CCI’s penalty orders need guidance, consistency

By Karan S Chandhiok, Chandhiok & Mahajan

The Competition Act, 2002 (act), gives wide discretion to the Competition Commission of India (CCI) to penalise enterprises and individuals for engaging in anti-competitive practices. Under section 27(b), the CCI can impose a penalty of up to 10% of the average turnover for the past three preceding financial years. In the case of a cartel, the penalty can extend to up to three times the profits or 10% of average turnover, for each year the cartel has existed, whichever is higher. The CCI has exercised this discretion judiciously and, in several cases, has considered mitigating and aggravating factors when deciding the penalty to be imposed on enterprises and individuals. As the Indian competition law jurisprudence matures, a formal penalty guidance will make the CCI’s decision-making process more efficient and consistent.

Karan S Chandhiok, Chandhiok & Mahajan, CCI’s penalty orders need guidance, consistency
Karan S Chandhiok
Chandhiok & Mahajan

The Supreme Court in Excel Crop Care Ltd v Competition Commission of India (Excel Crop) applied the principle of proportionality and held that the penalty under section 27 of the act can only be imposed on the relevant turnover of an enterprise and not on its total turnover. This decision settled the contentious issue of the value of sales that the CCI should consider for imposing a penalty. Even then, the CCI continues to have considerable discretion to decide the quantum of the penalty to be imposed.

In Cochin Port Trust v Container Trailer Owners Coordination Committee, the CCI did not impose any penalty on the members of a cartel factoring in the limited duration of anti-competitive conduct and discontinuation of the conduct before an investigation was initiated. There have been cases where the CCI did not penalise micro, small and medium-sized enterprises that engaged in bid-rigging conduct, given their size of operations. In the recent past, the CCI has considered the impact of the covid-19 pandemic in some of its decisions and has not penalised enterprises or has imposed a nominal penalty.

The CCI has also considered other mitigating factors while deciding the penalty to be imposed, including the parties’ admissions of contravention, continuous co-operation during an investigation and the existence of a competition compliance programme. The CCI has even refrained from penalising an enterprise for the second time for abuse of dominance conduct for a different duration, having imposed a penalty in an earlier proceeding.

In Alis Medical Agency v Federation of Gujarat State Chemists & Druggists Associations and Ors, the CCI reduced the penalty imposed on an enterprise by 40% in view of its admission of contravention and its co-operation during the investigation. However, when enterprises have voluntarily filed leniency disclosures, the reduction of fine granted by the CCI to second and subsequent applicants has been lower, even though applicable regulations allow up to a 50% reduction in fines for second leniency applicants and up to 30% to third and subsequent applicants.

Statutory authorities have to function within the confines of the Indian constitution, and therefore the discretion of the CCI to impose penalties has to be exercised in a manner that minimises arbitrariness. The need for formal penalty guidelines was highlighted by Justice NV Ramana (currently, the Chief Justice of India) in his concurring opinion in in Excel Crop where he observed that the CCI’s discretionary power “needs to be regulated and guided so that there is uniformity and stability with respect to the imposition of penalty”. The draft Competition (Amendment) Bill, 2020, also proposes the introduction of penalty guidelines.

The introduction of penalty guidelines will bring transparency and certainty to the CCI’s decision-making process and may also reduce appeals against penalty orders of the CCI. The CCI can draw from the guidance notes that competition law regulators in other jurisdictions like the UK and the European Union have put in place and have been relying on their decisions for many years now.

Any guidelines introduced by, or imposed on, the CCI must be comprehensive, but should also leave room for flexibility allowing the CCI to factor in case-specific facts and circumstances and to act based on evolving legal and market conditions. While it may not be possible to develop the perfect formula, a consistent and uniform application of factors and considerations to determine a penalty will go a long way to ensure the penalties imposed are fair, reasonable and proportionate.

Karan S Chandhiok is a partner at Chandhiok & Mahajan.

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