CCI Unveils ‘Leniency Plus’ Regime To Bust Cartels

The Competition Commission of India (CCI) has notified ‘Leniency plus’ regime which is an innovative step taken to detect anti-competitive cartels. The new regime will help the CCI to roll out a new cartel-detecting tool that is expected to strengthen anti-trust enforcement in India.

“The ‘lesser penalty plus’ mechanism was introduced to incentivise an existing lesser penalty applicant in respect of a cartel to give full, true and vital disclosures about another cartel, hitherto not in the knowledge of the Competition Commission of India (CCI),” stated CCI in a press release.

Leniency Plus is a proactive antitrust enforcement strategy designed to encourage companies already under investigation for one cartel to report any other cartels unknown to the competition regulator. This program helps competition authorities to discover secret cartels and obtain insider evidence of non-compliance with the competitive framework promoted by CCI.

What are ‘Leniency Plus’ and lesser penalty regulations?

The Competition Commission of India (CCI) has introduced Lesser Penalty Regulations, 2024 to encourage entities to self-report their involvement in cartels whereas ‘Leniency Plus’ is a regime notified by MCA. These regulations allow the CCI to reduce penalties for companies and individuals who come forward with information about antitrust violations.

Under the new regulations, the CCI can grant penalty reductions of up to 30 per cent for disclosing a first-time cartel. Companies and individuals participating in a cartel for the first time can receive a 30 per cent reduction in potential fines by self-reporting the violation and providing evidence. Further, the new regulations grant penalty reduction of up to 100 per cent for disclosing new cartels. The incentive grows even stronger for disclosing previously unknown cartels. Companies and individuals can potentially avoid any penalty at all by cooperating with the CCI in uncovering such cartels.

The regulations also introduce a ‘Lesser Penalty Plus’ mechanism. This provides an additional incentive for entities that have already received a penalty reduction for disclosing a cartel to come forward again if they are involved in another one. Under this scheme, they can not only receive a reduced penalty for the new cartel but also get a further reduction in the penalty for the original violation.

What is a Cartel?

Cartels are illegal agreements between competitors to manipulate the market, often by fixing prices, dividing markets, or restricting production. A cartel is violative of the Competition Act, 2002 as it is an agreement or arrangement, formal or informal amongst competitors to fix prices, limit production or supply, allocate markets, and bid rigging or collusive bidding.

“For the consumers, cartelisation invariably results in higher prices, lower quality and lesser choice for products. Cartel arrangements are generally hatched in secrecy and cartelists tend to do it under the carpet which makes it difficult for the CCI to detect and punish the offenders. Hence, in order to bust cartels, globally, a ‘leniency’ mechanism has been adopted to unearth cartel agreements,” said G. R. Bhatia, Partner at Luthra and Luthra Law Offices India.

How do Cartels impact global businesses?

According to experts, there are several approaches by which a cartel is formed and it can affect the competitiveness in the market in multiple ways.

“A cartel typically involves an association of market players in which businesses or individuals within the same industry join forces to engage in anti-competitive practices.

Similarly, cartels also adopt the policy of market manipulation where cartels aim to control market conditions, including prices, production and distribution. All these practices are a violation of competition law since these agreements directly violate Section 3 of the Competition Act, which prohibits practices that harm or are likely to harm competition,” said Alpana Srivastava, Partner at Desai and Diwanji.

There are identifiable strategies that are being adopted by the cartels like price fixing,  collective bidding, market sharing and production control for market manipulation.

“Cartel fixes market prices or minimum resale prices to artificially inflate profits. Also, they offer collective bids and collude on bids to eliminate competition in tender processes. Cartels also divide markets by region, product or customer to avoid competing with each other. Often they limit production to artificially raise prices and increase members’ profitability,” added Srivastava from Desai and Diwanji.

How ‘Leniency Plus’ can curtail anti-competitiveness?

“The newly introduced ‘Leniency Plus’ mechanism is a welcome step as it allows a lesser penalty to the applicant to disclose the existence of another cartel to the CCI and to potentially benefit from penalty reductions in respect of both cartels,” said Parthsarathi Jha, Partner at Economic Laws Practice (ELP).

Jha further added that the regulations provide an option to applicants to withdraw lesser penalty and/or lesser penalty plus applications before the CCI has received the director general (DG) Report.

“Following this, while the CCI can still use the information and evidence submitted by the applicant, there is no admission of guilt. This is significant and provides applicants greater flexibility in managing their defence strategy in ongoing inquiries before the CCI. Also, potential applicants would have benefitted from greater clarity on certain aspects of the final regulations,” said Jha.

He also pointed out that the regulations don’t provide clarity on the factors that the CCI may consider while determining the existence of a new cartel or any reduction in penalty amount pursuant to lenience plus application.

“The Lesser Penalty Regulations, 2024 issued by the CCI are certainly a welcome step as these will ensure the busting of more and more cartel arrangements in the Indian economy. The new regime also allows (in addition to business entity), an individual to come forward and blow the whistle of cartelisation before the CCI. Such a provision did not exist in the earlier regime,” said Bhatia from Luthra and Luthra Law Offices.