History of uncertainties
Need for penalty imposition guidance
Under section 27 of the Competition Act 2002, the Competition Commission of India (CCI) is empowered to impose some of the highest economic penalties on enterprises. The CCI routinely passes final orders imposing penalties on parties that have been found to be in violation of the Act without detailing why. On several occasions, the obsolete Competition Appellate Tribunal (COMPAT) reprimanded the CCI for its arbitrary practice of imposing penalties. This has culminated in not only the implicated parties frequently challenging the CCI's final orders before the appellate tribunal but also a poor realisation of the CCI's penalties.
Despite finding violations of the Act, the CCI in several of its orders in the last two years has either imposed no penalties or symbolic penalties due to the economic ramifications of covid-19.(1) However, in some other orders, the CCI has not extended the same benefit to the parties, despite the parties pleading the economic devastation of the covid-19 pandemic as a mitigating factor.(2) This has brought returned focus to a regulatory issue plaguing the CCI's decision-making process that has led to uncertainties for businesses and practitioners – the lack of penalty imposition guidelines.
Considering the CCI's recent orders after almost a decade of experience in regulatory enforcement, it has not clearly established the rationale for arriving at the quantum of penalty on several occasions.(3) For example, in a recent order that penalised certain beer manufacturers, the CCI proceeded to "determine the quantum of penalty imposed on the parties @ 0.5 times profit for each year of the continuance of the cartel or 2% of the turnover for each year of the continuance of the cartel, whichever is higher" without explaining how it arrived at the 2% turnover threshold or 0.5 times profit for each year of the cartel's existence.(4)
This lack of adequate reasoning is coupled with an almost arbitrary manner of determining cases that merit neither penalties nor symbolic penalties . For example, while the CCI acknowledged the economic devastation caused to the paper industry due to the covid-19 pandemic, and accordingly decided to impose a symbolic penalty on the members of the paper cartel,(5) it did not extend the same courtesy to the members of the beer cartel, despite the industry having suffered due to the pandemic.(6) In all these cases, the period of contravention began before the pandemic and there was clear admission of contravention by the relevant enterprises.
In another order, the CCI did not impose any penalty, noting that "in light of the peculiar facts and circumstances of the present case as detailed in this order, ends of justice would be met if the parties cease such cartel behaviour and desist from indulging in it in future, as directed earlier", without explaining why such "peculiar facts and circumstances" warranted the imposition of no penalties in a case where some enterprises had admitted to the contravention and filed leniency applications.(7) As an economic regulator, the CCI is empowered to impose financial penalties as it deems fit in terms of the relevant provisions of the Act as a method of deterrence.(8) It is also obliged not only to maintain a standard of uniformity or certainty while using such powers, but also, more importantly, to clearly explain why when derogating from such a standard. However, there is a vacuum when it comes to a standard for the imposition of penalties by the CCI.
Need for penalty imposition guidance
The CCI needs to expeditiously replace the regulatory vacuum with a robust metric for the imposition of penalties (ie, penalty guidelines). The merits of penalty guidelines are that they:
- enable a competition regulator to pass fair, proportionate and reasoned speaking orders without compromising on the discretion it enjoys while quantifying penalties;
- provide a step-by-step process for quantifying penalties, which enables a competition regulator to provide some certainty to all stakeholders; and
- reduce the possibility of the CCI's orders being overturned by the National Company Law Appellate Tribunal (NCLAT) for excesses of arbitrariness.
The importance of issuing penalty imposition guidance has been recognised globally. Advanced competition regulators, such as the European Commission,(12) the Competition and Markets Authority in the United Kingdom(13) and the US Sentencing Commission,(14) have guidelines in place for determining the penalty amount to be imposed for competition law infringements. In India, the Competition Law Review Committee (CLRC) in its report (the CLRC Report) observed that:
the CCI should be mandated to issue guidance on imposition and computation of penalties under the Competition Act. Further, the law should specify that the CCI shall consider such guidance while passing any order imposing penalty and the CCI should provide reasonable grounds for any derogation from such guidance.(15)
Influenced by the CLRC Report, the draft Competition (Amendment) Bill 2020 (the Bill) has proposed the insertion of section 64B(3) in the Act which reads: "without prejudice to anything contained in sub-section (1), the Commission shall publish guidance as to the appropriate amount of any penalty for any contravention under this Act".
Further, the Bill proposes through the insertion of section 64B(4) in the Act to oblige the CCI and the NCLAT not only to follow such penalty imposition guidance but also to offer reasons when diverging from such guidance.
Despite the legislative intervention needed to fill the regulatory void, the CCI can suo moto establish its own guidance to address this acute issue plaguing regulatory enforcement. The absence of a formal penalty imposition guidance is not only cause for massive uncertainties for businesses, but also exposes the CCI's final orders to the challenges of arbitrary excesses. Additionally, while the economic troubles faced by enterprises due to the pandemic could be taken as a temporary situation, the CCI will need to be consistent in its approach on the imposition of penalties for similar violations within the confines of the Act.
For further information on this topic please contact Sagardeep Rathi or Nilav Banerjee at Khaitan & Co by telephone (+91 120 479 1000) or email ([email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
- Chief Materials Manager, South Eastern Railway and Hindustan Composites Limited & others (cases 03/2016, 05/2016, 01/2018, 04/2018 & 08/2018). Further information is available here;
- GAIL (India) Limited v PMP Infratech Private Ltd and Another (case 41 of 2019). Further information is available here;
- Eastern Railway, Kolkata v M/s Chandra Brothers and others (02 of 2018). Further information is available here;
- Food Corporation of India v Shivalik Agro Poly Products Ltd and others (07 of 2018). Further information is available here;
- Mr Rizwanul Haq Khan, Dy Chief Material Manager, Office of the Controller of Stores, Southern Railway v Mersen (India) Pvt Ltd and Another (02 of 2016). Further information is available here; and
- Anti-competitive conduct in the paper manufacturing industry (suo moto case 05 of 2016). Further information is available here.
(2) Alleged anti-competitive conduct in the Beer Market in India (suo moto case 06 of 2017). Further information is available here.
- Alleged cartelisation in supply of LPG Cylinders procured through tenders by Hindustan Petroleum Corporation Ltd (suo moto case 01 of 2014). Further information is available here (the CCI does not explain how the penalty quantum was established);
- Cartelisation in Industrial and Automotive Bearings (suo moto case 05 of 2017). Further information is available here (the CCI does not explain the facts and circumstances for not imposing a penalty); and
- International Spirits and Wines Association of India v Uttarakhand Agricultural Produce Marketing Board and Others (case 02 of 2016). Further information is available here (the CCI does not explain how the penalty quantum was established).
(4) Alleged anti-competitive conduct in the Beer Market in India (suo moto case 06 of 2017), paragraph 296, pages 219 to 220. Further information is available here.
(5) Anti-competitive conduct in the paper manufacturing industry (suo moto case 05 of 2016), paragraph 216, page 65. Further information is available here.
(6) Alleged anti-competitive conduct in the Beer Market in India (suo moto case 06 of 2017). Further information is available here.
(7) Cartelisation in Industrial and Automotive Bearings (suo moto case 05 of 2017). Further information is available here.
(9) Report of the Competition Law Review Committee, Ministry of Corporate Affairs, Government of India, 26 July 2019, paragraph 3.11, page 83. Further information is available here.
(10) MDD Medical Systems India Pvt Ltd v Foundation for Common Cause & Ors (appeal 93 of 2012) and International Cylinder (P) Ltd v Competition Commission of India (appeals 21 to 65 of 2012).
(11) Excel Crop Care v Competition Commission of India (2017) 8 SCC 47.
(12) Guidelines on the Method of Setting Fines Imposed according to article 23(2)(a) of Regulation 1/2003, 2006/C 210/02. Further information is available here.
(13) Competition and Markets Authority's Guidance as to the Appropriate Amount of a Penalty, 18 April 2018. Further information is available here.
(14) United States Sentencing Commission, Guidelines Manual, Part R- Antitrust Offenses, 2021. Further information is available here.
(15) Report of the Competition Law Review Committee, Ministry of Corporate Affairs, Government of India, 26 July 2019, paragraph 3.12, page 84. Further information is available here.