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Why did CCI say Google submitted glaringly inconsistent financial data?

In October 2022, the Competition Commission of India (CCI) levied penalties of Rs 1,337.76 crore and Rs 936.44 crore on Google for abusing its dominant position in the Android and Play Store markets, thereby adversely affecting competition.

Curiously enough, in both cases, CCI has noted in its orders that Google did not supply financial data, in the manner the Commission had sought it, to arrive at the penalty amount. In fact, CCI notes that it takes serious note of glaring inconsistencies and wide disclaimers in presenting various data points by Google.

While upholding CCI’s Rs 1,337.76-crore penalty, the National Company Law Appellate Tribunal (NCLAT) in fact, made it clear that the anti-trust watchdog’s penalty was based on best-estimation since Google did not provide the relevant financial information.

Recently, in an interview with Moneycontrol, Additional Solicitor General N. Venkataraman, who argued for CCI at NCLAT, remarked, “The Google experience was not a very happy one when it came to imposing penalty because they never cooperated.”

The NCLAT had, on March 29, upheld the penalty of Rs 1,337.76 crore imposed by CCI on Google, while the tech giant’s appeal against the Rs 936.44-crore penalty will be heard by NCLAT on April 17 (today).

In a separate proceeding, the Supreme Court will, on Monday, take up Google’s application for withdrawal of its appeal against the NCLAT decision of January this year denying interim relief to the big tech in the form of a stay on the ₹936 crore penalty imposed by the CCI in its October 25 ruling in the Google Play Store policy case.

One is left wondering why CCI’s penalty is exactly Rs 1,337.76 crore and not rounded off to Rs 1,338 crore. Furthermore, how did CCI arrive at the amount? Why did Google not cooperate with CCI?

How are penalties imposed?
Section 27 of the Competition Act, 2002, allows CCI to impose penalties on enterprises for violating the competition law by performing actions such as imposing anti-competitive agreements or abuse of a dominant position. Until recently, such penalties were generally based on ‘relevant’ turnover,’ linked to the products or services affected. However, with the 2023 amendment, CCI is now empowered to impose penalties based on the global turnover of the enterprise from all products and services.

What is ‘relevant turnover’?
The Competition Act provides that when an enterprise is found to be abusing its dominant position in the market and in the process eliminating competition, CCI can impose a penalty of up to 10 percent of its average turnover for the last three preceding financial years.

Since the Act merely mentions the word ‘turnover’, CCI used to impose penalties on the total turnover of erring enterprises. For instance, an enterprise like Google provides various services such as Search, Gmail, Google Photos, etc. If it is found to be abusing its dominant position in Gmail, penalty used to be levied on Google’s entire turnover, and not just its turnover from Gmail.

In 2017, the Supreme Court clarified that penalty is to be levied on the “relevant” turnover, i.e., the turnover of the company from the product or service, where it is found to be abusing its dominant position.

The 2023 amendment however, gives CCI the powers to impose penalties on the global turnover of companies, irrespective of the products.

However, since Google’s orders came before the competition amendment came into effect, CCI had to calculate the penalty on the ‘relevant turnover’, that is, on the Android and Play Store markets.

In Google’s case, CCI penalty of Rs 1,337.76 crore was calculated at 10 percent of the turnover of the preceding three years in the Android business, while the penalty of Rs 936.44 crore was calculated at 7 percent of the turnover of the preceding three years in its Play Store business.

Why did CCI say Google did not ‘cooperate’?
To impose penalties, CCI asks the enterprises guilty of anti-competitive practices to furnish financial statements. The 10 percent penalty for abuse of dominance is calculated based on these financial statements that are to be certified by chartered accountants.

According to CCI, it had asked Google to submit financial statements of the relevant product certified by chartered accountants. However, the company provided data given by its own officers. Furthermore, CCI notes in the order that Google’s data had glaring inconsistencies and wide disclaimers. The order states, “The Commission is constrained to observe that despite commanding enormous resources, Google has failed to provide the data in the manner sought by the Commission despite grant of sufficient time, as sought by it.”

Google contested the quantum of penalty at NCLAT. However, the tribunal observed, “We also note that Google has not provided the financial information as sought by the CCI. The inadequacy of the data supplied by Google has been mentioned in detail. The CCI points out to significant inconsistencies and wide disclaimers in presentation of the requisite data by Google. In such a situation, CCI has carried out the “best estimation” on the basis of financial statements and information submitted by Google. Therefore, we agree with the CCI’s decision to quantify the monetary penalties on the basis of data presented by Google.”

When reached for comments on CCI’s and NCLAT’s observations, the tech giant responded saying that they currently do not have any insights to share . Google can challenge NCLAT’s verdict at the Supreme Court within 60 days from March 29, the day of the verdict. Moneycontrol

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