On March 29, 2023, the Lok Sabha passed the Competition Amendment Bill, 2023 — five years after the Competition Law Review Committee suggested amendments to the Competition Act, 2002. The bill is yet to be passed in the Rajya Sabha.

The previous iteration of the bill was released in August 2022 and later updated in February 2023.

The most significant changes relate to ‘deal value threshold’, greater regulation of cartels, and the settlement mechanism of the Competition Commission of India (CCI). The most controversial is the addendum of Explanation 2 to Section 27 — penalty provision.

Section 27 empowers CCI to act against breach of Sections 3 and 4, namely anti-competitive agreements or abuse of dominance. CCI can order the infringing enterprise to cease its anti-competitive conduct, besides imposing penalties.

Prior to the 2023 amendment, CCI could impose penalty not exceeding 10 per cent of the average turnover of the preceding three financial years. In 2017, the Supreme Court had, in the Excel Crop Care case, observed that the penalty should be calculated using the ‘relevant turnover’, namely turnover of tainted products connected to anti-competitive conduct. A penalty based on total turnover was deemed disproportionate.

CCI has observed in the case of online markets that the concept of relevant turnover was not sufficient or applicable to conglomerates like Google. In the MMT-GO and OYO matter (2022), the CCI held that digital market platforms are interdependent, and restricting revenue to one segment does not capture their realities. It contended that ‘relevant turnover’ was perhaps not the best metric for calculating penalty.

In 2019, the Competition Law Review Committee recognised that ‘relevant turnover’ fails to consider all possible anti-competitive scenarios and is, thus, not a good deterrent.

On February 8, 2023, the Ministry of Corporate Affairs suggested amendments. The amendment to Explanation 2 of Section 27 has been accepted by the Lok Sabha. Explanation 2 defines turnover as “global turnover derived from all the products and services by a person or an enterprise”. CCI can now impose penalty on not just the tainted products but also all other products and services of the enterprise, namely up to 10 per cent of the average total turnover globally.

This positive change brings the Indian law on par and perhaps more stringent than other jurisdictions.

Under European law, the competition commission has extensive penalty powers. In a two-step process it first determines the basic amount based on the value of the infringing goods or services and then adjusts this upwards or downwards. The cap is 10 per cent of the preceding business year’s turnover.

The base amount calculation depends on factors like the gravity and duration of the offence. The adjustment of fines is based on the particulars of an enterprise, the deterrent effect of the fine, and whether or not the enterprise has a massive turnover beyond the infringing goods and services.

Similarly, the UK’s Competition and Market Authority (CMA) sets out a six-step methodology in its guidance on “appropriate amount of penalty”.

First, it considers the product and geographic market related to the infringement, and adjusts the fine according to the duration of infringement while ensuring the final amount doesn’t exceed the maximum penalty of 10 per cent of worldwide turnover.

The computation of penalty under UK and EU law does begin from relevant turnover; the final amount can be based on total and/or global turnover of the enterprise. CCI is yet to come out with guidelines on imposition of penalty under Section 27. It will be interesting to see if there will be similarities with the EU and UK methods.

(Trisha Shreyashi and Pratiksha Jalan are lawyers) 

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