India: The Curious Case Of Leniency Under The Competition Act, 2002 In India

The leniency regime/ program in India has been active since the enforcement of the Competition Act, 2002 (Act) in May 2009. However, it is since 2017 that there have been various final orders in leniency matters which shed light on the way the Competition Commission of India (CCI/ Commission) interprets the leniency provisions contained in the Act as well as the Competition Commission of India (Lesser Penalty) Regulations, 2009¹ (Lesser Penalty Regulations).

The Lesser Penalty Regulations, in line with the global anti-trust jurisprudence aim to provide benefit, in terms of lesser penalty to Applicants who come forward and report anti-competitive practices (cartels) to the CCI. As per the Regulations², the CCI has the discretion to award lesser penalty of upto 100% to the first applicant, upto 50% to the second applicant and upto 30% to the third and all subsequent applicant(s).

In India, with increasing awareness of competition laws and the active role of the CCI, this program is gaining importance, slowly but surely. Though the intention of the CCI is right, however there are several areas of concern which the CCI must take into account in order to promote and exploit the benefits of this program.

Publicly available orders suggest that the CCI has passed final orders in nine cases wherein it has exercised its discretion while invoking the lesser penalty regulations, whereas, media reports suggest that it is seized with many more cases in various sectors, such as auto-parts, conveyor belts, pharmaceuticals etc.

Orders by the CCI

The first order passed by the CCI was in early 2017, in Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items³, wherein the CCI penalized three companies i.e., M/s Pyramid Electronics (Pyramid), M/s R. Kanwar Electricals (Kanwar) and M/s Western Electric Trading Company (Western) including its office bearers for bid rigging. The CCI granted Pyramid (and its office bearers) a seventy five percent reduction in the total leviable penalty for breaking ranks and turning into an approver. Though Pyramid was the 1st applicant, the CCI did not give complete reduction in penalty due to the stage at which Pyramid had approached the CCI, i.e., after the investigation had commenced.

In re: Cartelization in respect of zinc carbon dry cell batteries market in India⁴, all the three cartelists approached the CCI requesting for lenient treatment to the exclusion of the association. The CCI passed on the benefit of leniency to a certain extent to Eveready Industries Ltd. and Indo National Ltd. including their office bearers while granting complete immunity to Panasonic Energy India Co. Ltd. This was the first time that the CCI granted complete immunity to the first leniency applicant including its office bearers, as the investigation was initiated at the behest of Panasonic's disclosure to the CCI.

In Nagrik Chetna Manch v. Fortified Security Solutions and others⁵, the CCI extended the benefit of lenient treatment to four of the six cartelists, even though all six had applied for leniency. This case had peculiar facts as several parties had acted as proxy bidders to manipulate the bid, who weren't even present in the relevant market. In this case, the first applicant was granted only fifty percent reduction in penalty owing to the stage at which it came forward, i.e., after the investigation had begun. Thereafter there were two subsequent cases stemming from the instant case wherein the same set of parties had acted in concert to rig bids in relation to other tenders floated by the Pune Municipal Corporation.⁶

In Re: Cartelization by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters⁷, the CCI extended the benefit of lenient treatment to both the parties involved in the cartel. The 1st applicant received a benefit of 100% reduction, whereas the 2nd applicant received a benefit of only 30%. Even though the order records that the 2nd applicant added value to the investigation, made vital disclosures and there are references which reek of 'not complete' cooperation by the 1st applicant, the CCI still granted only 30 % to the 2nd applicant which projects that, be it as it may, the 1st applicant ought to get 100%, if he provides sufficient material for the CCI to formulate a prima facie opinion.

In Re: Anticompetitive conduct in the Dry-Cell Batteries Market in India⁸, this case takes que from the 1st dry cell battery case. In this case, the opposite parties were contract manufacturers and thereafter entered into a formal agreement by way which it was agreed that they would not compete with each other and not indulge in price wars. The CCI after evaluating the leniency application filed by the 1st applicant, granted a 100% reduction in penalty.

In Re: Alleged cartelization in flashlight market in India⁹, the Commission concluded that in the absence of cogent evidence, it cannot be concluded that the parties formed a cartel. However, the order does give a flavor that there was an exchange of commercially sensitive information, however the alleged exchange did not establish that there was any agreement upon the terms of increasing or determining prices.

In Re: Anticompetitive conduct in the dry-cell batteries market in India¹⁰, the Commission initiated an investigation pursuant to Panasonic's leniency application wherein there existed a bi-lateral ancillary cartel between Panasonic's controlled entity in India with another battery manufacturer in relation to institutional sales. The Commission concluded that there was a cartel and gave a 100% reduction in penalty to Panasonic while penalizing Godrej and Boyce Manufacturing.

Key takeaways from the cases

One of the primary aspects looked into by the CCI is the 'stage' at which the party has applied for leniency coupled with the disclosures made by the party. In most cases, the CCI appears to grant a higher degree of lesser penalty, if the existence of a cartel is made known to the CCI, before it forms a prima facie opinion. For instance in re: Cartelization by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters, re: Cartelization in respect of zinc carbon dry cell batteries market in India (2 cases), re: Anticompetitive conduct in the dry-cell batteries market in India, the Commission granted a 100% reduction in penalty to the 1st applicant, as they had approached the CCI before the CCI could form a prima facie opinion. However, in cases where the CCI had already taken cognizance and parties had subsequently approached the CCI, the reduction in penalty was much lower.

Next, the Commission also gives vital importance to the concept of 'significant added value' that is provided by each applicant while deciding the quantum of reduction. It was interesting to see how this concept played out in the dry cell batteries case as well as the Nagrik Chetna cases.

In the dry cell battery case, the CCI had conducted a dawn raid and it was only post the raid that two of the three applicants applied for leniency (Panasonic had disclosed the cartel to the CCI before the dawn raid). Despite acknowledging that most of the evidence was independently available with the Director General's office (DG) during its investigation after having conducted the raid and concluding that the parties were not able to add significant value, the second and third applicants were granted reduction of 30 and 20 percent respectively. This is definitely encouraging for applicants who are late in joining the queue¹¹. However, in the broadcasting service providers' case, the CCI adopted a conservative approach and granted the 2nd applicant a reduction of only 30% even though the material provided by the 2nd applicant had added value and there was no dawn raid conducted by the office of the DG.

However, two weeks after the dry cell batteries order, the CCI passed its third order in the solid waste management cartel, wherein two of the six applicants, were not afforded the benefit of lesser penalty. The CCI recognized that all the applicants cooperated with the investigation however, two of the applicants were not able to add any significant value to the case. Though in one of the cases (solid waste management cartel), the 3rd marker obtained a higher percentage of reduction than the 2nd applicant as it disclosed of a cartel in relation to certain other tenders.

Moving ahead to the calculation of penalty, it appears that in the absence of guidelines determining the threshold of penalty, leniency applicants have been kept in the dark. For instance, in the dry cell case, even after a dawn raid was conducted on the parties, a penalty of 1.25 times of the profit was imposed, whereas in the broadcasting service providers case, a penalty of 1.50 times of the profit was imposed, in the absence of a dawn raid, the same is also true for the brushless DC fans case, wherein a penalty of 1.0 times the profit was levied despite the applicant approaching after initiation of investigation.

Concerns of leniency applicants

In India, though the CCI has been implementing the leniency program in spirit. Confidentiality concerns still loom over current and potential applicants. A review of the orders passed by the CCI in leniency cases appear to suggest that great amount of detail concerning the parties, evidences, individuals involved, modus operandi, customers is mentioned. Such disclosures provide locus standi to the effected parties to file compensation claims, causes reputational loss (to the company as well individuals) and ultimately may serve to undermine the leniency programme.

It is important to understand that such disclosure practices will in-turn deter potential applicants from coming forward and reporting cartel conduct. Thus, in order to uphold the principles of the leniency program, it would be in the interest of the CCI to adopt a more pragmatic approach which entails, only publication of non-confidential version of the final order that includes minimal disclosure relating to the evidences produced by a leniency applicant. Further, in-cases of no violation (for instance- In Re: Alleged cartelization in flashlight market in India), there CCI may consider issuing only be a high level statement of closure and no detailed final orders. These practices will also help in aligning the leniency program in India with international best practices.

Footnotes

1. These regulations underwent significant amendments in August 2017 such as broadening of the definition of the term applicant to include individuals in addition to the enterprise, potential lenient treatment to more number of applicants as opposed to three etc.

2. Regulation 4 of the Lesser Penalty Regulations

3. Suo Moto Case No. 03 of 2014, Order dated 18.01.2017

4. Suo Moto Case No. 02 of 2016, Order dated 19.04.2018

5. Case No. 50 of 2015, Order dated 01.05.2018

6. Suo Moto Case No. 03 of 2016, Order dated 31.05.2018; Suo Moto Case No. 04 of 2016, Order dated 31.05.2018

7. Suo Moto Case No. 02 of 2013, Order dated 11.07.2018

8. Suo Moto Case No. 02 of 2017, Order dated 30.08.2018

9. Suo Moto Case No. 01 of 2017; Order dated 06.11.2018

10. Suo Moto Case No. 03 of 2017; Order dated 15.01.2019

11. It is pertinent to note that as per the LP Regulations, the 2nd marker is eligible for a 50% reduction and 3rd and subsequent applicants are eligible for a 30% reduction.

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