In markets characterized by faircompetition, firms attract consumers only when they keep the prices lower than their competitors, constantly innovate to improve quality and reduce costs, use their resources in the most efficient manner and take decisions which are not only economically wise but better than the competitors. Therefore, faircompetition increases efficiency and leads to a greater good. On the other hand, competition may be harsh for less efficient firms because they would not be able to keep pace with more-efficient firms and would ultimately perish. To evade the rigours of competition, firms may collude with each other to earn super normal profits by increasing prices, creating artificial scarcity, dividing market amongst them, that adversely affect consumers, chill incentives to innovate, maintain status-quo and create artificial entry barriers. Thus, the effects of collusion could be cascading. It is for these reasons that cartels are considered to be the supreme-evil of antitrust across jurisdictions and attract the heaviest penalties, and in a number of jurisdictions attract criminal sanctions.

Under the Competition Act, 2002 (“Act”), proviso to Section 27 (b) provides discretion to the Competition Commission of India (“CCI”) to prescribe a penalty of up to three times of profit upon the participating firm for each year of the continuance of the cartel or ten percent of the participating firm’s turnover for each year of the continuance of the cartel, whichever is higher. The CCI has been using its discretion with an iron-hand by imposing maximum penalty possible in the cases of cartel.

Firms that indulge in cartel conduct generally do not leave any direct evidence of collusion and usually hatch such conspiracies in secrecy. At times, coordination amongst cartel members are orchestrated through common agents or entities that do not even operate at the same level of the market. Whether cartel is orchestrated directly or indirectly, gaining access to incriminating evidence that may stand the test of judicial scrutiny is invariably a challenging task. Parallel conduct by companies, standing alone, does not meet the requirement of ‘agreement’ amongst the parties charged with the offence of cartel. Further, in the absence of evidence, it is very often difficult to discard the defence that their parallel conduct is truly independent or unilateral.

The Director General (“DG”), which is the investigating authority of the CCI, has been given very wide powers to conduct investigation under the Act and enjoys discretion to summon any person, take evidence on oath, keep documents under his custody, conduct dawn-raids, etc. Further, non-compliance of any directions of the DG may entail a fine which may extend to rupees one lakh for each day during which such failure continues, subject to a maximum of rupees one crore. Notwithstanding such wide powers, the CCI has not been very successful in prosecuting cartels, except the bid rigging cases where records of identical pricing that cannot be explained by any rational conduct is made available by the public authorities inviting such bids.

The CCI has initiated a number of investigations into cartel conduct based on customer complaints, press reports, reports from state agencies, etc. However, it’s endeavours to successfully prosecute cartels have met with a limited success. In this regard, the experience from international jurisdictions suggest that the most frequent way to burst and prosecute cartels has been the Leniency Programs, which have proved to be an effective tool for anti-cartel enforcement. In general, the Leniency Program affords full or partial immunity from penalties or prosecution to a corporation or individual when certain requirements are met.

Section 46 of the Act provides power to the CCI to impose lesser penalties or no penalty upon an enterprise which has made a true, vital and full disclosure of information in respect to a cartel. Such disclosures, referred to as ‘leniency applications’ in competition law parlance, allows the CCI, on the one hand, to get crucial insider evidence and direct evidence and, on the other, protects the leniency applicant by insulating it from potentially debilitating penalties. Further, leniency applicants may also get saved from dawn raids and other forms of intrusive investigation. Thus, leniency provisions provide a win-win situation to both.

Pertinently, a firm may be inclined to file a leniency application only when the benefits of filing a leniency application would outweigh the benefits of not filing it. Scholars have opined that three essential conditions must exist for making leniency successful2: a) Sanctions to a cartel should be severe, b) there shall be a perception of a high risk of detection, and c) anti-cartel enforcement and leniency policies should be transparent and predictable. Accordingly, it is important that both ‘carrot and stick’ is applied judiciously – by making punishments severe and debilitating on the one hand and incentivizing recourse to leniency on the other, to make anti-cartel enforcement programme effective. At this stage, it may be pertinent to examine the application of the carrot and stick policy by the CCI.

As regards the policy of stick, it may be pertinent to state that Section 27 (b) provides for imposition of penalties which could be as high as three times the profit or 10% of the turnover for every year of the cartel. However, the approach taken by the CCI has been inconsistent while penalizing the members of a cartel. For e.g., in the case of cartelization by public sector insurance companies3, the CCI imposed a penalty of 2% of the average of the turnover because the CCI considered the importance of insurers’ solvency for the consumers as a mitigating factor and the penalty was further reduced to1% by the COMPAT in appeal. Similarly, in the recent case of Director Supplies vs. Shree Cement & Ors.4, the CCI inflicted a penalty of 0.3% upon the cement manufacturers for indulging in bid-rigging. As per the CCI, since the collusion had a likelihood of causing an appreciable adverse effect on competition but no actual adverse effect was shown, hence a lesser penalty was inflicted. Therefore, no clear cut guidelines emerge from the decisional practices of the CCI on the quantum of penalties.