MC EXCLUSIVE Apple vs CCI: 'Global turnover' penalty rule unconstitutional, tech giant tells Delhi HC

Apple vs CCI: 'Global turnover' penalty rule unconstitutional, tech giant tells Delhi HC

• Apple challenges CCI's use of global turnover for penalties in Delhi High Court
• Apple faces potential $38 billion fine under amended Competition Act
• Supreme Court backs penalties based on relevant turnover, not global.

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Global tech giant Apple has told the Delhi High Court, in a rejoinder filed last week, that the expansion of the meaning of "turnover" to "global turnover" by Competition Commission of India (CCI) for the purpose of imposing penalties "ultra vires the constitutional mandate", sources privy to the matter told Moneycontrol.

Apple has approached the Delhi HC to stop the CCI ‍from seeking the company’s global ​financial records as part of an investigation into its app store policies – which it initiated in 2021. Apple is challenging the law that allows CCI to seek global financial records.

To be precise, the tech giant is contesting the 2024 amendment to Competition Act, 2002, which introduced Section 27 (b). This section allows the CCI to impose monetary penalties on enterprises found to have engaged in anti-competitive practises, by imposing a penalty of 10 percent of the company’s global turnover for three preceding financial years.

Due to the expanded definition, Apple says that it can face a fine of $38 billion, or Rs 341,295 crore, based on the global turnover for the three preceding years FY22, FY23, and FY24. As of now, the CCI has only asked Apple access to its global financial records.

"Such expansion of the meaning of 'turnover', which was in fact read down as 'relevant turnover' by the Supreme Court in the Excel Crop Judgment to 'global turnover', is in complete derogation of the SC’s binding Excel Crop Judgment," Apple has said in the rejoinder, as reviewed by Moneycontrol.

"By making such amendments, the Respondents (CCI) have effectively invalidated the pronouncement of the Supreme Court in the Excel Crop Judgment in violation of the doctrine of separation of powers as mandated under Article 50 of the Constitution of India. The Impugned Amended Penalty Provisions are blatantly ultra vires the Constitution of India, is a ‘colourable legislation’ and consequently, ultra vires the constitutional mandate," it has said.

The Excel Crop Care Judgement

The apex court in its Excel Crop judgement has established a precedent regarding the calculation of penalties under Section 27(b) of the Competition Act.

The Court in its ruling had "read-down" the term "turnover" to mean "relevant turnover". This means, the turnover of an enterprise generated only from the specific infringing product or service related to the alleged anti-competitive conduct. The SC had explicitly rejected the idea that penalties should be based on the "entire" turnover of an enterprise – which the CCI is not following in the Apple’s case.

Importantly, the ruling had established a mandatory two-step process for the CCI to follow: (a) Determination of relevant turnover through identification of the turnover pertaining only to the products and services affected by the contravention; and (b) Determination of an appropriate percentage of the penalty to be imposed on the relevant turnover.

The Court had reasoned that a penalty should be commensurate with the "nature of the offence and the benefit derived from it" rather than simply the size of the enterprise.

The Section 27(b) – added in the Competition Act in 2023 – however says that the CCI can impose such penalty, "as it may deem fit" which shall be not more than 10 percent of the average of the turnover for the last three preceding financial years. This provision is being misused to target the entire global turnover of Apple, the sources say.

"The Impugned Amended Penalty Provisions now empower the CCI to impose a disproportionate penalty amount based on 'global turnover', that is, worldwide total turnover derived from all products and services of an enterprise," Apple says in its rejoinder.

"It is apparent that the CCI have vested in themselves a latitude that has been expressly directed by the Supreme Court to be impermissible. This in no way can be considered to implement the intent of the Supreme Court, which had, in fact, read down the meaning of “turnover” to “relevant turnover” in the Excel Crop Judgment, noting that, 'the aim of the penal provision is also to ensure that it acts as deterrent for others'," Apple says.