Fallacy of the Inverse: CCI’s application of Leniency Provisions
On April 19, 2018, the Competition Commission of India (“CCI”) granted, for the first time since the inception of the leniency provisions, a 100% reduction in penalty to Panasonic India in the Zinc-carbon dry cell manufacturers cartel case. This was the second leniency decision and has been dubbed as the coming of age of CCI’s cartel enforcement regime. Although the CCI has demonstrated that it has enough teeth to warrant companies making voluntary disclosures, the approach adopted by the CCI lacks consistency and impairs the predictability of the leniency programme in India.
Panasonic India submitted a Lesser Penalty Application under section 46 of the Competition Act 2002 (“Act”), 2002 disclosing that Eveready Industries, Indo National and itself had colluded to fix the prices and limit the production, distribution and supply of zinc-carbon dry cell batteries in India. On the basis of the information received and evidence submitted, a prima facie case was made out and the Director General began investigation during the course of which Eveready Industries and Indo National also submitted Lesser Penalty applications. The CCI allowed a 100 per cent reduction in penalty to Panasonic on the basis that the disclosure enabled the CCI to order investigation into the matter, conduct search and seizure and establish contravention of section 3 of the Act [Para 10.2].
Although it is fairly evident from the facts that Panasonic India was entitled to a 100% reduction, the reasoning of the CCI falls short of marrying the facts to the conditions to be satisfied under Regulation 4(a) of the Lesser Penalty Regulations, 2009 (“Regulations”) read with section 46 of the Act. This is small in comparison to the CCI’s callous approach in granting a reduction in penalty to Eveready Industries and Indo National disregarding the Regulations. Regulation 4(b) and its Explanation allows the CCI the discretion to reduce penalty to subsequent applicants if the evidence submitted is a significant value addition to the evidence already in their possession by which the DG or the CCI can establish the existence of the cartel. On examining the value addition by Eveready Industries and Indo National, the CCI admitted that the evidence seized by the DG was “independently sufficient” to establish violation of section 3 of the Act and, therefore, the information in the application did not result in significant value addition [Para 10. 3].
On the basis of CCI’s interpretation of Regulation 4(b) and the strength of its own reasoning, Eveready Industries and Indo National should not have been allowed any reduction in penalty. However, the CCI noted in the following line of the same paragraph that “...both OP-1 and OP-2 have provided genuine, full, continuous and expeditious cooperation during the course of investigation in the present case” and proceeded to grant a 30% and 20% reduction to the parties respectively. By inversing the proviso with the standard, the reasoning is not only inconsistent with Regulations, but is also inconsistent with the approach of the CCI in the first leniency decision [ ] where the CCI had granted a 75% reduction in penalty considering the cooperation extended “in conjunction with” and not independent of the value addition provided in establishing the existence of the cartel [Para 7.11].
Even if the CCI’s re-interpretation in this case is taken to be correct, the CCI’s approach in the Nagrik Chetna Manch case decided on May 1, 2018, merely 12 days later, tells another story. The CCI decided that it would not provide any value reduction to two of the five applicants on the grounds they did not provide significant value addition to the evidence that the DG already possessed, notwithstanding the fact that the applicants cooperated with the investigation throughout and accepted information indicating the modus operandi of the cartel and evidence in their possession [Paras 132 and 133]. This decision is not only inconsistent with Zinc-carbon dry cell manufacturers cartel case in that parties similarly placed under the leniency provisions were granted a reduction in penalty, but it also suffers from internal inconsistencies. For example, the CCI does not apply the same standard to all the applicants. The CCI notes in one instance that the value addition by one of the parties, Ecoman Enviro Solutions, was minimal but proceeds to grant a 25 per cent reduction in penalty to Ecoman on the ground that it cooperated continuously and accepted information indicating the modus operandi and evidence in its possession [Para 125]. Additionally, the CCI adopts a “good value addition” metric when granting reduction to some applicants while adopting a “significant value addition” metric in denying a reduction to other applicants.
Besides the patent unfairness in applying differing standards, it also sounds an alarm about the wide discretion that CCI has assumed to itself. Another manifestation of this discretion is CCI’s disregard for confidentiality. Regulation 6 makes confidentiality of the identity of the applicant or information received the default rule. In its order, the CCI did not maintain confidentiality of the identity of the applicants and also disclosed specific details about the informed received such as the content of emails, names of certain customers and the extent of overcharge. Unlike in Brushless DC Fans, the CCI makes no mention of a waiver by the applicant either. Since confidentiality is one of the most important safeguards encouraging cartelisers to confess, an attempt to whittle down confidentiality as in this case or in Nagrik Chetna Manch where the CCI held that “Confidentiality does not extend to evidence obtained or collected by the DG, even if the evidence is obtained from a Lesser Penalty Applicant” may deter potential leniency applicants in the future and dislodge the leniency regime in India.
While 100% leniency is a high price to pay for cooperation, the overwhelming consensus is that it is a price worth paying in exchange for the resources that are saved in detecting cartels and the accompanying deterrence effect. To ensure these goals are achieved, it must be predictable to enable potential applicants to calculate the costs and benefits of seeking leniency. The lack of consistency in the approach of the commission in granting leniency common through the three decisions and the wide discretion is a cause of concern as it undermines the predictability of the rather robust leniency program guaranteed by the Act and the Regulations.
Note: This is a republished version of the article published on IndiaCorpLaw.