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This post, the winning Entry of the RFMLR-CAM Blog Series Competition on Emerging Trends and Developments in the Competition Law Regime, is authored by Harshitha Satish and Ksheeraja Satish, third-year students of Faculty of Law, Delhi University.
Introduction
In February 2024, the Competition (Amendment) Act of 2023 was officially notified marking the enforcement of the ‘lesser penalty plus’ regime, a rigorous attempt of the legislature in India to eliminate cartelization and collusions in the market. By virtue of the amendment, the Competition Act of 2002 (hereinafter “the Act”) has enabled informant entities undergoing leniency proceedings to avail added benefits from whistleblowing the subsistence of another cartel in an unrelated market. This course of action taken by the legislature vide the expansion of Section 46 of the Act (like any amendment) has multiple implications. Although it may, prima facie, be a welcome move in light of its intended objective to deter anti-competitive behaviour in the market, it raises concern on whether it would truly help unveil the conspiracy of cartelization in the Indian markets.
Cartelization
Cartelization, a supreme evil in the list of anti-competitive behaviours, occurs when entities collectively engage in an arrangement to control the market. As per Section 3 of the Act, in a cartel, entities enter into an agreement amongst themselves or with third parties with respect to the production, distribution, sale or trade of goods. Such cartels result in systemic disruptions in the market, potentially destabilising the economy and impacting consumer welfare through an artificial control over demand and supply. This evil conspiracy, however, is “hatched in secrecy and executed in darkness,” making it arduous to unearth. The only solution to counter this is to somehow get the cartelists themselves to expose the conspiracy.
Owing to the cascading impact of cartelisation on the economy, antitrust regulators have introduced methods to incentivize participants in the cartel to assist in identifying, investigating and penalising cartelists. One such method is the leniency program which finds itself nestled not only within the framework of Indian law, but across the world including the United States (US) and the European Union (EU).
Leniency Programmes
By virtue of leniency programmes, antitrust bodies incentivise companies to reveal information about the cartel in exchange for a reduction in penalty which could be in terms of immunity from criminal prosecution or reduction in fine or both. While countries like the United States have leniency programmes that offer immunity from prosecution, India and the United Kingdom seem to offer only a reduction in fine/penalty.
In India, leniency programmes have been given effect via Section 46 of the Act, whereby lesser penalties have been imposed for entities voluntarily admitting the existence of cartels. In cases where multiple parties came up with the disclosure, the Competition Commission of India (hereinafter, “the CCI”), the regulatory body of India, has gone to the extent of granting 100% reduction in fines for the first whistleblower and lesser reductions for subsequent entities coming forward based on the vitality of the disclosures. Notably, in In re: Anticompetitive conduct in dry cell batteries market in India, when Panasonic made a request for leniency, it was granted a 100% reduction in penalty on the grounds that they had made a vital disclosure to the CCI, while subsequent parties with disclosure were afforded lesser benefits. Similarly, in In Re: Cartelisation by broadcasting service providers by rigging the bids submitted in response to the tenders floated by Sports Broadcasters, Globecast India Private Limited and Globecast Asia Private Limited were granted a 100% reduction in penalty. The very existence of this provision on leniency creates a sense of distrust among cartelists, thereby threatening the operation of the cartel. Thus, Section 46 has enabled the curbing of anti-competition in the market, notwithstanding the incidental challenges the provision has faced in terms of uncertainty and the wide discretion bestowed upon the CCI.
To give more context, in the US, the antitrust department witnessed an average of one leniency application per month by 2003 post amendments in its competition policy in 1993, whereas the EU saw a total of 21 decisions under its leniency program between 1996 and 2005. However, in India, since its inception (until 2022), there have been only 21 cases where leniency applications have been filed.
Thus, to incentivise cartelists further, the leniency plus programme has been introduced vide the Competition (Amendment) Act of 2023, complementing the existing lesser penalty benefits under section 46. The intention of the drafters are of twofold. One, to facilitate the successful prosecution of hard-core cartel cases and two, elevate the competition policy in India on par with the international practices. Furthermore, the authors submit that with corporations expanding businesses horizontally and vertically across multiple industries, it is only natural that if they are colluding in one cartel, they are likely colluding in another. This is an additional reason that necessitates the need for a leniency plus regime in India. However, the expansion of the provision with the “plus” factor to reward cooperation in uncovering hidden cartels raises immediate concerns about pro collusion.
Leniency plus
The introduction of leniency plus, as the name suggests, provides for additional benefits on disclosures that deter cartels and collusions. Under the amended section 46(4), where during the course of investigation, a cartelist discloses about the presence of another cartel and the CCI forms a prima facie opinion under section 26(1), then the cartelist would be provided with a lesser penalty in respect of the cartel already being investigated without prejudice to the cartelist obtaining a lesser penalty regarding the newly disclosed cartel.
The essence of the provision allows a cartelist undergoing leniency proceedings to evade hefty fines for confessing details of another cartel in an unrelated market. For the regulator, this enables them to discover new cartels within the limited framework of their investigation which undeniably is valuable. In many countries, such as the US and the UK, such provisions have been adopted and have proved to be successful. In the US, the leniency plus programme, called ‘Amnesty Plus’, was developed by the US Department of Justice in 1999. Likewise, in the UK, the additional leniency was introduced in July 2013 by the NCA.
However, these additional benefit provisions have been rejected in other jurisdictions. While in Portugal, it was introduced but later removed, in Bulgaria it merely exists in books and has gained scarce practical significance. Likewise, the line of contention as to the effectiveness of the new regime in India can be addressed from two broad perspectives - cartelists and regulators.
Cartelists
At its forefront, the Leniency Plus programme expressly excludes single cartel participants, although it is open to all cartelists in all forms of industry. In other words, the option of reduced penalties under the leniency plus programme is available only to those who are part of more than one cartel, that is, multi cartelists. To give an example of a multi-cartel, it is befitting to highlight the collusion within the automotive parts industry in the U.S. as recorded in 2014. In the said case, many companies that pleaded guilty to bid-rigging, price-fixing, and market allocation of automotive parts admitted to being involved in other cartelists during the same time frame under consideration. This is a clear case of how each participant functions and operates in multiple markets within which they collude. The programme as such only applies to such multi-cartelists and is therefore, parochial in its applicability.
Furthermore, the uncertainty in benefits flowing from becoming whistleblowers across multiple cartels creates apprehension for cartelists. For a cartel, it is a prisoners' dilemma to disclose about the second cartel. The CCI has a wide discretion in granting the reduction of penalty, which is a reason for them to not risk disclosing too much information to the CCI. Between uncertain reductions in fines and guaranteed gains emanating from the cartel, the cartelists are often lured to stay within the prohibited agreement. In other words, if the risks in disclosure outweigh the benefits that might accrue, multi-cartelists may choose not to avail the leniency plus.
Regulators
As mentioned above, the leniency plus comes into play only in cases of multi cartelists, and this becomes more problematic for the regulators. For the regulatory body, it raises concern because now, any participant in one cartel will be motivated to join multiple ones to gain the benefit of the leniency plus factor. This defeats the very purpose for which leniency plus has been implemented, that is, it would lead to pro-collusion behaviour in the markets.
On similar lines, the benefit offered through leniency could incentivize cartelists to voluntarily withhold critical information, especially pertaining to the existence of a cartel in a new market from the investigation and reveal more at a later point of time to maximise on the leniency. The timing and the nature of disclosure is an important factor that the CCI takes into consideration to determine if a multi-cartelist can avail the benefits under leniency plus regime. Resultantly, the multi-cartelist who approaches the CCI the earliest get the maximum benefit. However, there may exist situations wherein the existence of the second cartel is orchestrated in darkness, not visible to the CCI. In such a case, the cartelist is likely to not disclose any new information to the CCI as they may gain more benefits withholding such information and operating a stable second cartel. The fundamental issue the CCI is confronted with is can such cartelists be given any benefit considering the larger objective of precluding anticompetition in all markets. This comes as huge challenge for the CCI. Moreover, cartelists who gain only a marginal percentage of the leniency program’s benefits owing to delayed disclosures and contributions to the investigations, might be motivated to avail additional reductions in penalty by coming forth with information of another prohibited agreement under the prevailing anti-competition scheme. Therefore, immunity from penalty would be at the discretion, convenience and strategy of the cartelist.
The Competition Commission of India (Lesser Penalty) Regulations, 2024 (hereinafter referred as “Regulations”) does offer some form of guidance on the imposition of compensation based on the time of disclosure. In line with the international best practices, whichever cartelist approaches the CCI at the earliest would be subjected to maximum amount of reduction in penalty. However, this guidance offered is vague, and the scope for abuse and misuse of the leniency by cartelists is a difficult challenge to overcome. For example, under Rule 5 of the Regulations, the CCI has a wide discretion to deny the benefits of the lesser penalty regulations taking into account various factors, including its own ability to detect the existence of the second cartel. The uncertainty in what encompasses these factors and the CCI’s discretion to reduce the monetary penalty based on what it considers as relevant, puts the cartelists in a position to withhold information.
Furthermore, the reduction in penalty, which is largely left to the discretion of the CCI, is equally worrisome. On cost benefit analysis of the penalty against the leniency, the former should be sufficiently burdensome on the perpetrators of anti-competitive behaviour to the extent where they should not be motivated to commit the proscribed activities under the competition law. The lack of certainty in how penalty must be construed in light of leniency could result in an insufficient deterrence effect on the cartelists, thereby giving way for entities to form more cartels even post the leniency proceedings with the benefits outweighing the costs. Hypothetically, consider a cartel which allows its participants to profit at a rate of 200%. If at a subsequent stage, the CCI investigates and imposes a penalty which is only a quarter of the profits made by the cartelist, then the penalty is a pittance. It would be no surprise if such cartelists continue joining cartels.
This incidentally leaves us with a leniency plus programme functioning counterintuitively wherein cartelists would be motivated to not disclose information about the second cartel because it would be more profitable for them to continue being involved in other cartels. One of the underlying reasons for this to happen is the discretion awarded to the CCI in taking a decision based on quality of information and stage at which such information is disclosed, as to who can avail the benefits.
The next question which arises for consideration is, what would happen to a cartelist who fails to disclose about the existence of another cartel which the investigating authorities later find out on their own? The amended provision remains silent on this. It is pertinent to note that, in the US and in Canada, such issues of withholding of critical information are virtually non-existent because they have adopted an all-or-nothing approach under the Amnesty plus programme. This means that once an undertaking makes an application to disclose about a cartel they are involved in, they are bound to disclose all other cartels to which they belong. In the event they fail to disclose about the other cartels, they are subject to heavy penalties. In the absence of similar consequences in India, it raises a doubt on the deterrence effect of the leniency plus programme.
Lastly, it makes CCI to excessively place reliance on the information provided by the wrongdoers rather than on their own independent scrutinization. As much as it builds competition between the cartelists to notify competition regulators, this should not ideally preclude the guardians of healthy competition from undertaking their own suo moto actions.
Way Forward
While the leniency plus program represents a step forward in India's competition law framework, its success hinges on addressing the inherent challenges and enforcement mechanisms. At present, there is no case study to suggest how effective the leniency plus has been in India and to understand the practical difficulties that could emerge once a cartelist approaches the CCI to make a full and true disclosure of them being involved in more than one cartel. Only through evolution of the regime with CCI adjudicating on such issues can the full potential of the leniency plus can be understood.
In light of the lacunae within the amendment, the authors strongly urge that the reasons for the success of leniency regime in foreign jurisdictions must be taken as a blueprint to implement the leniency plus regime in India. The forerunner is the US with its Amnesty Plus programme which uses one opportunity to expose egregious cartels across markets. The lack of such a stringent measure in India is a sign of warning. Notwithstanding the guidance the US can offer, India must also take due note of other jurisdictions where the goals of the programme have not been achieved or fructified. This would help India navigate the challenges to overcome for building a successful leniency program. In this context, South Korea’s leniency plus programme on account of its generosity has been subjected to strategic abuse by cartelists. Likewise, the leniency plus programme in Portugal which was introduced in 2006 was removed in 2012, while in Bulgaria, though introduced, has still not been invoked. Furthermore, in Brazil, Poland, Switzerland, New Zealand, UK, and Singapore, leniency plus program is optional which only means cartelists are not obligated to disclose the existence of new cartels.
The lesser penalty plus is a milestone in India. But, to amplify the "plus" factor, ensuring its potency surpasses that of its forerunner, it is vital for it to be comprehensive. Only through a structured infallible system, the CCI can penetrate every market to expose and eradicate purveyors of anti-competitive practices in the economy.