[Siddhant Sodhia & Tirth Purani are 3rd Year students from Nirma University, Ahmedabad]
Introduction
The Competition Commission of India (“CCI”) ensures healthy competitive business practices and freedom of trade to other participants in the market. It protects the interests of the consumers from the monopoly enjoyed by the dominant market players. Pursuant to this CCI has introduced a new set of through the Competition (Amendment) Act, 2023. This new amendment rolled out Competition Commission of India (Lesser Penalty) Regulations, 2023 which are set to replace Competition Commission of India (Lesser Penalty) Regulations, 2009.
Draft regulations aim to combat cartels which are a group of business organisations part of the same industry. They aim to control distribution and prices and as result they are significant breaches of competition law. Due to their clandestine nature, leniency regulations are implemented in most jurisdictions to apprehend and bring them to justice.
Leniency Plus (“LP”) gives additional reduction to those companies which report existence of another cartel in an unrelated market during ongoing leniency proceedings of those companies. These draft regulations on LP aim to encourage corporations under investigation forming part of one cartel to report other cartels which are unknown to the CCI. LP regulations would incentivize an existing LP applicant which may be a company or an individual who is a part of first cartel and gives full, true, and vital disclosures about the second cartel unknown to the CCI. The applicant will be eligible to receive an additional reduction in penalty for the first cartel, in addition to the reduction in penalty granted for the first cartel in accordance with its priority status, provided that specified terms and conditions are met. Further, as stipulated in the regulations, a reduction in sanction has been applied to the second cartel. The discretion to grant the status of ‘lesser penalty plus’ lies completely with the CCI.
This article demonstrates how the proposed Leniency-Plus framework in India faces fundamental problems and deviation from economic considerations, indicating its potential failure to address the flaws of existing antitrust frameworks, casting doubts on its success in the Indian setting.
Differentiating penalties under Leniency and Leniency Plus
The Competition Act in India allows Leniency in the form of reduced penalties to companies for providing crucial information about cartels that violate competition laws. The Competition Commission of India (Lesser Penalty) Regulations, 2023, and Section 46 of the Act provides that leniency applicants are entitled to reduction in the penalty. The CCI Regulations of 2009 further delineate the reduction amount through the establishment of an ordered framework. The first applicant will be granted up to 100% reduction, second applicant will be granted up to 50%, and subsequent applicants will be granted up to 30%.
Presently, the CCI is advancing further by suggesting the implementation of the "Leniency Plus" regulations under which an applicant for leniency plus will have two monetary benefits i.e., 1) The applicant for LP will be eligible for an additional 30% reduction in penalty, which is a further decrease from the penalty imposed in the initial cartel and 2) Penalty reduction of up to or equal to 100 percent in the newly disclosed cartel.
The assumption behind the additional reduction in penalties is more and more uncovering of cartels. By giving an additional reduction in the previous disclosure of Cartel a violator is being benefited for providing the same information twice. It gives an additional advantage for participating in the same prohibited activity. The benefit given to the companies under leniency for reporting a cartel is justified as it is serving the purpose for what it is formulated. Under the current leniency regulations CCI has already been giving significant reductions in the penalties. Further reduction of penalties creates an implication that firms are not reporting Cartels to the CCI due to the inadequate reductions in the penalties.
Additionally, there has been a blatant inconsistent approach in the penalty reduction by CCI. As discussed above, CCI will give reductions in the penalties only when there is full, true and vital disclosure by the cartelist that adds significant value in the evidence submitted before the authority. When it comes to the reduction of penalties in cases before the CCI, there is a glaring difference. In the case of Nagrik Chetna Manch, the commission did not provide any reduction in the penalties to two of six applicants citing that their evidence couldn’t contribute much. On the other hand, in the case of Zinc-Carbon Dry Cell Manufacturers Cartel case, even though CCI knew that the second and third applicants for leniency didn't add much to the investigation, it still gave them 30% and 20% less of their penalties as a reward for their cooperation.
Therefore, there exists a sheer inconsistency in the penalty reduction and bringing additional penalties for participating in more than one prohibited activity does not prove as a strong attraction for cartel participants.
Effectiveness of Leniency and Leniency Plus
Since 2009 the leniency regime has already been active under the Competition Act, 2002. This leniency regime already provides significant reduction in the penalties imposed on furnishing details about the existence of a Cartel. We argue that the existing leniency regime has not been very successful and possibility of leniency plus bearing fruits is meagre. According to a study conducted by CCI, leniency applications were the source of only seven distinct cartels discovered by the CCI out of all cartel cases from 2009 to 2021. Amid this time frame, the CCI detected approximately 32 organizations. Moreover, as per the data, the leniency applications were not the results of penalties imposed by CCI penalties in six of these seven instances. Rather, diverse external factors acted as the catalyst. This included three leniency procedures stemming from the publication of a report detailing allegations of cartel activity by another Indian government agency, as well as others stemming from a failed acquisition, an investigation into comparable conduct by a foreign competition regulator, and a corporate rebranding initiative. Thus, it is evident that the regulations on leniency are not able to adequately serve the purpose for which they are brought forth. The question then follows will the leniency plus give results or meet with the similar fate?
Supporters of ‘leniency plus’ argue that it grants more incentives to LP applicant and will encourage companies to step on the race track to disclose about existing cartels to avail the bonus reduction in the penalties. However, an adverse aftermath is ignored. The ‘leniency plus’ can have a reverse effect. The aim of these regulations is to crack down the Cartels. However, the Cartelists can form new Cartels which would otherwise not exist with an aim to gain profits under the garb of reduction in the penalties. Cartelists can option multiple methods such as fragmenting a big Cartel into a several smaller Cartels. If the reduction in the penalties is kept low, only few companies will be instigated to report the Cartels. They will only report when the benefit from the reduction is more than the benefit from Cartels. The companies form part of Cartels can also apply for multiple leniencies. The plus tool will be incentivizing them more for potentially carrying out anti-competitive practices.
Conclusion
The Leniency Plus draft regulations have received favorable responses as it will empower the authorities to hunt down the Cartels. It is a strenuous task to find and prosecute any Cartel and thus the plus tool will force companies to avail benefits. However, as discussed above the leniency program has not yield fruitful results. Applicants are attracted due to the external forces rather than the reduction in penalties. The original tool has failed to produce the results as it should have.
Contention of the authors is that ‘Plus tool’ as a mechanism will be misused to reap benefits in the name of reduction. The Cartelists will measure the profit coming from reduction of penalties and profit from the Cartels itself. If the latter is more, no company will take this step of disclosing a Cartel. To strike a balance between the carrot and stick aspects, the CCI should establish a sufficiently high standard for cartelists to obtain the advantages. Hence, the authorities must incorporate strict penalties in such a framework where such kind of abuse can be reduced to minimum. Further, these regulations can have a reverse effect. As this has the objective of Cartels abolition. With the intention of profiting from a reduction in penalties, cartel members can establish new cartels that would not have existed otherwise.
Thus, the approach should be to strengthen the existing the Leniency regulations on which the Plus regulations depend. The CCI should be vigilant of the possible misapplication of this tool in the country.