From “Relevant” to “Global” Turnover: Analyzing Penalty Under the Competition (Amendment) Act, 2023
ABSTRACT
The Competition (Amendment) Act of 2023 marks a important shift in penalty calculations, transitioning from a focus on “relevant” turnover to a broader consideration of “global” turnover. This article delves into the implications of this transition, analyzing its impact on businesses, the grounds behind the change, and its legal and regulatory implications. By examining international perspectives, case studies, and the Act’s effectiveness, this article provides valuable insights into the evolving landscape of competition law and enforcement. From strategic adaptations for businesses to broader implications for global competition policy, this analysis offers a comprehensive understanding of the shift from “relevant” to “global” turnover in penalty consideration under the Competition Act.
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INTRODUCTION
The Competition (Amendment) Act of 2023 represents a significant milestone in the evolution of competition law and enforcement. Among its many amendments, perhaps none are more consequential than the shift in the calculation of penalties—from a traditional dependence on “relevant” turnover to a broader consideration of “global” turnover. This transition has profound implications for businesses, regulators, and the broader landscape of competition policy. The Competition Commission of Indian, CCI, now has the power to penalise an enterprise based on a global turnover derived from all products and services, following to the Amendment Act.
The shift from “relevant” to “global” turnover in penalty calculations represents a significant departure in competition law and enforcement. Previously, penalties were based solely on turnover directly related to the infringing conduct, potentially resulting in underestimation of the economic impact of anti-competitive behavior. The settled position in law, as determined in the landmark judgement of Excel Crop Care Ltd. v. CCI[1], in 2017, considered the scope of penalty from the lens of principles of equity, rationality, and proportionality. The introduction of “global” turnover considers the entity’s overall economic power and reach, ensuring penalties are more proportionate and reflective of market influence. This shift acknowledges the interconnected nature of modern markets, where anti-competitive practices often transcend national boundaries. While presenting challenges for businesses with global operations, such as increased scrutiny and potentially higher penalties, it also offers greater clarity and predictability in compliance efforts. Ultimately, the transition to “global” turnover aims to promote a more harmonized and effective approach to competition enforcement, promoting fairness and integrity in competitive markets.
Understanding the Competition (Amendment) Act, 2023 :
Prior to the 2023 amendment, the Competition Commission of India CCI imposed a fine based penalty on the ”relevant turnover” of the revenue generated infringing products and services. By avoiding absurdity and irrationality, this has been done in order to interpret the legislation. The Competition Commission of India (CCI) had the authority to charge penalties up to 10% of the average turnover from the previous three financial years.
The Act included provisions aimed at strengthening consumer protection measures, such as measures to address unfair trade practices, misleading advertising, or deceptive pricing strategies. The shift offers greater clarity and predictability in compliance efforts, as businesses can anticipate penalties based on their global turnover rather than specific transactions or activities.
LEGAL FRAMEWORK
The Competition (Amendment) Act, 2023, introduced several key provisions to facilitate the transition from “relevant” to “global” turnover in penalty calculation. One notable amendment is the modification of Section 27 of the Competition Act, 2002, which deals with the determination of penalties for anti-competitive conduct. The amended Section 27 now explicitly mandates the consideration of an entity’s global turnover in determining the quantum of penalties imposed by the Competition Commission of India (CCI).
Additionally, the amended legislation provides clarity on the definition of “global turnover” and outlines the methodology for its calculation. Section 2(o) of the Competition Act, 2002, now defines “global turnover” as the total revenue generated by an entity from all its business activities worldwide, including revenue from subsidiaries, affiliates, and other related entities. This definition encompasses revenue from product sales, service contracts, licensing agreements, royalties, and other income streams derived from business operations.
CASE LAWS:
In the case of Competition Commission of India v. Google India Pvt. Ltd[2], Google India being found guilty of anti-competitive conduct by the CCI. The Commission found that Google had infringed a number of provisions in Article 4(2) of the Act. Therefore, for failing to comply with Section 4 of the Act, a fine amounting to 1337.76 billion rupees has been imposed on Google. The Commission imposed substantial penalties on Google India based on its global turnover, reflecting the severity of the company’s violations and its economic power in the digital advertising market in India.
The primary issue in this case revolved around Google India’s alleged abuse of its dominant position in the digital advertising market in India and its restrictive practices regarding third-party advertising platforms constituted anti-competitive conduct in violation of India’s competition laws.
The Google India case serves as a landmark example of the application of the transition from “relevant” to “global” turnover penalties under the Competition (Amendment) Act, 2023 in India. It highlights the challenges faced by multinational corporations operating in India in adapting to the new penalty calculation methodology and underscores the importance of effective competition law enforcement in safeguarding fair competition and consumer welfare in the digital economy.
CRITICAL ANALYSIS
The transition to “global” turnover has significant implications for businesses. Entities with substantial global operations may face keen analysis and potentially higher penalties under the new calculation methodology. However, the shift also offers greater clarity and predictability in compliance efforts, enabling businesses to adopt more robust risk management strategies. Calculating penalties based on “global” turnover introduces complexity and compliance burdens for businesses, particularly those with multinational operations. Determining which components of global turnover are relevant and accurately assessing their contribution to the infringing conduct can be challenging and resource-intensive. This complexity may disproportionately affect smaller businesses with limited resources, potentially creating barriers to market entry and competition. Transparency and predictability are essential elements of an effective competition law regime. Businesses and stakeholders need clarity on how penalties are calculated and applied to ensure compliance
The evolution to “global” turnover aligns with international trends in competition law enforcement. Many jurisdictions are adopting similar approaches to address the challenges of regulating global markets and combating anti-competitive behavior across borders.
CONCLUSION
The transition from “relevant” to “global” turnover in penalty calculation under the Competition (Amendment) Act, 2023 represents a significant evolution in competition law and enforcement. By incorporating an entity’s global turnover into the penalty assessment process, the Act aims to promote fairness, transparency, and effectiveness in competition enforcement. However, the success of this transition depends on robust enforcement mechanisms, clear regulatory guidance, and effective international cooperation. As businesses and regulators navigate the complexities of the new penalty calculation methodology, a nuanced understanding of its implications is essential for promoting competition and consumer welfare in the global marketplace.
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Written by- Antara Ghosh
[1] https://cci.gov.in/images/antitrustorder/en/0220201652426478.