India: Competition Commission Of India Grants Leniency For The First Time

In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items, the Competition Commission of India (CCI) has imposed penalties on M/s Pyramid Electronics, Parwanoo (OP 1), M/s R Kanwar Electricals, Noida (OP 2) and M/s Western Electric and Trading Company, Delhi (OP 3) (collectively, OPs) and their respective responsible office-bearers for the contravention of Section 3(3) of the Competition Act, 2002 (as amended) (Competition Act). This is the first instance where the CCI granted a reduction of penalty to an applicant under Section 46 of the Competition Act and the Competition Commission of India (Lesser Penalty) Regulations, 2009 (the LPR).

Finding of a contravention under Section 3(3)

The CCI had initiated suo-moto inquiry (and directed Office of the Director General (DG) to investigate the matter) on the basis of information received from the Central Bureau of Investigation (CBI) on 1 April 2014 regarding cartelisation with respect to tenders floated by the Indian Railways and the Bharat Earth Movers Limited (BEML) for the supply of Brushless DC fans (BLDC fans) and other electrical items.

After considering the investigation report and the supplementary report prepared by the DG and the submissions of the OPs, the CCI finally concluded that the OPs had shared the market by way of allocation of tenders of Indian Railways for BLDC fans amongst themselves under an agreement / arrangement and had indulged in bid rigging/ collusive bidding contravening the provisions of Section 3(1) read with Section 3(3)(c) and 3(3)(d) of the Competition Act.

The CCI has imposed a penalty on OP 1 and OP 3 calculated at 1.0 times of their profit respectively in the year 2012-13 and on OP 2 at the rate of 3% of its turnover for the year 2012-13. The CCI also imposed penalties on the identified individuals calculated at the rate of 10% of the average of their income for the last three preceding financial years.

Interestingly, for the first time, the CCI has granted a reduction of penalty to an enterprise based on its application under Section 46 and the LPR. The CCI has granted a reduction of 75% of penalty to OP 1 as well as to Mr Sandeep Goyal, who was the officer responsible at OP 1 for its participation in the cartel.

Background of the Leniency Regime in India

Section 3(3) of the Competition Act, 2002 (as amended) (Competition Act) lists certain types of horizontal agreements including cartels, which are presumed to cause appreciable adverse effect on competition in India. Typically, fines imposed by the CCI under Section 27 for breach of Section 3(3) of the Competition Act can be (and have been) quite high.

An enterprise, which was or is a member of a cartel, may apply for reduction of penalty under Section 46 of the Competition Act and the LPR. The CCI may grant the first applicant to approach it with a leniency application a reduction of penalty of up to 100%. The second applicant may be granted a reduction of penalty of up to 50%. The applicant(s) marked as third may benefit with a reduction of penalty of up to 30% of the penalty.

OP 1's Leniency Application under the LPR

OP 1 filed an application under Section 46 of the Competition Act, read with Regulation 5 of the Lesser Penalty Regulations (Leniency Application) during the course of the investigation of the DG.

The CCI noted that the Applicant was the first and only party to accept the existence of a cartel/bid rigging in tenders for railways for BLDC Fans. The evidence submitted by OP 1 also supported the evidence provided by CBI and played a significant role in revealing the modus operandi of the cartel. The CCI noted that it was satisfied with the cooperation offered by OP 1 and acknowledged that the evidence and cooperation provided by it have strengthened the CCI's investigation in establishing the existence of a cartel. However, more specifically, the CCI has stated in its order that at the time of submission of the Leniency Application, the CCI already possessed the email evidence furnished by the CBI, on which the case was premised.

In terms of determining the appropriate reduction under the LPR, the CCI emphasised that although OP 1 was first to disclose the existence of the cartel, the Leniency Application was submitted at a later stage in the investigation.

Considering these factors, the CCI granted a 75% reduction in the penalty to the Applicant, as opposed to the maximum of 100% that may otherwise have been available to it. Resultantly, considering the totality of facts and circumstances of the present case, the CCI also allowed the same reduction (i.e., 75%) in penalty for Mr Sandeep Goyal under Section 46 of the Competition Act.

The Applicant waived confidentiality over its identity and the information provided in the Leniency Application during the course of the proceedings.

Khaitan Comment

Despite the existence of the leniency regime in India since 2009, there has been no precedent regarding the reduction of penalties under the LPR. This has not deterred applicants from claiming leniency under the LPR over the years and this development has been eagerly awaited.

The decision underlines the criteria that the CCI uses to determine the reduction in penalties in line with Regulation 3(4) of the LPR such as the stage at which the disclosure was made, the quality of evidence already in its possession, and the quality of evidence provided by the Applicant.

The CCI's decision lays down a key precedent with respect to leniency in India. The grant of leniency to the sole applicant in this case is measured and objective at 75% but, the CCI has laid a significant norm that will have value in the cases that follow – the issue of the timing of the disclosure and, the question of value that the applicant adds to the evidence available with the CCI at the time of commencing the investigation.

Additionally, the decision sheds light on the treatment of individual liability in cases of leniency. Reduction of individual liability is not addressed explicitly under Section 46 or under the LPR. In this context, the fact that the CCI granted a reduction of 75% to both the Applicant and its partner, Mr Sandeep Goyal suggests that any reduction of penalty for the applicant enterprise will result in a commensurate reduction of penalty for the responsible individual as well, assuming of course that the individual has cooperated with the CCI.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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