On March 29, 2023, the Lok Sabha passed the Competition Amendment Bill of 2023 — five years after the Competition Law Review Committee proposed an amendment to the Competition Act of 2002. The bill has yet to be approved. passed at Rajya Sabha.
The previous iteration of the bill was released in August 2022 and then updated in February 2023.
The most important changes concern the ‘transaction value threshold’, tighter regulations on cartels and the Competition Commission of India (CCI) settlement mechanism. The most controversial is the addendum to Explanation 2 to Section 27 — the penalty provision.
Section 27 empowers the CCI to take action against violations of Sections 3 and 4, specifically anticompetitive agreements or abuses of a dominant position. CCI may require violating enterprises to stop their anticompetitive behavior, in addition to imposing penalties.
Prior to the 2023 amendment, CCI could impose a penalty of not more than 10% of the average revenue of the previous three fiscal years. In 2017, the Supreme Court, in Excel Crop Care, found that penalties should be calculated using ‘relevant revenue’, namely sales of related tainted products to anti-competitive behavior. A penalty based on gross revenue is considered disproportionate.
CCI has observed in the case of online marketplaces that the concept of related revenue is insufficient or not applicable to corporations like Google. In the issue of MMT-GO and OYO (2022), CCI argues that digital market platforms are interdependent and that limiting revenue to one segment does not capture their reality. It assumes that ‘relevant revenue’ is probably not the best metric for calculating penalties.
In 2019, the Competition Law Review Committee recognized that ‘relevant revenue’ does not consider all possible anticompetitive situations and is therefore not a good deterrent.
On February 8, 2023, the Ministry of Companies proposed the amendment. Amendment to Interpretation 2 of Section 27 has been accepted by the Lok Sabha. Explain 2 defines revenue as “the global revenue derived from all the products and services of a person or business”. CCI can now impose penalties not only on tainted products but also on all other products and services of a business, namely up to 10% of the average total global revenue. .
This positive change puts Indian law on par and perhaps more stringent than in other jurisdictions.
Under European law, the competition commission has many sanctioning powers. In a two-step process, it first determines a base amount based on the value of the infringing goods or services and then adjusts this value up or down. The cap is 10 percent of the previous business year’s sales.
The calculation of the base amount depends on factors such as the severity and duration of the breach. The adjustment of the fine level is based on the characteristics of the enterprise, the deterrent effect of the fine level, and whether the enterprise has a large turnover in addition to infringing goods and services.
Similarly, the UK’s Competition and Markets Authority (CMA) offers a six-step approach in its guidance on “appropriate fines”.
First, it looks at the product and geographic market involved in the violation and adjusts the fine according to the duration of the violation while ensuring the final amount does not exceed the maximum penalty of 10%. global revenue.
The calculation of penalties under UK and EU law starts from the relevant revenue; The final amount may be based on the total and/or global sales of the business. The CCI has yet to issue guidelines on the application of Section 27 penalties. It will be interesting to see if there are similarities with the EU and UK methods.
(The writer is a lawyer)