India: The CCI Amends Competition Commission Of India (Lesser Penalty) Amendment Regulations, 2017

Last Updated: 20 September 2017
Article by S.S. Rana & Co. Advocates

The Competition Commission of India, vide its Notification dated August 22, 2017 has amended the Competition Commission of India (Lesser Penalty) Regulations, 2009 ("Leniency Regulations"). The Competition Commission of India (Lesser Penalty) Amendment Regulations, 2017 ("hereinafter referred to as the new regulations/ amended regulations") provide for lesser penalty not only to the first three applicants, but also to subsequent applicants.

Introduction: The leniency policies adopted by Competition Commission of India and its counter parts all over the world, act as the most effective tools to detect, investigate and break cartels and restore healthy and free competition in the market. The amended Regulations have ensured more transparency and efficiency within the existing leniency laws.

Hard-core cartels constitute very serious violations of competition rules. They are often very difficult to detect and investigate without the cooperation of an insider. Leniency programmes are designed to give incentives to cartel members to take the initiative to approach the competition authority, confess their participation in a cartel and aid the competition law enforcers. The aim is to drive a wedge at the heart of a cartel through its trust and mutual benefit. 1

Cartels: Cartel formation is an arrangement by way of which the competitors in the market decide to 'cooperate' instead of competing. Together by market sharing, price fixing or bid rigging etc., they freeze market competition and discourage other players from entering into the market or increasing their profitability. Hardcore cartels were defined in the OECD Recommendation of the Council Concerning Effective Action against Hard Core Cartels, 1998 as "...anticompetitive concerted practice(or arrangement), by competitors to fix prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide markets by allocating customers, suppliers, territories or lines of commerce."

A cartel is the most draconian form of anti-competitive arrangement, not only because it is very difficult to detect or because it freezes the competition in the market, but because it heavily contributes to sky-high inflations levels subsequently leading to low living standards and a recessive economy. It is this very mischief of not being detected, that has given rise to the lesser penalty regimes all over the world. Once an application for lesser penalty is made by a member of the cartel the cartel can be investigated and broken.

The gravity of cartelization can be put into accurate perspective upon a bare perusal of Section 27 of the Competition Act, 2002 ("hereinafter referred to as "the Act"), which provides for a penalty of more than three times of the amount of profits made out of such agreement by the cartel or 10% of the average of the turnover of the cartel for the last preceding 3 financial years, whichever is higher.

These new Regulations have introduced many positive changes to the existing leniency regime which are discussed below:

1. Definition of Applicant: Under the new Regulations, the definition of an Applicant includes individuals also. According to Section 2(b) of the Regulations an "applicant" means an enterprise, as defined in clause (h) of section 2 of the Act, who is or was a member of a cartel and includes an individual who has been involved in the cartel on behalf of an enterprise, and submits an application for lesser penalty to the Commission. The Applicant no more needs to be an enterprise only, even an individual connected with the enterprise can be the Applicant.

2. A Party for or against whom inquiry or proceeding can be instituted shall include an enterprise or person or the Central Government, any State Government or any statutory authority and shall also include any person permitted to join the proceedings. This brings more entities within the ambit of parties who can be connected with the proceedings.

3. According to Rule 3 of the Regulations provides for various conditions which the applicant has to satisfy for being eligible for lesser penalties. Another condition has been added to the existing criteria that is that where the applicant is an enterprise, is shall provide the names of individuals who have been involved in the cartel and for whom the lesser penalty is sought.

4. Leniency for the First Applicant: The first applicant making vital disclosure by submitting evidence of a cartel shall be granted reduction of penalty by 100% However, such information or disclosure shall be of such nature so as to enable the Commission to form a prima-facie opinion regarding the existence of a cartel which is alleged to have contravened the provisions of section 3 of the Act and the Commission did not, at the time of application, have sufficient evidence to form such an opinion. Also, vital information can be disclosed to the Commission which can aid in establishing contravention of Section 3 of the Act, even in matters under investigation for which sufficient evidence was not available with the Commission before.

5. Applicants may also be granted benefit of reduction in penalty on making a disclosure by submitting evidence, which in the opinion of the Commission, may provide significant added value to the evidence already in possession of the Commission or the Director General.

6. No limitation on number of applicants: Under the old regulation, the first applicant would be granted up to 100% reduction in penalty and the second applicant up to 50% while the third applicant would be granted up to 30% reduction in penalty. Unlike the erstwhile regulations, where the reduction of penalty was granted only to the first three applicants, the amended rules do not provide for this restriction.

It is notable that the erstwhile regulations were strict, in the sense that the concerned cartel members were forced to file an application of a lesser penalty on a priority basis-at the earliest hour, so as not to miss out on the penalty condonation by virtue of not being amongst the first three applicants. This deterrence will cease to exist, now that applications can be filed 'at will'. On the brighter side though, now the applicants will not be discouraged to file the application 'sooner or later' as they will no more carry the risk of being the fourth applicant and lose out on the penalty condonation!

7. Confidentiality: According to the amended Rule 6 the following information received under the Competition Commission of India (General) Regulations, 2009 by the Commission or the Director General shall treat as confidential:

  • the identity of the applicant;
  • the information, documents and evidence furnished by the applicant under Regulation

This information may be disclosed only when:

  • such disclosure is required by law, or
  • the applicant agrees in writing or
  • the applicant himself discloses.

8. Recordal of Reasons before disclosure: Further, according to Section 6A, if the applicant does not agree to the disclosure of the documents and evidence brought to the Commission through his application, the Director General cannot disclose the same without recording reasons for such disclosure in writing and the seeking approval of the Commission. Further, the Director General must disclose such information only when it is in furtherance of an investigation. An additional provision for the inspection of documents has also been added to regulate the inspection of documents disclosing confidential information in a nonconfidential version.

Footnote

1  UNCTAD/DITC/CLP/2016/3. http://unctad.org/en/PublicationsLibrary/ditcclp2016d3_en.pdf

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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