Taking a lenient approach to leniency

By Karan Chandhiok and Ruchi Khanna, Chandhiok & Mahajan
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Leniency programmes have been adopted by several competition authorities as the most effective tool to detect and deter cartel conduct. A study of 52 European Commission decisions adopted between 1 May 2004 and 1 May 2014 found that in 94% of cases, at least one party had applied for leniency.

In comparison to more mature jurisdictions, the domestic leniency programme is nascent. Although no filings were made in the first years of the leniency policy, there has been a steady rise in the number of leniency filings since the Competition Commission of India (CCI) issued its first decision in 2017. To date, the CCI has issued 10 decisions in which benefits under the leniency regime have been granted to disclosing parties.

leniency
Karan Chandhiok
Partner
Chandhiok & Mahajan

The competition law framework gives wide discretion to the CCI in administering leniency, as shown in section 46 of the Competition Act, 2002, which reads as “The commission may, if it is satisfied …”. The lack of clarity in the exercise of this discretion lay behind the initial hesitation in offenders approaching the CCI under the Lesser Penalty Regulations. However, there has been an uptick in the number of leniency decisions in the past few years.

Other jurisdictions envisage varying rules for the application of leniency. Some adopt a winner takes all approach with immunity restricted to the first claimant, and with no benefit for subsequent applicants. The domestic regulatory framework, however, not only encourages first applicants to file for leniency by offering up to 100% reduction of fine, but also allows up to 50% reduction in fine to the second applicant, and up to 30% to subsequent applicants. In the Nagrik Chetna case, the CCI granted reductions in penalty to four leniency applicants.

In deciding the reduction in fine to be granted to subsequent applicants, the CCI assesses if the disclosures offer significant added value. Although added value has been defined in the regulations, it is essentially a question of fact, depending on the nature and extent of disclosure made by an applicant.

leniency
Ruchi Khanna
Associate
Chandhiok & Mahajan

In the first immunity decision, the Dry Cell Battery case, the CCI concluded that the second and third applicants did not provide significant added value, but on the basis of their full and genuine co-operation, including their admission to cartelization, the CCI granted 30% and 20% reduction, respectively, to the applicants.

Subsequently, taking a stricter approach, the CCI, in the Nagrik Chetna case, did not grant any reduction in penalty to two applicants, citing a lack of significant added value, even though the CCI went on to acknowledge in the decision that the applicants “supported the investigation and co-operated with the investigation/inquiry throughout, and accepted information indicating the modus operandi of the cartel, and evidence in its possession or available to it.”

Thereafter, in the Essel Shyam case, the CCI observed that even though disclosures made by the second applicant added value to the existing evidence, they were not significant enough for the grant of more than a 30% reduction in penalty.

This distinction drawn between added value and significant added value, which is a determinative factor for grant of reduction in penalty to subsequent applicants, reflects the extent of the discretionary power available to the CCI.

Strikingly, in the Alis Medical Agency case, the CCI reduced the fine imposed on an enterprise, even though it had not applied for leniency. The CCI considered an admission of guilt and co-operation during investigation by the enterprise to be a mitigating factor in computing the penalty, and granted a 40% reduction in penalty.

This decision resonates with the light touch approach initially taken by the CCI in the Dry Cell Battery case. This approach of the CCI to encourage enterprises to come forward and co-operate in investigations is commendable, and is a step in the right direction to ensure the success of the leniency regime. From the perspective of an antitrust enforcer, successful leniency programmes yield substantial benefits; they bring an end to the offending cartel conduct and free up limited resources that would otherwise be tied up in extensive investigative or appeal processes.

Therefore, at least in the short term, the approach taken by the CCI in the Dry Cell Battery and Alis Medical Agency cases should become the standard practice and adopted as a rule, rather than as an exception. This, coupled with a light touch approach to penalties, will encourage parties to come forward without the fear of having debilitating fines imposed upon them.

Karan Chandhiok is a partner and Ruchi Khanna is an associate at Chandhiok & Mahajan.

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