Corporate leniency is being accepted as the best way to combat cartels. But economists feel too much leniency dilutes the amnesty program altogether. However, there is a difference in approach to corporate leniency between India and USA. Does India have an effective leniency policy to deal with the problems? Find out more
Corporate leniency is an important step to combat cartels in different jurisdictions. India has civil fines to combat cartels established by law. Whereas USA have criminal sanctions. India grant partial leniency to 2nd and 3rd informant as well. The US system has examined many cartel cases and busted the cartels with leniency programs. The Indian system is new. The Competition Commission of India (CCI) started working from 2008 onwards. The article examines India’s system of corporate leniency with USA to analyse the utility of the system.
In India, The MRTP Act only required enterprises to “cease and desist” from anticompetitive activities. The Supreme Court has also commented on the undesirability of cartels, as mentioned in the case Union of India v Hindustan Development Corporation, AIR 1994 SC 988, and has lamented the inability of the MRTP Act to effectively deal with the problem of cartels, partly because of the lack of an effective definition of the same and partly because of the lack of effective powers to control cartels.
The provisions of the Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, which are relevant are mentioned below. A cartel is defined in Section 2(c) of the Competition Act, 2002, as “including associations of producers, sellers, distributors, traders or service providers who agree to limit control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”. Section 3(1) of the Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, states: “No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.” Section 3 of the Act lays down a general prohibition against enterprises or association of enterprises and persons or association of persons entering into an agreement (horizontal or vertical) which causes or is likely to cause an appreciable adverse effect on competition. Section 3(3) provides an exhaustive list of prohibited horizontal agreements (for example, price fixing, output restrictions, market sharing and bid rigging) which are presumed to cause an appreciable adverse effect on competition in India. Section 3(3) states: Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
The proviso to the section, however, allows an exemption for joint ventures entered into by competitors, which enhances efficiencies in production, supply, distribution, storage, acquisition or control of goods or provision of services.The proviso states: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.
An enquiry into a violation of the Act can be commenced upon the receipt of a complaint by the Commission or upon its own motion. If the Commission is convinced that a prima facie case exists, it proceeds to direct the Director General to commence an investigation. When the director general completes the investigation he submits a report to the Commission which then decided what action to take.
Section 46 of the Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, in India provides for such leniency as well, and the Act allows the Commission to draft regulations in connection with this.
Section 46 states: 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:
Provided that lesser penalty shall not be imposed by the Commission in cases where the report of investigation directed under section 26 has been received before making of such disclosure.
Provided further that lesser penalty shall be imposed by the Commission only in respect of a producer, seller, distributor, trader or service provider included in the cartel, who has made the full, true and vital disclosures under this section.
Provided also that lesser penalty shall not be imposed by the Commission if the person making the disclosure does not continue to cooperate with the Commission till the completion of the proceedings before the Commission.
Provided also that the Commission may, if it is satisfied that such producer, seller, distributor, trader or service provider included in the cartel had in the course of proceedings,—
and thereupon such producer, seller, distributor, trader or service provider may be tried for the offence with respect to which the lesser penalty was imposed and shall also be liable to the imposition of penalty to which such person has been liable, had lesser penalty not been imposed. By the power vested in it through this provision, along with the power to make rules and regulations vested by s. 64 of the Act, Section 64 (1) states: The Commission may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act.
The Government of India brought out the Competition Commission of India (Lesser Penalty) Regulations, 2009 in August 2009. These Regulations provide the framework in which the Competition Commission of India can give lower punishments than statutorily provided in the case of cartel membership. The Lesser Penalty Regulations have provided for the first informant from a cartel to receive a full amnesty from penalty according to Regulation 4 A of the Lesser Penalty Regulations, 2009.
One question that does arise with respect to the interpretation of section 46 is whether “lesser penalty” can be interpreted to mean a complete waiver of penalty. It clearly has been in the current regulations, but whether this is valid is yet to be seen.
The Lesser Penalty Regulations in this context requires discussion. The Lesser Penalty Regulations in India were notified in the Gazette of India on the 13th of August 2009. Regulation 3 provides the conditions that must be fulfilled before an enterprise is shown leniency. Regulation 3(1) of the Lesser Penalty Regulations requires that an applicant, seeking the benefit of lesser penalty under section 46 of the Act, shall cease to have further participation in the cartel from the time of its disclosure unless otherwise directed by the Commission, provide vital disclosure in respect of violation under sub-section (3) of section 3 of the Act, provide all relevant information, documents and evidence as may be required by the Commission, cooperate genuinely, fully, continuously and expeditiously throughout the investigation and other proceedings before the Commission, and not conceal, destroy, manipulate or remove the relevant documents in any manner, that may contribute to the establishment of a cartel. Regulation 3(2) provides that someone who violates any of these conditions could lose his exemption. Regulation 3(3) provides for the power to impose additional conditions on the enterprise if the Commission deems it necessary according to Regulation 3 (3) of the Lesser Penalty Regulations.
There are additional requirements for the grant of complete immunity under the Regulations. The proviso to Regulation 4(1) provides that the enterprise would have to make the disclosure before anyone else. Further, the information has to be sufficient to establish a prima facie case in the event that the Commission could not do so earlier, or to establish contravention if the Commission did not have sufficient evidence to do so earlier.
Regulation 4(a) states: Subject to the conditions laid down in regulation 3, the applicant may be granted benefit of lesser penalty than leviable under clause (b) of section 27 of the Act, as the commission may decide, in the following manner, namely;-
The applicant may be granted benefit of reduction in penalty up to or equal to one hundred percent, if the applicant is the first to make a vital disclosure by submitting evidence of a cartel, enabling the Commission to form a prima-facie opinion regarding the existence of a cartel which is alleged to have violated section 3 of the Act and the Commission did not, at the time of application, have sufficient evidence to form such an opinion.
The Schedule states that the application must include:
Subsequent applications can also receive leniency under Indian law, but not complete immunity. Regulation 4 provides that in the event that a subsequent application provides significant value add to the Commission’s case against the cartel, the second application can receive up to 50% reduction in penalty and the third can receive up to 30% reduction in penalty.
Regulation 4(c) states: The reduction in monetary penalty referred to in clause (b) shall be in the following order-
Regulation 5 provides the procedure for such an application and provides for all the requirements of an application. The Schedule to these Regulations provides the detailed list of requirements in any application. The Schedule states that the application must include:
An important provision of the Lesser Penalty Regulations is Regulation 6, which provides that disclosure under these Regulations will be kept confidential. This is subject to three exceptions. These are:
The origins of the leniency policy require brief discussion. The Antitrust Division announced its first leniency policy on October 4, 1978, when Assistant Attorney General John H. Shenefield startled the business and legal communities by announcing that the Division would not to prosecute a company that reported its illegal conduct before any investigation was initiated and cooperated fully to achieve the prosecution of others in the industry. It was reported in John N. Shenefield, Assistant Attorney General, Antitrust Division, Statement before the 17th Annual Corporate Counsel Inst. (October, 1978) noted in Trade Reg. Rep (CCH) Para 50,388, http:/www.justice.gov./atr/public/speeches/0456h tm (last visited on 15th June, 2014).
The program was an immediate success because it resulted in several important criminal prosecutions and effectively destabilized the cartel business. However, as time passed, the number of applications and expressions of interest declined. The intervening Reagan years were not the time for many companies to self-report antitrust violations; many companies probably believed that the policy and the criminal prosecution of antitrust offenders had become ancient history.
Even before the Antitrust Division moved decisively into the international cartel business, Assistant Attorney General Anne Bingaman returned the leniency program to the antitrust spotlight in August 1993, announcing a revised leniency program that added a new and significant variation in leniency after the investigation has begun. (Anne K. Bingaman, Assistant Attorney General, Antitrust Division, Antitrust Enforcement: “Some Initial Thoughts and Actions”, address before the ABA Section of Antitrust Law, New York, August 10, 1993)
The new policy revised the original policy to allow a company to come in after the initiation of the investigation, provide complete cooperation to the Division, and escape criminal prosecution for itself and its cooperating executives. Although this article’s primary emphasis is on the post investigation leniency, it is important to remember that leniency is always available to a company reporting its conduct before any investigation occurs. Pre-investigation leniency is non-discretionary with the Division. Corporate counsel should not forget that this policy continues and should carefully consider it if an internal investigation uncovers serious antitrust violations.
To qualify for post-investigation leniency, a company was required to meet seven conditions:
The grant of post-investigation leniency by the Antitrust Division is discretionary and, as is evident from the requirements, several of the criteria are very subjective. The Division has made it clear that the burden of satisfying these subjective conditions will be low if the company comes forward before the investigation begins or very early in the investigation. The burden will increase, however, as the Division gets closer to having sufficient evidence that would result in a sustainable conviction.
In USA, leniency is offered only to the 1st informant. In India, 2nd informant gets 50% exemption from fines, while 3rd informant gets 30% leniency. So the approach in India is a bit defensive. Economists feel too much leniency dilutes the amnesty program altogether. Besides, USA also has criminal sanctions which include imprisonment for members of the corporation along with landmark fines. The cases are also proved beyond reasonable doubt. By offering leniency to only the 1st informant USA had taken an aggressive stand. India should revisit the Lesser Penalty regulations in the light of developments across the world.
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