[Aabir is a student at National Law Institute University, Bhopal.]
On 6 March 2024, the Competition Commission of India (Determination of Monetary Penalty) Guidelines 2024 (Penalty Guidelines) were notified. This marks a distinct departure from the Competition Commission of India’s (CCI) approach to penalties, and brings the modern regime in line with the approach of the European Commission.
To briefly recap, under the Competition Act 2002 (Act), penalties levied under Section 27(b) were levied as a percentage of the turnover of a company – up to 10%. Yet, there was no clear position on how the figure between 0-10% was to be reached. To further complicate matters, the definition of turnover as under Section 2(y) did not provide any guidance on whether it referred to global turnover or to relevant turnover. As a matter of practice, penalties were levied as a percentage of the global turnover of the enterprise.
This practice continued until the decision of the Supreme Court in Excel Crop Care v. Competition Commission of India and Another. The court, having considered the position in foreign jurisdictions, decided to read “turnover” as “relevant turnover”. Broadly, two reasons were cited – one based on interpretation and the other on proportionality. For the former, the court held that since Section 3 and 4 are contingent on the existence of an agreement, it is only with respect to that agreement that penalty must be levied. For the latter, use of global turnover led to unequitable outcomes, as was indeed the case for large, multi-product companies vis-à-vis small, single product companies and the court held that the “global turnover” interpretation would be disproportionate thereby violating Articles 14 and 21 of the Constitution of India.
Consequently, the CCI’s decisional practice shifted to using relevant turnover to determine monetary penalties – but this came with a new set of challenges. Most prominently, in Nagrik Chetna Manch, there was a violation of Section 3(3)(d) of the Act. However, certain parties were not engaged in the trade and were merely cover bidders, therefore having no relevant turnover in the industry concerned. If one was to strictly follow the decision in Excel Crop Care, that would mean no penalty could be levied on these bidders. The CCI, therefore, used total turnover to calculate the penalty keeping in mind the object of the Act.
In view of the concerns above, the Competition Law Review Committee (2019) (CLRC) recommended that instead of amending “turnover” to mean “relevant turnover”, guidelines should be issued by the CCI on computation of penalties. These should include the guidance on use of relevant turnover as a basis for determining the penalty amount.
Consequently, the Competition (Amendment) Act 2023 added two explanations to Section 27(b) – firstly, that calculation of “turnover” and income shall be as specified by The Competition Commission of India (Determination of Turnover or Income) Regulations, 2024, and secondly that “turnover” means “global turnover”. At that stage, this seemed to be in stark contrast to the original recommendation of the CLRC and the Excel Crop Care case. However, the CCI then came out with the Penalty Guidelines, which as per Guideline 3(1) uses the relevant turnover as a base value and subsequently considers mitigating factors, as the case may be, for reaching the final penalty amount.
This, as mentioned above, is in line with European Union’s guidance on penalties. The penalty is calculated basis the relevant turnover (up to 30%), but at no point can the final penalty breach the statutory cap of 10% of the global turnover.
The guidelines are a massive step towards transparency and consistency in the penalty jurisprudence which has so far often felt erratic and disproportionate. The primary theme of penalties under the competition law regime is of deterrence. Much of the shift in policy, such as towards commitment, settlement or the leniency regime simply does not work if there is no deterrence under Section 27(b). Yet, looking at the annual report of the CCI, in FY 2022-23 a penalty of INR 2,669.54 crore was imposed, of which only INR 2.35 crore was realized. In other words, 0.0009% of the penalty amount was actually realized. This is not a yearly trend and looking back at other annual reports, the trend is similar. Appeals are on the rise, and a clear pattern emerges that penalty is not recovered because a stay is ordered by the NCLAT (and in rare cases, the High Court). It would be difficult to talk about these cases on a macro level, as there is a great divergence on the facts, but broadly the stay is granted because the appellate court feels that the penalty is disproportionate, or unreasoned.
This might or might not actually be the case, as can be seen in CEAT v. CCI wherein the NCLAT highlighted an arithmetic problem with the penalties levied – but then also went on to note that the tyre industry is suffering from global pressure, and therefore the CCI must review the penalty to save “domestic industry”. In the absence of a guidance on penalties, the courts can expand their criteria of what is a “fair” penalty amount as per any number of considerations. It is a never-ending appellate process, since there are no real well-established contours to the penalty regime.
The Penalty Guidelines seek to change that, but fall short for this very reason. Consider the broad language of Guideline 3(1)(c), which allows the CCI to consider “any other factor which the Commission may deem appropriate in the facts and circumstances of each case” while calculating the base penalty amount. Catch-all phrases such as these only broaden the horizon of considerations for different Courts and ultimately lead to a lack of enforcement.
Further, the language is not clear on exactly how much weightage must be given to any particular aggravating or mitigating circumstances. A great deal of discretion is still vested with the CCI, and residual clauses are present throughout the guidelines, such as Guidelines 3(1)(c) and 3(2)(j). These clauses are the antithesis of the reason why the guidelines were created in the first place – to ensure that there is limited scope for discretion, and to build a penalty regime that is certain in its scope and transparent in its working.
Lastly, Guideline 8 provides broad powers to the CCI to derogate from these guidelines after providing reasons in writing. While it is not necessarily a bad thing to have vast discretion in a law as fact heavy as competition law, given past practice of the CCI and appellate courts, it might be time to reign in some of this discretion to allow for enforcement.
The guidelines in their current form are but a loose detailing of the decisional practice that the CCI has followed so far, with the caveat that the CCI can simply derogate from it in the facts of the case. The outcome of such guidelines is that ultimately not much has changed – the CCI considers the factors that it believes are relevant when coming to a penalty amount, and the appellate court can take a wholly different view.
As noted above, deterrence under the Act is what makes the leniency, commitment and settlement provisions attractive – and in absence of enforcement, there is really no need for those in violation of the Act to submit themselves before the CCI. Until the guidelines are issued which reign in the scope for discretion at the stage of determination of penalty or there is a sea change in the degree of intervention by superior courts, it would be difficult to achieve the certainty or stability of mature competition law regimes such as the EU.
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