THE COMPETITION COMMISSION OF INDIA (LESSER PENALTY) REGULATIONS, 2009 - AN OVERVIEW

[Mr. M. GOVINDARAJAN]

PENALTY FOR VIOLATION:

Section 3 of the Competition Act, 2002 ('Act' for short) deals with anti competitive agreements.  Sec. 27(b) of the Act provides where after inquiry the Commission finds that any agreement referred to in Section 3 or action of an enterprise in a dominant position, is in contravention of Sec. 3 or Sec. 4 (deals with abuse of dominant position), as the case may be, it may impose such penalty, as it may deem fit which shall be not less than 10% of the average of the turn over for the last three preceding financial years, upon such person or enterprises which are parties to such agreement or abuse.  In case any agreement referred to in Sec. 3 of the Act has been entered into by any cartel, the Commission shall impose upon such producer, seller, distributor, trader or service provider included in that cartel, a penalty equivalent to three times of the amount of profits made out of such agreement by the cartel or 10% of the average of the turn over of the cartel for the last preceding three financial years, whichever is higher.

LESSER PENALTY:

Sec. 46 of the Act provides for lesser penalty.  It provides that the Commission may, if it is satisfied that any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have violated Section 3, has made a full and true disclosure in respect of the alleged violations and such disclosure is vital, impose upon such producer, seller, distributor, trader or service provider a lesser penalty as it may deem fit, than leviable under this Act or the Rules or the regulations. 

The lesser penalty shall not be imposed by the Commission in cases where proceedings for the violation of any of the provisions of this Act or the rules or the Regulations have been instituted or any investigation has been directed to be made under Sec. 26 before making such disclosure.  The lesser penalty shall be imposed by the Commission only in respect of a producer, seller, distributor, trader or service provider included in the cartel, who first made the full, true and vital disclosures under this section.  The Commission may, if it is satisfied that such producer, seller, distributor, trader or service provider included in the cartel had in the course of proceedings-

            >>> not complied with the condition on which the lesser penalty was imposed by the Commission; or

            >>> had given false evidence; or

            >>> the disclosure made is not vital and thereupon such producer, seller, distributor, trader or service provider may be tried for the offence with respect to which the lesser penalty was imposed and shall also be liable to the imposition of penalty to which such person have been liable, had lesser penalty not been imposed.

REGULATIONS FOR LESSER PENALTY:

The Competition Commission of India in exercise of  the powers conferred by Section 63 read with Section 46 and clause (b) of Section 27 of the Act,  makes 'The Competition Commission of India (Lesser Penalty) Regulations, 2009 ('Regulation' for short) as notified in No. L-3(4)/Reg-LP/2009-10/CCI, dated 13th August, 2009.

WHO CAN APPLY FOR LESSER PENALTY?

Regulation 2(b) defines the term 'applicant' as an enterprise, as defined in clause (h) of Section 2 of the Act, who is or was a member of a cartel and submits an application for lesser penalty to the Commission.  Sec. 2(c) of the Act defines the term 'cartel' including 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.

Sec. 2(h) of the Act defines the term 'enterprise' as a person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provisions of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space.

CONDITIONS FOR LESSER PENALTY:

Regulation 3 provides conditions for lesser penalty.  An applicant seeking the benefit of lesser penalty under Section 46 of the Act, shall-

            >>> cease to have further participation in the cartel from the time of its disclosure unless otherwise directed by the Commission;

            >>> provide vital disclosure in respect of violation under Sec. 3(3) of the Act;

            >>> provide all relevant information, documents and evidence as may be required by the Commission;

            >>> co-operate genuinely, fully, continuously and expeditiously throughout the investigation and other proceedings before the Commission; and

            >>> not conceal, destroy, manipulate or remove the relevant documents in any manner that may contribute to the establishment of a cartel.

The Commission may subject the applicant to further restrictions or conditions as it may deem fit, after considering the facts and circumstances of the case.  If an applicant fails to comply with the conditions, the Commission shall be free to use the information and evidence submitted by the applicant, in accordance with the provisions of Sec. 46 of the Act.  The discretion of the Commission in regard to reduction of monetary penalty shall be exercised having due regard to-

            >>> the stage at which the applicant comes forward with the disclosure;

            >>> the evidence already in possession of the Government;

            >>> the quality of the information provided by the applicant; and

            >>> the entire facts and circumstances of the case.

GRANT OF LESSER PENALTY:

                            Subject to the conditions laid down in Regulation 3, the applicant may be granted benefit of lesser penalty, as the Commission may decide in the following manner:

            >>> The applicant may be granted benefit of reduction in penalty up to or equal to 100%, if the applicant is the first to make a vital disclosure by submitting evidence of a cartel, enabling the Commission to form a prima facie opinion regarding the existence of a cartel which is alleged to have violated Sec. 3 of the Act and the Commission did not at the time of application, have sufficient evidence to form such an opinion.

            >>> The Commission may also grant benefit of reduction in penalty up to or equal to 100%, if the applicant is the first to make a vital disclosure by submitting such evidence which establishes the contravention of Sec. 3 of the Act in a matter under investigation and the Commission, or the Director General did not, at the time of application, have sufficient evidence to establish such a contravention;

            >>> The application for the benefit of reduction in penalty up to or equal to 100% will only be considered if at the time of application, no other applicant has been granted such benefit by the Commission;

            >>> The applicants who are subsequent to the first applicant may also be granted benefit of reduction in penalty on making a disclosure by submitting evidence, which in the opinion of the Commission, may provide significant added value to the evidence already in possession of the Commission or the Director General, as the case may be, to establish the existence of the cartel, which is alleged to have violated Sec. 3 of the Act;

            >>> The applicant marked as second in the priority status may be granted reduction of monetary penalty up to or equal to 50% of the full penalty leviable; and

            >>> The applicant(s) marked as third in the priority status may be granted reduction of penalty up to or equal to 30% of the full penalty leviable.

PROCEDURE FOR GRANT OF LESSER PENALTY:

The following is the procedure for grant of lesser penalty as envisaged in Regulation 9:

            >>> The applicant or its authorized representative may make an application containing all the material information as specified in the Schedule which deals with the contents of the application, or may contract, orally or through e-mail or fax, the designated authority for furnishing the information and evidence relating to the existence of a cartel;

            >>> The designated authority shall, within three working days, put up the matter before the Commissioner for its consideration;

            >>> The Commission shall thereupon mark the priority status of the applicant and the designated authority shall convey the same to the applicant either on telephone or through email or fax.   If the information furnished by the applicant is oral he may be directed to give the same in writing;

            >>> The date and time of receipt of the application by the Commission shall be the date and time as recorded by the designated authority or as recorded on the server or the facsimile transmission machine of the designated authority;

            >>> Where the application, along with the necessary documents, is not received within a period of fifteen days of the first contact or during the period as may be extended by the Commission, the applicant may forfeit its claim for priority status and consequently for the benefit of grant of lesser penalty;

            >>> The Commission, through its designated authority, shall provide written acknowledgement on the receipt of the application informing the priority status of the application but merely on that basis, it shall not entitle the applicant for grant of lesser penalty;

            >>> Unless the evidence submitted by the first applicant has been evaluated, the next applicant shall not be considered by the Commission;

            >>> Where the Commission is of the opinion that the applicant or its authorized representative, seeking the benefit of lesser penalty or priority status, has not provided full and true disclosure of the information and evidence the Commission may take a decision after considering the facts and circumstances of the case for rejecting the application of the applicant, but before doing so the Commission shall provide an opportunity of hearing to such applicant;

            >>> Where the benefit of priority status is not granted to the first applicant, the subsequent applicants shall move up in order of priority for grant of priority status by the Commission and the procedure prescribed above, as in the case of first applicant, shall apply mutatis mutandis;

            >>> The decision of the Commission of granting or rejecting the application for lesser penalty shall be communicated to the applicant.

            >>> The Commission shall treat as confidential the identify of the applicant or information obtained from it and shall not disclose the identity or the information obtained unless-

            >>> the disclosure is required by law; or

            >>> the applicant has agreed to such disclosure in writing; or

            >>> there has been a public disclosure by the applicant.

In the matter of interpretation or implementation of the provisions of all these regulations, if any doubt or difficulty arises, the same shall be placed before the Commission and the decision of the Commissioner thereon, shall be binding.