Introduction

The behavioural provisions of Competition Act, 2002 (‘CA02’), i.e., Section 3 relating to anti-competitive agreements and Section 4 relating to abuse of dominant position, were operationalised on May 20, 2009. Section 27 of CA02 empowers Competition Commission of India (‘CCI’) to impose penalties on any person or enterprise violating these provisions. Given the passage of nearly a decade since the behavioural provisions of CA02 were operationalised, this article attempts to analyse the penalties levied by CCI.

Types of Penalties that CCI may Impose

Section 27 of CA02 empowers CCI to use the following metrics to impose penalties:

(i)      For vertical restraints and abuse of dominant position: penalty of up to 10% of the average turnover for the last three preceding financial years upon the infringing person or enterprise (‘Average Turnover Metric’); and

(ii)     For cartels:

(a)     penalty of up to 10% of the average turnover for the last three preceding financial years upon the infringing person or enterprise (‘Cartel Average Turnover Metric’); or

(b)    penalty of up to three times of the profit of the infringing producer, seller, distributor, trader, or service provider for each year of the continuance of cartel or 10% of its turnover for each year of the continuance of cartel, whichever is higher (‘Cartel Profit Metric’).

Further, Section 48 of CA02 also allows CCI to penalise individuals in-charge of and responsible to the enterprise for the conduct of the business of the enterprise or any a director, manager, secretary or other officer of the enterprise whose consent, connivance, or negligence resulted in the contravention by the enterprise.

A Look at the Penalties on Enterprises in relation to Cartels

CCI imposed its first penalty on May 25, 2011[1] - two years after the enforcement of the behavioural provisions. A review of the 55 decisions issued by CCI in relation to cartels so far[2] shows that lowest penalty imposed by CCI on an enterprise in the last decade is approximately INR 15,000 (approximately US$211[3])[4] and the highest penalty imposed by CCI on an enterprise is INR 1,323.6 crores (approximately US$186.06 million), with the highest cumulative being approximately INR 6,300 crores (approximately US$885.58 million).[5]

A further analysis indicates that CCI prefers to use the Cartel Average Turnover Metric, having done so in approximately 80% of the cases. CCI has started imposing penalties using the Cartel Profit Metric only recently, having used it in only 6 out of the 55 aforementioned cases.

It is also noteworthy that while CCI has not hesitated to use the highest possible Cartel Average Turnover Metric of 10% (25 cases), its decisions do not provide any rationale for meriting imposition of high penalties on these enterprises. However, a visible pattern apparent is that CCI has imposed the highest possible Cartel Average Turnover Metric in cases where the absolute value of the turnover of the enterprise was relatively low. Accordingly, despite the use of the highest possible metric, the final penalty amount in each of these cases was less than/approximately INR 1 crore (approximately US$140,000).

When using the Cartel Profit Metric to determine penalty, CCI has only gone up to two times the profits of the enterprise over the last three years and has not imposed the maximum possible penalty of up to three times the profits of the enterprise in the last three years.

Based on the nature of offence, CCI has consistently used a higher Cartel Average Turnover Metric in cases involving limitation of production, with the average being approximately 9.5%. CCI has used a broad range of 3%-10% when using the Cartel Average Turnover Metric to determine penalties in price-fixing cases.

A leniency regime was introduced in India in 2009.[6] CCI has issued five decisions involving varying reductions in penalty from 20%-100%, pursuant to this regime in the last two years. However, CCI’s decisions do not detail the rationale for the reduction in penalty. For instance, in Brushless DC Fans case[7], CCI granted a penalty reduction of 75% to the first applicant (who was eligible for a reduction of up to 100%). CCI’s reasons for granting a lesser reduction were: (a) the applicant approached CCI at a later stage in investigation; and (b) CCI already possessed some evidence. However, it is not clear why the CCI chose to reduce the penalty by 75% in particular rather than, for instance, 85% or even 70%.

Analysis of Abuse of Dominance (‘AoD’) Penalties

In AoD cases, CCI is only empowered to use the Average Turnover Metric. A review of CCI orders relating to AoD suggests that CCI has imposed fines in fewer AoD cases, as compared to cartels - a total of only 16 orders.[8] The lowest penalty imposed by CCI is INR 7 lakh (approximately US$9,840).[9] The lower figure was possibly on account of the recent decision of the Supreme Court of India (‘Supreme Court’) clarifying that penalties must be calculated only on the basis of relevant turnover.[10] The highest penalty imposed by CCI on an enterprise, Tata Motors, is INR 1,346.46 crores[11] (approximately US$189.27 million as of January 2019), with the highest cumulative penalty being nearly INR 3,000 crores (approximately US$421.7 million) in the same CCI decision.[12] Further, unlike cartel cases, CCI has used the highest possible Average Turnover Metric of 10% sparingly (only 2 out of 16 cases). In one such case,[13] CCI noted that the ‘quantum of penalties imposed must correspond with the gravity of the offence and the same must be determined after having due regard to the mitigating and aggravating circumstances of the case’. However, CCI decision failed to apply this test to the facts of the case. The table below also shows the penalty imposition trend based on allegations against the enterprise:

Allegation	Number of cases	Lowest penalty percentage	Highest penalty percentage	Average
Discriminatory pricing	5	1% of average turnover	7% of average turnover	approximately 3.6%
Discriminatory conditions	1	NA	5% of average turnover	5%
Denial of market access	2	4.48% of average turnover	6% of the average turnover	approximately 5.24%
Multiple allegations	8	2% of average turnover	10% of average turnover	approximately 5.38%

As may be discerned from the table above, CCI has usually imposed higher penalties in cases involving multiple allegations of AoD. A review of all the penalties imposed by CCI in AoD cases reveals that the average penalty imposed by CCI has been 4.78% of the average turnover of the enterprise for the preceding three years.

Penalties on individuals

CCI first imposed penalties on individuals in 2014[14] - approximately three years after it began imposing penalties on enterprises for contravention of the provisions of CA02. The penalties imposed on individuals largely mirror the penalties imposed on the corresponding enterprises in the same case and are based on the individuals’ income statements. It is noteworthy that CCI has so far not imposed penalties on individuals in AoD cases.

Conclusion

CCI has been imposing penalties for over a decade. Its decisions during this period should have yielded some trends and guidance on its methodology in calculating the appropriate penalty level. Unfortunately, the analysis does not provide much clarity. CCI’s orders also do not provide any reasoning on the parameters applied by CCI in choosing the metric to calculate fines or calculating the quantum of the fine. Thus, it is imperative that CCI issues clear guidelines detailing (i) how it chooses the appropriate metric to impose fines; and (ii) how it calculates the quantum of the fine. Such guidelines would encourage more leniency applications by giving businesses greater certainty on how the quantum of penalty and any reductions to it will be calculated and will also be instrumental in safeguarding due process.

[1] FICCI - Multiplex Association of India v. United Producers/Distributors Forum, Case Number 01 of 2009. [2] This number reflects the final decisions issued by CCI i.e. where cases were remanded back to CCI, this analysis only takes into account the final penalty imposed by CCI. This analysis does not take into account the sole CCI decision relating purely to vertical restraints. Further, the data in this article only reflects cases published on CCI’s website until January 11, 2019. [3] All US$ figures are as of January 2019. [4] M/s Arora Medical Hall Ferozpur v. Chemists & Druggists Association Ferozpur, Case Number 60 of 2012. [5] Builders Association of India v. Cement Manufacturers’ Association, Case Number 29/2010. CCI issued its first decision on June 20, 2012, which was remanded by the Competition Appellate Tribunal on procedural grounds. Subsequently, CCI reissued its decision on August 31, 2016 albeit with the same penalties. [6] Section 46 of CA02 provides an opportunity to producer, seller, distributor, trader or service provider included in the cartel to approach CCI and claim a reduction in the penalty by making full and true disclosure in respect of the alleged violations. CCI (Lesser Penalty) Regulations, 2009 provide detailed guidelines in this respect. [7] In Re: Cartelisation in respect of tenders floated by Indian Railways for supply of Brushless DC Fans and other electrical items, Suo Moto Case Number 03 of 2014. [8] This number reflects only the final AoD-related decisions issued by CCI i.e. where cases were remanded back to CCI, this analysis only takes into account the final decisions issued by CCI. [9] Hemant Sharma v. All India Chess Federation, Case Number 79 of 2011. [10] In Excel Crop Care Limited v. Competition Commission of India, Civil Appeal Number 2480 of 2014 (‘Excel Crop’), the Supreme Court held that for multi-product companies, the penalty provisions of CA02 apply to the turnover generated from the product/service at issue. The Supreme Court further held that including all products’ turnover (which were not a part of the arrangement/cartel) for the purpose of imposition of penalties is not justified. This principle was then adopted by the CCI in its subsequent decisions. [11] As Tata Motors was penalised prior to the Supreme Court’s decision in Excel Crop, the penalty was computed on the basis of its total turnover and not the relevant turnover. [12] Shri Shamsher Kataria v. Honda Siel Cars India Limited, Case Number 03 of 2011. [13] House of Diagnostics LLP v. Esaote S.p.A, Case Number 09 of 2016. [14] M/s Arora Medical Hall Ferozpur v. Chemists & Druggists Association Ferozpur, Case Number 60 of 2012.