The Indian antitrust regime recently completed 10 years of enforcement of the Competition Act, 2002 (the Act). In this update, we discuss five key themes of its journey so far.
The battery cartel
The first order relates to a cartel between three zinc-carbon dry cell battery manufacturers in India, viz. Panasonic Energy India Company Limited (Panasonic), Eveready Industries India Limited (Eveready) and Indo National Limited (Indo) during the period between 2008 and 2016. The CCI detected the cartel based on a leniency application filed by Panasonic. Panasonic admitted that the three companies exchanged commercially sensitive information for fixing and coordinating prices (at all levels of the retail chain), controlled production and supply, and allocated markets amongst themselves. In addition, the application mentioned that the trade association, of which all the companies were members, facilitated the cartel by collating and sharing detailed company and product-wise sales and production related data. Based on Panasonic’s leniency application, the investigation wing of the CCI – the Office of the Director General (the DG) conducted simultaneous dawn raids at the premises of each of Eveready, Indo, and, even Panasonic, and seized incriminating documents. Subsequent to these dawn raids, Eveready and Indo also filed leniency applications, and were granted second and third marker status respectively by the CCI.
The CCI imposed a monetary penalty of 1.25 times the profits of the respective cartel members pertaining to the relevant product for each year of the duration of the cartel. A monetary penalty was also imposed on the trade association at the rate of 10% of its gross receipts for the previous three financial years.
The waste management cartel
The second set of orders relate to a cartel amongst seven companies in relation to tenders for procurement of solid waste management plants floated by a civic body during the period from October 2013 to March 2015. The CCI had initiated an investigation into this cartel based on a complaint filed by a non-governmental organisation. Around three months prior to the closure of the DG’s investigation, all seven cartel participants submitted separate leniency applications. It was disclosed in these leniency applications that Ecoman Enviro Solutions Private Limited (Ecoman) was the cartel leader and other cartel participants ensured that Ecoman won all the tenders (by submitting, and / or assisting Ecoman in submitting, proxy bids). They used common internet protocol addresses for uploading their bids, some of them used each other’s bank accounts for making earnest money deposits, and regularly communicated through emails and calls to plan and implement the cartel.
The CCI imposed a monetary penalty on each of the cartel participants at the rate of 10% of their respective average turnovers for the three financial years prior to the cartel period.
Interestingly, some of the leniency applicants (who acted as proxy bidders) argued that they cannot be held liable for cartelisation (being an arrangement amongst “competitors”) as they were not “engaged” in the business to which the tenders related to (and only submitted cover bids with Ecoman’s assistance). Accordingly, they argued that no penalty should be imposed on them in terms of the guidance issued by the Supreme Court of India (the Supreme Court) that the penalty needs to be calculated based on the contravening entity’s “relevant turnover”, i.e. the turnover pertaining to the infringing product, which they do not have. However, the CCI did not agree with them and held that if they were to go by such a literal interpretation, it would have defeated the very purpose of the law and they would have escaped from liability for bid rigging.
Further, in calculating the penalty, the CCI deviated from the guidance issued by the Supreme Court in respect of using the contravening enterprise’s relevant turnover since it would have led to an anomalous situation where no penalty would have been imposed on them. Whilst this appears to be rational, the CCI did not give any reasoning in not adopting the “relevant turnover” principle for the other cartel participants (who could have availed of the benefit of the relevant turnover principle) and instead applied the penalty on the entire turnover of all the companies.
Analysis
Leniency to the first applicant
In the battery cartel, the CCI granted 100% reduction in penalty imposed on Panasonic for making “vital disclosures” enabling the CCI to detect the cartel.
On the other hand, in the waste management cartel, given that the CCI had already detected the cartel based on the evidence provided by the complainant and considering the late stage of the investigation process at which the leniency
applications were made (around three months prior to the closure of the DG’s investigation), the CCI granted only a 50% reduction in penalty to the leniency applicants having marker status for providing significant “added value” to the evidence already in possession of the DG / CCI and for full, expeditious and continuous cooperation throughout the investigation. It, accordingly, appears that simply being the first leniency applicant will not automatically entitle an entity for 100% reduction and the extent of leniency granted will depend on one or more additional factors such as (a) the timing or stage at which, and the circumstances in which, the leniency application is made; (b) the probative value of the evidence to prove a cartel; (c) the value that the leniency application adds to the evidence already in the DG / CCI’s possession; and (d) the level of cooperation by the applicant.
Leniency to subsequent applicants
In the battery cartel, considering that the CCI already had vital evidence based on Panasonic’s leniency application as well as the information independently collected by the DG during its dawn raids, the CCI did not think that Eveready and Indo provided any significant “added value” to the evidence already available with the DG / CCI. Nevertheless, since they corroborated and helped to connect the evidence collected by the DG, and continuously and expeditiously cooperated during the investigation process, the CCI granted Eveready and Indo a 30% and 20% reduction in penalty imposed on them respectively (instead of a 50% and 30% reduction in penalty which is the maximum reduction that second and third / subsequent applicants are entitled to get respectively). However, by doing so, the CCI appears to have diluted the statutory requirement of providing significant added value to the evidence that subsequent applicants are required to meet. It appears that value addition may not be the only criteria that the CCI is likely to apply for granting reduction in penalty to subsequent applicants, and merely corroborating evidence and providing continuous cooperation may well be sufficient to avail of a reduction in penalty.
In the waste management cartel, applicants having second marker status were granted a 40% reduction in penalty for their value addition to the evidence, and Ecoman, who orchestrated the cartel and was the cartel leader, was granted a 25% reduction in penalty for substantiating the evidence collected by the DG and providing additional evidence (information on certain digital keys for uploading the bid documents) in respect of certain tenders. Ecoman was not granted any reduction in penalty in respect of one tender, which indicates that the extent of reduction that subsequent applicants get may vary for different tenders within the broader cartel.
However, with respect to the remaining leniency applicants, the CCI (possibly) rightly so and in a departure from the criteria it followed in the battery cartel, did not grant any reduction in penalty as they were not able to add any significant value to the evidence (even though they corroborated the evidence and extended continuous cooperation to the DG / CCI).
In both of the above cases, the amount of penalty imposed on the identified individuals who were responsible for the conduct of the respective businesses of the leniency applicants (including certain former employees) were also reduced in the same percentage as that of their respective firms.
The CCI’s evolving leniency regime
The recent leniency orders provide further insight into the approach that the CCI is likely to take in ongoing as well as future leniency cases. It appears that in order to grant a reduction in penalty, the CCI puts a premium to the timing or stage at which, and the circumstances in which, the leniency application is made. Having said that, the two orders raise certain very fundamental issues in respect of reduction in penalty imposed on subsequent applicants: (a) what is the threshold for meeting the test of providing significant “added value”? (b) can the CCI grant reduction in penalty without subsequent applicants meeting the statutory requirement of providing significant “added value”? and (c) in what circumstances would merely corroborating the existing evidence and cooperating with the DG / CCI (which in any case is a statutory obligation of an enterprise which is being investigated by the DG / CCI) be considered sufficient to obtain reduction in penalty and what are the limitations for applying this criterion? Further, the CCI’s deviation from the principle of relevant turnover for calculating the penalty in the waste management cartel is likely to reopen the debate around this highly contested issue which was seemingly settled by the Supreme Court last year and which the CCI itself had been following in its recent orders. These inconsistencies also open the CCI’s orders to appellate challenges, which otherwise would have been a remote likelihood in leniency cases. Be that as it may, given that evidence in respect of cartels is always a tricky area, the CCI is likely to rely more on its leniency program for cartel detection. Accordingly, there is a need to clarify these points.
We are closely monitoring developments regarding this and if you would like any further information, we would be happy to assist.
This material is for general information only and is not intended to provide legal advice. For further information, please contact:
Karam Daulet-Singh
Partner
karam.dauletsingh@touchstonepartners.com