Bid rigging - an agreement between two or more competitors. It is a form of collusion, which is illegal in most countries. It is a form of price fixing and market allocation, and it involves an agreement in which one party of a group of bidders will be designated to win the bid. It is often practiced where contracts are determined by a call for bids, for example in the case of government construction contracts.
Price war - is a term used in business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. One competitor will lower its price, then others will lower their prices to match. If one of the reactors reduces their price below the original price cut, then a new round of reductions is initiated. In the short-term, price wars are good for consumers who are able to take advantage of lower prices. Typically they are not good for the companies involved. The lower prices reduce profit margins and can threaten survival. etc....
Dumping - Dumping refers to selling goods in the foreign market at prices which are lower than prices charged in the international market or less than the cost price of the product. This is basically done to destroy the domestic market of the importing country and gain a monopoly like position in that market. Most of the countries have anti-dumping arrangements in place. It can also be referred as a form of protectionism.
Case 1:
Farmers criticize India's price fixing scheme
India's government is "suppressing" hundreds of millions of impoverished farmers by fixing unrealistically low prices for crops to ensure cheap food in the cities, a farmers' advocate said at an economic conference on Sunday.
"The government has been very wrongly harming the interests of the rural poor by juxtaposing them against the interests of the urban poor," Khushal Pal Singh, vice president of India's National Institute of Agriculture, told participants at the World Economic Forum's India Economic Summit.
"You talk of poverty alleviation, but how can you alleviate poverty when more than 50 per cent of poor and you are suppressing them," said Mr Singh, who is also chairman of the Asian region for the International Federation of Agricultural Producers.
Karan Chanana, managing director of Amira Foods, a rice exporter, also said urban Indians had been addicted to cheap food - at farmers' expense. "People here have gotten used to paying next to nothing for their food," he said. "Why should the farmers subsidise the urban poor?"
India's Congress-led government has focused a lot of attention on the hardships in rural areas, and trying to devise programs to alleviate farmers' woes. It waived Rs600bn ($12.8bn) in farmers' loans, and adopted a rural employment scheme that guarantees a member of every rural household up to 100 days paid labour each year.
However, Mr Singh said the money used for the farmers' loan waiver would have been better spent on expanding irrigation infrastructure, since around 60 per cent of India's land under cultivated is still irrigated only through rains. He also said New Delhi had to change its policy for pricing of agricultural products.
Currently, New Delhi sets 'minimum support prices' for crucial agricultural products, including grains like wheat and rice, oil seeds, and pulses. While in theory these are floor prices - and farmers can sell their crops for more, the state-set prices tend to dominate the market.
But Mr Singh said that these prices are often too low to make farming viable or profitable, or allow farming households to enjoy a reasonable living standard, especially families trying to scrape by with very limited landholdings.
"You often have four members of a farming family on a single hectare of land and you have a moral responsibility to ensure they are able to earn a livelihood," he said.
With the second largest area of land under cultivation after the United States, global agribusiness companies say India could emerge as a major agricultural superpower if it could boost its productivity through better seeds, more scientific farming methods, and a freer market for agricultural products.
"The farmer here is looking to come of age and the parent, the government is very reluctant to let them go," said Kevin Eikerman, country head of Archer Daniels Midland Co. "There is going to be a huge demand for these products. The world needs more food. India is the low-hanging fruit to provide that."
Currently, India's average yield is just one ton per acres, compared to around 2 to 3 tons per acre in many Western countries.
Sekhar Natarajan, chairman of Monsanto India, said unleashing India's agricultural potential through liberalising reforms "could bring a new wave of growth similar to the IT boom."
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Case 2
Bid rigging
Abstract:
A can of worms was unbolted by Lalit Modi when in his twitter account he revealed details of owners of Kochi Franchise. One of the owners, Sunanda Pushkar was offered 70 crore worth of sweat equity. This was not in accordance with the provisions of the Companies Act under which provisions related to issue of sweat equity shares are mentioned. Further the issue of bid-rigging was also exposed.
Bid rigging is a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid. It is a form of price fixing and market allocation. It is often practised where contracts are determined by a call for bids, for example in the case of government construction contracts. This form of collusion is illegal in most countries. The nature of allegations against Modi is primarily of rigging of bids. It was done by league bosses as well as collusion among bidders which falls directly within the domain of the competition regulator that was set up in 2003.
Specifics:
Rendezvous Sports World Private Limited is a private limited company and it has granted 70 crore worth equity to Sunanda pushkar[2] claiming that she has a professional expertise, expertise in event management and brand management. This limited company has brought other investors together to form a consortium for bidding for IPL Kochi Franchise. It has been brought to limelight by the media that Rendezvous Sports has violated all the provision of the Companies Act, 1956 in granting sweat equity to Sunanda Pushkar. This made her to surrender her share claiming that she is deeply hurt. To set the issue more complicated, BCCI claims that there is a clause in the bidding document that no information is to be revealed public and they are claiming it as a "confidential clause". The Central Government has decided to look into the issue in public interest. Finance Ministry is looking into the issue of sources of funds and Corporate ministry is looking into other issues like non-compliance of corporate regulations etc.
An Emergent Story / Pertinent Sections:
Competition Act 2002 (Issue of Bid Rigging):
Section 3(3) of the Competition Act, 2002, defines bid rigging as any pact between "enterprises or persons engaged in identical or similar production of trading of goods or provision of services that has the effect of eliminating or reducing competition for bid or adversely affecting or manipulating the process for bidding.'' Section 3 (3)(d) reads as, ''Any agreement which directly or indirectly results in bid rigging or collusive bidding shall be presumed to have an appreciable adverse effect on competition." Significantly, Section 18 of the Act empowers the Commission to ''inquire either by itself or enlist the services of any investigating agency, including a foreign one, with Centre's approval."
Companies Act, 1956 & Sweat Equity Rules[3] (Issue of Sweat Equity):
Section 79A of the Companies Act, 1956, authorizes a company to issue sweat equity shares, subject to guidelines issued by the Department of Company Affairs, i.e. the Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003 (hereinafter referred as Sweat Equity Rules).
a) In spirit, "sweat equity shares are issued by a company to its employees or directors at a discounted rate or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights (IP) or other value additions."[4] It is, therefore, necessary for the issue of sweat equity shares that the concerned director or employee either provides the know-how, intellectual property rights or other value additions to the company.In the present context, Ms. Pushkar may well have to justify the sweat equity given to her in terms of her role/contribution to RSW in the form of Intellectual Property or know how or other value additions but taking into consideration the aforesaid definition of sweat equity, wherein only an employee or director of the company is entitled to such a stake, her purported role of a sales and marketing consultant with Rendezvous Sports may be a clear question mark. Even the board of Rendezvous Sports will be accountable vis-à-vis issuance of sweat equity.
b) Rule 6 of Sweat Equity Rules bars a company from issuing sweat equity shares of more than 15% of total paid up equity share capital in a year or shares in excess of the value of Rs. 5 crore, whichever is higher, Prior approval of the central government would be required in case the intention is to exceeded the threshold level. In the case at hand, the issue of sweat equity to the tune of Rs. 70 crore is clearly not in favor of the rules as no prior approval of Central Government was taken.
c) Rule 9 of the Sweat Equity Rules makes the appointment of auditors or chartered accountants to carry out valuations of the Intellectual Property or know-how or other value additions in order to justify such issuance of sweat equity mandatory. Such an act does not seem to have taken place in the instant case.
d) Rule 10 of the Sweat Equity Rules prescribes a minimum lock-in period of three years for sweat equity, which means that the equity so issued cannot get cashed out before the expiry of three years from the date of allotment. In the case instantneous case, the sweat equity issued had a lock-in period of just 2 years. This is again in opposition to the laid down Rules.
e) Under Section 79A of the Companies Act, 1956, a company may issue sweat equity shares of a class of shares already issued, if such issue is after expiry of one year from the date on which the company was entitled to commence business.[5] Rendezvous Sports reportedly became operational only in March 2010. Further sweat equity shares should be of the same class as already issued by the company and such an issuance is required to be authorized by a special resolution passed in the general meeting. Thus, again in violation of the Companies Act provisions.
f) Sweat equity issued to Ms. Sunanda was supposedly "undilutable in perpetuity" and that it, whereas the Companies Act nowhere provides for "undilutable sweat equity in perpetuity".
Conclusion:
This is a classic example of complications in restrictive trade practices issues and corporate dispute. Bone of contention chiefly revolves around the issues of bid rigging on one side and issue of sweat equity shares flouting the provisions of Companies Act and Sweat Equity Rules, on the other side. Closer scrutiny by Central Government and Competition Commission are essential so as to bring the complicated issues at rest. Many questions related to the matter are till now unanswerable. Few among those are the validity of confidential clause as claimed by BCCI, legal status of IPL and its constitution, authority of BCCI etc. Issues of corporte governance have again once again come to the fore. Hopefully, their answers are unearthed someday.
Case 3
Hoarding, manipulation to push up sugar price
Ashish Tripathi,TNN,Jan 10, 2010, 02.25am IST
LUCKNOW: Sugar prices were expected to stabilise in the state with the start of cane crushing in December but the retail cost of the sweetener touched Rs 45 per kg this week and is likely to cross Rs 50 mark by the festival of Holi next month.
The reason: hoarding by wholesalers and retailers, bulk purchase by industry and manipulation of market sentiments by the private mills. While government seems to be helpless in controlling prices, aam aadmi and farmers suffer.
People are already feeling the heat. "The sharp increase in sugar prices is certainly going to turn Holi sweets bitter," said Beena Sur, a housewife in Mahanagar. Rajesh Bansal, a sweet shop owner in Nishatganj said that the hike is because of increase in demand due to marriage season. "Once hiked, prices never drop, even if demand comes down," he said. Rajesh Arora, a Lucknow University student, complained how tea vendors have increased cost of tea and snacks.
Case 4
Dumping of Sport Shoes in India by China
Dumping in international trade and law is the practice by which the exporters of one country sell their products in another country, at a price which is lower than the price of that good charged in the exporter's country, or lower than its costs of production. According to the WTO agreement, anti-dumping action is allowed to be taken by countries, only if there is material damage suffered by the competing domestic industry. Hence, to take anti-dumping action, the government has to show that dumping is taking place, followed by the extent to which it is taking place, and lastly prove that it has caused damage to the domestic industry. Hence, to take anti-dumping measures, the government needs to prove that there is damage done to the domestic industry.
In India, the ministry of commerce and industry looks into matters related to dumping. During 1999-2000, the ministry received information from reliable sources regarding dumping of sports shoes in India and exported from China. The designated authority then issued notices to the exporters from China and sent a copy of the notices to the importers of shoes in India, and advised them to submit their views. The authority also sent a questionnaire to exporters from China, to find out relevant information. They included Beijing Daihua Group, Shanghai Huoju Shoe Industrial Co. Ltd. and many 8 others. A questionnaire was also sent to importers namely Reebok India Company, Bata India Ltd. and Adidas India Pvt. Ltd., for necessary information
Information regarding injury parameters and cost of production was sought from the domestic industry, which was also furnished by the following domestic producers: Relaxo Footwear Ltd., API Associates Ltd., Nikhil Footwear Ltd., and Lakhani India Ltd.
The domestic industry reported that there was no decline in demand of sport shoes but they faced material injury (decline in their business) on the following account:-
The market share of the domestic industry has declined from 74.09% in 1999-2000 to 57.81% in the POI.
The imports from China have increased from 4.68 lakh pairs in 1999-2000 to 5.7 lakh pairs in POI (annualized). Further the imports have also been routed through Hong Kong, Singapore as per the available evidence and thus imports from China are in much higher quantity.
The production of the domestic industry has declined by 11.24% in POI as compared to 98-99.
The capacity utilization percentage has declined from 62.97% in 98-99 to 60% in 99-2000 and further to 53.26% in POI.
Investigation was carried out for the period starting from 1.4.2000 to 30.9.2000 i.e. the period of investigation (POI). The investigators confirmed the findings that the domestic industry had reported and decided to take appropriate action.
The exporters did not respond to any of the notices sent to them, which included questionnaires to find out relevant information regarding the prices of shoes in the Chinese market. However, information regarding domestic selling prices and prices charged in third countries was made available by reliable sources. These were the best sources of information available and hence, were used to find out the level of dumping.
The authority considered imposing an amount of duty equal to the level of dumping to remove the unfair advantage to the Chinese exporters while keeping the level of competition in the domestic market the same. Hence, they imposed the anti-dumping duty such that, the minimum price charged for unbranded and low end branded shoes will be 6.277$ per pair, and that for the branded category which includes Nike, Reebok and Adidas will be 18.44$ per pair. Thus, the anti-dumping duty will be the difference between the import price and the minimum selling price as given above.
Thus, the unfair edge gained by the Chinese exporters was eliminated, and the competitiveness of the markets was also sustained. There was no restriction on imports of shoes from China, which did not affect the availability of goods for the consumers.
