Letters: The turnover question

This refers to the Q&A "Indian firms more reluctant to comply with competition laws: Ashok Chawla" (September 29). When asked about the industry grievance over taking the total turnover into consideration while calculating penalties, Ashok Chawla, chairman of the Competition Commission of India (CCI), was of the view that the Competition Act, 2002 does not provide any liberty to take into account "relevant turnover", and until a legislative amendment or Supreme Court ruling, could not interpret the Act in such a manner. In reality, the converse is true.

The grievance is centred on the method the CCI uses to calculate the fine. According to the Act, the CCI may impose a penalty of upto 10 per cent of the turnover. The problem arises when dealing with multi-product companies. In 2012, the CCI fined 11 cement manufacturers Rs 6,300 crore for cartelisation. Jaiprakash Associates, which had a market share of five to seven per cent, was fined Rs 1,323 crore, while Ambuja, ACC and Ultratech - companies cumulatively holding a market share close to 40 per cent - were fined Rs 1,163 crore, Rs 1,147 crore, and Rs 1,175 crore, respectively. In 2014, while levying a penalty on 14 car manufacturers for abuse of dominance in the passenger vehicle market, Tata Motors - which has an eight per cent market share - was fined Rs 1,346 crore, while Maruti Suzuki, with approximately 42 per cent share, was fined Rs 471 crore.

These anomalies occurred because the the CCI considered the total turnover of these companies while calculating the fine, instead of limiting it to turnover from sales of the product in question. Both Jaiprakash and Tata Motors are multi-product businesses, with cement and passenger vehicles constituting a smaller component of their total revenue.

The Act does not state that the total turnover of the company must be taken into account. The term used is simply "turnover". In fact, in various situations, the CCI has often interpreted the Act beneficially, despite it being silent on the topic. For instance, when regulating mergers, it has, using its discretion, created filing exemptions for several types of transactions - exemptions that are not provided for in the Act. Further, when computing turnover for the purposes of merger thresholds contained in the Act, the CCI has permitted deduction of indirect taxes. This is contrary to the position taken by the chairman that the Act prohibits any truncation of turnover. Taking into consideration relevant turnover is in line with international practice, and has also been endorsed by the Appellate Tribunal.

The CCI does not need to await a legislative amendment or a Supreme Court decision. The option to limit the interpretation of "turnover" to "relevant turnover" for the purposes of calculating penalties is always available to the CCI.

Abdullah Hussain Luthra & Luthra
Law Offices, New Delhi

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