Competition Amendment Bill, 2022: Embellishments That Merit A Relook
One of the proposals would change the length of the stick the CCI wields to punish anti-competitive practices.
Indian competition law is at the cusp of a reset. The measured approach to review and amend the Competition Act, 2002, beginning with the constitution of the Competition Law Review Committee in 2018, followed by reference of the draft amendment bill to the Parliamentary Committee on Finance is now close to completion. News reports indicate that the central government is putting finishing touches to the Competition Amendment Bill, 2022. In the process, it appears that the government has added a couple of embellishments that neither the CLRC nor the Standing Committee had considered.
Two changes stand out. First, the government proposes to modify the term “turnover” when used for penalising errant enterprises to mean “global turnover derived from all the products and services by a person or an enterprise”. This would change the length of the stick the Competition Commission of India wields to punish enterprises engaging in anti-competitive practices.
Second, the government proposes to punish “intention” to collude through a hub-and-spoke mechanism as an anti-competitive conduct.
The proposal to penalise guilty enterprises, based on their total global turnover, perhaps stems from the concern that the Supreme Court’s decision in Excel Crop Care vs CCI has blunted much of the bite the Competition Act offered. In Excel Crop Care, the Supreme Court read down the rather clear text of the Competition Act to hold that while levying penalty on multi-product companies, the CCI must rely on the “relevant” turnover as opposed to “total” turnover. In other words, the turnover derived from the product and/or geographic market, where infringement has occurred, could alone form the basis for computing penalty.
The Supreme Court was concerned that penalising multi-product companies based on their total turnover would be disproportionate to the harm caused by them. Underlying this concern is sound economic logic.
The determination of the optimal level of monetary sanctions should be guided by two principles. First, the total sanction should be high enough, but no higher than necessary to offset the harm caused by the anti-competitive conduct. In other words, it must be proportionate to the harm caused. Disproportionate fines would lead to over-deterrence. They would lead to excessive monitoring of business decisions, which would, in turn, increase the cost of compliance and eventually reflect in higher prices for consumers.
Second, the individuals responsible for corporate decision-making should be sufficiently disincentivized from adopting anti-competitive business practices. The Competition Act seeks to achieve this by penalizing individual decision-makers for engaging in anti-competitive practices based on their income.
Achieving the optimal level of monetary sanction on guilty enterprises and individual office bearers responsible for the corporate decision-making is essential for securing the optimal level of deterrence.
The expansion of the definition of the term “turnover” to “global turnover derived from all the products and services by a person or an enterprise” raises the risk of upsetting the link between level of penalty and the goal of securing deterrence.
Moreover, adoption of a higher starting point, based on global turnover, for computing penalty, could be debilitating for multi-product Indian corporations and discourage global corporations from entering India. Several Indian companies are increasing their global footprint. One misstep under the Competition Act could cost them up to 10% of their revenue from sales outside India, upsetting their export competitiveness in the long run.
Similarly, global corporations often enter newer markets with one or two products and expand gradually. Imagine a case where a global corporation with a small turnover in India is penalized based on its entire turnover across all products and territories. The risk of a disproportionate penalty may deter them from entering India.
Prospect of penalty based on global turnover combined with the proposal to penalize companies for the intention to collude through hub-and-spoke mechanism makes the task of finding the optimal level of penalty academic. Absent anti-competitive effects, the Competition Act does not seek to penalize business practices. Intent to collude may not always translate into agreements to collude. Therefore, penalizing a corporation for intention to collude would lead to the extraction of corporate profits without any corresponding anti-competitive effects or harm. In other words, punishment for intention would seek to remedy a harm that hasn’t occurred. Accordingly, this proposal requires careful reconsideration.
However, India wouldn’t be alone in using global turnover as the basis for computing antitrust fines. The European Commission rules contain a similar provision. The EC’s powers to levy penalties, based on global turnover, though is circumscribed by its own guidelines that first require it to arrive at a basic amount. The basic amount usually corresponds to the value of sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area within the European Economic Area, in most cases. In limited situations, where the anti-competitive conduct spans the globe—for example, a worldwide cartel—the basic amount would reflect the global value of sales. The EC moderates the basic amount to account for factors such as aggravating and mitigating factors, need for deterrence and ability to pay.
The EC’s approach to computing penalty has important lessons for India. The flexibility to extend the quantum of penalty up to 10% of the global turnover coupled with the self-imposed disciplines by way of guidelines help the EC meet its deterrence goals. The Competition Amendment Bill, 2022 already contains a provision empowering the Competition Commission of India to develop guidelines on computation penalty. If the proposed changes are accepted by the Parliament, these guidelines will be indispensable.
Pramod K Singh is a senior advisor and Rahul Rai is a partner at Axiom5 Law Chambers. Shivanghi Sukumar, counsel at the firm, also contributed to this piece.
The views expressed here are those of the authors, and do not necessarily represent the views of BQ Prime or its editorial team.