Competition watchdog creates incentives for whistleblowers who give up information on cartels
New Delhi: The Competition Commission of India (CCI) has proposed elaborate rules that will encourage whistleblower companies to report acts of cartelisation in return for reduced penalties.
The CCI Wednesday put up for public consultation the Draft CCI (Lesser Penalty) Regulations 2023, which seek to amend the Competition Act, 2002, to put in place a “lesser penalty plus” system.
Under this system, a whistleblower who has provided the CCI information about a cartel they are a part of, and then provides details about a separate cartel, will be penalised less than it originally would have been.
A cartel, according to the Competition Act, “includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
In other words, a cartel is a group of companies or players in a particular industry who get together and decide rules together to influence the market.
The Competition Act already had a provision, Section 46, that allowed it to impose lesser penalties on whistleblower companies that were part of a cartel if they “made a full and true disclosure in respect of the alleged violations and such disclosure is vital”.
This will now be bolstered by the “lesser penalty plus” system, if the new rules are finalised following the consultation process that ends on 6 November.
“The ‘lesser penalty plus’ mechanism is introduced to incentivise an existing lesser penalty applicant in respect of the first cartel to give full, true, and vital disclosures about a second cartel unknown to the CCI,” the draft rules say.
Under the older rules and the new, if a company that is part of a cartel applies for a lesser penalty to the CCI, and if it provides information about the cartel the CCI deems important, and also stops its own cartelisation practices, then the CCI will reduce its penalties for this cartelisation by up to 100 per cent.
If other companies in the cartel then subsequently come forward and share other important information with the CCI about the cartel, then their penalties can be reduced by up to 50 per cent for the second applicant, and up to 30 per cent for the third applicant.
As per the new draft rules, if the second or third applicants provide the CCI with material information about a second, unrelated cartel, then not only will they get a 30 per cent reduction in the penalty imposed for their participation in the first cartel, but they will also be registered as the first applicant in the second cartel — making them eligible for a penalty reduction of up to 100 per cent in the second cartel.
The CCI explains this through a case in point. Take the example of Cartel A. Company X and Company Y are participants in this cartel and have come forward as the first and second lesser penalty applicants. Company X is eligible to have its penalty reduced by up to 100 per cent. Company Y can have its penalty reduced by up to 50 per cent.
Suppose there is another Cartel B. Company Y has information about this cartel and comes forward to the CCI. This is where the “lesser penalty plus” rules come in. Under the rules, Company Y is now eligible to have an additional up to 30 per cent of its penalty reduced in the Cartel A case.
Further, Company Y would be eligible for an up to 100 per cent reduction of the penalty in the Cartel B case as well.
(Edited by Tikli Basu)
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