Penalty cannot be arbitrary

The Competition Commission of India (CCI) is at it again. After having forced the hands of the National Stock Exchange (NSE) to charge a fairly competitive fee for doing business through its portals in the currency derivatives segment, the CCI has gone for the jugular of the real estate major DLF for writing in unfair, one-sided and unreasonable covenants into its contracts with buyers.

In both the cases, the charge against the alleged market leaders in their respective realms of business is abuse of dominant position to inflict unfair burden.

The NSE was slapped with a penalty of Rs 56 crore, being 5 per cent of the average turnover of the last three years from the currency derivative segment, and now DLF has been slapped with a penalty of Rs 630 crore, being 7 per cent of the average turnover of DLF for the past three years.

DEFINING DOMINANCE

In an Act that seeks to check anti-competitive policies and practices springing from dominance, curiously there is no objective yardstick prescribed for measuring it in terms of market share.

While the CCI could paint NSE as a behemoth strutting around to stifle competition, it perhaps has not been successful in establishing that DLF enjoys dominance, except through an arduous and laboured explanation. It is here that one feels acutely the need for some objective norms.

The Monopolies and Restrictive Trade Practice (MRTP) Act swore by 25 per cent market share. The Competition Act on the contrary is conspicuously silent on this seminal and vital issue. In the event, DLF could wriggle out of the charge on appeal, though in the process it would be speaking with a forked tongue — market leader in the ads and corridors of power as well as in the prospectus filed with the SEBI in the run-up to its IPO, but at best a dominant player in a small geographical segment of the country for the purposes of the Competition Act.

But then the CCI seems to be correct in vesting DLF with the dominant status in the context of Gurgaon, in the high-end segment.

To this extent, the Competition Act is right in talking about the dominant status in the relevant market, which in the case on hand, is admittedly Gurgaon. Where, however, the Act has been found wanting, is in not giving an objective criterion or set of criteria for determining dominance.

What the CCI has done, both in the case of NSE and DLF, is to collect a hefty penalty for the exchequer rooted on extraneous considerations. To be sure, penalties can be deterrent and need not always be compensatory in nature, but the remit of the CCI apparently is not to award deterrent penalties, but to undo the mischief arising out of anti-competitive practices.

Penalty injustifiable

Let DLF buyers by all means bring a class action suit for compensation springing out of DLF's abuse of dominance, but to slap a penalty that swells the coffers of the exchequer cannot be justified on that ground alone. Unjust enrichment of the manufacturers/service providers cannot be neutralised by unjustly enriching the exchequer, which precisely is the case with our indirect tax laws, though it has passed muster. At least the reversal of undue enrichment in favour of the exchequer in the context of indirect taxes has the imprimatur of Parliament, but no such imprimatur is in evidence for the fund raising responsibility unilaterally assumed by the CCI.

(The author is a Delhi-based chartered accountant.)

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