Cartel leniency in India: An Overview
Cartel
is a formal or informal agreement among number of firms in an industry to
restrict competition. These agreements may provide for setting minimum prices,
setting limits on output or capacity, restrictions on non-price competition,
division of markets between firms either geographically or in terms of type of
product, or agreed measures to restrict entry to the industry to create a
monopoly in a given industry. Generally, cartels operate within industries
where the products are homogeneous in nature, have no substitute and consumer
demand would remain more or less unaffected by the change in price of the
products. For instance, in cement industry, consumers would continue to buy the
product irrespective of its price as there is no substitute for cement in
construction.
Some
of the harm inflicted by cartels on the economy and the general public may include:
1) Consumers
being forced to pay higher prices for goods or service or alternatively,
consumers being unable to afford the products at all.
2) Businesses
being forced to pay higher prices and they ultimately pass this cost on to
their customers. Government agencies paying higher prices for goods and
services pass these costs on to taxpayers.
3) Businesses
involved in cartels have less incentive to innovate or operate efficiently.
Cartels
are the most flagrant of all anti-competitive practice and it has been made as
an offence under the Act. The
Competition Commission is empowered to inquire into any cartel, and to
impose upon each person or enterprise included in that cartel, a penalty of up
to 3 times of its profit for each year of the continuance of such agreement or
10% of its turnover for each year of continuance of such agreement, whichever
is higher.
Cartels
are secret agreement and owing to the technicalities, the competition
authorities need to dedicate enormous efforts to discover cartels and to deter
them. Quite frequently due to lack of evidence, it’s difficult to take an
action against a cartel even though the commission has its knowledge. Leniency
programs are universally accepted as one of the best way to detect cartels.
This is because the activity is so guarded that internal information is
necessary to break such agreements.
Leniency
programme is an incentive to those cartel members who choose to share
information and cooperate with the Commission. It is a type of whistle-blower
protection, i.e. an official system of offering lenient treatment to a cartel
member who reports to the Commission about the cartel. Leniency programme is
framed with an objective to encourage and incentivize various actors connected
with the commission of such competition infringements to come forward and
disclose such anticompetitive agreements and assist the competition authorities
in lieu of immunity or lenient treatment.
Section
46 of the Competition Act, 2002, deals with leniency provision. It provides
that an enterprise, which was or
is a member of a cartel, may apply for reduction of penalty under Section 46 of
the Act by giving information regarding the cartel to the commission. The CCI
may grant the first applicant to approach it with a leniency application a
reduction of penalty of up to 100%. The second applicant may be granted a
reduction of penalty of up to 50%. The applicant(s) marked as third may benefit
with a reduction of penalty of up to 30% of the penalty. However, lesser
penalty can be imposed by the Commission only in respect of a producer, seller,
distributor, etc included in the cartel, who has made the full, true and vital
disclosures under this section. Further, the lesser penalty is not imposed by
the Commission if the person making the disclosure does not continue to
cooperate with the Commission till the completion of the proceedings before the
Commission.
In Re: Cartelization in respect of tenders floated by Indian
Railways for supply of Brushless DC Fans and other electrical items is the first case where CCI has granted
reduction of penalty under section 46 of the Act. This shows that despite the existence of the leniency regime in
India since 2009, there has been no precedent regarding the reduction of
penalty but this has not deterred applicants from claiming leniency under the
Act over the years. However, it also
necessary that CCI should undertake advocacy activities to create a competition
culture and awareness about disadvantages of cartels and the harm they cause to
the economy, which could help to promote detection and prosecution of cartels
in India.
Ms.Diksha Sareen
Asst Professor
Law
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