Basis for penalty in competition law

The sanction for triggering market failure must be based on the entire turnover

-  MS SAHOO & WALEED NAZIR LATOO

The Competition Act, 2002, aims to defend the economy from enemies of competition. It prohibits anti-competitive agreements and abuse of dominant position. It empowers the Competition Commission of India (CCI) to impose penalties upon each person party to such an agreement or abuse.

The CCI has the authority to impose a penalty of up to 10 per cent of the average turnover for the three preceding financial years. The Act defines "turnover" to include the value of goods or services sold. The CCI used to levy a penalty based on the "total" turnover of the offending person but within the ceiling of 10 per cent.

In Re: Excel Crop Care Limited, the CCI imposed a penalty at 9 per cent of the total turnover. Since the statute was not clear whether the turnover was related to the product or the person, the apex court, in an appeal in this matter in 2017, adopted "relevant" turnover for imposing a penalty. It clarified that "relevant" turnover was the person's turnover pertaining to products and services affected by the contravention. For this purpose, it relied on two principles: (i) strict interpretation - if two interpretations are possible one that leans in favour of L the infringer should be adopted; and (ii) proportionality, that is the punishment should be proportionate to the harm caused by the infringer. In Re: Cartelization by public sector insurance companies, the CCI imposed a penalty at 2 per cent of the turnover after considering the aggravating and mitigating circumstances. On appeal, the appellate tribunal computed the penalty based on "relevant" turnover, that is, gross premium received under the Rashtriya Swasthya Bima Yojna.