Inquiry and Investigation in Enforcement Cases: The Leniency Regime

INQUIRY AND INVESTIGATION
IN ENFORCEMENT CASES
The Leniency Regime

Inquiry and investigation in enforcement cases
The Leniency Regime
Learning Objectives:
● What is a leniency regime
● How does this leniency provision work
● what is “significant value-adding information”
● Understanding how a leniency matter is successfully pleaded before the CCI with the
help of the landmark Indian case laws.

Section 3 of the Act (which deals with anti-competitive agreements), especially cartels-
prohibits such agreements.

The CCI imposes heavy penalties on these cartels under Section 27 of the Act which can be
up to 10% of the average turnover of the company or 10% of the relevant turnover of
the three preceding financial years.

Huge Penalties are also imposed upon key individuals belonging to such colluding
enterprises where the key members acting in the cartel in addition to the enterprises are
involved.
So what is a leniency regime?

Given the fact that the CCI levies such heavy penalties, a carve-out mechanism had to be
contemplated for those entities which wanted to plead guilty and receive some
concessions.

Therefore, as a rescue mechanism, the Act allows such colluding individuals and/or
enterprises who are a part of a cartel to apply for leniency under the lesser penalty
regime only if they assist in the detection of the agreement by providing valuable
information.

Section 46 of the Act read with the Competition Commission of India (Lesser Penalty) Regulations
2009 (as amended) (Lesser Penalty Regulations) codifies and governs the law on leniency in
relation to cartel investigations in India.

It gives discretionary powers to the CCI to grant amnesty or reduce the penalty for
individuals or enterprises that provide true and vital disclosure with respect to the
activities of the cartel.

The leniency provision is still in the very nascent stage. Not many filings have been made to
seek leniency. In fact, the first order of the CCI concerning leniency was passed in 2017 in
the matter of brushless fans with only 10 orders being passed to date.

But how does this leniency provision work?

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The Leniency Regime
The CCI in order to grant a reduction in monetary penalty generally considers the following:

a) The stage at which the applicant has made the relevant disclosure;
b) The evidence in possession of the CCI;
c) Whether the disclosure made by such applicant will add value to the
investigation; and
d) The entire facts and circumstances of the relevant case etc.

The CCI can grant a lesser penalty of up to

- 100% to the first applicant,
- up to 50% to the second applicant; and
- up to 30% to the third and all subsequent applicants.

This benefit is given to an applicant only:

- the CCI does not have sufficient evidence, or
- the CCI does not have any evidence at all, or
- the parties provide additional incriminating evidence to establish the
existence of a cartel.

The reduction of penalty is awarded on a first come first serve basis.
In addition, the CCI has amended the Lesser Penalty Regulations in 2017 that allowed
enterprises to seek leniency for their current and former employees who were involved in
the cartel; CCI can now as per the new regulations

- grant immunity to more than three individual applicants;
- provide for the inspection of the non-confidential version of the case files (the
procedure for which is the same as the inspection of information). However, please
note that the issue of confidentiality with respect to leniency applications is still
sub-judice before the Delhi High Court.

How do parties approach lawyers for seeking leniency?

The parties that happen to be a part of an ongoing cartel investigation often seek advice
from external counsel (law firms/ senior advocates) with relation to the investigation.

It is during the stage of the investigation that the external counsel generally by mapping the
course of the investigation will advise to file for leniency.

During the preparation for investigation wherein the parties are expected by the letter of
law to cooperate with the Director General (“DG”), the parties usually with the help of
external counsel identify chances of an adverse finding and plan to make an
application for leniency.


The Leniency Regime
It is pertinent to note here that the parties do not get any assistance/ informal guidance (such

as a preliminary conference in any substantive issue or a pre filing consultation as in
enforcement issue) from the CCI’s office before submitting an application, in order to determine
whether an undertaking as submitted by the party would qualify for full immunity or leniency.

It is at this stage that the external counsel prepares an advisory note comprising of

- the chances of adverse findings by the CCI on the cartel investigation;
- the implication of such findings on the business of the parties;
- a brief on the evaluation of the party which also includes whether other parties to
the agreement have already filed an application for immunity;
- assessing/ speculating the chances of success of such an application;
- identifying the documents and evidence that are to be shared with the office of the
DG; and
- identifying the documents for which the party needs to seek confidentiality.

What generally happens in the first meeting to discuss leniency?

During the first meeting with the parties which typically happens post the advisory on a
prospective leniency application, the party and the lawyers discuss the strategy on filing the
relevant information under the lesser party regulation. The foremost concern in this
meeting is to secure a priority status in the marker for any leniency application which
needs to be filed before the DG submits his investigation report to the CCI.

The timeline for filing leniency application is discussed in the meeting as the true and full
disclosure is to be made by the parties within 15 days of securing the mark-up. The lawyers
also identify the role of key managerial personnel that was involved in the operation of the
cartel and direct them on the mode of conduct that they need to maintain.

It is important to refrain from giving any assistance to the cartel activities from the time of
making the disclosure. Regulation 3 of the Lesser Penalty Regulation expressly forbids such
conduct.

The lawyers assist the parties in determining all plausible acts that can be said or inferred
as continued participation in the cartel. Making phone calls to the members of the cartel,
emailing, SMS or meeting them clandestinely to discuss any issue that is remotely linked to
the cartel can be inversely inferred as continued participation by the CCI.

Note: However, the CCI has not observed any such participation and therefore there
is a lack of precedence on the same.

The lawyers then prepare a memo on how to coordinate with the DG post-filing the
application. It is important to note that the role of an applicant does not end with filing the
leniency application, such applicant needs to further coordinate with the DG in the
investigation by regular meetings or calls if required/requested so by the DG.


The Leniency Regime
How is the marker secured in the priority list of the application?

Generally, the first step for securing a marker in the order of priority is to convey the
existence of the agreement orally or by a written e-mail to the CCI. This can be done by
calling the office of the DG or by conveying it in a meeting with the Secretary, CCI or
through a letter, email or fax. Please note, this is extremely important because the CCI
distinguishes marker status by a gap of minutes.

This allows the parties to gain/secure an additional time i.e. 15 days to gather
information and then file a full application. The date and time of receipt of the
application by the CCI shall be the date and time as recorded by the designated authority
i.e. the Secretary of the CCI. The CCI then conveys the order of priority in which the marker
letters were submitted to the leniency applicants, in case multiple applicants submit
leniency application within 15 days.

The “holy” 15 days in a leniency application

A significant point to note here is the importance of 15 days that follow the marker. In
the event, a party is unable to furnish full and true disclosure of the cartel with evidence,
within 15 days or such time as is granted by the CCI, after extension if any, the applicant
can lose its priority status. This again runs the risk of a penalty as by making an
application the party has admitted being a part of the cartel. Further, the CCI after
considering the evidence that is provided can reject any application for leniency if it deems
that such evidence does not add value to the ongoing investigation.

The CCI, as discussed above can grant immunity or reduce the penalty for more than three
applicants. However, it is the status in the marker or the list of priority that decides the
quantum of reduction in penalty. As per the Lesser Penalty Regulations, the first applicant
can get up to 100% reduction but this by no means shall means that an applicant shall
always get a 100% reduction. In Pune Municipal Corporation (Case No. 50 of 2015, Case
No. 03 of 2016 and Case No. 04 of 2016), the CCI did not grant 100% reduction to any of the
applicants (six in this case) for they did not provide any value-added information to the
investigation.

Similarly, as per the letter of the law, the second and the third applicant are allowed up to
50 and 30% of reduction each.

The new regime marks for discretionary reduction for other applicants who are all
considered as the third applicant in the marker.

Note of caution for prospective applicants

It is very important for the subsequent applicants (second, third and so forth on the priority list)
to assess the quality and kind of evidence that they wish to furnish. The external counsels play a
paramount role in such identification because any reduction as discussed is only granted on the


The Leniency Regime
significant added value. This can also prove to the detriment of such applicants as by filing an
application for priority status or marker is admitting to being a part of the agreement under
investigation. Added value in this context should mean that the evidence adduced by the
subsequent applicants should enhance the capability of the DG and the CCI to establish the
existence of a cartel.

How is the application drafted?

Once, the marker in the order of priority is secured, the applicant and its external lawyers
with the assistance from a senior advocate, if required, proceed with drafting the lesser
penalty application on the basis of Schedule to the Lesser Penalty Regulations.

This application typically includes but not limits the

● name of the parties to the cartel,
● their authorized representatives (generally the law firm that is briefing the
enterprise involved),
● the relevant market with respect to which the cartel was formed,
● duration and the estimated volume of business that has been affected by the cartel,
● the names of key officers involved in the cartel including that of the applicant.

The lawyers while drafting such an application try to minimize the damage that can be
caused to the enterprise also try to defend their role in the cartel. Whilst drafting such
an application, abundant caution is placed on listing all relevant information that can be
considered to add value to the investigation. Lawyers comprehensively list and present
such evidence in the most neutral way as regards the applicant.

The assistance of a senior advocate can also be sought to check the draft, in order to keep
it as less incriminating as possible whilst also giving the true picture at the same breath.

Leniency Application drafting is usually information going backward. Lawyers begin with the
current scenario that is taking place, their part in it and then finally cover the background
with respect to how the whole story started. Unlike an information, there are no specific
criteria for “Prayer”. However, parties do mention that “in the light of the information
provided, kindly grant us a 100% leniency in the given application”

The nature of the evidence that is adduced before the CCI

Evidence in case of leniency application includes all such proof of interaction between the
parties or any representative of the party to the anti-competitive agreement that is being
investigated by the DG. These include:

● all records internal and external that can lead to the establishment of a cartel.
● The external layers to the applicant evaluate the deluge of emails that are sent by
the party with respect to the goods and services that is alleged to be a part of the


The Leniency Regime
cartel. Whilst analyzing these emails the parties see if there has been any discussion

in relation to any anti-competitive restriction.
● Lawyers then check the minutes of meetings, internal documents, SMS, phone call
records, any details of meetings between the members of the cartel, any video or
audio recording that can suggest the existence of the cartel.

The CCI in Essel Shyam i.e. In Re: Cartelisation by broadcasting service providers by
rigging the bids submitted in response to the tenders floated by Sports Broadcasters
(Suo Motu Case No. 02 of 2013) and the Third Lesser Penalty case in respect of
cartelization in Indian Zinc-Carbon Dry Cell Batteries Mark considered the email trail
evidence whilst granting reduction in penalty.

It is pertinent to note that though an exhausting exercise, it requires excessive diligence on
the part of the lawyers as they are responsible for evaluating information that can add
value to the investigation whilst also providing a maximum reduction to its clients.

Whist submitting the evidence to the CCI, the parties also need to ensure that they provide
true and genuine documents to the CCI as evidence. Further, there should be no
destruction, alteration, manipulation of the information that is shared as evidence
to the CCI.

Abundant caution also needs to be exercised whilst deciding on relevant evidence. The
evidence that is submitted should not by any chance bring out any other anti-competitive
activity by the applicant as the reduction in penalty is limited only to the cartel that is the
subject of investigation and not all further possible cartels.

Evidence should not therefore, trigger a further investigation against the party on a
separate note for it shall only increase the liability of the applicant further.

It is important to note here that the CCI whilst analyzing the evidence adduced by
Panasonic in disclosing an ancillary cartel with respect to dry cell batteries in Re:
Anticompetitive conduct in the dry-cell batteries market in India (Suo Moto Case No.
03 of 2017), awarded 100% reduction in penalty whilst penalizing other parties.

What evidence then is really adding value?

It must have been understood in terms of the foregoing discussion that the CCI only
considers “vital, full and true” disclosure as evidence whilst granting immunity or
awarding a lesser penalty. This evidence should add value to all the evidence that the CCI
already possesses to establish the existence of the cartel if the parties wish to avail
leniency.

For the second and subsequent applicants in the marker, this becomes even more difficult
as the first applicant generally gives out all the necessary evidence to prove the cartel. Any
evidence that is adduced by them should thus further concretely establish the existence of
such a cartel and significantly add value to the pre-existing information.


The Leniency Regime
The CCI in the Dry Cell Battery case (Suo Moto Case No. 02 of 2016), concluded that the
second and third applicants did not provide significant added value as the first applicant
had already provided such information, however, went on to 30% and 20% reduction on
the basis of their full and genuine cooperation. It is also the first case in which the CCI
granted 100% immunity to the first applicant on the basis of true and vital disclosure that
had been made by it.

The stage at which such evidence is provided also assumes importance. It is assessed that
the applicant should provide such relevant disclosure as early as possible during the
investigation. The CCI in the first-ever leniency order in Cartelization in respect of tenders
floated by Indian Railways for supply of Brushless DC Fans and other electrical items
(Suo Moto Case No. 03 of 2014) granted a seventy-five percent reduction in the total
penalty for breaking ranks and turning into an approver for it had disclosed such
information only once the investigation had commenced.

One should remember that in a cartel investigation, a lot of third-party data is also
assessed by the DG. It is collected by the DG after questioning, interviewing the relevant
third parties in the market. Publicly available records and information is also taken into
consideration. Thus, if a party has provided all or any such information, the DG is more
likely to not to treat it as adding any value to its investigation.

How is the information qualified for confidentiality?

As per the letter of law, the identity of the applicant, documents that are submitted as
evidence are required to be treated as confidential by the CCI and the DG.

This, in essence, means that the DG cannot disclose such information to other parties to
the investigation unless the disclosure is permitted by the applicant. Such confidentiality
has to be maintained by the CCI and DG at all times until the declaration of the relevant
order.

All commercially sensitive information additionally is treated as confidential whereas the
facts that are a matter of public record in relation to the parties cannot be claimed as
confidential. Further, all such commercially sensitive information remains confidential after
three-five financial years as provided under Regulation 35 of the Competition Commission of
India (General) Regulations, 2009 (“General Regulations”).

The DG may, at any time during the investigation disclose such privileged documents to
other parties in case:

a. the applicant wilfully waives confidentiality;
b. it is mandated by law;
c. even if the applicant and the law mandate non-disclosure, the DG can disclose such
information after recording the reasons for acting so.


The Leniency Regime
Who can get access to such information?

The leniency regulation allows both the parties to the cartel as well as third parties (parties
who are not actively engaged in the cartel). The only condition for such parties is to be
impleaded as a necessary or proper party to the investigation.

Further, after the DG Report has been forwarded to the parties as per the General
Regulations, all relevant parties can obtain true copies of the non-confidential evidence.
The process of obtaining such evidence is the same as obtaining true copies after an
inspection for other substantive issues.

It is pertinent to note here that in Cartelisation in the supply of Electric Power Steering
Systems (“EPS Systems”) (Suo Moto Case No. 07 (01) of 2014), the CCI published the
order that had redacted all commercially sensitive information put forth by the DG in its
investigation report as well as the parties in their leniency applications. Separately, the DG
Report for the same investigation also saw the sharing of only non-confidential information
to the parties.

What happens post-filing of the leniency application?

After a leniency application has been filed by the applicant within the 15 days of securing
the markup, the applicant and its authorized representatives get a letter from the CCI
confirming the priority status. The DG then evaluates the evidence and requires/ expects
coordination from the applicant during such evaluation.

The DG forwards the non-confidential version of its report to the parties and the individuals
in such cartel, seeking response if any to them.

The CCI analyses the DG Report, the response to the parties to the Report and if deems
necessary, calls the party for hearing or arguments.

A standard procedure of preliminary hearing takes place at this stage. Since it is a
determinative stage, any or all the parties can also request for the matter to be heard. Now
taking into account the DG Reports, the evidence adduced by the parties and the
arguments advanced during the hearing, the CCI pronounces an order under Section 27 of
the Act. It may choose to grant reduction to the parties or/and its office bearers which is
only known after the pronouncement of such order.


The Leniency Regime
Conclusion:

Section 46 of the Competition Act governs the Leniency Regime in
India. As per the Regulations2, the CCI has the discretion to award
a lesser penalty of up to 100% to the first applicant, up to 50% to
the second applicant and up to 30% to the third and all subsequent
applicant(s). Till now, we have had 10 leniency orders passed by the
CCI.

However, the CCI is yet to maintain some sort of uniformity with
respect to what it considers “significantly value-adding information”.
Even though the first marker is eligible for a 100% leniency in the
penalty, it really depends on how much valuable information the
entity is able to provide. If the second marker provides more valuable
information than the first, then the leniency percentage may be
higher for the second one despite being behind in the marker status.

The second primary aspect looked into by the CCI is the 'stage' at
which the party has applied for leniency coupled with the
disclosures made by the party. In most cases, the CCI appears to
grant a higher degree of lesser penalty, if the existence of a cartel is
made known to the CCI, before it forms a prima facie opinion.

Confidentiality concerns are still very evident in this current regime.
A review of the orders passed by the CCI in leniency cases show that
substantial details of the parties, evidences, individuals involved,
modus operandi, customers is usually mentioned. Such disclosures
provide locus standi to the effected parties to file compensation
claims, causes reputational loss (to the company as well individuals)
and ultimately may defeat the purpose of the the leniency
programme.

Thus, in order to uphold the principles of the leniency program, it
would be in the interest of the CCI to adopt an approach where there
is only publication of non-confidential version of the final order that
includes minimal disclosure relating to the evidences produced by a
leniency applicant.


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INQUIRY AND INVESTIGATION

So what is a leniency regime?

It is pertinent to note here that the parties do not get any assistance/ informal guidance (such

How is the marker secured in the priority list of the application?

cartel. Whilst analyzing these emails the parties see if there has been any discussion

Who can get access to such information?

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