Leniency Regime for Single Economic Entities: An Unsettled Dilemma
[Kinjal and Aditya are students at Chanakya National Law University.]
The Competition Commission of India (CCI / Commission) in its recent ruling in the In Re: Cartelisation by Shipping Lines Case has penalised four motor companies for their anti- competitive conduct in the maritime transportation sector. Apart from being a meticulously investigated instance of cartelisation, this case has major significance from the standpoint of the ever evolving yet relatively nascent leniency regime of Indian competition law.
In this case, Mitsui O.S.K. Lines Ltd (OP-3) and Nissan Motor Car Carrier Company (OP-4) submitted before the CCI that there exists a parent-subsidiary relationship amongst them and that they constitute a Single Economic Entity (SEE); therefore, OP-4 must be granted all the benefits that OP-3 may receive in terms of reduction in penalty in consonance with its priority status. However, the CCI rejected the plea stating that the concept of ‘group’ or SEE is inherently unknown and inapplicable to leniency proceedings and that the Competition Act 2002 (Act) has not extended the definition of ‘group’ to leniency proceedings.
In this article, we will highlight the shortcomings of such rejections and subsequently provide for a constructive solution for addressing such inconsistencies which is in consonance with the object and spirit of the Act and also the well international established international practices in this regard.
Leniency for the Single Economic Entity: A Missing Piece in Leniency Puzzle
The ground of reasoning relied upon by the CCI in denying uniform benefits to the SEE in the Shipping Lines Cartel Case is erroneous as it does not differentiate between the application of the SEE doctrine for the purpose of Section 3 analysis (ascertaining the anti-competitive conduct of entities) from its application for the purpose of granting leniency which refers to granting reduction in penalty to the entities.
The provision for leniency is not concerned with the question about existence of liability but rather deliberates upon the extent of the liability which is invoked after the anti-competitive conduct has been ascertained and it empowers the CCI to grant reduction in penalty to the member of the cartel who provides full, true and vital information regarding the cartel. A failure in recognising this crucial distinction primarily raises two problems:
Firstly, if a subsidiary (which had operated in the cartel along with its parent company) fulfils its duty of cooperation during investigation but fails to file a separate application for lesser penalty, it would be devoid of a reduction in penalty imposed by the commission.
Secondly, there is unreasonable discrimination in the numerical extent of the reduction in penalty granted to the subsidiary and the parent company even though they form an SEE and there exists unity of economic interest among them. This would mean that their conduct or misconduct is for the benefit of the same unit but the financial burden on their turnover is different as they are subjected to the marker system and given priority according to the sequential order of their separate applications.
Legal Inconsistencies: Interpreting Parent Act and Implementing the International Decisional Practice
The current practice of not applying the SEE doctrine to the leniency proceeding needs to be securitised primarily on two bases, its inconsistency with the Act and direct contradiction with the established decisional practice of the European Union.
As per the Act, lesser penalty is granted to an ‘enterprise’ and Section 2(h) of the Act describes this term as inclusive of the other investments made by the company including acquisitions, holdings, units or divisions. The Lesser Penalty Regulation of 2009 explicitly clarifies that the meaning of ‘applicant’ has to be construed according to the term ‘enterprise’ under the Act. The terminology resembles similarity with the concept of ‘undertaking’ under the EU Law which is inclusive of subsidiaries and other forms of holdings.
Therefore, the question of joint application does not arise as the parent statute itself creates considerable scope for the SEE to benefit from the leniency programme of CCI in capacity of an “enterprise” through a single application filed either by the parent or subsidiary that form part of the SEE.
In the Shipping Lines Cartel Case, despite the significant evidence regarding OP-3 and OP-4 constituting a SEE, the requirement for filing separate applications was emphasised by the CCI and different percentages of reductions were granted to the concerned companies. Such an approach is violative of the practise of uniformly granting leniency to the entire SEE established in the European Union through a series of decisions which includes the RWE Case, where the General Court (GC) observed that the term “undertaking” has to construed on the basis of the nature of the economic entity. Further in the SKW Ruling and LG Display Case, the GC reiterated that the term “undertaking” refers to the economic entity as it exists at the time of the submission of the application and the concept of undertaking used in the leniency notice is identical to the term used in Article 101 TFEU. The GC, added that it is not only the entity submitting the application which benefits from Commission’s leniency program, but the whole undertaking. Therefore, in Shipping Lines Cartel Case, the unity of economic interest that existed among OP-3 and OP-4 in capacity of a SEE should have been ideally analysed by the CCI in more detail.
Furthermore, in the Organ Peroxides Commission Case, it was observed that when a company submits evidence for benefiting from a reduction in fines, any reduction granted will benefit the whole undertaking of which such company forms part. Therefore, upon cooperation or vital disclosure by any part of the SEE, the whole SEE would be eligible for uniform leniency benefits. However, in spite of the fact that in the Shipping Lines Cartel Case, both OP-3 and OP-4 have duly cooperated in the investigation, the CCI failed to adopt a uniform method of granting leniency to both entities. Moreover, in the Rubber Chemicals Commission Decision though the facts dealt with a scenario involving joint ventures, the observation is pertinent in answering the question regarding leniency to the SEE. The European Commission (EC) observed that if the parent company has exercised a decisive influence on the joint venture, they can be considered as an SEE and subsequently, the parent company could benefit from the leniency application filed by the joint venture even without being a separate applicant.
Additionally, through its orders in the International Removal Services Commission Decision and the Hoechst Commission Decision, the EC has further emphasised that the concept of leniency applies to the entire undertaking and not the specific legal entity which has officially applied for it.
Hence, the international practice recognises the use of SEE doctrine in matters of leniency, and its implementation in the Indian context would serve as a viable measure for overcoming the discriminatory variation in terms of the exact numerical extent of the reduction granted to companies or procedural compulsions such as separate applications meted to the companies that form part of an SEE.
Strengthening the Leniency Mechanism for Future Challenges
The Indian practice of demanding separate applications from components of the same SEE fails to address certain modern-complex forms of anti-competitive agreements that may seem hypothetical to the Indian jurisprudence presently but have been a constant point of contention in other mature jurisdictions such as the EU.
Such complex anti-competitive arrangements include the scenario wherein an entity tries to achieve its anti-competitive purpose through cartelisation although without being a direct member. For example, in Sumal Judgement, the European Court of Justice had made observations regarding the situation when a subsidiary can be held liable for anti-competitive conduct of its parent. In such an arrangement, the subsidiary implements the object of the cartel based on information accessed through its parent company which forms part of that cartel. Subsequently, when the investigation takes place, upon being a non-member of the cartel, the subsidiary is barred from filing a separate application for lesser penalty, and its only recourse would be to benefit from its parent’s application which is currently discouraged in the Indian competition law practice.
Therefore, by duly recognising a single leniency application for the entire SEE, we can effectively deal with various unconventional forms of cartelisation and also present a great incentive for more whistle blowers to come to the commission without the burden of obliging with excessive compliance mechanism.
Incorporation of best practices from other jurisdictions is an effective way for developing robust domestic leniency mechanisms. One such practice is reflected in the consistent approach adopted by the French Competition Authority through its leniency program under Articles L. 464- 2 IV and R. 464-5 of the Commercial Code which endorses that all entities belonging to “a single economic unit” at the time of the leniency application are eligible to be covered under the benefits of the leniency programme. Such practices can be analysed, and if deemed fit, can be incorporated in the Indian leniency regime to establish consistency and clarity regarding the application of SEE.