This article has been published by India Business Law Journal at Delhi High Court: CCI penalty interest halted on stay ruling | India | Law.asia.

Interim relief should pause further action in a case. It should not permit a direction, order or penalty to continue operating in the background. However, that has happened for years in India’s competition law. Even after an appellate tribunal stays the recovery of a penalty imposed by the Competition Commission of India (CCI), interest often continues to accrue. This places appellants in a legally awkward and financially punishing position.

A recent decision of Delhi High Court has now decisively interrupted this practice, reshaping the relationship between interim relief, interest and penalty recovery.

Interim relief is based on the principle of parity or restitution as upheld by the Supreme Court. The logic is intuitive. Should a party benefit from a stay, it must not unjustly profit from the delay and interest may be ordered to restore the counterparty to its original position.

This principle found regulatory expression in the now-repealed CCI (Manner of Recovery of Monetary Penalty) Regulations, 2011 (2011 Regulations) which provided for interest at 1.5% per month should a demand notice remain unpaid. However, interest often ran even during a stay, a situation inconsistent with the reason for granting interim relief.

In United India Insurance Company Limited v CCI, the court rejected the argument that interest can accrue during the period of a stay. The demand notice in this case was issued while the stay subsisted. The court set aside the interest demanded by the CCI during the stay, holding that interest cannot run in the absence of a “penalty recoverable”. Its detailed reasoning lays out three interlinked steps.

First, it must be determined whether a stay has been granted. If it has, a penalty order is unenforceable, and a demand notice cannot be issued to a person “from whom any penalty is recoverable”. A demand notice issued during a stay is invalid and cannot affect the payment of interest.

Second, based on the doctrine of merger, the CCI order “merges” into the order of the appellate court. Accordingly, no interest can accrue on a demand notice based on a superseded CCI order, which must be withdrawn or modified under regulation 14 of the 2011 Regulations.

Third, previous Supreme Court precedents were distinguished – those were based on “statutory interest” where interest accrued before a stay was granted. By contrast, interest under the CCI regime is demand-notice driven and cannot accrue where the demand notice lacks legal efficacy.

Beyond doctrine, the judgment draws on principles of equity. The court acknowledged the “impossible choice” faced by appellants under the earlier regime. They either pay the full penalty despite having been granted a stay, thereby defeating the purpose of interim relief, or they withhold payment with interest accumulating. Allowing interest to run in such circumstances undermines the purpose of granting a stay.

Before the United India Insurance judgment, the CCI issued the CCI (Manner of Recovery of Monetary Penalty) Regulations, 2025 (2025 Regulations). These require demand notices to be issued together with final orders. This departs from the regime of the 2011 Regulations in which notices often followed such orders or were issued despite a stay. The factual basis of earlier judgments now narrows because demand notices will likely predate appellate stays. This will allow interest to accrue for non-payment, subject to the terms of interim relief.

However, even under the 2025 Regulations, the court’s reasoning is still relevant because it depends not on when a demand notice is issued, but on the effect of the appellate stay. This usually renders the penalty unenforceable and suspends the basis for interest accruing for as long as the stay is in force. Further, applying the doctrine of merger, once the appellate authority modifies the penalty, the appellate order subsumes the original CCI order. This will lead to the demand notice having to be withdrawn or amended under regulation 14 of the 2011 and 2025 regulations and will nullify any claim for interest based on it.

When filing an appeal, companies should specifically seek a stay on the demand notice as well. If granted, it strengthens the position that interest, like recovery, should remain suspended for as long as the stay is in force.