India’s Antitrust Regulator Could Impose Penalty Fines on Entity’s Global Turnover

Posted by Written by Melissa Cyrill Reading Time: 3 minutes

India is proposing changes to its antitrust regime – possibly under the draft competition amendment bill – that will levy higher fines for violators. The existing calculation of a percentage of turnover in the relevant market could be tweaked to total entity turnover, including revenues from activities in overseas markets and exports.

India’s central government plans to make changes to the penalty calculation formula in the Competition Act, which could be incorporated in the Competition Amendment Bill that is currently with Parliament in session.

Further, the government reportedly plans to introduce a ‘settlement scheme’ whereby compensation claims can apply to violations that have been resolved. This is a departure from the existing scenario where no compensation claims are allowed for cases that have been settled.

What is the proposed change to the antitrust penalty calculation?

At present, the Competition Commission of India (CCI), the country’s antitrust watchdog, imposes a penalty of up to 10 percent of the company’s average turnover in the relevant market.

What may change is the definition of this ‘average turnover’ – expanding to the company’s “global turnover derived from all products and services by a person or an enterprise”.

In other words, the penalty could be a percentage of the company’s total turnover, which includes revenues from all the products and services offered by it in the domestic as well as overseas markets.

This would adversely impact companies with a wide ranging portfolio of products and services. While the existing antitrust regime could see the CCI impose a penalty on just the entity’s turnover pertaining to a specific product or service that violates India’s monopoly guidelines, under the amended regime – this liability could be many times more, even including the entity’s export revenues.

Legal analysts feel that the proposed penalty change would realign with the original calculation in the Competition Act of 2002. The current penalty calculation is in fact based on a 2017 Supreme Court judgment in the “Excel Crop. Care Limited vs. Competition Commission of India”, which decided on ‘turnover’ versus ‘relevant turnover’ in estimating scope of penalty fines. The Supreme Court was of the view that a ‘principle of proportionality’ must apply.

Particularly vulnerable to the tweaks to antitrust legislation would be technology firms whose operations frequently cross domestic borders. As India’s digital economy continues to rapidly expand, the government will likewise tighten scrutiny of antimonopoly practices among startups and lead tech firms. Just last October, the CCI ordered Google that the licensing of its Android Google Play Store should not be linked to the requirement of pre-installing Google apps, such as Google search services, Chrome browser, YouTube, etc. Google has signed such pre-installation agreements with over a 1000 device makers and Android app developers, which the company says helps subsidize its services.

According to Counterpoint Research estimates, around 97 percent of India’s smartphones run on Android, indicating just how dominant Google is in the world’s second largest smartphone market.

Google has challenged the CCI decision and the National Company Law Appellate Tribunal (NCLAT) is hearing the matter. The tech giant has also been charged with a INR 13.3776 billion (approx. US$162 million) fine. [US$1=INR 82.56.]

How to understand the proposed settlement scheme

An entity that is accused of anticompetitive practices can approach the CCI to settle the case by paying certain fees. The entity can do this after the investigation by the CCI’s director-general is completed and prior to the final order issued by the CCI.

However, it is proposed that entities adversely affected by a particular company’s anticompetitive practices can file for compensation even after the matter has been settled with the CCI.

Status of antitrust legislation

The central government reportedly plans to move the competition amendment bill for discussion and passage in the ongoing parliament session. 

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