On April 19, 2018, the Competition Commission of India (“CCI”) published an order holding the three manufacturers of zinc carbon dry cell batteries in India, viz. Eveready Industries India Ltd. (“Eveready”), Indo National Ltd. (“Indo National”) and Panasonic Energy India Co. Ltd. (“Panasonic”), a subsidiary of Panasonic Corporation Japan, along with their association, Association of Indian Dry Cell Manufacturers (“Association”), guilty of cartelization by fixing prices of zinc carbon dry cell batteries, limiting supply of batteries and dividing geographical market and consumers amongst themselves.

Panasonic had filed a leniency application in May 2016 and disclosed the details of the cartel. Pertinently, Panasonic decided to file the leniency application after it became aware of the cartelization through its competition compliance programme. This is significant and underscores the need for companies to sensitize their employees, particularly the top and middle level management, about do’s and don’ts of competition law through effective compliance programmes since contravention of the provisions of the Act may attract huge monetary penalties which could be as high as 10% of the average turnover of the enterprises.

Pursuant to the filing of leniency application, the CCI directed the Director General (“DG”) to investigate the matter. The DG started collecting data, sent questionnaires to the parties and recorded oral testimonies of key managerial persons. In August 2016, the DG conducted simultaneous dawn raids at the premises of the aforesaid manufacturers and collected evidence. Soon after, Eveready and Indo National also filed leniency applications in August 2016 and September 2016 respectively.

The DG’s investigation found that these three manufacturers together controlled virtually the entire zinc carbon dry cell market in India, with Eveready as the market leader having around 43% market share. It was revealed that the cartel was in place since 2008. The top management of the manufacturers used to regularly meet to decide upon the quantum of price rise and allocation of territories and customers. It was also found out that the Association, by collating and providing regular information on production/sales data of the member companies, provided a platform to the manufacturers to exchange commercially sensitive information. Various incriminating e-mails, fax, memos, etc. were also recovered during the investigation. The modus operandi to implement the price rise by the manufacturers was that Eveready, the market leader with around 43% market share, would be the first to increase the prices and make press release of its price rise, following which the other two manufacturers would increase their prices. Apparently, the manufacturers had adopted such modus operandi to avoid detection by the CCI, as they could implement the cartel under the garb of unilaterally following the market leader. The manufacturers also decided upon other implementation modalities of price increase which included deciding the schedule of start of production, commencement of billing with new MRP and availability of products (with revised rates) in the market. To counter the advertisement strategies by their distributors/wholesalers, they entered into agreement/ understanding/ coordination amongst themselves to cover all other elements of the price structure besides MRP, comprising trade discount, wholesale price, dealer/ stockist landing cost, open market rates, retailers’ margin, sales promotion schemes etc. Thus, the price coordination amongst the manufacturers encompassed not only increase in the prices of the zinc carbon dry call batteries but also exclusion of ‘price competition’ at all levels in the distribution chain of zinc-carbon dry cell batteries.  

Pursuant to submission of the investigation report by the DG, the CCI decided to impose penalty at the rate of 1.25 times of the profits of the manufacturers for each year for the duration of the cartel. Further, the CCI also imposed a penalty on the Association at the rate of 10 percent of the average of its gross receipts for the last preceding three financial years. Regarding the individuals responsible for the cartel, the CCI imposed penalty to the tune of 10% of the average income of the last three preceding financial years upon 6 senior officials of Eveready and to 8 senior officials of Indo National and 3 officials of the Association. The CCI decided to grant 100% reduction on the penalty imposed upon Panasonic owing to its disclosure of the cartel in its leniency application. Further, no penalty was imposed on its officials.

Pertinently, as regards the penalty imposed upon Eveready and Indo National, the CCI noted that the evidence submitted by them through the leniency applications was already present with the DG, which did not lead to any significant value addition to the investigation, but owing to their ‘genuine, full, continuous and expeditious cooperation’ during the investigation, the CCI decided to grant 30% reduction in the penalty imposed upon Eveready and 20% reduction in the penalty imposed upon Indo National. Similar reduction in penalty was also granted to their office bearers. The final penalty imposed upon Eveready is INR 1.72 billion (approx.) and upon Indo National is INR 423 million (approx.)

It is pertinent to note that this is the second leniency case decided by the CCI, resulting in imposition of penalties.  The approach of the CCI in determining the quantum of penalties in such cases appears to be consistent, which may potentially encourage cartel members in other sectors to file leniency applications. It is striking, however, that the CCI did not maintain the confidentiality of the identity of the leniency applicants in its decision, despite there being a confidentiality clause in the leniency Regulations nor is there any discussion in the instant order as to why this was not done. Significantly, in the earlier Leniency Case, the applicants had given express waiver both on the identity as well on the information filed by them. Such disclosure of identity by the CCI has the potential of exposing the cartel players to civil suits by the victims of the cartel for recovery of damages. Pertinently, the recent amendments to Leniency Regulations provide powers to the DG to disclose the information received in a leniency application for the purpose of investigation after taking certain safeguards and obtaining permission from the CCI in this regard.

Thus, it is evident that the leniency provisions, coupled with consistent approach of the CCI in imposing penalties in such cases, are proving to be effective in combating cartels. Further, effective implementation of competition compliance programmes can also go a long way in dealing with the menace of cartel. However, all this needs to be given a further fillip by the CCI by bringing out a cartel whistle-blower policy, which will not only protect but also reward people who give credible information about cartels. Such a policy will be particularly suited mostly for lower level employees who are used by senior corporate executives to carry out illegal schemes.