Competition regulator uses informants to break cartel

The Competition Commission of India (CCI) says it has started trying to break a cartel by getting information from the latter’s members.

Section 46 of the CCI Act has a provision called a “leniency programme”, not used till recently. This allows the waiving of or imposing of less penalty on parties to a cartel which inform about it.

For the first time, CCI had used this provision for its inquiry, on the basis of information from the Central Bureau of Investigation (CBI), regarding alleged cartelisation with respect to tenders floated by the railways and BEML, also a government-owned entity, for supply of Brushless DC fans (BLDC fans) and other electrical items. In this case, CCI had granted a reduction of penalty to an enterprise, based on the latter's application under Section 46.

The regulator reduced 75 per cent of the penalty to the first informant. In another recent case, CCI granted a waiver of penalty of almost ~1,200 crore to Coal India. The initial fine was ~1,773 crore, brought down to ~591 crore.

A similar provision was introduced in America in 1993, followed by the European Union. Dhanendra Singh, former chairman of CCI, says it was during his tenure that their board of directors decided to let the Commission have the last word on whether the party reporting the cartel should enjoy the benefit of the leniency programme. He says, “We deliberately included the word “may”, instead of "shall" in the definition of leniency.”

The definition reads, “The Commission may, if it is satisfied that any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated Section 3, has made a full and true disclosure in respect of the alleged violations and such disclosure is vital, impose upon such producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than leviable under this Act or the rules or the regulations.”

Piyush Gupta, partner at law firm Kochhar and Co, says: “The biggest hurdle in uncovering any cartel arrangement is the effort to gather evidence, since cartels, by their essence, are secret arrangements. Leniency programmes aim to encourage natural revelation, taking advantage of the inherent weaknesses of their structure and members.”

Adding: “Even after a successful leniency application, the errant undertaking may still be open to certain risks. For instance, any contract giving rise to cartel activities are to be considered null and void. Even a successful leniency applicant remains exposed to the negative consequences entailed by such nullity, as its status provides no exoneration in this regard. Similarly, undertakings will remain vulnerable to the negative effects on their reputation that any cartel investigation entails.”

Section 46 of the CCI Act allows the waiving of or imposing of less penalty on parties to a cartel which inform about it