Cartel Crackdown: India’s Leniency Program Odyssey

[Choudhury Paramjit Misra and Lavanya Bhargava are third year students at National Law University, Odisha]

In India, competition regulations aim to protect consumers and ensure market freedom. They prevent monopolies, promote fair competition, and at the same time, safeguard consumer rights and contribute to economic welfare. This competition regime prevents anti-competitive agreements under section 3 of the Competition Act, 2002 (the Act). This provision prohibits entering into an agreement that can likely cause an Appreciable Adverse Effect on Competition (AAEC) within India. When an anti-competitive agreement influences pricing, production, markets, investments, services, and geographic allocation or engages in bid rigging or collusive bidding, it is known as a cartel. Every cartel is presumed to have an AAEC. The Act defines ‘cartels’ under section 2(c) as an association of producers, sellers, distributors, traders, or service providers who, by agreement among themselves, limit, control or attempt to control the production, distribution, sale, or price of, or, trade in goods or provision of services. Operational cartels are considered serious violations of competition law and have been under great scrutiny throughout the world.

However, such arrangements are extremely difficult to detect as the competition authorities have no formal agreement or direct evidence for the detection of the operation of cartelisation. Additionally, price-parallelism comes as a defence against any charge under this arrangement, which requires the display of additional factors along with parallel behaviour within different firms. This concept was accepted in the case of Builders Association of India v. Cement Manufacturers in India. It confers an additional burden on the Competition Commission of India (CCI) to prove the existence of cartels. 

Therefore, a leniency program was adopted that incentivised the involved enterprises and individuals to voluntarily come forward and provide concrete information to the authorities in return for cutting slack from sanctions. In 1978, it was introduced in the United States’ (US) antitrust regime and was increasingly adopted across the world. 

India’s Take on Leniency Regime

In 2009, the CCI adopted such a program through Lesser Penalty Regulations, 2009, which is read with section 46 of the Act, where anybody involved directly or indirectly in the cartel can file a leniency application. According to the aforementioned regulation, the CCI may impose a lower penalty to any applicant providing ‘full, true and vital disclosure’ that might suffice a suo moto action by the CCI against the existence of the cartel. According to the norms, the “first-in” applicant was eligible to reduce their fine by 100%, and subsequent applicants were eligible for a proportional reduction in fine. However, in 2017, the quantum of penalty of the 2009 regulation underwent major changes. After the amendment, there were different thresholds laid down for reducing the penalty for first, second, and subsequent applicants, i.e., 100%, 50%, and up to 30%, respectively. 

According to a study conducted by CCI, in the period of 2009-2018, only seven leniency application cases were received by it. The first application of the leniency regime was filed after five years of its adoption. It was the case of Brushless DC fans, where the CCI took suo moto cognizance of “bid rigging or collusive bidding of tenders by Indian Railways”. Therefore, it is evident that the overall impact of the leniency programme on filing applications against cartels has been underwhelming or minimally effective.

Unlocking Leniency Plus

The disparity in the implementation of the leniency policy and the low turnout in the number of applications under this regime can be attributed to several factors. Firstly, cartelists may have been hesitant to apply under this policy due to the relatively low sanctions imposed by the CCI. Additionally, they may have believed that the potential benefits of leniency cooperation would not outweigh the gains from future collusion. This perspective is influenced by the belief that the CCI would not detect their operation. Ultimately, these factors may have contributed to a discontinuity in the utilisation of the leniency policy by cartels. In 2019, these factors were acknowledged by the Competition Law Review Committee (Committee) report. This Committee suggested that the measure of leniency plus would optimise the utilisation of the CCI resources by providing a structured framework for applicants to disclose information regarding multiple cartels. It is anticipated that this provision will enhance the efficacy of cartel prosecution. The Committee further opined that this approach aligns with international best practices, as it equips the CCI with substantial evidence to pursue successful enforcement actions against anti-competitive behaviour. 

Thereafter, the framework that governed the reduction of penalty on the cartels has been amended through the Competition Commission of India (Lesser Penalty) Regulations, 2024 (Regulation) wherein the aspect of leniency plus has been introduced. By virtue of this Regulation, a whistle-blower can benefit from an additional reduction in the penalty by disclosing a separate cartel that is not under the investigation of the CCI. The applicant can benefit from this Regulation by receiving a reduction of up to 100% on the penalty levied on him and an additional reduction of up to 30% on the cartel that is under investigation. 

Does Leniency Plus Add Anything in the True Sense?

The intention of introducing a leniency-plus regime is novel, however, whether it will be able to show its effectiveness in India is the real question. The efficacy of regulatory frameworks in deterring anti-competitive practices hinges significantly on their penalty structures. The lack of a deterrent effect on the applicant would lead to hurdles in the proper enforcement of the objective of the Regulation. The US has established a robust model through the implementation of a “penalty plus” system in tandem with a leniency plus program. This combination not only encourages entities to disclose their involvement in cartels in exchange for leniency but also imposes heightened penalties on those who, upon subsequent discovery, are found to have been involved in additional cartels without prior voluntary disclosure. This approach is fortified by the Department of Justice, which mandates applicants to disclose, under oath, their participation in any other anti-competitive agreements through an “omnibus question.” However, the Regulation in India  does not intend to impose a deterrent effect on the applicant on account of repeated anti-competitive agreements or withholding information on the existing cartels.

Nevertheless, where the leniency plus scheme has resulted in a significant reduction in fines as compared to the standard leniency programme, it has been fraught with problems. For instance, this similarity or difference in penalty reduction could inadvertently provide an inducement for perpetrators of anti-competitive behaviour to form smaller cartels or splinter into groups so that they can pay reduced fines. The underlying idea here is that if the reduction in penalties offered by leniency plus is considered highly attractive, small-scale cartels might be formed ‘to avail themselves of leniency plus’. This scenario highlights a fine line that a regulator needs to tread: striking a balance between setting penalty reductions high enough to encourage disclosure of anti-competitive conduct through leniency programmes and keeping them low enough so as not to foster the creation of new, smaller cartels to avoid severe fines. Positive support for this argument can also be obtained by comparative analysis with foreign legal systems. In Braziland Poland, governments have gone further and increased these reductions, which now range between 30% and 50%. Nevertheless, this is still below the leniency plus regime of India.

Moreover, while comparing the leniency and leniency plus regime, the treatment of subsequent applicants emerges as a critical point of differentiation. Under the Regulation, the first application will only be considered and given priority as compared to subsequent applications. This prioritisation is to incentivize prompt disclosure and create a race among cartels to assist authorities. However, in the case of subsequent applications, the status of such applications is not ascertained as of now and remains to be an area that seeks clarification. If any leniency is extended to the latter applicants, after the first applicants come forward, it remains unclear how other applications of leniency will be evaluated.

The comparison also shows the requirement of ‘threat’ in the latter case. The leniency plus regime loses its efficacy if the factor of threat is absent. This threat serves as a critical motivator for voluntarily disclosing their involvement in other cartels. In such a situation, the adoption of “cartel profiling” as practised in the US might be beneficial to the authorities to study other markets where discovered cartels are active. This will increase the possibility identifying other cartels by the authorities. Therefore, from the point of view of the company, disclosing other cartels is driven by the combination of seeking additional leniency and the fear of getting caught. 

Concluding Remarks 

Upon analysing the Regulation from a legal stance, the CCI must lay down a clear condition for the applicability of leniency in the Indian context. Additionally, lowering the maximum reduction limit in leniency plus below the maximum reduction limit of the leniency programme will cut down the risk of creation of smaller cartels to avail the former programme. Collaborative efforts from both sides will reduce the burden on authorities in a cartel identification case and offer incentives for such cooperation to the firms. Furthermore, it is imperative to understand the objective of cartel formation. The sole objective of cartel formation is to influence market behaviour in a certain manner through the concerted efforts of its members. Voluntary cartel disclosures are the least effective due to the gains realized by the cartel members through its operation. Therefore, voluntary disclosures of the cartels could be secured effectively by maximising the incentives offered to the cartel member who willingly discloses information pertaining to the cartel in monetary terms  and by providing them immunities from legal sanctions.

Choudhury Paramjit Misra & Lavanya Bhargava

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