The story to date: Striving to strengthen the present ‘whistleblower’ mechanism in the Competition Act, the Ministry of Corporate Affairs (MCA) notified the ‘Lesser Penalty’ Regulations, 2024 to introduce the ‘Lesser Penalty Plus’ regime. It incentivises present trade participant(s) turned ‘whistleblowers’ to current “full, true and vital disclosures” about one other cartel in the ecosystem which is unknown to the Competition Commission of India (CCI). The rules have been finalised subsequent to a draft regulation floated for feedback in November final 12 months.
What is that this regime about?
The present ‘lesser penalty’ provisions, beneath Section 46 of the Competition Act, incentivise enterprises, accused of cartelisation, to come ahead and disclose data, paperwork and proof to assist the competitors regulator set up potential cartel conduct. The thought is to refine the regulator’s investigation with insider data, probably throwing gentle on their secret agreements and concerted practices.
The latest provision, that’s, ‘lesser penalty plus,’ gives for present leniency candidates to disclose details about the existence of another such cartels. The candidates are in flip granted discount in penalty with respect to their involvement in the second cartel. This is over and above the discount in penalty levied for his or her involvement in the preliminary cartel.
The ‘lesser penalty’ applicant is required to state their position in the cartel, items or providers concerned, entities concerned, geography lined, date of graduation of the alleged cartel, its current standing and the estimated quantity of enterprise affected in India by alleged anti-competitive act. The ‘lesser penalty plus’ candidates, on the different hand, are required to elaborate if there are any similarities or variations in the conduct, product, service or events with respect to the first cartel, amongst different issues.
The advantages to be accorded are assessed utilizing two broad parameters, specifically, precedence standing and important added worth.
Priority standing is the applicant’s place in the queue, as in contrast to different candidates, for being accorded leniency. Timing is the main determinant right here as a result of, as argued by the regulator, the thought is to encourage disclosing the cartel “as soon as possible” for securing most profit.
Significant Added Value is assessed based mostly on qualitative parameters. It examines the high quality of proof offered— how far it strengthens the regulator’s means to show the existence of a sure cartel. This relates to the nature and degree of particulars offered, protecting in thoughts the timing of perusal (by the applicant) and the quantity of corroboration wanted from different sources.
Lastly, incriminating proof instantly related to the matter is accorded better weightage, as compared to that with oblique relevance.
How does this look in apply?
Applicants can file for leniency solely earlier than they obtain the regulator’s investigation report, in different phrases, throughout the course of the investigation.
The first ‘lesser penalty’ applicant approaching CCI with proof would have their penalties lowered by up to 100%. The second and third in line could obtain up to 50% and 30% respectively. Now, with ‘leniency plus’: the applicant, regardless of their earlier precedence standing, could obtain a further discount in penalty of up to 30% with respect to the first cartel. Let’s say, applicant A was initially awarded a penalty discount of fifty% in the earlier stage.They would now obtain a further advantage of up to 30%, thus, a complete 80% discount in penalty. The applicant may additionally be entitled to a 100% discount for his or her involvement in the second reported cartel with ‘leniency plus’.
The latest regulation is analogous to present regimes in a number of areas, together with the United States, European Union and Brazil.
Overall, leniency programmes globally have yielded high quality outcomes by way of revealing different present cartels and related gamers. For instance, the U.S. Department of Justice (in 2008) cumulatively fined a number of worldwide airways, together with Air France, Cathay and KLM Royal Dutch Airlines, amongst others, a complete of $504 million for his or her involvement in a “multi-year conspiracy to fix prices for air cargo rates.” Earlier, Australian provider Qantas and Japan Airlines had been fined too. The path had commenced with British Airways being fined in 2007, for colluding to repair passenger gas surcharges for long-haul worldwide journey. They have been additionally revealed to be concerned in conspiring to repair air cargo charges. British-airline Virgin Airlines escaped with out paying any fines, having sought leniency by turning whistleblower.
But is that this incentivisation sufficient?
The authors of a working paper titled ‘Leniency of the Competition Commission of India’ (offered in March 2022), assessed that the incentive to self-report would solely exist if the “cartelists believe that they will not be caught or can predict that the sanctions imposed will be lesser than the gains from the collusion.”
Elaborating on the similar notion, CCI held that in cartel circumstances, penalties could go up to thrice the revenue accrued in every year when the cartel was working or 10% of the turnover or earnings of the infringer. For people, the CCI could impose a penalty of up to 10% of their common earnings in the three previous monetary years. However, by making use of for the leniency programmes, they might avail full penalty reductions, that’s, up to 100%.
Manika Brar, Partner at regulation agency Shardul Amarchand Mangaldas and Co., pointed to the framework being constructed on the idea of ‘game theory.’ This signifies that even when one participant opts to proceed with their conduct, it consistently faces the danger of one other disclosing the existence of the cartel. “Therefore, it is always beneficial to be the first party to come clean, as that would mean that the leniency offered can even extend up to 100%,” says Ms Brar.
What about confidentiality?
According to CCI, the identification of the ‘lesser penalty’ applicant is saved confidential until the passing of the closing order and completion of proceedings. Risks right here emerge on two potential fronts: first, hurt to fame at a bigger scale, and second, turning towards friends.
Ms. Brar states that the confidentiality clause has not disincentivised firms so removed from searching for leniency. “Of course, there are considerations, such as community and reputational harm, but for businesses, the risks of not seeking leniency are significant in terms of huge penalties that can ensue, which can result in further loss of business opportunities as well as competitive disadvantage,” she stated.
