Absence of penalty guidelines leading to increased remanding back of cases by NCLAT to CCI

In the last two months, the National Company Law Appellate Tribunal (NCLAT) has remanded four matters back to the Competition Commission of India (CCI) to have a fresh look on the penalties, bringing to the fore the need for formulation of penalty guidelines by the competition watchdog.

“Absence of guidelines has resulted in inconsistent and arbitrary rulings whereby CCI has levied penalties ranging from zero to maximum ten percent of the average revenue of the contravening parties”, sources close to the development said.

“There is neither any codified guidance note on computation of penalties nor any discernible rationale provided in the rulings issued by CCI. For a similar conduct, CCI has approached the issue of penalties not only in a different but in a contrary way. The recent trend of remand orders by NCLAT is clear indication of the unhappiness exhibited by the Appellate Tribunal on the issue of quantum of penalty”.

In three matters remanded back by NCLAT, CCI imposed heavy penalties upon small players despite a number of cases decided by CCI where it has not imposed any monetary penalty upon MSMEs, said a representative of MSMEs.  

The recently introduced Competition Amendment Bill, 2022 takes cognisance of lack of action by CCI in formulating guidelines. It provides that the Commission may publish guidelines on the provisions of the Competition Act or the Rules and Regulations made thereunder either on a request made by a person or on its own motion. The Bill then specifically obligates: “the Commission shall publish guidelines as to the appropriate amount of any penalty for any contravention of provision of this Act”.

Even as early as 2014, the Parliamentary Standing Committee on Finance in its Eighty Third Report on the Competition Amendment Bill, 2012 (which subsequently lapsed) lamented lack of penalty guidelines by CCI. 

“Although the Ministry of Corporate Affairs have stated that as per extant practice, the CCI, before imposition of penalty, considers various factors, besides weighing aggravating and mitigating circumstances/factors, the imposition of penalty in the absence of regulations is not appropriate. The Committee recommend the Government to ensure that suitable guidelines for imposition of penalty are framed as agreed to by the Ministry in a time bound manner.”

After a lapse of about nine years since these observations, the union Government has now acted by proposing mandatory framing of guidelines by CCI on penalties through the recently introduced Amendment Bill.  

“Nothing prevented CCI to frame Regulations on penalties. In fact, the proposal to have Guidelines instead of Regulations further provides for opacity as unlike Regulations, Guidelines are not required to be notified and again CCI even after framing such Guidelines may not publish them. The lethargy of CCI in not framing Guidelines or Regulations is inexplicable as they would have provided certainty and predictability to businesses, besides helping avoid embarrassments of constant remands by Appellate Tribunal”, a competition law practitioner said.

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