India: Competition Violators Escape: Lean On Leniency Regime

Last Updated: 6 December 2018
Article by Pierre Uppal


Cartels are agreements amongst market competitors which have significant adverse effect on competition. But without effective sanctions, it becomes very difficult to detect the existence of cartels as they are concerted actions and work in secrecy. The colluders might get an impression in the absence of strict penalties that the benefits associated with the cartelization outweigh the associated risks of penalties.

This is where the Leniency Regulations i.e. Competition Commission of India (Lesser Penalty) Regulations, 2009 under the Competition Act, 2002 came into play. The Competition Act, 2002 (hereinafter referred as the "Act"), which replaced the erstwhile Monopolies and Restrictive Trade Practices Act (under which the commission could only pass cease and desist orders), has given the Competition Commission of India ("CCI") the freedom to decide upon lesser penalties in case of disclosure of existence of cartel by a member under Section 46 of the Act. The Act has extended the benefits of such provisions to not just a corporation but to individuals as well with the amendments in the Leniency Regulations vide Competition Commission of India (Lesser Penalty) Amendment Regulations, 2017 which were notified in August 2017 (hereinafter referred as "Amended Regulations").

Essential ingredients to claim relaxation under the Leniency regime

The protection provided under Section 46 of the Act is subject to the fulfillment of the following conditions:

1. The producer, seller, distributor, trader or service provider must have been part of the cartel.

2. It / He /She must have made a full disclosure.

3. Such disclosure shall be a true and vital disclosure.

4. The disclosure shall be before the report of investigation of the Director General ("DG") under Section 26 of the Act, or even where the matter is under investigation, without the disclosures made by the applicant, the Commission or the DG would not have been able to establish contravention due to insufficient evidence.

5. Such applicant must cease to be a further part of the cartel.

Quantum of the penalties

The corresponding Regulations post-amendment, provide the benefit of such leniency on disclosure to not just the applicants with first, second or third priority status but also to such subsequent applicants fulfilling the requirements of disclosure under Section 46 of the Act. The quantum of such penalty post the Amended Regulations stand as follows:

1. The first applicant may still be granted up to 100% reduction in penalty;

2. The second applicant may enjoy a reduction up to 50 %; and

3. The third or any subsequent applicant may be granted relaxation in penalty up to 30%.

The addition of subsequent applicants within the ambit of the regulations to provide relaxation in quantum of penalty has helped in instilling confidence among enterprises and individuals to come out in open and blow the whistle against the contravention of Section 3 of the Act. Earlier, the enterprises used to shy away from furnishing self-incriminating evidence under the uncertainty of making it to the list of first three applicants and to fall outside the ambit of the Regulations. But the Amended Regulations has taken care of this apprehension and developed much more confidence in the minds of the offenders to come out in open.

Recent verdicts on the Leniency Regime

After coming into force of the Amended Regulations, the Competition Commission of India has been very proactive and passed various judgments and given the benefits of the provisions of the leniency regime to applicants. Some of the important judgments relevant to understand the issues are summarized herein below.

1. Brushless DC Fan case - the first in history of Competition laws

The CCI took suo moto cognizance under Section 19 of the Act of the bid rigging or collusive bidding of tenders floated by the Indian Railways for brushless DC fans. M/s. Pyramid Electronics, one of the contravening firms out of the three disclosed the modus operandi of the cartel to CCI and confirmed the existence of a cartel. In the instant case, the cartel was proved with the help of scrutiny on communication and correspondences of the key personnel of the firms during and after the period of bidding of tenders and exchange of quotations between the firms for the purpose of upcoming tenders.

M/s. Pyramid Electronics was given the benefit of the leniency provisions under the Act and was granted reduction of 75% in the quantum of penalties after taking into account the cooperation provided to CCI and the stage at which the application was made.

2. Suo Moto Case No 02 of 2016

In the case of Re: Cartelisation in respect of zinc carbon dry cell batteries market in India, Panasonic was the first applicant to reveal the existence of cartel in the industry and hence was awarded a full reduction in penalty by the CCI marking a departure from the first leniency order of CCI. Panasonic was awarded with waiver of full penalty for providing continuous cooperation, making an application when there was no incriminating evidence available against the offenders in the industry of anti-competitive activities being committed. Nippo and Eveready which were also the members of Association of Indian Dry Cell Manufacturers (AIDCM), being the other parties to cartel were the subsequent applicants under the leniency regime and were granted some reduction in penalties. However, CCI observed that both of the subsequent applicants did not provide any "significant value addition" to the already incriminating evidence available. The reduction was granted to the subsequent applicants taking into consideration the corroborating evidence, admission of being a party to the cartel and the stage at which application was made.

3. Suo Moto Case No 50 of 2015

The case was filed on information filed by Nagrik Chetna Manch through its President against Fortified Security Solutions (hereinafter, 'OP-1'), Ecoman Enviro Solutions Pvt. Ltd. (hereinafter, 'OP-2'), and Pune Municipal Corporation (hereinafter, 'OP-3'). The parties were found to be involved in bid rigging/collusive bidding in contravention of Section 3(3) read with Section 3(1) of the act. On an investigation conducted by the DG, Lahs Green India Pvt. Ltd. (hereinafter, 'OP- 4'), Sanjay Agencies (hereinafter, 'OP-5'), Mahalaxmi Steels (hereinafter, 'OP-6') and Raghunath Industry Pvt. Ltd. (hereinafter, 'OP-7') were included as Opposite Parties in the instant case.

The CCI granted a reduction in penalty of 50% to the OP4 and OP6. The order suffers because the Commission despite acknowledging the fact that the OP1(having the first marker status)supported the investigation and co-operated with the investigation/ inquiry throughout and disclosed the modus operandi of the cartel and provided evidence in its possession to the Commission. However, the Commission exercising its discretion held that there was no significant value addition made by the OP1. The subsequent applicants OP2 and OP5 were also granted a reduction of 25% and 40% respectively in the penalties payable by the Commission.

4. Suo Moto Case No 02 of 2013

The most recent decision of CCI which was delivered on 11.07.2018 came in the case of Globecast which had disclosed the existence of a cartel in the bid rigging arrangement with Essel Shyam Communication Limited (now Planetcast Media Services Limited) or ESCL in the broadcasting service industry and was thus granted the first applicant status in the case. ESCL on the other hand was also accorded the second priority status as it had filed its leniency application only after a prima facie opinion had been formed by the CCI on the information of Globecast. It was further held in the given case that collusion for even a single event is sufficient to establish contravention of provisions of Section 3 and which party has derived a higher benefit becomes immaterial.

The CCI had granted a reduction in penalty of 100% to Globecast and its employees due to its "vital disclosure" in the form of exchange of correspondences, role of ex employees, exchange of commercially sensitive information which in turn helped CCI form a prima facie opinion and disclose the modus operandi of the cartel. On the other hand, even ESCL was granted 30% reduction in penalty due to its role in providing additional information such as non disclosure agreement between the parties and the correspondence exchanged.

Conclusion: Still a long way ahead

Despite several orders being passed in the short span of time after enforcement of Amended Regulations and provision of leniency to contraveners of Section 3, there are still a lot of loopholes that continue to make leniency provisions less impactful. Regulation 4 of the Amended Regulations mentions in the provision the words "may" and "added value" which leaves it to the discretion of the CCI to decide upon how much reduction in penalty is to be provided to a contravener despite them/him being the first applicant in the matter, taking into account considerations like the quality of information disclosed and when the application was filed with the Commission. Equally, ambiguous is the term "added value" finding place in the same Regulation no. 4 of the Amended Regulations. What constitutes an added value is highly vague and ambiguous and falls upon the discretion of the CCI. For instance, in the Brushless DC fans case, despite M/s. Pyramids Electronics being the first priority applicant, it couldn't secure a 100% reduction in penalty.

Such ambiguity in provisions is significant enough to make the contraveners apprehensive and reluctant to blow the whistle and come out in open about the contravention which would ultimately defeat the purpose behind the leniency regulations. The proactive and aggressive role of the Commission has been playing to enforce a free competition market is highly appreciable but there is still a long way road ahead to give the intended effect to the leniency provisions in India.

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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