[Aditi is a student at National Law University, Delhi.]
The Supreme Court of India (Supreme Court) in its 2017 landmark judgment in Excel Crop Care v. Competition Commission of India (Excel Crop), upheld the Competition Appellate Tribunal’s (COMPAT) decision of imposing a penalty based on "relevant turnover", rather than "total turnover", settling a crucial question in Indian antitrust law, which was subject to contention amongst various stakeholders. However, a reading of the proviso to Section 27(b) of the Competition Act 2002 (Competition Act) elucidates that the legislature’s intention appears to award a penalty on the total turnover of the person or the enterprise, rather than a “relevant” part of such turnover. This article examines the definition of 'turnover' as regards the imposition of penalties under Section 27(b) of the Competition Act, through the lens of corresponding cross-border jurisprudence.
Understanding 'Turnover'
The term 'turnover' under Section 2(y) of the Competition Act includes the “value of sale of goods or services”. Statutorily, there are no criteria for estimating the turnover to establish the levels that are industry-specific. The whole turnover, not only the turnover for the relevant product market, is what is taken into account. The target exemption notification from 2017 provided adequate guidance regarding the method of calculating the assets of the combining entities, but it only stated that the calculation of turnover "shall be as certified by the statutory auditor on the basis of the most recent set of audited financial statements of the company."
A total fine of INR 2,544 crores was levied on 14 vehicle manufacturers in Shamsher Kataria v. Honda Siel Cars India Limited for abuse of dominance. In this case, the Competition Commission of India (CCI) levied a fine equal to 2% of each vehicle company's average annual turnover for violation of the Competition Act. Further, the COMPAT has stated in the case of Excel Crop that the appropriate measure of punishment in the case of a multi-product company would be only the turnover of the product or service in relation to the alleged contravention, and not the turnover of the entire multi-product company. This is referred to as "relevant turnover".
The decision by the Supreme Court to base punishment on a sizable volume of ventures has established a benchmark for the CCI and the COMPAT to determine the penalty for alleged violators of the Competition Act. It has been shown without any doubt that the word 'turnover' refers to actual turnover. The Supreme Court has also provided an illustrative list of factors that should be taken into account while determining the severity of the sentence. As a result, alleged persons have been spared from harsh punishments that may have been disproportionate to their violation.
Law in Books and Law in Action: Which One to Choose?
It may be noted that under the Competition Act, the expression 'turnover' is not qualified by the word "relevant", nor is it specifically restricted to the product or service of which contravention has been alleged.
Further, the use of the phrase 'its turnover' in relation to any producer, seller, distributor, dealer, or supplier of services engaged in the cartel indicates that the ground for levying a penalty is the business as a whole, not merely a unit or portion thereof. This argument adheres to the well-known rule of statutory interpretation, as per which if a term appears more than once in a single law provision, the legislator must have intended for the word to have the same meaning in each instance.
However, in terms of jurisprudence, the Supreme Court, relying on Abhiram Singh v. CD Commachen, has held the word ‘turnover’ to mean "the relevant turnover" under Section 27 of the Competition Act and observed that “if two interpretations are possible, the one that leans in favour of infringer has to be adopted and that the interpretation should not bring about inequitable results”.
Foreign Jurisprudence
In addition to agreeing with the sentiment indicated in the relied-upon decision of the South African Tribunal in Southern Pipeline Contractors v. Competition Commission (Southern Pipeline Contractors), the COMPAT stated that the guidelines of the EU and the Office of Fair Trading (OFT) were "undoubtedly relevant."
In Southern Pipeline Contractors, the COMPAT ruled that there was a "legislative link" between the violation and the harm caused, as well as the profits obtained through cartel activities while interpreting Section 59 of the South African Competition Act, 1998 (SA Act). The South African Court determined that, subject to the overall maximum of 10% of total turnover outlined in Section 59 of the SA Act offered a clear legislative basis for taking just the "affected" or the "relevant" turnover into consideration. Surprisingly, in Excel Crop, the COMPAT did not examine the provisions of the Competition Act, in particular Section 27, to assess whether the idea of "relevant turnover" had any legislative foundation.
The EU and the OFT guidelines provide that the calculation of the penalty must be done in steps or stages. Arguably, the penalty would have been far higher than what the COMPAT imposed if these regulations had been fully applied to the circumstances of Excel Crop.
A Note on Proportionality
According to the proportionality principle, courts may consider leaning towards the "relevant turnover" as opposed to the "total turnover".
It may be unconscionable to maintain that even when a penalty has been levied for anti-competitive practices specific to a product, the maximum penalty must always be determined based on "all the goods," or the "total revenue," of the business. In order to impose a penalty under Section 27(b) of the Competition Act, 'turnover' must thus relate to relevant turnover for the infringing product and not the whole turnover of the enterprise/firm. The concept of “relevant turnover” may be further crystallized if this interpretation is embraced.
Conclusion
The clause, being a penal provision, must be strictly interpreted. It is possible that the same infringement is alleged in multiple businesses, some of which may be single product companies while others may be multi-product companies. In such a scenario, there would arguably be no justification for prescribing the maximum penalty based on the total turnover of the business because it would result in prescribing a higher maximum penalty for multi-product businesses.
Due to the fact that the clause relates to penalties to be imposed on "turnover," it is argued that the said 'turnover' was inevitably related to the infringing product solely, and that the legislature never meant to punish any person or enterprise even with respect to non-contentious products. Further, as the Supreme Court held, the imposition of penalty adopting the criteria of “relevant turnover” will be “more in tune with ethos of the Act and the legal principles which surround matters pertaining to imposition of penalties."