On March 29, 2023, Lok Sabha passed the Competition (Amendment) Bill, 2023. This was five years after the Competition Law Review Committee suggested amendments to the current Competition Act, 2002. The Rajya Sabha also passed the Competition (Amendment) Bill, 2023 without any debate, on Monday.
Amongst the changes introduced, the most significant ones are in deal value threshold, greater regulation for cartels and the settlement mechanism of the Competition Commission of India (CCI).
The most controversial change is the addendum of Explanation 2 to Section 27 – penalty provision. Section 27 enables CCI to pass orders against any contravention of Sections 3 and 4 i.e., anti-competitive agreements or abuse of dominance cases. CCI can order the infringing enterprise to stop indulging in anti-competitive conduct and can also impose penalties.
Prior to the 2023 amendment, CCI had the power to impose a penalty which could not exceed 10 percent of the average turnover of the last three precedent financial years. In 2017, the Supreme Court in Excel Crop Care put fetters on this powers of CCI by observing that the correct way of calculating the turnover to impose penalty would be ‘relevant turnover’ i.e., turnover of the tainted products or the products for which the parties indulged in anti-competitive conduct. A penalty based on total turnover was considered disproportionate by the court.
CCI, in several cases of online markets, has observed that the concept of relevant turnover is not sufficient or is inapplicable to conglomerates like Google which operate in digital markets. In the 2022 case of MMT-GO and OYO, CCI held that digital market platforms are interdependent and interlinked and restricting revenue to just one segment does not capture the realities of these platforms. In this context, CCI recognised that relevant turnover is perhaps not the best metric for calculating penalty for offending enterprises.
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 for the offending enterprises.
Recognising this gap, on February 8, 2023, the Ministry of Corporate Affairs suggested certain amendments. The amendment to Explanation 2 of Section 27, has now been accepted by the Lok Sabha. Explanation 2 defines turnover and reads as – “For the purposes of this clause, ‘turnover’ means global turnover derived from all the products and services by a person or an enterprise.” This means that CCI can now impose a penalty on not just the tainted products but all the products and services of the enterprise i.e., a penalty up to 10 percent of the average total turnover of the company globally. This is a positive change which makes the Indian law at par and perhaps more stringent than other jurisdictions, in its action against offending enterprises.
Under the European Competition law, the European Competition Commission (ECC) has extensive penalty powers. ECC does a two-step process before imposing a penalty. The first step is to determine the basic amount which is based on the value of goods or services to which the infringement relates to. The second step is to adjust this basic amount upwards or downwards. The maximum cap at the end of this two-step process is 10 percent of the total turnover in the preceding business year. The base amount is calculated based on several factors like gravity and duration of the offence. The adjustment of fines is based on other factors like the particulars of an enterprise, the deterrent effect of the fine or if the enterprise has a massive turnover beyond the goods and services to which the infringement directly or indirectly relates.
All the rules and procedures regarding the calculation and imposition of these fines are enshrined in the European Union Regulations. The exercise of calculation of the fine starts from relevant turnover, but in the end, is based on the total turnover of the enterprise.
Similarly, the Competition Act, 1998 of the UK is similar to that of the EU in its methodology of imposition of fines. Instead of a two-step method, the Competition and Market Authority (CMA) of the UK sets out a six-step methodology in its guidance on an “appropriate amount of penalty”. The first step of this methodology is to calculate the starting point based on relevant product and relevant geographic market to which the infringement relates to. Thus, the metric used in the first step is that of relevant turnover and factors that CMA considers are the seriousness of offence and deterrence effect of the penalty. Then the authority has to adjust the fine as per the duration of the infringing action. The next step is to adjust for specific deterrence i.e., consideration of aggravating and mitigating circumstances and ensuring that the final amount doesn’t exceed the maximum penalty of 10 percent of worldwide turnover. Therefore, the methodology in the UK also begins from relevant turnover but the final amount can be decided based on the worldwide turnover.
CCI is yet to come out with guidelines on the imposition of penalty under Section 27. It will be interesting to see if these guidelines will reflect the methodology used in the EU and UK for computing penalty.
The author is a lawyer, a member of the Advisory Council of Harvard Business Review and the Academic Panel of the Cambridge University Press. Views expressed are personal.
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