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PENALTIES FOR ANTI-COMPETITIVE CONDUCT IN INDIA: SCOPE  FOR FURTHER AMENDS?

[Animesh Chaturvedi and Sohair Wani are the students of B.A.LL.B.(Hons.) at National Law Institute University, Bhopal]


Introduction


In March, the Ministry of Corporate Affairs notified the amended penalty provisions for anti-competitive conduct under the Competition Act, 2002 [hereafter “the Act”] in India. Simultaneously, the Competition Commission of India [hereafter “CCI”], also issued the regulations for calculation of such penalties. These changes represent a bold move for the Indian jurisdiction, significantly raising the threshold for imposing penalties on corporations for anti-competitive conduct, such as anti-competitive agreements and abuse of dominance. The new limit allows for fines of up to 10% of the parent corporation’s global turnover, marking a substantial increase from the previously capped amount set by the Supreme Court.


The Supreme Court in Excel Crop Care Ltd. v. Competition Commission of India held that the limit of penalties for anti-competitive conduct must be capped at 10% of the relevant turnover of the company and not the total worldwide turnover. This ruling significantly limited the authority of India's regulatory agencies over both domestic and international corporations. Despite rapid economic growth in India, the country's antitrust framework has not matched the strictness seen in leading economies such as the EU and the USA.

In this blog, we will explore how India’s antitrust regime compares with those of the United States and the European Union, which have taken substantial measures to curb anti-competitive practices both domestically and internationally. Additionally, we will examine the feasibility and necessity of imposing criminal liability on corporate individuals in India, evaluating its effectiveness in the US over recent years. Finally, we will discuss potential improvements that the Indian antitrust system can adopt from its international counterparts.

EU’s Standards for penalties and other remedies against anti-competitive conduct

Leading economies such as the US and the EU, recognize the importance of maintaining fair competition in their markets and therefore enforce strict antitrust regimes. While the EU as a supranational organisation has a ceiling of 10% of the ‘overall annual turnover’ of an undertaking for a penalty against its anti-competitive conduct generally for infringements under Articles 101 and 102 of the Treaty on the Functioning of the European Union (TEFU), it does not provision criminal responsibility for individuals under these corporates involved in such conduct. While calculating the penalty, consolidated turnover of the highest parent company is taken into account for the previous financial year preceding the penalty decision.

This framework gives the EU's antitrust regime substantial leverage over corporations to ensure fair market competition. However, it does not assign criminal responsibility to individuals behind such anti-competitive conduct. Additionally, the power of member states to impose prison sentences to an individual for a ‘serious anti-trust violation’ is seldomly used.


 In 2006, Ireland sent a corporate officer to prison for six-months, against a blatant violation of competition rules by fixing the price of heating oil through cartelisation, and later, only a few nullified sentences were obtained by the Irish authorities subsequently, diminishing the initial hope for stronger individual accountability and reducing the likelihood of similar actions in other member states.


USA’s Criminal Liability for Individuals Acting Through Corporations


The United States, unlike the EU, does employ criminal liability under sections 1 and 2 of the Sherman Act, 1850, for individuals acting through a corporate entity along with penalising provisions for persons as well as corporations. These acts include illegal restraint of trade, and monopolies by both, a person or a corporate entity. While the upper ceiling on penalties for in the US is not with reference to a percentage of a corporation’s annual turnover, but are capped at 100 million USD for corporations and 1 million USD and/or up to 10 years of imprisonment for personal criminal liability under this act. While the Sherman Act may affix both civil and criminal liability for violation of antitrust law, the Clayton Act focuses more on civil remedies.


When it comes to enforcement, granting injunctions in such matters remains a standard practice in the country following the reason laid in eBay Inc. v. Merce change L.L.C., the United States enforces criminal liability for anti-competitive conduct over individuals in authoritative positions more effectively, as compared to the EU member-states as a final relief. In addition to 159 cases involving a penalty of over 10 million USD over corporations in the past years, on an average 33 individuals are charged yearly for their role in a corporate’s anti-competitive conduct in the US market. While the EU and its member states actively engage in imposing hefty fines on corporates, the US takes recourse to both, penalties for corporations and civil and criminal liabilities for persons acting through them as a final relief in such matters.  


Changing Dynamic of the Indian Economy: A Need for a Stricter Antitrust Regime

The drafters of the Act did not envision the penalty provisions of India’s antitrust regime for anti-competitive conduct as a policy aimed at deterrence against anti-competitive conduct of companies, rather, it was aimed at recovery of illegal earnings and penalising the wrongdoer proportionately as the India of the 20th century was not in a position to bargain fair conduct from the then multi-billion-dollar MNCs which only entered the Indian market after the 1991 Liberalization, Privatization, and Globalization (LPG) reforms. A few decades ago, some companies would rather choose to shut their business in India and continue working abroad rather than to pay a fine to the government amounting to some large percentage of their annual global turnover. However, this dynamic has changed now for the better of India.


The scope for interpreting penalties for anti-competitive conduct emanates from the open-ended definition in section 27 of the Act, which allows the Commission to impose penalties “as it deems fit”, not requiring to adhere to a fixed bottom or ceiling threshold for the same. The previous ‘relevant turnover’ threshold was widely used by the CCI and courts for penalising companies and section 48 was applied for pecuniary penalties on individuals responsible for such conduct. The recent increase in the upper ceiling for penalties against companies' anti-competitive behaviour under Part II of the Act aligns with the standards set by developed economies, such as the US and the EU, for financial punishments.

However, the aspect of criminal responsibility over persons acting through corporations towards anti-competitive conduct is untouched by the legislature and courts as of now, and perhaps now is the time to contemplate inclusion of such criminal liabilities – not as strict as that of the United States i.e. up to 10 years of imprisonment, but at the least enabling such provisions to add to the country’s strategy of deterring corporates from pursuing such ambitions in the future, and consequently, promoting the ease of doing business and healthy competition among competitors in a market, and as a result, complementing the growth of the economy at the end.


Conclusion


The new penalty guidelines by the government are a welcome step towards strengthening the antitrust regime in India and personal liability and an increase in penalty ceiling for companies is encouraged despite some criticism for the latter for it being too harsh. In our opinion, the government must act according to the dynamics of the economy and its importance for corporations and revenue generation from the country, and when paying such hefty penalties is less onerous to their global business than to wind up, which is the state in our country today in multiple markets across sectors, such firm steps act towards betterment of the rule of law which is the state in India today, and therefore further initiatives in this direction are encouraged too.

 

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