OF PENALTIES AND LENIENCY PROVISIONS

To prove the existence of a cartel, ‘smoking gun’ evidence of the agreement for anti-competitive purposes, which is mentioned above, is needed. However, no proof of the actual harm to competition in the market is required once a cartel is proved to exist; it is presumed to have anti-competitive effect, until the parties can rebut this presumption.

Since cartels typically shroud their operations in secrecy, nailing evidence may be hard to come by. Thus, competition authorities have evolved the leniency tool, which has proved immensely efficacious and popular in other jurisdictions. This weapon, similar to a whistle-blower provision, has been incorporated in the armoury of the Act and further elaborated in the Competition Commission of India (Lesser Penalty) Regulations, 2009. Thus, if a party to a cartel makes a full, true, and vital disclosure to the CCI and co-operates in the inquiry, it can be eligible for substantially lenient treatment. The first such party is eligible for one hundred per cent leniency, the second to fifty per cent and the third to thirty per cent reduction in penalty. Such disclosure will arm the CCI with critical evidence against the cartel.

The ever-present fear amongst the conspiring parties that one of them may sneak out to the CCI with ‘insider’ information is designed to de-stabilise the cartel’s unity and throw the colluders into the typical ‘prisoners’ dilemma’. The CCI’s Leniency Regulations introduce a ‘marker’ system giving priority status to leniency applicants according to the sequence in which they reach the CCI. Thus, a subsequent application will be taken up only after the earlier one has been considered and given an opportunity to furnish the ‘full, true and vital’ evidence. Therefore, the speed in approaching the CCI becomes critical in the level of leniency that can be obtained. Samir R Gandhi, Partner at Economic Law Practice, Advocates & Solicitors opines, “Leniency provisions that are provided under the Act will certainly encourage participants in a cartel to come clean. However, under the Act, the high level of discretion that is vested in the CCI while deciding on whether to award leniency to the whistleblower, coupled with the uncertainty on how the CCI will exercise its discretion, is likely to make some companies wary of using the leniency provisions in the Act.”

In the matter of penalties too, cartels are in a special doghouse. A violation under the Act can attract a penalty of up to ten per cent of the enterprise’s turnover. However, a cartel can invite, for each year, a penalty up to ten per cent of the turnover or three times the annual profit, whichever is higher.

In some countries, such as USA, UK, and Canada, a cartel is even treated as a criminal offence, punishable with imprisonment, thereby establishing a high level of deterrence. In India, a cartel is not criminal, but individuals are equally liable to be slapped with a penalty; this applies to any director, manager or other employee, who is ‘in charge of the affairs’ of the company at the relevant time. Adds Gandhi, “Indian industry may require some time to adjust to the requirements of modern day definitions of what constitute ‘cartel activity’ under competition laws, before imposing a criminal sanction.” In the UK, individuals may also incur disqualification from holding directorships for a number of years.

Antitrust history is replete with cases of busted and punished cartels, including the use of the leniency tool to unravel the conspiracies. Senior executives have had to serve prison terms, especially in the USA. A landmark case was the global lysine cartel, recently dramatised in the Hollywood movie, The Informant. The recent marine hoses cartel investigation demonstrated the high level of international cooperation between competition authorities, particularly those of EC, UK and USA when acting against cartels. In that case, the fines and damages paid by six producers, involved in price-fixing, amounted to GB 150 million, while the fines and imprisonment terms ordered on individuals added up to GB 1.48 million and 158 months respectively. Bid rigging and collusive bidding by the Dutch and the UK construction industries revealed the industry-wide virus in the sector, and the UK authorities declared this as one of their biggest cartel investigations.

Industry associations have often been found to function, sometimes inadvertently, as a platform for coordination of prices or tender bids. Such suspicions have even been often expressed in India in the case of certain sectors, such as cement, truck haulage, explosives and airlines. Fortunately, the Indian Act recognises this by including agreements between ‘associations of enterprises or associations of persons’ that may be held anti-competitive.