Aug 21, 2023

How Should India’s Anti-Trust Regulator Wield Its New Penalty Powers?


Ten years since its enforcement and a few iterations later, the Indian parliament approved in April, a slew of amendments to the competition landscape. One of the key changes for the industry, that the Competition Amendment Act, 2023 introduces, is computation of penalties for entering into anti-competitive agreements or abuse of dominance. The amendment act now empowers the Competition Commission of India, i.e. the CCI, to penalise an enterprise based on the “global turnover derived from all the products and services”, i.e., the total global turnover, of the enterprise – not just on turnover from the product/service under investigation derived from doing businesses in India. This is likely to have significant financial ramifications, particularly on foreign enterprises operating in India and Indian enterprises with a global presence. It is worth noting however that the Ministry of Corporate Affairs is yet to notify and implement the provisions that enforce penalties on total global turnover.

At present, the CCI levies penalties on an enterprise’s (i) India-specific revenue derived from; (ii) the specific product or service under investigation, i.e. “relevant turnover”. While the legislation itself did not earlier mandate the scope of turnover to be limited in this manner, the Supreme Court in the landmark case of Excel Crop Care Ltd. v. CCI in 2017, considered the scope of penalty from the lens of principles of equity, rationality, and proportionality. The Court found that the constitutionally acceptable doctrine of proportionality must (a) balance two competing interests viz harm caused to society with the rights of the infringing party; and (b) ensure that the latter does not suffer a punishment disproportionate to the conduct itself. Indeed, the imposition of a penalty on the principle of proportionality is a constitutionally protected right under (i) equality before law; and (ii) protection of life and personal liberty.

Impact of the Penalty on Total Global Turnover

The broad approach to calculating penalties may lead to unintended and disproportional consequences which may deviate from the intended objective for the imposition of a penalty. The twin objectives behind the imposition of penalty for violation of competition law in India are: (i) to reflect the seriousness of the infringement; and (ii) to ensure that the threat of penalties will deter the infringing undertakings from indulging in similar conduct in the future (FHRA v. MMT, 2022). However, a penalty on total global turnover risks being counterproductive to these objectives.

First, consider a case where two companies, A, an Indian incorporated company, and B – a global conglomerate cartelize in the Indian market of earbuds. Even where A’s illegal conduct may have led it to earn a higher revenue than B, because of B’s global presence and diverse product offerings, which include businesses apart from earbuds sold in India, B would be subject to a larger penalty compared to A – simply because of its global presence and larger product portfolio.

Second, applying these penalties may lead to “double jeopardy” in certain cases. In the same scenario, if B abuses its dominance in India and the United States – although any penalty in the United States will be based on U.S. specific turnover, in India, its penalty would be computed based on its total turnover – including turnover derived from the United States – in relation to which it would already be penalized. This effectively means B would be penalized twice for a single conduct. The extent of penalties in the existing framework of 10% of the average relevant turnover or up to 10% of the relevant turnover for each year of contravention or three times of the profit, in the case of cartels, whichever is higher was significant – amounting to hundreds of crores of rupees in many cases. Imposing penalties on the all-encompassing “base” turnover may financially devastate the company.

Third, in the larger scheme of things, if the Indian market contributes to an insignificant percentage of an entity’s global business (let’s say 2%), a penalty of up to 10% of the company’s global turnover would be disproportionate. The CCI would effectively be imposing a penalty of an amount more than what an enterprise has earned in India in the first place. This would significantly increase the costs of doing business in India – at a time when the government has taken measures to promote the ease of doing business in India.

Finally, the effect of a penalty on total global turnover would not be limited to foreign multinationals with a global portfolio. It would also impact Indian entities with a global presence. It will likely have significant implications on the ability to attract foreign investment and seriously increase compliance costs. No other regulation in India provides a blanket, sweeping, and disproportionate power to any regulator in India to impose a penalty on their global turnover for conducts connected to India.

Imposition of Penalty on Global Turnover – A Global Comparison

Even on a comparative analysis of the regulatory practice in other jurisdictions, the majority of the jurisdictions impose a penalty on the relevant turnover accrued from the relevant geographic market. While the EU and the UK retain the power to impose penalties based on global turnover, they equally have the power to review anti-competitive effects in a geographical market beyond the European Economic Area or the UK, respectively. On the other hand, while the CCI does not accept a global relevant market definition to determine contraventions (Maharashtra State Power Generation Company v. Coal India, 2017; Dhanraj Pillay v. Hockey India, 2013; v. Google, 2018), the amendment act empowers it to impose a penalty on global turnover. If the CCI limits the scope of the Competition Act to test effects only in India, then any penalty must also be limited to revenue earned in/from India. To do otherwise risks being incongruous and susceptible to legal challenge.

Conclusion and Possible Considerations

The amendment act has been passed but awaits enforcement. The scope of “turnover” will be decided by regulations, to be framed by the CCI. While the legislation allows the CCI to publish regulations to compute turnover, it equally clarifies that turnover would mean global turnover from all products and services of the enterprise.

A successful penal provision must delicately balance two key objectives: sufficiently deter entities from engaging in anti-competitive conduct without risking financial devastation. Accordingly, to strike a balance between the legislative intention and an effective penal provision, it would be important for the proposed regulations to ensure that the global, all-product definition of turnover is invoked only in exceptional cases.

To do this, the regulations must set out clear and coherent factors for invoking the exceptional extent of turnover. Moreover, consistent with the legislative mandate to ensure a sector-agnostic competition regime, the regulations must ensure that the fullest extent of the turnover computation must not ipso facto apply to a specific sector, market, or business model. Instead, the facts, mitigating and aggravating circumstances, and market realities must be carefully considered when examining the applicability of the full extent of the penalty. For example, before imposing a penalty on an entity’s global turnover, it is critical for the CCI to consider jurisdictional rules. Imposing a penalty on revenue generated from business conducted in another sovereign territory risks creating jurisdictional tussles. Instead, better inter-agency communication between antitrust regulators across the globe would help address antitrust concerns in a way that is most effective while ensuring regulatory harmony and goodwill.

For all other cases, it is important that the tenets laid down by the Supreme Court in Excel Crop Care be followed, given that each aspect of an effective penalty regime had been deliberated by the highest court of the country, in significant detail.

And, finally, where the CCI seeks to impose a penalty to the full extent permissible, it is critical that such reasons be detailed in the final order.





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