Introduction
Encouraging an equitable and a competitive market is a fundamental objective of every economy and India is no exception. In furtherance of this, the Competition Commission of India ("the CCI"), set up under the Competition Act, 2002 ("the Act"), has the power to levy penalties on persons or enterprises entering into anti-competitive agreements and abusing their dominant position in the market. One of the recent amendments to the Act and subsequent guidelines are purported to drastically change this penalty regime by transposing the yardstick for determining the quantum of penalty. Since such an amendment is expected to have far-reaching implications for businesses, regulators, and consumers alike, it is imperative to analyse the interplay between the concepts of relevant & global turnover and assess its correctness in light of the existing competition landscape in India.
Evaluating Appropriateness: Is Relevant Turnover a Suitable Basis?
The Excel Corp Case1 marked a significant shift in the methodology of calculating penalties, wherein the Supreme Court departed from the long-standing practice of imposing penalties based on global turnover, instead adopting the relevant turnover approach, which considers only the turnover related to the specific violation. This shift was grounded in the principle of proportionality, ensuring that penalties are fair and proportionate to the infringing conduct. While this approach has been accepted by the Indian judiciary, it has sparked debate over whether limiting the scope of turnover to relevant turnover aligns with the statutory framework of the Act. Furthermore, concerns remain about whether this change weakens the deterrence objective of competition law, as penalties calculated on a narrower turnover base may not impose sufficient financial costs on violators.
Firstly, this debate arises majorly because the Act specifically defines the term "enterprise" as used in Section 27(b)2–an enterprise to include within its ambit 'units' and 'divisions' of the enterprise. However, since Section 27(b) only mentions the term "enterprise", it is indicative that the legislative intent was to penalize the entity as a whole rather than its segmented business operations, following the principle that a corporation has separate and distinct legal personality. This interpretation is further strengthened by comparing the word "turnover" as used in the proviso to Section 27(b) relating to cartels. The use of the word "its turnover" in relation to each producer, seller, etc. involved suggests that the turnover of the whole entity, rather than its specific operations, is the intended basis for penalty determination. This follows the established rule of interpretation that if the same word is used more than once in the same provision of a statute, then the legislative intent must be to give the same meaning to the word so repeated.
Secondly, it also remains questionable how the principle of proportionality is upheld by limiting the penalty to the particular market in which the entity had infringed when, clearly, the impact of such infringement is not limited to this particular market but rather extends through interdependent market structures, affecting competition across sectors. Due to the intricacies of economies and the broader principle of allocation of resources, limiting CCI's powers to only relevant turnover may result in an underestimation of the actual competitive harm caused.
Lastly, it is to be understood that the objective of the Act was to serve as a deterrent. With relevant turnover as the yardstick, it remains doubtful whether 10% of the relevant turnover alone as the ceiling of CCI's penalty power would in reality be sufficient to instil this fear in the minds of corporate giants. Consider the case of Belaire Owner's Association v. DLF Ltd.3, where the infringing party had a sizable presence across different major cities. Here, had its violation in only one such city been considered by the CCI as per the relevant turnover requirement, the penalty would cause negligible impact on the profitability of such a large corporation, thereby doing away with the deterrence objective.
Ineffectiveness of Relevant Turnover in Certain Cases
While the debates on accuracy of relevant vis-a-vis global turnover continue, it is also noteworthy that even if relevant turnover is considered a better measure for the reasons provided in the Excel Crop case, it faces significant limitations when applied to certain types of cases. For example:
i. Section 27(b) lays down a penalty for infringement of both Section 3 (i.e. entering into anti-competitive agreements) and Section 4 (i.e. abuse of dominant position). But an important difference between the two is that while the relevant turnover can be determined rather easily in the former case, it is extremely difficult to delineate the impact of such action for determining the relevant turnover in the latter simply because the entity may abuse its dominant position in one market to affect competition in another.
This becomes even more concerning when cases involving digital market platforms4, like the MMT-Go and OYO case5, emerge where the only way is to factor in the aggregate turnover from all the segments of the platform for correctly determining the quantum of penalty. The court recognized this loophole in the relevant turnover criteria and held as under:
"In the case of digital market platforms, restricting revenue to just one segment would not appropriately capture the interdependent and integrated nature of the ecosystem...Accordingly, in such markets, for the purposes of revenue determination, the entire platform has to be taken as one unit."
ii. In cases like Hubs and Spokes ("H&S") agreements where there exist two anti-competitive agreements simultaneously (one vertical between hub and spokes and one horizontal amongst the spokes), by the relevant turnover criteria, there would be no penalty imposed on Hubs since they operate at a different level in the production chain. Similarly, in cases like Nagrik Chetna Manch6 where entities operating in different business lines but still engaging in collusive bidding to aid other entities would also escape from penalty under the relevant turnover criteria.
Understanding Implications: Analysis of the Amended Section 27(b) and the CCI's Regulations
In response to the merits and drawbacks associated with the term relevant turnover, the Competition Law Review Committee submitted its report in July 20197 critically analyzing the implications of substituting "turnover" to "relevant turnover" for the purposes of Section 27(b). It recommended that in line with the Excel Crop case and foreign jurisprudence, relevant turnover criteria must be considered by CCI while levying penalties, however, there is no need for such express substitution in the Act.
Nevertheless, in 2023, an amendment to the Act8 was passed by both Houses of Parliament without discussion. This amendment introduced Explanation (2) to Section 27(b), clarifying that the term "turnover" in this section should be interpreted as "global turnover". In pursuance of the amendment and the cloud of confusion surrounding it, on 6th March 2024, the CCI further issued two key regulations– CCI (Determination of Monetary Penalty) Guidelines and CCI (Determination of Turnover or Income) Regulations, to streamline the method of determining the quantum of penalties.
According to the CCI (Determination of Monetary Penalty) Guidelines, 2024, the determination of penalty is to be done in a two-fold method-
First, an amount subject to the cap of 30% of the average relevant turnover for three preceding years is to be considered by taking into account- a) nature & gravity of the contravention, b) nature of the particular industry or sector affected and the consequent economic implications, and, c) any other factor relevant as per the CCI.
Second, the amount so arrived is not absolute and can be adjusted by factoring in the considerations laid down under paragraph 3(2) of the guidelines which include but are not limited to the duration of the contravention, repeated contravention, cooperation during the investigation, and other such mitigating or aggravating circumstances. This adjustment is also subject to the legal maximum.
It is of prominent importance that the guidelines also increase the scope reasons of the CCI's power by providing in paragraph 3(6) the exception that when the determination of relevant turnover is not feasible as per paragraph 3(3), the CCI has the power to consider global turnover for determining the penalty.
A conjoint reading of the amended Section 27(b) and the CCI's regulation reveal a striking anomaly. While Section 27(b) provides for imposing penalty based on global turnover, the Regulations overturn this position by limiting the reliance on global turnover only to cases where determination of relevant turnover is "not feasible". In effect, the Regulations indicate an inherent bias towards using the global turnover criteria, which raises concern as it contradicts the legislative intent behind the 2023 amendment. This legal position is also problematic as it reinforces the ratio propounded in the Excel Corp Case, in light of the afore-discussed criticisms and challenges associated with the relevant turnover criteria.9 While this pseudo-shift to global turnover may help address some of these challenges by expanding CCI's authority, but with little guidance on its application it poses the risk of further adding ambiguity to an already inconsistent approach followed by the CCI's penalty regime.
Conclusion and the Way Forward
In a developing economy like India, striking a balance between preventing anti-competitive practices and ensuring a conducive environment for enterprises to thrive is critical. The apparent contradiction between the Act suggesting a shift to the 'global' turnover and the guidelines effectively reinforcing the 'relevant' turnover creates ambiguity, which undermines the clarity needed for effective enforcement.
To resolve this anomaly and make the statutory introduction of global turnover criteria fruitful, the CCI must align the provision under Section 27(b) and its guidelines. Coherent guidance on cases demanding the usage of relevant turnover versus global turnover is required to balance deterrence with economic growth, fostering a competitive yet fair business environment in India. Proportionality safeguards should also be introduced to cap penalties in both scenarios based on the severity of violations to ensure deterrence without discouraging businesses.
These measures would entail that though relevant turnover would remain the basis for quantifying penalty as outlined in the Excel Crop Case, it also confers CCI the power to move beyond the relevant criteria if the case at hand rightly demands so. This would go a long way to serve the twin objectives of upholding the proportionality doctrine and fortifying deterrence.
References
Andrea Prince, One Step Forward, Three Steps Back: A Critique of the Shift From 'Relevant' to 'Global' Turnover in Light of the CCI (Determination of Monetary Penalty) Guidelines, 2024, 9 Indian Competition Law Review (2024).
Ankit Srivastava et al., A Study Beyond the See-Saw of Relevant and Global Turnover: Finding a Mechanism for Adequate Penalty, 4 Competition Commission of India Journal on Competition Law and Policy (2023).
Ayushman Rai, Towards Ending the Oscillation between Relevant and Global Approach: 2024 CCI Guidelines, Centre for Business and Commercial Laws (July 4, 2024), https://cbcl.nliu.ac.in/competition-law/towards-ending-the-oscillation-between-relevant-and-global-approach-2024-cci-guidelines/.
Dhruv Rajain, Overview of Turnover Based Penalties under the Indian Competition Framework, RGNUL Financial & Mercantile Law Review (Sept. 17, 2024), https://www.rfmlr.com/post/overview-of-turnover-based-penalties-under-the-indian-competition-framework.
Kriti, CCI notifies Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024, SCC Online (Mar. 11, 2024), https://www.scconline.com/blog/post/2024/03/11/cci-notifies-cci-determination-of-monetary-penalty-guidelines-2024-legal-news/.
Maaz Ali Khan, Competition Law Vis-À-Vis Digital Economy, 3 Indian Journal of Integrated Research in Law (2023).
Naman Aggarwal, Examining the Correct Basis of Penalty: Relevancy of 'Relevant Turnover' After Competition (Amendment) Act, 2023, Centre for Competition Law and Economics (July 4, 2024), https://www.icle.in/resource/examining-the-correct-basis-of-penalty-relevancy-of-relevant-turnover-after-competition-amendment-act-2023/.
Prashant Sharma, An Analytical Glimpse at the Draft Competition Amendment Bill 2020, Indian Journal of Law and Legal Research (2020).
Sanjay Vashishtha & Abhay Pratap, Navigating the Hub-and-Spoke Cartel in India: An Analytical Overview of the New Provision, SCC Online (Oct. 5, 2023), https://www.scconline.com/blog/post/2023/10/05/navigating-hub-and-spoke-cartel-in-india-an-analytical-overview-of-new-provision/.
Footnotes
1. Excel Crop. Care Limited vs. CCI & Ors., MANU/SC/0588/2017.
2. Competition Act, 2002, §27(b), No. 12, Acts of Parliament, 2002 (India).
3. Belaire Owner's Association vs. DLF Ltd., [2012] 28 taxmann.com 435 (CCI).
4. Maaz Ali Khan, Competition Law Vis-À-Vis Digital Economy, 3 Indian Journal of Integrated Research in Law (2023).
5. Federation of Hotel & Restaurant Associations of India vs. MakeMyTrip India (P.) Ltd, [2019] 110 taxmann.com 493 (CCI).
6. Nagrik Chetna Manch vs. Fortified Security Solutions, [2018] 94 taxmann.com 64 (CCI).
7. Report of Competition Law Review Committee, Ministry of Corporate Affairs (Government of India) 78-86 (2019).
8. Competition (Amendment) Act, 2023.
9. Andrea Prince, One Step Forward, Three Steps Back: A Critique of the Shift From 'Relevant' to 'Global' Turnover in Light of the CCI Guidelines, 2024, 9 Indian Competition Law Review (2024).
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