INTRODUCTION
The Competition Act, 2002, under section 2(c), provides an inclusive definition of a ‘cartel’ as “an association of producers, sellers, distributors, traders or service providers who, by agreements amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or trade in goods or provisions of services”[1]. Cartels are anti-competitive agreements that restrict competition, such as agreements on prices, output, supply areas, market shares or customer groups, that result in higher prices for consumers. They typically involve a few independent producers or sellers who agree to cooperate with the motive of improving the profitability of the participants involved. Cartels are prohibited under section 3(1) read with section 3(3) of the Competition Act, 2002[2].
The term ‘leniency’ refers to treatment that involves inflicting punishment upon a wrongdoer that is less severe than what is expected[3]. Under the competition law, there is a special provision of leniently treating cartel participants who voluntarily come forward with information about such a cartel that may be used to penalize them. Entities participating in the cartel are thus incentivized to report the existence of the cartel to the competition authorities, in the hope that in exchange for such information, their penalties would be deducted[4].
Such a leniency program serves as a form of whistleblower protection, enabling the regulator to discover anti-competitive conduct in the form of cartelization, as well as catch other players participating in such cartel, thereby preventing additional harm to the market. Several leniency programs have been framed by the competition authorities in an attempt to encourage the entities engaging in cartelization to voluntarily come forward and honestly disclose information about the presence of the cartel and cooperate with the Commission in its investigation procedures in exchange for a reduction in penalty[5]. The Leniency program thus serves as an official protection extended to those business entities who reveal full information about the cartel honestly, who are otherwise liable to suffer stringent punishment from the Commission if the existence of the cartel is detected by the Commission by itself[6].
FACTORS DETERMINING DEGREE OF IMMUNITY
Section 46 of the Competition Act, 2002, read along with the CCI (Lesser Penalty) Regulations, 2009, gives effect to the leniency program. It provides that the Competition Commission of India (CCI) is obligated to extend lenient treatment to any person or enterprise who, by his own will, provides information about the existence of a cartel to the Commission[7]. However, to avail the benefit of the leniency program, such information provided by the person or enterprise must be incriminatory, i.e., making use of such information, the Commission must be able to catch the other players participating in the cartel[8]. The degree of immunity, i.e., whether partial or complete immunity would be granted by the Commission to the entity disclosing such information will be at the full discretion of the Commission. The Commission would extend the lenient treatment according to what it deems fit in each case. The following factors determine the degree of immunity[9]:
- Whether the evidence is valuable: The Commission will tend to grant full immunity to a person or enterprise that provides detailed information that proves to be more valuable, as compared to a person or enterprise that provides less valuable information. Good quality information effectively aids the Commission in uncovering the infringement. It significantly bolsters the process of investigation carried out by the Commission[10].
- Priority of filing application: While extending leniency, the Commission considers the applicant’s priority of filing such application. The first entity to come forward and disclose information about a cartel is most likely to receive the highest degree of leniency. Entities that come forward after the first applicant has already disclosed before the Commission can still receive leniency, but the degree of immunity is likely to be reduced[11]. For example, while the first applicant may be granted 100% immunity, the second applicant receives a partial reduction in penalties, and the third applicant receives the lowest degree of immunity.
- The stage at which the applicant comes forward with a disclosure: The stage at which the applicant files for leniency is a critical consideration for the Commission in determining whether to grant partial or full immunity. If an entity comes forward with information before the CCI has even initiated an investigation or has received significant information about the existence of the cartel, the chances of receiving complete immunity are higher. However, if the disclosure is made at a later stage, the degree of immunity decreases.[12]
- Entire facts and circumstances of the case: The Commission scrutinizes the entire set of facts and circumstances in each case where the degree of leniency is to be decided. It assesses the overall impact of the anti-competitive conduct of the applicant on the market and consumers, and the role of the leniency applicant in the cartelization process. Entities that played a central or leadership role are more likely to face stricter evaluations as compared to non-active participants.
CONDITIONS FOR GRANT OF LENIENCY
Section 46 of the Competition Act, 2002, grants power to the CCI to provide a lesser penalty to an entity disclosing information about a cartel than the penalty that is mentioned in the Act, only if it is satisfied that any individual or enterprise related with the cartel has come forward and provided the Commission with full information as needed[13]. It is only when the applicant discloses the relevant and necessary information will he be liable to avail of the reduction in penalty and not otherwise[14]. The producer, distributor, trader or seller who is willing to file the leniency application before the Commission must also continue to fully cooperate with the Commission well until the investigation proceedings of the Commission have been completed, to get the benefit of the leniency program[15]. Upon fulfilment of the following conditions the applicant is entitled to leniency:
- The leniency applicant must cease to participate in the cartel after filing for leniency. Continued engagement in the cartelization would make the applicant liable to be denied lenient treatment[16].
- The leniency applicant must not hide, destroy, manipulate or remove any evidence relevant to the investigation proceedings conducted by the CCI.
- The leniency applicant must continue to cooperate genuinely and fully with the CCI until the very end of its proceedings.
- The leniency applicant must render compliance with any other instruction, restriction or condition as and when imposed by the CCI.
IN RE.: ZINC DRY-CELL BATTERIES[17]
In this case, 7 dry cell battery companies engaged in cartelization. One of the Opposition Parties namely, Panasonic, came forward and submitted a leniency application before the Competition Commission of India under Regulation 5 of the CCI Lesser Penalty Regulations, 2009[18]. Upon receiving the application, the CCI came into prima facie opinion that there exists cartelization– charges of determination of price, sharing of the geographical market and bid rigging were drawn against the cartel participants. Panasonic was exempted from all fines and penalties by the CCI, i.e., it was granted 100% immunity[19]. Subsequently, all the other OPs (Eveready and Nippo) followed Panasonic and submitted leniency applications before the Commission and consequently were granted certain immunity – 30% and 20% respectively[20]. However, Panasonic, being the first applicant to come forward and provide the necessary disclosure, was granted a 100% reduction in penalty. The leniency application submitted by Panasonic enabled the CCI to form a prima facie opinion regarding the existence of the cartel and to accordingly direct DG investigation. Since the rest of the OPs came forward with their leniency applications at a much later stage and only after Panasonic had already disclosed before the Commission, the degree of immunity they were granted was comparatively lesser than what was extended to Panasonic.
CHALLENGES OF THE LENIENCY PROGRAM
Several challenges have arisen that have hampered the leniency program’s goals:
- Inconsistency and irrationality while imposing penalties and granting reductions by CCI[21].
- Absence of threat, which deters businesses from disclosing their participation in cartels.
- Several acts of bid rigging have been punished with laxer standards by the Commission and in certain cases, have been granted the benefit of the doubt[22].
- Nominal sanctions imposed by the CCI nullify the desired deterrent effect.
A low number of leniency applications due to a lack of awareness of the leniency program and its procedures among companies.
CONCLUSION
The leniency program under the Competition Act, of 2002, plays a pivotal role in unearthing anti-competitive conduct such as cartelization, that harms market competition and consumer welfare in India. By incentivizing cartel participants to come forward with critical information in exchange for reduced penalties, the program fosters a proactive approach to detecting and addressing anti-competitive practices[23]. The success of cases like the Zinc Dry-Cell Batteries underscores the effectiveness of this approach, demonstrating how early disclosure and cooperation with the competition authorities can lead to significant reductions in penalties. Thus, the leniency program serves as a powerful tool for maintaining fair competition in the market and protecting the interests of consumers in India.
Author(s) Name: Gaurav Chakrabarti (St. Xavier’s University, Kolkata)
References:
[1] Competition Act 2002, s 2(c)
[2] Competition Act 2002, s 3(1) read with s 3(3)
[3] Gunjan Jain, ‘Navigating Cartel Detection: Assessing Leniency Plus In Indian Competition Law’ (LiveLaw.in, 8 May 2024) <https://www.livelaw.in/articles/navigating-cartel-detection-assessing-leniency-plus-in-indian-competition-law-257329> accessed 1 August, 2024
[4] Choudhury Paramjit Misra and Lavanya Bhargava, ‘Cartel Crackdown: India’s Leniency Program Odyssey’ (IndiaCorpLaw, 3 May 2024) <https://www.indiacorplaw.in/2024/05/cartel-crackdown-indias-leniency-program-odyssey.html> accessed 22 June 2024
[5] Competition Commission of India, ‘Frequently Asked Questions on Lesser Penalty Regulations’ (2017) <https://www.cci.gov.in/sites/default/files/faqs/FAQ%20Leniency%20(Eng).pdf> accessed 20 July 2024
[6] N. Koradia, K. Manokaran, and J. Hirani, ‘The Leniency Programme under the Indian Competition Law,’ (Leniency in Asian Competition Law, Cambridge: Cambridge University Press, 2022), pp. 331–354 <https://www.cambridge.org/core/books/abs/leniency-in-asian-competition-law/leniency-programme-under-the-indian-competition-law/F861F5A438D86BB0F5D0CACD49114760> accessed 1 August 2024
[7] Competition Act 2002, s 46; Competition Commission of India (Lesser Penalty) Regulations 2009
[8] Krishna Ravishankar, ‘Leniency Plus: A Need for Introspection in the Indian Context’ (Centre for Business and Financial Laws, National Law University, Delhi, 19 April 2023) <https://www.cbflnludelhi.in/post/leniency-plus-a-need-for-introspection-in-the-indian-context> accessed 22 June 2024
[9] Melissa Cyrill, ‘India Notifies ‘Lesser Penalty’ Regime under the Competition Act’ (India Briefing, 22 February 2024) <https://www.india-briefing.com/news/india-notifies-lesser-penalty-regime-under-the-competition-act-31308.html/> accessed 22 June 2024
[10] Competition Commission of India (Lesser Penalty) Regulations 2009, reg 4
[11] Farhad Sorabjee, Vaibhav Choukse, Ela Bali and Aditi Khanna, ‘India Chapter: The Cartels and Leniency Review’ (JSA Advocates & Solicitors: Publications, 23 February 2023) <https://www.jsalaw.com/articles-publications/india-chapter-the-cartels-and-leniency-review/> accessed 1 August 2024
[12] Competition Commission of India, ‘Frequently Asked Questions on Lesser Penalty Regulations’ (2017) <https://www.cci.gov.in/sites/default/files/faqs/FAQ%20Leniency%20(Eng).pdf> accessed 20 July 2024
[13] Competition Act 2002, s 46
[14] Samir Gandhi, Aditi Gopalakrishnan, Toshit Shandilya, Rahul Shukla and Ravi Gangal, ‘Cartel leniency in India: overview’ (AZB & Partners: Publications, 22 October 2019) <https://www.azbpartners.com/bank/cartel-leniency-in-india-overview-2/> accessed 1 August 2024
[15] Competition Act 2002, s 3(1) read with s 3(3)
[16] Esha Sharma, ‘Leniency Regime in India’ (LiveLaw.in, 27 May 2022) <https://www.livelaw.in/columns/competition-act-2002-leniency-programme-competition-commission-of-india-lesser-penalty-regulations-cci-200210> accessed 1 August 2024
[17] In re: Zinc Dry-Cell Batteries (Suo Motu Case No. 02 of 2016) [2016] CCI 50
[18] Competition Commission of India (Lesser Penalty) Regulations 2009, reg 5
[19] Samir Gandhi, Aditi Gopalakrishnan, Toshit Shandilya, Rahul Shukla and Ravi Gangal, ‘Cartel leniency in India: overview’ (AZB & Partners: Publications, 22 October 2019) <https://www.azbpartners.com/bank/cartel-leniency-in-india-overview-2/> accessed 22 June 2024
[20] Saba, ‘CCI imposes penalty on leading zinc-carbon dry cell battery manufacturers for cartelisation’ (SCC Online: Case Briefs, 20 April 2018) <https://www.scconline.com/blog/post/2018/04/20/cci-imposes-penalty-on-leading-zinc-carbon-dry-cell-battery-manufacturers-for-catelisation/> accessed 22 June 2024
[21] Aaryan Dhasmana and Shreya Sethi, ‘Cartels and Carrots: Unraveling the Flaws in India’s Leniency-plus Approach’ (Centre For Research in Competition Law & Policy: National Law Institute University, Bhopal) <https://crclp.nliu.ac.in/cartels-and-carrots-unraveling-the-flaws-in-indias-leniency-plus-approach/> accessed 1 August 2024
[22] Randeep Dahiya, ‘Leniency Clause in India and Associated Challenges in the Future’ (CCL-NLUO, 20 December 2019) <https://www.ccl.nluo.ac.in/post/leniency-clause-in-india-and-associated-challenges-in-the-future> accessed 1 August 2024.
[23] Choudhury Paramjit Misra and Lavanya Bhargava, ‘Cartel Crackdown: India’s Leniency Program Odyssey’ (IndiaCorpLaw, 3 May 2024) <https://www.indiacorplaw.in/2024/05/cartel-crackdown-indias-leniency-program-odyssey.html> accessed 1 August 2024
