India: Leniency

Introduction

Since the enforcement of the substantive provisions of the Competition Act 2002 (the Competition Act), there have been a total of 10 decisions passed by the Competition Commission of India (CCI) involving leniency applications. Through its decisional practice as well as amendments to the relevant regulations, the CCI has sought to promote the Indian leniency regime as a key feature of its enforcement agenda. In 2018, the chairperson of the CCI at the time stated that the leniency regime had been a great success in facilitating enforcement actions against cartels. 1 This chapter seeks to provide a description of the broad features of the Indian leniency regime and shed light on emerging trends.

Legal framework

The Indian leniency regime is governed by section 46 of the Competition Act and the Competition Commission of India (Lesser Penalty) Regulations 2009 (Leniency Regulations). 2

The Indian leniency programme is applicable to ‘cartels’ under the Competition Act. A cartel is defined as:

an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.

By definition, leniency applicants volunteer self-incriminating information concerning a cartel in which they have participated, directly or indirectly, in exchange for either full immunity or a significant reduction in penalties that would otherwise have been imposed.

The Competition Act prohibits any agreement between entities in ‘identical/similar trade of goods or services’ (ie, horizontal agreements) that:

  • directly or indirectly determines prices;
  • limits or controls production, supply, markets, technical developments, investment or provision of services;
  • shares the market, source of production, provision of services through the allocation of the geographical area of the market or type of goods or services, or number of customers in the market or any other similar way; or
  • directly or indirectly results in bid-rigging. 3

Horizontal agreements including cartels are presumed to cause an appreciable adverse effect on competition (AAEC), although the presumption is rebuttable.

Under the Competition Act, 4 cartelisation is a civil contravention and does not incur criminal liability. The CCI can impose a penalty on cartel participants of up to 10 per cent of the average turnover of the preceding three financial years for anticompetitive conduct. Further, in the case of cartels, the CCI also has the discretion to impose a penalty of up to three times a cartel participant’s profit or 10 per cent of its turnover, for each year of continuation of the cartel.

Who can apply for leniency under the Indian regime?

Initially, the leniency regime was only applicable to an ‘enterprise’ (ie, an entity having economic operations). Despite this, the CCI, in its first leniency decision passed on 18 January 2017, 5 granted leniency to an individual who volunteered information on the bid-rigging of tenders raised by Indian Railways for supply of fans.

The extension of the Indian leniency programme to individuals can be linked to the following. First, individuals were increasingly at risk of being personally liable for their involvement in a cartel, through penalties. Second, if penalties were levied on an individual under the Competition Act of over 5,000 rupees, such a person would be disqualified to sit as a board director in a company registered under the Indian Companies Act. Third, since the Brushless DC Fans Cartel decision, it appears that the CCI recognised the need to allow individual whistle-blowers to also apply for leniency and provide meaningful disclosure. Accordingly, amendments were made to the Indian leniency regime in August 2017 (2017 Amendment) to broaden the definition of an ‘applicant’ 6 to also include individuals involved in cartels.

Conditions for grant of leniency

The CCI has the power to grant complete immunity or a reduction in penalties to a whistle-blower who makes a ‘full, true and vital disclosure’ regarding the alleged offenses of the cartel, provided that the leniency applicant:

  1. ceases to participate in the cartel (unless directed otherwise by the CCI); 7
  2. does not conceal, destroy, manipulate or remove any relevant evidence; 8
  3. continues to cooperate genuinely, fully, continuously and expeditiously with the CCI, until completion of the proceedings; 9 and
  4. complies with any other restrictions or conditions imposed by the CCI. 10

In practice, the CCI places more emphasis on factors (ii) and (iii), in determining the granting of leniency and reduction in fines. The CCI has thus far not required an enterprise or individual to continue to engage in the cartel, as a part of its leniency proceeding.

Filing a marker

The CCI grants a reduction in penalty based on a marker system. Under the marker system, the first leniency applicant would be accorded the first ‘priority status’ 11 as long as they either:

  • make a vital disclosure of evidence of the cartel, which allows the CCI to form its prima facie opinion (ie, submit evidence to the CCI to trigger an investigation by the the Office of the Director General (DG)); 12 or
  • provide evidence that allows the CCI to establish the existence of the cartel.

The leniency applicant with the first priority status would be granted the benefit of a reduction in penalty up to or equal to 100 per cent of the total penalty leviable 13.

Thereafter, subsequent leniency applicants are granted reductions in penalty if they submit relevant evidence that adds significant value to the evidence already available with the CCI. Accordingly, all leniency applicants (subsequent to the first priority status) would need to submit evidence that enhances the ability of the CCI or DG to establish the infringement. 14 The leniency applicant who secures the second priority status may be granted a reduction of penalty up to or equal to 50 per cent of the total penalty leviable. 15 Leniency applicants marked with the third or subsequent priority status will be granted reductions in penalty up to or equal to 30 per cent of the total penalty leviable. 16

Until 2017, there were only three markers available under the Indian leniency system. However, with the 2017 Amendment, the limit on the number of markers was removed to allow for more than three leniency applicants.

Evaluation of the leniency application

The grant of a ‘priority status’ by the CCI does not automatically entitle an applicant, as such, to reduced penalties. 17 The CCI typically will not inform leniency applicants of their position in the priority status or marker, so as to incentivise applicants to provide maximum evidence and continue to cooperate with the investigation.

Under the Leniency Regulations, the CCI, while deciding to grant a reduction in penalty, is required to consider the following factors:

  1. the stage at which the leniency applicant makes the disclosure;
  2. the evidence already in possession of CCI;
  3. the quality of the information provided by the leniency applicant; and
  4. the facts and circumstances of the case. 18

Penalties

While considering the application from the first leniency applicant, the CCI places significant importance on points (i) and (ii) above. Every instance of the CCI granting a 100 per cent reduction in penalties 19 has occurred where the leniency applicant has provided evidence that brought the cartel to the knowledge of the CCI. In such cases, the CCI will form a prima facie opinion and direct the DG to investigate. In Brushless DC Fans cartel, 20 the first leniency applicant was granted a 75 per cent reduction, as the application was filed during the last stages of the DG investigation. However, in all subsequent cases 21 where a leniency applicant obtained the first marker after the investigation was commenced, the CCI has granted only a 50 per cent reduction.

All leniency applicants, after the first marker, are judged primarily on the basis of the quality and nature of the evidence. This is crucial to obtain a higher reduction in fines. Depending on the value added to the evidence already possessed by the CCI and DG, a reduction in the range of 50–20 per cent is typically granted. This is to ensure that leniency applicants are encouraged to provide new evidence and continuous cooperation with the CCI and DG. It is also important to note that a leniency applicant may still be liable for compensation claims under section 53(N) of the Competition Act, as there is no provision granting any immunity from subsequent compensation claims.

Trends emerging from the CCI’s leniency orders

What constitutes significant value addition

Interestingly, in Cartelization in Respect of Zinc Carbon Dry Cell Batteries Market in India, 22 the CCI deviated from the typical factors to grant reductions in penalty to the second and third leniency applicants. The CCI stated that, although the second and third leniency applicants did not provide the CCI with any new evidence, they had helped the CCI corroborate and connect the evidence already in its possession. Accordingly, the second and third leniency applicants were granted a 30 per cent and 20 per cent reduction in penalty respectively. Similarly, in Cartelization in Tender Nos. 21 and 28 of 2013 of Pune Municipal Corporation for Solid Waste Processing, 23 the CCI granted a 50 per cent reduction in penalty to the leniency applicant who was the first to approach the CCI for leniency and ‘provided a better picture of the operation of the cartel’, even though no significant additional evidence was submitted.

However, in Nagrik Chetna Manch, 24 the CCI did not grant any reduction in penalty to the last two leniency applicants as they did not provide any significant value addition to the evidence available with the CCI. This is despite their complete cooperation during the investigation. Therefore, the CCI is likely to adopt a flexible approach, depending on the facts and circumstances of each case, to determine what comprises significant value addition by a leniency applicant.

Leniency application by a ringleader

In Nagrik Chetna Manch, 25 the CCI noted that one of the leniency applicants had orchestrated the cartel. Despite the fact that the leniency applicant was responsible for initiating the cartel and provided a ‘minimal’ value addition to the investigation, the CCI nonetheless granted a 25 per cent reduction in penalty. It appears that the CCI gave due regard to the marker awarded (second with respect to one set of tenders and third with respect to another set of tenders) while granting the reduction in penalty. This was despite the leniency applicant’s ringleader status in all the cartels and minimal value addition to the evidence. Subsequently, the same leniency applicant was found to be the orchestrator of bid-rigging to two other sets of tenders. 26 In its subsequent order penalising the company for the latter two sets of tenders, no reductions in penalty were granted.

This set of cases demonstrates that the CCI is not likely to disregard the leniency application of a ringleader or orchestrator of a cartel, provided they cooperate fully with the investigation. However, where there are multiple instances of cartelisation by the same entity, the CCI is likely to consider previous contraventions as an aggravating factor.

Procedure for application for leniency

Timing of application

A leniency application ideally should be submitted before the CCI forms a prima facie opinion, which sends the case to the DG for investigation. A leniency application can also be filed after the CCI passes its prima facie order but before the DG’s investigation report is final. 27

Contents of the application

An application for reduction of penalty may be made to the CCI in writing or conveyed to the CCI orally, or through e-mail or fax. 28 A written application must include the following information:

  • name and address of the leniency applicant;
  • names and addresses of all other enterprises involved in the cartel;
  • a detailed description of the alleged cartel arrangement, including its aims and objectives, details of activities, commencement and duration, among others;
  • the product market and geographic market involved;
  • the estimated volume of business affected in India;
  • the names, positions, office locations and home addresses of all individuals who are or have been associated with the alleged cartel, including on behalf of the applicant;
  • the details of other competition jurisdictions where the leniency applicant has or intends to ask for leniency;
  • a descriptive list of evidence provided in support of the application for a lesser penalty; and
  • any other material information as may be directed by the CCI. 29

If the leniency applicant is a company, the leniency applicant must also provide the names of the individuals involved in the cartel on its behalf. 30 Individuals named by the leniency applicant are likely to be granted the same reduction in penalty as the leniency applicant or company.

Receipt of application

The CCI is required to consider a leniency application within five working days of receipt. 31 Thereafter, the CCI will:

  • mark the priority status of the leniency applicant and inform the leniency applicant that it has been given priority status (but not provide the number in the queue); and
  • direct the leniency applicant to submit a written application containing all the material information required under the Leniency Regulations within 15 calendar days.

If the written application is not made within 15 calendar days, or within an extended period granted by the CCI, the leniency applicant could lose their priority status. 32

When can leniency be rejected

If the CCI finds that the evidence provided by the leniency applicant is false or not vital to the investigation, or that the leniency applicant has failed to comply with requisite conditions imposed, the CCI may not grant any reduction in penalty. 33 Where a leniency applicant fails to comply with the conditions mentioned above, the CCI shall still be free to use the information and evidence submitted by the leniency applicant to proceed in a case against such entities. 34

If an application is rejected, the leniency applicant will be granted a hearing 35 before the same. Where the first leniency applicant’s application is rejected, subsequent leniency applicants will move up in the priority status. 36 Until the first leniency applicant’s application has been fully evaluated, the CCI will not consider the application of the next leniency applicant. 37 This does not, however, preclude other entities from filing leniency applications.

Confidentiality of the leniency application

Under the Leniency Regulations, the CCI and the DG shall treat as confidential the identity of the leniency applicant and the information, documents, and evidence furnished by the leniency applicant. 38

However, the CCI or the DG may disclose the identity of the leniency applicant or the evidence submitted if:

  • such disclosure is required under the law;
  • the leniency applicant consents to such disclosure in writing, or
  • there has been a public disclosure by the leniency applicant. 39

Further, if the DG deems that it is necessary to disclose the evidence submitted by the leniency applicant to another party for the purposes of investigation and the leniency applicant has not consented to such disclosure, the DG may disclose such information after recording reasons in writing and taking prior approval of the CCI. 40

In a recent leniency proceeding (Cartelisation in the supply of Electric Power Steering Systems), 41 the CCI allowed the creation of a ‘confidentiality ring’. Following the creation of the confidentiality ring, a non-confidential (qua parties) version of the DG’s report was shared among the parties. The ‘confidentiality ring’ arrangement allows parties to access information that would be vital for them to form legal defences in the matter.

It is also important to note that confidentiality under the Leniency Regulations applies only to the contents of the Leniency Application. It does not apply to all evidence gathered by the DG from the leniency applicant. 42 For instance, statements made during the deposition of the leniency applicant by the DG would not be kept confidential under the Leniency Regulations. The confidential treatment of such evidence would need to be sought separately under other confidentiality provisions.

Inspection by parties

The 2017 Amendment has also created a provision that allows parties to a proceeding (arising from a leniency application) to inspect the non-confidential version of the information, evidence and documents submitted by a leniency applicant. The inspection can be conducted, for a fee, after the DG report is shared with the parties. Parties are not allowed to disclose the information, evidence or documents obtained through an inspection, except for purposes of participating in the legal proceedings.

Dawn raids

Recently, the DG has been exercising its powers of ‘search and seizure’ through dawn raids on potential cartel participants. There have been six dawn raids so far in matters involving alleged cartels. The increased use of dawn raids as an investigative tool by the CCI also jeopardises the chances of filing leniency applications. The likelihood of adding significant value to the evidence available with the CCI becomes low after the DG has seized evidence through a dawn raid. However, it is understood that the CCI may grant a reduction in penalty to leniency applicants who help the CCI connect and explain the evidence obtained through a dawn raid.

Conclusion

The CCI, in the past few years, has been effective in using the leniency process and dawn raids as a tool to prove the existence of a cartel. Furthermore, thanks to training and cooperation with other mature competition authorities, there is an increased reliance on economic analysis and better appreciation of evidence by the DG and the CCI. This has resulted in a steep increase in compliance efforts by companies in India. Specifically, companies are increasingly being watchful of their interactions with competitors in relation to trade associations and supply and purchase arrangements.


Notes

2 Amended through the Competition Commission of India (Lesser Penalty) Amendment Regulations, 2017 (2017 Amendment).

3 Section 3(3) of the Competition Act.

4 Section 27 of the Competition Act.

5 Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items, Suo Moto Case No. 03 of 2014.

6 Regulation 2(b) of the Leniency Regulations.

7 Regulation 3(1)(a) of the Leniency Regulations.

8 Regulation 3(1)(e) of the Leniency Regulations.

9 Regulation 3(1)(d) of the Leniency Regulations.

10 Regulation 3(3) of the Leniency Regulations.

11 Regulation 4(a) of the Leniency Regulations.

12 The DG is the investigative wing of the CCI.

13 ibid.

14 Regulation 4(b) of the Leniency Regulations.

15 Regulation 4(c)(i) of the Leniency Regulations.

16 Regulation 4(c)(ii) of the Leniency Regulations.

17 Regulation 5(5) of the Leniency Regulations.

18 Regulation 3(3) of the Leniency Regulations.

19 Case No. 02 of 2013; Case No. 07(01) of 2014; Case No. 02 of 2016; Case No. 02 of 2017; Case No. 03 of 2017.

20 Suo Moto Case No. 03 of 2014.

21 Suo Moto Case No. 03 of 2016; Case No. 50 of 2015.

22 Suo Moto Case No. 02 of 2016.

23 Suo Moto Case No, 03 of 2016.

24 Case No. 50 of 2015.

25 Case No. 50 of 2015.

26 Suo Moto No. 03 of 2016 and Suo Moto Case No. 04 of 2016.

27 Section 46 of the Competition Act.

28 Regulation 5(1) of the Leniency Regulations.

29 Schedule to the Leniency Regulations.

30 Regulation 3(1A) of the Leniency Regulations.

31 Regulation 5(2) of the Leniency Regulations.

32 Regulation 5(4) of the Leniency Regulations.

33 Proviso to Section 46 of the Competition Act.

34 Regulation 3(2) of the Leniency Regulations.

35 Regulation 5(7) of the Leniency Regulations.

36 Regulation 5(8) of the Leniency Regulations.

37 Regulation 5(6) of the Leniency Regulations.

38 Regulation 6 of the Leniency Regulations.

39 ibid.

40 id.

41 Suo Moto Case no. 07 (01) of 2014.

42 Paragraph 72, Case No. 50 of 2015.

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