– By Sumit Jain and Vikrant Singh

The Indian Competition Act was enacted in 2002 to keep pace with economic reforms in the country.  The intent of the lawmakers behind the statute was to promote competition and ensure a ‘consumer welfare standard’ in the growing Indian economy post-1991 reforms. In 2023, the Central government came up with the amendment to the 2002 Act to bring forth certain important provisions. Some of them include strengthening the amnesty regime through the introduction of a commitment and settlement scheme, the timeframe of three years for receipt of information/ complaint, the deal-value threshold for merger control and change in the definition of ‘relevant market’ in favour of producers. Another major area of reform has been the penal provision under the Competition Act.  The Competition Commission of India (CCI) has now been given more ‘teeth’ where it may impose the penalties for violating the Competition Act to the contravening entities based on their ‘global turnover’, contrary to the erstwhile criteria of ‘national turnover’. 

‘Competition’ as a Legal and Economic Phenomenon 

Regulating and promoting competition is a blend of law and economics. A regulatory authority has to identify relevant markets, their underlying market dynamics, supply and demand-side structure of the markets, entry and exit barriers for the new players and balancing of rights of the various parties during the adjudication stage in case of a conflict. It is also true that given the complexity of the process, enforcing competition law may not be a straight-jacketed process and authorities regularly innovate within the ambit of the law to ensure compliance. 

Penal Process under the Competition Act

It is suggested that sanctions under competition law are issued to undertake course correction of the market in a timely manner. This may mean that the parties may be informed of a preliminary view taken by the antitrust authority in between the proceedings so that distortion could be minimised. As far as imposition of penalty is concerned, the Competition Commission of India on multiple instances has held that the objective is twofold, i.e. discipline the erring entity for anti-competitive conduct and act as a deterrence to stall future contraventions. The said principle has been further reiterated by the Supreme Court of India in the Excel Crop Care case where it stated that the penalty has to be proportionate with the gravity of the offence. Another underlying factor is that in an economic process, the quantum of penalty imposed by an authority may not be such that it leaves the entity in weak financial health.

The amendment as enacted by the Parliament on the issue of penalty may seem less effective. While there may be sound reasoning in suggesting that the regulatory authority may be vested with enough powers to ensure compliance with the law thereby giving a preliminary impression that enhanced penal powers are justified. More specifically in the digital markets (DMs) where a plethora of transnational corporations are working globally, such powers should be exercised only in accordance with the Rules framed under the statute. This thumb rule, however, doesn’t seem to be followed in this case. The turnover guidelines recently issued by the Commission are silent on the issue of ‘global turnover’ thereby risking the imposition of higher penalties on even non-DM contravening entities. This may have an unintended spiral effect. The parties may not only prefer more appeals against the decisions of the Commission imposing heavy penalties resulting in the exhaustion of the already scarce resources of the CCI but also may waste precious time thereby delaying the due market course-correction. This may be cascading, more so, when the underlying structure of the markets is dynamic and a delayed action may be equated to no action at all. Increased appeals against the penalty decisions might result in protracted litigation which sometimes lasts 8-10 years. One of the purported objectives of passing an amendment as stated was to prevent such protracted litigation which further seems compromised here.

Another important concern is the uncertainty on how the penalty is imposed for competition wrongs in India in general. For instance, before the passing of the amendment act, the available penalty scale to the regulator was 0-10 percent of the national turnover, or 0-3 times the profit earned by the violating entities during the time of contravention. This scale, in itself, is quite huge where 10 percent of the turnover may mean a few thousand crore rupees in certain cases. The Commission apart from practicing huge discretion within the ambit of this scale, in certain cases has imposed a penalty on an absolute basis which is outside the ambit of the law. Unsurprisingly, most of these decisions are either ineffective or are challenged in the appellate process.

Conclusion 

The Competition Act, by virtue of being an economic legislation, has promotion of efficiency as one of its prime objectives. Imposition of penalty on the basis of global turnover is an accepted standard. The GDPR in the EU uses the same yardstick to discipline the erring entities. The need of the hour may be to have stringent provisions under the law to ensure compliance from the companies, more so in the case of digital markets where Big Techs are constantly being under the radar of the antitrust agencies across the world for their conduct. However, at the same time, it is to be ensured that the  Indian regulator should act as a watchdog and not a greyhound. The intervention by the Commission should be considered ‘light-touch’ in nature when it comes to ensuring timely course-correction of the markets. The Commission may use this opportunity to issue further guidance on how to interpret ‘global turnover’, and also the general basis on which the penal process is levied. This will be in line with the larger objectives of the law and economic policy of the government.

(Sumit Jain and Vikrant Singh are founding directors at the Centre for Competition Law and Economics (CCLE).)

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