Contributed by Arjun Kapur and Ashu Daga

Introduction

The perpetual expansion of the global market, coupled with a deepening appreciation of the opportunities afforded by successful ventures, has rendered market dynamics increasingly competitive. Market players often take recourse to ways that might negatively affect the consumers to ensure profitability. The enactment of the Competition Act was one of the necessary steps to curb the employment of strategies by market players, the brunt of which had to be faced by the consumers. Hard core cartels, or agreements among competitors fixing prices, rigging bids (collusive tenders), restricting output or dividing markets, are the most serious and harmful competition law violations. Cartels play a significant role in swaying market prices leading to increased prices that decrease consumption. Cartels directly impact the growth of economies, causing immense losses to developing economies, who lack resources to tackle them effectively. Since the enactment of Competition Law in 2002, identifying cartels has been an arduous task for the Competition Commission of India [“CCI”]- watchdog regulating competition in India. The adoption of “Lesser Penalty Regime” and “A Lesser Penalty Plus Regime” might be the solution the CCI has been looking since the past decade. Competition Law Review Committee, formed to overhaul the Indian competition regime, described Lesser Penalty plus in its July 2019 report as a “proactive antitrust enforcement strategy” and the CCI has finally notified it on February 20, 2024. 

What are a “Lesser Penalty Regime” and a “Lesser Penalty Plus Regime”?

The Competition (Amendment) Act, 2023 amended Section 46 of the Competition Act, 2002 (“Act”). The Lesser Penalty Regime of CCI is provided under Section 46 of the Act and is governed by the Competition Commission of India (Lesser Penalty) Regulations, 2024 [“LPR”]. Although the LPR was notified in 2009 to facilitate investigations into cartels., the first order for leniency was passed only in 2017. Further, between 2016 and 2019, of 85 matters in which monetary penalties were imposed, only 7 involved imposing a lower penalty under the Regulations. While multiple factors have contributed to the low number of applications filed under the Lesser Penalty Regulations, a key concern has been the maintenance of confidentialityThe amended provision permitted such entities to make accurate and honest disclosures regarding the violations to the CCI. Lesser Penalty Regime fundamentally means discounts on fines for disclosing an anticompetitive cartel. It is pertinent to note that the information disclosed by an entity should add a significant value to the probe of the CCI. “Significant Added Value”, for the LPR, means the extent to which the evidence provided enhances the CCI’s ability to establish a cartel’s existence. The CCI has adopted a tiered approach under the LPR with regard to the quantum of reduction in the penalty. Priority status is granted to the applicants which means the position of the applicant as marked by CCI for giving the benefit of Lesser Penalty in the queue of applicants. The first applicant submitting an application would receive a benefit of up to or equal to a 100% reduction in the penalty; the second applicant would receive a benefit of up to or equal to a 50% reduction in the penalty; and lastly the third and the subsequent applicants would receive up to or equal to 30% reduction in the penalty.

Lesser Penalty Plus Regime, on the other hand, incentivises existing Lesser Penalty applicants to come forward and disclose information, documents and evidence concerning their participation in another cartel. Lesser Penalty Plus regime permits an applicant, who had earlier made a complete, accurate, and vital disclosure regarding the contravention of Section 3 of the Act by a cartel (“First cartel”), to make a complete, accurate, and vital disclosure regarding the existence of another cartel (“Second cartel”) of which it was a part of, and has allegedly violated Section 3 of the Act, is eligible to get reduced monetary penalty.

There is a two-fold benefit of reduction in monetary penalty for the entities coming forward under this regime. Firstly, an additional reduction in penalty of up to 30% may be given in the first cartel in addition to the reduction which it may avail therein as the Lesser Penalty applicant. Secondly, the said applicant may also be entitled to a reduction in penalty of up to or equal to 100% in the second cartel. Objective criteria that need to be considered, while calculating the amount of reduction in the penalty for Lesser Penalty applicants or Lesser Penalty Plus applicants, have been laid down by CCI.

Implications of the Notification

The primary implication of such a regime is the potential for a significant increase in the detection and dismantling of cartels. Since cartels are covert by nature, exposing them has always been difficult. LPR raises the possibility of discovering clandestine cartels by incentivising insiders to come forward. In addition, the regime gives cartel members an additional degree of uncertainty. This will have the effect of lowering the possibility that cartels will form in the first place. 

Adopting the LPR is a positive development in the fight against cartels internationally. The LPR require greater collaboration between competition authorities on a global scale. Cartels frequently operate internationally, and details on one cartel may disclose operations spanning several legal jurisdictions. Communication and coordination of efforts will be essential to utilise LPR entirely in the fight against global cartelisation. Its effects go beyond the simple act of identifying cartels; it may also change the risk assessment of potential members, which could lead to a worldwide decline in cartel activity. Moreover, robust international legal frameworks are required to shield whistle-blowers and guarantee that prospective informants feel comfortable and secure to come forward.

The LPR introduces a more complex strategic factor for companies engaged in cartel activity. By disclosing information regarding distinct anti-competitive arrangements, entities currently under investigation for one cartel may view this as a chance to lessen fines for their initial offence and obtain leniency in possible future cases. As a result, there is a strong disincentive to organise and join a cartel since members are less likely to trust their fellow conspirators to remain silent and loyal. The development and survival of cartels may decline as a result of members’ fear of being revealed by others hoping to profit from the Leniency Plus system. 

The CCI needs to ensure the procedure is clear-cut and open and provides enough incentives for people to come forward. Furthermore, the effectiveness of the LPR will hinge on the Commission’s capacity to efficiently handle and take appropriate action on the data submitted by the informants for leniency. This task calls for robust investigative resources and capabilities. The CCI’s Leniency Plus notification essentially makes a paradigm shift in the way competition law is enforced against cartels in India. 

Recommendations

The future viability and efficacy of the Leniency Plus program will probably depend on several critical variables.

Firstly and foremost, it will be imperative that the policy be implemented clearly and predictably. More organisations will come forward if there are clear guidelines and open procedures since they believe their participation will result in measurable advantages.  To set essential precedents for cases in the future, the CCI must ensure that the regime is implemented uniformly and that rulings are clearly stated and supported by evidence.

Secondly, the regime must be flexible enough to adjust to changing market dynamics and business practices. The CCI’s stance on leniency and incentives for disclosure must adapt as technology advances and business models alter the nature of anti-competitive agreements. Constant interaction with interested parties, such as companies, attorneys, and scholars, can give the CCI the knowledge to update the regime on time.

Thirdly, raising potential applicants’ knowledge and comprehension of the Lesser Penalty Plus regime is crucial to guarantee that businesses are adequately informed about the advantages of cooperation and the procedures involved; the CCI should make more significant efforts in outreach and education via Workshops, guidelines, and direct interaction with trade associations may all be part of this.

Finally, the CCI had to consider strengthening its investigative capacities to maximise the value of the information obtained under the Lesser Penalty Plus regime. The regime’s effectiveness can be boosted by strengthening the CCI’s capacity to identify and look into intricate anti-competitive conduct through improved analytical tools, personnel training, and international collaboration.

Conclusion

The CCI’s introduction of the LPR is a significant advancement for enforcing competition laws in India. Furthermore, implementing the LPR in India demonstrates a dedication to harmonising competition law enforcement with global best practices. It emphasises how crucial it is to take proactive and cooperative measures to stop anti-competitive behaviour and promote compliance among companies doing business in India. 

Additionally, it will be imperative that the CCI keeps a careful eye on how well the LPR is working and adjusts as needed in light of stakeholder input and empirical data. Although the regime offers a novel strategy for combating cartels, it is unclear how it will ultimately affect the development of a competitive market environment in India. The CCI’s Lesser Penalty Plus program in India has a proposedly bright future. The regime can aid significantly in identifying and deterring anti-competitive behaviour, provided it is equipped with clear guidelines, flexibility, more awareness, and improved investigative capabilities.  However, success will depend on the CCI’s commitment to these principles and the policy’s evolving response to feedback and changing market dynamics. The upcoming years will undoubtedly offer insightful prospects for additional enhancement and fortification of the nation’s competition law framework.