Leniency Regime Takes a Step Forward — Reduction in Penalty for Battery Manufacturers

 

 

 

 

 

 

 

 


While lithium-ion batteries are all the craze in the tech world, zinc-carbon dry cell batteries seem to be in fashion with the Competition Commission of India (CCI).[1]   The CCI, in a recently concluded investigation, has found India’s leading zinc carbon dry cell battery makers to be engaged in a cartel with assistance from their sectoral trade association, the Association of Indian Dry Cell Manufacturers (Association).

The CCI initiated a suo motu investigation against Eveready Industries India Limited (Eveready), Indo National Limited (Indo National) and Panasonic Energy India Company Limited (Panasonic) (jointly referred to as the Parties) based on a leniency application filed by Panasonic acknowledging the existence of price fixing and market sharing arrangements between the Parties. Finding the existence of a prima facie case based on the leniency application, the CCI directed the office of the Director General (DG) to initiate an investigation into the alleged cartel.

The DG began its inquiry and bolstered its investigation against the Parties through its second ever dawn raid against Eveready on 23-8-2016 in their office premises in Kolkata, India. However, soon after the dawn raid was held, Eveready followed by Indo National, filed separate leniency applications with the CCI to assist the DG for the ongoing investigation in the expectation of reduced penalties.

The DG in its investigation report to the CCI, aided by the evidence collected in the dawn raid (in the form of communications between the parties), and with corroborations from the parties through the leniency mechanism, found that the parties had co-ordinated amongst themselves to set the maximum retail price for the batteries. The investigation unearthed that generally after agreeing to raise the prices, Eveready being the market leader would have announced an increase in price. This would be followed by Indo National and Panasonic. It was further uncovered that the Parties co-ordinated regarding trade discounts, retailer margins, promotional schemes, etc., to ensure that the price fixing arrangement in between the Parties was never rendered ineffective. The Parties were also found to be distributing the market amongst themselves geographically, or in terms of the type of the batteries sold to maximise profit margins. The investigation additionally revealed that the Association assisted the continuation of the cartel, by providing a platform for exchanging information and for easing the mechanism of collating and sharing sensitive data inter se the Parties.

The Parties, in their submissions, agreed to the findings of the DG and attempted to emphasise that they have individually made “significant value addition” to the investigation through divulging vital details to the DG to assist him in establishing the cartel. The Parties also argued that the CCI may take a lenient approach while determining penalties considering the fact that the cartel was put into place as the input costs of zinc-carbon dry cell batteries increased significantly while the demand for the batteries remained limited.

After due consideration, the CCI found that the Parties along with the Association had violated the provisions of the Competition Act, 2002, by engaging in a cartel for fixing prices and sharing the market. However, prior to determining the quantum of penalty, the CCI determined the issue of reduction of penalty in lieu of the leniency regime. The CCI allowed a 100% reduction in penalty as per the leniency guidelines to Panasonic for whistleblowing on the cartel, which enabled it to initiate an investigation and lead the dawn raid against Eveready to collate evidence. The CCI noted that the assistance provided by Panasonic was crucial to establish the existence of the cartel. The CCI further elaborated that while the information made available by Panasonic along with the evidence collected in the dawn raid was sufficient to establish the cartel, the fact that both Eveready and Indo National provided “genuine, full, continuous and expeditious cooperation” during the investigation, was grounds enough to provide a 30% reduction in penalty for Eveready and a 20% reduction in penalty for Indo National.

Therefore, after granting of leniency, the CCI imposed a penalty of 1.25 times of the profits of the Parties for each year of the duration of the cartel. Accordingly, Eveready was imposed a penalty of INR 171.55 crores, Indo National was imposed a penalty of INR 42.26 crores while the penalty on Panasonic was waived. Further, the Association was imposed a penalty at the rate of 10% of the average of its gross receipts for the last preceding three financial years which culminated to INR 0.0185 crore. The CCI also imposed penalties on the office bearers of the Parties and the Association for materialising and effectuating the cartel. The penalty imposed on the office bearers of Eveready, Indo National and Panasonic was adjusted on a pro rata basis, in line with the reduction of penalty for the Parties per the leniency regime.

 

Key Takeaways

The Indian leniency regime provides that for leniency applicants who approach the CCI after the first applicant, a reduction in penalty is provided wherein their inputs provide “significant added value” to the evidence already in possession of the CCI. However, The CCI’s eagerness to encourage leniency applications is clear from the fact that a substantial reduction of 30% and 20% in penalty was allowed for both Eveready and Indo National respectively, even though the CCI categorically noted that both the parties failed to make “significant value addition” to the investigation.

This interestingly suggests that the CCI may be inclined to allow a reduction in penalty for parties post initiation of a DG investigation even if the parties do not have significant value addition, as long as the parties provide full and genuine support/disclosures to the CCI.


* Anshuman Sakle is a Partner with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at anshuman.sakle@cyrilshroff .com.

** Soham Banerjee is an Associate with the Competition Law Practice at Cyril Amarchand Mangaldas and can be contacted at soham.banerjee@cyrilshroff .com.

[1] Cartelisation in respect of zinc carbon dry cell batteries market in India, In re, Suo Motu Case No. 02 of 2016, order dated 19-4-2018.

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