Breaking the Silence on Cartels

Cartels are widely recognised as the most egregious violations of competition law. They involve secret agreements between competitors to fix prices, limit production, allocate markets, or rig bids, leading to inflated prices and diminished consumer welfare. The clandestine nature of cartels makes them inherently difficult to detect and prove. In response, jurisdictions across the globe have adopted leniency programmes—also known as amnesty or whistleblower programmes—as powerful tools to detect and dismantle cartels.

Cartel in Competition Law

A cartel is defined under Section 2(c) of the Competition Act, 2002 as:

“…an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services.”

Cartel arrangements distort the competitive process, reduce consumer choice, and harm economic efficiency. Detecting them is challenging because:

• They are covert in nature;
• Communication is often oral and undocumented;
• Participants have strong incentives to conceal their conduct.

Legal Framework for Leniency in India

Section 46 – Power to impose lesser penalty

Under Section 46 of the Competition Act, the CCI is empowered to impose a lesser penalty on a participant in a cartel if it makes a full and true disclosure about the cartel, which is vital in forming a prima facie case or in establishing the contravention.

Competition Commission of India (Lesser Penalty) Regulations, 2009 (Amended in 2017 and 2024)

These regulations operationalise Section 46 and detail the eligibility, procedure, and conditions for granting lesser penalties. The 2024 amendment further streamlined the application process, introduced confidentiality protections, and clarified the role of individuals in organisations seeking leniency.

Eligibility for Leniency

To qualify for leniency, the applicant (enterprise or individual) must:

1. Disclose Vital Information: The information must enable the CCI to form a prima facie opinion about the existence of a cartel.
2. Cease Participation: The applicant must stop participating in the cartel from the time of disclosure.
3. Provide Full Cooperation: Continued cooperation with the CCI throughout the investigation is mandatory.
4. Not Conceal Information: Any false or misleading information or concealment disqualifies the applicant.

Key Considerations When Granting Leniency in Cartel Cases

Leniency programmes encourage cartel members to self-report in exchange for reduced penalties. While the specifics vary by jurisdiction, most competition authorities consider the following core factors:

1. Order of Application: The “first in line” (marker system) often gets priority for leniency—even if initial evidence is weak—provided they apply before an investigation begins and later submit complete disclosures.
2. Quality of Evidence: Subsequent applicants may also receive reduced penalties if they offer substantial, valuable evidence and cooperation.
3. Genuine Cooperation: The applicant must fully cooperate throughout the investigation and immediately cease cartel activity unless instructed otherwise.
4. Role in Cartel: Individuals who played a leading or coercive role (e.g., ringleader) are typically disqualified from immunity or leniency benefits.

Benefits of the Leniency Programme

1. Cartel Detection: Cartels are inherently secretive. Leniency encourages insiders to reveal information that regulators might not otherwise access.
2. Reduced Litigation: With one or more parties cooperating, the duration and intensity of litigation are reduced significantly.
3. Enhanced Deterrence: The possibility of defection makes cartels unstable, deterring formation and continuation.
4. Cost-Effective Enforcement: It reduces the cost and time involved in investigations, allowing authorities to focus resources on serious violations.

Important Case Law

In Re: Cartelisation in Zinc-Carbon Dry Cell Battery Market (2016)

The CCI uncovered a cartel among major zinc-carbon dry cell battery manufacturers—Eveready, Nippo, and Panasonic—who colluded to fix prices, allocate markets, and suppress competition from 2009 to 2016, with facilitation by their trade association, AIDCM. The case began with a leniency application by Panasonic under Section 46 of the Competition Act, which led to a detailed investigation. The CCI granted 100% penalty waiver to Panasonic for its vital disclosure, and reduced penalties for Eveready (30%) and Nippo (20%) for their cooperation. The case is a key example of India’s leniency regime in action.

Recent Developments and Amendments

The Competition (Amendment) Act, 2023 introduced significant changes to strengthen the leniency regime:

1. Leniency Plus: A cartel member being investigated in one case can avail additional reduction in penalty by disclosing information about a second unrelated cartel.
2. Settlement and Commitment Mechanism: Companies may apply for settlement after investigation but before final order, providing a complementary route to leniency.
3. Clarity on Withdrawal: An applicant may withdraw its leniency application, but the CCI may still use the information if an investigation has been initiated.

These changes align India’s approach with global best practices and aim to bolster cartel detection.

Challenges and Criticism

• Lack of Awareness: Small and medium enterprises (SMEs) may not be aware of the leniency programme or its advantages.
• Fear of Reprisal: Applicants may fear reputational damage or retaliation from industry peers.
• Judicial Delays: Even after cooperation, delays in decisions and penalty imposition can reduce the incentive to come forward.
• Limited Scope: The programme is currently limited to cartels. Other anti-competitive practices like abuse of dominance or vertical agreements are excluded.
• Confidentiality Concerns: While confidentiality is promised, the risk of disclosure during hearings or in future litigation remains a concern.

Conclusion