From ‘Relevant’ To ‘Global’ Turnover: Examining The Basis Of Penalty Under The Competition (Amendment) Act, 2023

9th April, 2024 - 6:23 am Categories: Intellectual Property 0 Comments

Introduction

The Competition Act^[1] describes ‘turnover’ as the ‘value of sale of goods or services’. Associated with this provision, is the provision specifying the penalty^[2] for anti-competitive agreements,^[3] which until recently, did not specify whether this ‘turnover’ was to be based on total/global turnover (derived from all the products and services by an enterprise)^[4] or relevant turnover (revenue generated by a business from the sale of goods and/or services associated with the violation).^[5] The settled position in law, as determined in the landmark judgement of Excel Crop,^[6] was to levy penalties as per the relevant turnover of an enterprise. However, in 2019, the Competition Law Review Committee published a report^[7] that formed the basis for the proposed 2020 Competition Amendment Bill, finding the ‘relevant turnover’ formula to be inadequate. The section, now amended (as of 2023),^[8] clarifies that such ‘turnover’ for the purpose of imposing penalty shall mean ‘global turnover’. Vide notification dated 05 March 2024, the Government of India notified and brought into force these amendments.

A Note on Proportionality

The former practice of levying penalties as per relevant turnover can be attributed to the Doctrine of Proportionality. ‘Proportionality’ suggests that actions should be appropriately calibrated and justified to achieve their intended outcomes without being excessively severe. As a well settled principle of administrative law, proportionality mandates that “a punishment should be proportionate to the offence committed”.^[9] When viewed from the lens of proportionality (as safeguarded by the Indian Constitution),^[10] penalties levied by courts under Section 27(b) should lean towards relevant turnover as opposed to total turnover. This is due to the simple factor that it may not be ‘justifiable’ or ‘proportional’ to impose a fine for anti-competitive practices specific to a product, based on ‘all the goods’ or the ‘total revenue’ of the company. The court in Excel Crop^[11] therefore held that penalties under the Competition Act should not be disproportionate, as they could lead to ‘shocking’ results.^[12] Additionally, it was observed that in their application of proportionality, courts should not aim to ‘finish’ the industry altogether by levying penalties beyond the means of the industry – but should instead aim to deter and stop practices that are anti-competitive in nature. The judgement therefore placed primacy on this doctrine of proportionality, and agreed that the provisions of penalty should be based on relevant turnover, and that, “imposing penalties based on total turnover would go against the ethos of competition law”.^[13]

Inconsistency and Lack of Objectivity in Penalty Imposition By CCI

What seemed apparent, with respect to the percentage of penalty being imposed on industries, was a lack of objectivity or equitability – thereby going against the principle of proportionality altogether. This instability can be traced to the language used previously in Section 27(b); particularly the phrase, ‘as it may deem fit’, since it conferred wide and arbitrary powers on the fining authority under the Act.^[14] As a consequence of this, the CCI had levied penalties ranging from less than 1% to 10%, with no discernible link of the percentage of penalty imposed, to the severity of the offence committed. For example, in Excel Crop, the CCI penalized the parties at 9% of their total turnover. In another case,^[15] the CCI penalized the offending parties at 10% of their total turnover, whereas, airlines fixing a fuel surcharge^[16] were only penalized 1% of their total turnover. Similar precedents^[17] collectively point towards the lack of consistency in the CCI’s penalty regime. A majority of these decisions thus lacked clarity as to why penalty percentages were set as they were.

Despite the Supreme Court verdict in Excel Crop and the COMPAT’s repeated directions to the CCI to provide the reasons behind determining the quantum of penalty,^[18] the Commission continued to struggle with the application of ‘relevant turnover’ in certain cases. This was seen particularly in instances involving ‘big tech firms’, and incidents of cover bidding^[19] where relevant turnover was absent, due to the fact that such cases usually involved multiple products and markets functioning in harmony with each other. A harsh disparity in the levying of fines was now more evident than ever. The CCI first observed this in Matrimony.com,^[20] noting that the use of relevant turnover may not suit digital or technology-driven enterprises, given its application in the context of traditional multi-product companies. This was followed by a string of similar cases, where the court ultimately found itself adopting a platform-based total turnover approach to penalties.^[21] This brought the court back to its disproportional application of the penalty provision, rendering it almost counterproductive. The CCI was at a crossroads – to stick with the current regime of relevant turnover based penalties, or to employ an alternative metric in order to levy penalties.

Balancing Penalty Metrics – How ‘Relevant’ is ‘Global’ Turnover?

Taking into account these challenges with relevant turnover and the seemingly sweeping advantages of global turnover, the shift to the latter can be perceived as a welcome change. However, we must keep in consideration the unintended consequences borne by total turnover, primarily unproportional and excessive financial burdens, that may lead to over-deterrence and increased product costs. These elevated compliance costs would eventually inflate product prices, which would in turn be unfavourable for consumers. In addition, the risk of imposing excessively high penalties would also deter foreign companies from entering the Indian market, fearing fines of up to 10% of their global turnover.

In this context, the need of the hour is implementing a balanced approach in the application of relevant and total turnover in penalty regimes. In pursuance of this, the Commission on March 6^th, 2024 issued Turnover Regulations^[22] and Penalty Guidelines^[23] which provided much required clarity on the amended provision.

As a result of this, the CCI is now required to keep various factors into consideration while levying penalties, including the nature and gravity of the contravention, duration of the contravention, the role of the enterprise, admission of contravention, extent of cooperation, among other factors to mitigate (or aggravate) the imposition of penalty.^[24] Moreover, enterprises will also be granted the benefit of lesser penalty on the amount leviable subject to certain conditions.^[25] Furthermore, to facilitate an equilibrium in penalty imposing metrics, the CCI has been permitted to consider ‘relevant turnover’ in certain cases.^[26]

Way Forward

Penalties should align with the conducive environment for businesses to thrive in India, rather than instilling fear of potential repercussions. The transition from relevant turnover to global turnover in penalty standards poses both opportunities and challenges for enforcement of penalty provisions in India. While the shift may offer greater clarity and broader applicability, it also raises concerns regarding proportionality, fairness, and the potential for unintended consequences. The recent issuance of Turnover Regulations and Penalty Guidelines by the CCI represent a step in the right direction, however, achieving a balanced and equitable penalty regime will require continued vigilance, stakeholder engagement, and a commitment to upholding the principles of proportionality and fairness. As we navigate this transition, it is essential to strike harmony between deterrence and fairness. By adhering to these principles, the CCI can effectively promote competition, protect consumer welfare, and foster a competitive market environment in India.

Author: Medha Raj, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

[1] The Competition Act, 2002, § 2(y), No. 12, Acts of Parliament (India).

[2] The Competition Act, 2002, § 27(b), No. 12, Acts of Parliament (India).

[3] The Competition Act, 2002, §§ 3-4, No. 12, Acts of Parliament (India).

[4] The Competition Act, 2002, § 27(b) Exp. 2, No. 12, Acts of Parliament (India).

[5] The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024, Rule 2(1)(h), No.1 (India).

[6] Excel Crop Care Limited v. Competition Commission of India and Anr., AIR 2017 SC 2734.

[7] Ministry of Corporate Affairs, Report Of Competition Law Review Committee, (July 2019).

[8] The Competition (Amendment) Act, 2023, § 27(b), No. 9, Acts of Parliament (India).

[9] Excel Crop Care Limited v. Competition Commission of India and Anr., AIR 2017 68 SC 2734.

[10] The Constitution of India, art. 14, art 21.

[11] Excel Crop Care Limited v. Competition Commission of India and Anr., AIR 2017 SC 2734.

[12] Excel Crop Care Limited v. Competition Commission of India and Anr., AIR 2017 74 SC 2734.

[13] Id.

[14] Excel Crop Care Limited v. Competition Commission of India and Anr., AIR 2017 SC 2734.

[15] In Re:Bengal Chemist and Druggist Association, 2018 (3) SCC 41.

[16] In Re: Express Industry Council of India v. Jet Airways (India) Limited and Others, (2018) SCC OnLine CC 11.

[17] In Re: Director, Supplies and Disposals, Haryana v. Shree Cement and Others, 2017 SCC OnLine CCI 2; Belaire Owner’s Association v. DLF Limited and Others, 2011 SCC OnLine CCI 89; Kapoor Glass Private Limited v. Schott Glass India Private Limited, (2014) SCC 195; Umar Javeed v. Google LLC, Case No. 39 of 2018, decided on 22-10-2022; Shamsher Kataria v. Honda Siel Cars India Limited and Others, 2014 SCC OnLine CCI 95.

[18] Gulf Oil Corporation v. Competition Commission of India and Others, COMPAT, Appeal No. 82-90 of 2012 (18 April 2013); MDD Medical Systems India Private Limited v. Competition Commission of India and Others, COMPAT, Appeal Nos 93-95 of 2012 (25 February 2013).

[19] In Re: Aluminum Phosphide Tablets Manufacturers, 2012 SCC OnLine CCI 25.

[20] Matrimony.com Limited and Another v. Google LLC and Others, 2018 SCC OnLine CCI 1.

[21]  XYZ (Confidential) v. Alphabet Inc. and Others, 2022 SCC OnLine CCI 63; Google LLC and Others v. Competition Commission of India and Others, NCLAT, Appeal No. 01 of 2023 (29 March 2023), Federation of Hotel and Restaurant Associations of India and Others v. MakeMyTrip and Others, 2022 SCC OnLine CCI 58.

[22] The Competition Commission of India (Determination of Turnover or Income) Regulations, 2024. No. 1 (India).

[23] The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024, No.1 (India).

[24] The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024, Rule 3(2)(b), No.1 (India).

[25] The Competition Commission of India (Lesser Penalty) Regulations, 2024, Rule 4 (India).

[26] The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024, No.1 (India).