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Lesser penalty Provision under Indian Competition Law: Puzzle or Panacea?

Sumit Jain

Competition Commission of India (CCI) in case No. 3 of 2017 (now referred as “Panasonic Battery case”) held that Panasonic India (OP-2) and Godrej Limited (OP-3) violated the Competition Act (“Act”) by controlling the price of dry-cell batteries in the Indian market. They were held in violation of Section 3(3) of the Act and were imposed a fine of 1.5 times the annual profit, and four per cent of average turnover respectively. However OP-2 was given 100 per cent reduction in penalty under Section 46 of the Act, as it cooperated during the investigation and made full disclosure of the information to the CCI.

Facts of the case were that the Commission took suo moto cognizance of the said matter after Panasonic Corporation (Japan) and OP-2 made applications under Section 46 of the Act admitting cartel like behavior in dry-cell batteries market. The Commission conducted investigation and found OP-2 and OP-3 violating the Act. What, however remains unique in the case is 100 per cent leniency granted to OP-2 in terms of imposition of penalty. While the reasoning adopted by the CCI, that it cooperated and made proactive disclosure of the information, gives some leeway to Panasonic for penalty reduction, an absolute waiver granted to the party warrants a closer look at the said case law.

The Indian precedent comprises of two case laws where parties have filed for lesser penalty before. One was Case No. 50 of 2015 (Nagrik Chetna Manch Vs. Fortified Security Solutions and others) where respondents admitted cartel like behavior and pleaded the Commission for lesser penalty. CCI, after taking due cognizance of the facts, granted a maximum reduction of 50 per cent penalty to the parties. The other ruling was Case No. 3 of 2014 (Supply of Brushless DC fans to the Indian Railways), where the Commission granted a maximum reduction of 75 per cent penalty to the pleading parties, after looking into overall circumstances of the case.

A cursory reading of the said case laws would suggest that even if the Commission did not grant a full waiver, it was quite open in providing substantial relief to the parties for disclosing cartel like behavior. However, what remains equally important is that the said ‘openness’ always felt short of granting absolute waiver to the colluding firms. Such an approach can reasonably be construed as consistent while seeing the overall scheme of the Act and applying the ‘harm’ principle caused to the market.

While there is substantive literature in support of incentivizing cartel-cheating by granting leniency to the disclosing party, there is equal weightage in the critique which suggests that such a programme might encourage firms to collude, which initially might not have done so, in lieu of decreased penalties. Therefore granting a full waiver to the colluding firm in such a circumstance not only sets a dangerous precedent, but de-facto makes Section 3 of the Act oblivious to cartel formation. A more prudent approach for the Commission would have been to take a middle path by waiving only a part of the penalty. This would have saved the essence of the leniency programme, and at the same time would not have undermined the ‘harm’ principle envisaged under the Indian Competition Act.