Striking balance: CCI may tailor penalties for global corporations

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

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. It is likely to introduce specific circumstances as part of guidelines under which penalties could escalate to the level of global turnover.
 

“The CCI is trying to strike a balance: India Inc should not suffer but there has to be deterrence. The amendment (the Competition Amendment Act) when it was brought was targeted at Big Tech companies,” said a person in the know.
 

The base penalty, according to people in the know, 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.  
 

Section 20 of the Competition Amendment Act, 2023, which was passed by the Lok Sabha in March last year empowers the CCI to “impose such penalty, as it may deem fit, which shall be not more than 10 per cent 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, the sources said, 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.
 

Last Friday, the CCI held marathon meetings to finalise these guidelines, the sources said. The antitrust watchdog has already conducted public consultations on various regulations following the Competition Act amendment.
 

In a notable case, 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.
 

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 per cent of its worldwide annual turnover by the European Commission.

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