CCI by its order dated January 18, 2017 decided its first leniency application in favour of a cartel member by reducing the fine imposed by 75% on the cartel member.
LENIENCY PROVISIONS: MEANING AND PURPOSE
Its fair knowledge that trade cartels – such as those meant to fix prices or limit production – are conducted in a clandestine fashion. Secrecy of operation is essential so as not to trigger detection. Such evasive tactics result in great difficulty on part of the competition regulator, the Competition Commission of India CCI, in detecting, prosecuting and evading such cartels.
As such it is in the interest of CCI to reward enterprises who expose the existence of the cartels and assist the CCI in prosecuting them. The European Commission (EC) considers that the interests of consumers and citizens in ensuring that secret cartels are detected and punished outweigh the interest in fining those undertakings that enable the EC to detect and prohibit such practices.
The Act gives a discretion to the CCI to impose a lesser penalty on any cartel member where such cartel member has made full and true disclosure in respect of the alleged violation of the Act, where such disclosures are vital. However, such lesser penalty is subject to conditions as discussed later in this report.
LATEST DECISION OF THE CCI
The application was filed on 10 March 2015 by one of the cartel members in a bid-rigging case in relation to allegation of bid-rigging in supply of brush-less DC fans and other electrical items to the Railways. During the investigation, Shri Sandeep Goyal, partner of one of the opposite parties (M/s Pyramid Electronics) in the investigation, confessed to bid-rigging and collusive bidding with the other opposite parties. Through his statements before the Director General(DG), Shri Goyal had admitted that he had consulted some of the other opposite parties before quoting the bid in all the railway tenders and that approximately the same rates were also quoted by the others in those tenders. Based on the revelations of Shri Goyal in the DG Report, it was requested that full immunity should be granted by the CCI to the said opposite party as well as Sri Goyal against any fine.
While deciding on the leniency application, the CCI did consider that Pyramid Electronics was the first and only party to accept the existence of a cartel/bid rigging in tenders for railways for BLDC Fans and submit information in support thereof. The CCI noted that the evidence submitted by Pyramid Electronics played a significant role in revealing the modus operandi of the cartel. However, the CCI denied complete immunity as the Pyramid Electronic did not offer its co-operation/admission at the earliest possible stage, rather Pyramid Electronics/Shri Goyal first made a disclosure in this case only after the CCI had initiated the investigation and was in possession of critical evidence in the form of E-Mail. Instead, the CCI granted a 75% reduction in the penalty to the applicants than would otherwise have been imposed on it had it not cooperated with the CCI.
LENIENCY: WHY, WHEN AND HOW TO FILE
The Competition Act, 2002 (the Act) provides for a maximum penalty of three time the profit of the cartel members for the entire duration during which the cartel operated.
Given the stringent fines, it makes sense for cartel members to seek immunity and reduction in fines by acting as a whistleblower before CCI or co-operating with the CCI by submitting evidence to assist prosecution. Nonetheless, it should not be lost sight of that cartels are the most heinous form of violation in competition law and, whenever detected, call for the most stringent of penalties.
It is to be noted that the seeking immunity of reduction from fines is not a matter of right, but instead is based on the discretion of the CCI, subject to satisfaction of the criteria mentioned in Section 46 of the Act as well as the Competition Commission of India (Lesser Penalty) Regulations, 2009.
The application seeking reduction in fines should be filed at the first available opportunity. A leniency application cannot be entertained by the CCI if the DG Report has already been submitted to the CCI for consideration.
Further, complete immunity can only be sought by the cartel member who first applies for such reduction. Second and third applicants, in order, can be granted reduction upto 50% and 30% of the total penalty leviable. The CCI, by default, is required to maintain confidentiality of the identity of the whistle-blower. As the latest order of the CCI demonstrates, CCI is extending the leniency program even to the officials/person-in-charge of the enterprises under investigation.(Source: CCI decision dated January 18, 2017; For full text see CCI website)