Understanding CCI’s Leniency Plus Regime for Cartel Disclosures

The Competition Commission of India (“CCI”) notified the CCI (Lesser Penalty) Regulations, 2024[i] (“LP Regulations”) on February 20, 2024. The LP Regulations arrived shortly after the Ministry of Corporate Affairs (“MCA”) notified the Leniency Plus regime paving the way for the CCI to roll out a new cartel-detecting tool. The Competition (Amendment) Act, 2023, provided for the introduction of a ‘Lesser Penalty’ or LP regime through delegated legislation.[ii] A draft of the LP Regulations was released for public consultation by the CCI in October 2023.[iii] This article aims to analyse the changes brought forward by the LP Regulations and its potential impact on the anti-trust regime in India.

The Competition (Amendment) Act, 2023 amended Section 46 of the Competition Act, 2002 (“Act”). The amended provisions cover any producer, seller, distributor, trader, or service provider (“Entities”) included in a cartel which has violated Section 3 of the Act. Section 3 of the Act prohibits Entities from partaking in anti-competitive agreements. The amended provision permitted such Entities to make true and honest disclosures regarding the violations to the CCI. If the disclosures are deemed to be vital, a lesser penalty may be imposed on the Entities by the CCI. This mechanism is generally known as the ‘Leniency’ regime, interchangeably used with the ‘Lesser Penalty’ regime. [iv] The LP Regulations deal with both the Lesser Penalty (“LP”) and Lesser Penalty Plus (“LP Plus”) regimes, which have been discussed below.

The LP Regulations impose a few conditions for Entities seeking the benefit of the LP or LP Plus regime, as per which the Entities have to:

cease to participate in the cartel after disclosing information to the CCI;
provide vital as well as all relevant information regarding the contravention of section 3 of the Act;
cooperate genuinely, fully and throughout the investigation and not destroy or conceal any relevant documents or give any false evidence[v];
provide names of all individuals who are involved in the cartel on whose behalf either LP or LP Plus regime is sought;
comply with other requirements as prescribed by the CCI under Regulation 3 of the LP Regulations.

Understanding the Lesser Penalty Regime

The LP regime has been operationalised in a tiered approach, with the first applicant receiving the maximum benefit, and subsequent applicants getting a lesser reduction in the monetary penalty imposed.

Applicant	Requirements	Benefit
1^st Applicant	The applicant is the first to make a vital disclosure by submitting evidence of a cartel to the CCI. This evidence should enable the CCI to form a prima facie opinion regarding the cartel’s existence.[vi]	Reduction in penalty of up to or equal to 100% of the penalty imposed by the CCI.
1^st Applicant	The applicant is the first to make a vital disclosure which establishes the contravention of Section 3 of the Act by a cartel, in a matter which is under investigation by the CCI.[vii]
2^nd Applicant	The applicant discloses evidence which provides ‘significant added value’ as per the CCI, to the evidence already in possession of the CCI. [viii] It is clarified that ‘significant added value’, for the purposes of the LP Regulations, means the extent to which the evidence provided enhances the ability of the CCI to establish the existence of a cartel.[ix]	Reduction of monetary penalty up to or equal to 50% of the penalty imposed.
3^rd or subsequent Applicants	The applicant discloses evidence which adds ‘significant added value’ as per the CCI, to the evidence already in possession of the CCI. This information should help in establishing the existence of the cartel.[x]	Reduction of monetary penalty up to or equal to 30% of the penalty imposed.

Lesser Penalty Plus Regime

The reduced monetary penalty for the applicant sharing information about the Second cartel will be two-fold. Firstly, the applicant may be granted an additional reduction in penalty up to or equal to 30% of the penalty imposed as regards the First cartel. Secondly, the applicant may receive the benefit of a reduction in penalty up to or equal to 100% in terms of the Second cartel i.e. the newly disclosed cartel.

Other Features

The LP Regulations provide for the procedure for the grant of either LP or LP Plus. The procedure involves the applicant filing an application with all the requisite details. The details to be included in the application have also been listed in the LP Regulations.[xi] Another key feature of the entire scheme is the identity of the applicant being kept confidential. This includes all information, documents, and evidence furnished by the applicant to the CCI.[xii]

Analysis

The LP Regulations are a positive step for regulating anti-competitive cartels in the economy. It will enable any entity and individual who is facing potential penalties from the CCI, to apply for a lesser penalty. The earlier applicant under this regime gets a greater reduction in monetary penalty as compared to subsequent applicants. Additionally, the confidentiality norms safeguard the identity of the ‘whistle-blower’ during the course of the investigations.

These Regulations also appear to be in line with anti-trust regulations across multiple jurisdictions. To name a few jurisdictions, the Leniency Plus regimes are currently being followed in the United States, United Kingdom, Singapore, and Brazil. The new LP Regulations, which mark a watershed moment in competition regulation in India, would hopefully lead to enhanced enforcement against cartels and anti-competitive agreements, act as a deterrent for possible wrongdoers and increase market transparency by bringing into light previously unknown cartels, which is bound to ensure fair competition in the market.

References:

[i] Available at: https://www.cci.gov.in/images/whatsnew/en/gazzete1708451685.pdf

[ii] Section 33 of the Competition (Amendment) Act, 2023; available at: https://prsindia.org/files/bills_acts/acts_parliament/2023/The%20Competition%20(Amendment)%20Act,%202023.pdf

[iii] The draft CCI (Lesser Penalty) Regulations, 2023; available at: https://www.cci.gov.in/images/stakeholderstopicsconsultations/en/draft-lesser-penalty-regulations1697431514.pdf

[iv] FAQ 4 of the CCI’s FAQs on Lesser Penalty Regime; available at: https://www.cci.gov.in/images/whatsnew/en/faqs-on-cci-lp-regime1708500979.pdf

[v] Regulation 3(1) of the LP Regulations.

[vi] Regulation 4(a) of the LP Regulations.

[vii] Proviso to Regulation 4(a) of the LP Regulations.

[viii] Regulations 4(b) and 4(c)(i) of the LP Regulations.

[ix] Explanation to Regulation 4(b) of the LP Regulations.

[x] Regulations 4(b) and 4(c)(ii) of the LP Regulations.

[xi] Schedule I and Schedule II of the LP Regulations.

[xii] Regulation 8(1) of the LP Regulations.

Image Credits:

Photo by wragg on Canva

The LP Regulations provide for the LP Plus regime, in addition to the LP regime. LP Plus regime permits an applicant, who had earlier made a full, true, and vital disclosure regarding the contravention of Section 3 of the Act by a cartel (“First cartel”), makes a full, true, and vital disclosure regarding the existence of another cartel (“Second cartel”) of which it was a part of, and has allegedly violated Section 3 of the Act, is eligible to get reduced monetary penalty. The reduced monetary penalty for the applicant sharing information about the Second cartel will be two-fold. Firstly, the applicant may be granted an additional reduction in penalty up to or equal to 30% of the penalty imposed as regards the First cartel. Secondly, the applicant may receive the benefit of a reduction in penalty up to or equal to 100% in terms of the Second cartel i.e. the newly disclosed cartel.

POST A COMMENT

Govt Mandates Private Companies to Issue Dematerialised Shares

On October 27, 2023, the Central Government notified the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, requiring private companies to issue securities only in dematerialised form w.e.f. September 30, 2024. The amendment rules modify Rule 9 and insert Rule 9B, Form PAS-7 and Form PAS-8 in the 2014 rules.

When it comes to unlisted public companies, the Government had mandated the issue of securities in dematerialised form via an amendment to the 2014 rules and the addition of Rule 9A, in the year 2018. In this article, we look at the major changes introduced under the 2023 amendment rules.

Conversion of share warrants

By inserting Rule 9(2), the amendment rules require public companies which have not converted the share warrants issued prior to the commencement of the Companies Act, 2013, into shares, to inform the Registrar about the details of the share warrants in Form PAS-7 (including information such as date of issue, number of shares, name of person, etc.), within 3 months. Such companies should also ensure that the bearers of the warrants surrender them and get the shares dematerialised in their account within 6 months. To bring this requirement to the knowledge of the bearers of share warrants, the said provision mandates companies to display and publish a notice in Form PAS-8 on their websites and in newspapers (in vernacular and English languages), respectively.

In case the warrant bearers fail to surrender the warrants within the stipulated time, it is the company’s responsibility to convert the share warrants into dematerialised shares and transfer them to the Investor Education and Protection Fund.

Private companies to issue securities in dematerialised form

The amendment rules provide for the insertion of a new provision, Rule 9B which deals with the issue of securities by private companies. All private companies, other than small companies, have been mandated to issue securities only in dematerialised form and facilitate the dematerialisation of all its securities. As per Sub-rule (2) of Rule 9B, private companies have to comply with the requirements listed under Rule 9B within 18 months of the closure of the financial year, i.e., by September 30, 2024. A private company, which is a small company per the audited financial statements for such financial year, will not be required to comply with the provisions of Rule 9B. Moreover, Government companies have been excluded from the purview of the rule.

After the said date, private companies referred to in sub-rule (2), before making any offer for issue of any securities, buyback of securities, issue of bonus shares or rights offer, have to ensure that “entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with the provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder”.

On or after September 30, 2024, the transfer of securities of private companies by its holder would require the holder to get the securities dematerialised before the transfer. Further, a holder of securities of such private companies would be required to ensure that all his securities are held in dematerialised form before subscribing to any securities of the concerned private company (i.e. if the subscription is made on or after the said date).

The provisions pertaining to the filing of application before a depository, compliance with circulars of SEBI or depository, filing of security holders’ grievances before the Investor Education and Protection Fund Authority, etc. under Rule 9A(4) to (10) would apply “mutatis mutandis” to the dematerialisation of securities under Rule 9B.

Remarks

The amendment rules clearly specify that the provisions regarding the issue of securities in dematerialised form do not apply to small companies. As per a joint reading of Section 2(85) of the Companies Act, 2013, and Rule 2(1)(t) of the Companies (Specification of Definition Details) Rules, 2014, a small company means a company, other than a public company, whose: –

Paid-up share capital does not exceed Rs.4 crore; and
Turnover as per profit and loss account for the immediately preceding financial year does not exceed Rs.40 crore.

The thresholds for paid-up share capital and turnover were last amended in September 2022. The Act also specifies that the said limits prescribed by the Government should not exceed Rs.10 crore and Rs.100 crore, respectively.

A proviso to Section 2(85) states that the said Section is not applicable to: –

Holding or subsidiary company;
Company registered under section 8 of the 2013 Act;
Body corporate or company governed by any special Act.

It follows that the abovementioned companies will not be treated as small companies even if they fulfil the conditions pertaining to paid-up share capital and turnover, and hence, would be bound by the present notification.

Image Credits:

Photo by juststock on Canva

POST A COMMENT

A legal Analysis of the Companies Fresh Start Scheme-2020

To mitigate the economic hardship caused due to COVID-19 pandemic and to facilitate ease of doing business, various efforts are being made by the Government of India. In furtherance of these initiatives, the Ministry of Corporate Affairs (“MCA”) has brought about certain relaxations for companies vide its general circular no. 13/2020 dated 30^th March 2020 (“Circular”). The relaxation enables companies to regularize compliance-related filing with the Registrar of Companies ( “Registrar”).

The Companies Act, 2013 (and erstwhile 1956 Act) (‘hereafter the ‘Act’) stipulates various mandatory filings for companies, and in case of failure in adherence, penal provisions are attracted in most instances. It is observed from the list of ‘defaulter companies’ provided under the official website of the MCA that there is a substantial increase in the number of non-compliances by companies. The defaults are mostly caused due to difficulties in understanding the applicability of a provision or due to paucity of time. This leads to a large number of companies being unable to file the required forms and returns with the Registrar within the stipulated time and thereby resulting in being in default under the Act.

In order to lighten the burden of the defaulting companies[1], the MCA has brought out the Companies Fresh Start Scheme, 2020 (hereafter referred to as the “Scheme”), whereby companies have been provided with the flexibility to fulfill pending filing compliances. The Scheme thereby condones the delay in filing the documents, forms, and returns with the Registrar without payment of any additional fees.

Applicability of the Scheme:

The Scheme has been promulgated by the MCA under Section 460 read with Section 403 of the Act, which empowers the Central Government to expressly condone the delay in filings with the Registrar.

The Scheme is applicable to all defaulting companies whose documents, returns, or forms are pending for filing as of the date of the notification of the Scheme. The benefits under the Scheme are available to both domestic companies registered under the Act as well as foreign companies. The Scheme also gives an opportunity to Inactive Companies[2] to get their companies declared as a ‘dormant company’ under Section 455 of the Act by filing a simple application on payment of the normal fee. The said Scheme is effective from 01^st April, 2020 and is valid till 30^th September, 2020.

However, it may be noted that the Scheme is not applicable in the following cases:

Where a final notice for striking off the name of the company under Section 248 of the Act has already been issued by the designated authority.
Where a company has Suo-moto applied for striking off the name of the company from the register of companies.
Where a company is amalgamated under the scheme of compromise and arrangement under the provisions of the Act.
Where the company had applied for dormant status under Section 455 of the Act before the introduction of the Scheme.
For Vanishing Companies[3].
For documents related to increasing in Authorized Share Capital (Form SH-7).
For charge-related documents i.e. Form CHG-1, CHG-4, CHG-8, and CHG-9.

The Process under the Scheme:

The Scheme stipulates that every defaulting company will be entitled to make the belated filing by paying only the normal fees as prescribed under Companies (Registration office and Fees) Rules, 2014 for filing of all such belated forms, returns, and documents, and no additional fees is required to be paid. After filing the pending document under the Scheme, the defaulting company is required to file e-form CFSS-2020 on the MCA website, without paying any fees thereon, giving brief details of the belated forms which have been filed by it. It is pertinent to note that the defaulting company is required to file the e-form CFSS-2020 within 6 months from the closure of the Scheme i.e. it has to be filed between 01^st October 2020 and latest by 31^st March 2021 in order to claim immunity under the Scheme.

If a defaulting company has filed an appeal against any notice, complaint, the order passed by the court or by an adjudicating authority, it can file an application under this Scheme for immunity certificate only after withdrawing such appeal and furnishing proof of such withdrawal with the application (CFSS-2020). The company is mandatorily required to provide proof of withdrawal of the appeal.

Relevance of Immunity Certificate:

On the basis of the declaration given in e-form CFSS -2020, the Designated Authority[4] will issue an Immunity Certificate. The immunity provided under the Scheme is only with respect to any penalty in relation to the non-filing of such form or document with the Registrar and the defaulting company is not protected from any consequential proceedings including any interest of shareholder or director etc. It is pertinent to note that the immunity certificate is not granted automatically but is subject to scrutiny and only after the document is taken on record or approved by the Registrar, as may be applicable.

Upon issue of the immunity certificate, the defaulting company gets protection from any penalty for such non-filings. Further, the designated authority will withdraw the prosecutions before any courts and proceedings pending before adjudicating authority in respect of which the immunity has been granted, which is deemed to be completed without any further action by the designated authority. It is pertinent to note that, immunity cannot be availed in the following circumstances:

In case any management disputes of the company are pending before any court of law or tribunal;
In case any court has ordered conviction in any matter, or an order imposing penalty has been passed by an adjudication authority under the Act, and no appeal has been preferred against such order before the commencement of the Scheme i.e. on or before 30^th March, 2020.

The only remedy which has been provided for a circumstance under point (ii) above is in a situation wherein an appeal under Section 454 (6)[5] is not filed before a regional director for an order passed by the Registrar and the last date of filing appeal falls between 1st March 2020 to 31st May 2020. In such a case, there is an extension in time by 120 days for the company to file an appeal. Furthermore, during such grace period, no prosecution will be initiated against the company or its officers for non-compliance of an order of the adjudicating authority in so far as it pertains to non-filing of forms or documents.

Analysis of the Scheme:

While on one hand, it is noted that the Scheme provides benefits to the defaulting companies, at large, to make the filings of documents, forms, and returns which are pending for filing, the Scheme also entail other benefits as explained below:

Inactive Companies- This is a good opportunity for all the defaulting inactive companies to file all their pending forms and returns at normal fees instead of the hefty additional fees of ROC and also file an application for immunity in E- Form CFSS-2020. The company can subsequently file for either Form MSC-1 to obtain the status of Dormant Company under Section 455 of the Act or file Form STK-2 for striking off the name of company under Section 248 of the Act.

Directors whose DIN are deactivated due to non -filing of KYC forms-The Scheme gives an opportunity to those Directors whose DIN were deactivated due to non-filing of Form DIR-3 KYC. Those Directors can activate their DIN after filing their pending KYC forms at normal fees.

Filing of annual return: The Scheme also gives companies, who have not complied with the annual return filing requirement, an opportunity to rectify the same. Further, a company that has been struck off due to non-filing of annual returns, may apply for revival before the NCLT and thereafter obtain approval for revival and then take benefit under the Scheme.

Even considering these benefits, it may be noted that there are some shortfalls under the Scheme or areas wherein the Scheme needs to bring more clarity:

A defaulting company gets immunity only with respect to penalty for non-filing of the form/document and the immunity is applicable only upon scrutiny and form being approved (if applicable) and a certificate being issued by the Registrar. However, in the event the form is not approved by the Registrar or the immunity certificate is not granted, the benefit under the Scheme is not available and that means the defaulting company continues to be under default.
The Scheme expressly provides that the immunity will not be applicable in case where the adjudicating officer under the Act has already passed an order and it is not being appealed. Similarly, in the event, if an appeal is being filed by the defaulting company against an order, then in order for the company to claim benefit under this Scheme, the application has to be withdrawn. In this regard, it is pertinent to note that there is an inordinate delay in the withdrawal of cases from the appellate authorities.[6] Given the backlog of matters before the authorities and practical difficulties arising due to COVID-19 restrictions, it needs to be considered whether the timeline provided is practically sufficient for the defaulting companies to file for withdrawal and obtain a copy thereof and thereafter file for the benefit under the Scheme. Even considering the options for online application filing that has been provided by most forums such as NCLT because of COVID-19, companies could face difficulties in meeting the timeline. Further, in a situation where a defaulting company withdraws the appeal and files for immunity but the Registrar denies or refuses to grant immunity, there is no express clarity on whether it would affect the ability of the defaulting company to file for a fresh appeal or to what extent the defaulting company will face exposure under Section 454. Alternatively, the company may have to reserve the liberty to seek fresh appeal at the time of withdrawal, as per feasibility.
While at one hand, the Scheme does provide benefit in rectifying non-compliances for forms such as Annual Returns, however, the benefit is not being provided for forms such as charge-related filings which carry heavy duties in terms of additional fees as well as the time limit for filing. Also, such forms if accepted for filing would have given greater protection to the secured lenders.

In light of the above, it may be noted that while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016, etc. However, it needs to be considered whether the benefits are in their true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.

References

[1] The Scheme defined a ‘Defaulting Company’ as a company defined under the Companies Act, 2013 and which has made a default in filing of any of the documents, statement, returns etc including annual statutory documents on the MCA 21 registry.

[2] Inactive Company means companies defined in Explanation (i) to sub-section (1) of section 455 of the Act, which deals with the definition of Dormant Company

[3] Vanishing Companies are those companies which raised funds from public through initial public offers (IPOs) and subsequently failed, inter-alia, to comply with the listing/ filing requirements of Registrar of Companies (ROC) and the Stock Exchanges for a period of two years and were not found at their registered office address at the time of inspection done by authorities / Stock Exchange.

[4] Designated Authority means the Registrar of Companies having jurisdiction over the registered office of the Company.

[5] Section 454 (6) requires an aggrieved person to file an appeal against the order of an adjudicating officer within 60 days from the order thereof.

[6] As per Government of India Ministry of Corporate Affairs Rajya Sabha Unstarred Question No. 1148 answered on Tuesday, the 6th March, 2018 regarding pending cases under the Companies Act, 2013: ‘9,004 number of applications have been filed as on date for withdrawal, out of which 4,066 number of cases have been withdrawn.’

Image Credits: Ayma Nejed from Pixabay

while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016 etc. However, it needs to be considered whether the benefits are in its true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.