The Competition (Amendment) Bill 2023: Will It Pass The Test Of Constitutionality?

The legislation imposes a penalty based on the breaching enterprise's global turnover from all products and services. This is a radical departure from the prior mechanism, in which the penalty could only be imposed on the product or service "relevant" or "connected" to the enterprise(s). The proposed penalty clause represents a paradigm shift and may be one of the heaviest punishments levied in any anti-competitive regime in the world. However, one concern that remains is whether the proposed amendments will pass the constitutionality test. This is so because such a provision seems to be in violation of the Supreme Court ruling, and it could have far-reaching consequences.

The New Amendment And The Constitutional Challenge: An Analysis

While the proposed amendment provides that CCI can impose penalties up to 10% of the total global turnover of the enterprise, this seems like a stringent punishment for the violations, but the same might hit the constitutional validity wall. Previously, the penalty for such a violation was up to 10% of total "relevant turnover," i.e., an enterprise's turnover pertaining to products and services affected by such a violation rather than the total global turnover, but the same has been changed significantly in this new amendment.

While it is commendable that the legislations are taking such a step, the same might be challenged in a court of law. It is very interesting to follow this development as the proposed amendment has violated a precedent laid down by the Apex Court of the country.

In the said judgement namely, Excel Crop Care Limited v. Competition Commission of India & Anr, has explained interesting concept called the “Doctrine of proportionality.” The doctrine of proportionality stipulates that administrative actions cannot harsher than necessary to accomplish the desired goal. It is common understanding that to kill a sparrow, one does not use a cannon. Similarly, there should be a limit while penalising the violator for anti-competitive practices. If contravention includes one product, then there is no justification for including the other products. Thus, this doctrine attempts to strike a balance between means and end. In the above judgements, the Supreme Court reaffirmed this principle, stating that "the penalty cannot be disproportionate and it should not lead to shocking results".

It was ruled that the aim of deterrence could not be justified by providing an interpretation that could result in "the death of the entity" itself. The Supreme Court emphasised that the proportionality doctrine, which is founded on equality and rationality, is a "constitutionally protected right which can be traced back to Article 14 as well as Article 21 of the Constitution.”

The Supreme Court further went to say that the goal of the Competition Act could not be to "finish" specific businesses. Relying on the South African verdict in Southern Pipelines case, the Supreme Court stated that "there is a legislative link between the damage inflicted and the profits which come from the cartel action". Accordingly, the purposive interpretation of the term “turnover”, the Supreme Court found, also favours consideration of “relevant turnover”. Therefore, if the proposed amendment comes into force, this would lead to the imposition of higher penalties on global multi-product enterprises like Amazon.

Also, another element of surprise that can be traced in the proposed amendment is the expanded scope of cartel prosecution. The new bill brings a hybrid anti-competitive agreement within the ambit of cartelization. Thus, it enables the CCI to treat cartel facilitators (who actively participated) on par with the cartel participants. Further, the proposed amendment brings elements of 'mens rea' to cartel prosecution, i.e., if someone "intends to participate" in a cartel, then a penalty can be imposed upon them. Therefore, it poses a challenge that there should be a proper standard of proof adhered to while alleging contravention, considering the high monetary penalties prescribed in the law. Also, mere knowledge of a cartel without knowing its legality or omission to file a leniency application should not be equated with ‘intention to participate’.

Another sweeping change in the new bill is that it takes away the immunity given to attorney-client privileges under the Evidence Act of 1872, which could have far-reaching consequences.

It is true that legislators often haves’ good intentions when formulating laws. Like in this case, the legislator's sole purpose in bringing about the new changes may be to deter anti-competitive practices by big corporations. However, it is important to carefully consider the potential impact of such measures on businesses and the economy as a whole.

Rushed or poorly thought-out laws can lead to unintended consequences and negative effects that can be difficult to reverse. As such, it is important for lawmakers to engage in thorough research, consultation with stakeholders, and analysis of potential outcomes before implementing any major changes. By taking a more measured and considered approach, the lawmakers can achieve its goals and also minimize the risk of economic havoc and negative impacts on businesses. Ultimately, it is up to lawmakers to strike the right balance between achieving their desired outcomes and avoiding unintended consequences.

Therefore, it is important to see how the Supreme Court goes through the proposed amendment if it becomes law and whether it will pass the test of constitutionality or not. It is imperative to see how the apex court of India applies the test of proportionality in upholding the law made by legislation.

Views are personal.