Editorial. CCI’s ‘leniency plus’ will, hopefully, help against cartelisation

The ‘leniency plus’ scheme, which came into force from February 20, marks a significant step forward in competition law in India. It encourages individuals and companies involved in one cartel to disclose information on another cartel of which they are a part, by reducing the penalties with respect to both cartels. The provisions in this regard are spelt out in Section 46 of the Competition Act, 2002, and the recently notified Competition Commission of India (Lesser Penalty) Regulations.

Cartels are notoriously difficult to establish in law because of the covert nature of the understanding between competing businesses to fix prices, limit production, allocate markets or customers, or rig bids for public procurement, all of which are designed to reduce competition and increase profits for the cartel members. Thus, detection of cartels is often reliant on insider information or whistle-blowers. The basic purpose of the leniency plus rules is to encourage ‘informers’ or whistle-blowers in order to make the job of the regulator, CCI, easier in enforcing proper market behaviour. Leniency (or lesser penalty) and leniency plus provisions are a feature of competition laws in the UK, US, Singapore, Canada and Brazil. In India’s case, the penalties involved are daunting (as a proportion of net profit or turnover for the duration of the cartel’s existence), but providing material and timely information can potentially result in a 100 per cent reduction of the penalty in the case of one cartel and a 30 per cent reduction in another.

The new rules promise confidentiality to the informant. But the question, of course, is whether this carrot and stick policy will lead to the desired changes. Given the size of India’s economy and anecdotal indications of the existence of cartels, CCI’s track record has not been very good. It has not been able to realise even a fraction of the huge penalties which it has imposed upon the enterprises for their anti-competitive conduct. The existing leniency regime in India (for single cartel) has remained a non-starter. Enterprises are not willing to come forward and admit guilt. Not many which have come forward appear to have benefited from reduced penalty.

There is a downside to the proposed regime though. Unlike in the US, UK, Brazil and Canada, the law here does not provide any deterrence for providing wrong information. This creates apprehensions over possible misuse of the law to settle scores. The new rules would have to strike a balance between incentivising disclosures and ensuring that such incentives do not encourage malpractices. The regulator should inspire confidence with respect to maintaining confidentiality. It should be able to act decisively on the basis of information and reward whistle-blowers. A perception of being rigorous and even-handed could foster a culture of compliance. The leniency plus provisions are a step in the right direction. The ball is now in industry’s court. India Inc must come forward in good faith.

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