Leniency plus or Lesser Penalty plus mechanism in India is a program incentivizes cartel members who are already under investigation to report other cartels they are aware of, potentially receiving further reductions in penalties.
According to Section 2(c) of the Competition Act, 2002[1], a cartel 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”. Cartels are the most pernicious form of competition law violations and typically tend to attract maximum scrutiny and the highest penalties from any competition regulator. Indian competition law unlike in the U.S looks at cartels as a purely civil offense, which means that the standard of proof required is not that of beyond reasonable doubt. It is enough for the CCI to demonstrate that there is circumstantial evidence and that the standard of proof is one of preponderance of probabilities.
The Competition Act imposes India’s highest economic penalties. The penalties for Cartelization in particular are pegged at up to 10 percent of the turnover of the company for every of existence of the cartel or up to three times its profits for every of existence of the cartel whichever is higher. The CCI unlike its predecessor the MRTP Commission is not a paper tiger and is not shy of leaving headlined penalties. Like any other competition regulator, we also have a whistleblower regime which is called the leniency Plus. The ‘leniency plus’ or ‘lesser penalty plus’ mechanism was introduced under Section 46(4) via the Competition (Amendment) Act 2023[2] along with the draft CCI (Lesser Penalty) Regulations, 2023, to incentivize additional cartel disclosures by existing leniency applicants. This leniency plus effectively promotes and incentivizes cartel participants to come forward and to confess about the existence of a cartel and to provide evidence about the cartel. The CCI has amended the leniency regime to bring it in line with international best practices, amongst its key changes it’s reduced the cap on the number of leniency applicants.
Under the old regulations there were a maximum of three applicants but now the position of law is that if you’re the first applicant and if you provide full vital disclosures you could get up to 100 percent penalty reduction if you’re the second applicant and you provide more information than the first and continuously cooperate you could get up to 50 percent reduction and if you’re the third and subsequent and continue to provide value add you could get up to 30 percent reduction in penalty. In 50 percent of the decided cases by the CCI. The CCI has provided 100 percent reduction in penalty despite the regulations not assuring a guaranteed hundred percent reduction if you’re the first leniency applicant thereby sending a very strong signal to industry.
For the success of any leniency regime, it’s very important to maintain complete confidentiality about the identity of the leniency applicant as well as the information being provided by such leniency applicant. The CCI has done a commendable job in ensuring that the identity of the leniency applicant is maintained as confidential until the stage of disclosure of the order .The damages regime in mature competition jurisdictions have had a very significant impact on leniency, so much so that the developed competition world is actually seeing a complete fall in the number of leniency applications because, the leniency applicant is granted immunity from penalties the leniency applicant on appeal will then be open to claims for damages from interested third parties. In India this regime is yet to evolve and once it does it will in all likelihood significantly impact leniency applications.
The CCI has recently been adopting a two-pronged approach with a creating greater awareness for their leniency program through advocacy measures with enterprises and trade associations as well as using dawn rapes as a tool for detecting cartels. If the CCI wants to strengthen its leniency regime it needs to effectively first provide certainty to every leniency applicant that any applicant who comes forward will get a guaranteed reduction which will not be discretionary. The second thing that the CCI should also come up with at this stage would be penalty guidelines to provide certainty to industry in terms of the implications and exposure when it comes to cartels.
[1] India, Competition Act, 2002, § 2(c).
[2] Competition (Amendment) Act § 46(4) (2023).
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Insightful !