Context: Competition Commission of India (CCI) has implemented regulations for the ‘Lesser penalty plus’ mechanism to prevent cartelisation. The Lesser Penalty Plus mechanism is also popularly known as the ‘leniency-plus regime’.
About Leniency Plus Regulation
- Leniency Plus regime allows companies involved in cartelisation to report other cartels and receive reduced penalties.
- The CCI can reduce penalties by up to 30% for involvement in the first cartel and up to 100% for newly-disclosed cartels.
- The amount of penalty reduction will be based on the evidence provided by the applicant.
What is a Leniency & Leniency Plus Regime?
- The current Competition Act 2002 already has a leniency programme, which allows companies that provide sufficient information about a cartel in which they have participated to receive partial immunity from penalty.
- Under the existing leniency (lesser penalty rule) framework, CCI may impose a lesser penalty on a person involved in a cartel if such person has made a full and true disclosure in respect of alleged violations and such disclosure is vital.
- Under ‘Leniency Plus’, a cartelist who is cooperating with CCI for leniency, can disclose the existence of another cartel in an unrelated market in the course of original leniency proceedings in exchange for an additional reduction in penalty.
- Leniency Plus is a proactive antitrust enforcement strategy aimed at attracting leniency applications by encouraging companies already under investigation for one cartel to report other cartels unknown to the competition regulator.
- Benefits: This leniency plus regime is expected to further incentivize applicants to come forward with disclosures regarding multiple cartels, thereby enabling the CCI to save time and resources on cartel investigation.
What is a Cartel?
- In India, cartelisation is a civil offence prohibited under the Competition Act, 2002.
- Section 2(c) of the Competition Act, 2002 defines a cartel as including an association of producers, sellers, distributors, traders or service providers who, by an agreement amongst themselves, limit control or attempt to control the production, distribution, sale or price of, or trade in, goods or provision of services.
What Kind of Activities are Prohibited?
Section 3(3) of the Competition Act, 2002 is the specific substantive provision which prohibits anti-competitive agreements in India, including horizontal agreements (and cartels), between enterprises that:
- Directly or indirectly determine purchase or sales prices;
- Limit or control production, supply, markets, technical development, investment or the provision of services;
- Allocate geographic markets or customers; or
- Directly or indirectly result in bid rigging or collusive bidding. Such agreements are presumed to have an AAEC and are consequently void.
Why the Need to Prevent Cartelization?
Cartels inflict severe damage on the economy and consumers.
- Firstly, they lead to inflated prices, causing consumers to pay more for goods and services.
- Second, cartels restrict innovation and hinder technological advancement because they have little incentive to invest in research and development when they control the market.
- Third, they deter new entrants from entering markets, stifling competition and limiting consumer choice.
This harm to competition is why competition authorities are dedicated to dismantling cartels and preventing their formation.