Reforming the cartel leniency regime in India

On June 11, 2022, the Competition Commission of India (CCI) organized a National Conference on Competition Law as part of the ongoing celebrations of Azadi ka Amrit Mahotsav by the Union Ministry of Corporate Affairs in New Delhi.

Of the several points made by the CCI Chairperson, the claim that "the enforcement regime is now well-equipped to uncover cartels’ in part due to ‘incentivising self-reporting through the leniency programme’, stands out in particular because the cartel leniency regime under India’s antitrust law fails to meaningfully incentivize the reportage of anti-competitive conduct.

The absence of policy objectives in India’s antitrust law in general, and leniency regime in particular, manifests in an inchoate program, conceptually rooted in criminal law, to detect and punish cartel activity.

Section 46 of the Competition Act, 2002 empowers the CCI to impose lesser penalties on such applicant(s) making full and true disclosures in relation to a cartel. An equivalence can be drawn to the grant of pardon to an accomplice (referred to as an ‘approver’) under Indian criminal law. Section 306 of the Code of Criminal Procedure, 1973 (CrPC) empowers the court to tender a pardon to such person(s) making full and true disclosures relating to the commission of a criminal offence to which they were directly or indirectly concerned.

Importantly, leniency under the Act is limited to penalties and does not extend to immunity from prosecution. The extent of leniency is subject to the discretion of the CCI; there is no guarantee on the quantum of benefit which may accrue to the applicant.

This is in glaring contrast to the treatment of an approver under the CrPC. By becoming an approver, the status of an accomplice shifts from one of an accused to that of a prosecution witness. Thereafter, the approver is examined on oath and gives evidence against the other accused. Thus, an approver enjoys protection from prosecution as the pardon “reaches both the punishment prescribed for the offence and the guilt of the offender”.

Yet, the limitation contained in the grant of leniency under the Act remains unexplained, as neither the legislature nor the CCI offer any jurisprudential rationale underlying its adoption.

There is nothing, by way of decisions or statistics, which illustrates the benefits unique to this system. In fact, though India’s leniency regime has been in effect for well over a decade, the CCI passed its first decision under the leniency regime only as recently as 2017 and a little over a dozen more since.

The absence of meaningful numbers can be attributed to a key concern in the existing system – that of conviction. Presently, the decision of the CCI records the formal conviction of the applicant and calculates the leviable fine. It is only after passing a judgment on the guilt and sentence of the leniency applicant, that it grants a reduction in penalty.

The decision describes in detail the evidence gathered, the cartel’s modus operandi and individual roles (including that of the applicant). These are concerning aspects of the leniency regime because firstly, a conviction diminishes the standing of the entity (and its global parent). It could translate into a decline in monetary terms, particularly when regulatory disclosure requirements may necessitate its announcement to the public. Secondly, a conviction may also disqualify the entity (and its management) from participating in future competition, such as in public tenders. Thirdly, the conviction and details disclosed in the CCI’s decision exposes the leniency applicant to potential claims for compensation as provided for under the Act.

The conviction is also unjust because in the case of leniency applicants, their evidence is affirmed by a sworn affidavit which then contributes to their conviction. This is contrary to the spirit and intent of Article 20(3) of the Constitution of India, which protects persons from being compelled to be witnesses against themselves. It is this constitutional guarantee which also protects the approver from their own testimony. These failings call for urgent reforms to the leniency regime in India.

A transparent and predictable enforcement policy is one of the cornerstones of an effective leniency program. It is crucial for the CCI, which has been often criticised for its inconsistent approach, to promulgate meaningful policies to induce the reportage of cartel activity. The experience of the US system is instructive and illuminating. Revisions to the leniency program made in 1993 resulted in a twenty-fold increase of leniency applications.

Similarly, reforms to the European Union (EU) leniency regime were followed by an increase in applications, with more than half coming at an earlier stage than under the preceding regime. In the Indian context, a critical incentive would be to recharacterize the role of a leniency applicant to one which is jurisprudentially closer to that of an approver under criminal law.

This would significantly allay the concerns of potential leniency applicants inasmuch as they would no longer have a conviction on their permanent records. Additionally, the assurance of immunity brings greater predictability regarding the outcome of a leniency application. Lastly, it will offset the uncertainty surrounding the quantum of reduction in penalties - especially when it is no longer the sole incentive on offer.

Aroon Menon is an advocate based in New Delhi.