Leniency Plus: A Need for Introspection in the Indian Context

The author is Krishna Ravishankar, second year student at National Law University, Jodhpur

With the conclusion of the deliberations of the Competition Law Review Committee(“CLRC”), the recent introduction of the Leniency Plus Programme via the Competition (Amendment) Bill, 2022 in the Lok Sabha brings about the need for a discussion of the same in the Indian Competition Regime context. While this programme has wide reception across foreign jurisdictions, there are some valid concerns that also need adequate consideration before opting for the Leniency Plus Programme in India. This article, while elucidating about the first principles of this programme tries to highlight these aspects of problems with regards to its proper enforcement and implementation.

Understanding The Carrots and Sticks Approach vis-a-vis the US Leniency Plus Programme

As famously held in the landmark case of Verizon Communications v. Law Offices of Curtis V. Trinko, cartels are considered to be the “supreme evil of antirust”. Initially, the theory of deterrence of anti-competitive behavior through only using a “stick” approach via criminal sanctions was the established norm. However, given the difficulty in evidence gathering regarding anti-competitive activities of cartels and prosecuting cartelists for the same, merely a stick approach didn’t suffice. With increasing need to introduce a “carrot” aspect, the Department of Justice (“DoJ”) in the United States in 1978 launched the leniency program as a means of gathering evidence through disclosures made by a cartelist about that cartel’s anti-competitive conduct of which the cartelist is a member in return for a reduction in sanctions, thus positioning this scheme as a system of incentive. Leniency Plus as a concept is merely an extension of the Leniency Program but however entails another dimension wherein a cartelist while making a vital disclosure about another cartel not only gets a reduced sanction for being part of the second cartel but also an additional reduction of sanction with the respect to the leniency proceedings of the original cartel that the cartelist was a part of and hence is termed “plus”. The program which had the potential to “to bring a series of cartels tumbling down like a house of cards”, aimed at tackling anti-competitive behavior of firms operating in multi-market ecosystems. As highlighted in the famous Crompton Case, the leniency plus program entails two more important concepts: namely the penalty plus system and the omnibus question. Often referred to the flipside of the leniency system, the Penalty Plus Concept states if a cartelist who fails to disclose its involvement in another cartel during the original leniency proceedings is caught to be a member of that second cartel by the regulatory authority, the failure of such a disclosure will be used as an aggravating factor while determining the penalties applicable. The Omnibus Question on the other hand is an investigative tool which statutorily mandates the witnesses to disclose all and any information they are cognizant of during the leniency proceedings failure of which leads to a 5-year imprisonment and/or a fine for perjury Thus, the efficacy of the “carrot-based” leniency plus system must be understood in conjunction with the “stick-based” components of these two tools.

The Indian Leniency Regime and its Current Discourse

The Indian Competition Regime treats anti-competitive merely as a civil wrong compared to the US Competition Regime which criminalizes anti-competitive activities and thus as per Section 27 of the Competition Act, 2002 read with Section 48 provides for penalty fees and fines to be paid by cartels or individuals associated with such cartels. Hence, the leniency claimed under the Indian Competition Regime is more a reduction in the fines payable rather than immunity from criminal prosecution. Introduced in 2009 via the insertion of Section 46 read with the Lesser Penalty Regulations (“LPR”), the Indian Leniency is fairly a nascent one compared to other foreign regulators. As Regulation 4 of the LPR, a leniency applicant can avail a reduction in penalty only if it makes a ‘vital disclosure’ that adds a ‘significant value’ to the information already in the possession of the Competition Commission of India (“CCI”) or the Director-General (“DG”) which though initially was restricted to an enterprise was gradually expanded to cover even individuals in 2017. While the first enterprise which comes forward normally is provided 100% reduction, the second and third applicants are given lesser reductions in the fines payable subject to the “vital disclosure” threshold being fulfilled.

Problems and Concerns with Enforcement in the Indian Context

Coming back to the issue at hand, it is imperative that we look at the deliberations of the CLRC on why they decided to adopt the leniency plus program for India. If one closely reads the Report, the entire discussion on the Leniency Plus Program boils down to this line in the Report, “such a framework may incentivise applicants to come forward with discussion regarding multiple cartels, thereby enabling the CCI to save time and effort on cartels investigation.” The Report merely deliberates on the programme in three paragraphs and doesn’t even consider the penalty plus and the omnibus question aspects which play an important role in making the program work. Thus, the Report fails to present a working model of leniency plus for the Indian context.

Another important aspect to notice is how the current leniency program itself has not been utilized much as an immunity mechanism by enterprises indulging in anti-competitive practices. A study conducted by the CCI indicated that between the period of 2009-2018, it had merely received 7 leniency applications compared to other countries’ regulators who received more than 10 a year. Till date, merely 21 leniency applications have been received and processed by the CCI. Sometimes the mere filing for leniency is seen as a gesture of “good faith” and the CCI has overlooked the required satisfaction of the “vital disclosure” threshold as seen in the famous Dry Cell Batteries Case, wherein though the second and third applicants were given reduction in fines despite no value addition in the information they disclosed. The low reception coupled with the lack of standardisation and consistency in passing of orders by the CCI when it comes leniency raises a question. If the current program of leniency itself has such flaws in enforcement, will adding another dimension really work not only in letter but also in spirit?

Thirdly, as pointed out by Vedanth Sai, the leniency plus in the US works on the theory of deterrence via criminal punishments for anti-competitive behaviour as per Section 1 of the Sherman Act, and hence it is the presence of a penalty plus system that the leniency plus program works successfully. Even countries like the UK, Brazil and Canada which have variations of Leniency Plus have a criminal deterrence model which leads to proper enforcement. The current version of the Bill via the addition of Section 46(4) doesn’t incorporate these components which could result in the lack of proper implementation of the program as the penalty plus acts as the stick while the amnesty plus acts as the carrot.

Another aspect is the increased expenditure that the CCI will have to incur on the implementation of this programme due to additional investigation and adjudication on the disclosure of evidence of other cartels by the leniency plus applicant but given the lack of human and financial resources of the CCI, it doesn’t make feasible for the implementation of the same. Few other concerns include the individual liability centric US model of leniency plus vs the firm-centric model as envisioned in the Indian Competition Regime and a lack of clarity on the vague thresholds like “significant value” and “vital disclosure” with regards to the nature of evidence disclosure by leniency applicants which would again act as impediments in implementation.

Concluding Remarks and Suggestions

Having addressed these concerns above, some practical suggestions would be the following. Firstly, adopting the optional leniency program in India similar to the UK or South Korea variation would lead to better enforcement. This model provides for an opt-out clause for the applicant from criminal prosecution which will be beneficial for nascent competition regimes like India. Secondly, specifying the penalties and increasing personal liability of individual price-fixers of cartels is another suggestion to consider given the enterprise-centric model that the Act follows for better enforcement of Leniency Plus. Thirdly, clarity and consistency with the current leniency program along with better outreach of the current leniency regime for larger reception must be deliberated upon by the CCI before adding the dimension of leniency plus. Moreover, CCI must also ensure the current leniency regime is utilized effectively by enterprises before implementing the leniency plus aspect given the low reception seen from 2009. Lastly it is incumbent on the Ministry of Corporate Affairs to present a working model via some subordinate legislation before the passage of the Bill in the Lok Sabha. This could be along the lines of the Lesser Penalty Regulations, 2009 which provided for the procedure of leniency applications and determination of penalty reductions. Addressing these concerns will provide the Indian Leniency Regime a great impetus and reception among erring enterprises.