By Kashish Makkar
The introduction of ‘Leniency Plus’ in India is all the rage right now. Parliament introduced this regime through the Competition (Amendment) Act, 2023. On October 16, 2023, the Competition Commission of India (CCI) released its draft regulations for adopting this regime and after conclusion of consultations, it shall be implemented. In competition law, leniency refers to a regime that incentivises cartel participants to voluntarily come forward with information that may be used to penalise them in return for deductions in penalties that may be imposed.
Its existence helps the regulator unearth anti-competitive conduct, catch other players engaging in anti-competitive conduct, and prevent further harm to the market. The Leniency Plus regime is an addition to this. Under it, a cartel participant that has applied for leniency for one cartel can also volunteer to provide information on a different cartel. It adds to the incentives of both the cartel participants and the regulator.
For cartel participants, the volunteering of information helps not only reduce their penalties for the new cartel but also get a reduction of penalties in the cartel already under investigation. For the regulator, it helps it uncover a totally different anti-competitive conduct within the resources that they are spending for one investigation.
In theory, this regime creates a brilliant prisoners’ dilemma with incentives that push every cartel participant to confess about all the existing cartels they are involved with. However, this is far from practice. The CCI already had a leniency regime under the Competition Act 2002 that provides for a significant reduction in penalties to those cartel participants who volunteer information.
This regime has been active since 2009. As per a detailed empirical study by Somashekar and Tripathi, of all cartel cases from 2009 to 2021, leniency applications were the source of only seven distinct cartels found by the CCI. During this period, the CCI uncovered around 32 cartels. Further, as per Somashekar and Tripathi, in six of these seven leniency cases the threat of the CCI’s penalties did not prompt the leniency applications. Instead, various external factors provided the stimulus. This included three leniency procedures arising from another Indian government agency publishing its report recording allegations of cartel conduct, and others each from a failed acquisition, a foreign competition regulator investigating similar conduct, and a corporate rebranding exercise. Therefore, the prevailing regime has not been extremely successful in providing an incentive for cartel participants to come forward and present evidence on their anti-competitive conduct.
One must inquire that if the existing regime has not been able to present enough carrots to report cartel conduct, what does Leniency Plus promise? It promises an addition to the incentives offered under the current leniency framework.
Specifically, it promises a firm further 30% reduction in penalty for their existing cartel infringement if they can provide evidence to the CCI to uncover a separate cartel that they have participated in. In terms of an incentive, this is the sole addition offered by it. This implies that as per the government’s analysis, until now, the firms were not reporting cartels to the CCI due to inadequate reductions in penalties. But as noted, leniency has been rarely chosen for leniency’s sake—in that mere reduction of penalties is not attractive enough for cartel participants to admit to their conduct. Indeed, their reasons to opt for leniency has been external stimuli and not any rush to escape or reduce penalties.
In India, cartel participants already have a number of methods available to them to avoid cartel penalties or render them ineffective. Most high-stakes CCI cases are subjected to challenges before constitutional courts on various grounds and then subjected to appeals in different forums. This effectively drags a cartel conduct procedure for years at end as the constitutional courts have significant backlog. In some cases, a cartel case is not effectively disposed for more than a decade. This waters down the deterrent potential of any CCI penalty, even if imposed.
For instance, in the Ethanol Cartel case, the CCI took cognisance of the cartelisation prevalent in the sugar mills in 2013. It decided the case in 2018, and thereafter, it was pending in appeal until 2023. On October 10, 2023, the NCLAT has finally disposed of the appeal in the case holding that there were procedural irregularities in the CCI’s decision and has remanded the case back to it for fresh hearings. Therefore, this cartel decision will effectively be decided at least more than a decade after it began. Still, this is one of the cases that has not received significant constitutional challenges before the high courts in India. A number of other decisions of the CCI are often subjected to even longer delays due to frequent writ court challenges.
In any case, as witnessed in leniency regimes across the world, irrespective of the penalty reductions offered, leniency applications have been steadily decreasing. There are various reasons for this, including, continued exposure to damages litigation (in India, this is undertaken under Section 53N of the 2002 Act), harm to the reputation, and blacklisting from participation in public and private sector tender processes. Therefore, if increased cartel detection is the government’s intention, Leniency Plus is not the way for it. Interestingly, an idea similar to Leniency Plus has been gaining ground across different jurisdictions. This is the antitrust whistleblower’s rewards programme.
This programme involves incentivising employees of firms who are engaging in cartel conduct to blow the whistle on these firms and be rewarded for it. Such a program separates the employee and employer’s incentives to participate in a cartel. In the UK, antitrust whistleblowers are offered £250,000 as incentive for exposing cartels. Similar policies are also in place in South Korea. At least in the UK, the number of cartels reported due to this program has been gradually increasing. On the other hand, in India, there is no security guaranteed to a corporate whistleblower by the CCI apart from confidentiality. Perhaps the government should consider such strategic alternatives as well.
The author is an India-qualified lawyer who works with the Competition Directorate, Financial Conduct Authority, United Kingdom
Views are personal