MCA notifies guidelines to impose penalty on global turnover, impacts Big Tech

In what is expected to give significant teeth to the Competition Commission of India (CCI) to take on multinational companies and Big Tech firms found to be engaging in anti-competitive behaviour, the ministry of corporate affairs has notified the provisions in the Competition (Amendment) Act, 2023 to empower the regulator to levy penalty based on a company’s global turnover.

“…the Central Government hereby appoints the 6th day of March, 2024 as the date on which the provisions of sections 20, 35 and 40 of the said Act shall come into force,” MCA said in a notification.

Under the new provision, the CCI can levy penalty based on a company’s global turnover, which would mean that the fine amount could be much higher. Previously, the CCI could impose fines based on the turnover of the relevant domestic entity. The penalty could be as high as 10% of the turnover in cases of abuse of dominant position. In case of cartels, the penalty was as much as three times of their profit for each year of such an agreement or 10% of the turnover for each year of the agreement.

However, prior to the Supreme Court ruling in the Excel Corp case in 2017, the CCI could levy penalties based on the global turnover of the firm.

Experts noted that the notification will likely have major implications on multi-product companies and those with global operations and may lead to unfair and discriminatory outcome between domestic companies and the one with global operations as well as multi product companies and single product firms.

“To avoid steep penalties, the amendment would encourage companies under investigation, especially Big Techs, to opt for, the settlements or commitments mechanism in abuse/ vertical restraint cases or, leniency in cartel cases,” said Vaibhav Choukse, Partner and Head of Competition Law, JSA Advocates and Solicitors

The amendment also requires the CCI to publish detailed penalty guidelines to provide clarity regarding the methodology for computing penalties, which is also expected to be published soon, he further said. To avoid ambiguous or unfair imposition of penalties, it is expected that the guidelines will provide a step-wise process for arriving at a penalty amount, and must take in account the principle of proportionality laid down by the Supreme Court in the Excel Corp Case. Business Today