In this article, Hitakshi Mahendru discusses the Evolution of leniency regulations in India in the light of the Competition Commission’s orders.
INTRODUCTION
Section 46 of the Competition Act empowers the Competition Commission of India to grant leniency by levying a lesser, or in some cases zero penalty on a member of cartel who provides full, true and relevant information regarding the workings and the existence of a cartel. The word cartel has been defined in section 2, clause (c) of the act. It includes 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.
An example of Cartelization can be drawn from the Builders Association Case, the case originated from a complaint filed against the Cement Manufacturers Association (CMA) and 11 Cement Companies including Ambuja Cement, ACC Cement etc, for using CMA as a platform for fixing cement prices as well as to limit and control the production and supply of cement in the market. The CCI after investigation imposed a penalty of 0.5 times of the net profit of the opposite parties amounting to upto INR 63.17 Billion.
The NCLAT in its 25th July 2018 order has also upheld this order of the CCI imposing penalties to the tune of Rs. 6300 Cr.
EVOLUTION OF LENIENCY JURISPRUDENCE
The 2009 Leniency Regulations were amended in 2017, to widen the scope and to bring in much needed clarity and certainty to the existing framework. The amendment has also incentivized pro-active assistance by individuals and companies in cartel enforcement.
As per the new regulations, upto three applicants can now apply for leniency. Any subsequent application will also be eligible for reduction in penalties but only upto 30% on the condition that they provide information of “significant added value” to the evidence already in possession of the CCI. The removal of the cap on the number of applicants of Leniency, is going to enable more participants of a cartel to come forward and make necessary disclosures, thereby making the regime more efficient.
The first leniency application received by the CCI regarding cartelization of electronic companies was the M/s Pyramid Electronics Ltd v M/s Western Electric and Trading Company, which dealt with Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC fans and other electrical items. M/s Pyramid has applied for leniency during the investigation. The Cartel was already under the scanner of the CCI and the disclosures made by the OP1 confirmed the doubt and exposed the Modus Operendi of the Cartel. The CCI, therefore, granted M/s Pyramid Electronics a 75% leniency in the penalty. The penalty amount was imposed by taking into account all the relevant factors including the duration of the Cartel, volume of the tender affected by the cartel and the value thereof. They were imposed with an amount calculated at the rate of 10% of the average of their income for the last three preceding financial years.
The Competition Commission of India passed its final order in the Nagrik Chetna Manch Case, imposing penalties on 6 firms for bid rigging/collusion in five tenders floated by the Pune Municipal Corporation during the period of December 2014 to March 2015. The case was initiated on the basis of information filed by the Nagrik Chetna Mach. During the investigation conducted by the DG, all six firms approached the CCI as Lesser Penalty Applicants. CCI granted Leniency to the first and third applicant. The evidence and the co-operation provided by the first applicant helped proving the existence of a cartel wrt two tenders. Penalties of 3 more firms were reduced on the ground of “significant value addition to evidence, priority status, co-operation etc. It allows equal immunity to the primary participants of a cartel, as long as there was no evidence of coercion in ensuring the participation of other undertakings in the agreement. This approach ensures that a ringleader who is most likely to be the best source of information is not deterred from making an application for leniency.
In a recent order of the Competition Commission of India, Panasonic Energy India Co Ltd was granted a 100% penalty reduction under the leniency regime. A leniency application was filed by Panasonic Japan, on behalf of itself and Panasonic India. According to disclosures made by the applicant there existed a cartel between Panasonic India and Geep Industries (India) Pvt Ltd from 2013 to 2016, where Geep bought Panasonic made zinc carbon dry cell batteries on an institutional basis and agreed on market price and maintain price parity. Panasonic India would disclose pricing information to Geep and use it as leverage to negotiate and increase the prices of the batteries sold. The DG upon investigation found evidence in the form of emails and product supply agreements, that there was an exchange of sensitive information. The CCI held that the lesser penalty application filed by Panasonic Japan made true and vital disclosures and helped CCI with the recognizing an existence of a cartel. Panasonic India provided crucial evidence regarding the modus operandi of the cartel and gave full co-operation and therefore was granted a 100% relief.
In another order dated 11th July 2018, the CCI again awarded 100% reduction in penalty to leniency applicants Globecast Asia Pvt Ltd and Globecast India Pvt Ltd (Globecast). A leniency application was filed by Globecast providing information regarding Bid-rigging between Globecast and Essel Shyam Communication Ltd (ESCL). ESCL was also granted 30% leniency by CCI in the Sports Broadcasting Cartelization Case. Globecast was granted first priority status as the leniency application prima facie helped CCI uncover the Cartel. ESCL was given a second priority as its application was made only after receiving a notice from the DG. The evidence submitted by Globecast included details of sporting events in which bid rigging took place, the role of its ex-employees, e-mail correspondence re exchange of commercially sensitive information which were very important in determining the modus operandi of the cartel.
CONCLUSION
Ever since the new amendments to the Lesser Penalty regulations, the CCI has passed four orders. All of them dealing with distinct products and markets and providing an insight and relevant jurisprudence regarding the factor that the CCI takes into consideration when considering leniency applications. The Commission is also not hesitant in providing a relief of upto 100% of the penalty which can be a huge pull factor for a number of cartel members to come forward and provide information to the CCI and co-operative in curbing agreements which have an adverse impact on competition.
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