C&A eAlert – CCI decides its first case under the cartel leniency programme
On 18 January 2017, the Competition Commission of India (Commission/CCI) passed its first order dealing with the leniency provisions in the Competition Act, 2002 (Competition Act).[i] The case provides a brief yet useful insight into the procedure andprocess regarding leniency likely to be followed in India.
The case pertains to bid rigging by three entities for Indian Railway tenders for the supply of brushless DC Fans and other electrical items. Proceedings in the case were initiated, suo moto, through information provided by the Central Bureau of Investigation (CBI).
The CBI, while conducting an inquiry into the misdemeanor by a public servant found evidence which suggested that three entities namely Pyramid Electronics, R. Kanwar Electricals and Western Electric and Trading Company (Western Electric) had cartelized in respect of the tenders floated by the Indian Railways and Bharat Earth Movers Limited for the supply of brushless DC fans andother electrical items.[ii] Based on this information, the Commission formed a prima facie opinion under Section 26(1) of the Competition Act and directed the Office of the Director General, Competition Commission of India (DG) to conduct a detailed investigation.
During the course of the investigation by the DG, Pyramid Electricals filed a leniency application under Section 46 of the Competition Act. Through the leniency application, it admitted to a cartel between Pyramid Electronics, R. Kanwar Electricals and Western Electric and provided evidence in support.
Subsequently, the DG concluded its investigation and submitted its report to the Commission. The Commission considered the report and the submissions of the defendants; and held that the three parties had cartelized for the four tenders floated by Indian Railways and Bharat Earth Movers Limited. Resultantly, the Commission levied a penalty on the three parties and their respective officers (who were responsible for the entities’ conduct).
The CCI also observed that Pyramid Electricals had filed a leniency application during the course of the DG investigation. It also appreciated the fact that substantial evidence had been provided by Pyramid Electricals, which significantly corroborated the material available with the DG. Nevertheless, the CCI observed that the applicant had applied for leniency after the Commission had formed a prima facie opinion; and the nature of evidence available with the Commission prior to the leniency application was relatively substantial. As a result, the Commission granted a 75% reduction to Pyramid Electricals. Additionally, the relevant individual, responsible for Pyramid Electricals was also given this reduction. The other two bidders (R. Kanwar Electricals andWestern Electric) did not apply for leniency and were not granted any reduction in the fine.
Leniency under the Competition Act
Section 46 of the Competition Act and Competition Commission of India (Lesser Penalty) Regulations, 2009 (Lesser Penalty Regulations) provide for leniency in cartel investigations. This is the first case where the Commission has decided on the leniency provisions of the Competition. This case highlights some important issues which are imperative when considering this option.
When to file for leniency
The case reinforces the importance of coming in as soon as possible when applying for leniency. The CCI in this case observed that the applicant had applied for leniency after an investigation had been initiated. This seemed to be a factor which went against the applicant for qualifying for full immunity. [iii] Under the Lesser Penalty Regulations, the probability of an immunity is highest if the application enables the Commission to initiate an investigation.
What to file
Another important aspect which the case brings out is the content provided through the leniency applicant. In order to qualify for leniency, the applicant is required to provide full and vital disclosure. If an application is being filed subsequent to an investigation being underway, the evidence provided by the applicant would need to be of a nature which sufficiently establishes the cartel or provides “significant added value” to the evidence already available with the DG. Additionally, the applicant will not get immunity if, at the time of such application, the CCI or the DG already have sufficient evidence to establish the existence of a cartel.[iv]
Penalty on employees
One of the most pertinent issues which remained indeterminate was in relation to penalty on current and former employees of the applicant. Current provisions of the Competition Act empower the CCI to penalize the entity and responsible employees for the infringement.[v] While the provisions relating to leniency in the Competition Act, while expressly according benefit of reduction on the entity, are silent on whether this benefit extends to the employees. This case articulates the CCI’s position that it would extend the benefit of leniency to employees of the applying entity. [vi]
Over the past year, there has been a perceptible change in the manner in which the CCI approaches antitrust enforcement. The CCI’s earlier practice of imposing high fines has made way to a greater emphasis on compliance and leniency. As its first case, the CCI was expected to grant immunity to encourage its leniency program. Nevertheless, the CCI has provided much awaited clarity on several pertinent issues such as leniency for employees, for which it deserves credit.
Should you have any questions, please contact members of our competition law team.
For more information on the CCI's leniency programme, please refer to the India chapter of refer to the India chapter to the GCR: Immunity, Sanctions andSettlements
Karan Singh Chandhiok
Head, Competition and Dispute Resolution Practice
© 2017 Chandhiok & Associates, Advocates and Solicitors
This e-alert is for information purposes only and does not constitute legal advice.
[i] Cartelization in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items, Suo-Moto Case No. 03/2014, order dated 18 January 2017.
[ii] Specifically, the evidence provided by the CBI was an email exchange between the three entities, exchanging details of four tenders. The email contained quantity unit value, rates to be quoted and quantities to be shares between the bidders. The CBI also sought information from the Indian Railways regarding two tenders mentioned in the email and observed that the bids for these two tenders matched the email.
[iii] Supra n.1, ¶ 7.11
[iv] Supra n.1, ¶ 7.11
[v] Competition Act, 2002, §27 and §48
[vi] Supra n.1, ¶ 8.7