LENIENCY REGIME IN INDIA
Author: Esha Sharma, II year of B.Com.,LL.B.(Hons.) from Nirma University
Introduction A leniency programme is a type of whistleblower protection, i.e., an official system of providing leniency to a cartel member who reports the cartel to the Commission. In exchange for immunity or lenient treatment, competition authorities have devised a variety of leniency programmes to encourage and incentivize various actors involved in the commission of such competition infringements to come forward and disclose such anticompetitive agreements and assist the competition authorities. The leniency programme protects those who come forward and submit information honestly, who would otherwise face harsh action from the Commission if the existence of a cartel is discovered on its own. To better understand the leniency programme, we must look at what are cartels. Cartels are basically groups of manufacturers or sellers who come together to maximize their profits through price fixing, limiting supply, or other means. These types of agreements and associations discourage healthy market competition, thereby impeding the survival and growth of market competitors. The advantage of using leniency programmes to expose cartels, which is quite scheming is further encouraged by antitrust regimes all over the world for the favorable implementation of competition law and policies. The formation of a cartel is a heinous offence under the Competition Act 2002. Section 46 of the Competition Act and the Competition Commission of India (Lesser Penalty) Regulations 2009 govern the Indian leniency regime (Leniency Regulations). The Competition Commission has the authority to investigate any cartel and impose a penalty of up to three times its profit for each year of the agreement's continuation, or ten percent of its turnover for each year of the agreement's continuation, whichever is greater. In exchange for immunity or lenient treatment, competition authorities have devised a variety of leniency programmes to encourage and incentivize various actors involved in the commission of such competition infringements to come forward and disclose such anti-competitive agreements and assist the competition authorities. The CCI has the authority to grant complete immunity or a reduction in penalties to a whistleblower who makes a "full, true, and vital disclosure" about the cartel's alleged offences, provided that the leniency applicant meets certain criteria: 1. completely stops participation in a cartel (unless directed otherwise by the CCI). 2. does not hide, eliminate, manipulate or dislodge any material information that is important. 3. proceeds to comply with the CCI honestly, entirely, constantly and expeditiously until the proceedings are completed. 4. and conforms with any other limitation or regulations imposed by the CCI. The CCI offers a penalty reduction based on a marker system. The first leniency applicant would be given the first 'priority status' under the marking system if they either: 1. give evidence that allows the CCI to develop a prima facie opinion on the cartel (i.e., submit material to the CCI to launch an investigation by the Office of the Director General (DG));
2. or supply evidence that allows the CCI to establish the cartel's formation. Following then, if successive leniency applicants submit relevant material that adds considerable value to the evidence already available with the CCI, they will be given penalty reductions. As a result, all leniency applicants (beyond first priority status) would be required to produce evidence that would aid the CCI or DG in establishing the infringement. If the leniency applicant receives second priority status, he or she may be given a penalty reduction of up to or equal to 50% of the entire penalty levied. Penalty reductions of up to or equal to 30% of the total penalty levied will be awarded to leniency applicants with the third or subsequent priority category. In India's leniency system, there were just three markers accessible till 2017. Background The first ever leniency application was filed in response to the CCI's Suo moto investigation into cartelization in Indian Railways tenders by manufacturers of brushless DC fans. Despite the fact that the investigation for this case began with information provided by the Central Bureau of Investigation, one of the parties, M/s Pyramid Electricals, filed a leniency application during the investigation. M/s Pyramid Electronic was the first and only party to disclose key facts in this matter, including the existence of a bid-rigging cartel, according to the CCI. The evidence received by CCI backed up Pyramid's claims. Given that the applicant provided comprehensive collaboration, CCI viewed such cooperation in connection with, rather than in isolation from, the value of the disclosed information. In other words, because Pyramid addressed the CCI after the investigation had commenced, the CCI did not offer a complete reduction in penalty. Initially, the leniency regime was limited to 'enterprises' (i.e., an entity having economic operations). Despite this, the CCI granted leniency to an individual who volunteered information on the bid-rigging of tenders issued by Indian Railways for the supply of fans in its first leniency decision on 18 January 2017. Issues The efficiency of the leniency regime, or rather its lack thereof, may be shown in the fact that only ten leniency orders have been issued in the ten years after the Regulations were enacted. The reason for this, it could be argued, is the CCI's enormous discretionary powers. The CCI may grant lighter penalties to an applicant who ceases to be a cartel member, according to the Regulations. Applicants must, however, reveal all relevant papers, continue to cooperate, and adhere to any conditions imposed by CCI in exchange for immunity or a reduced penalty. This adds a layer of ambiguity, which deters enterprises involved in cartelization from coming out and providing information. Furthermore, immunity and lighter fines can be revoked under the Indian framework if the CCI determines that the circumstances on which such leniency was granted were not met, the petitioners provided misleading evidence, or the information made was not necessary. Need for Proper Marker System in India When a cartel has more than one member, it is possible that applications from cartel members who have formed a single cartel will be received at the same time. This causes a lot of uncertainty about the queue's order. This order is extremely important since it determines whether or not a fine or penalty will be reduced. There is a lack of openness, and concerns may be raised about who was kept ahead of whom in the cartel. As a result, a marking system was developed to reserve and safeguard a cartel member's spot in a leniency queue for a specific period of time. One of the reasons for the leniency program's poor performance in India is the lack of a well-defined marker system. Although Indian law stipulates that an applicant shall be 'marked' after filing an application with the Commission either in writing (including e-mails, faxes, and the like) or orally. However, because to the lack of a concrete marker mechanism, a leniency application will only be allowed a marker if he or she provides vital information in order to make a landmark change or initiate actions against the cartel. Lessons can be learned from the European Union's marker system, which was implemented in 2006. A marker system can also be beneficial for gathering further information about new cartels that may emerge at a later date. As a result, detecting cartels on a long-term basis may be advantageous. It is necessary to develop a marker system. The marker system, as seen in the EU and the US, has played a significant influence in the improvement of leniency policies. In addition, an appropriate level of transparency and disclosure must be maintained. Confidentiality Clause in the System Another significant concern is that whistleblowers must be assured of maintaining confidentiality and secrecy after providing firsthand knowledge. The fact that the first leniency application, Phoenix Conveyer Belt, India, has come forward and revealed the creation of a cartel in the conveyor belt industry indicates that the CCI has failed to offer the appropriate level of confidentiality to such leniency applicants. The applicant's identity should ideally be kept hidden until anything tangible has been established. In this sense, it is possible to argue that a physical marker system can assist in keeping such concealment even if further petitions for such leniency are made. This is due to the fact that the applicant just receives a marker and has no knowledge of the marker holders who came before or after him. He is just conscious of his place in the line. However, in the absence of a legitimate, transparent structure, it is difficult to empower people to do so. In addition, the legislation includes the phrase "vital disclosure" as a requirement. However, amnesty does not define what constitutes such crucial information. The Act's definition renders the provision generic, allowing the CCI to apply it to any situation. They are free to interpret as they see fit. Furthermore, the initial cartel member's disclosure of information receives complete immunity. Surprisingly, the second candidate to reveal details, Validating the existence of such a cartel does not entitle you to 100% immunity or a reduction in your sentence. Under the definition of 'added value,' he will be entitled to a decrease. The phrase "vital information" used in Regulation 4 of the Lesser Penalty Regulation needs to be defined in order to clear up any misunderstanding.
The leniency programme is a good and proper alternative made by the Commission in order to combat market cartelization, which disrupts market equilibrium. It's also vital to remember that a leniency programme won't work until the cartels are penalized. If there are no strict restrictions in place, such programmes will be considered a failure. The Commission's role is critical in every phase of the programme, from the moment the application for these arrangements is received until the proceedings are concluded. The Commission should consider the application seriously and respond appropriately within the time range provided. It should ensure that the highest level of secrecy is maintained. The commission should also evaluate and review whether the applicant's information is relevant, vital, or not in relation to the application. It should work with the applicant at every level of the process and conduct the inquiry in a timely manner. The Commission also has the responsibility to ensure that the applicant cooperates with them as much as possible throughout the investigation, and that only the leniency provisions are applied to the applicant's case. If the applicant fails to do so, the commission must ensure that he is held accountable and tried under the penalty provisions if he did not make the disclosures. The Commission also has the responsibility to monitor and investigate the market for new methods and ideas that should be incorporated into the leniency provisions in order to compel individuals or businesses to come forward and disclose relevant information about arrangements that harm the market's equilibrium.