[Prachi is a student at Dr Ram Manohar Lohiya National Law University.]
Imagine you are playing a game of cards, and you have been caught cheating. The house offers you a deal: if you not only confess to your cheating but also provide information about another player who is cheating and has not been caught yet, you will get a lighter punishment. This mirrors the concept of a lesser penalty plus regime, wherein participants in one cartel can gain reduced penalties by disclosing their involvement in another cartel, incentivizing cooperation and self-reporting.
The Competition (Amendment) Act 2023 introduced a leniency plus regime in April 2023 under Section 46(4) of the Competition Act 2002 (Act). In furtherance of this, the Competition Commission of India (CCI) released draft Lesser Penalty Regulations in October 2023 inviting public feedback.
Subsequently, on 20 February 2024, the Ministry of Corporate Affairs (MCA) notified the enforcement of the leniency plus regime, while the CCI simultaneously published the Competition Commission of India (Lesser Penalty) Regulations 2024 (LP Regulations).
Through this article, the author aims to examine the implications of the LP Regulations on India’s antitrust landscape. In doing so, the article delves into its key provisions and explains why entities involved in cartel cases should consider leveraging these provisions.
Understanding Lesser Penalty and Lesser Penalty Plus
‘Lesser penalty’ refers to a reduction in penalties imposed by the CCI for violations of the Act, encouraging individuals or entities to come forward and disclose information regarding cartel conduct in exchange for reduced penalties. The lesser penalty regime is structured in tiers, offering the maximum benefit of up to a 100% reduction to the first applicant, with subsequent applicants receiving a progressively smaller reduction in the monetary penalty imposed, i.e., up to 50% and 30% [Regulation 4].
The first applicant’s reduction is based on their ‘vital disclosure’[1] of a cartel, enabling the CCI to form a prima facie opinion on its existence, alleged to contravene Section 3 of the Act, when the CCI lacked sufficient evidence at the time of the application.
Subsequent applicants’ reductions depend on whether their disclosure provides ‘significant added value’[2] to the evidence already possessed by the CCI or Director General (DG) to establish the cartel’s existence under Section 3 of the Act.
An efficient leniency program incentivizes betrayal, disrupting the coordination among cartel members. In this vein, ‘lesser penalty plus’ goes a step further. Under this regime, an applicant who previously provided a full, true, and vital disclosure regarding a violation of Section 3 of the Act by a cartel (First Cartel) is eligible for a reduced monetary penalty if they subsequently make a full, true, and vital disclosure of another cartel (Second Cartel), hitherto unknown to CCI, of which they were a part. This reduction in penalty ranges from up to 30% for the First Cartel to up to 100% for the Second Cartel, essentially absolving them of monetary penalties related to the newly disclosed cartel [Regulation 5(1)].
This incentive is critical given the amended Section 27 of the Act, which empowers the CCI to impose substantial penalties on cartels, potentially amounting to three times the annual profit or ten percent of the turnover (i.e., global turnover derived from all the products and services by a person or an enterprise) whichever is higher, for each year of the agreement. Against this backdrop, the additional reduction of up to 30% in penalties is noteworthy, as it should incentivize members to disclose their involvement in previously unknown cartels to the CCI. Applications for both Lesser Penalty and Lesser Penalty Plus are limited to cartel conduct, as defined under Section 2(c) of the Act.[3]
Implications of the LP Regulations
The significance of the LP Regulations can be further analyzed by conducting a retrospective analysis of the CCI rulings in leniency cases under the erstwhile Competition Commission of India (Lesser Penalty) Regulations 2009.
In re Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items (Suo Motu Case Number 3 of 2014): In January 2017, the CCI issued its first leniency order in a bid-rigging case for Indian Railways fan supply tenders. The first applicant received a penalty reduction of up to 75%, rather than the full 100%, as the CCI already had a prima facie case.
In re: Cartelization in Tender No. 59 of 2014 of Pune Municipal Corporation for Solid Waste Processing (Suo Motu Case Number 04 of 2016): In this case, all the parties filed their leniency applications after the commencement of the investigation. The CCI provided favourable consideration to certain applicants for penalty reduction of up to 50% due to the quality of their provided information.
Cartelization in supply of Electric Power Steering Systems (Suo Motu Case Number 07 (01) of 2014): The first applicant was granted 100% penalty reduction for being the first to approach the CCI and providing complete evidence, and the second applicant was granted 50% reduction for adding significant value to the ongoing investigation.
In re: Cartelization in Industrial and Automotive Bearings (Suo Motu Case Number 05 of 2017): The leniency application was filed during the DG investigation period. However, the CCI refrained from imposing any penalty whatsoever, instead opting for a mere cease and desist order.
These instances collectively highlight the inconsistency in CCI’s handling of lesser penalty applications, causing uncertainty among potential applicants about the benefits. It can be observed that in practice, CCI does not always grant “up to 100%” reduction in penalties where parties file for leniency after an investigation has begun. While the CCI’s approach to lesser penalty plus applications is yet to be seen, it is worth highlighting that the LP Regulations continue to provide wide discretion to CCI in determining the reduction in penalty for such applicants. The CCI will take into account various factors, including the likelihood of detecting the Second Cartel without the applicant’s disclosure, along with any other relevant factors [Regulation 5(3)]. It will be intriguing to assess the effectiveness of the lesser penalty plus framework in enhancing antitrust enforcement in the country.
Key Takeaways
In light of the evolving regulatory landscape, the implementation of the LP Regulations marks a significant milestone in India’s efforts to combat cartel conduct and promote fair competition. By addressing stakeholders’ concerns, the CCI has taken proactive steps to foster transparency in the enforcement process. Addressing one such concern about the CCI’s or DG’s power to use the information provided by an applicant after the withdrawal or rejection of their application, the CCI clarified that such powers do not encompass the ‘admissions’[4] made by the applicant, thereby offering reassurance to those whose applications are rejected or withdrawn [Regulation 10]. The LP Regulations further mandate that the CCI treat the identity and all information received from the applicant as confidential [Regulation 8].
As entities navigate the complexities of cartel cases, timely action becomes paramount. The moment an application is submitted, its ‘priority status’ is established, determining its place in the queue of applicants. This status, also referred to as the marker status, influences the extent of reduction in penalty granted. Similarly, for those considering the lesser penalty plus option, acting swiftly is important. Only one applicant per newly disclosed cartel can benefit from this program. Therefore, the sooner an application is lodged, the greater the likelihood of securing the advantageous lesser penalty plus benefit.
Moving forward, it will be crucial for enterprises and associations to proactively engage with the leniency process, recognizing the strategic advantages of early disclosure and cooperation with regulatory authorities. By leveraging these provisions, organizations can not only mitigate potential penalties but also contribute to a more competitive and transparent marketplace in India.
[1] Regulation 2(k) defines vital disclosure as “full and true disclosure of information or evidence by the applicant 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] Regulation 4 explains the term significant added value to mean the “extent to which the evidence provided enhances the ability of the Commission or the Director General, as the case may be, to establish the existence of a cartel, which is alleged to have contravened the provisions of section 3 of the Act.”
[3] Section 2(c) of the Act provides that a cartel “includes 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.”
[4] Regulation 2(b) defines admission as a “statement or submission by a party that it has indulged in the alleged violation of the provisions of Section 3 of the Act.”