Alerts & Updates

ELP Competition Law Alert: CCI Reduces Penalty on Dry Cell Battery Manufacturers for Reporting a Cartel Under Leniency Provisions

Competition Law & Policy | Apr 23, 2018

Last week, the Competition Commission of India (“CCI”) in a telling order resorted to the leniency provisions while reducing penalties for contraventions of the Competition Act, 2002 (“Act”). Notably, this is only the second instance where the CCI has used leniency provisions. The CCI reduced the penalty leviable on three leading Indian manufacturers of zinc-carbon dry cell battery manufacturers i.e. Eveready Industries India Ltd. (“Eveready”), Indo National Ltd. (“Nippo”) and Panasonic Energy India Co. Ltd. (“Panasonic”) for colluding to fix prices of zinc-carbon dry cell battery in India by 30%, 20% and 100% respectively.
Under Section 46 of the Act, if any producer, seller or distributor included in any cartel, which is alleged to be in violation of Section 3 of the Act, makes a full and true disclosure in respect of the alleged violations and such disclosure is vital, the CCI may impose on such producer, seller or distributor, a lesser penalty than what would have been leviable under the relevant provisions of the Act. As per the Competition Commission of India (Lesser Penalty) Regulations, 2009 (“Lesser Penalty Regulations”), the CCI may reduce the penalty up to or equal to 100%, 50% or 30% depending upon the priority status granted to an applicant seeking leniency.
The case was taken up suo motu by the CCI pursuant to an application filed by Panasonic under Section 46 of the Act read with the Lesser Penalty Regulations. Panasonic, in its application, submitted that there existed a cartel amongst Eveready, Nippo and Panasonic, to control the distribution and price of zinc-carbon dry cell batteries in India which was in contravention of Section 3(3) read with Section 3(1) of the Act. Pursuant to the said application, the CCI, through its order dated 22 June 2016, issued directions to the Office of the Director General (“DG”) to undertake an investigation into the matter. The DG, on 23 August 2016, carried out search and seizure operations at the premises of the three dry cell battery manufacturers whereby the DG discovered and seized documents and material indicating the existence of a cartel. Subsequently, on 26 August 2016 and 13 September 2016, Eveready and Nippo respectively filed applications for leniency.
On the basis of the DG investigation report and the evidence collected in the case, the CCI found that the three manufacturers had used their unregistered association, viz., the Association of Indian Dry Cell Manufacturers (“AIDCM”), to carry out anticompetitive conducts of price coordination, limiting production/ supply as well as market allocation. The investigation showed that Eveready would take the lead by announcing price increase through press releases which was followed by Nippo and Panasonic. Moreover, the price coordination agreement extended to include monitoring and controlling of prices at all levels in the supply chain with a view to exclude ‘price competition’ in the entire distribution chain of zinc-carbon dry cell batteries. The manufacturers were also found to have agreed to allocate the market on the basis of the geographical area and types of batteries. Ultimately, the CCI found that the manufacturers, aided by AIDCM, violated Sections 3(3)(a), 3(3)(b) and 3(3)(c) read with Section 3(1) of the Act.
The CCI, after accounting for aggravating and mitigating factors, decided to levy penalty on the three manufacturers at a rate of 1.25 times of their profit for the period 2009 – 2017 amounting to INR 245.07 crore (~ USD 56.9 million) on Eveready, INR 52.82 crore (~ USD 7.95 million) on Nippo and INR 74.68 crore (~ USD 11.24 million) on Panasonic. Further, a penalty of INR 1.85 Lakh (~ USD 2785) was levied on AIDCM at the rate of 10 percent of the average of its receipts for preceding three years. The CCI also imposed penalties on individual officials/ office bearers of the three manufacturers and AIDCM at the rate of 10 percent of the average of their income for the last three preceding financial years.
After having determined the amount of penalty leviable on the opposite parties, the CCI analysed the applications for lesser penalty filed by the three manufacturers. Notably, the CCI examined the stage at which the applications were filed, the nature and quality of disclosure, the extent of cooperation extended during the investigation and the priority status of the applicants in determining the amount of reduction in penalty. Given that Panasonic was first to apply for leniency and made full disclosure identifying names, locations and email accounts of key persons of the opposite parties involved in cartel, the CCI reduced its penalty by 100%. The penalty for Eveready which was second applicant was reduced by 30% and the penalty for Nippo, the third applicant for leniency, was reduced by 20%. The reduced penalties amounted to INR 171. 55 crore (~ USD 25. 83 Million) on Eveready, INR 42.26 crore (~ USD 6.36 million) on Nippo and NIL for Panasonic. The above reduction rates in penalty were also applied to the relevant individuals/ officials of the three manufacturers.
ELP Analysis:
Although this is only the second instance where the CCI has reduced penalty under leniency provisions, it is the first instance where a party approached the CCI with crucial information seeking leniency and enabling the CCI to form a prima facie opinion on existence under Regulation 4(a) of the Lesser Penalty Regulations. The order of the CCI particularly 100% reduction in penalty for Panasonic shows the approach of the CCI in dealing with leniency applications which enable the CCI to form a prima facie opinion on existence of any contravention of the Act. This would incentivize enterprises and individuals to come forward on possible violations of the Act in future. The CCI’s order also highlights the critical need for enterprises and associations to adopt and implement suitable competition compliance audits and programmes in order to ensure that their market conduct remains in compliance with provisions of the Act. Adopting such compliance programmes and audits helps identify risk areas and provides the enterprises and associations with an opportunity to take corrective steps wherever required. The Compliance Manual for Enterprises issued by the CCI may be accessed here.

The order of the CCI may be accessed here.

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