Navigating Cartel Disclosures: Understanding CCI's Lesser Penalty Plus Concept.

Navigating Cartel Disclosures: Understanding CCI's Lesser Penalty Plus Concept.

Introduction

The Competition Commission of India (the “CCI”), vide notification dated 20th February 2024 has introduced The Competition Commission of India (Lesser Penalty) Regulations, 2024 (the “Regulations”) in supersession of the earlier Competition Commission of India (Lesser Penalty) Regulations, 2009. The Regulations give effect to the concept of “lesser penalty plus” as introduced through a recent amendment to Section 46 of the Competition Act, 2002 (the “Act”).
 

The Act:

Section 46 of the Act, as it stood before its amendment by the Competition (Amendment) Act, 2023, entitled the CCI to award a lesser penalty than what is prescribed under the Act, to any producer/seller/distributor/trader/service provider (the “person”) being part of a cartel alleged to have entered into an anti-competitive agreement, upon satisfaction that such person has made a full, true, and vital disclosure about a cartel in connection with the alleged contraventions.

In April 2023, Section 46 was amended to introduce the concept of a “lesser penalty plus”. The concept takes into consideration a situation where, during the course of an ongoing investigation, a person who earlier made a disclosure about a cartel, makes a full, true, and vital disclosure about the existence of another cartel alleged to have entered into anti-competitive agreement(s). It entitles the CCI to impose upon such person, a lesser penalty prescribed in the Regulations in respect of the cartel already being investigated by it, in addition to such person seeking a lesser penalty in respect of the newly disclosed cartel.

The amended Section 46 has come into effect only on 20th February 2024 vide gazette notification No. S.O. 740(E) dated 19th February 2024 of the Ministry of Corporate Affairs.

Regulations

In terms of the Regulations, any enterprise, which is or was a member of a cartel (including an individual involved in the cartel on behalf of an enterprise) and further including an enterprise/association of enterprises/person/association of persons, though not engaged in identical or similar trade, if it participates or intends to participate in furtherance of such cartel, may apply to the CCI seeking a lesser penalty in consideration for making a full, true, and vital disclosure about a cartel alleged to have contravened the provisions of Section 3 (Anti-competitive agreements) of the Act.

Conditions for Lesser Penalty

The Regulations lay down the following conditions for grant of a lesser penalty as prescribed under Section 46 of the Act:

(a) The applicant has ceased to participate in the cartel from the time of its disclosure;

(b) The applicant has provided vital disclosure in respect of cartel;

(c) The applicant has provided relevant information, documents, and evidence as required by the CCI;

(d) The applicant has co-operated genuinely, fully, continuously, and expeditiously

(e) throughout the investigation and other proceedings before the CCI;

(f) The applicant has not concealed, destroyed, manipulated, or removed the relevant documents in any manner that may contribute to the establishment of a cartel; and

(g) The applicant has not given any false evidence or omit to submit any material information knowing it to be material.

As per the Regulations, the applicant who makes full, true, and vital disclosure about a cartel in the first place is eligible to receive a reduction of up to 100% in the penalty leviable upon it; the second applicant to make the disclosure becomes eligible to receive reduction of up to 50% in the penalty leviable upon him, followed by the third and subsequent applicant(s) to make the disclosure becoming eligible to receive reduction up to 30% in the penalty leviable upon it.

The CCI while awarding lesser penalty will consider the following:

(a) The stage at which the applicant makes the disclosure;

(b) Evidence already in possession of the CCI;

(c) Quality of information provided by the applicant;

(d) Facts and circumstances of the case; and

(e) Fulfilment of other criteria mentioned in the preceding paragraph;
 

Lesser Penalty Plus

Regulation 5 provides that an applicant who had earlier made a full, true, and vital disclosure about a cartel (first cartel) violating the provision of Section 3 of the Act, and during the course of the investigation against such first cartel, makes a disclosure about another cartel (second cartel), shall be eligible to receive an additional reduction of up to 30% in the monetary penalty imposed upon such applicant with respect to the first cartel. This reduction shall be in addition to a potential 100% reduction in the penalty liable to be imposed upon the applicant in case of the second cartel. However, the disclosure made by the applicant with respect to the second cartel must be substantial enough for the CCI to form a prima facie opinion regarding the existence of a second cartel. Further, such second cartel must be clearly distinguishable from the first cartel.

Illustration: A and B make disclosures about Cartel I to the CCI and obtain first and second priority status with respect to reduction in penalty of up to 100% and 50% respectively. B, during the course of investigation against Cartel I, makes a disclosure about the existence of another Cartel II in terms of the Regulations. Subject to fulfilment of requisite conditions, B shall be eligible to receive a further reduction of up to 30% in the penalty leviable upon it in respect of Cartel I, in addition to being eligible to receive a 100% reduction in penalty leviable upon it in respect of Cartel II.

Regulation 7 lays down the procedure for grant of a lesser penalty plus. In terms of Regulation 7, the application for grant of lesser penalty plus must be made by the applicant to the designated authority before receipt of investigation report of the Director General in case of the first cartel by the CCI. It is pertinent to note that the CCI shall, at one time, only examine the application of one applicant for lesser penalty plus. In case of multiple applicants, the subsequent applicant’s application shall only be examined by the CCI in case of rejection of the application of the first applicant.

CCI's Discretion and Considerations

The CCI, while granting a “lesser penalty plus” will exercise its discretion having due regard to:

(a) The likelihood of the newly disclosed cartel being detected by the CCI itself or the Director General without such lesser penalty plus application by the applicant, and

(b) Any other factor deemed relevant by the CCI.

While the purpose of introducing the “lesser penalty plus” concept in the Act is to incentivise the lesser penalty applicants into disclosing other cartels, the benefit will accrue to the applicant only if the CCI has not initiated an investigation into the second cartel or has no information relating to the second cartel.

While some may view this leniency as excusing harmful behaviour, the potential benefits are significant. The prospect of greater rewards for disclosing multiple cartels can disrupt existing collusion and create a climate of distrust among cartel members. Ultimately, this has the potential to improve market efficiency, protect consumer interests, and create a fairer playing field for businesses operating in India.

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