Centre Overturns SC Judgment For Levying Penalties on Enterprises Under Competition Act

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The Supreme Court's 2017 ruling in the Excel Crop Care case, which mandated that the Competition Commission of India (CCI) to only impose penalties under Section 27(b) of the Competition Act, 2002, based on the "relevant turnover" has been overturned by the rules introduced by the new rules

In a significant move to enhance the framework of competition law in India, the Centre has announced the implementation of three significant regulations and guidelines under the Competition (Amendment) Act, 2023. These regulations will have the effect of overturning the 2017 Supreme Court judgment in the case of Excel Crop v Competition Commission of India to the extent of it restricting penalties to ‘relevant turnover’.

This development announced by the Competition Commission of India (CCI), as per the Press Information Bureau (PIB), comes in the wake of the Competition (Amendment) Act, 2023, signalling a decisive shift towards aligning India's competition law with global best practices.

The three sets of regulations – the CCI (Settlement) Regulations, 2024; the CCI (Commitment) Regulations, 2024; and the CCI (Determination of Turnover or Income) Regulations, 2024 – alongside the CCI (Determination of Monetary Penalty) Guidelines, 2024, represent a comprehensive overhaul aimed at streamlining procedures and ensuring penalties are equitable and reflective of the market impact caused by anti-competitive behaviour.

In-Depth Examination of the New CCI Regulations:

  • CCI (Settlement) Regulations, 2024: These allow enterprises under investigation for potential breaches of Sections 3(4) or 4 to seek a settlement before the inquiry concludes, aiming to diminish litigation and facilitate faster market rectification.
  • CCI (Commitment) Regulations, 2024: This regulatory framework permits companies to propose remedies or changes preemptively, before the investigation's final assessment, fostering a proactive approach to restoring competitive market conditions without necessitating an admission of wrongdoing.
  • CCI (Determination of Turnover or Income) Regulations, 2024: Establishing clear criteria for assessing an entity's turnover or income, these regulations are crucial for accurately calculating applicable penalties under Sections 27 and 48 of the Act, thereby refining the financial evaluation process within legal proceedings.
  • CCI (Determination of Monetary Penalty) Guidelines, 2024: Offering a structured approach to penalty assessment, these guidelines ensure that fines are commensurate with the severity of anti-competitive harm and the offender’s degree of fault, promoting fairness and accountability in market practices.

Reflection on the Supreme Court’s Excel Crop Judgment:

The Supreme Court's 2017 ruling in the Excel Crop Care case mandated that the Competition Commission of India (CCI) could only impose penalties under Section 27(b) of the Competition Act, 2002, be based on the "relevant turnover" — specifically, the turnover associated with the product or service involved in the infringement, rather than a company's total turnover. The decision came while upholding the view of the Competition Appellate Tribunal's (COMPAT).

This stance arose in response of concerns to the CCI's approach to penalties, which often considered a company's total turnover, resulting in disproportionately high fines, especially for companies with multiple lines of business unrelated to the anti-competitive conduct. COMPAT criticised the CCI for not adequately justifying the rationale behind the magnitude of fines imposed, leading to arbitrary and potentially unjust penalties.

By insisting on 'relevant turnover' as the basis for penalties, the Supreme Court aimed to make the punitive measures more equitable, ensuring that they correspond more closely to the scope and scale of the infringement. This decision was perceived to lower the deterrent effect of competition law, as it significantly reduced the potential penalty that could be imposed on multi-product companies, potentially affecting the CCI's ability to enforce compliance effectively.

The decision was perceived by many as weakening the deterrence strength of competition law. By focusing solely on the relevant turnover, it was argued that the ruling reduced the financial impact of penalties on large, diversified corporations, thereby diminishing the law's ability to act as a deterrent against anti-competitive practices.

The Impact of the Guidelines :

These guidelines, effective from March 6, 2024, are structured across seven chapters, detailing penalty calculations for enterprises and individuals while underscoring the CCI's residual powers.

  • Penalty Calculation for Enterprises: Factors such as the nature, gravity, and impact of the contravention on the market are evaluated to determine penalties up to thirty percent of the enterprise's average relevant turnover or income from the past three years. Adjustments may be made based on the enterprise's involvement, coercion used, cooperation level, and compliance efforts.
  • Global Turnover for Penalties: If specific turnover calculation is impractical, the CCI might consider the enterprise’s global turnover, encompassing all products and services, to determine the penalty.
  • Penalties for Cartel Involvement: A distinct approach is used for cartels, focusing on the enterprise's profit after tax to determine fines, reflecting the severity of anti-competitive agreements.
  • Individual Penalties (Section 48): Penalties for individuals are capped at 10% of their average income over three years, considering their role and behaviour during the violation.
  • Comprehensive Approach for Non-compliance Penalties: For violations under Sections 43A and others, penalties can extend up to one percent of the total turnover, assets, or the value of the transaction, considering factors like the violation of notice requirements and the parties' conduct.
  • Residuary Powers and Reduction Guidance: The CCI retains the authority to adjust penalties in exceptional cases, ensuring the flexibility to address unique circumstances effectively. Deviations from standard methodologies must be documented, providing transparency in the Commission’s decision-making process. Additionally, the guidelines reference the CCI (Lesser Penalty) Regulations, 2024, which offer directions on reducing penalties in exchange for cooperation in investigations.

These guidelines aim to ensure fair, proportional penalties that deter anti-competitive behaviour while reflecting each case's specifics.

[Source: PIB]