Leniency Applicants Beware: NCLAT Rules in the Beer Cartelisation Case Pawan Jagetia v. CCI: A case comment

Introduction

The National Company Law Appellate Tribunal (NCLAT) in Pawan Jagetia v. Competition Commission of India¹, has upheld the penalty of Rs 873 crores, imposed by the Competition Commission of India (hereinafter referred to as “CCI”) on the beer cartel including United Breweries and other beer makers. The NCLAT, while dismissing the appeal, reiterated the settled law regarding the absence of a Judicial Member on the Bench of CCI. The judgment also addressed a unique, yet interesting, issue regarding the right of a beneficiary of a leniency application to challenge the order of CCI on merits. Moreover, the observations of NCLAT on the initiation of enquiry under Section 26² of the Competition Act, 2002 (hereinafter referred to as “the Act”) on the basis of a leniency application filed under Section 46³ of the Act are also worth discussion.

In light of the ruling of NCLAT, this article attempts to analyse the implications of the recent developments under three broad heads. In particular, the authors discuss — (i) the brief background of the case; (ii) the leniency regime in India; and (iii) the observation of NCLAT so as to accentuate how the ruling is groundbreaking.

Background of the case

The present case arises out of a suo motu case initiated by CCI pursuant to a leniency application filed under Section 46 of the Act⁴ read with Regulation 5⁵ of the Competition Commission of India (Lesser Penalty) Regulations, 2009 (hereinafter referred to as “LPR”) alleging cartelisation in relation to the production, marketing, distribution, and sale of beer in India. CCI, vide its order dated 24-9-2021⁶, had found the existence of cartel between the beer companies. A penalty was imposed for the violation of Sections 3(3)(a)⁷, (3)(b) and (3)(c) read with Section 3(1) of the Act. The aggrieved respondent (beer companies) appealed before the NCLAT challenging the validity of the order.

Before delving deeper into the merits of the appeal before the NCLAT, it is beneficial to discuss the leniency regime in India.

Leniency regime in India

The leniency programme, which is a common feature of antitrust laws across jurisdictions, is a kind of whistleblower mechanism which encourages persons or enterprises to come forward and disclose information related to cartels. Such a voluntary disclosure is incentivised through the imposition of lesser penalty on the disclosing enterprises, which would have otherwise faced harsher penalties had the cartel been discovered by the antitrust authorities.

The Indian leniency regime is governed by Section 46 of the Act⁸, read with the LPR. According to Section 46, the CCI may impose a lesser penalty on any member of the cartel who has made a full and true disclosure in relation to the existence of the cartel. Further, the disclosure shall be made before the DG submits its report under Section 26 of the Act⁹ to the CCI. It also provides that imposing a lesser penalty is a discretionary power of the CCI and can be withheld if the person making the disclosure fails to cooperate with the Commission.

In order to make leniency regime more robust, CCI in pursuance of its powers under Section 64¹⁰ read with Section 46 of the Act has framed the LPR to help the Commission in determining various aspects relating to imposition of lesser penalty. Regulation 3¹¹ of the LPR lays down the conditions for lesser penalty. Section 27(b)¹² of the Act grants power to the Commission to impose penalty on the member of the cartel for up to three times of the profit for each year or ten per cent of its turnover but under Regulation 4¹³the Commission can waive off the penalty completely if the applicant is the first one to make the disclosure. Similarly, the applicants who are marked second in the priority may get a reduction up to or equal to fifty per cent. For subsequent applicants, the exemption is equal to or up to 30 per cent.

A brief overview of Section 46 of the Act read with the LPR would suggest that the leniency regime facilitates the enforcement of competition law through cooperative arrangement mutual benefit between the CCI and the enterprises. With this preliminary understanding of the leniency regime, it is now suitable to analyse the observations of the NCLAT in the present case.

Deconstructing the ruling of NCLAT

The appellants had challenged the order of CCI primarily on two grounds. Firstly, it was argued that for conducting an enquiry and passing an order under Sections 26(1) and 27(b) of the Act respectively, the CCI was required to follow the provisions contained in Section 19.¹⁴ CCI can direct enquiry either on its own motion or on receipt of information from any person, or on a reference made to it by the Central Government or State Government or a statutory authority. However, the present matter was initiated by the Commission suo motu pursuant to the filing of an application under Section 46 of the Act read with Regulation 5 of the LPR. The appellant contended that such an initiation of enquiry was not permissible under Section 19 of the Act.

Secondly, it was asserted by the appellants that the order was passed by a Bench of the CCI which did not have any Judicial Member. It was argued that since after receipt of the report of the DG, a judicial approach was to be adopted by the CCI; in absence of any Judicial Member, the order may not be tested with a judicial approach. Therefore, on the ground of the non-availability of the Judicial Member, the impugned order was incorrect.

The NCLAT rejected both the contentions of the appellants. The broad observations of the Tribunal are discussed hereinbelow:

The Act does not mandate the presence of Judicial Member

It was clarified by NCLAT that there is no requirement in the Act to have a Judicial Member in the Commission or the Bench. After examining the scheme of the Act and referring to various provisions, NCLAT observed that:

31. … it is evident that nowhere it has been indicated that CCI must consist of a Judicial Member. The Act does not reflect to add a Judicial Member for deciding the proceeding…. Since the statute does not speak about the inclusion of Judicial Member the objection raised by learned counsel for the appellant that in absence of Judicial Member, order impugned is illegal has got no substance.¹⁵

It is pertinent to note that the law regarding the absence of Judicial Member in CCI is fairly settled now. The NCLAT had rejected an identical contention earlier in Amazon.com NV Investment Holdings LLC v. Competition Commission of India.¹⁶ Moreover, the Delhi High Court has also held in Cadd Systems and Services (P) Ltd. v. Competition Commission of India¹⁷ that there is no requirement in the Act to have a Judicial Member. The recent ruling of the NCLAT only reaffirms this settled position.

Suo motu case initiated on the basis of a leniency application does not violate Section 19

In the present case, the respondent (Calsberg India Pvt. Ltd.) had filed a leniency application and had claimed confidentiality. In the leniency application, the respondent, besides admitting their involvement in the cartelisation, had also disclosed the involvement of others including appellants in violation of Section 3 of the Act. On the basis of such disclosure, the CCI considered the leniency application of the respondent as suo motu case under Section 19 of the Act.

NCLAT held that the CCI was well within its jurisdiction under Section 19 of the Act to treat the leniency application as suo motu case and proceed with the same. In any case, the NCLAT noted that the CCI in the present case has dealt with a number of evidence including oral and documentary evidence, besides the admission made by the appellants in their application filed under Section 46 of the Act.

Admission of guilt in leniency application bars the right to challenge the order on merits

NCLAT, for the very first time, observed that since the appellant had already admitted in the leniency application regarding their involvement in the cartelisation, they were not justified to argue on merits of the case or point out any fault in the impugned order. Once they have admitted their involvement in application filed under Section 46 read with Regulation 5 of the LPR, they were only entitled to question the imposition of penalty.

It was further held that once the penalty is reduced on the request made by appellant (through leniency application under Section 46 of the Act) showing his involvement, their right to appeal on merits against the order of the CCI can be deemed to have been forfeited.

Leniency applicant is similar to an approver under CrPC

NCLAT, while interpreting Section 46 of the Act, drew an analogy by referring to Sections 306 and 308 of the Criminal Procedure Code (hereinafter referred to as “CrPC”). It was noted that an accomplice can be pardoned under Sections 306¹⁸ and 308¹⁹ CrPC upon a condition of his making a full and true disclosure of the circumstances related to the offence. If at a later stage the accomplice turned approver breaches this condition, or makes false testimony, his pardon may be withdrawn, and penal proceedings can be initiated.

In a similar fashion, the Tribunal noted:

34. … It can be inferred that a lesser penalty application is like admission of guilt in a cartel. Once the appellants admitting their guilt made a disclosure of alleged violation of Section 3 of the Act, he may claim a lesser penalty. After getting a reduction in the penalty on the basis of leniency application under Section 46 of the Act one may not be allowed to resile from his own admission. If one resiles he may be liable to consequences and his reduction in penalty can be withdrawn….²⁰

Therefore, the purpose of both Sections 306 and 308 CrPC, and Section 46 of the Act is to incentivise the parties in violation of law to assist the law enforcing authorities by admitting their guilt and making full and true disclosure of the information within their knowledge. The resulting benefits are effectuated in the form of either complete or partial reduction of the penalties.

Conclusion

The decision of NCLAT²¹ has provided much clarity on the right of a beneficiary of a leniency application to challenge the order on merits. The Tribunal has in essence affirmed the common law principle — “quod approbo non reprobo”. Accordingly, an enterprise cannot be permitted to approbate and reprobate simultaneously – in other words, it cannot seek the benefit of lesser penalty by making vital disclosures of relevant information, documents, and evidence, and at the same time claim that there was no cartel.

The authors submit that the purpose of the leniency regime is to incentivise the admission of guilt from the parties involved in the anticompetitive conduct in lieu of lesser penalties. The leniency scheme is mutually beneficial both for the CCI as well as the parties involved. However, giving the benefit of a lesser penalty to an enterprise through leniency application, and subsequently allowing it to challenge the orders on merits would have led to utter absurdity. The NCLAT has rightly rejected the appeal and the ruling is a welcome development for the leniency regime in India.