[By Yatendra Singh]
The author is a student of Dr Ram Manohar Lohia National Law University, Lucknow.
Introduction
In the complex landscape of competition law, uncovering and prosecuting cartels remains a formidable challenge worldwide. India’s recent introduction of the Competition Commission of India (Lesser Penalty) Regulations, 2024 marks a significant stride towards enhancing antitrust enforcement. This article explores how these regulations incentivise cartel disclosure through leniency provisions akin to global standards, aiming to strengthen fair market practices. By examining the impact and nuances of these measures, this discussion underscores their pivotal role in shaping India’s competitive economic environment.
For instance, cartelisation is not a new phenomenon. In the 1800s, powerful trusts like the Standard Oil Company had monopolized crucial sectors in the United States, controlling prices and stifling competition. The unchecked power of these trusts led to market disruption, escalating prices, and compromising consumer welfare. In response, the US enacted its first Competition Act, the Sherman Antitrust Act, in 1890 to address these abuses, signalling the need for anti-trust legislation to curb monopolistic practices and safeguard economic and consumer interests.
While these laws are good for regulating the market and punishing those who break it, however, they are not sufficient to unearth hidden Cartels. In fact, India’s first Anti-trust Act (Monopolies and Restrictive Trade Practices Act 1969) was replaced because it became redundant after India’s new economic policy in 1991 and the globalisation of the market. Cartels, by their nature, are hidden and secret. Cartel cases are difficult to investigate and detect because of the scope and complexity of many cartels. The conspiracy can be established through both direct and indirect means. Often, only the participants know exactly how the cartel works. According to MIT economist Alexander Wolitzky, participants typically become aware of cartel activities through various channels, including industry conferences, informal networks among competitors and conventional wisdom.
Therefore, the Competition (Amendment) Act 2002 and new regulations in the leniency scheme, namely The Competition Commission of India (Lesser Penalty) Regulations, 2024, become important. This new amendment aims to unearth hidden cartels by offering an additional reduction in monetary penalty. It will be interesting to see how these new regulations play out in a market that operates through digital platforms, where detecting cartels becomes even more challenging.
Cartels
Cartels are defined under section 2 of the Competition Act as an association of producers, sellers, distributors, traders, or service providers who, by agreement amongst themselves, limit, control, or attempt to control the production, distribution, sale, or price of, or trade in goods or provision of services. A cartel is usually understood to be formed by a group of sellers or buyers who bond together and try to eliminate competition. Supreme Court defined cartels in Union of India vs Hindustan Corporation Limited as an association of producers who, by agreement among themselves, attempt to control the production, sale, and price of the product to obtain a monopoly in any particular industry or commodity.
Cartelisation is a type of horizontal agreement that shall be presumed to have an appreciable adverse effect on competition under Section 3 of the Act. Horizontal agreement refers to an agreement between two or more parties that are at the same stage of production and on a similar line of production. It is presumed to affect the consumer market adversely, such as inflated prices and reduced choices for cheaper alternatives. This was highlighted in Neeraj Malhotra v. North Delhi Power Ltd, where electricity distribution companies restricted consumer choices by distributing faulty meters, adversely affecting the market by inflating bills, limiting competition, and enabling price manipulation through cartel-like behaviour.
Horizontal agreements are, by their very nature, prohibited by law. In case there is an application of cartelisation against the enterprise, the enterprise has to prove its innocence. Additionally, the Competition Act empowers the CCI to impose penalties and/or fines on the detection of cartels under Section 27 of the Act.
In Express Industry Council of India v Jet Airways (India) Ltd, the Competition Commission of India (CCI) found a cartel involving airlines, including Jet Airways, IndiGo, and SpiceJet, collaborating to fix Fuel Surcharge rates in the air transportation sector. CCI imposed penalties on Jet Airways (Rs. 39.81 crore), IndiGo (Rs. 9.45 crore), and SpiceJet (Rs. 5.10 crore) for overcharging cargo freight under the guise of a fuel surcharge. This action was deemed to violate Section 3(1) read with Section 3(3)(a) of the Competition Act, addressing anticompetitive practices and safeguarding consumer interests. In light of the above case, it is clear that once found guilty of cartelization, Enterprises have to pay a heavy penalty. However, the Competition Act also has a whistle-blower provision that could reduce these penalties up to 100%.
Leniency Provision
Section 46 of the act deals with the leniency provision. This provision can grant leniency by levying a lesser penalty on a cartel member who provides full, true, and vital information regarding the cartel. The scheme is designed to induce members to help detect and investigate cartels. This scheme is grounded on the premise that successful prosecution of cartels requires evidence supplied by a member of the cartel. Leniency schemes have proved very helpful to competition authorities of foreign jurisdictions in successfully proceeding against cartels. For Instance, The US corporate leniency program has been very successful. Previously, the Department of Justice received about one amnesty application per year. With the introduction of the new policy, however, this rate has surged to approximately two applications per month. Notably, amnesty awards have been pivotal in several prominent cases, such as the Vitamins investigation, where the applicant received a substantial fine reduction totalling nearly $200 million.
Similarly, In India, In Anticompetitive Conduct in the Dry-Cell Batteries Market in India Vs Panasonic Corporation and Others The commission finds that Panasonic Corporation and its representatives provided genuine, full, continuous, and expeditious cooperation during the course of the investigation. Thus, the full and true disclosure of information and evidence and continuous cooperation provided not only enabled the Commission to order an investigation into the matter but also helped establish the contravention of Section 3 of the Act. On the basis of the foregoing, the Commission decides to grant Panasonic Corporation a 100% reduction in the penalty amount leviable under the Act. However, on the other hand, Co-Conspirators of the cartel had to deal with heavy penalties.
Therefore, this provision has proved to be very useful in detecting hidden cartels as it provides incentives to whistle-blowers who otherwise would have to pay heavy penalties. In line with this provision, the Government of India has introduced a new amendment, the Competition Commission of India (Lesser Penalty) Regulations, 2024. This new amendment seeks to introduce additional benefits to the cartel, that discloses or provides valuable information about other cartels in the market.
Indian Leniency Plus Regulation W.R.T. Global Standards
The Competition Commission Of India (Lesser Penalty) Regulations, 2024, marks a significant development in India’s competition law landscape, particularly with the introduction of the leniency plus provision. This addition aims to provide further incentives for cartels to disclose information about other cartels, thereby enhancing antitrust enforcement. Analysing this provision within the broader context of global leniency programs reveals both opportunities and challenges for India’s competition regime.
Comparing India’s leniency plus program with similar provisions in other jurisdictions, such as the United States, the United Kingdom, the European Union, and Canada, provides valuable insights into its potential efficacy. The success of leniency programs like the US Amnesty Plus program and supplementary leniency measures in the UK underscores the importance of incentivising cartel disclosure for effective enforcement. However, In contrast to the United States, Indian legislation lacks criminal penalties, which has contributed to its limited success, with only 21 orders issued since its inception in 2009. Unlike in the US, which receives 20 orders per year. Making the Carrot sweeter without increasing the size of the stick will require careful consideration on the part of regulators.
Another Concern is what happens if a cartel member in India fails to disclose the existence of another cartel that investigating authorities later discover independently. The amended provision does not address this scenario. In contrast, the US and Canada enforce strict rules through their Amnesty plus programs, requiring undertakings to disclose all cartels they are involved in upon application. Failure to disclose all relevant cartels incurs heavy penalties. Without similar stringent consequences in India, doubts arise about the deterrence effectiveness of its leniency plus program.
Despite the potential benefits of the leniency plus provision, challenges in enforcement and efficacy assessment loom large. The lack of precedent and limited experience with such provisions in India raises questions about their practical effectiveness. Drawing lessons from jurisdictions like Portugal and South Korea, where similar initiatives faced challenges or were rescinded, can inform India’s approach to address potential pitfalls.
Conclusion
In conclusion, India’s adoption of the Competition Commission of India (Lesser Penalty) Regulations, 2024, represents a significant step towards enhancing cartel detection and enforcement in its competitive landscape. While the leniency plus provision offers promising incentives for cartel disclosure, challenges such as the absence of criminal penalties and enforcement ambiguities pose notable hurdles. Learning from global counterparts and refining implementation based on lessons from other jurisdictions will be crucial for maximising the effectiveness of India’s efforts in combating cartels and promoting fair market practices in the future.