The amendment to the Competition Act, 2002, which empowers the Competition Commission of India (CCI) to levy a penalty on the global turnover of companies will not act as a deterrent to multinational corporations (MNCs) from entering India, lawyers have said.
In April 2023, the President of India gave assent to the Competition Amendment Bill, 2023, which ushered in a series of changes to competition law for the first time since 2009.
Amongst a host of big changes brought in, was the provision empowering CCI to impose penalties calculated as a percentale of the global turnover of a company if it was found to be violating the competition law. Global turnover includes the company’s turnover from all products and services around the world.
To understand why such a provision could act as a deterrent to MNCs, one must understand how CCI imposes penalties, how the law on penalties evolved, and why penalties based on global turnover is a stark change in competition jurisprudence.
How are penalties imposed by CCI?
Section 27 of the Competition Act, 2002, allows CCI to impose penalties on enterprises for violating the competition law by performing actions, such as imposing anti-competitive agreements or abuse of dominant position. Until recently, such penalties were generally based on the ‘relevant’ turnover’ linked to the products or services affected. However, with the 2023 amendment, CCI is now empowered to impose penalties based on the global turnover of companies from all products and services.
The Competition Act provides that when a company is found to be abusing its dominant position in the market and in the process eliminating competition, CCI can impose a penalty of up to 10 percent of its average turnover for the last three preceding financial years.
Since the Act merely mentions the word ‘turnover’, CCI used to impose penalties calculated as a percentage of the total turnover of the erring company. For instance, a company like Google provides various services, such as Search, Gmail, Google Photos, etc. If it was found to be abusing its dominant position in Gmail, the penalty used to be levied on Google’s entire turnover in India, and not just its turnover from Gmail.
In 2017, the Supreme Court clarified that penalty is to be levied on the “relevant” turnover, i.e., the turnover of the company from the product or service where it is found to be abusing its dominant position.
The 2023 amendment however, gives CCI the power to impose penalties on the global turnover of the company, irrespective of the products.
Thus, for instance, if Google is found to be abusing its dominant position in Gmail, it could be penalised for its turnover from all of its products, such as Search, Google Maps, YouTube, etc.
CCI’s newfound powers will act as a strong deterrent for businesses against violation of the Competition Act, says Neelambera Sandeepan, Partner at Lakshmikumar Sridharan Attorneys. She said, “With the amendments passed and close to being notified by the government, the time is ripe for companies to invest in proactive audit and compliance programmes.”
On the other hand, Unnati Agrawal, Partner at Induslaw, said, “Multi-product / service conglomerates with global operations, such as Big Tech firms, might now be saddled with higher penalties compared to their Indian counterparts for engaging in similar anti-competitive conduct.”
She said that global conglomerates might view this as an unfair regulatory risk.
The amendment in penalties may not stop MNCs from setting up shop in the country, but it will definitely make them reanalyse the risks involved and the steps needed to mitigate such risks, notes Pritha Jha, Partner at Pioneer Legal.
She said, “Earlier, MNCs may have been willing to live with the risk, knowing fully well that the maximum penalty would not hurt them deeply. With the steeper penalties, this mindset will change. It's all a matter of assessment of the level of risk involved, the risk that the penalty will materialise, and the willingness to pay such a penalty should it arise.”
How is it done in other jurisdictions?
While the European Union (EU) is empowered to levy a penalty on the company’s global turnover, it is only used as an external limit. The starting point of the fine for violation of anti-trust law in the EU is up to 30 percent of the company’s annual sales of the product concerned.
The fine in the EU also depends on the seriousness of the infringement to the law, similar to Indian law. However, the outer limit of the penalty is 10 percent of the firm’s overall annual turnover generated in the business year before adoption of the decision.
In the United Kingdom, The Competition and Markets Authority (CMA) imposes fines of up to 10 percent of the global turnover of a company that is found to have violated a provision of the UK competition law.
While the power to impose penalty on global turnover is in line with how penalties are imposed in developed economies, it needs to be seen how this will pan out in the Indian context.
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