Like the developed competition law jurisdictions, the Competition Commission of India (CCI) has over the last few years come down heavily on cartelisation in terms of investigation and penalty. Till date, the maximum penalty of INR 63.2 billion imposed by the CCI has been in case of cement cartelisation (Case no. 29 of 2010). Apart from the exposure to a substantial penalty, corporates have started to fear reputational damage that could ensue from adverse publicity of search and seizure exercise, which have been actively conducted by Director General (DG) in such cases.

Not just the corporates, but individuals involved in such anti-competitive activities or those controlling the affairs of such corporates are exposed to the risk of being penalised and subject to reputational harm. It is not uncommon that employees (including those which are at managerial positions) intentionally or unintentionally indulge in dealings and discussions which contribute towards cartelisation. This is where the opportunity to seek lesser penalty or leniency from the CCI for such violations of competition law plays an important role.

Compliance Check and Workshops

As an advising counsel on issues such as the above, we have witnessed growing number of inquiries from corporates on not only educating the management and employees on the dealings and activities which could be construed as cartelization. The reason for this seems to be the consideration given to a vibrant compliance program by the CCI in some cases as a penalty mitigating factor. Recently, with the growing number of leniency applications being filed with the CCI and due reduction in penalty in many of such cases, the corporates are now also inclined to ensure awareness about the leniency regime among their employees (specifically those in marketing and sales related roles).

It does seem to be a gradual realisation among the corporates that seeking leniency of penalty in case of a cartel on timely basis can be a real mitigator of penalty and in some cases also a saviour of reputation of corporate and its management. The case for awareness on leniency is emphasised especially by the multinational corporates from developed jurisdictions, who are now more acquainted with the upside of this regime. 

Leniency Model and its Application by the CCI

The Competition Commission of India (Lesser Penalty) Regulations 2009 (Lesser Penalty Regulations) read with Section 46 of the Competition Act, 2002 contains the regulatory framework of cartel leniency. It envisages CCI to grant benefit of lesser penalty to an applicant on first come first serve basis (referred to as "priority status"). Subject to discretion of the CCI and factors such as the stage of application, availability of evidence with the CCI at such stage, quality of information and the overall facts and circumstances of a case, the CCI could grant benefit upto 100% reduction in penalty to the first applicant; 50% to the second applicant; and 30% to third or subsequent applicant. The leniency regime has been successful to bust ongoing cartelisation in many cases and was given boost by the amendment to the Lesser Penalty Regulations in 2017. The amendment which among other changes, amended the definition of applicant to include individuals involved in the cartel (in addition to the enterprise/corporate), removed the limit of three applicants who could benefit from the opportunity of lesser penalty and most importantly, permitted corporate applicants to also seek leniency for individuals involved in cartel (which is meant to include its employees).

The first applicant has been granted 100% reduction of penalty, where disclosures and submission of evidence has enabled the CCI to form a prima facie case regarding the existence of the cartel, which evidence would otherwise not be available with the CCI. This has been the inclination of CCI consistently in leniency cases such as the case of zinc carbon dry cell batteries (Suo motu case no.2 of 2016), case of sport broadcasters (suo motu case no. 2 of 2013) and in the case of electric power steering systems (suo motu case no. 07 (01) of 2014), one of latest orders passed in 2019.

In case of applicants who are either not first in priority or have approached the CCI at a stage where it is already in possession of evidence of an existence of cartel, much of reduction in penalty depends upon assessment and discretion of the CCI. Such discretion is usually seen to be guided by the extent of 'significant value addition' made by applicants' information to the evidence in possession of CCI or importance that could be attributed to such information. The stage at which such information comes to the CCI is an important factor to assess its significance or value addition. For example, in the case of dry cell batteries, the second and third applicants were granted lesser penalty only upto 30% and 20% respectively, against the expected reduction of 50% and 25% in such case as contemplated under the Lesser Penalty Regulations. The considered shortfall in the reduction was for the reason that the information and evidence provided by these applicants had a depreciated value given that CCI was approached with evidence much after the search and seizure conducted by the DG.

The CCI has been flexible with extending the benefit of leniency to more than three parties (as was initially proposed in the Lesser Penalty Regulations). In the case of Nagrik Chetna Manch vs. Fortified Security Solutions and Others (case no. 50 of 2015), CCI extended lesser penalty to four applicants of which two applicants were given 1st priority status and allowed reduction upto 50%, while the second and third applicant were allowed reduction upto 40% and 25%, respectively.

In terms of evidence that has been considered to be "vital disclosure" or of "significant value addition" includes information and evidence on the modus operandi of the cartel such as the details of all relevant and related events, role of employees and other individuals, observations from internal inquiry conducted by the applicant and email/electronic correspondence showing sharing of commercially sensitive and confidential price information.

Due weightage has been given to the extent of cooperation offered by the applicant throughout the investigation process and during the proceedings before the CCI in all cases.

Leniency Benefit to Individuals

The benefit of leniency has been extended by the CCI to the individuals (mostly employees) involved in dealings held to be cartelisation. The proportionate reduction of penalty extended to such employees is identical to that granted to the related corporate entity. From our experience in the recent past, this benefit has encouraged employees to come forward with disclosures of dealings and activities that could be seen as cartelization and enabled corporates to timely approach the CCI for seeking leniency.

Given the surge in businesses and the growing reach of the CCI, corporates must ensure that they remain on the favourable side of the regulatory authorities while expanding their growth path. The leniency program offers such a chance to companies which could not only save financial damage but also its repute, while at the same time providing a clean slate to carry on the business in compliance with the regulatory framework. Looking at much of the benefits that can be drawn from the leniency regime, there are good reasons for corporates to educate and encourage employees to be alert and conscious of whistleblowing in the best interest of self and their employer corporate.

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.