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Theme: The Anti-trust Regime in India, UK, and US: A Comparative Analysis


Topic: Failure of Leniency regime in India vis-à-vis successful countries.




Failure of Leniency regime in India vis-à-vis successful countries.


Introduction:


Leniency regime is supposed to be the quintessential divide and rule feature but to battle the Supreme evil of antitrust i.e. cartelisation as was stated in the Verizon Communications v. Law Offices of Curtis V. Trinko. The whole idea of the leniency regime is to ensure that members of a cartel are primarily pitted against each other. India also brought in the leniency regime, following the steps of the USA and EU.


The presence of the lesser penalty regulation in the form of Section 46 of the Competition Act, 2002 provides for whistle-blower protection to the applicants on whom a lesser penalty will be levied if they make true and full disclosure relating to the cartel. However, before providing for this lesser penalty, they must ensure that the information is a vital disclosure along with full and genuine cooperation from the applicant along with the surety that the evidence has not been tampered with as per Section 4 of the lesser penalty regulation. The same was further amended in 2017 which expanded the scope of the lesser penalty regulations by including individuals, abolishing earlier cap of only three applicants benefitting from the leniency programme and making some needed changes to the confidentiality policy.


The primary source of inspiration were the success stories from the USA and EU like cartel detection rate hitting a hike of 62% and 70-75% cartel cases being spurred because of such undertakings in need of leniency respectively which made India implement the Competition Commission of India (Lesser Penalty) Regulations 2009 (Regulations).


This regime rests on the following three hinge stones:

1)    Ensuring a real fear of detection ensues in the minds

2)    Extremely draconian sanctions and penalties to be levied if detected or failure to cooperation is noticed.

3)    Transparency in the give and take

These cartel members need to get back more (in the form of reduced penalties) than what they would by staying in the cartel (in terms of the profit generated) and for this they need to be reminded how much is at stake if they are caught engaging in cartelisation (the severe penalties being levied).




Comparative between US, EU, and Indian leniency policy:


USA Leniency policy


This Leniency policy finds space in the United States in the form of the Corporate Leniency Policy, 1993. Primarily, it gets divided into 2 parts, Type A and Type B. This helps ensure transparency even to the applicants wanting to avail the same. The distinction is made on the stage when the applicant comes clean.


Type A: Applicant comes clean before the beginning of any investigation. They are granted immunity immediately if they fit into the six-pointer criteria.


Type B: Applicant comes clean after the investigation has begun. They then become eligible for a conditional immunity which will only be granted if they fulfil the seven conditions known as the Alternative requirements for leniency.


Furthermore, here only the first applicant can avail immunity which acts as a further incentive to be expeditious and helps in uprooting cartels faster because the members are inherently pitted against each other. The rest of the applicants can get a reduction in penalties but only after deliberation and negotiation with the Department of Justice through plea agreements and this is sans statutory backing. They also ensure that they create an inherent fear of detection by using all effective methods possible like warrants and subpoenas. There is also criminal liability attached on conviction which is absent in the Indian regime. Individuals can get sentenced to up to 10 years in prison with/without a fine of $1 million.


EU leniency policy


Cartelisation is prohibited under Article 101 of the Treaty on the Functioning of the European Union which bars any anti-competitive agreement.

The leniency regime is now operated under the 2006 Leniency Notice which aims to give full immunity to applicants disclosing information on cartels however for the same to be granted the company needs to submit a corporate statement and should not have positively forced anybody to participate in the cartel. The applicant is also expected to break ties with the cartel as soon as an application for leniency is filed. The information provided by the applicant should not have been provided for by someone else already who is availing the immunity.


Also, the stage at which the applicant approaches the European Commission and the significance of information provided is important to decide if reductions are to be given. There also exists a directive to protect persons who report such cartels which is known as the Whistleblowing Directive. EU countries have taken different approaches with regard criminalisation of anticompetitive practices but most of them have decriminalised the same. For example, Germany has criminalised only bid rigging with a sentence of up to five years and France went onto decriminalise such actions in 1986 but the same wasn’t absolute in nature.


Here it is necessary to mention that the UK distinguishes its initial abode from the EU by criminalising any cartelisation wherein individuals can be sentenced to up to 5 years in prison. Uptill now, 4 prosecutions have taken place relating to Marine Hose Cartel (2008), the Air Passenger Fuel Surcharge cartel (2011), the Supply of Galvanised Steel Tanks cartel (2015), and the Supply of Precast Concrete Drainage Products cartel (2017)


Indian Leniency policy and its failures


Cartels are prohibited under Section 3 of the Competition Act 2002. The LPR (Lesser Penalty Regulations) lays down the rules to be followed to avail a reduction in penalties. Initially, this reduction in penalties was based on a marker system wherein only the first three applicants could avail such reductions. After the 2017 amendment of the same, the first applicant is able to get a complete 100% waiver if it aids the CCI in initiating an investigation, while the 2nd and 3rdapplicants can get up to 50% and 30% reductions respectively with the subsequent applicants getting reductions if the information they provide is of a “significant added value” to the CCI or Director General. Therefore, it becomes a sliding scale of leniency model.


The first case which was related to a leniency order was seen in the Brushless DC Fans case wherein the first applicant was provided a 75% reduction in penalty because the information provided was significant in nature.


The primary reason for failure identifiables is the non-uniformity stemming from the excessive discretionary power given to the CCI which makes it a very losing situation for the applicant.


In the USA, once the criteria are fulfilled, the first applicant gets complete immunity; this is the safety net that the applicant relies on when they come to the commission to disclose a cartel.  However, in India, the immunity at a later stage can be withdrawn if it is believed that the information was not vital in nature which adds to the uncertainty of the applicant.


Furthermore, the CCI uprightly states an ambiguous “may grant lesser penalties”, but for that the amount of information that the CCI wishes to retrieve is humongous.


Another procedural fallacy is that reduction in penalty will take place only after the recording of a formal conviction, the judgement has been passed and after a sentence has been given which will automatically affect the credibility of the applicant. In some situations, it might even lead to disqualification from bidding in public tenders whilst opening a floodgate of potential compensation claims from rival parties. 


The constitutionality of this leniency regime has been questioned multiple times. Primarily, confidentiality was supposed to be maintained of their statements as applicants but CCI has rejected all these claims (as in Pune Municipal Corporation (Case No. 50 of 2015 and Case Nos. 03 and 04 of 2016)) under the amended act to provide a fair chance to the other party to be able to produce evidence on the contrary. The issue here is not just the disclosure of information but also of the applicant which can be done by the DG; this puts them at multiple risks as a whistleblower as it openly puts them in danger.


Furthermore, conviction of these leniency applicants is problematic because it is against a very basic tenet mentioned in Article 20(3) of the Constitution of India which provides protection to people from being made witnesses in their own case and not using their own testimony as a means of reaching conviction.

 

The give-and-take equilibrium is extremely unbalanced in India which makes the cartels unsure of the mechanism and does not seem profitable enough.


The unfair trade-off is not the only aspect that irks off the applicants but also how ambiguous and vague the penalties can get in the leniency regime. The case of Re: Anticompetitive conduct in the dry-cell batteries market in India (Dry Cell Case), the applicant had given information after the investigation had been initiated and they were given a 30% reduction. However, in the same breath, in the case of Re: Cartelization by broadcasting service providers(Broadcasting Service Case), by rigging the bids submitted in response to the tenders floated by Sports Broadcasters, the applicants were again provided only 30% reduction even though they gave vital information even before any raid was suspected or initiated..


This ambiguity stems into the calculation of penalty as well. The penalty in the Dry Cell case was 1.25 times (the profits of the companies for each year of the duration of cartel) when the raid was conducted already but in the broadcasting service provider case it was 1.5 times even though it was sans raid. This highlights the sheer absence of standardisation and the dubiety of the Leniency regime in India thereby making it a failed endeavour.


Conclusion:


The competition law currently needs more uniformity and standardisation in order for it to be able to become successful. At the same time following the holy trinity of ensuring increased fear in minds of cartels, severe penalties and increased transparency will ensure that the leniency regime does as well as in other countries. Besides this, considering the failure of the regime the leniency plus regime seems a hasty decision and should be delayed so that more chaos doesn’t ensue.



Author: Sakshi Kashyap

University and Year : Symbiosis Law School, Pune

Programme: LL.B.


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