India: Competition Commission Can Be Lenient: Legal Scaffold vis a vis The Indian Railway Case

Introduction

Adam Smith once said, "People of the same trade seldom meet together". However, if they meet, they may act together to hamper fair industry practices. The recent instance of cartelization1, bid rigging and collusive practice between M/s Pyramid Electronics (Pyramid), M/s R. Kanwar Electricals (Kanwar), and M/s Western Electric Trading Company (Western) against a tender raised by the Indian Railways and Bharat Earth Movers Limited goes on to re affirm that.

Cartels are agreements among firms in oligopolistic industries where members may agree to rig a bid or act collusively against fair market practices. The Competition Act, 2002 (Act) covers the same under anti-competitive practices under Section 3(1)2 read along with Sections 3(3)(c)3 and 3(3)(d)4 of the Act.

The Competition Commission of India (CCI) initiated a suo moto inquiry pertaining to cartelization against Pyramid, Kanwar, and Western for supply of Brushless DC Fans and other electrical goods on receiving information from CBI on April 1, 2014, the information was taken into cognizance on June 23, 2014. CBI had received information from North Eastern Railway and the Northern Railways regarding the tender bids filed by the abovementioned entities. The tender quotes given by these entities were compared and uncanny similarities in the quoted bids were found. The Directorate General also relied upon various sources such as call records and email history between Pyramid, Kanwar, and Western to conclude that their bids were rigged.

Post investigation, under Section 275 of the Act, a penalty of 1% was imposed on Pyramid and Western on the profits earned by them in the year 2012-2013. A penalty was also imposed on Kanwar that was 3% of its turnover in the year 2012-2013. CCI had also imposed a fine on certain identified office bearers of these entities that equaled to 10% of the average income of these employees in the preceding three financial years.

Availing Leniency Policy under the Act

While the investigation was ongoing, Pyramid came out as a whistleblower and became an approver. For the first time since the Act was enacted, CCI operated the leniency provisions given under CCI (Lesser Penalty) Regulations, 2009 (Leniency Regulations) when Pyramid provided information about the formation of a cartel in which they too were a party, and received a reduction of 75% in the penalty that would have been imposed upon them. Therefore, it would not be incorrect to say that leniency provisions tackle with the "Pernicious practice of cartelization"6 by bringing forth involved parties to admit to their wrongdoings and cooperate with the CCI.

In spirit, the leniency provision provided under Section 467 of the Act read with Regulation 58 of the Leniency Regulations offers an option to the persons/enterprises involved in anti-competitive practices to report their doings and deliver evidence to the CCI so as to obtain absolute immunity from any imposed penalty or a reduction of penalty which CCI would have otherwise imposed on them.

As per global practices Leniency Regulations also have a deterrent effect on cartel formation and destabilizes the operation of existing cartels as it seeds distrust and suspicion among cartel members.9 However, the participating entity in a cartel should be the first to report to the CCI of an undetected cartel and provide sufficient relevant information10 in order to claim for absolute immunity.

Therefore, going by the global standards and Indian Laws, if CCI possesses enough evidence to launch an investigation then the entity claiming relief under the Leniency Rules must provide evidence to conclusively prove the cartel infringement.11 And, an entity that requests for obtaining CCI's leniency may either receive significant reduction on fines imposed if the evidence given by them adds value to the investigation that is being conducted by the CCI.

Pyramid was the foremost and the only entity to admit to the bid rigging and cartelization that had been practiced and the evidence given by Pyramid solidified the suspicions of CCI and assisted to conclude the ongoing investigation against Pyramid, Kanwar, and Western. However, since the disclosures made by Pyramid were made at a later stage, the penalty was reduced by a margin of 75% and not absolutely as a result the imposition of a penalty of INR 6 Million (Approx.) was reduced to INR 1.5 Million (Approx.).

On the other hand, resulting from the disclosures made by Pyramid; Kanwar and Western were ordered to pay a penalty of INR 20 Million (Approx.) and INR 2 Million (Approx.) respectively.

Scale of Leniency

Principally, CCI may impose a lesser penalty or give absolute immunity to an entity that is a cartel member if it makes relevant disclosure by way of providing information or evidence adequate to establish that there has been a violation of the Act.12 The Leniency Regulations provide for a sliding scale wherein applicants may get their penalty reduced. To effect the same applicants must continue to co-operate with the CCI throughout the investigation.13 The relevant information to be provided in the leniency application may comprise of names of the parties involved, detailed description of the alleged cartel arrangement, the geographic market covered, estimated volume of business affected by the alleged cartel, names and details of all individuals who, in the knowledge of the applicant, are or have been involved in the cartel, including on behalf of the applicant.14

Key Takeaway

The Act and the Leniency Regulations did not expressly cover reduction of individual liability under its provisions. However, CCI has set a precedent in the present case wherein considering a grant of 75% reduction, CCI further decided to allow the same percentage of reduction in the penalty imposed on Pyramid's Officer in charge Mr. Sandeep Goyal wherein his penalty was reduced from INR 46,594 to INR 11,648. Therefore, an individual's liability enumerated under the Act may also be considered for granting leniency by the CCI.

Finally, the parties were ordered by CCI to deposit the penalty with the commission within sixty days of receipt of the present order.

Footnotes

 1 In Re: Cartelization in Respect of Tenders Floated by Indian Railways for Supply of Brushless DC Fans and other Electrical Items, January 18, 2017, http://www.cci.gov.in/sites/default/files/Order_Suo_Moto_03_of_2014%20%28Final%29_1.pdf

2 This section mentions that no person should enter into any agreement which causes or is likely to cause any appreciable adverse effect on competition within India.

3 The Section states that, "Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way" should be treated as an anti-competitive practice.

4 This Section states that, "Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition"

5 Section 27 (b) mentions that the CCI can by way of an order impose penalty as it may deem fit, upon each of such persons/ enterprises which are parties to such agreements causing appreciable adverse effect on competition. However, such penalty shall not be more than 10% of the average of the turnover of the last three preceding financial years.

6 Be a Cartel Whistleblower and Win: CCI; The Indian Express, New Delhi, Tuesday, July 24, 2012.

7 This Section confers upon the Competition Commission power to impose lesser penalty.

8 This Regulation marks the procedure for grant of lesser penalty.

9 European Competition Commission, Leniency,

http://ec.europa.eu/competition/cartels/leniency/leniency.html

10 European Competition Commission, Leniency, http://ec.europa.eu/competition/cartels/leniency/leniency.html

11 Advocacy Series 8, http://www.cci.gov.in/sites/default/files/advocacy_booklet_document/Leniency.pdf

12 Cartel Leniency in the Asia Pacific Region, Jones' Day Commentary, May 2012,

http://www.jonesday.com/files/Publication/e28a7113-f2e4-4905-8cf2-541322690582/Presentation/PublicationAttachment/409ba8b8-6c6d-4dd4-a5d5-825c8665ab7e/Cartel%20Leniency.pdf

13 PLC, http://us.practicallaw.com/2-520-7061#a152334

14 PLC, http://us.practicallaw.com/2-520-7061#a152334

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