Introduction of Lesser Penalty Regime under Competition Law

ABSTRACT

Enforcement of an Effective Cartel can yield a tangible reduction in prices as well as an increase in the welfare of consumers in the market. There is a consensus that cartels are the only field of competition where they cripple and slow down the economy. But Cartels are also very hard to catch because the companies and the people involved within don’t usually leave any evidence. Hence, there is a need where competition regulators to have leniency programs offering immunity from fines to the companies and the people or employees involved who admit to being in a cartel. Thus, to make the Leniency program more attractive or favorable, The Competition Commission of India is proposing to enhance the incentives to disclose their participation in another unrelated cartel for the leniency applicants in a cartel case. Practicing this could help the companies and the employees secure an additional minimization in penalty up to about 30% in the initial cartels while adding on to be eligible for up to 100% reduction in penalty in both the cases of the cartel. Finally, on 20-02-2024, The CCI (Lesser Penalty) Regulations, 2024 came into Force.

This Article deals with the background of The Competition Commission of India and its Significance and Functions. It focuses on the leniency programs of India, how the Penalty Programs work, Benefits under the Lesser Penalty or Lesser Penalty Plus Regime, Safeguards and Protections for those reporting evidence under the Lesser Penalty Program, The documentation and Information requirements for applying to the lesser penalty regime as well the lesser penalty plus regime, why should one apply for Lesser penalty or Lesser Penalty plus and the overall analysis of the New provision.

INTRODUCTION

The Competition Commission of India was established in the year of 2003 by the Ministry of Corporate Affairs. CCI has been established to enforce the competition law under The Competition Act 2002. The objective of CCI is to establish a competitive environment in the Indian Economy by engaging with the Government, all the Stakeholders, and international jurisdiction. The Raghavan Committee gave the recommendations which resulted in The Monopolies and Restrictive Trade Practices Act, of 1969 (MRTP Act) being replaced and repealed by the Competition Act, of 2002. With the Competition (Amendment) Act, of 2009, the Competition Appellate Tribunal has been established. It is a Judicial Body that hears and then decides the appeals against the orders of the Competition Commission of India. In the year of 2017, The Government of India replaced the Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate Tribunal (NCLAT) in 2017. The CCI includes a Chairperson and not more than 6 members and the appointment is made by the Central Government.

On 20-02-2024, The CCI notified the Competition Commission of India (Lesser Penalty) Regulations, 2024. The provision has come into effect on 20-02-2024.

Competition Law. — [Image Sources: Shutterstock]

The Lesser Penalty regime is stated under Section 46 of India’s Competition Act, 2002 and it is governed by the Competition Commission of India (lesser Penalty) Regulations, 2024 which was notified on 20th February, 2024. As per the Notification, it will incentivize companies and individuals under investigation for Cartelization to report other cartels to reduce their penalties and fines. With the new provision, the applicant will be eligible to receive an additional reduction in penalty over and above the reduction in penalty which would have been given as a lesser penalty applicant in the first or initial cartel. In addition, the applicant would also be entitled to receive an application reduction in penalty of the second cartel as well as a lesser penalty application. Neelambera Sandeelan, who is a partner at Lakshmikumaran & Sridharan Attorneys, commented: “This Provision has resulted in an increased enforcement action in other jurisdictions and areas such as the USA. It will be interesting to see the result in India as well”.

UNDERSTANDING INDIA’s LENIENCY PROGRAMS IN ANTI-TRUST LAW

Similar provisions of lesser penalty leniency programs are found in other countries as well under Competition/Anti-trust laws. They are recognized and prevalent in different countries like the USA, The UK, Singapore, and Brazil, to name just a few.

In India, the LPR or Lesser Penalty Regime entails a reduction in the penalty that is imposed on the companies and the Individuals, enterprises, and associations by the CCI. This reduction serves as an incentive for the person who violates to voluntarily disclose information, documents, and pieces of evidence related to cartel conduct, in exchange for a decreased penalty.

Under the Leniency plus Provision, an applicant who has an existing lesser penalty application that provides full, truthful, and crucial disclosures regarding the presence of a second cartel may qualify for an additional reduction with regards to monetary penalties up to as much as 30 percent for the first cartel. In addition to that, the applicant may receive a penalty reduction of up to or equal to 100 percent for the newly disclosed cartel.

HOW INDIA’S LESSER PENALTY PROGRAM WORKS

Under LPR of the Competition Commission of India, any seller, producer, trader, distributor, or even service provider who is either involved in a cartel or intending to participate in one, can apply for Lesser Penalty and/or Lesser Penalty Plus. To qualify as a Lesser Penalty plus Applicant, one must first be a Lesser Penalty Applicant. However, it must be noted that the applications for both, lesser Penalty and/or Lesser Penalty Plus are limited to cartel conduct, which refers to instances where the sellers, producers, distributors, traders, or service producers collaborate to control, restrict, or attempt to control production, sale, price, distribution, or trade in goods or services.

RIGHT TO APPEAL

One’s right to appeal doesn’t get forfeited against the final order issued by the CCI after applying a lesser penalty. The applicant still has the power and option of the right to appeal before the National Company Law Appellate Tribunal (NCLAT) under Section 53B read with Section 53A of the Competition Act. This appeal enables the challenging of contravention identified by the Competition Commission of India as well as the reduction in Penalty awarded to the applicant.

WHY SHOULD ONE APPLY FOR LESSER PENALTY/LESSER PENALTY PLUS?

For practicing or committing any contravention against certain provisions of the Act, CCI may impose upon any Entity (any company, Distributors, etc) a penalty of up to 10% of the average income or turnover of the infringer or violator for the last 3 preceding financial years. In addition to that, in the case of Cartels, such penalty may even go up to three times the profit or 10% of the turnover or income of the violator for each year of the continuance of the cartel, whichever is higher.

Hence, when an application applies for a lesser penalty regime which includes making full, true, and vital disclosures regarding the cartel, the lesser penalty applicant may get a reduction in the penalty cost which is to be imposed upon it by up to 100℅

Likewise, the lesser Penalty plus applicant might get an additional reduction in the penalty cost to be imposed in the first cartel by up to 30%.

So, we can summarize that the sooner one applies LPR, the higher its priority Status, and the higher the benefit of reduction of cost in penalty will be awarded to it. Likewise, since the benefit of Lesser Penalty Plus is granted only to one Lesser Penalty plus Applicant, the sooner one files for the Lesser Penalty Plus application, the better its chances of availing the Lesser Penalty Plus benefit.

WHAT FACTORS ARE CONSIDERED BY THE COMMISSION TO ASSESS ‘SIGNIFICANT ADDED VALUE’ TO DETERMINE THE AMOUNT OF REDUCTION IN PENALTY TO BE GRANTED TO THE SECOND OR SUBSEQUENT LESSER PENALTY APPLICANTS?

There are some factors that the Commission considers while determining the ‘Significant Value Added’ –

The degree to which the evidence strengthens the ability of the CCI to prove the cartel that is alleged, owing to its level of detail as well as nature.
The contributions that are made in terms of timing and quality
The level of corroboration needed from other sources, with more compelling evidence being considered of more value than statements that require corroboration if disputed.

DOCUMENTS AND INFORMATION REQUIREMENTS FOR APPLYING TO THE LESSER PENALTY

For the application of a lesser Penalty, the submission of information which is outlined in Schedule I is mandatory and includes the following details –

The Name, address, email address, and contact Number of the applicant
Name, address, contact Number as well as email address of the authorized representative, particularly for the applicants that are based outside of India
The Names and Addresses of all the other entities or/persons that are involved in the Alleged anti-competitive agreement that has been reported.
Role of the Applicant in the cartel as well as admission thereof;
The detailed description of the alleged anti-competitive agreement which clarifies the role of the applicant
Goods or services that are involved
The Geographic market that is covered
Evidence that supports the alleged anti-competitive agreement, including a descriptive list
Date of commencement, Duration, Status as well the estimated volume of business that has been affected by the Anti-competitive Agreement.
Names along with the details describing the roles, designation, addresses, email addresses, contact numbers, etc of all the individuals and entities that are associated with the alleged anti-competitive agreement
Details regarding any previous contravention of Provision in the Act by the applicant or anything pending proceedings against the applicant before the Commission for alleged Act violation or infringement
Any other pertinent details and information as directed by the CCI or deemed relevant by the applicant.

INFORMATION REQUIREMENTS AND DOCUMENTATION FOR APPLYING TO THE LESSER PENALTY PLUS REGIME

For application of lesser Penalty Plus, the submission of information which is outlined in Schedule II is mandatory and includes the following details –

The Name, address, email address, and contact Number of the applicant
Name, address, contact Number as well as email address of the authorized representative, particularly for the applicants that are based outside of India
Details and information regarding the ongoing cases, particularly the first cartel in which the applicant has already acquired any priority status
Disclosures that are concerned by the newly disclosed cartel as per Schedule I (in two original copies) ;
Identification of any similarities between the matter or conduct that is involved in the first and second cartel along with the relevant information
Justifications explaining how the newly disclosed cartel forms a distinct or separate cartel arrangement from the first one.
Any other information or details that the applicant thinks is necessary to share as provided by the CCI

HOW DOES CCI ASSESS LESSER PENALTY AND LESSER PENALTY PLUS APPLICATIONS?

In determining the potential reduction of amounts in penalty, the following factors are taken into consideration by the CCI-

The applicant’s priority Status
Lesser penalty applicant’s disclosure timelines
Evidence that is already possessed at the time of disclosure by the CCI
The Completeness and Quality of the Information provided by the Applicant
Evaluation of all facts and circumstances which is related to the case

SAFEGUARDS AND PROTECTIONS FOR THOSE REPORTING EVIDENCE UNDER THE LESSER PENALTY PROGRAMS

The identity of both the applicants, lesser penalty and lesser penalty plus, along with the details and information, evidence, and documents that they provide is safeguarded under confidentiality by the Competition Commission of India. Throughout the process of Investigation, further submissions by the lesser penalty applicant are permitted before the Director General along with protection of confidentiality under Regulation 35 of the CCI (General) Regulations, 2009 upon the fulfillment of certain requirements.

The protection of confidentiality of the lesser penalty applicant’s identity is maintained by the CCI until the proceedings are concluded and the final order is passed.

BENEFITS OF APPLYING FOR LESSER PENALTY

There is a benefit of a reduction in penalty of up to or equal to 100% for the first applicant approaching CCI by applying a lesser Penalty.
There is a benefit of a reduction in Penalty of up to or equal to 50% for the second applicant approaching CCI by applying a lesser Penalty
There is a benefit of a reduction in Penalty of up to or equal to 30% for the third and all subsequent applicants approaching CCI by applying a lesser Penalty

BENEFITS OF APPLYING FOR LESSER PENALTY PLUS

There is an additional reduction in penalty of up to 30% which may be given in the first cartel along with a reduction which may avail therein as the lesser penalty applicant for the applicant who eventually is granted the lesser penalty plus benefit. The said applicant may also be entitled to a reduction in penalty of up to or equal to 100% in the second cartel.

CONCLUSION

The advent of the penalty and leniency plus regulatory framework provides leniency applicants with another opportunity to explore further reductions in the cost or amount involved in a penalty. While this provision will benefit whistleblowers for disclosing the conduct of cartels, the Competition Commission of India will also discover more cartels than it would have otherwise detected. Hence, this new provision or regime might pose a stronger challenge for cartels to maintain secrecy as well as cooperation among all participants. The revised regulations highlight the process for filling out the applications as well as implementing the leniency framework based on CCI’s practical experience and gained expertise in dealing with such matters.

Author: Priyanjana Banerjee, in case of any queries please contact/write back to us via email to [email protected] or at IIPRD.

REFERENCES

https://www.cci.gov.in/images/whatsnew/en/general-statement-cci-lesser-penalty-regulations-20241708451478.pdf
https://www.taxmann.com/post/blog/cci-notifies-lesser-penalty-regulations-2024/
https://www.cci.gov.in/images/whatsnew/en/general-statement-cci-lesser-penalty-regulations-20241708451478.pdf
https://www.livelaw.in/news-updates/cci-publishes-draft-for-leniency-plus-invites-comments-from-stakeholders-241277
https://www.india-briefing.com/news/india-notifies-lesser-penalty-regime-under-the-competition-act-31308.html/