CCI’S APPLICATION OF THE LENIENCY REGULATIONS

– Rajat Sharma[1] and Kushagra Agarwal[2]

I.     Introduction

Section 46 of the Competition Act, 2002[3] [“Act”] along with the Competition Commission of India (Lesser Penalty) Regulations, 2009[4] [“Leniency Regulations”] lay down the statutory regime for grant of leniency and give the Competition Commission of India [“CCI”] the power to impose lesser penalties in cases involving cartels. These provisions encourage parties to ‘blow the whistle’ on cartel arrangements and avail a total or partial reduction in penalties. The Leniency Regulations are hailed as one of the Indian competition law regime’s hallmarks because of their importance to the CCI, since cartels are difficult to detect due to their clandestine nature.

Section 46 of the Act read with Regulation 3 and 4 of the Leniency Regulations provide that the CCI can impose a lesser penalty on an entity that is included in any cartel and is alleged to have violated section 3 of the Act, if the entity:

• Makes a full and true disclosure which is ‘vital’ by submitting evidence of a cartel; or
• In the case of subsequent leniency applicants, provides ‘significant added value’ to the evidence already in possession of the CCI of the Director General [“DG”].

Further, it is necessary that along with fulfilling the above conditions, the entity also cooperates genuinely, fully, continuously and expeditiously throughout the investigation and other proceedings before the CCI. The jurisprudence of the leniency regime is still at a very nascent stage in India. This article seeks to analyse the key takeaways from the CCI’s recent orders as well and the amendments to the Leniency Regulations in 2017.

II.     CCI’s Take on the Leniency Regime

The first instance wherein the CCI granted a relaxation of penalties was in the case of In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans & other electrical items.[5] The information in this case was received via the Central Bureau of Investigation concerning cartelization of bids submitted for tenders floated by the Indian Railways for Brushless DC Fans & other electrical items. CCI proceeded suo moto and ordered the DG to conduct an investigation. On the basis of DG’s report, the CCI concluded that the concerned parties had indulged in market sharing by way of allocation of tenders amongst themselves under a common arrangement, thereby indulging in bid rigging/collusive bidding in contravention of provisions of Section 3(1) read with Section 3(3)(c) & 3(3)(d) of the Act. Subsequently, M/s Pyramid Electronics, one of the enterprises involved in the cartel, submitted a leniency application to the CCI pleading reduction in the penalty imposed on it. Exercising its powers under Section 46 of the Act and the Lesser Penalty Regulations,  the CCI  reduced the enterprise’s and Mr. Sandeep Goyal’s (the officer responsible for participation in the cartel) penalty by 75%. While granting the reduction, the CCI observed that the leniency applicant was the only party who accepted the existence of the cartel and the evidence submitted by it played a significant role in revealing the modus operandi of the cartel with full co-operation. In light of this and considering that the application was submitted at a later stage, the reduction was only 75%, rather than a full 100%.

By virtue of being the CCI’s first decision under the Leniency Regulations, this judgment set precedent and threw light on the relevant factors that CCI kept in mind while making the determination of appropriate penalty reduction, namely the stage at which the application was submitted, the content and quality of the evidence as well as its value addition to the investigation process. However, the industry was still faced with a lot of ambiguities with the respect to the practical functioning of the leniency regime. Certain crucial aspects such as confidentiality of information shared by the leniency applicant, status of individuals, benefit of reduction to more than one applicant etc. were left unclear, resulting in hesitation in the industry to support CCI’s cartel enforcement mechanism. In order to broaden the horizon of leniency regime, clarify existing rules and provide further incentives to the participants to a cartel, the CCI on August 22, 2017, notified amendments to the Leniency Regulations[6] which brought clarity to the existing regime and addressed substantive issues faced by the industry. These amendments removed certain roadblocks in the leniency process and provided incentives for companies and individuals to pro-actively assist in cartel enforcement. Some of these game-changing amendments are:

• No limitation on the number of markers e. now, more than three applicants can apply for leniency and avail reduction up to 30% provided they satisfy the other conditions. This amendment puts our leniency regime in line with that of the US.
• Access to filee. now, non-leniency applicants, including third parties that have been impleaded in the proceedings are allowed access to the file. Further, these entities also have the right to access copies of non-confidential version of the evidence and information submitted by the leniency applicants. This amendment is in line with the approach adopted by the European Commission.
• Clarification on confidentiality provisions e. a new proviso has been added which allows the DG to disclose certain information submitted by leniency applicant to a party to the proceedings, without the permission of such applicant, if such disclosure is necessary for the investigation.
• Individuals to benefit from leniency e. now even individuals involved in the alleged cartel can be an applicant and seek a reduction in the penalty imposed on them.
• 100% penalty waiver to more than one applicant e. contrary to the earlier proviso to Regulation 4 which allowed reduction in penalty up to 100% to only one applicant, now more than one applicant can be granted a 100% reduction.
• More time to the leniency applicant e. a 15 day window has been granted to the applicant to file a leniency application from the date of receipt of communication from the CCI.

These amendments garnered a lot of appreciation from various stakeholders and clearly demonstrated CCI’s pro-active intent to use the leniency regime and crack on cartels that are hatched in secrecy.[7] They provided more incentives for the cartelists to wave the white flag, submit requisite evidence and cooperate with CCI to benefit from certain immunities.

The second case that came before the CCI was filed before the amendments to the Leniency Regulations were notified but delivered on April 19, 2018 i.e. after the amendments were in force. The case was  with respect to cartelisation of zinc-carbon dry cell batteries in India[8] and CCI for the first time, awarded a 100% reduction in penalty to the leniency applicant, Panasonic Energy India Co. Ltd. [“Panasonic India”]. To begin with, CCI initiated an inquiry on the basis of the application filed by Panasonic India whereby it was disclosed that Eveready Industries India Ltd. [“Eveready”], Indo National Ltd. [“Nippo”] and Panasonic India, who were all engaged in the manufacture and supply of zinc-carbon dry cell batteries, had formed a cartel in contravention of Section 3(3) read with Section 3(1) of the Act. It was a classic cartel whereby the parties indulged in price co-ordination, reduction of price competition, limiting and controlling of production and supply as well as allocation of markets. Further, it was submitted that the top management and employees of these companies used to periodically meet and agree on these mutual conditions. Pursuant to the CCI’s orders, the DG conducted search and seizure operations at the premises of Eveready and Nippo, as a result of which, these two entities also filed their respective leniency applications. The CCI found the parties, as well as the Association of Indian Dry Cell Manufacturers (AIDCM) guilty of cartelization under Section 3(3) read with Section 3(1) of the Act.

With regard to the leniency applications, the CCI awarded a full 100% reduction in penalty to Panasonic India (which was the first to submit the leniency application), primarily due to the fact that the investigation was started at the behest of the applicant, and the evidence provided by Panasonic helped the commission in establishing a contravention of Section 3. With respected to the other two parties, CCI noted that evidence provided by them did not add any significant value to the case and was already in possession of the DG and the CCI.  Despite this, the CCI went ahead and awarded a 30% penalty reduction to Eveready (second priority status) and a 20% penalty reduction to Nippo (third priority status) citing their continuous and expeditious cooperation as the reason for the same.[9]

This move of the CCI falls contrary to Regulation 4(b) which specifies that applicants subsequent to the first applicant may also be granted the benefit of the reduction provided that the information/evidence given by them provides ‘significant added value’ to the evidence already in possession of the commission. In an attempt to widen the scope of these regulations, the CCI looks to have gone off the track. Therefore, the question that arises is what is the scope of CCI’s discretion in deciding whether there has been a ‘significant value addition’ sufficient to warrant a penalty reduction? Further, whether ‘genuine and continuous cooperation’ with the CCI can be a ground for grant of penalty reduction, especially when the same does not find mention in the Lesser Penalty Regulations.

Almost two weeks later, the CCI seems to have taken an U-turn from its liberal approach. In its latest order concerning the application of leniency regulations, the CCI has taken a stringent stance against parties involved in bid-rigging. In Nagrik Chetna Manch v. Fortified Security Solutions & Ors.[10], the Pune Municipal Corporation [“PMC”] floated certain tenders through their website for “Design, Supply, Installation, Commissioning, Operation and Maintenance of Municipal Organic and Inorganic Sold Waste Processing Plants”. The informant alleged that the bids received for these tenders were made through anti-competitive practices, in violation of Section 3 of the Act. Specifically, it was alleged that the bidders were involved in bid rigging/collusive bidding, thereby violating Section 3(3) red with Section 3(1) of the Act. The Commission found a prima facie case and ordered the DG to conduct investigation.

One of the parties, Mahalaxmi Steels, came forward and disclosed the details and evidence regarding their involvement in bid-rigging and cartelisation. Pursuant to this, it sought leniency under Regulation 5. Thereafter, all other parties to the alleged cartel submitted leniency applications. A total of five tenders were under DG’s scrutiny. The DG observed that Ecoman Enviro Solutions participated in all five tenders and emerged as L-1 bidder in all of them. The DG assessed the relevant evidence such as addresses & contact details, the demand drafts submitted towards earnest money deposit and the internet protocol address used by them to upload tender documents and concluded that all evidences indicated that the parties were conjoint with each other and engaged in bid rigging/cartelisation to submit the relevant tenders. The DG also noted the existence of systematic failures in PMC, since they failed to examine the tenders in a proper manner. Mahalakshmi Steels submitted that details of the mode and manner of the impugned actions were made aware to the DG by way of leniency application and that there was a substantial value addition, thereby seeking a maximum reduction of penalty. Similarly, all other parties sought a maximum reduction of penalties, arguing that they made a substantial value addition. The parties also submitted that there was a breach of confidentiality provisions by the DG while conducting the investigation. Further, another issue that came up was the scope and ambit of ‘engaged in identical or similar trade of goods or provision of services’ under Section 3(3) so as to determine whether the provision was applicable on all parties or not.

With regard to the first issue, the parties alleged that the DG and the CCI, by revealing the contents of their leniency applications, violated Regulation 6 of the Leniency Regulations. The CCI however, denied the claim and noted that the DG revealed only such information which was found in the course of investigation & the same is covered under CCI (General) Regulations, 2009. Under regulation 5 of General Regulations, the DG has the power to refuse to grant confidentiality to any such information and the parties failed to make any special request for non-disclosure. On the second issue, the parties alleged that some bidders were not covered under Section 3(3) as they were engaged in different trades, unrelated to the cartelized product. However, the CCI rejected the same and held that even if parties are not engaged in similar trade, they would still be covered under Section 3(3) of the Act. In this regard, it should be noted that the landmark decision of Excel Corp Care Ltd. v. CCI & Anr.[11] held that if entities are not engaged in similar or identical trade and are found guilty of violation of Section 3(3) of the Act, an attempt to penalize such parties by imposition of fines on their turnover would be incorrect. Since certain parties in this case were not engaged in similar trade, there is no relevant turnover to impose any penalty. However, the CCI found the parties guilty of bid rigging and imposed a total fine of approximately INR 3.5 crore. Finally, the CCI granted a reduction by 50% to two parties, a reduction of 40% & 25% to two other parties and no reduction at all to the two remaining parties. The rationale behind no reduction for two parties seems to be a delay in filing for leniency and the finding that there was no value addition to the evidence already in possession of the DG.

III.     Conclusion

The aim of any leniency regime is to make disclosure of cartels an easier process by way of providing certain incentives and concessions to the entities coming forward and disclosing information. In this process, a consistent and predictable approach of the regulator becomes of prime importance. CCI’s latest order highlights a relatively more strict and stringent approach towards leniency applicants au contraire its order in the zinc-carbon dry cell batteries case which came just a few days before this order. This patent unfairness shows a lack of a consistent and structured approach of the CCI towards encouraging leniency applicants, which, on the whole, is regressive for our leniency regime. It also raises a concern about the excessively wide discretion the CCI has assumed upon itself. Further, another important aspect of the leniency seems to be that of maintaining confidentiality since an arbitrary disclosure of leniency statements poses a heavy risk to the applicants.[12] CCI’s stand on the question of confidentiality as well as the absolute powers given to the DG under the amended regulations raise a concern since this can become a disincentive for the applicants to supply valuable confidential information as part of the leniency application, thereby defeating the overall aim of the leniency regime. Confidentiality of the identity of the applicant and information received is the default rule as per Regulation 6 of the Leniency Regulations. In its latest order, the CCI made no mention of a waiver of the confidentiality of the applicant, unlike in the Brushless DC Fans Case, and went on the reveal the identity of the applicants and also disclosed details about the information received. The position and reasoning adopted by the CCI may act as a huge deterrent for potential leniency applicants in the future.

However, despite all these inconsistencies, we can say that CCI has really come of age and has in some way or the other, proven that it is ready to support leniency applicants in every possible way to ensure a crackdown on cartels. To ensure that it achieves its goals and establishes a robust leniency regime as envisaged under the Act and the Regulations, CCI needs to be consistent, predictable and judicious in exercising its discretion in the forthcoming leniency cases.

[1] 4^th year student, B.A. LL.B. (Hons.), National Law University, Jodhpur (Rajasthan)

[2] 5^th year student, B.Sc. LL.B. (Hons.), National Law University, Jodhpur (Rajasthan)

[3] The Competition Act, 2002, available at https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf.

[4] The Competition Commission of India (Lesser Penalty) Regulations, 2009, available at https://www.cci.gov.in/sites/default/files/regulation_pdf/regu_lesser.pdf

[5] In Re: Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans & other electrical items, Suo Moto Case No. 03 of 2014, Competition Commission of India, available at https://www.cci.gov.in/sites/default/files/Order_Suo_Moto_03_of_2014%20%28Final%29_1.pdf

[6] The Competition Commission of India (Lesser Penalty) Amendment Regulations, 2009, available at https://www.cci.gov.in/sites/default/files/whats_newdocument/178210.pdf.

[7] Anshuman Sakle & Bharat Budholia, Leniency Regulations Amended, 23 Aug 2017, available at  https://competition.cyrilamarchandblogs.com/2017/08/leniency-regulations-amended/.

[8] In Re: Cartelization in respect of zinc carbon dry cell batteries market in India, Suo Moto Case No. 02 of 2016, Competition Commission of India, available at https://www.cci.gov.in/sites/default/files/Suo_Moto_02_of_2016.pdf. [“Zinc Carbon Dry Cell Batteries Case”].

[9] Id. at ¶10.3.

[10] Nagrik Chetna Manch v. Fortified Security Solutions & Ors, Case No. 50 of 2015, Competition Commission of India, available at https://www.cci.gov.in/sites/default/files/50%20of%202015.pdf.

[11] Excel Corp Care Ltd. v. CCI & Anr., Civ. App. No. 24804 of 2014, Supreme Court of India, available at  https://barandbench.com/wp-content/uploads/2017/05/excel-crop-v-cci.pdf.

[12] In Re: Flat Glass Antitrust Litigation; Preamble to the EU Directive 2014/104/OJ.