Leniency Applicant Challenging the DG Report: Need for Clarity?

[Shubhankar Tiwari is a 4th year B.A. LL.B. (Hons.) student and Dhaval Sheth a 2nd year B.A. LL.B. (Hons.) student, both at National Law University, Delhi]

Leniency application is an emerging concept within the Indian competition law jurisprudence. Internationally, it has developed as an integral part of the cartel whistleblower protection programme. This programme protects enterprises and individuals who disclose to the Competition Commission of India their role in a cartel and cooperate with subsequent investigations. Such enterprises or individuals are rewarded by a reduction of, or complete amnesty from, penalty. These programmes increase compliance with the competition rules by creating distrust between the cartelists and enhancing the risk of detection. 

In this post, we analyse sections 46 and 26 of the Competition Act, 2002 and the Competition Commission of India (Lesser Penalty) Regulations, 2009, which effectuate the Indian leniency regime. We then deal with the question whether filing a leniency application leads to the admission of guilt. We expound on the impact which the answer to the question presented earlier has on a leniency applicant’s right to subsequently challenge any observation made in the report of the Director General (DG).

Indian Leniency Regime

The relevant provision in the Indian competition law regime regarding lesser penalty applications is section 46 of the Competition Act. According to the provision, if any member of a cartel that has been alleged to have violated section 3 of the Act has made a full and true disclosure in respect of the alleged violations, they shall be awarded a lesser penalty. Another important requirement under this provision is that the disclosure must be vital. The provision also states that such disclosure must happen before the receipt of the DG report.

In furtherance of the CCI’s powers under section 64 of the Act, the 2009 Regulations were brought in August of that year. The three main aspects of these regulations, which essentially lay down the framework for leniency programme, are [i] conditions that an applicant must fulfill for lesser penalty; [ii] procedure for grant of lesser penalty; and [iii] quantum of the waiver in penalty in case the leniency application is approved. Apart from these, regulation 6 states that the identity of the applicant as well the evidence furnished by them shall be treated as confidential with certain exceptions attracting this regulation. 

Section 26 of the Competition Act is the relevant provision regarding the procedure and conditions for the investigation by the DG. The DG has been vested with the power to issue notices, summon parties and direct them to come for giving deposition. Following the completion of the investigation, a DG report is prepared. The most noteworthy point here is that prior to the commencement of oral hearings before the CCI, a non-confidential version of the DG report is sent to the parties for comments. A question arises whether, through these comments, a leniency applicant can challenge the observations made against it, which shall be answered below.

Admission of Guilt

The preliminary question that needs to be addressed is whether filing a leniency application amounts to admission of guilt. This would help us better assess the feasibility of allowing the leniency applicants to challenge any observations made against them in the DG Report.

To clarify at the outset, there is no express regulation which deals with the admission of guilt per se under the 2009 Regulations. Thus, we need to take a closer look at the definition of an applicant as provided under the 2009 Regulations. In terms of regulation 2(b), an applicant means “an enterprise, as defined in clause (h) of section 2 of the Act, who is or was a member of a cartel and includes an individual who has been involved in the cartel on behalf of an enterprise, and submits an application for lesser penalty to the Commission”.  This helps us in reasonably inferring the fact that if an applicant files for a lesser penalty, it is also apprising the CCI of its participation in that cartel. Therefore, we cannot restrict the contours of our inference to believe that a leniency application merely assists the Commission and DG for an effective inquiry and investigation.

A significant case in this regard is In Re Alleged Cartelisation in Flashlights Market in India v. Eveready Industries India Ltd. In the case, the Commission observed: “Though, subsequently OP-2 also filed a Lesser Penalty Application, it did not categorically admit to the cartelisation in flashlights market. Further, even in the Lesser Penalty Application filed in the zinc-carbon dry cell battery case (Suo Motu Case no. 02 of 2016), OP-2 neither admitted to the cartel in the flashlights market nor provided any material evidence in relation to the same. Considering that OP-2 has not acknowledged the fact of infringement of the provisions of the Act in flashlights market, its argument of single continuous infringement seems misplaced”.

Insofar as the foreign jurisdictions on this point are concerned, similar such observations are made in the EU and the UK.  In the EU, the relevant notice in this regard is the Commission Notice on Immunity from Fines and Reduction of Fines in Cartel Cases. In this notice, point 8 states “The Commission will grant immunity from any fine which would otherwise have been imposed to an undertaking disclosing its participation in an alleged cartel affecting the Community if that undertaking is the first to submit information and evidence which in the Commission’s view will enable it to: (a) carry out a targeted inspection in connection with the alleged cartel; or (b) find an infringement of Article 81 EC in connection with the alleged cartel”. It is evident from this point that disclosure of participation within the cartel is an important aspect of gaining immunity from fines.

In the UK, the Competition and Market Authority (CMA) adopted a document published by its predecessor OFT titled “Applications for leniency and no-action in cartel cases”. In this document, paragraph 4.7, which is regarding leniency applications, states: “In the event that the prospective applicant is already aware of an investigation into the cartel activity, it may wish to contact the OFT to ascertain whether any form of immunity or leniency is in principle available”. Further, paragraph 4.22, which defines the scope of genuine intention to confess, which is an essential element of the leniency application process, states: “…However, there have been other cases where the OFT has been faced with requests for markers from applicants who believe that they are in possession of much of the basic facts but seek to deny that those facts constitute cartel conduct. They ask for a marker ‘in case’ the OFT were minded to take a different view. This will not satisfy the requirement of a genuine intention to confess”. 

Admission of Guilt and Still Challenging?

According to regulation 3(1)(d), a leniency applicant must cooperate genuinely, fully, continuously and expeditiously. Such a cooperation must be extended not only during the investigation stage but for the other proceedings before the Commission as well. Thus, cooperation must also be extended during and after the DG Report is filed. The chief argument that we would like to assert in this context is the fact that following the admission of guilt, if a leniency applicant attempts to challenge the DG Report, it would amount to self-contradiction which results in discontinuation of cooperation with the Commission. The principle of self-contradiction in the leniency regime has been expounded upon in the EU jurisprudence in the case of Dansk Rørindustri v. Commission. In the case, the Court observed that instances of an applicant contradicting its earlier submission could not be considered as genuine cooperation with the Commission.

Conclusion

It is evident from the aforementioned arguments there are indeed some serious issues with a leniency applicant challenging the observations made in the DG report. Despite there being a lack of jurisprudence in this regard in the Indian context due to the concept of leniency applications itself being in a nascent form, we have sought to build on the fundamental considerations that must be adhered to by a leniency applicant, and show how they are contravened during such a challenge. This also would result in the opening of floodgates wherein participants of a cartel in an attempt to reduce their penalty would cherry pick the information and challenge the ones which might have an overbearing propensity on the quantum of penalty imposed on them. This would eventually defeat the very purpose for which this programme has been introduced in the Indian competition law regime.

Shubhankar Tiwari & Dhaval Sheth

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