CCI’s turnover regulations to provide much needed clarity on antitrust penalties, say experts

CCI's draft regulations on turnover

Experts have opined that the Competition Commission of India’s (CCI) Determination of Turnover Regulations, 2023, will bring the much- needed clarity on antitrust penalties when implemented.

“The draft turnover regulations provide the much-needed clarification regarding the components of turnover/ income (namely the exclusion of indirect taxes, trade discounts, and intra-group sales from the ambit of turnover/ income for enterprises) for the imposition of penalty under Section 27 of the Competition Act, 2002,” said Unnati Agrawal, partner, Indus Law.

The CCI has invited expert comments on the draft regulations till January 25, 2024.

On receiving the comments, the antitrust regulator will analyse the same and bring out the final copy of the regulations. This is for the first time that the CCI has come up with regulations to determine the turnover of an enterprise to impose penalties for antitrust violations.

Under the present law, there is little to no clarity on how turnover is calculated for levying penalties.

Ratnadeep Roychowdhury, Co-Head, Private Equity and Sovereign Wealth Funds, Nishith Desai Associates, said: “This development appears to be a positive effort by the CCI to balance the concerns of market leaders, who are likely to be disproportionately impacted by regulations, with the global trend towards pushing back against monopolistic tendencies demonstrated by tech giants.”

Highlights of CC's draft turnover regulations

How does CCI impose penalties?

Section 27 of the Competition Act, 2002, allows the CCI to impose penalties on enterprises for violating the competition law by taking action under anti-competitive agreements or when a dominant position is abused. Until recently, such penalties were generally based on ‘relevant’ turnover,’ linked to the products or services affected. However, in 2023, an amendment to the Competition Act empowered the CCI to impose penalties based on the global turnover of the enterprise from all products and services.

How is turnover calculated now?

The Competition Act provides that when an enterprise is found abusing its dominant position in the market and is in the process of eliminating competition, the CCI can impose a penalty of up to 10 percent of its average turnover for the last three preceding financial years.

However, there is no methodology or rules to tell the CCI as to what constitutes a turnover. Hence, these rules assume a lot of significance, because it gives guidance on how to calculate turnover.

To implement an amendment, there should be rules and regulations to operationalise them. A mere amendment to the law will not be operationalised without a methodology to do so. While the draft regulations for the calculation of turnover for penalty have been published, the regulation for penalty itself is awaited.

Manika Brar, partner at Shardul Amarchand Mangaldas, said: “The change in penalty regime is likely to be a mixed bag. While it may lead to higher fines for companies with global operations that are found to be infringing competition law in India, they are also likely to provide much-needed clarity and transparency in the computation of penalties and will also expedite the decision-making process of the CCI.”

According to Ankur Mahindro, Managing Partner, Kred Jure, “By specifying how turnover is determined, the regulations, eliminate the scope of arbitrariness by CCI in the imposition of penalty.”

“While the draft regulations broaden the scope of penalties, it does provide a methodology to determine such penalty (by excluding indirect taxes, trade discounts and intra-group sales),” said Shreyshth Sharma, partner at SKV Law Offices

Highlights of the draft turnover regulations:
1. Turnover includes the total value of sales or revenue or receipts and other operating income
2. Indirect taxes, trade discount,s and intra-group sales exempted from turnover
3. Turnover to be based on consolidated audited financial statements
4. Turnover in foreign currency will be converted into Indian rupee (INR), based on reference rates as published by the Reserve Bank of India