Therefore, it is only natural for India’s market watchdog, the Competition Commission of India (CCI), to prioritise its enforcement efforts to detect and prosecute cartel activity among Indian industries. However, despite initiating cartel investigations in scores of Indian industries — from cement, steel, footware, pharmaceuticals and film distributors to real estate — the CCI has been successful only in a few cases. This is mainly because of the complexity in proving cartel behaviour among firms. Discovering the actual paper trail of illegal tacit conduct by cartel members is very difficult and antitrust agencies have to often solely rely upon circumstantial evidence which weakens the sustainability of such legal findings. However, a recent CCI order may change the agency’s institutional handicap in dealing with cartel investigations. In its first order under India’s cartel leniency provisions (termed the Lesser Penalty Regulations, 2009), the CCI has institutionalised its whistle-blower programme, where cartel members can turn in evidence against their peers and seek asylum from the CCI’s onerous cartel penalty provisions. Until now this “prisoner’s dilemma” themed whistle-blower policy had largely remained inactive.
The CCI has penalised three cartelising firms for rigging bids for electric fans floated by the Indian Railways and imposed penalties up to three per cent of the firms’ turnover. Additionally, the CCI imposed monetary penalties on the individual officers who orchestrated the cartel’s operations at 10 per cent of their income for the last three financial years. In the same order, the CCI granted clemency with a 75 per cent reduction in the penalty for one of the cartel members, who cooperated with the CCI, admitting the existence of the cartel and submitted clinching evidence revealing the modus operandi of the cartel. The CCI also granted a 75 per cent reduction on the individual penalty of the firm’s senior officer who was responsible for its participation in the cartel.
This order of the CCI not only strengthens its arsenal of investigation and enforcement tools against cartels, but it also provides the industry with clarity on how it would deal with future leniency applications. Its decision lays down a key precedent that the reduction of penalty will be measured on the timing and quality of the evidence disclosed. In the current case, the whistle-blower revealed before the CCI emails and corroborative phone records containing evidence of planned prices to be quoted by the cartelising firms and quantities to be shared among them in four tenders floated by the Indian Railways. The CCI considered such evidence as a “true, full and vital” evidentiary disclosure — the standard required under India’s leniency programme. However, the leniency application was made after the CCI had already commenced investigations based on similar evidence provided to the agency by the Central Bureau of Investigation and therefore, despite full co-operation and disclosure, the whistle-blower got only a 75 per cent reduction in penalty as opposed to a 100 per cent that may otherwise have been available to it.
This is an interesting departure from international standards, where full leniency is typically available for the first applicant. The lucrative leniency option, especially for the first applicant, is to incentivise complete disclosure, given that the whistle-blower would be publicly admitting to price fixing charges and doesn’t have immunity from compensatory claims made by parties affected by such cartel conduct. For example, in the current case the sole whistle-blower, by admitting guilt before the CCI, has opened itself up for prosecution by the Indian Railways in the Competition Appellate Tribunal seeking damages for the cartel period. The whistle-blower, by disclosing secret commercial arrangements among its competing bidders, has also made itself vulnerable in procuring future bidding contracts in the relevant market. Thus, it deserved a full immunity from penalty so as to mitigate unforeseen risks.
UNCTAD study of global best practices for leniency programmes recommends that antitrust enforcers must transparently and credibly commit to a predictable pattern of penalties to incentivise cartelists to apply for leniency. Although the CCI’s order is a welcome step to build India’s leniency jurisprudence, the adoption of a subjective benchmark for determining the quantum of penalty reduction may still leave room for doubt in the minds of future cartel whistle-blowers.
Chaudhuri is a partner, antitrust team, Khaitan & Co. Bose is assistant professor, competition law, Jindal Global Law School