Implications of CCI’s power for imposing penalties on Global Turnover

[By Himanshi Srivastava]

The author is a student of Dharmashastra National Law University.

 

Introduction

With the Competition (Amendment) Bill of 2023, receiving the President’s assent, the market is abuzz with questions revolving around the major amendment which has empowered the Competition Commission of India (CCI) to levy penalties on global turnover. In Section 27(b) of the Competition Act, the definition of turnover has been now enhanced to mean ‘global turnover’ derived from all the products and services by a person or an enterprise. This contrasts the earlier meaning of turnover, which was restricted to ‘relevant turnover’, as interpreted by the Supreme Court in the landmark judgement in the Excel Crop Care Ltd. case. In this case, the Apex Court determined that the penalty under Section 27(b) must be on the relevant turnover, i.e., relating to the specific product(s) in relation to the breaches.

Until now, the definition of ‘turnover’ in Section 2(y) did not specify anything, it is for the first time that the words of the statute explicitly provide for the nature of the turnover to be global, extinguishing any possible ambiguities and room for judicial discretion. Thus, it will be quite crucial to see the development which will follow this unprecedented change in the Indian economy and the stakeholders. The amendment brings into discourse, the aspects of proportionate penalties, determining turnover, and the nuances of the constitutionality of the amendment. To understand the potential impact of this change in a global paradigm, a comparative assessment of jurisdictions like- the European Union (EU), the United Kingdom (UK), and Germany would be immensely fruitful.

Analysing the penalty on turnover in a global paradigm

For the purpose of contextualising the analysis, a parallel comparison could be drawn in the global paradigm, to ascertain the practical nuances of this amendment from a broader perspective. The EU, CMA guidelines, and the German Competition Act are relevant to this discourse. Article 30 of the EU’s Digital Markets Act penalises the gatekeepers with a fine of up to 10-20% of the total worldwide turnover in the preceding financial year, on breaches of the Act. However, as a precaution, this provision is followed by the ‘right to be heard and access to the file’ in Article 34 of the Act. By virtue of this provision, the gatekeepers have the right to the defence which includes the right to access the file of the Commission and submit their observations regarding the preliminary findings of the Commission.

Similarly, the Competition and Markets Authority (CMA) of the UK has permitted a maximum penalty of 10% of the worldwide turnover of the entity in the last business year for engaging in anti-competitive conduct.      The guidance also provides for mitigating factors, assessing whether the undertaking is operating under duress, if the infringement is halted upon CMA’s intervention and cooperation with the process. Section 36 of the Competition Act, 1998, provides for a mandatory requirement of a notice in writing, while also directing the CMA to consider the seriousness of the breach and the deterrence for ascertaining the penalty.

A like provision is present in Section 81(c) of the Competition Act of Germany, which has fixed the upper limit of the fine amount from an undertaking to 10% of the total turnover generated in the business year preceding the authority’s decision. Various factors like- the nature and gravity of the infringement, its duration and manner, the economic condition of the undertaking, its efforts to redress the consequential harm, etc. are also required to be considered to determine the fine. Hence, we see a likeness in all these legislations, which provide for penalties on global turnover, while equally ensuring the rights of the defaulters.

However, one fails to see similar provisions in both the Indian legislation as well as the current amendment bill. It is thus vital for the lawmakers to provide for certain leniency reductions or settlement reductions in fines imposed, lest the defaulting enterprise may suffer due to the unbridled powers bestowed upon the CCI. Since the antitrust regime in India is still nascent, unlike the mature and highly volatile market structures of economies like the EU, UK, Germany, etc., it is reasonable to say that the novel change in India’s Competition law necessitates including various precautionary measures, to maintain an equilibrium in the CCI’s approach to a case of a breach. A lack of such measures may pose a possible threat to the regime against the anti-competitive conduct of corporations.

Possible implications in the Indian scenario

The meaning of turnover in the Indian context can be traced from the Excel Crop Care Ltd. case. In this case, the CCI imposed a penalty of 9% on the average ‘total turnover’ for the last three years on establishments accused of entering into an anti-competitive agreement. The Court concurred with the decision of the Competition Appellate Tribunal (COMPAT) in its interpretation of turnover in Section 27(b) as relevant instead of total. To arrive at this conclusion, the Court considered factors, the first being the possibility of any inequitable and discriminatory outcomes of the penalty imposed on multi-product and single-product companies alike. Further, an analysis in light of the principle of strict interpretation of statutes and the doctrine of proportionality also suggested that the usage of relevant turnover would be proportionate and not antithetical to the entities.

The novel provision of penalties on global turnover will undoubtedly have far-reaching consequences for businesses operating in India. Penalty for anti-competitive practices on global turnover will not only increase corporations’ pecuniary liability manifolds but may also have adverse impacts on the competition in the market. The expansion in the scope of the powers of the CCI will certainly increase regulatory oversight and scrutiny of multinational companies in India. The enormous amount of penalties resulting from this amendment could potentially sabotage business operations, draining their balances, eventually leading to unnecessary compliance burden and discrimination against multi-product corporations. Big enterprises could be denied potential investments if there is a lack of transparency and uncertainty in the market.

In the event, an undertaking is unable to pay the fine due to economic constraints, there could be severe repercussions due to the absence of a fair, reasonable, and detailed procedure in place.  Moreover, mergers and acquisitions are also susceptible to significant effects from this change. Mergers between undertakings with a global presence and domestic ones would face hardships if the penalty is indiscriminately imposed on the overall turnover from products and services across its business. Thus, multiplying the risk factor in such operations leads to a skewed market graph. Government is yet to address questions of public confidence, market fluidity, sustenance of competition and market sustainability.

Conclusion

Towards the end, it is suggested that the authorities can engage in a consultation with all the stakeholders before effecting any substantial changes, in a sensitive market. At a time when the Indian market is rapidly evolving with the market changes, it is only fair that the authorities are prepared to efficiently incorporate this substantial change in the antitrust regime. There is a need for ensuring a level playing field for all types of players- domestic, multinational, and global corporations alike. A balanced approach must be undertaken by the government, to avoid the risks of ambiguous, arbitrary, and disproportionate penalties on corporations. Whether or not the Indian economy is ready for effecting this amendment is still to be observed. But the enhancement of the provision with additional safeguards, transparent penalty calculation procedure, and equal rights to defaulters, among other provisions. While the tussle around a plethora of aspects regarding questions of constitutional validity is still awaited, it is anticipated that the policymakers will give due consideration to the global implications of the proposed amendments and consider analysing parallel national legislations to draw more suitable conclusions.

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