The Competition Commission of India (“CCI”) is empowered, under Section 46 of the Competition Act, 2002, to grant lesser penalties to members of cartels where (i) they have made a full and true disclosure in respect of the alleged violations and (ii) this disclosure is sufficient to enable CCI to form a prima-facie opinion about the existence of a cartel or which helps to establish the contravention of the provisions of section 3 of the Act. 15 years after this provision was enacted along with the Competition Act, the first case under Section 46 was decided by CCI in 2017.
This article seeks to set out the law behind the Leniency Programme of CCI along with the decisions of the CCI on the matter.
What is a Cartel?
A Cartel is a form of a horizontal anti-competitive agreement that is prohibited under Section 3(3) of the Competition Act. According to Section 2(c) of the Act, a cartel “includes anassociation 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.”
Being a horizontal agreement between entities engaged in a similar or identical trade, cartel agreements are assumed to be per se void and are not subject to the rule of reason analysis. The High-Level Committee on Competition Law and Policy in Para 4.3.8 of its Report has affirmed that ‘horizontal agreements and membership of cartels lead to an unreasonable restriction on competition and may, therefore, be presumed to have an appreciable adverse effect on competition’. This falls in line with the international practice on the matter. In North Pacific Ry. v United States, the Supreme Court of the United States held that ‘Cartels fall in the category of pernicious agreements that cause great harm to the competition, consumers and the economy in general and lack any redeeming value and therefore are conclusively presumed to unreasonable and therefore, illegal’.
In light of the pernicious nature of cartels, the Competition Act allows for the levy of the harshest penalty on them compared to other anti-competitive practices under Section 27(b) of the Act. This penalty imposed may be up to three times of its profit for each year of the continuance of such agreement or ten per cent of its turnover for each year of the continuance of such agreement, whichever is higher.
Under the 46 of the Act, CCI has been vested with the discretionary power to impose a lesser penalty upon whistleblowing members of cartels which had undertaken anti-competitive agreements. Section 46 is reproduced as under:
Power to impose lesser penalty
46. 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:
Provided that lesser penalty shall not be imposed by the Commission in cases where the report of investigation directed under section 26 has been received before making of such disclosure.
Provided further that lesser penalty shall be imposed by the Commission only in respect of a producer, seller, distributor, trader or service provider included in the cartel, who 76[has] made the full, true and vital disclosures under this section.
Provided also that lesser penalty shall not be imposed by the Commission if the person making the disclosure does not continue to cooperate with the Commission till the completion of the proceedings before the Commission.
Provided also that the Commission may, if it is satisfied that such producer, seller, distributor, trader or service provider included in the cartel had in the course of proceedings,—
(a) not complied with the condition on which the lesser penalty was imposed by the Commission; or
(b) had given false evidence; or
(c) the disclosure made is not vital,
and thereupon such producer, seller, distributor, trader or service provider may be tried for the offence with respect to which the lesser penalty was imposed and shall also be liable to the imposition of penalty to which such person has been liable, had lesser penalty not been imposed.
The Leniency Programme under the Competition Act is a type of whistleblower protection offered by the CCI to producers, sellers, distributors and service providers who are involved in a cartel undertaking an anti-competitive agreement. This Programme allows for the information and evidence of the cartel to be set out by the party seeking the benefit of the Leniency Programme. In cartelization cases, owing to the fact that the mutual agreement in question behind the cartel is very difficult to prove, this programme seeks to be another means of tackling these cartels. It also detracts persons and enterprises from forming cartels since, the knowledge that one of them could very well rat the whole operation out, so to speak, and that too anonymously breaks the institution of mutual trust between the members. The object of the leniency Programme is thus to increase compliance with the competition rules by the creation of distrust between the cartelists and increasing the risk of detection.
The underlying objective of the Leniency Programme is not just to investigate the Cartel and its members but rather to identify a disengage this cartel which would otherwise than with the help of the disclosing members, would have not been either so successful or expedient. The impetus lies therefore on the cessation of the practice and its ill-effects on the market and consumers rather than the mere imposition of penalty. This shows that consumer and market benefit are given primacy under the Competition Act.
In order to operationalize its power under Section 46 of the Act, CCI has formulated the CCI (Lesser Penalty) Regulations, 2009 (“Lesser Penalty Regulations”). These Regulations add important granular details to Section 46 of the Act. Relevant portions of the Regulations are highlighted hereunder:
1. Vital Disclosure [Regulation 2(1)(i)]
In order for the Applicant to be granted the benefit of lesser penalty it must make a full and true disclosure of information or evidence to the Commission, which is sufficient to enable the Commission to form a prima-facie opinion about the existence of a cartel or which helps to establish the contravention of the provisions of section 3 of the Act.
2. Conditions for Lesser Penalty [Regulation 3]
An Applicant, seeking the benefit of lesser penalty under section 46 of the Act, shall-
(a) cease to have further participation in the cartel from the time of its disclosure unless otherwise directed by the Commission;
(b) provide vital disclosure in respect of the contravention of the provisions of section 3 of the Act;
(c) provide all relevant information, documents and evidence as may be required by the Commission;
(d) co-operate genuinely, fully, continuously and expeditiously throughout the investigation and other proceedings before the Commission; and
(e) not conceal, destroy, manipulate or remove the relevant documents in any manner that may contribute to the establishment of a cartel.
(f) other such conditions and restrictions as the CCI may deem fit, after considering the facts and circumstances of the case [Regulation 3(3)].
Failure to comply with these conditions does not preclude the CCI from using such information or evidence submitted by the Applicant in accordance with Section 46.
3. Considerations in the Reduction of Penalty [Regulation 3(4)]
Regulation 3(4) of the Lesser Penalty Regulations provide that CCI, in reducing the monetary penalty shall exercise its discretion having due regard to:
(a) the stage at which the Applicant comes forward with the disclosure;
(b) the evidence already in possession of the Commission;
(c) the quality of the information provided by the Applicant; and
(d) the entire facts and circumstances of the case.
4. Hierarchy in the Reduction of Penalties [Regulation 4]
Regulation 4 governs the hierarchy in the grant of lesser penalty to the Applicants on a first come first serve basis as follows:
- Applicant making first disclosure (up-to 100 percent reduction): Only the Applicant making the first vital disclosure by submitting evidence of a cartel which is alleged to have been contravened either for the formation of the prima facie opinion by the CCI or establishing the contravention of Section 3 of the Act may be granted reduction in penalties up-to and equal to 100%. [Regulation 4(a)]
- Subsequent Applicants: Other Applicants may, subsequent to the First Applicant, make their disclosures to establish the existence of a cartel, which is alleged to have contravened the provisions of Section 3 of the Act. CCI may accept this disclosure where it is satisfied that the evidence so disclosed provides significant “added value” to the existing evidence. [Regulation 4(b)]
- The hierarchy in the scope of reduction for Applicants is as follows:
|Priority Status||Applicant||Reduction of Penalty||Provision|
|1st priority||First Applicant
|Up to or equal to 100%||Regulation 4(a)|
|2nd priority||Second Applicant||Up to or equal to 50%||Regulation 4(b)|
|3rd priority and subsequent in priority||Third and Subsequent Applicants||Up to or equal to 30%||Regulation 4(b)|
5. Confidentiality [Regulation 6]
Regulation 6 stipulates that, notwithstanding anything to the contrary, CCI must treat as confidential the identity of the Applicant or the information received by it and shall not disclose the identity or the information unless either the disclosure is required by law, the Applicant has consented to such disclosure in writing, or the Applicant has itself made a public disclosure. The 2017 amendment to the Lesser Penalty Regulations has empowered the Director General (“DG”) of the CCI to disclose such confidential information or identity of the Applicants where he deems the same necessary for the purpose of investigation even if the Applicant does not consent to such disclosure.
There have only been a few cases under Section 46 of the Competition Act, these are:
1. In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items
In the first case of the application of the leniency provision since the inception of the Competition Act, CCI took suo moto cognizance of the cartelization between 3 entities for the supply of Brushless DC fans and other electrical items in respect of tenders floated by the Indian Railways. During the course of investigation in the case and before the submission of the report of the DG, one of the members of the cartel chose to be a whistle-blower and by way of evidence directly helped in proving the existence of the cartel, first hand. The evidence included direct correspondences and documents discussing the price fixing for bids. For this, the Applicant was granted a 75% reduction in the penalty imposed upon it.
In this case, a price-fixing cartel between Eveready Industries India Ltd., Indo National Ltd., Panasonic Energy India Co. Ltd. and the Association of Indian Dry Cell Manufacturers was discovered. These companies had artificially increased the prices of dry cell batteries by agreement between them. Panasonic Energy India Co. Ltd. approached the CCI as First Applicant and provided material evidence for the conclusion of the cartelization. For this, Panasonic was awarded a 100% reduction in penalties and later, the other OPs as well were granted a reduction of 30% and 20% respectively. The CCI concluded that though the evidence provided by the Second and Third Applicants did not lead to “significant value addition”, they were nonetheless of a corroborative and early, meriting relatively lesser reduction.
In this case, Information was filed by the Nagrik Chetna Manch against Fortified Security Solutions and some other entities along with the Pune Municipal Corporation. The Commission concluded that the OPs had come together as a Cartel for the purpose of bid rigging/ collusive bidding in violation of Section 3(3) of the Competition Act. CCI granted a 50% reduction in penalties to OP4 and OP6. Even though OP1 was the First Applicant for leniency, had made proper disclosures and had cooperated throughout the investigation, CCI was of the opinion that the same did not lead to significant value addition to the investigation. In view of the same, no benefit under the leniency programme was granted to OP1.
4. In Re: Cartelization in Tender No. 59 of 2014 of Pune Municipal Corporation for Solid Waste Processing
In a suo moto case originating the from the above case (Nagrik Chetna Manch), it was held that in order to uphold the mandate of confidentiality espoused in the Lesser Penalty Regulation, CCI’s investigation report cannot deal with and distinguish between the evidence/ information that had been gathered by the DG on its own vis-à-vis those that had been furnished by the Lesser Penalty Applicants. If the investigation report was to identify the evidence furnished by the Lesser Penalty Applicant(s), it would not only disclose the identity of such Applicant(s) but also the contents of Lesser Penalty Application which cannot be disclosed except according to the procedure set out in Regulation 6 of the Lesser Penalty Regulations.
Furthermore, it was held that the decision on significant value addition by the Lesser Penalty Applicant and consequent reduction in penalty to the Applicant is something which only the CCI can decide and not the DG. Such a decision would be made looking into the contents of the Lesser Penalty Application, documents/ additional evidence obtained during an investigation by the DG, investigation report of the DG and submissions of the OPs thereon. The observation in this regard would form part of the order of the Commission and not the investigation report of the DG.
5. In Re: Cartelisation by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters.
In this case of cartelisation in the market for provision of broadcasting services, a Lesser Penalty Application was filed by Globecast India Private Limited (OP2) and Globecast Asia Private Limited (OP3) providing information regarding its bid-rigging arrangement with Essel Shyam Communication Limited (OP1) (now renamed as ‘Planetcast Media Services Limited’). Globecast was granted the First Applicant status. ESCL had also made a Lesser Penalty Applicant after the formation of the prima facie opinion by the CCI and was hence accorded the second priority. While Globecast was granted a penalty reduction of 100% owing to the substantial value addition made by it to the conclusion of the bid-rigging cartel, ESCL was granted a penalty reduction of 30% owing to the additional evidence it had set out.
While on the first brush it may seem that awarding reduction in penalties as high as 100% to admitted members of cartels would be an anathema to a sound competition regime, since, arguably, the most powerful deterrent in the hands of the CCI to tackle anti-competitive conduct is its power to impose penalty on the offenders, this is not the case internationally. According to the Preamble of the Competition Act, CCI has been established to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India. All these objects are satisfied by the leniency programme under the Competition Act. Firstly, allowing for a member of the cartel to become its whistle-blower, breaks the institution of mutual trust in this arrangement and replaces it with suspicion and paranoia that act as deterrents for the market and the would-be cartelists therein. Secondly, what is paramount for the CCI is to put an end to a cartel rather than letting it survive in the hopes of letting the “conventional” course of investigation to play out, the expediency and benefits so rendered serve the larger consumer interest. Thirdly, while the reduction in penalty may be granted by the CCI, it not done blindly. In this analysis, the most important consideration in determining the merit of the application is the role and value addition by the Applicant though its disclosure. The CCI has been seen to turn back even the Fist Applicant for want of any value addition to the investigation or determination. Furthermore, CCI is not bound to grant a reduction of penalties to all OPs of the Cartel, save only those whose declaration is necessary for the prima-facie or final determination of the anti-competitive agreement by the Cartel.
A Caruso, ‘Leniency Programs of Protection of Confidentiality: The Experience of the European Commission’, (2010) Journal of European Competition Law and Practice 454; N Zingales, ‘European and American Leniency Programmes: Two Models towards Convergence?’ (2008) 5(1) Competition Law Review 6.