The Competition Commission of India (CCI) says it has started trying to break a cartel by getting information from the latter’s members.
Section 46 of the CCI Act has a provision called a “leniency programme”, not used till recently. This allows the waiving of or imposing of less penalty on parties to a cartel which inform about it.
For the first time, CCI had used this provision for its inquiry, on the basis of information from the Central Bureau of Investigation (CBI), regarding alleged cartelisation with respect to tenders floated by the railways and BEML, also a government-owned entity, for supply of Brushless DC fans (BLDC fans) and other electrical items. In this case, CCI had granted a reduction of penalty to an enterprise, based on the latter's application under Section 46.
The regulator reduced 75 per cent of the penalty to the first informant. In another recent case, CCI granted a waiver of penalty of almost Rs 1,200 crore to Coal India. The initial fine was Rs 1,773 crore, brought down to Rs 591 crore.
A similar provision was introduced in America in 1993, followed by the European Union. Dhanendra Singh, former chairman of CCI, says it was during his tenure that their board of directors decided to let the Commission have the last word on whether the party reporting the cartel should enjoy the benefit of the leniency programme.
He says, “We deliberately included the word “may”, instead of "shall" in the definition of leniency.”
The definition reads, “The Commission may, if it is satisfied that any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated Section 3, has made a full and true disclosure in respect of the alleged violations and such disclosure is vital, impose upon such producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than leviable under this Act or the rules or the regulations.”
Piyush Gupta, partner at law firm Kochhar and Co, says: “The biggest hurdle in uncovering any cartel arrangement is the effort to gather evidence, since cartels, by their essence, are secret arrangements. Leniency programmes aim to encourage natural revelation, taking advantage of the inherent weaknesses of their structure and members.”
Adding: “Even after a successful leniency application, the errant undertaking may still be open to certain risks. For instance, any contract giving rise to cartel activities are to be considered null and void. Even a successful leniency applicant remains exposed to the negative consequences entailed by such nullity, as its status provides no exoneration in this regard. Similarly, undertakings will remain vulnerable to the negative effects on their reputation that any cartel investigation entails.”
Among other benefits, this section could help lead to mutual suspicion among a cartel's members, a possible deterrent for anti-competitive activity.
According to the leniency programme, the first applicant to inform CCI gets up to 100 per cent waiver on the penalty. The second and third informants get 50 per cent and 30 per cent off, respectively.
The Commission has the final word, the clause requiring the informant to ‘cooperate’ with it. Without this, one doesn’t qualify for immunity.
Vinod Dhall, former acting chairman of CCI, feels the leniency programme will be successful in the longer run in the breaking of cartels. Seventy per cent of these, round the world, have been broken due to such programmes, he says.
Gupta says, however, that a provision in the Act will not suffice. For more persons to come forward with information, CCI will have to ensure there is something more than a reduction in penalty for a company. Either an individual should fear that he will be thrown in jail for participating in a cartel (if senior management is involved) or should get some incentive for putting his neck on the line (in the case of junior employees).
