India: CCI Says "All Izz Well" With Pre Payment Penalty

Last Updated: 14 July 2011
Article by Zerick Dastur and Abir Roy

After nearly eighteen months from the date of notification of the substantive provisions of the Competition Act ("Act") pertaining to anti competitive agreements and abuse of dominance by business enterprises, the Competition Commission has issued a comprehensive final order, after a thorough investigation by the Director General, the investigating authority under the Act. The order deals with issues involving the alleged anti-competitive agreements entered into and abuse of dominant position by banks while charging prepayment charge ("PPC") on home loans. PPC currently ranges between 1-4% for most banks. The levy and the rate of such PPC is discretional. However, CCI, by a majority order of 4-2, has held that the practice of charging PPC is not violative of the provisions of the Act. Interestingly, the Chairman of the Commission recused himself in the case. It has been observed that owing to the extremely fragmented market shares of the banks in the area of home loans where no individual bank has a market share of more than 17%, the provisions relating to abuse of dominant position would not apply.

It is pertinent to note that the Director General had, in his report to the Commission stated that the practice of the banks levying PPC amounted to an agreement for the limiting or controlling the market, that levy of PPC made the exit for a borrower expensive and hence violated the provisions of the Act. The report further stated that the practice acted as a deterrent for borrowers seeking shift to other banks in order to avail the best prevailing interest rate offered by those banks.

The order serves as an authoritative interpretation on a number of issues under a law which is in its nascent stage. One of the issues which came up for determination before the Commission was the extent and scope of the term "agreement" which is a prerequisite in order to determine whether there was any violation. It was observed that for an agreement to exist there has to be an act in the nature of an arrangement, understanding or action in concert including existence of an identifiable practice or decision taken by an association of enterprises or persons. It was held in this case, the existence of any "agreement" between the banks cannot be conjectured or even circumstantially adduced as the practice of levying PPC was based upon individual discretion of each bank. The Commission noted that the practice of charging prepayment penalty cannot be said to be a concerted decision of all the banks as all of them had not started charging prepayment penalty at one point of time. Further, there was no evidence to suggest that that the banks had formed any internal or discrete association for the purpose of charging prepayment penalty. Thus, congruence of action, which is an integral part of any agreement was not established. Whereas it has been found that some banks are imposing PPC, there is no evidence to establish that this practice is a result of some action in concert or emerges from a collusive decision but levying of such PPC has a reasonable economic justification.

Having said that, CCI seems to have raised the "bar" for proving the existence of an agreement and for it to qualify as anti competitive. It is true that in almost all countries, including India (even under the erstwhile MRTP Act), more evidence is required than just parallel behavior to support a prosecution for entering into an anti competitive agreement. US and European courts have adopted a "parallelism plus" approach, which requires the existence of "plus factors" beyond merely parallel behavior by firms in order to prove that the firms have indulged in anti competitive behavior. Having said that, normally there is no express agreement that is entered into by entities engaging in anti competitive conduct but the practice is usually in the form of a tacit understanding. Existence of such arrangements is usually proved by circumstantial evidence, and by setting up and proving a chain of events leading to a common understanding or plan. The underlying issue is what, at the minimum, constitutes that "meeting of the minds" which must be directly or circumstantially established to prove that there is a restrictive effect on competition. It can be argued that, the Commission should have given more importance to the meetings of the Indian Banks Association ("IBA") where the decision to charge PPC was taken and should have scrupulously analyzed the actions of the banks to show how the common approach deliberated in meetings of IBA was actually implemented. Further, the perusal of the internal circulars of these banks may lead to a conclusion that the main purpose to introduce PPC was to dissuade the borrowers from shifting to other banks. Whether, the Commission should have attached more importance to such circumstances in arriving at the conclusion in its order remains a moot point.

Considering the fact that the informant did not present any views after the Director General presented its investigation report, it seems unlikely that he would pursue the matter before the appellate tribunal. However, the Act provides that "any person" who is aggrieved by the order of the Commission may appeal to the appellate tribunal. Hence, any consumer who may be aggrieved by the order may take recourse to the tribunal. The same remains to be seen but as it stands the banks are free to charge PPC as has been done hitherto.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions