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CCI’s Amended Lesser Penalty Regulations Provide Clarity

The CCI has signalled intent to actively encourage the use of the leniency regime.

A referee attempts to regain control during a football match. (Photographer: Graham Barclay/Bloomberg News)
A referee attempts to regain control during a football match. (Photographer: Graham Barclay/Bloomberg News)

The purpose of a leniency regime is to encourage cartel participants to “blow the whistle” on a cartel to a competition authority, to avail of a partial or total reduction in penalties in exchange for submitting evidence of the cartel to the competition authority. The leniency regime is of substantial importance to competition authorities worldwide, including the Competition Commission of India. It effectively aids cartel enforcement by allowing companies to submit requisite evidence of their anti-competitive conduct to the CCI along with admissions of wrong-doing, and benefit from immunity or reductions in the penalty for the provision of such evidence.

On August 22, the CCI notified amendments to the Competition Commission of India (Lesser Penalty) Regulations, 2009. The amendments signal the CCI’s efforts to clarify certain key concepts of the leniency regime in India and also provide additional incentives, such as extending the benefit of leniency to individuals, providing for access to file and clarifying the scope and safeguards of confidentiality of information obtained from leniency applicants.

The recent amendments to the lesser penalty regulations have far-reaching benefits for companies who stand to gain from the greater guidance and clarity provided under the amendments and will also foster the CCI’s objective of deterring cartels.  

Leniency In India: Overview

Section 46 of the Indian Competition Act, 2002 and the lesser penalty regulations give the CCI the power to impose lesser penalties on an entity that:

  • makes a ‘vital disclosure’ 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.

The earlier leniency regime in India recognised the provision of ‘markers’ to only three leniency applicants, in the order of priority. This meant that the first leniency applicant could receive up to 100 percent immunity from penalty, the second leniency applicant up to 50 percent reduction in penalty and the third leniency applicant up to 30 percent reduction in penalty. In fact, the CCI, in the case of cartelisation in respect of tenders floated by the Indian Railways for supply of Brushless DC Fans (Suo Moto Case No. 03 of 2013), issued its first leniency decision granting a 75 percent reduction in penalty to a leniency applicant who came forward after the CCI commenced investigation of the anti-competitive conduct.

Amendments To The Lesser Penalty Regulations

No limitation on number of markers: The amended lesser penalty regulations recognise markers beyond the first three markers, i.e., now more than three applicants can apply for leniency. Such subsequent applicants (after the third applicant), are also eligible for a reduction in penalties of up to 30 percent now, provided they assist in giving ‘significant added value’ to the evidence already in the possession of the CCI. Since there is no longer a cap on the number of leniency applicants, this amendment provides a clear incentive for cartel participants to come forward and disclose the existence of a cartel.

It also brings the Indian leniency regime in line with the leniency regime in the U.S. and is a step in the right direction.

Access to file: In a significant move, the amended lesser penalty regulations allow access to the file to not only leniency applicants but also non-leniency applicants, including third parties who have been impleaded in leniency proceedings. Third parties, who are not parties to the proceedings, have not been granted the right of access to file. Further, the amendment grants those who have the right of access to file, the right to obtain copies of the non-confidential version of the evidence and information submitted by leniency applicants, after the CCI director general’s investigation report has been forwarded to parties.

This effectively addresses the single largest complaint under the earlier Indian leniency regime.

That of non-access to any information filed by leniency applicants, which had resulted in several non-leniency applicants approaching High Courts by way of writs, to gain access to information provided by a leniency applicant. It also balances the confidentiality requirements under a leniency regime, while addressing the rights of defence for non-leniency applicants and is in line with the approach adopted by the European Commission.

Further clarification to confidentiality provisions: A new proviso has been added to Regulation 6 of the amended lesser penalty regulations allowing the director general to disclose information, documents, and evidence submitted by a leniency applicant, to a party to the proceedings, if the director general deems that such disclosure is necessary for the purposes of investigation (even if the leniency applicant has not agreed to such disclosure). In such cases, the director general makes the disclosure for reasons to be recorded in writing and after taking prior approval of the CCI.

However, it remains to be seen whether, and at what stage, leniency applicants can object to such disclosure of information, documents, and evidence submitted by them to the director general or CCI.

Given the director general’s ability to disregard the leniency applicant’s confidentiality requests and the only safeguard under the amended lesser penalty regulations being requisite prior approval of the CCI, it is likely that the leniency applicant will be afforded a confidentiality hearing before the CCI grants its approval to the director general to disclose such information. This will be based on the principle of consistency as, in non-leniency cases, a confidentiality hearing is always granted.

An inclusive definition of ‘applicant’ and ‘party’: The amended lesser penalty regulations apply to enterprises as well as the individuals involved in a cartel on behalf of such enterprises. This is to encourage individuals to turn whistleblowers and to provide them the same extent of immunity or reduction in penalties provided to enterprises, based on the order of priority of the marker obtained.

This will encourage individuals in organisations which are part of a cartel to come forward in their individual capacity and receive immunity or reduction in penalty for their involvement in the cartel, based on the marker. 

Role of Individuals: The amendments clarify that enterprises which are leniency applicants, must also specify the names of individuals who have been involved in the cartel and for whom leniency is being sought in the leniency application, to be eligible for consequent immunity/reduction in penalties.

Application for 100 percent lesser penalty to be considered even if already granted to another applicant: Interestingly, the earlier proviso to Regulation 4 of the lesser penalty regulations, which stated that an application for reduction in penalty of up to 100 percent will only be considered if no other applicant has been granted such benefit at the time, has been deleted under the amended regulations. Therefore, it is possible that the benefit of a first marker or reduction in the penalty of up to 100 percent may be granted to more than one applicant. However, the circumstances under which this may be granted are likely to be rare, particularly given the order of priority and the marker system.

Timelines: The amended lesser penalty regulations provide for more time to the leniency applicant to file the leniency application with the CCI, as leniency applicants now have a 15-day window from the date of receipt of communication from the CCI marking their priority status.

Conclusion

The amended lesser penalty regulations are a clear signal of the CCI’s intent to actively encourage the use of the leniency regime while ensuring that leniency orders are not set aside on grounds of due process violations. The CCI has struck a fine balance between incentivising individuals and enterprises to come forward with information pertaining to the existence of cartels, by removing caps on the number of leniency applicants and ensuring non-leniency applicants have access to the file to be able to effectively defend themselves.

While the amended lesser penalty regulations are a welcome move, the CCI ought to have addressed a key industry concern relating to the discretion in granting reduction of penalty.

The amended lesser penalty regulations continue to state that a leniency applicant ‘may be’ granted a reduction in penalty. The use of the word “shall” would have made the grant of reduction mandatory in nature and would have provided complete certainty to the leniency regime, to help bolster the CCI’s mandate regarding cartel enforcement.

Nisha Kaur Uberoi is Senior Partner and Head of the Competition Law Practice at Trilegal.

The views expressed here are those of the author’s and do not necessarily represent the views of Bloomberg Quint or its editorial team.