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Aayush Khanna is a first Year law student at Rajiv Gandhi National University of Law, Punjab
Introduction
The Competition Amendment Act, 2023 was recently passed in the Rajya Sabha on 3rd April 2023, This Bill proposed relevant changes to the 20-year-old Competition Act, 2002, the successor of the Monopolies and Restrictive Trade Practices Act, 1969 which was enacted to curtail the concentration of wealth in fewer hands and to limit monopolistic practices. In the wake of economic liberalisation and various economic reforms, the government decided to replace it with The Competition Act, 2002 to regulate the competitive markets of India. This recent amendment aims to fine-tune and upgrade some aspects of the act and to maintain a sense of healthy competition in the Indian market.
Background
One of the major issues that the amendment addressed was to define the term ‘turnover’. Section 27 of the Competition Act 2002, authorises the CCI (Competition Commission of India) to levy penalties on an enterprise who were found guilty of being party to an anti-competitive agreement, the CCI has the power to penalise the offending party up to 10% of its turnover. Until the 2023 Amendment, the term ‘turnover’ was party to many controversies as the act had failed to define and explain what exactly turnover meant. The CCI for the first few years took a very broad approach and interpreted turnover as the ‘total’ turnover of the company. This was seen as unfair and harsh as many big companies with multiple products were subject to a much larger penalty than single product companies, which exposed the act to a lot of legal quagmires.
This sense of precariousness was brought up in 2017 when in the Excel Crop v. Competition Commission of India, the Supreme Court upheld the decision of the Competition Appellate Tribunal imposing a penalty based on “relevant turnover”, rather than “total turnover” which settled a crucial question in Indian antitrust law. In this case, COMPAT held that companies like Excel Crop and United Phosphorus have multiple products and only ‘relevant turnover’ should be taken into consideration. The Supreme Court held that if the penalty was based on “total” turnover it would lead to a lot of disproportionality and to address this problem the Supreme Court used the doctrine of proportionality which mandates that the “a punishment be proportionate to the offence committed”.
Using the doctrine of proportionality the Supreme Court held that under the Competition Act, the penalties shouldn’t be disproportionate and not lead to “Shocking results”. The Supreme Court also held that the doctrine could be traced back to Article 21 and Article 14 of the Constitution.
Quoting the Supreme Court’s judgement in the Excel crop case
“The doctrine of proportionality is aimed at bringing out ‘proportional result or proportionality stricto sensu. It is a result-oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act”. The Supreme Court wanted the CCI to keep the penalty in the sense that it would act as a deterrence for the guilty party in the future rather than the “death of an entity” itself. After this Landmark case, The CCI started following the Supreme Court’s judgement and started levying penalties based on ‘relevant’ turnover instead, barring a few exceptions, Further, the article explores what has been changed recently through the means of the 2023 Amendment.
The Competition (Amendment) Act, 2023
Through the Amendment, CCI has expanded the definition of ‘turnover’ and included the term ‘global turnover’ which makes the CCI eligible to include all the products and the enterprises of a person or a company while levying the penalty i.e. including sales and services which derive from products that are not related to the offence in the international market as well. This Amendment effectively revokes and negates the Supreme Court’s interpretation of the term “turnover” in its Excel Corp case and allows CCI to amerce penalties up to 10% based on total and global turnover. It’s interesting to notice that this particular provision was excluded from the original amendment bill that the Indian government submitted to Parliament because of which this issue was not brought up for discussion by the Parliamentary Standing Committee on Finance, which scrutinised the contents of the original measure. This particular point was not debated or discussed during the approval of the Amendment Act. This Amendment will have a major effect on multi-product companies with a global presence whose penalties will be bigger and disproportionate in comparison to companies committing a similar crime but only have a domestic presence. While the general opinion might highlight that this new amendment might act as a deterrence for multi-national companies to invest in India, it might not be entirely true as many experts such as Christophe Carugati pointed out that while companies will look at anti-trust penalties they also look at how their products will react in specific geographies before participating in a certain market.
UNDERSTANDING THE INDIAN SITUATION vis-à-vis foreign JURISPRUDENCE
While we don’t know yet how CCI will implement the newfound ‘global turnover’, it would be smart to understand the position taken by mature competition regulators in foreign jurisprudence. The South African tribunal in the Southern Pipeline Contractors v. Competition Commission, COMPAT ruled that there was a ‘legislative link’ between the contravention and the damage caused. The South African Tribunal did this while interpreting Section 59 of the South African Competition Act, 1998. The court found that there was a clear constitutional basis in Section 59(3) for just considering the affected or the relevant turnover into the scope of levying the penalty.
Additionally, in the United Kingdom “UK”, penalties are limited by the UK Competition Act to 10% of a company’s revenue. The Competition and Markets Authority (CMA) determines penalties using a six-step procedure. It starts by taking into account the pertinent turnover, starting at a maximum of 30% depending on how serious the infraction is. The length of the violation, aggravating or mitigating circumstances, deterrent, proportionality, and, as a last option, financial hardship are all adjusted for. To discourage similar violations of competition law in the future, the procedure guarantees a just punishment.
Finally, In the European Union “EU” regulations on competition law are laid upon in Articles 101 and 102 of the Treaty on the Functioning of the European Union which empower the European Commission to penalise the guilty party up to 10% of its ‘total’ or ‘worldwide’ turnover. The two-step process described in the EC Guidelines is used by the EC to decide sanctions. Depending on the seriousness of the infraction, the first phase determines the base penalty amount, which can take up to 30% of the relevant sales value into account. In the second step, the base sum is adjusted for mitigating or aggravating factors, such as evidence of negligence leading to termination or recurrent offences.
Conclusion
In essence, a significant issue addressed by the amendment pertains to the definition of ‘turnover’ under Section 27 of the Competition Act 2002. The historical ambiguity surrounding it led to legal complexities, notably addressed in the landmark Excel Crop case, The 2023 Amendment becomes crucial in addressing this ambiguity. It expands the definition of ‘turnover’ by introducing the term ‘global turnover.’ This allows the CCI to consider all products and enterprises of a person or company, including international sales and services unrelated to the offence when levying penalties. The inclusion of ‘global turnover’ will have consequences though as multi-product companies with a global presence will have a bigger risk of getting penalized a bigger amount than single product companies that only have a domestic presence, potentially resulting in disproportionate and unfair outcomes still, this amendment would make sure that large companies with huge monetary backing would have to think twice before misusing their position. The CCI should take into consideration the position held by relevant foreign jurisprudence which they can refer to while framing guidelines in the future.
While this specific change may seem a step back, every cloud does have a silver lining, this Amendment Act has introduced a requirement for the CCI to frame guidelines regarding penalty decisions, and provide proper reason if a penalty decision does arrive. If this requirement is implemented well, it can address the concern regarding the departure of relevant turnover because if CCI fails to strike a balance in the guidelines it will expose the Act to different kinds of legal jurisprudence and could risk getting the whole expansion thrown out.
