The blog discusses the recent introduction of the Competition Commission of India’s (CCI) Lesser Penalty Regulations, 2024, which aims to strengthen cartel detection through a new mechanism called Leniency Plus. This policy incentivises existing whistleblowers to disclose information about other unknown cartels, offering further penalty reductions or complete immunity. While this could be a game-changer in uncovering collusive practices, such as price-fixing or bid-rigging, the regulation faces challenges, including potential breaches of whistleblower confidentiality and a restrictive first-come, first-served (waterfall) application process. To address these, the blog suggests adopting international best practices for confidentiality and improving procedural clarity by setting up queues and notification systems. Overall, while promising, the effectiveness of Leniency Plus will depend on how well the CCI addresses these implementation gaps.
Introduction
Recently, the Competition Commission of India (‘the CCI’) introduced the ‘The Competition Commission of India (Lesser Penalty) Regulations, 2024’ (‘the Regulation of 2024’), focusing mainly on investigating and prosecuting cartels, which have remained a formidable challenge in the 21st century. The Cartels are known for their hidden and secretive nature, which makes it difficult to catch them.
According to a news story, most often, only the participants in a cartel understand how the cartel operates, and learn about cartel activities through various avenues, such as industry conferences, informal networks among competitors, and conventional wisdom. As a result, the ‘Competition Act 2002’ (‘The Act’) and new leniency regulations, notably The Regulation of 2024, assume greater significance. This new addition seeks to uncover hidden cartels by providing an additional reduction in monetary penalties by introducing the concept of ‘Leniency Plus’.
The Cartels under the Competition Act, 2002
‘Section 2’ of the Act defines Cartels as groups of businesses that join forces to influence a market. These businesses can be producers, sellers, distributors, traders, or service providers. Their goal is to limit or control competition by acting together to manage production, distribution, pricing, or service offerings. In simpler terms, cartels are groups that try to control the market by working together instead of competing against each other.
Cartelisation is a sort of horizontal agreement that, under ‘Section 3’ of the Act, is deemed to have an appreciable adverse effect on competition. A horizontal agreement is one between two or more parties at the same production stage and working on a comparable line of production. It is expected to harm the consumer sector, leading to higher costs and less affordable options. Horizontal agreements are inherently illegal and the enterprise must show its innocence if cartelisation is applied against the firm. Furthermore, ‘Section 27’ of the Act gives the CCI the authority to impose penalties and fines for locating the cartels.
The Leniency Policy under the Previous Regime
‘Section 46’ of the Act addresses the leniency provision. This provision may give leniency by imposing a lower punishment on a cartel member who discloses complete, true, and crucial information about the cartel. The plan is intended to encourage participants to assist in the detection and investigation of cartels. This strategy is based on the assumption that successful prosecution of cartels necessitates evidence provided by a cartel member. Leniency plans have helped international competition regulators effectively pursue cartel cases.
In line with this, the CCI has introduced a new provision that incentivizes whistle-blowers (Whistleblowers are individuals who expose information or activity within a private or public organization that is deemed illegal, unethical, or incorrect. Here it refers to anti-competitive practices) who would otherwise face severe fines, making it effective in identifying hidden cartels. Under this clause, the Government of India has proposed a new addition, the Regulation, of 2024, which is a new addition to existing laws that tries to provide extra benefits to the cartel by disclosing useful information about other cartels in the market. This is known as Leniency Plus, which is already being followed by other foreign jurisdictions.
Introduction of Leniency Plus
The Leniency Plus program encourages applicants already participating in the leniency program to provide relevant information to CCI through an application which if selected is issued a marker that denotes their application has been accepted, following that the applicant needs to submit all the pieces of evidence and CCI will evaluate the same after conducting their investigation and a final order will be passed about the existing cartels and their activities. The same will also be done for disclosing information about a completely new cartel unknown to the CCI. These new cartels who are unknown to the CCI are mostly involved in collusive conduct where they form such an agreement between themselves like price fixing, bid ridding, output restriction etc in such a coordinated manner that it has an adverse effect on the competition in the market and bring huge profits to them, the induction of leniency plus is also done to counter it. This program offers two financial incentives:
- Reduced Penalty for the Original Cartel: Applicants can receive an additional penalty reduction of up to 30% on top of any penalty reductions they might already qualify for in the first cartel they disclosed.
- Potential Immunity for the New Cartel: Applicants can potentially avoid any penalty entirely (up to 100% reduction) for the newly disclosed cartel, depending on whether they meet the program’s requirements.
For instance, if Y(Whistleblower) initially comes forward about Cartel X under the leniency program, they might qualify for a 50% reduction in any penalties related to that cartel. By disclosing the existence of Cartel Z under the leniency plus program, Y could potentially receive an additional 30% reduction for Cartel X, bringing their total reduction to 80%. Additionally, depending on whether they meet the program’s conditions under ‘Regulation 7 of Lesser Penalty Regulation 2023’ (Draft version of the Regulation of 2024), Y might be eligible for a complete penalty waiver (100% reduction) for their involvement in Cartel Z. But all this doesn’t mean that it has no lacunae.
The Confidentiality Challenge
The Lesser Penalty Regulation allows the CCI and Director General to utilize information provided by leniency or leniency plus applicants, even if the applicant’s identity remains confidential under regulation 8. This includes all disclosures and evidence submitted, except for direct admissions of wrongdoing by the applicant and the regulation further permits the CCI to reveal this information after receiving the Director General’s report.
These raise concerns that the potential for the CCI or third parties to access this information could discourage applications for leniency programs as applicants might be hesitant to participate if they fear their disclosures could be used against them in future legal actions, even if their identity remains hidden. Furthermore, it is unclear to what extent the CCI/Director General may disseminate these disclosures.
The Challenge of Waterfall Mechanism
‘The Lesser Penalty Regulation 2023’ establishes a ‘first-come, first-served’ system for leniency plus applications. This means the CCI will only consider one such application at a time. If an initial application is received, the CCI won’t accept any further leniency plus applications until they decide on the first one. The regulation doesn’t specify how the CCI will handle subsequent applications.
It’s unclear whether these applicants will be informed that their applications are on hold or left waiting without any updates during the processing of the first application. This lack of clarity could be a potential issue for companies considering the leniency plus program.
This can also affect the deterrence factor where the whistleblower considering applying for leniency plus may face uncertainty regarding their application status. If their application is placed on hold without updates, they may be less likely to come forward voluntarily, fearing the possibility of no benefits if another application is already in process. Further, they might delay submitting their applications, waiting for more clarity on the status of prior applications, which could reduce the overall effectiveness of the leniency program.
During this interval when the decision is pending before the CCI, the cartels could easily manoeuvre the market for their benefit, and whistleblowers who want to tip off regarding them would be less likely to come forward due to the waterfall mechanism and this challenge completely frustrates the provision of leniency plus, as the first step i.e, informing about the cartels by the whistleblowers is getting hampered.
Solutions For the Incumbent Challenges
For the first issue, regarding the challenge to the confidentiality of whistleblowers, one of the most suitable ways would be doing international benchmarking where The CCI could analyse Leniency/Leniency Plus programs of other competition authorities globally and incorporate best practices regarding information disclosure and confidentiality safeguards. For instance, in Brazil, the ‘Secretariat for Economic Law’ (‘SDE’) and ‘The Administrative Council for Economic Defence’ (‘CADE’) will keep the identity of such undertakings confidential throughout their investigation process and up to the final judgment of the case. In the USA, The Anti-trust Division maintains the secrecy of all information submitted through leniency petitions and will only divulge the contents of such application with the applicant’s permission. These safeguards apply even when foreign antitrust agencies seek information on applications to the Department of Justice.
Similarly in Canada only under certain circumstances confidentiality could be broken such as disclosure is required under the law, with the parties’ consent, disclosure necessary as a preventive measure of a criminal offence etc. All these provisions of foreign jurisdiction could help India frame a provision that will help maintain the confidentiality of whistleblowers.
Other solutions could be to introduce stronger confidentiality safeguards where The Lesser Penalty Regulations could be amended to further restrict the use of Leniency/Leniency Plus disclosures by Limiting disclosure to investigations directly related to the disclosed cartel activity, prohibiting disclosure of information that could identify the applicant and creating a provision that requires the CCI to obtain court orders before sharing information with third parties.
For the second issue, regarding the issue of waterfall mechanism one of the solutions could be to introduce a queue system where the CCI could establish a queue system for handling Leniency Plus applications. This would involve Applicants submitting their applications electronically, and the system automatically adding them to a queue with timestamps which gets processed by the CCI on a first-come, first-served basis.
Another solution could be establishing a clear communication protocol where a notification system will be implemented and notify leniency plus applicants about the status of their applications. This notification should indicate whether their application is currently in the queue due to a prior pending application and provide periodic updates to applicants regarding the status of their application. This could be done through an online portal where applicants can check real-time updates.
Next, the Lesser Penalty Regulation could be amended to specify a timeframe within which the CCI must decide on the first Leniency Plus application. This would provide certainty to subsequent applicants regarding the potential waiting period and the regulations could also be changed which would allow the CCI to prioritize applications based on the perceived severity of the cartel activity disclosed by clearly demarcating criteria for such prioritization.
Conclusion
To conclude, the recently invoked Lesser Penalty Regulations 2024 by CCI has a new set of rules that are meant to help the CCI easily monitor and persecute companies forming cartels. As these regulations provide better ways of implementing competition laws it should enhance a fair and competitive business environment in India.
However, that doesn’t mean that the addition of leniency plus is free of loopholes; certain conditions like breaching of confidentiality, waiting time for applying for an application etc, can prove to be counter-intuitive for the intent behind the introduction of Leniency plus. It’s left to be seen how CCI will be taking its next steps for the same.
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