The Centre plans to override the Supreme Court ruling that had stipulated that only “relevant turnover” of the specific product or service and not “average turnover” of entire enterprise be considered by the Competition Commission of India (CCI) for imposing penalties on enterprises for their anti-competitive practices.
The Centre now proposes to introduce — as part of the official amendments to the Competition (amendment) Bill 2022 —“global turnover” derived from ‘all products and services’ as a base for imposition of monetary penalties by CCI, sources privy to the amendments said.
In 2017, Supreme Court of India in Excel Crop case held that CCI can impose penalty only on the basis of ‘relevant turnover’ of the specific product or service and not on ‘total average turnover’ of the entire company.
The apex court found that penalties imposed on the basis of total turnover would lead to inequitable situations, especially when multi-product firms were involved. The judgement of Supreme Court was widely perceived to weaken the competition law as it defanged the deterrence of law.
Currently, CCI can levy penalties as much as 10 per cent of a firm’s turnover. This is limited to the firm’s turnover recorded within India and also for the product or service in question where anti-competitive conduct has been established.
As per the amendment proposal to Competition (amendment) Bill, an explanation will be added to Section 27 of the Competition Act, 2002 which enables CCI to impose monetary penalties. The explanation provides that for the purpose of imposing penalty, turnover would mean global turnover derived from all the products and services by a person or enterprise, both within and outside India.
Bad news for big tech
This proposed introduction of “global turnover” in the definition of “turnover” would mean that CCI would now get to impose larger anti-trust penalties than now being levied. It would also spell bad news for Big Tech, which recently have been under close scrutiny of the competition watchdog for their anti-competitive practices.
The proposal on ‘global turnover’ assumes significance in light of recent interventions of CCI in digital markets. If the total global turnover is to be made as the base for levying penalties, tech giants will face stiff penalties – way higher than those leviable presently which are computed as per local turnover arising from the infringing products or services, sources added.
It remains to be seen whether this amendment on “global turnover” as the base would have retrospective or not. If it does have retrospective effect, then it could affect slew of Big Tech cases including Google’s Android case and Google’s Play Store case which are already facing legal challenge, they added.
“The proposed amendment to bring ‘global turnover’ as the base is a very progressive move by the Centre as the Apex Court ruling on relevant turnover had virtually rendered the law ineffective. The judgment effectively rewrote the law by introducing the concept of relevant turnover in the statute book. Going forward, it will be imperative now for CCI to frame penalty guidelines and to exercise its sky high powers in a very judicious way”, said a competition law expert to businessline.
“Look at the penalties imposed by CCI on Google in Android case. It translated to a meagre $161.95 million as against a fine of $5 billion levied by European regulators for similar conduct. The proposed amendment restores the original position in the law” he added.
It maybe recalled that the Supreme Court, in Excel Crop v Competition Commission of India (2017), upheld a decision of the Competition Appellate Tribunal (COMPAT), and said that the turnover for penalty in Section 27(b) of the Act must mean ‘relevant turnover’
The COMPAT had said that CCI had consistently failed to provide reasons for the kinds of penalty imposed, and ruled that for the given case and its peculiar circumstances, relevant turnover for the specific products had to be considered and not the average turnover. The apex court took it a step further and ruled that only relevant turnover could be considered for penalty in general.