Mohith Gauri and Toshit Shandilya examine the application of turnover penalties and other key issues in the Indian antitrust legal landscape.
The Indian Parliament recently approved amendments to India’s competition rules, in April 2023. Some of these amendments have been enforced, and other provisions that depend on regulations for their full operation will be enforced in due course.
One of these amendments allows the Indian antitrust regulator – the Competition Commission of India (CCI) to issue fines based on the global turnover of a company derived from all of its products and services. We think that this power needs to be exercised sparingly, and requires a balanced approach.
Guidance From the Indian Supreme Court
Before the amendments, the CCI was empowered to impose fines on the average turnover of the preceding three financial years in cases of abuse of dominance (it is empowered to issue larger fines in cartel cases). Indian competition law rules only define the word “turnover”. Therefore, in the CCI’s early years of enforcement, it penalised companies based on their total turnover, even when the infringement concerned only one product area among several others. In 2017, the Indian Supreme Court issued a landmark verdict outlining the process of imposing fines, and decided that fines must be based on “relevant turnover”.
“…the purposes of penalties was to restrict the fines to areas/markets where wrongs had been committed, and not to penalise the income from all products and services.”
The Supreme Court found that the penalty imposed by the CCI should be based only on the turnover that is related to the products or services affected by the anti-competitive behavior; for example, a company manufacturing steel and coal engaged in anti-competitive bid-rigging for steel should only be penalised based on its revenue from the steel business.
The Court emphasised that the penalty should be reasonable and proportional to the harm caused. This ruling provided guidance and ensured a more balanced approach in line with the economic impact of the antitrust infringement.
Power to Impose Fines Over Worldwide Turnover: Impact and Challenges
The amendment will likely impact on multi-product global companies. Technology companies with relatively smaller Indian revenues might be severely impacted by this new provision. It is also possible that such provisions will lead to a differential basis for fines in the same case involving a domestic cartelist and a foreign cartelist.
Impact on the Supreme Court decision
We do not think that the amendment reverses the Supreme Court ruling. The CCI should implement the concept of relevant turnover, even though it might be relevant “global” turnover, instead of relevant “Indian” turnover. In other words, for an infringement relating to distribution practices of a global company in the tyres business, the CCI ought not to penalise it based on its unrelated perfumes business, but may penalise it based on the global turnover of its tyres business if there are compelling circumstances for doing so. We expect that this provision will be in sync with the Supreme Court’s ruling. The primary reason for the Supreme Court’s clarifying the understanding of “turnover” for the purposes of penalties was to restrict the fines to areas/markets where wrongs had been committed, and not to penalise the income from all products and services. The amendment has only broadened the geographical scope of the income that can be penalised.
One of the challenges for the CCI to address is that the power to impose fines on global turnover might be at odds with the CCI’s position that it cannot examine a “relevant market” outside India. The CCI has consistently refused to examine global competitive constraints faced by companies under scrutiny while considering their market strength. Therefore, the CCI’s power to issue fines may not be commensurate with its scope of assessment. This is different from other regulators such as the European Commission, which can assess global market conditions even though their market corrections are usually limited to the European Economic Area.
The Way Forward
The need for clarity in the exercise of such wide powers makes the upcoming penalty guidelines all the more relevant. In our view, the penalty guidelines should clarify that:
- the power to impose fines on global turnover will be the legal maximum that will be exercised in extremely rare cases – eg, where a company uses its global position to influence conduct in India;
- the principle of relevant turnover will continue to apply; and
- the guidelines should include factors to be considered for determining penalties – eg, proportion of value of sales affected, gravity of infringement, duration of infringement, and specific aggravating/mitigating factors.
Mature regulators such as the European Commission and the Competition and Markets Authority have implemented similar guidelines to reduce the scope of arbitrariness, and to bring certainty and consistency into antitrust regulation.
Guidelines should be framed on the touchstone of reasonableness and proportionality. This should inspire confidence in the enforcement of Indian competition law rules as companies operating in India and globally should be able to predict their antitrust liability in the case of infringement.