Admission of Guilt in Lesser Penalty Applications. A choice or a Necessity?

[By Sehaj Mahajan]

The author is a student of Bharati Vidyapeeth University, New Delhi.

 

Introduction

Recently, the Indian leniency regime has displayed a fair bit of uncertainty on a particular proposition i.e. Whether or not an admission of guilt is necessary in case of a lesser penalty application.

On 27 June 2017, the Competition Commission of India (CCI) in Suo Motu Case No. 06 of 2017 (Beer Cartel case) received a Lesser Penalty application filed by Anheuser-Busch InBev SA/NV (AB InBev), containing vital disclosures of cartelisation among five major beer manufacturers. AB InBev, along with all the other lesser penalty applicants, was granted a reduction in penalty to be paid to the regulator.

The order of the CCI, which held four of the five beer manufacturers guilty of cartel activity, was challenged before the National Company Law Appellate Tribunal (NCLAT). The appellants argued that a leniency applicant is not sufficient to establish guilt.

The NCLAT maintained that a lesser penalty application is considered to be an admission of guilt. Penning down the judgment, Justice Rakesh Kumar stated that enterprises cannot be allowed to “approbate and reprobate simultaneously”, which confirms that enterprises could not be allowed to seek the benefit of a lesser penalty and deny the existence of a cartel.

The NCLAT’s analysis drew a comparative framework and analogized the leniency regime with plea bargaining in criminal law. A plea bargaining agreement, essentially involves the accused admitting to the crime in exchange for a more lenient sentence. In their view, just as a plea bargaining agreement, a lesser penalty application also establishes guilt purely on the basis of the application being presented to the regulator.

If we boil this down to a grassroots level, a reduction in penalty can only be granted once the party has either admitted wrongdoing, or malfeasance has been established. Hence, the element of autogenous assistance in uncovering proof of cartel activity cannot be disregarded.

Regime in India

As far as the Indian regime is concerned, moving a lesser penalty application is not considered ipso facto evidence of cartelisation. Point (a) of Regulation 4 of the CCI Lesser Penalty Regulations 2009 (Lesser Penalty rules) allows the CCI to make only a prima facie assumption of cartelisation.

Under Point 1(A) of Regulation 3 of the Lesser Penalty rules, an applicant is required to cease all participation in a cartel at the time of filing a lesser penalty application. This can be construed as an admission of participation in cartel activity and of infringement of Section 3(3) of the Competition Act, 2002.

The precarious nature of the lesser penalty regime is evident in the lack of clarity on three things –

  • Whether admission of guilt is a condition precedent to furnish a lesser penalty application.
  • Whether an applicant can be found innocent of any wrongdoing, despite filing a lesser penalty application.
  • Whether the existence of a cartel or participation in it, can be presumed solely on the basis of a lesser penalty application. 

As far as the existence of a cartel is concerned, the order of the NCLAT in the Beer Cartel appeal has specifically stipulated that the existence of a cartel is assumed once a whistle-blower comes forward. But, in the past, applicants have been exonerated, despite coming forward and making material disclosures. In Suo Motu Case No. 01 of 2017 (Flashlights case), it was established that the parties had exchanged sales data, production data and price information. This was, however, not considered sufficient to amount to a violation of Section 3(3)(a) which talks about the determination of sales or purchase prices by entities engaged in identical trades. The CCI, in its observations, stated that there was no cogent evidence to show that the actions of the parties resulted in determining sale prices. No increase in the prices of flashlights in the markets also contributed to CCI’s decision in the concerned case. This clearly demonstrates that despite assuming the position of a lesser penalty applicant, enterprises and individuals can be absolved.

In consonance with the Flashlights case, the Beer Cartel case charted a similar path. Three lesser penalty applicants -, AB InBev (Applicant Number 1),  United Breweries Ltd (Applicant Number 2) and Carlsberg India Pvt Ltd (Applicant Number 3) were held guilty. But, it is important to point out that their guilt is established through evidence unearthed during the DG investigation stage. It is also of consequence that Crown Beers India Pvt Ltd, joint lesser penalty applicant with AB InBev, was not found guilty of any wrongdoing. The judgment of the CCI in the Beer Cartel case inadvertently reaffirmed the precedent in the Flashlights case. In both cases, enterprises were found innocent despite being lesser penalty applicants. If consistency in adjudication is material, then the judgment of the NCLAT can be considered an outlier.

Provided the NCLAT decision is to be considered bereft of any legal flaw, then a lesser penalty applicant has admitted the existence of a cartel and their participation in it, by petitioning for a lesser penalty.

If the precedent set in the Flashlights case and the Beer Cartel case is considered supreme, then the lesser penalty application has to be followed up with more potent evidence to pronounce the parties guilty.

If the NCLAT order is to prevail, the CCI will have to change its approach towards dealing with cartel cases in the future.

Contemporary Jurisdictions

In the United Kingdom, the Competition and Markets Authority has provided detailed guidelines for leniency applicants, both corporate and individual. Applications are only considered once the applicant enterprise submits an admission of their guilt in cartel activity. Individual applicants must admit participation in the cartel offence under Section 188 of the Enterprise Act, 2002.

In the United States, the Department of Justice and the Federal Trade Commission jointly administer the realm of Competition Law enforcement. The Antitrust Division Leniency Policy and Procedures provide procedural guidelines to leniency applicants, for antitrust violations in the United States. These rules provide incentives for corporations and individuals to self-report antitrust violations by offering leniency in prosecution. Here too, enterprises, as well as individuals, have to categorically admit their participation in a cartelisation.

As per the leniency notice of the European Commission, which is the Antitrust watchdog in the European Union, undertakings have to end their involvement in a cartel as soon as they file a leniency application. As per Clause 5 of the Notice – ‘Any reduction of a fine must reflect an undertaking’s actual contribution, in terms of quality and timing, to the Commission’s establishment of the infringement.’

In all contemporary jurisdictions, an application of a lesser penalty would entail an admission of guilt and participation in a cartel. It would also make the existence of the cartel incontestable.

 Effects on the Leniency Plus Regime

The Competition Amendment Act has introduced the Leniency Plus regime, under sub-section 4 of Section 46. A whistle-blower can now make material disclosures relating to another cartel. The whistle-blower would then be granted leniency in both cartel investigations. Now, if an admission of guilt is mandated, then cartel members who are already reticent to admit their involvement in one cartel, would be even more disincentivised to make any further disclosures relating to their involvement in another. The opportunity to discover multiple cartels with the assistance of just a single player would be lost. The CCI cannot let this opportunity to kill two birds with one stone, slip away.

Steps forward

The lesser penalty rules came out in India, in tandem with its counterparts in Europe and the rest of the world. The legislative intent behind this exercise was to incentivise whistleblowing and assist the CCI in conducting conclusive investigations. The whistle-blower gets a significant reduction in penalty (depending upon the timing of their application and the significance of the disclosures), and the CCI gets first-hand evidence and assistance in conducting their investigation.

If the legislative intent behind the leniency regime is to be achieved, CCI must not necessitate a mandate for the admission of guilt of cartel members who approach the regulator with a lesser penalty application. A specific admission of guilt could dissuade potential whistle-blowers from approaching the CCI. It seems a fair exchange for the CCI to grant leniency to the whistle-blower, in exchange for material disclosures in establishing cartelisation. Considering how arduous it is to detect cartelisation without inside information, allowing the whistle-blower guaranteed immunity is not counterproductive to the CCI’s objectives.  The order of the NCLAT must be overturned in appeal to ensure a uniform approach to cartel leniency is maintained.

As of now, the Supreme Court has issued an interim stay on the order of the NCLAT. It can only be speculated that when the batch of appeals pending before the Supreme Court will come up for hearing, this contentious issue will come to focus.

It remains to be seen whether the observations of the NCLAT will stand tall and whether the CCI will follow suit in their own approach towards dealing with lesser penalty applications.

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