competition Act can be inferred from conduct and circumstantial evidence. It held that once an agreement falling within Section 3(3) is established, a statutory presumption of appreciable adverse effect on competition follows, and the burden shifts to the erring party to rebut that presumption. Klassy Enterprises, the tribunal found, had failed to do so.
While affirming the penalty, the NCLAT also noted that the collusion had affected a public welfare scheme funded by public money. Taking into account the gravity of the conduct and the relevant turnover from the sale of sewing machines, the tribunal held that the ₹10 lakh penalty was proportionate. Consequently, the appeal was dismissed, and the CCI’s order was upheld in its entirety.
Appearance
For Appellant: Advocates Pawan Reley, Akshay Lodhi, Gaurav Kumar, Tavish Rawat, Simran Singh, and Utkarsh
For Respondent: Advocates MM Sharma and Ankit Singh Rajput for CCI; Advocates Pawan Sharma and Anuj Shah for Usha International Limited.
Cause Title: Klassy Enterprises v. Competition Commission of India and Ors.
Case No: Competition Appeal (AT) No. 33 of 2022
Judicial Member: Justice Mohd. Faiz Alam Khan and Technical Member Naresh Salecha
