CCI may tailor penalties for global corporations

GS Paper III

News excerpt:

In a likely reprieve for multinational corporations, the Competition Commission of India (CCI) may not impose penalties for anti-competitive practices directly based on their global turnover.

More details on news:

  • Rather than directly imposing penalties based on global turnover, the base penalty would be calculated on a company’s relevant turnover, which is the turnover related to the product or service infringing on the law in the domestic market.    
  • The Section 20 of the Competition Amendment Act, 2023 empowers the CCI to “impose such penalty, as it may deem fit, which shall be not more than 10 % of the average of the turnover or income”.
    • The amendment Act defines “turnover” as global turnover derived from all the products and services provided by a person or an enterprise.
  • The proposed guidelines are expected to outline a list of aggravating and mitigating circumstances that could influence the final penalty amount, adding up to penalty on the company’s global turnover.
    • Aggravating circumstances could include recidivism, or repeat offenses, and the extent of impact on commerce due to anti-competitive practices. If a significant portion of commerce is affected, penalties could increase.
    • Mitigating factors could include the presence of a competition compliance programme or corrective action taken during the investigation.
  • The doctrine of proportionality, considering the economic capability of the company to pay, would also be taken into account when calculating the penalty above the relevant turnover.

Competition Commission of India (CCI) 

  • The Competition Act, 2002 was passed by the Parliament in the year 2002. It was subsequently amended by the Competition (Amendment) Act, 2007.
  • In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established.
  • The Competition Commission of India is now fully functional with a Chairperson and six members.
  • The provisions of the Competition Act relating to anti-competitive agreements and abuse of dominant position were notified.
  • Competition (Amendment) Act, 2023 was brought with  major substantive provisions, which includes the hub and spoke cartels, which cover hybrid anti-competitive agreements and facilitators/non-participants who had ‘intended to participate’ in the cartel.

Case of penalty imposed on google

  • The Google's penalty for anti-competitive practices in the Android mobile device ecosystem was calculated as a percentage of its Indian revenue from Android.
  • The CCI imposed a penalty of Rs 1,337.76 crore on Google for abuse of its dominant position in its October 2022 order.
  • In relation to computation of penalty, the CCI noted that there were glaring inconsistencies and wide disclaimers in presenting various revenue data points by Google.

Turnover test

  • The Competition Amendment Act defines “turnover” as global turnover derived from products and services offered by a person or an enterprise
  • Base amount of penalty, it has been learnt, will be calculated based on the relevant turnover of a company, which is the turnover related to the product or service infringing on the law in the domestic market
  • Proposed guidelines likely to list aggravating and mitigating circumstances that may lead to the final amount adding up to penalty on a firm’s global turnover.

European Union’s penalty principle followed by CCI

  • The CCI's penalty provisions follow the principles of the European Union.
  • According to EU’s Article 101, businesses violating antitrust laws could be liable to a fine of up to 10 % of its worldwide annual turnover by the European Commission.

Penalty provisions in other countries

  • UK: The UK, like the EU, follows the Competition Market Authority’ (‘CMA’)’ six-step penalty methodology for competition law infringements. It involves determining a starting point based on turnover, adjusting for duration, considering aggravating or mitigating factors, factoring in specific deterrence, ensuring proportionality, and allowing for reductions based on leniency or settlement agreements.
  • Singapore: In Singapore, the Singapore Competition Act refers to the turnover of the undertaking as opposed to the relevant turnover for determining the penalty. Thus, global turnover is considered as an apt basis to cap the penalty even in matured jurisdictions. It has given them a free hand to impose the just amount of penalty as the case requires.

Conclusion:

In striving for a balance between deterrence and fairness, CCI's nuanced approach to penalties for global corporations signals a thoughtful consideration of economic impact and compliance measures. This fosters an environment encouraging competition while protecting domestic interests.

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