India: CCI Amends Lesser Penalty Regulations

Last Updated: 31 August 2017
Article by   Trilegal

The CCI has recently amended the Lesser Penalty Regulations providing much needed clarity to the leniency regime in India.

Amendments to the Competition Commission of India (Lesser Penalty) Regulations, 2009 (Lesser Penalty Regulations) were notified on 22 August 2017 (Amended Lesser Penalty Regulations). The Amended Lesser Penalty Regulations bring clarity to the existing leniency regime in India and provide incentives for companies and individuals to pro-actively assist in cartel enforcement.

Lesser Penalty Regulations: An Overview

Section 46 of the Indian Competition Act, 2002 (Act) and the Lesser Penalty Regulations give the Competition Commission of India (CCI) the power to impose lesser penalties on an entity that: (a) makes a 'vital disclosure' by submitting evidence of a cartel; or, (b) in the case of subsequent leniency applicants, provides 'significant added value' to the evidence already in possession of the CCI.

Further, the leniency regime previously recognised the provision of 'markers' to only three leniency applicants, in the order of priority. The first leniency applicant could receive up to 100% immunity from penalty, the second leniency applicant up to 50% reduction in penalty and the third leniency applicant up to 30% reduction in penalty. The CCI, in Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans (Suo Moto Case No. 03 of 2013), published its first leniency decision granting a 75% reduction in penalty to a leniency applicant who came forward after the CCI commenced investigation of the anti-competitive conduct.

Lesser Penalty Regulations: Amendments

1. No Limitation on Number of Markers

The Amended Lesser Penalty Regulations recognize markers beyond the first three markers, i.e., now more than three applicants can apply for leniency. Such subsequent applicants (after the third applicant), will also be eligible for reduction in penalties of up to 30% now, provided they assist in giving 'significant added value' to the evidence already in the possession of the CCI.

Since there is no longer a cap on the number of leniency applicants, this amendment provides a clear incentive for more cartel participants to come forward and disclose the existence of a cartel. It also brings the Indian leniency regime in line with the leniency regime in the United States of America and is a step in the right direction.

2. Access to File

In a significant move, the Amended Lesser Penalty Regulations allow access to the file to not only leniency applicants but also non-leniency applicants, including third parties who have been impleaded in leniency proceedings. Third parties, who are not parties to the proceedings, have not been granted the right of access to file.

The amendment grants those who have the right of access to file, the right to obtain copies of the non-confidential version of the evidence and information submitted by leniency applicants, after the Director General's investigation report (DG Report) has been forwarded to parties. This effectively addresses the single largest complaint under the earlier Indian leniency regime (of non-access to any information filed by leniency applicants), which had resulted in several non-leniency applicants approaching High Courts by way of writs, to gain access to information provided by a leniency applicant. It also balances the confidentiality requirements under a leniency regime, while addressing the rights of defence for non-leniency applicants and is in line with the approach adopted by the European Commission.

3. Further Clarification to Confidentiality Provisions

A new proviso has been added to Regulation 6 of the Amended Lesser Penalty Regulations allowing the Director General (DG) to disclose information, documents and evidence submitted by a leniency applicant, to a party to the proceedings, if the DG deems that such disclosure is necessary for the purpose of investigation (even if the leniency applicant has not agreed to such disclosure). In such cases, the DG makes the disclosure for reasons to be recorded in writing and after taking prior approval of the CCI.

However, it remains to be seen whether, and at what stage, leniency applicants can object to such disclosure of information, documents and evidence submitted by them to the DG/ CCI. Given the DG's ability to disregard the leniency applicant's confidentiality requests and the only safeguard under the Amended Lesser Penalty Regulations being prior approval of the CCI, it is likely that the leniency applicant will be afforded a confidentiality hearing before the CCI grants its approval to the DG to disclose such information.

4. Inclusive Definition of 'Applicant' and 'Party'

The Amended Lesser Penalty Regulations apply to enterprises as well as the individuals involved in a cartel on behalf of such enterprises. This is to encourage individuals to turn whistle-blowers and to provide them the same extent of immunity or reduction in penalties provided to enterprises, based on the order of priority of the marker obtained.

5. Role of Individuals

The amendments clarify that enterprises that are leniency applicants, must also specify the names of individuals who have been involved in the cartel and for whom leniency is being sought in the leniency application, to be eligible for consequent immunity/ reduction in penalties.

6. Application for 100% lesser penalty to be considered even if already granted to another applicant

The earlier proviso to Regulation 4 of the Lesser Penalty Regulations, which stated that an application for reduction in penalty of up to 100% will only be available to one applicant has been deleted under the amended regulations. Therefore, it is possible that the benefit of the first marker or reduction in penalty of up to 100% may be granted to more than one applicant. However, in our view, the circumstances under which this may be granted are likely to be rare.

7. Timelines

The Amended Lesser Penalty Regulations provide for more time to the leniency applicant to file the leniency application with the CCI, as leniency applicants now have a 15 day window from the date of receipt of communication from the CCI marking their priority status.

Key Takeaways

The Amended Lesser Penalty Regulations are a clear signal of the CCI's intent to actively encourage the use of the leniency regime, while ensuring that leniency orders are not set aside on grounds of due process violations. The CCI has struck a fine balance between incentivising individuals and enterprises to come forward with information pertaining to the existence of cartels, by removing caps on the number of leniency applicants and ensuring non-leniency applicants have access to the file to be able to effectively defend themselves.

While the Amended Lesser Penalty Regulations are a welcome move, the CCI ought to have addressed a key industry concern relating to the discretion in granting reduction of penalty. The Amended Lesser Penalty Regulations continue to state that a leniency applicant 'may be' granted a reduction in penalty. The use of the word "shall" would have made the grant of reduction mandatory and would have provided certainty to the leniency regime, to help bolster the CCI's mandate regarding cartel enforcement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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