Leniency Regime In India: An Incoherent Approach Of The CCI

[By Kirti Talreja and Abhishek Singh]

The authors are students at National Law University, Odisha

Introduction

The Competition Act, 2002[i] (hereinafter “The Act”) was enacted with the objective of ensuring healthy competition and eradicating anti-competitive practices in the market. Competition authorities across the globe have considered cartels as the most heinous form of anti-trust offence. Eradicating cartels have been the top-most priority of most of the jurisdictions and the Competition Commission of India (‘hereinafter’ “The Commission”) has been no exception to it. However, over time, detecting and prosecuting cartels have become a challenging task for fair trade regulators. Henceforth, in a bid to aid enforcement, various jurisdictions, including India, have adopted leniency regimes to encourage undertakings involved in cartels to disclose information about any existing cartels in exchange for complete or partial immunity.

Since the enactment of the legislation, the Act has gone through a series of amendments taking valuable insights and considerations from multifarious developed jurisdictions across the globe. In 2017, certain amendments were also made to the Lesser Penalty Regulations[ii] which considerably increased the scope of the powers conferred upon the Commission regarding leniency programmes in India.

Why Leniency?

Cartels are associations of manufacturers or sellers whose objective is to maximize their profits collectively through price-fixing, limiting supply, or any other practices. These types of agreements and associations deter healthy competition in the market thereby hampering the sustenance and growth of competitors in the market.

For instance, a market study revealed that the end consumers pay, on average, 49% more than the authentic price of the products.[iii] It is appalling to note that, 249 cartel cases investigated in 20 developing countries exhibited that the excess profits bagged from the cartels were equivalent to 1% of the GDP of various countries.[iv]

Cartels have been extremely difficult to prove as the unfolding of the events to detect a cartel is based solely on circumstantial evidence like communications among the firms, variations in bid quotations not justified by cost considerations, and minutes of the meetings held with competitors, etc.[v]The European Union, bestowed with a robust and erudite anti-trust regime, detects 70-75% of cartel cases spurred by undertakings seeking leniency before the Commission.[vi] Henceforth, the fair-trade regulators worldwide supplement cartel detection with a robust leniency regime.

The leniency clauses are a type of whistle-blower protections that proffer undertakings involved in cartels an opportunity to take a step forward and disclose information about the cartels. The undertakings have a chance to provide substantial evidence and cooperate with subsequent investigations, in exchange for immunity or leniency in the penalty imposed, which would have otherwise faced stringent action if the existing cartel would have been disclosed by the Commission itself.

Section 46 of the Act, which provides for the leniency clause, reads as follows:

The Commission may, if it is satisfied that any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated section 3, has made a full and true disclosure in respect of the alleged violations and such disclosure is vital, impose upon such producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than leviable under this Act or the rules or the regulations.”[vii]

This clause has been adopted with the prime motive of unveiling the cartels existing in the market and to deter undertakings from entering into anti-competitive agreements. The intent, based on prisoner’s dilemma, is to create a sense of distrust among the participants involved in cartels as there is a perpetual threat of disclosure of the cartel agreement by any of the participants to the authorities concerned.

Pertinently, before delving into the lesser penalty regulations, the Commission must inoculate certain essential conditions in its orders such as the nature of the information,i.e., it must be a ‘vital disclosure[viii], the cooperation of the applicant must be genuine, full and expeditious, and the relevant evidence must not be hampered with or manipulated, to mention a few.[ix]

The Indian Leniency Regime: A Snail’s Walk

The USA was the first country to adopt the leniency practices. This was done with the objective of alleviating the problems faced by the competition authorities in detecting cartel arrangements. A two-fold increase in the detection of such cases was witnessed by the country within 3 years. A market study exhibited that with the adoption of the leniency regime, the rate of cartel formation alleviated by a massive 59% and the cartel detection augmented by 62%.[x]

However, the Indian Competition Law regime has not been successful in emulating success as that of the USA. The reason is the excessive discretionary powers bestowed upon the Commission in India. The Regulations state that the Commission thus enjoys a very vast discretion to decide the penalty to the first applicant, on the basis of parameters like vital disclosures, stage of the application, and subsequent confessions. Furthermore, any other condition” parameter is rather ambiguous and adds a layer of uncertainty, thereby acting as a barrier to the undertakings involved in cartels to approach the Commission. Contrast this, the leniency regime in developed jurisdictions like the USA and Australia have well-formulated provisions wherein the first undertaking to disclose about the cartel gets leniency.[xii]

Orders of the Commission- A String of Irregularity Continues 

The ineffectiveness of the Commission in passing orders concerning leniency programmes can be gauged by the non-uniformity in all the five leniency orders that have been passed in the last 10 years of the clause’s inception.

The first leniency order was passed by the Commission in 2007. In a suo-motu action of Cartelisation in respect of tenders floated by Indian Railways for supply of brushless DC Fans and other electrical items”, the Commission penalized 3 undertakings inclusive of their officeholders for bid-rigging. The Commission granted one of them a 75% markdown in the total leviable penalty for becoming an approver and adding significant value to the determination of the existence of a cartel. However, despite Pyramid being the first applicant to plea leniency, the Commission did not scrap off the penalty in its entirety as it had approached the latter after the commencement of the investigation.

In Re: Cartelisation by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters”, leniency was granted to both the undertakings that formed the cartel. The first applicant received a markdown of 100% whereas the second applicant received a markdown of a mere 30%. However, it is pertinent to note that the order records exhibit that the second applicant added value to the investigation proceedings and made requisite disclosures. There are references that reveal that the first applicant, who reaped the benefit of 100% markdown, did ‘not completely’, cooperate in the investigation which is quintessential per Section 46 of the Act.

The Commission, in the matter of, “Zinc-carbon dry cell manufacturer’s cartel case”, levied a cent-percent markdown on the total penalty levied. The leniency application that revealed the collusive bidding for fixing prices of zinc-carbon dry cell batteries in India involving Indo National, Eveready Industries, and Panasonic India was filed by Panasonic itself. Subsequently, Panasonic was granted complete immunity as the disclosure brought forth a new cartel. Later, the other two undertakings also filed a leniency application. However, as per the Commission, the evidence furnished by them did not add any significant value and the evidence seized by the Director-General was independently sufficient”. However, the Commission granted 30% and 20% markdown in penalties because both the companies completely cooperated with the Commission during the investigation. This ruling of the Commission is in contradiction to its own decision in the Brushless DC Fans Case, wherein leniency was granted based on the cooperation extended in conjunction with”, and not solely, on the basis of value addition provided by the applicants.

Furthermore, in the case of NagrikChetnaManch, 7 entities were accused of collusive bidding and bid-rigging for some tenders. A 50% markdown on the penalty was levied on the first and the third applicant as the cooperation provided by them aided the Commission in unveiling the existing cartel. Subsequently, three more applicants were given a markdown on the penalty imposed for their cooperation, value addition, and priority status. It is pertinent to note that, the Commission, despite acknowledging that the value added by OP-2 was ‘minimal’, gave a markdown on penalty considering its cooperation during the investigation. However, OP-1 was denied markdown despite thorough cooperation and disclosing all evidence. Furthermore, OP-7 was also denied markdown citing reasons of insignificant value addition (by the evidence provided by it) to the investigation.

These rulings given by the Commission have brought forth the inconsistencies present in its leniency orders. The approach of the Commission lacks rationale and uniformity as it applies different metrics of “good value addition” and “significant value addition” to similar or equally placed applicants. The above-mentioned rulings have revealed the excessive use of discretionary powers conferred upon the Commission and an acute absence of uniformity in the penalty and leniency granted thereof.

Conclusion

The authors firmly believe that the essence of these provisions lies in uniformity and predictability in the decisions of the Commission. However, it is apparent that the Commission has not been uniform while giving its orders regarding leniency for in some instances, the cooperation provided by a member has been scrutinized while in others, it is the credibility and accuracy of the information that has been considered while providing a lesser penalty. Thus, the authors believe that what is required is not just standardization but also consistency in the orders. Though the Indian Competition law has been commendably modified by the 2007 amendments, there is still a long way to go in terms of comprehensiveness and uniformity in the leniency orders passed by the Commission. The intent of the Commission is right, however, there are numerous concerns that it needs to delve into meticulously, failing which the very purpose of the leniency regime would become infructuous.

Endnotes:

[i]The Competition Act, No. 12 of 2003, India Code (1993) [hereinafter The Competition Act].

[ii]The Competition Commission of India (Lesser Penalty) Regulations, 2017 [hereinafter Leniency Regulations].

[iii]Market and Competition Policy Team, World Bank Group, Leniency to combat hardcore cartels, Policy Guidance to strengthen the Indonesian Competition Framework, World Bank (Mar. 2, 2018) http://documents.worldbank.org/curated/en/929311540796598810/pdf/131396-WP-PUBLIC-2018-WBG-Leniency-Note-Indonesia.pdf (last accessed 30 July 2018) [hereinafter Leniency to Combat Hardcore Cartels].

[iv]Id.

[v]S. Muralidharan and C. Deshpande, Scope for Intersection between Antitrust Laws and Corporate Governance principles vis-à-vis cartel deterrence in India, 93 NUJS L. Rev. 9 (2016) .

[vi]Anti-trust Regulators Depend on Leniency Regimes for Cartels, https://app.parrglobal.com/intelligence/view/1360468(last visited Jul 29, 2020).

[vii]The Competition Act, supra note 1, § 46.

[viii]Leniency Regulation, supra note 2, Regulation 2(i).

[ix]Competition Commission Of India, Leniency Regime, 2020

[x]Leniency to Combat Hardcore Cartels, supra note 3.

[xi]Leniency Regulations, supra note 2.

[xii]European Commission, About the cartel leniency policy – European Commission,http://ec.europa.eu/competition/cartels/leniency/leniency.html (Last visited Jul 28, 2020).

[xiii]Cartelization by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters, Case No. 2/2013 (CCI) 2018, ¶ 129.

[xiv]NagrikChetnaManch v. Fortified Security Solutions, Case No. 50/2013 (CCI) 2018, ¶ 130.

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