CCI Issues Penalty Guidelines And Regulations On Turnover Determination

The Competition Commission of India on Wednesday issued its long-awaited guidelines that outline the process for imposing penalties on companies based on their global turnover and regulations on turnover determination.

The penalty guidelines specify the starting point for penalties and will enable real-time scenario building for respondents to make a calculated decision about whether to proceed with the settlement and commitment options available now, as per Avaantika Kakkar, partner at Cyril Amarchand Mangaldas.

In the initial stage, the CCI may consider factors such as the nature and gravity of the violation, the industry's impact, and other relevant circumstances. The penalty amount can be up to 30% of the average relevant turnover or income of the enterprise. 

The commission may further adjust this amount based on factors, including the duration of the contravention, the enterprise's role, coercive measures employed, admission of contravention, and cooperation during investigations.

To calculate the average relevant turnover or income, the CCI may consider the preceding three years, and audited financial statements are crucial.

If audited statements are unavailable, the competition regulator may resort to global turnover for penalty determination. In cases where the determined penalty is deemed insufficient, the CCI has the authority to increase it, up to the legal maximum, to ensure deterrence.

The guidelines extend to cases involving anti-competitive agreements by cartels, where the CCI may consider the profit after tax for penalty determination.

If a company violates any laws or rules under the Competition Act, the individuals in charge of the company's business at the time of the violation can be held responsible.

For this, the penalties are capped at 10% of their average income for the last three years. Factors like the nature of the contravention, cooperation, and repeated violations will be considered in determining the percentage.

For cases related to failure to give notice of combinations or violations of standstill obligations, penalties may extend to 1% of the total turnover, assets, or the value of the transaction. The CCI will consider various factors, including consummation without notice, voluntary filing and cooperation, in determining the penalty amount.

By providing a structured, nuanced, and adaptable framework for determining penalties, the CCI fosters transparency, consistency, and fairness in the enforcement of competition law, according to Rajesh Rai, partner at RR Legal Partners LLP.

While the guidelines provide a structured methodology, the CCI has retained residuary powers, allowing flexibility in exceptional circumstances. Any deviation from the general methodology will require written documentation, ensuring transparency and accountability.

In addition to these guidelines, the CCI has also notified the Commitment and Settlement Regulations.

The introduction of a settlement mechanism allows parties to make informed decisions, weighing the pros and cons of settling versus facing potential penalties, according to Toshit Shandilya, partner at AZB and Partners.

This mechanism aids effective decision-making for companies, considering their penalty exposure and settlement options.

The rules for figuring out a company's turnover or income will involve several steps. The turnover or income will include the value of sales, revenue, and other operating income based on audited financial statements.

However, certain elements like other income, indirect taxes, trade discounts, and intra-group sales would be excluded.

If a company would be required to prepare consolidated financial statements, the turnover or income would be based on those audited consolidated financial statements. 

In cases where audited financial statements are not available, the turnover or income can be determined by a statutory auditor or a chartered accountant, with support from an affidavit by an authorized person.

If the turnover or income is not in Indian rupees, it will be converted into the local unit using the average foreign currency reference rates published by the Reserve Bank of India, as certified by a chartered accountant and supported by an affidavit.

For individuals, income would be based on the gross total income from income tax returns  as prescribed under the Income Tax Act, excluding income from house property and capital gains.

If returns are not available or filed in multiple jurisdictions, income can be certified by a chartered accountant and supported by an affidavit. Individuals not required to file ITRs can certify their total income through a chartered accountant and an affidavit.