From “Relevant” To “Global” Turnover: Examining The Basis For Penalty Under The Competition (Amendment) Act, 2023

The transition from the previous emphasis on “relevant” turnover to a broader examination of “global” turnover is fundamental to the changes proposed by the Act. This break from practice, as explained in Section 27 of the Competition Act of India, signifies a major paradigm shift regarding the assessment of penalties and brings Indian competition law into compliance with global norms. The impact of anti-competitive activity has to be evaluated from a wider angle due to recent changes in global market dynamics, which has forced Indian regulators to take a comprehensive approach that takes into consideration the interdependence of economies and the global activities of businesses/companies.

The current situation emphasises how important it is for regulations to be flexible and agile in order to keep up with changing market conditions. The concept of traditional market boundaries has become obsolete due to the exponential expansion of digital platforms and the proliferation of global enterprises.

Objective of the Amendment Act of 2023:

In this regard, the Competition (Amendment) Act of 2023 includes measures that allow regulators to take into account the global presence of violating businesses to improve the effectiveness of competition law enforcement. This proactive approach is especially important in light of recent cases where anti-competitive behaviour has crossed international borders, requiring authorities from several jurisdictions to respond in concert.

Additionally, the goal of the modified legislation is to solve the problems that come with international supply chains and cross-border transactions. The Competition Commission of India is authorised by Section 21 of the Competition Act to oversee combinations, mergers, and acquisitions that impact competition in India. The modified Act offers a more thorough framework for examining these transactions and reducing the negative impact of anti-competitive activity on Indian markets by expanding the scope of penalty assessment to include global turnover.

Relevance of this Study:

Recently, in the case of Excel Crop Care Ltd. v. Competition Commission of India & Anr.^[1], particularly concerning penalties restricted to “relevant turnover” but in a pivotal move, aimed at bolstering India's competition law framework, the government has introduced three key regulations and guidelines under the Competition (Amendment) Act, 2023. These measures are set to reverse certain limitations imposed by the said decision. The shift in turnover from “relevant” to “global” is a turning point in the way competition law calculates penalties. The Competition (Amendment) Act, 2023 will be discussed in this essay along with its implications. Specifically, we will look at how penalties will change from being assessed based on "relevant" turnover to taking into account “global” turnover. We will also stress the significance of comprehending the basis for penalties under this amended legislation.

Understanding the key provisions

The Competition (Amendment) Act of 2023 is a substantial reorganisation of the legal framework that oversees market competition in India. Of the many changes brought about by this law, one of the most significant is the imposition of fines for disobeying instructions from the Competition Commission of India (CCI), as specified in Section 27 of the Competition Act.

Before the amendment, Section 27 of the Competition Act's penalty guidelines mainly took into account "relevant" turnover in the impacted market. The turnover produced by a business in a particular market where anti-competitive behaviour is present is referred to as the "relevant turnover" basis. Turnover is commonly understood in competition law to be the entire amount of money a business makes from selling products or services within a specific region or market niche.

In Pushpa M. v. CCI^[2], the National Company Law Appellate Tribunal (NCLAT) held that the adjudicating authority must provide appropriate justification for the imposition of penalty when rendering a decision in accordance with the Supreme Court's ruling in S.N. Mukherjee v. Union of India^[3]. Consequently, the Commission must provide appropriate justification prior to the imposition of penalty under Section 27(b) of the Act.

After the amendment, the following explanation was added in the said section:

“Explanation 2.—For the purposes of this clause, “turnover” means global turnover derived from all the products and services by a person or an enterprise.”

This means that authorities now have the authority to take into account the income earned by the offending company globally, in addition to the revenue generated within the particular market that was impacted by the anti-competitive activity.

This change in focus to assessing "global" turnover recognises the interdependence of contemporary economies and the demand for a more comprehensive analysis of market impact. Regulators can more accurately depict the scope and gravity of anti-competitive activity by taking into account the whole range of an entity's revenue. This is consistent with global trends in the enforcement of competition law, wherein authorities are adopting a cross-border viewpoint more frequently in order to effectively address complicated market dynamics.

Section 21: Regulation of Combinations

The Competition Commission of India (CCI) was given the authority by Section 21 to control mergers, acquisitions, and combinations that affect competition in India. However, in situations involving cross-border transactions, its jurisdictional reach might have been constrained.

Since the CCI's jurisdiction was mostly limited to issues pertaining to competition within India, the earlier interpretation of this clause would have made it difficult to regulate transactions with international implications. Following the Amendment, the revised Act expands the CCI's jurisdictional authority, giving it greater ability to handle international supply chains and cross-border transactions. This gives the regulator the authority to carefully examine mergers, acquisitions, and other alliances that affect competition in India, regardless of how far they may extend internationally.

Section 48: Penalty

The Competition Act's recently amended Section 48 adds provisions for fines on those connected to a corporation, so broadening the area of accountability for Act violations. It states that in the event that a company violates the Act, those in control and accountable for the company's operations at the time of the violation will also be considered to have violated the Act. The maximum penalty for violating the Act is 10% of the average income for the three most recent financial years.

Section 64: Power to Make Regulations

This section gives the Central Government the authority to establish regulations to implement the Act's provisions after consulting with the Competition Commission of India (CCI). With this power, the government can establish rules or guidelines that clarify different parts of the enforcement of competition laws, such as how penalties are determined, how turnover is evaluated, how merger control procedures work, and other pertinent topics. The purpose of these guidelines is to guarantee uniformity in the application of competition law principles and to facilitate the efficient execution of the Competition Act. In addition, Section 64(2) of the Competition Act grants the CCI the authority to establish rules and regulations.

Implications for Businesses and Industries

Comprehensive Assessment: Regulators can carry out a thorough analysis of the effects of anti-competitive behaviour in several jurisdictions because of penalties based on global turnover. This strategy ensures that the fine accurately represents the entire amount of damage the company's activities have caused, accounting for its worldwide operations and income.

Deterrence of Cross-Border Misconduct: Companies that engage in anti-competitive actions that impact markets outside of national borders are discouraged from doing so by imposing fines based on worldwide turnover. Businesses are motivated to abide by competition legislation in order to prevent serious financial repercussions from fines imposed on their worldwide sales.

Ensuring Effective Enforcement: In the context of increasingly globalised marketplaces, penalties based on global turnover make it easier to enforce competition law effectively. Regulators can promote fair competition and consumer welfare globally by holding multinational corporations responsible for their actions beyond national borders.

In the field of competition law enforcement, there has been a significant shift from the traditional approach of penalising organisations according to their "relevant" turnover to a more nuanced evaluation of "global" turnover. This paradigm shift emphasises the need for a more comprehensive assessment of market dynamics and embodies a perceptive recognition of the complex interactions inside contemporary economies. To fully understand the extent and ramifications of this transformative shift, it is imperative to conduct a thorough comparative analysis with respect to international standards, investigate the fundamental reasons driving this transition, and investigate any potential implications for market dynamics.

Probable Rationale of the Transition

The constraints of using "relevant" turnover alone to determine penalties for anti-competitive behaviour might be the reason for switching to "global" turnover. Even though "relevant" turnover can provide information about how behaviour affects a particular market, it frequently isn't able to fully convey the amount of the harm, particularly when dealing with multinational companies or cross-border effects.

Penalties based on relevant turnover might be difficult to apply in some situations, as “hub and spoke” agreements demonstrate. These agreements pose a unique issue since they are composed of vertical agreements with distinct parties for each agreement (the "spokes") and a common party (the "hub"). The hub may not directly profit from the product that is the subject of cartel accusations because it usually operates at a different level of the manufacturing chain. Because hubs and spokes frequently operate in different industries, it may be excluded from charges to impose penalties based on relevant turnover. Similarly, penalising digital market platforms based only on relevant turnover presents difficulties. This problem is highlighted by recent examples, such as the CCI's sanctions on MakeMyTrip, Goibibo, and OYO for exploiting dominating positions. Although the CCI imposed an arbitrary 5% penalty on relevant turnover, it construed relevant turnover as the total turnover across all segments. The CCI stressed that the interconnected and interwoven character of digital ecosystems is not adequately captured when revenue assessment is limited to a single area. For this reason, determining income in these markets requires seeing the platform as a whole. Furthermore, bidders participating in different business lines that engage in collusive bidding are ignored under the "relevant turnover" criterion. Because they were engaged in multiple economic ventures, the violators in the Nagrik Chetna Manch case contended before the CCI that their enterprise's "relevant turnover" was zero. The CCI, however, disregarded this claim and distinguished the case from Excel Crop. It noted that penalising based on "relevant turnover" would undermine the goals of the Competition Act by clearing perpetrators of their violations. As a result, penalties were applied and turnover was interpreted as global turnover.

Therefore, regulators can more accurately assess the extent and gravity of anti-competitive behaviour by taking into account "global" turnover, which takes into account income made in all markets in which the offending business operates. This addresses the issues brought on by digitalization, cross-border transactions, and globalised marketplaces in accordance with international best practices.

Comparative Analysis

The study of competition law enforcement in the US, UK, and EU provides an important context for understanding the shift to "global" turnover.

The European Union

The Treaty on the Functioning of the European Union (TFEU) and its Articles 101 and 102 essentially govern EU competition law. Within the EU, competition legislation is enforced by the European Commission in collaboration with national competition authorities. Important theories created by EU courts consist of:

A. Effect-Based Approach: When evaluating anti-competitive behaviour, EU courts have embraced an effect-based approach that places more emphasis on the real effects of the behaviour on consumers and competition than on the form or intent of the behaviour.

B. Single Economic Entity concept: This concept extends parent corporations' culpability for the activities of their subsidiaries by treating linked businesses within the same economic entity as a single endeavour for the purposes of enforcing competition laws.

In 2017, Google was penalised €2.42 billion by the European Commission for abusing its search engine dominance by giving its own comparison shopping business an unfair edge. The Commission concluded that Google had stifled competition by consistently elevating its own comparison shopping service to a prominent position in its search results while devaluing alternatives.

The United States (US)

The Federal Trade Commission Act, the Clayton Act, and the Sherman Antitrust Act are the primary legislation that control competition law in the United States. Enforcing antitrust laws is the responsibility of the Federal Trade Commission (FTC) and the Department of Justice (DOJ). Important legal theories in the US consist of:

A. Rule of Reason: When determining whether a specific company activity unduly restricts commerce, courts use the rule of reason analysis. This entails balancing the conduct's anti-competitive negative effects against its pro-competitive advantages.

B. Per Se Rule: Certain actions, such bid-rigging and price-fixing, are considered per se anti-competitive and can be condemned without the requirement for a thorough economic examination.

India's Position

The Competition Commission of India (CCI) is the main enforcement body for competition laws in India, which are governed by the Competition Act, 2002. In recent times, the Indian competition law system has undergone substantial changes to bring it into line with global best practices. Indian courts have created theories like the “Doctrine of Proportionality” and “appreciable adverse effect on competition” (AAEC), which evaluate the effects of agreements and behaviour on competition and based on the proportion of the adverse impact of the agreement, the penalty is decided. Furthermore, economic analysis principles have been embraced by the CCI and Indian courts in order to efficiently evaluate anti-competitive behaviour. Although India's framework for competition law is comparable to those of other jurisdictions, such the UK and the EU, it also has some distinctive features.

1. Data Availability and Accuracy: Businesses, particularly those operating in different jurisdictions with disparate accounting processes and reporting standards, face a great problem in compiling comprehensive and reliable data on worldwide turnover. It is imperative to guarantee the dependability and coherence of financial data in various markets; nevertheless, data constraints or inconsistencies may provide challenges.
2. Complex Corporate Structures: Accurately assigning revenue to each jurisdiction is a challenge for businesses with complex corporate structures, such as multinational conglomerates with multiple subsidiaries and affiliates. Resolving the complex network of cross-company transactions and combining financial information from other organisations might demand a lot of time and resources.
3. Jurisdictional Issues: Taking into account worldwide turnover makes it more difficult to decide which jurisdiction is best for enforcing violations of competition laws. Regulators may face difficulties enforcing their jurisdiction over multinational corporations, which could result in disputes over jurisdiction and forum shopping on the part of the parties.
4. Lack of Uniformity: Different jurisdictions may employ disparate methods to determine turnover, which could result in inconsistent penalty assessments between countries. This lack of consistency might impede attempts to harmonise competition law enforcement and cause uncertainty for companies which operate globally.

A. Creation of a Dual-Track Penalty Evaluation Structure:

(i) A dual-track penalty assessment methodology is devised that incorporates elements of global turnover and relevant turnover in order to reconcile the competing approaches. According to this paradigm, authorities have the authority to impose penalties based on global turnover or relevant turnover, contingent upon the specifics of each instance.

(ii) Regulators may give relevant turnover precedence when determining penalties in cases with largely localised effects. This will help to guarantee that sanctions fairly represent the harm inflicted on particular markets.

(iii) Regulators may take worldwide turnover into account in cases involving cross-border effects or global market domination in order to capture the larger impact of anti-competitive behaviour and deterrence against multinational businesses.

B. Establish uniform reporting requirements: Promote the adoption of uniform reporting templates or standards for international turnover statistics throughout legal systems. This would encourage uniformity and make it easier to gather trustworthy data.

C. Make Use of Blockchain Technology: Make use of blockchain technology to improve tracking worldwide turnover's accuracy and transparency. Businesses can safely record and validate cross-border financial transactions by utilising blockchain's immutable ledger technology, giving regulators dependable, up-to-date access to worldwide turnover data.

D. Stakeholder Engagement and Transparency: Building consensus and promoting transparency on the dual-track penalty assessment methodology are two benefits of stakeholder engagement. Consultations with industry leaders, legal experts, and consumer advocates are examples of this. To encourage understanding and compliance between enterprises and regulatory bodies, clear rules and communication channels are established.

Going forward, a sophisticated strategy is needed to strike a balance between the government's development of legislation that support global turnover and the Supreme Court's emphasis on relevant turnover. This necessitates creating precise criteria that take into account turnover considerations both locally and globally when assessing penalties. In order to ensure regulatory clarity and equity in the implementation of competition law, stakeholder participation and dialogue are crucial to the improvement of these guidelines. It will be crucial to prioritise legal certainty, consistency, and transparency in order to effectively regulate competition and manage cross-border issues in the global economy.

Views are personal.