[By Ayushman Rai]
The author is a student of National Law University, Jodhpur.
Background
Until the 2023 amendment, the Indian law didn’t explicitly take a stand between the global and relevant turnover, and hence the pendulum kept on swinging between the two. This article is written with the twin motives of examining the backdrop and implications of the changes in the basis for penalisation under Indian law; and assessing the extent to which this alteration conforms with the aims and objectives of competition policy, through a juxtaposition with other (European and British) jurisdictions.
Pre-Amendment Developments: Buildup to Excel Corp Case
Initial inclination towards “global approach”
The notion of penalising the entity distorting competition based on its turnover has been universally accepted. However, there is a split of opinions on the appropriate basis for the calculation. Should it be calculated based on the firm’s turnover in the specific market where it has (or attempted to) distort competition, i.e., the “relevant turnover”; or should it be based on the “global turnover” of the firm regardless of the size/type of market distorted?
The initial years post-enactment saw the Competition Commission of India (CCI) attempting to take the widest import in fining, and went for the global turnover approach. Applied in a plethora of cases,1 the approach was justifiable to a certain extent, based on the aim of imposing penalties—“deterrence”.
The Excel Corp Rift
In order to prevent arbitrariness, Section 27 of the competition act provided that the onus was on the court to elucidate appropriate reasons before imposing punishment. However, the penalties imposed still seemed unjustifiably excessive and disproportionate in many cases. This culminated in the Excel Corp Case, which was an appeal against a case where the penalties imposed were enormously disproportionate, despite being culpable for the same offence.
Proportionality, enshrined under Article 14, meant that the fine should be imposed proportionate to the gravity of the offence. Taking cue from South Africa, the court acknowledged the aim of deterrence (purposive interpretation), but conceded that it cannot go to the extent of imposing penalties that eradicates the existence of a firm. It was held that the aim of deterrence can be sufficiently served with “relevant turnover”, by reading the purpose with proportionality.
The 2023 Amendment: Inferences and Implications
Debunking the Excel Corp
The 2023 amendment act addresses the issue of the Excel Corp by explicitly adding an Explanation to Section 27, to clear the ambiguity. The purpose of deterrence is also served effectively by the ‘global turnover’ approach. Moreover, the concern for disproportionality lies in the percentage of the turnover (on the scale of zero to 10 %) taken for the penalty, and not the nature of turnover- i.e., global or relevant. Section 45 of the amendment takes care of the same, by provisioning for guidelines to CCI for ensuring proportionality in imposing penalties.
The Positives
The amendment enforcing a reversion to the global approach is commendable for plenty of reasons, as it plugs several loopholes, which were not addressable by the relevant approach.
The digital (muti-market) conundrum— a major ambiguity revolved around penalising the “digital market platforms”. The non-feasibility of relevant turnover for digital enterprises was emphasized in Matrimony.com vs. Google. As Google could contend herein that it is bereft of any liability, since the search is free, there is no revenue from this stream of (relevant) market, hence no penalty. Such an inference would straightaway defeat the purpose of the act, and is impermissible. This stance found the latest reiteration in 2022, when the court in MMT-GO, interpreted the aggregate turnover under the titular of relevant turnover only, to preserve the aim of deterrence.
Dominant in one market, abusive in another (Tying cases)— the delineation of market is easier when the abuse is through anti-competitive agreement, but in the cases of abuse through dominant position (by conduct) it turns complex. More so, in cases where the firm in dominant in one market and is abusing it in the other (related) market. For instance, in a case of tying, where the firm makes the supply of the product (where it has dominant market) contingent on the purchase of another product (not dominant). Since, the relevant market is not determinate, the approach will fall flat here. Even if we take the market where abuse happens to be the relevant one, the fine imposed will be inept, unfair and insignificant to deter.
Cover bidding loophole— the firms, not involved in the business of the product, were bid-rigging and getting away without being punished. This was being done through complementary bidding agreements (page 6). The CCI took no time to distinguish the case, reflected as a glaring drawback of relevant approach, from the Excel Corp. With the new amendment, this loophole is done away with.
The Negatives
While the amendment meets several of its targets, there are some aspects that reflect badly on it too.
Procedural accountability/scrutiny compromised— a major criticism of the amendment comes against the procedural irregularity in the pursuit of passing the bill. Specifically, the provision of the amendment (Explanation II of S. 20) doing away with the Excel Corp, was not included in the original amendment bill tabled before the Indian parliament. The provision, subsequently, was not scrutinised even by the Parliamentary Standing Committee on Finance, to which the bill was referred by the Lok Sabha on Aug, 17th, 2022. It was passed without debate once it was reverted by the Standing Committee. Moreover, it was not included even when the draft bill was published to invite public comments, hence it also escaped the direct public scrutiny. Thus, a major question arises as to accountability of this provision, which nullifies a landmark judgement in the arena of Indian competition law. It was not a recommendation of any committee report, not even the most recent CLRC report, nor was it debated by parliament, standing committee or even public, hence it has a shaky foundation.
Furthering the protectionist agenda— arguably an unintended repercussion of the amendment is the bias against the foreign firms. The global turnover will affect only the large firms, which are majorly foreign. The deterrent effect will be served for the benefit of the domestic industries, with largely have no or little global market.
The objectivity question—in either of the approaches, ultimately the court has the discretion to decide the percentage of turnover for penalty. The real concern is the basis on which that specific percentage is reached in each case. The amendment included Section 45, contemplating a set of guidelines for ensuring proportionality in this respect. But it remained in limbo, until 2024.
Aftermath: The 2024 Guidelines
The provision for ensuring proportionality materialised on 6th March, 2024, when CCI notified four guidelines in pursuance of the 2023 amendment, which inter alia, had the CCI (Determination of Monetary Penalty) Guidelines, 2024. Seen in the light of Indian developments, it can be seen as a long-awaited culmination. The Raghavan Committee (Paragraph 6.4.6, Page 63), acknowledged its necessity, while laying grounds for enacting the 2002 act. The CLRC Report (Para 3.12., Page 84) also reiterated the demand for penalty guidelines, before it was statutorily recognised in the 2023 act.
Unlike the 2023 act, the 2024 guidelines don’t provide for a straitjacket percentage-based calculation of fine, rather it adopts the procedure in use in the European and British law2. It enumerates a two-pronged process of calculation— first, the starting point (basic amount) is to be decided by CCI, which can go up to 30% of relevant turnover. This is decided on the basis of certain factors given in Rule 3(1), e.g., nature and gravity of intervention. Then the second step is adjustment of basic amount, based on aggravating and mitigating factors, provided in Rule 3(2), e.g., duration of contravention, repeated acts etc.
Although, the guideline takes relevant threshold as default basis, it also states that the CCI can resort to global turnover for determining the basic amount, when “relevant turnover is not feasible” [Rule 3 (6)]. The guidelines have stressed on the aim of deterrence and given the leeway to the CCI to increase them in that pursuit, but not beyond the cap under s.27 [Rule 3 (7)]. Even though the list of factors is not exhaustive [Rule 3(2) (j)], an important deviation from European and British guidelines is that no consideration has been given to the “ability of the firm” to pay. Given the amount of flak that the global approach draws for being harsh, this emerges as a crucial factor. In concurrence with mitigating factors, it would have added to the safeguard against arbitrary and erroneous usage of the global approach.
In any case, the guidelines seem to satisfactorily incorporate the renowned procedure for calculating penalty, to the Indian law, and must pave way for ensuring proportionality, transparency and predictability in the imposition of fines for anti-competitive practices.
Conclusion
The shift from “relevant” to “global” has been anything but gradual. The primary concern of proportionality was dealt with, only by the guidelines and not the amendment itself.
Through the 2024 guidelines position has technically been reverted to the pre-Excel Corp era, where the CCI had the ultimate discretion (of choosing global or relevant turnover), but only difference being the presence of statute-backed guidelines to guide and regulate that discretion, through an established procedure. The guidelines would perform the task of backing the court penalties, and ensure that the unnecessary litigation and appeals are regulated, while also incentivising settlements for quicker disposal of cases.
While the guidelines have duly set the ground for resolving the tussle between two approaches through addressing the concern of proportionality, its efficacy is now contingent on CCI’s compliance. Though nascent to India, the guidelines have gone through the test of time globally. The onus lies on the CCI to ensure that guidelines traverse smoothly through the Indian terrain. In doing so, it must not let the purpose of its institution slip from being a “watchdog” to become a “greyhound”.