Competition law infringements: CCI to issue norms for stricter penalties

The Competition Commission of India (CCI) is all set to operationalise the provisions of the Competition (Amendment) Act, 2023, that had empowered the commission to impose penalties for competition law infringements on a global turnover basis. 

The Penalty Guidelines — which will be issues by the CCI for first time ever —and may provide an objective criterion for levy of penalties, sources said. This will be particularly important for multi-product Indian conglomerates with businesses in India and abroad.

The Penalty Guidelines are likely to contain a list of aggravating and mitigating factors that are likely to weighed in by CCI, before imposing penalty, they added. This will be in line with CCI’s decisional practice and Supreme Court judgement.

Industry has been pitching for a penalty regime where multiple checks are in place to ensure that the penalties levied are not disproportionate. The introduction of the guidelines is expected to ensure objectivity and proportionality while implementing the penalty regime.

Strict penalties for violations

Prior to the amendment in law this year, CCI could have levied penalty only on relevant turnover, i.e., the revenue generated from infringing products or services.  However, the recent amendments in competition law provide for stricter penalties for violations, as now the CCI can levy penalty by taking into account total global turnover of the enterprises.  Now, it can impose penalty on not just the tainted products but also all other products and services of the enterprise and penalty can be up to 10 per cent of the average total turnover globally.

Prior to the 2023 amendment, CCI could impose penalty not exceeding 10 per cent of the average turnover of the preceding three financial years. By introducing the concept of ‘global turnover’ on penalty imposition, the Government had earlier this year effectively nullified a Supreme Court ruling which restricted the powers of CCI in levying penalties by holding that turnover for calculating penalties can only be taken as relevant turnover i.e. revenues earned from infringing goods or services.

The apex court had in 2017 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.  Any penalty based on total turnover was deemed disproportionate, according to this SC ruling.

Levy of penalties on ‘global turnover’ basis could spell big trouble for multinational companies which operate in multiple jurisdictions globally.  However, the same is also being seen by experts as strengthening the powers of CCI to deter potential violators of antitrust law.

The introduction of ‘global turnover’ as a benchmark for the levy of penalties arising from any abuse of a dominant position by enterprises is one of the salient features of the amended law. The provision was inserted through the Competition (Amendment) Act 2023 without public consultations. 

The deterrent effect

In contrast to traditional penal provisions, the penalty imposed under Section 27 of Competition Act is not a fixed amount. It is effectively linked to the value of the goods or services of a contravening enterprise.

With the penalty provision in the competition law not specifying whether ‘turnover’ here meant “total” or “relevant turnover”, the CCI in its initial years tried to capture the largest possible figure for the purpose of levying penalties and used total turnover as the benchmark. This resulted in harsh and disproportionate penalties between single and multi-product companies for the same offence.

In 2017, the Supreme Court stepped in and interpreted turnover to mean relevant turnover, i.e., turnover of the products or services which were the subject matter of the contravention.

Following this, the CCI generally levied penalties based on the yardstick of relevant turnover. However, later the CCI — mainly in the context of Big Tech cases — noted that while the relevant turnover approach may be appropriate in traditional markets, it would not be appropriate where the various segments are intricately intertwined with each other, and one product or service derives strength from the other(s). 

The CCI therefore held that not considering the global turnover in such cases (online businesses or digital markets) would defeat the deterrent effect that the penalties were to have on enterprises.

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