LENIENCY REGIME: Competition panel's consistently inconsistent approach is just bewildering

While the CCI has been implementing the leniency provisions quite frequently, their puzzling inconsistent approach makes it difficult to draw a pattern

In the past five years, companies have increasingly invoked and benefitted from the leniency provisions prescribed under the Competition Act, 2002 ('Act'). Section 46 of the Act read with the Competition Commission of India (Lesser Penalty) Regulations, 2009 ('Leniency Regulations') comprise the leniency framework under the Indian Competition Law. The leniency framework empowers the CCI to grant a reduction in penalty to whistleblowers, i.e. companies and their officers, participating in a cartel upon providing vital disclosures to the CCI. Such reduction in penalty is contingent upon the leniency applicant making true and full disclosure of the existence and role, modus operandi, objective etc. of the cartel arrangement. While the CCI has been implementing the leniency provisions quite frequently, their approach, however, makes it difficult to draw a pattern.

The first-ever leniency application was filed pursuant to a suo moto investigation by the CCI into cartelization in tenders of the Indian Railways by manufacturers of brushless DC fans¹. Though the investigation for this case began based on information provided by the Central Bureau of Investigation, one of the parties, namely M/s Pyramid Electricals, filed a leniency application during the course of the investigation. In this case, the CCI noted that M/s Pyramid Electronic was the first and the only party to divulge vital information including the existence of a bid-rigging cartel. The information provided by Pyramid also corroborated with the evidence received by CCI. As the said applicant extended complete co-operation, CCI considered such co-operation in conjunction with and not independent of the value of disclosure made. In other words, CCI did not give a complete reduction in penalty due to the stage at which Pyramid had approached the CCI, i.e. after the investigation had commenced.

This stands in contrast to the CCI's approach in the case pertaining to cartelization of dry cell manufacturers² involving Eveready Industries India Ltd, Indo National Ltd, Panasonic Energy India Co Ltd, and Association of Indian Dry Cell Manufacturers. In this case, Panasonic enjoyed absolute immunity while the subsequent applicants, namely Eveready and Nippo, were granted a partial reduction of penalty inter alia on the ground that they did not provide significant value addition at the strategic time. This approach was in contrast to the stand adopted by the CCI in the previous order in the Suo Moto Case No. 03/2014, supra wherein cooperation extended even by the first and only applicant was considered merely in conjunction with and not independent of the disclosures made.

In another case³, CCI granted a 100 per cent penalty reduction for NSK Ltd, and a partial reduction to JTEKT Sona Automotive India Ltd, on the ground that the disclosures made by the former applicant formed the basis for initiation of investigation while the latter furnished evidence only adding value to an already ongoing investigation.

Similarly, in another case⁴ of alleged bid-rigging in tenders floated by the Pune Municipal Corporation in 2014 for the establishment of solid waste processing plants, two applicants (Fortified Security Solutions and Raghunath Industry Pvt Ltd) were refused leniency on the ground of least or minimal value addition. It is noteworthy that the CCI refused a reduction in penalty for the said two applicants despite acknowledging the co-operation extended by them. This evidences the CCI's departure from its approach in the Dry Cell Manufacturers' Cartel case, supra wherein partial reduction in penalty was granted to applicants even on the basis of the co-operation extended by them.

Interestingly, there has also been an instance where the CCI⁵ has dismissed cartel allegation despite the same being raised by way of a leniency application on the basis that there was no evidence to show that the activities of the parties were implemented thereby resulting in a cartel. The past year also saw the CCI passing interesting orders in cases that found their inception in leniency applications. In the anti-vibration rubber products and automotive hoses case⁶, the CCI after noting that while some of the original equipment suppliers had contacts with their competitors, none of the OEMs actually sold vehicles in India with the disputed products fitted. Furthermore, the said exchange of information happened prior to 20.04.2009, i.e. prior to the enforcement of the relevant provisions of the Act. Accordingly, the CCI held that there was no AAEC in India.

In another case of alleged cartelization in the supply of industrial and automotive bearings to certain automotive manufacturers⁷, the CCI initiated an investigation based on a leniency application filed by Schaeffler disclosing the existence of the cartel. However, the CCI decided not to impose a penalty on the ground that 'ends of justice would be met if the parties cease such cartel behavior and desist from indulging in it in future'. This was despite holding that the bearing companies indulged in cartelization.

Keeping aside the inconsistent approach described above, what is also pertinent to note is the CCI's pattern in granting greater or even complete waiver of penalty in cases where the information provided by the applicants either enables the CCI to form a prima facie opinion about the cartel or helps the CCI in recognizing the existence of a cartel. For instance, in a recent order, the CCI granted Panasonic a 100 per cent reduction in penalty in light of the vital disclosures made by the said applicant on the existence as well as the modus operandi of the cartel. In another order passed in 2018, the CCI granted a 100 per cent waiver of penalty to Globecast Asia for providing information regarding bid-rigging between the said applicant and another company which was also granted partial leniency in that case.

In view of the aforesaid, what becomes evident is that though the CCI follows a marker system wherein precedence is granted to leniency applicants in terms of priority in order to determine the quantum of penalty, the CCI does not seem to be very consistent in its approach. The important factor kept in mind by the CCI while granting leniency is primarily the stage of investigation when the disclosures were made and whether the disclosures form the basis for initiation of an investigation.

It is noteworthy that as per the Leniency Regulations, conditions for lesser penalty is inter alia contingent on 'vital disclosures' which is defined under the said Regulations to mean information/evidence which is sufficient to enable the Commission to form a prima-facie opinion about the existence of a cartel or which helps to establish the contravention of the provisions of Section 3 of the Act. What should be kept in mind is that the leniency provision prescribed under the Act read with the Regulations is what former CCI Chairperson D.K. Sikri describes as "fantastic" for enforcement actions against cartels. Even in countries where Antitrust laws are more developed compared to India, leniency regimes are the foremost tool for cartel detection. As is evident from all the leniency orders passed by the CCI, the disclosures made by the applicants are enabling it to recognize and penalize anti-competitive forces like cartels in the market. With every passing order, the market players are becoming increasingly aware of the benefits of the leniency regime which works on the touchstone of incentivization. Thus, for the incentive to be evident to an applicant, such that he comes forward to make disclosures, it is imperative that the CCI makes its incentivization approach clear and uniform.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.