By Rupin Chopra and Apalka Bareja
In a significant stride to strengthen the existing “whistleblower” mechanism, the Competition Commission of India (CCI) has notified The Competition Commission of India (Lesser Penalty) Regulations, 2024 which introduces the concept of “lesser penalty plus” regime. The lesser penalty plus regime incentivizes the whistleblowers to come forward and disclose full, true and vital information to the CCI about the existence of another cartel in the ecosystem, which is unknown to the CCI. The regulation was implemented after the draft regulation was circulated for feedback in November, 2023. This article scrutinizes the leniency policy of India, explores the necessity for the leniency plus regime, delves into the leniency policy of USA and provides a comparative analysis of leniency policies of India & USA.
Competition Law and Leniency Policy of India
The leniency policy in India, implemented by the CCI, stands as a cornerstone in the nation’s effort to combat anti-competitive practices and promote fair competition in the Indian market. The existing “lesser penalty” provisions under Section 46 of the Competition Act, 2002 encourages the enterprises which are part of cartel to voluntarily come forward and disclose information to aid the CCI in identifying potential cartel conduct.
The first ‘lesser penalty’ applicant who provides CCI with evidence will have their penalties lowered by up to 100%. The second and the third applicant in line are entitled up to 50% and 30% reduction in their penalties.
Need for the Leniency Plus
It is apparent that the current leniency policy has not been as effective as anticipated and has failed to achieve the intended outcomes. A study conducted by CCI[1], revealed that between 2009 and 2021, only seven distinct cartels were identified through leniency applications, despite numerous cartel cases being filed. During this timeframe, the CCI uncovered around 32 organizations which were involved in the cartel cases. However as per the data, leniency applications did not result in penalties imposed by the CCI in six out of seven cases identified through the leniency process.
Leniency Plus
After the enactment of the 2024 regulation, the applicant irrespective of their earlier priority status will be entitled to an additional reduction in penalty of up to 30% in relation to the first cartel.
For eg. There exists a Cartel A. Company E and Company F are participants in this cartel and they have come forwards as the first and second lesser penalty applicants respectively. In such case, the Company E will be eligible to get its penalty reduced by up to 100% and Company F will be eligible to get its penalty reduced by up to 50%.
Let’s assume there exists another Cartel D. Company F has the information regarding this cartel and provides this information to CCI. This is where “lesser penalty plus” system comes into existence. Under this system, the Company F will be entitled to receive an additional up to 30% reduction in its penalty which may be levied upon it in the Cartel A case. Furthermore, the Company F will be eligible to get its penalty reduced by up to 100% in the Cartel D case.
- Brushless DC Fans Case[2]
It was the first case, in which the CCI passed a leniency order. This case began with a suo moto investigation conducted by Director General (DG) after receiving directions from the CCI prompted by the CBI. The report which was forwarded to CCI alleged that CBI during an inquiry into certain alleged misconduct by a public servant, had found that three firms had cartelized in respect of the tenders floated by the Indian Railways and the Bharat Earth Movers Limited for the supply of Brushless DC fans and other electric items. One of the parties of this cartel filed for leniency during DG’s investigation.
The CCI only granted 75% reduction in the penalty to the first applicant who filed leniency application despite acknowledging the fact the applicant added significant value for determining the existence of cartel. - Zinc Carbon Dry-Cell Batteries Case[3]
There was a cartel of dry cell batteries between 3 multinational companies. One of the member of the cartel filed a leniency application with the CCI.
The 1st applicant was given full immunity by the CCI as it had helped the CCI for determining the cartel between the dry cell manufacturers. However, 2nd and 3rd applicants also filed leniency application at a later stage and they were awarded only 30% and 20% reduction respectively in their penalty as a reward for cooperating in the investigation.
Leniency Policy of United States of America
In 1993, the Corporate Leniency Policy of the United States of America was amended which resulted in two fold increase in cartel detection within the first three years. US was successful in reducing the rate of cartel by 59% and increased the rate of cartel detection by 62%.
In the US, the cartelization is treated as a criminal offence. The Sherman Antitrust Act, 1890 contains penalties related to cartelization. In 2004, the Sherman act was amended and the maximum jail term was increased to 10 years and fines of up to $100 million. Moreover the USA, has been successful in using traditional investigative tools such as search warrants, subpoenas and wiretaps to detect cartels effectively.
Comparative analysis between the leniency policy of India, USA & UK[4]
| Aspect | India | USA | UK |
| Legal Framework | Section 3 of the Competition Act, 2002. | Section 1 of the Sherman Act | Employment Rights Act |
| Regulatory Authority | Competition Commission of India | Anti-Trust Department of USA | The Competition and Markets Authority |
| Criminal Sanctions | No criminal sanctions | Individuals face a maximum imprisonment of up to 10 years. | Imprisonment up to Five Years |
| Civil Sanctions | A penalty of up to either three times the total profits of the corporation responsible for the contravention or 10% of the turnover of such an enterprise for each year of the continuance of agreement, whichever is higher. | Corporations are fined maximum of $100 million, whereas $1 million fine is imposed on individuals. | It includes:
(i) A fine of up to 10% of worldwide turnover. (ii) Declaration that the offending agreement in void. |
| Leniency Provisions | Section 46 of the Competition Act, 2002 | Corporate Leniency Programme, 1993
|
Section 47B of Employment Rights Act |
| Conditions for Leniency | The following conditions need to be fulfilled in order to avail the benefits of leniency policy:
(i) Disclosure of relevant information with regards to cartel |
The following conditions need to be fulfilled in order to avail the benefits of leniency policy:
(i) Full disclosure of information and the entity must not have encouraged parties to enter into cartel. |
The applicant must provide the following information to avail the benefits of leniency policy:
(i) The applicant has a solid reason to suspect the existence of the cartel and have genuine intention to confess.
|
| Benefit | (i) 100% immunity is provided to the first applicant on fulfillment of certain requirements. (ii) The second applicant is entitled to reduce its penalty up to 50%. (iii) The third applicant is entitled to reduce its penalty up to 30%. |
The benefits under the USA leniency policy are only available to the first applicant. 100% Penalty will be waived off. | The first applicant is entitled to: (i) Immunity from any fines (ii) Protection from criminal prosecution for all of its cooperating employees (iii) Protection to the directors from disqualification |
Conclusion
The Competition Act in India, along with its enforcement mechanism headed by Competition Commission of India, play an important role in fair competition, protecting the consumer interest and fostering economic growth. The introduction of the whistleblower mechanism by the CCI is a significant advancement in their efforts to uncover and address the cartel behavior. By incentivizing whistleblowers to report illegal activities, CCI have access to valuable insider information. This addition to the regulatory framework not only serves a deterrent to cartel formation but also strengthens enforcement measures. Valuable lessons can be learnt from the countries such as USA and UK, where cartelization has been criminalized, instilling a sense of fear among the businesses. As we move forward, it is essential to continuously improve the whistleblower frameworks to guarantee they remain effective in protecting the public interest, and to maintain an environment of integrity within organizations and society at large.
Ritvik Kashyap, Intern at S.S. Rana & Co. has assisted in the research of this Article.
[1] Available at – chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.internationalcompetitionnetwork.org/wp-content/uploads/2019/11/SP_Cartel2018.pdf
[2] In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electric item, Suo Moto Case No. 03 of 2014, Competition Commission of India.
[3] In Re: Cartelization in respect of zinc carbon dry cell batteries market in India, Suo Moto Case No. 2 of 2016, Competition Commission of India.
[4] Available at chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://cuts-ccier.org/wp-content/uploads/2019/01/Designing_Effective_Leniency_Programme_for_India-Need_of_the_Hour.pdf
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