The Competition (Amendment) Act, 2023 has brought a plethora of changes to the competition landscape of the country. Not all such amendments have yet been notified for enactment, one such change being the concept of ‘turnover’ to be considered when levying penalty under section 27 of the Competition Act (“Act”) on enterprises for engaging in anti-competitive conduct or abusing their dominant position. It seeks to shift the understanding from ‘relevant’ turnover to ‘global’ turnover. The proposal had been opened to seek comments from stakeholders until the 12th of January. This paper seeks to examine the implications of such an amendment, juxtaposing it with the current position understanding of ‘turnover’ developed through jurisprudence, and foreign understanding of the same. In furtherance of the same, the paper is divided into three parts; (i) current understanding of ‘turnover’, (ii) post-amendment understanding of ‘turnover’ and, (iii) the potential implications of the amendment.

Current Understanding of ‘Turnover’

Even before the amendment, the understanding of ‘turnover’ has been the subject of constant discourse, jurisprudence suggesting varying stances throughout the years. In the initial years of the CCI’s tenure, the understanding was that of total turnover, where turnover related to all the goods sold or services provided by the enterprise in question was accounted for, and not only that related to the competition breach in question. This led to penalties that were often disproportionate.

This position was then settled in Excel Crop Care Limited. v. CCI, where ‘turnover’ was conclusively understood to mean relevant turnover. This is turnover that is restricted to that turnover generated from the products or services related to the competition contravention. It is only common sense that in contravention through certain agreements or conduct, only those would be within the scrutiny and hence the penalty of the CCI, more so when the activities of the enterprise involve rendering more products than those in question. While the purpose of such a penalty is deterrence, it cannot go so far as to kill the entity itself. Such understanding is also in line with the principle of proportionality, which balances two competing interests; harm caused to society by the infringer, for which they are being penalised, and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act. Even on grounds of statutory interpretation, it was found that when two interpretations are possible, the one that leans in favour of the infringer must be the one adopted.

A similar stance can also be noted in South Africa in Southern Pipelines Contractors v Competition Commission, where it is the ‘affected turnover’ that is used for the calculation of the penalty, referring to the nature, duration, gravity and extent of the contravention, and the loss suffered as a result. There must exist a legislative link between the penalty imposed and harm caused since the loss or damage suffered as a result of the contravention, so as to apply the doctrine of proportionality.

Post-amendment Understanding of ‘Turnover’

The CCI, in light of the amendment, will now have to consider the total ‘global’ turnover of an enterprise when computing the penalty. This therefore includes turnover generated from sale of products that are not, through their type or geographical spread, related to the offence that has been committed. It was in 2019 when the Competition Law Review Committee’s (“CLRC”) report determined that the "relevant turnover" formula was insufficient for dealing with all possible cartel situations. These included hub-and-spoke arrangement and stressed that, according to the current penalty formula, a hub that engages in a distinct business than its spokes would be exempt.

Such a stance is not one absent before the amendment. The concept of penalising turnover beyond those relevant to the contravention was applied even after the Excel Crop case. Examples include cases of large tech players such as in cases against Google, who contended that no penalty can be claimed in cases of breach in markets which have no revenue streams, such as search engines. The CCI held that the concept of relevant turnover would more appropriately be applied in the context of conventional multi-product enterprises. For such digital enterprises, the CCI was of the view that the entire platform has to be taken as one unit and the revenue generated by the platform has to be seen as a whole, cognizant of the challenges of adopting a relevant turnover stance for such digital platforms since the products of the enterprise derive strength from each other due to economies of scope and scale. Furthermore, multiple sides of these markets could be used for free and therefore have no turnover, escaping penalty. Upholding this view in the MMT-GO case, the CCI noted that a relevant turnover approach would not be appropriate where the various segments are intricately intertwined with each other. In such cases, a penalty on total turnover would act as the appropriate deterrent. Distinguishing from Excel Crop, the CCI held that relevant turnover would lead to the imposition of almost no penalty on the several infringing parties, defeating the object of the provision.

Adoption of the global turnover stance can be seen in jurisdictions such as the EU. Articles 101 and 102 of the Treaty on the Functioning of the European Union (Regulation 1/2003) (“TFEU”) allow the European Commission to impose a penalty up to 10% of the worldwide or total turnover. However, unlike in India, the EC relies on framed guidelines that mandate the Court take into consideration, inter alia, the gravity, nature, and scope of infringement along with aggravating and mitigating circumstances to arrive at the penalty. Similar guidelines can be found in the UK, where the Office of Fair Trade has issued “guidelines as to the appropriate amount of penalty” so as to prevent them from being excessive and disproportionate. Therefore, while the starting point may be global turnover, that is certainly not the end of the computation. Such a stance was also lauded by the CLRC in its 2019 Report.

Such guidelines are currently lacking in the Indian framework which makes the application of this amendment even more drastic. However, the amendment brings with it the requirement for the CCI to frame guidelines for the imposition of penalties along with requiring it to give a reasoned order when it deviates from such guidelines. In this requirement there is hope for the CCI to apply its discretion to prevent disproportionate penalties.

Potential Implications of the Amendment

The proposed amendment has evidently taken a step back from the current position of law, and this would have far reaching implications, both from a legal as well as policy standpoint. However, such implications do not necessarily stem from the change in the understanding of turnover, but the lack of guiding principles in the application of the same.

One of the larger canons around which the CCI’s penalty regime operates is the effect-based approach. This means the penalty would only extend to the extent of the adverse effect the conduct of the enterprise has had. While the exact extent is near impossible to derive, the CCI has, by reading ‘turnover’ as relevant turnover found a general yardstick, having some nexus to the anti-competitive conduct. However, even using that yardstick, the CCI has wide, unfettered, and unguided discretion to impose a penalty up to 10% of the turnover. By expanding the scope to global turnover, such discretion is widened further by increasing the scope of the amount that could be charged. This could lead to further lack of objectivity in arriving at the penalty. Such computation of penalty would further deviate from the harm identified, more likely penalising enterprises engaged in multiple products higher than those in single product markets, bringing about very inequitable results.

This lack of objectivity may also translate into protectionism. By penalising global turnover, enterprises based solely in India would most likely face lower penalties since the probability of global enterprises having higher turnovers is substantially larger. This would inadvertently result in disproportionate penalties for the same offences. While the origin of such discrimination would not be on the basis of location, the effect would. This would reflect as protectionism and may have an adverse effect on inbound investment due to the chilling effect it may have on large foreign conglomerates.

Conclusion

The issue at hand is therefore no longer ‘relevant’ versus ‘global’ turnover, with the amendment only increasing the scope of the potential penalties to accommodate for cases such as BigTech, cover bidding and hub and spoke cartels where determining relevant turnover would deem the exercise redundant. The larger issue is the arbitrary and vague determination of such penalties due to the lack of guidelines framed so as to ensure uniformity, stability, and accountability within respect to the imposition of the penalty. With the amendment bringing forward the need for such guidelines, the change may not seem as drastic as it initially would, since the Court could still achieve the same ‘rational’ results through the application of legislation.