Strategic considerations for foreign enterprises considering applying for leniency in India

The Indian Competition Act (CA02) was enacted in 2002₁. Since its inception, the Competition Commission of India (CCI) has imposed approximately £1bn in penalties on enterprises and their key individuals for their participation in cartels under s3, read with s27, of CA02.

The Competition Commission of India (Lesser Penalty) Regulations were enacted in 2009. Since then, the CCI has issued nine decisions involving leniency applications (LAs).

This article discusses the strategic factors that foreign enterprises must consider in deciding whether or not to file an LA.

Can CCI investigate and penalise cartels involving foreign enterprises?

The CCI has the jurisdiction to investigate and penalise foreign enterprises for participation in a cartel if the cartel has or is likely to have an appreciable adverse effect on competition (AAEC) in any market in India. It can commence such investigation suo moto or pursuant to a complaint. A cartel involving foreign enterprises is likely to have an AAEC in India where:

• the participants of an international cartel also sell goods or provide services in India; or
• a product or service that is cartelised outside India is exported to India.

What are the liabilities of cartel participants under CA02?

Enterprise: CCI can impose on each participant of a cartel a penalty of:

• 10% of the average turnover of the enterprise for the last three financial years; or
• the higher of up to three times its profits or 10% of its turnover, for each year that the cartel was in operation.₂

Employees/representatives of enterprises: CCI can impose on officials of cartel participants, penalties of up to 10% of their average total income in the last three financial years where:

• the official was in charge of, and responsible for, the businesses’ operations at the time of contravention of CA02; and/or
• the infringement occurred due to the consent, connivance or negligence of the official.

CA02 does not empower CCI to impose criminal sanctions.

Why should businesses submit to the Indian leniency programme?

CCI is empowered to grant a reduction in penalty, depending on when an LA is filed vis-à-vis other LAs, the extent of information provided in the LA and subsequent co-operation (penalty reduction factors).

The first applicant is eligible for up to 100% reduction in the penalty if it: (i) discloses information that either helps the CCI in forming a prima facie view of a violation (CCI can direct its internal investigative arm, ie Director General, CCI (DG) to investigate allegations of CA02 violations only if it is prima facie of the view that such violations may have occurred); or (ii) establishes a violation of CA02.

The second applicant is eligible for up to 50% reduction while the third and all subsequent applicants are eligible for up to 30% reduction in their penalties, if their disclosures add significant value to the DG’s investigation.

Strategic considerations for seeking leniency in India

• Monetary considerations: a potential leniency applicant (PLA) should weigh the total penalty that may be levied under CA02 against (i) whether its Indian business is significant enough to participate in a time-consuming leniency programme; (ii) costs involved in successfully applying for leniency in India (seeking legal counsel, information gathering, and ensuring availability of key employees for depositions before the DG (virtually or physically)); and (iii) costs associated with potential follow-on damage claims filed by third parties under CA02 before the National Company Law Appellate Tribunal (NCLAT)₃, after either CCI or the NCLAT (in appeal) has confirmed a violation under CA02.
• Reputation harm: a PLA should consider the reputational harm (loss of customers’ trust and consequential loss of business) which may follow once CCI’s enforcement becomes public.
• Possibility of CCI becoming aware of the cartel of its own: depending on the scope of a foreign enterprise’s activities in India and whether LAs have been, or are intended to be, filed in other jurisdiction(s), the detection risk of a cartel involving foreign participants might be low. Further, even if the CCI does suspect a cartel involving foreign enterprises, if such enterprises’ presence in India is limited, then it may not be able to gather sufficient evidence to confirm its suspicions through dawn raids. The CCI could of course call upon any of the antitrust regulators (including the European Commission (EC)) that are counterparty to its international co-operation agreements (ICA) for assistance (for instance, the CCI and EC have agreed to undertake (upon request) antitrust enforcement activities within their respective jurisdictions to curb anti-competitive activity in each other’s territory). However, the ICAs are not binding and obligations of the parties to the ICA are subject to compliance with their own municipal laws (especially on safeguarding confidential information) and enforcement interests.

When to apply for leniency?

After taking into account the considerations above, if a PLA concludes that it would like to apply for leniency in India, then it must file an LA at a time when the PLA believes that it may lead to maximum gain in terms of penalty reduction (given the penalty reduction factors noted above). Where a PLA is also filing LAs in other jurisdictions, it might be strategic to file in India simultaneously as there might be a risk of the CCI finding out about the LAs filed by the PLA in other jurisdictions.

What should an LA contain?

The CA02 (and allied regulations) state that an LA should at least disclose details about the cartel arrangement, such as the goods/services involved, list of individuals involved, its geographic scope and duration, and the estimated volume of the business that it affected in India. The LA must also disclose collusion among the participants (supported by documentary evidence (emails, notes etc) documenting exchange of sensitive information among participants) and most importantly, the fact that such collusion was indeed acted upon by the participants.

Additionally, businesses must consider disclosing the modus operandi of a cartel if available to them. The CCI has, in the past, found such evidence to meet the ‘significant value’ threshold and granted penalty reductions of up to 75% even where the LA was filed after CCI was in possession of sufficient evidence otherwise.

Conclusion

The CCI, albeit young, has been a very active regulator. As of 31 July 2017 (since 2009), it has passed 136 decisions in cartel-related investigations.₄ Further, India is now pegged as one of the largest consumer markets in the world. Given these factors, foreign enterprises should seriously consider using the leniency programme in India to avoid incurring penalties under CA02.