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29 August, 2017
On 22 August 2017, the Competition Commission of India (‘CCI’) introduced certain amendments to the Competition Commission of India (Lesser Penalty) Regulations, 2009 (‘Lesser Penalty Regulations’) (‘Amendment’)1. The Amendment will impact multiple ongoing, as well as fresh cartel proceedings initiated by the CCI. Broadly, the Amendment expands the scope of the Lesser Penalty Regulations by allowing individuals to approach the CCI with evidence on collusion; abolishing the earlier upper limit on the number of leniency applicants who could benefit from the penalty waiver (i.e. three), and significantly changing the provisions on confidentiality and file inspections. Below, we provide a brief background of the leniency program in India, a summary of the changes introduced by the CCI, and their possible implications on the cartel proceedings in India.2
A. Brief Background
The Competition Act, 2002 (‘Competition Act’) allows the CCI to impose lesser penalty on any member of a cartel, alleged to have contravened Section 3 of the Competition Act. In applying these provisions, the CCI follows the “first come-first serve approach” – i.e., the first member to approach the CCI who fulfills the requirements laid down by the Lesser Penalty Regulations may be eligible for a waiver of penalty up to 100%. Successful applicants who subsequently contact the CCI are also eligible for penalty waivers up to 50% and 30% respectively only if they provide additional valuable information which was previously unknown to the CCI.
B. Individuals can now approach the CCI under the Lesser Penalty Regulations
Section 46 of the Competition Act allows, “any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated Section 3” to apply for imposition of lesser penalties. The Lesser Penalty Regulations, until now, only permitted an “enterprise” to disclose anti-competitive conduct, and seek the benefit of lesser penalty under Section 46.
The Amendment now allows even an “individual” to approach the CCI to seek benefit of the Lesser Penalty Regulations – thereby expanding the reach of the leniency program to individual whistleblowers – who could be employees, or even former employees involved in such anti-competitive conduct on behalf of the enterprise.
Allowing individuals to come forward to the CCI with incriminating evidence of collusion will allow the CCI to strengthen its leniency program and effectively identify more cartels, with better quality of evidence and expending lesser amount of resources.
C. Enterprises seeking the benefit of the Lesser Penalty Regulations will now additionally need to submit details of individuals involved in the cartel
The Lesser Penalty Regulations, until now, required an applicant seeking to benefit from the provisions of leniency provision, to: (a) provide vital disclosure in respect of the contravention; (b) provide all relevant information, documents and evidence as required by the CCI; (c) co-operate with the CCI throughout the proceedings; and (d) not conceal, destroy, manipulate or remove documents which are relevant to the proceedings, and may contribute to establishment of a cartel.
The Amendment, by insertion of Clause 1A, to Regulation 3, brings an additional requirement for enterprises applying for leniency to also furnish details of individuals who have been involved in the cartel on behalf of such enterprise, and for whom lesser penalty is sought. Consequently, even Regulation 4, which is the operative regulation for lessening the penalty applicable, has been extended to individuals. By implication, therefore, while filing a leniency application, the applicant enterprises will also be allowed to seek immunity for their employees, and former employees who may have been involved in a cartel.
Earlier, lack of clarity on whether individual employees could benefit from the leniency regime was one of the reasons why enterprises were not forthcoming in seeking the benefit of the Lesser Penalty Regulations. The
Amendment marks a welcome development, and now, enterprises will be able to seek lesser penalties for itself, as well as for the individuals who may have contributed to a cartel.
However, since the Amendment makes it mandatory for enterprises to provide details of individuals involved in the collusive conduct, the applicant enterprises will now be subject to the onerous requirement of interviewing employees, and former employees in respect of conduct – which, in many instances, could even go back to many years in the past, and subject them to proceedings under Section 48 of the Competition Act, albeit with full or partial immunity from penalty.
D. No cap on the number of applicants who may benefit from the Lesser Penalty Regulations
Earlier, the Lesser Penalty Regulation capped the number of applicant who were eligible to secure immunity to three. The Amendment now expressly allows the CCI to accept (and grant immunity to) more than three applicants. The third, and any subsequent applicant will be eligible for a penalty waiver for up to 30%. From CCI’s perspective, this amendment is aimed at encouraging all cartel participants to come forward and seek leniency.
E. Confidentiality on identity of the applicant, and the confidential information submitted under Regulation 6 of the Lesser Penalty Regulations diluted: the Director General may now disclose such information to other parties subject to certain checks.
Until now, the identity of an applicant seeking immunity, as well as the evidence submitted by it under the Lesser Penalty Regulation was not permitted to be disclosed by the Director General or the CCI – unless such disclosure was required by law, was consented by the applicant, or such information was publicized by the applicant itself. The Amendment dilutes this provision, and grants the Director General the flexibility to disclose such information to other parties on an additional ground. We clarify the revised position on confidentiality below:
- What can be claimed as confidential? The identity of the applicant, and the information, documents and evidence furnished by it can be claimed as confidential under the Lesser Penalty Regulations.
- Can confidential information be disclosed? Information which has been claimed as confidential under the Lesser Penalty Regulations can be disclosed if (a) the disclosure is required by law; (b) the applicant has agreed to such disclosure in writing; or (c) there has been a public disclosure by the applicant. While there has been no change to these grounds, the following bullet explains the proviso which has now been inserted.
- Can the Director General disclose the confidential information to other parties? Yes. The Amendment allows the Director General to disclose such confidential information to “any party” for the purposes of investigation if it “deems necessary”. However, if the applicant does not consent to such disclosure, the Director General will have to necessarily (a) record its reasoning for disclosure in writing; and (b) seek the approval of the CCI.
- What will guide the Director General’s, or the CCI’s discretion in making such disclosure? The Amendment does not clarify this. This Amendment appears to be intended to (a) ensure that the parties against whom a negative finding may be made are afforded a fair opportunity to controvert evidence; and (b) allow the Director General to test such evidence (or collect further evidence) by putting it to other parties. Therefore, the Director General may be guided by these factors while evaluating the need to make such a disclosure. Notably, an opportunity to rebut evidence is also available to the parties before the CCI – after the report of the Director General is forwarded to the parties.
- Will the applicant be allowed to contest disclosure? The Amendment does not clarify this. Principles of natural justice may, however, require the CCI to allow the parties whose identity and information is being disclosed to make a representation to the CCI. It remains to be seen whether the CCI will indeed allow such an opportunity.
- Will confidentiality under the Lesser Penalty Regulations be lifted after the Director General completes its investigation? The Amendment also introduces Regulation 6A which extends the provisions of the Competition Commission of India (General) Regulations, 2009 (‘General Regulations’) relating to file inspection by parties, to the information submitted by the applicants under the Lesser Penalty Regulations. Notably, this overrides the confidentiality provision of the Lesser Penalty Regulations.
With this, after the CCI forwards the report of the Director General to the parties concerned, the “non-confidential” version of the report of the Director General shall become available to inspection to the parties. It appears that the reference to “non-confidential” version refers to the version which redacts non-public, commercially sensitive information and business secrets which have been allowed confidential treatment under Regulation 35 of the General Regulations, read with Section 57 of the Competition Act. Resultantly, the identity of the applicant, and the evidence and documents furnished by is likely to be revealed in the Report of the Director General which is available to inspection to parties.
Does this impact confidentiality sought, or granted, over commercially sensitive information, business secrets etc.? No. The Amendment only governs confidential treatment under the Lesser Penalty Regulations. Therefore, if confidentiality has been claimed, or allowed under the General Regulations read with Section 57 of the Competition Act (which are the key provisions governing confidentiality over commercially sensitive information), the Amendment is unlikely to have an impact on such confidential treatment.
F. Limiting the information requirement in respect of volume of business affected by the alleged cartel to India
The Schedule to the Lesser Penalty Regulations enlisted the items which each application for lesser penalty must contain.3 One of the items that the CCI required earlier was to furnish an estimate of the volume of business affected by the alleged cartel. The Amendment limits this requirement to furnishing this estimate to the volume of affected business in India.
This is a significant development, and brings the requirement of furnishing the affected volumes in consonance with Section 32 of the Competition Act, which allows the CCI to have jurisdiction over extra-territorial conduct having an appreciable adverse effect on competition in India.
G. Conclusion
Leniency programs are among the most effective tools used by competition authorities to collect high quality evidence in establishing cartels. Given that cartels are typically very difficult to detect, the CCI’s extension of India’s leniency program to individuals will significantly strengthen the regime, and allow the CCI to get additional evidence on cartels. Reportedly, there are many leniency cases pending investigation. While the change to the confidentiality provisions brings much needed clarification on the temporal and scope of disclosure permissible, allowing the Director General to disclose such information during the course of the enquiry could be of some concern. It remains to be seen how frequently, and on what legal grounds, will the Director General invoke this provision.
1 The Amendment is dated 8 August 2017, but was published in the Gazette of India on 22 August 2017.
2 AZB, in its “Inter Alia…” edition of March, 2017 had published a broad overview of the leniency regime in India titled “Leniency Programs: What can India do to Achieve the World’s Best Practice?”.
3 The application for lesser penalty shall, inter-alia, include the following, namely;- (a) name and address of the applicant or its authorized representative as well as of all other enterprises in the cartel; (b) in case the applicant is based outside India, the address of the applicant in India for communication including the telephone numbers and the e- mail address, etc. ; (c) a detailed description of the alleged cartel arrangement, including its aims and objectives and the details of activities and functions carried out for securing such aims and objectives; (d) the goods or services involved; (e) the geographic market covered; (f) the commencement and duration of the cartel; (g) the estimated volume of business affected in India by the alleged cartel; (h) the names, positions, office locations and, wherever necessary, home addresses of all individuals who, in the knowledge of the applicant, are or have been associated with the alleged cartel, including those individuals which have been involved on behalf of the applicant ; (i) the details of other Competition Authorities, forums or courts, if any, which have been approached or are intended to be approached in relation to the alleged cartel; (j) a descriptive list of evidence regarding the nature and content of evidence provided in support of the application for lesser penalty; and (k) any other material information as may be directed by the Commission.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
