Introduction
With the enactment of the Competition Amendment Act, 2023, the Indian competition regulatory framework is undergoing significant changes. The most notable modification through this amendment was the adoption of ‘global turnover’ by discarding ‘relevant turnover’ under Section 27(b) for imposing penalties by the Competition Commission of India (CCI). Further, on March 06, 2024, a turning point was reached in the enforcement of competition law with the introduction of the CCI (Determination of Turnover or Income) Regulations, 2024 (hereinafter referred to as the Turnover Regulations) and CCI (Determination of Monetary Penalty) Guidelines, 2024 (hereinafter referred to as the Monetary Penalty Guidelines). These regulations and guidelines have elicited discussions on various aspects including ways of arriving at actual figures for determining turnovers.
This article aims to examine the recently introduced regulations and guidelines that have been formulated to provide methodologies for penalty computations under Section 27(b) of the Act. However, such determination is dependent on several variables, including the nature and severity of the violation, the industry that is impacted by it and how it affects the economy, and any other variable the CCI finds appropriate given the particulars of each instance.
Examining the Penalty Determination from Excel Crop and Google LLC Decisions
As far as the Indian antitrust regime is concerned, the mechanism for determination of penalty on contravening entities has been developed through some prominent judicial pronouncements. In Excel Crop judgment, turnover under Section 27(b) of the Act was held to be a ‘relevant turnover’ meaning that for imposing a penalty on the contravening enterprise, the turnover of the product relevant to inquiry was to be taken into consideration. Consequently, 9% of the average turnover in the last three years relating to such product was imposed on Excel Crop Care Ltd., and the turnover of other products was ignored. The court further pointed out that it would be more in tune with the essence of the Act to calculate the relevant turnover of the company by following the Proportionality Doctrine. However, the ratio of Excel Crop was modified by the Parliament with the enactment of Competition (Amendment) Act, 2023 wherein Section 27(b) was amended and the ‘global turnover’ mandate was included. To add certainty and rationality in imposing monetary penalties on such enterprises, it is now feasible for the competition regulator to affix the requisite penalties based upon a defined methodology as provided under the determination of turnover regulations coupled with the monetary penalty guidelines.
While in Mr. Umar Javeed v. Google LLC, the CCI imposed a penalty of Rs. 1337.76 crore on Google LLC for abusing its dominant position in Android market by contravening Section 4 of the Act. The CCI, while fixing such penalty, duly regarded the gravity of offence coupled with aggravating or mitigating circumstances.
The said Regulations and Guidelines have been issued in the middle of another legal battle between Google and a set of renowned companies[1] whose apps were delisted from the Play Store. The reason for their delisting was the alleged non-compliance of Google’s new User Based Policy, which requires services, including in-app purchases, to detach 26% of their revenue and pay it as commission to Google for using its Play Store services. When these companies approached the Madras High Court, their petition was dismissed on the ground of CCI’s jurisdiction as per Section 61 of Competition Act, 2002. Google delisted apps of 10 companies from its Play Store citing non-compliance of its billing policies. However, on March 05, 2024, Google agreed to restore such apps following a meeting with the Union IT Minister.
In this matter, the CCI has ordered an investigation by the Director General under Section 26(1)[2] against the delisting of apps of such companies, given a prima facie view of Google’s abuse of dominant position contravening Section 4 of the Act. The Indian competition regulator has also noted that such discriminatory fees by Google on these companies possesses a possible appreciable adverse effect on the competition in the relevant market. Such exorbitant levies, going up to 30%, also act as a barrier to the entry of future companies into these relevant markets making healthy competition unhealthy.
Now, since the term “turnover” under Section 27(b) means the “global turnover”, it will be interesting to see how the CCI calculates a possible penalty to be imposed on Google, if the conglomerate entity is held liable for abusing its dominant position following the Director General’s investigation. The matter is also prejudiced before the Supreme Court.
Analysing Turnover Regulations & Monetary Penalty Guidelines Considering the ‘Global Turnover’ Mandate
Under Regulation 3 of Determination of Turnover and Income Regulations, turnover of an enterprise for the purposes of Section 27 of the Act includes the value of sales coupled with other operating revenue as provided under the audited financial statements maintained by such enterprise. It excludes other income, trade discounts, indirect taxes, or intra-group sales. Furthermore, it is imperative to throw some light on the monetary penalty guidelines wherein guidelines are provided to calculate monetary penalties to be charged upon the perpetrator companies violating provisions of the Competition Act.
Guideline 3 of Monetary Penalty Guidelines provides a detailed methodology for determining penalty on enterprises to be imposed under Section 27, wherein the CCI has been mandated to give due regard to factors such as nature and gravity of such offence in question, nature of the sector or industry which is alleged to have been affected, and any other factor in the facts and circumstances of such case. These modifications aim at promoting a level playing field for companies, considering consumer interests as well as encouraging fair competition. While the Penalty Guidelines strike a balance between fines and market harm, emphasizing fairness and deterrence, the turnover regulations provide consistency and clarity with respect to financial evaluations.
Further, the term ‘relevant turnover’ has been mentioned under Monetary Penalty Guidelines in calculating such penalties. This brings uncertainity and is not in consonance with the Competition Amendment Act, 2023 which introduced ‘global turnover’ as the current standard. Thus, the question of ‘relevant turnover’ persists as this concept occupies a place in the Monetary Penalty Guidelines and there is no clarification on the part of the CCI about its applicability.
Furthermore, through determination of Turnover Regulations and Monetary Penalty Guidelines, the competition regulator has acquired a discretionary power to follow relevant or global turnover monetary penalties based upon the sizes and operations of corporations alleged of contravening the Competition Act.
Suggestions and Conclusion
There should be a caution on the CCI that it must understand and incorporate the fundamental doctrine of proportionality in deciding penalties on case-to-case basis to avoid arbitrability in its decisions to achieve the further goal of less litigations in conventional courts. The proportionality doctrine should revolve around possible aggravating and mitigating circumstances including the conduct of enterprises during the inquiry and investigation, cooperation, and the extent of disclosing all material information as the CCI sought. The penalty determination on such enterprises should also be based upon the gravity and nature of contravention including cases of their repeated contravention. Further, the Competition Compliance Program as a new addition could act as a mitigating factor if the contravening enterprise follows a compliance-based approach. In this way, such enterprise could avoid imposition of exorbitant penalties.
Upon thorough analysis of the new Regulations and Guidelines of 2024 in conjunction with the 2023 amendment act, the author concludes that the transition in penalty calculations is not solely reliant on ‘global turnover’ but also emphasizes the use of relevant turnover as outlined in the guidelines. It is to noted from various cases examined above that while decisions are made on a case-by-case basis, the CCI has given itself significant leeway to determine what should be considered in each case. This discretion represents an important aspect that allows CCI to fix fines inconsistency with fairness, considering specific nuances in each situation.
These regulations and guidelines have been framed with the experience of an evolved jurisprudence of decades of antitrust regimes around the world and thus have acquired the statutory binding character. While the Regulation 3 sets forth some factors to consider when calculating relevant turnover of an enterprise, the CCI has the duty to outline a clear and transparent way for calculating penalties. The CCI is ought to have regard for to maintain its discretionary power within bound and not let it become unrestricted or capricious. By adhering to the guidelines and considering relevant factors, the CCI can properly balance its discretionary powers against fairness and consistency in penalty imposition. This approach not only enhances the transparency of competition regulation but also promotes confidence in the regulatory framework among stakeholders, ultimately fostering a competitive business environment in India.
In nutshell, the transition from “relevant” to “global” in the calculation of fines established by Section 27(b) for instance adds complexity although the main aim is to enhance competition regulation in India. The challenges in India’s competition law that are being highlighted through the Google case hinge on forthcoming verdicts from the Supreme Court as well as on CCI penalty calculation methodology decisions. These determinations will have a significant bearing on the fairness, efficiency and efficacy of competition regulation thereby shaping market dynamics as well as promoting a competitive business environment that is fair, efficient, and accurate.
- Arha Media and Broadcasting Private Limited v. Google India Private Limited & Ors. SLP (Civil) 2711 of 2024 ↑
- The Competition Act 2002 s 26(1). ↑
(This post has been authored by Suprit Raj, a fourth-year law student at Chanakya National Law University, Patna)
CITE AS: Suprit Raj, “Analysing ‘Penalty Basis’ Under New Regulations & Guidelines: Is the Transition from ‘Relevant’ to ‘Global’ Turnover Real?” (The Contemporary Law Forum, 11 August 2024) <https://tclf.in/2024/08/11/analysing-penalty-basis-under-new-regulations-amp-guidelines-is-the-transition-from-relevant-to-global-turnover-real/>date of access