Penalty on Global Turnover: A Critique of India’s Latest Competition Regime

[By Nikita Parihar]

The author is a student of Lovely Professional University, Punjab.

 

Introduction

Competition Amendment Bill 2023 [‘‘CAB23’’] recently introduced in the parliament introduced the concept of penalty on the Global Turnover [‘‘GT’’] of the infringing party in India as well. It is said to be a wild card entry because it is neither introduced in Competition Amendment Bill 2022 [‘‘CAB22’’] nor was recommended by the standing committee report. The earlier penalty was given on the average turnover of the relevant market which watered down the deterrent motive of the law that is to be attained.

A penalty on GT is a type of penalty or fine that can be foisted on companies for overstepping competition law. In some jurisdictions, such as the European Union [‘‘EU’’], competition law authorities have the power to impose fines on companies that engage in anticompetitive behavior, such as price-fixing or market allocation. These fines can be significant and are often based on a percentage of the company’s GT. The use of a penalty on GT is intended to make the fine significant enough to deter companies from engaging in anticompetitive behavior, while also considering the company’s size and economic power. By imposing a fine that is a percentage of the company’s GT, competition authorities aim to set the seal that the penalty has a meaningful impression on the company’s bottom line, and remits a strong signal to other companies that anti-competitive behavior will not be endured.

It is worth noting that the use of a penalty on GT is not universally accepted, and there is some debate over whether it is an appropriate form of penalty. However, many competition law authorities continue to use this form of penalty, and it remains an indispensable tool for enforcing competition law and stimulating fair competition in global markets.

The author argues that it can disproportionately impact companies and that the calculation of GT can be convoluted and can also take hold of India’s market by putting off global players’ entry.

A potential barrier to global players

Penalizing an enterprise altogether and taking its GT as leverage to keep them truncated might have detrimental effects on the Indian market as it might agitate global corporations to set foot in the Indian market. But that actually depends upon authorities to balance with the most awaiting guidelines for the same, EU also has akin laws to tackle inequitable players and it turned out to be effectual but considering India’s growing market and fluctuations it can serve as a menace to the Indian economy.. As developing nations, we need to captivate corporations to invest and operate in India to contribute to its extension. Still, imposing fines that are detrimental to their growth may affect India’s growth.

There are many conglomerates’ deals across many sectors and if CAB23 is passed and they are found doing anti-competitive practices in one sector they will be fined taking turnover all across the sectors they deal in which will be a matter of concern for them as well. Though this can help the Competition Commission of India [‘‘CCI’’] bring down the cases but endangering the entry of global players and the existence of smaller companies or startups will curtail the purpose of the competition law itself.

Detrimental to the existence of smaller companies

When it comes to small companies, the European Commission’s competition policy recognizes that they may face different challenges compared to larger companies, such as limited financial resources or market power. Therefore, the Commission takes into account the specific circumstances of Small and Medium-Sized Enterprises [‘‘SMEs’’] when applying competition law. The Commission has adopted various measures to support SMEs in their business activities while ensuring a level playing field for competition. For example, the Commission has simplified the procedures for SMEs to apply leniency in cartel cases, and it has also provided guidance on how SMEs can participate in public procurement procedures.

In addition, the Commission has established specific funding programs to support SMEs in their business activities and encourage innovation and growth, such as the Horizon 2020 program. However, it’s worth noting that competition law applies equally to all companies, regardless of their size. If a small company engages in anti-competitive behavior, it may face fines and other penalties under EU competition law. The Commission’s goal is to ensure that competition is not distorted, and consumers are not harmed, while also considering the particular challenges SMEs face.

Excessive fines leading to over-deterrence

The article argues that while fines imposed for anti-competitive practices should be significant, they should also be proportionate to the actual harm caused. Excessive fines can lead to increased scrutiny and compliance burdens for organizations, ultimately impacting customers who may have to pay increased prices. The spirit of competition law in India is to protect customers and market forces, but over-deterrence resulting from disproportionate fines could discourage enterprises from entering the Indian market or result in unfair treatment of customers. Therefore, the author suggests that the CCI should ensure that penalties are in proportion to the harm caused, and not more. While the calculation of GT may pose challenges for the CCI, particularly in the early stages, the author suggests that developing a process for collecting relevant information and consolidating it will be essential for the CCI to handle cases efficiently and effectively.

Implementing foreign concepts in the Indian market

The first time a penalty was levied on a GT by competition authorities in the EU was in the case of Intel Corporation. In 2009, the European Commission fined Intel a record 1.06 billion euros for abusing its dominant market position by offering rebates to computer manufacturers on the condition that they purchased all, or almost all, of their x86 CPUs from Intel. The Commission found that these rebates were part of a strategy by Intel to exclude its main rival, Advanced Micro Devices (‘‘AMD’’), from the market for x86 CPUs. The Commission also found that Intel made direct payments to a major computer retailer, Media-Saturn, to stock only computers with Intel CPUs. The penalty was based on Intel’s GT, which at the time was approximately $37.6 billion. This was the first time that the Commission had imposed a fine based on a company’s GT, and it was intended to send a strong signal that the EU would not tolerate anti-competitive behavior by dominant companies. Similarly in India, recent fines on Google for abusing its dominant position in Android Operating System [‘‘AOS’’] has raised concerns in the Indian market but the fine, in this case, was levied on relevant turnover as GT has been introduced after the order of CCI in CAB23. Indian market is vulnerable and is impacted by even small havoc, imposing penalties on GT can be challenged and can ultimately lead to humungous appeals in NCLAT overburdening it and deteriorating the value of CCI’s orders.

Excel Crop Care Limited v. Competition Commission of India and another

Clarifying the turnover mentioned under the Competition Act, 2002 in this case the apex court held that the penalty will be calculated on the turnover of the particular product or geography the enterprise is engaged in rather than imposing a fine on the GT of the company. This ruling gave a clearer point on the ambiguous concept of the calculation of penalty by CCI. Contradicting this view of the supreme court, the new concept of penalty on GT can be a setback for enterprises indulging in anti-competitive practices. This suggestion shakes the order of the apex court and might go in both negative and positive ways looking upon the calculation and implementation by CCI.

Is CCI justified in doing so or is it unfair, a paragon of unfairness

Even though the Competition Commission of India has come so far delivering landmark orders is still in the nascent stage. Calculating GT is a complex mechanism and doing the same can be challenging. It would be much easier for conglomerates to pay such steeper fines given the advantage of their size and finances but it would be rather unfair to smaller businesses to pay such penalties which can even affect their operations ultimately resulting in their closure. Nonetheless the recommendation CCI has been triggered by recent infringements and hence has introduced this concept to lessen the number of anti-competitive activities. Impact on the company’s finances, future growth, and reputation shall be taken into consideration while calculating penalties as ignorance can lead to unjustified penalties.

Conclusion

In the article, the author examines the new competition law regime in India, which includes penalties on global turnover for anti-competitive behavior. The author argues that clear guidelines from the Competition Commission of India (CCI) are needed to ensure that fines are levied fairly and proportionally, taking into account the interests of the Indian market and customers. To avoid disproportionately large fines, the author suggests that smaller companies should be subject to a lower percentage of their global turnover or just their average turnover from the relevant market. The author also proposes that the CCI should focus on behavioral remedies in addition to fines, working with infringing parties to quickly resolve anti-competitive conduct. By providing clear guidelines and parameters for calculating penalties, the CCI can enhance its credibility and reliability, while also protecting the interests of enterprises and consumers.

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