CCI’s carrot and stick approach to break cartels

The looming possibility of stringent penalties may increase the attractiveness of the lesser penalty plus mechanism, and nudge parties to report undisclosed cartels.

The Competition Commission of India (CCI) recently published its draft regulations on lesser penalties, aimed at rewarding companies being investigated for cartels to reveal information about other cartels the regulator does not know about. The draft regulations are a welcome move; they are the proverbial “carrot” to the stringent penalties “stick”, and fit within the overall regulatory architecture of the earlier amended Competition Act, which empowers the CCI to swiftly address anticompetitive conduct.

Indian competition law is on the cusp of change. In the last year alone, the Union government has overhauled the two-decade-old Competition Act, 2002 by way of the Competition (Amendment) Act, 2023, issued a series of draft regulations to give effect to such amendments, and considered a range of additional regulations that impact markets in India.

The Competition Act already incentivises companies by rewarding those that admit to participation in cartels with reduced (‘lesser’) penalties. The 2023 Act introduces another incentive in the form of the lesser penalty plus (LPP) mechanism — clarified by the draft regulations — which rewards companies being investigated for cartel conduct for revealing information about other cartels the regulator does not know about. Many jurisdictions, such as the United States, Brazil, and Canada have implemented the LPP mechanism.

The carrot

The draft regulations clarify the implementation of the LPP mechanism, detailing, for example, the benefits for companies that choose to report an undisclosed cartel. Applicants will be eligible for up to an additional 30 per cent reduction in penalty in relation to the cartel being investigated. 

The draft regulations benefit applicants as well as the regulator: applicants stand to benefit from reduced penalties in relation to two cartels, and the CCI is able to unearth cartels, the most pernicious form of anticompetitive conduct, without expending considerable resources in detection and investigation. 

The stick

The 2023 Act empowers the CCI to impose penalties based on the global turnover of companies derived from all products and services by a company found to have violated Indian competition law. This is a departure from the CCI’s practice since 2017 to impose penalties on the basis of ‘relevant’ turnover, linked to the products or services affected by the violation, and represents an increase in the overall penalties that the CCI can now levy.

The looming possibility of stringent penalties may increase the attractiveness of the LPP mechanism, and nudge parties to report undisclosed cartels.

Empowering the CCI

The amendments in the 2023 Act were informed at least in part by concerns of prolonged timelines for investigation and appellate review, and limited recovery of penalties.

The settlements and commitments mechanism introduced by the 2023 Act represents one way in which these concerns were addressed. The settlements and commitments mechanism enables the CCI to prematurely terminate inquiries by settling a case or accepting commitments, without needing to undertake a lengthy, time-consuming investigation.

Notably, the settlements and commitments mechanism does not extend to cartels. The CCI’s draft regulations clarify the implementation of the settlements and commitments mechanism. The draft regulations that clarify the implementation of the LPP mechanism also address the same concerns, by expediting the resolution of cartel cases.

Looking ahead

The draft regulations, along with two key amendments to the 2023 Act — the increase in penalties that the CCI can levy, and the settlements and commitments mechanism — are aimed at incentivising compliance and strengthening deterrence. They are a win-win for both companies and the market regulator, and will enable the CCI to quickly and effectively correct markets.

(Shivanghi Sukumar is Counsel, Axiom5 Law Chambers.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.