Alerts & Updates 28th Feb 2024

Competition Commission of India (CCI) publishes the CCI (Lesser Penalty) Regulations, 2024

Authors

Ravisekhar Nair Partner | Bengaluru
Parthsarathi Jha Partner | New Delhi | Noida
Aayushi Sharma Senior Associate | Delhi NCR
Bhaavi Agrawal Associate | Delhi NCR

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  • Background

    On February 20, 2024, the Competition Commission of India (CCI) published the CCI (Lesser Penalty) Regulations, 2024 (LP Regulations) which replace the earlier CCI (Lesser Penalty) Regulations, 2009. A day earlier, the Government had notified the amended Section 46 of the Competition Act, 2002 (Act) (as amended by the Competition (Amendment) Act, 2023 (Amendment Act)), to come into force with effect from February 20, 2024.

    The LP Regulations have been published after public consultation on the draft regulations which were published by the CCI for comments in October 2023. Along with the LP Regulations, the CCI also released a statement setting out its reasons for accepting or rejecting comments from stakeholders. The statement is a welcome insight into the CCI’s consideration of the comments and underscores the importance of stakeholder consultations.

    The key changes brought about by the LP Regulations are set out below:

  • Broad definition of ‘applicant’

    The LP Regulations have broadened the definition of ‘applicant’ to also include such enterprises that facilitate functioning of a cartel, even if they may not be engaged in similar trade as other cartel members. This is aligned with the introduction of the concept of ‘hub and spoke’ cartels under the Act, through the Amendment Act.

    Implication
    As a result, a ‘hub’, i.e., any enterprise (which is not engaged in identical or similar trade as the other cartel members) that has acted to further an alleged cartel would also be eligible to avail the benefits of the lesser penalty regime under the LP Regulations. For example, a trade association which facilitates a cartel among its members may now avail the benefits of the lesser penalty regime by disclosing information about such cartel. The inclusion of ‘hubs’ within the scope of ‘applicant’ increases the chances for the CCI to uncover cartels.
  • Introduction of the ‘lesser penalty plus’ (LPP) mechanism

    The newly introduced LPP mechanism allows an applicant for a lesser penalty (with respect to an alleged cartel) to also disclose the existence of a new cartel to the CCI. In doing so, an applicant can potentially obtain reductions of penalty in respect of both cartels, if based on this disclosure, the CCI is able to form a prima facie opinion on the existence of a new cartel.

    Implication
    Cartel enforcement has been a key priority area for the CCI and it has imposed hefty penalties in several cartel cases since 2009. The LPP mechanism offers an additional incentive to applicants to disclose information in relation to a new cartel and in turn, it could potentially bolster the CCI’s detection and inquiry of cartels. The mechanism might be particularly effective in those sectors or markets that have historically been prone to a higher degree of cartelized behaviour.
  • Factors to be considered for grant of LPP

    The LP Regulations require the CCI to consider ‘relevant factors’ to prima facie determine existence of a new cartel based on the information submitted by an LPP applicant. However, the LP Regulations do not set out the factors that would be considered by the CCI in determining existence of a newly disclosed cartel. The LP Regulations also provide that while determining any reduction in penalty under the LPP mechanism, the CCI will consider the ‘likelihood’ of the CCI or the Director General (DG) detecting a newly disclosed cartel in absence of such LPP application and any other factor that may be relevant. However, the LP Regulations do not clarify parameters on which such ‘likelihood’ would be determined or ‘any other factor’ that it would consider relevant.

    Implication
    While an LPP applicant is required to submit relevant information about a new cartel in the manner prescribed in Schedule II of the LP Regulations, the absence of any indicative guidance on the factors that the CCI would consider creates ambiguity. Further, it is unclear what ‘other factors’ the CCI would consider in determining reduction of penalty in case of an LPP application. It would be interesting to observe CCI’s decisional practice on factors that it may consider in identifying a cartel as ‘new’ and in determining the reduction in penalty. It would be ideal for the CCI to evolve a set of objective criteria through its decisional practice since this would add clarity and allow market participants to weigh in the pros and cons of the LPP mechanism.
  • Timeline for submission of the LPP application

    The LP Regulations provide that an LPP application can be made any time before the CCI receives the DG report in the first cartel.

    Implication
    It is unclear if a potential applicant would be able to submit an LPP application in cases where the CCI has received a DG report in a cartel inquiry and directs the DG to conduct a supplementary investigation, without forwarding the first DG report to the parties.
  • Withdrawal of lesser penalty (LP) and/or LPP application

    The LP Regulations provide an applicant with the option to withdraw its LP or LPP application before the CCI receives the DG report. However, the LP Regulations allow the DG or the CCI to utilise any evidence submitted under the withdrawn application, except the party’s admission of guilt. Notably, ‘admission’ was not defined in the draft regulations, however, the CCI has, after taking into account comments to the draft regulations, added a definition of ‘admission’ in the LP Regulations.

    Implication
    It is now clear that if an LP or LPP application is withdrawn, even though the DG or the CCI may use any information or evidence submitted, the party would still be at liberty to contest its involvement in an alleged cartel. This is quite significant as it adds to the incentive structure and encourages parties to use the lesser penalty regime with a comfort that should a party decide to withdraw an LP or LPP application in future, any admission of guilt would not be held against such a party.
  • Conclusion

    The LP Regulations are a welcome step and infuse a much-needed facelift to the lesser penalty regime in India. These LP Regulations would bolster the CCI’s ability to uncover and inquire into cartels. However, it remains to be seen if the LP Regulations, especially the newly introduced LPP mechanism, would go far enough to incentivize parties to avail of the LP and LPP mechanisms more aggressively.

    We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com

    Ravisekhar Nair, Partner – Email ravisekharnair@elp-in.com

    Parthsarathi Jha, Partner – Email – parthjha@elp-in.com 

    Aayushi Sharma  Senior Associate, Email – aayushisharma@elp-in.com

    Bhaavi Agrawal   Associate, Email – bhaaviagrawal@elp-in.com

Disclaimer: The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice.