Introduction
The authority of the CCI to impose hefty penalties acts as a major deterrent on potential violators from indulging in anti-competitive practices. §27(b) of the Competition Act, 2002 (‘The Act’) enables the competition regulator to impose such penalties on ‘persons or enterprises’ that abuse their dominant position in the market or are a party to anti-competitive agreements.While the discretion with respect to the quantum of penalty lies with the CCI, the penalties shall not exceed more than ten percent of the average turnover of the previous three financial years. Even though the CCI and the COMPAT have considered the mitigating and aggravating factors and attempted to determine penalties using a case by case approach, their approach is bereft of uniformity, in the absence of any prescriptive guidelines. In this post, I expostulate with the current approach of the regulator and show the pressing need of guidelines similar to the European Directive.
Analysing the pattern of imposition of penalties by CCI and COMPAT
The COMPAT, which has now been replaced by the National Company Law Appellate Tribunal (‘NCLAT’), had previously disapproved the idea of adopting any guidelines for the imposition of penalties. This was ruled bearing in mind the importance of considering the facts of each case in the background of the object of the Act. Nonetheless, this open and obscure technique of imposing penalties by the regulators has created considerable inconsistency and confusion. Absence of any uniform guidelines stating the mitigating and aggravating factors has led the CCI and COMPAT to reach dissimilar conclusions. For instance, the COMPAT had considered a reason as abstract as the nascence of competition law to reduce the penalty imposed. Not ignoring the cases where the penalties were kept unchanged, there exists a clear lack of pattern in the way the penalties are imposed. The penalties range from less than a percent of turnover to a massive ten percent. However, most of the orders fail to sufficiently reason or show any pattern of the range in which the penalties are imposed. A lot of uncertainty exists in this regard.
The COMPAT has hitherto disregarded the consideration of intentions while considering the penalty. This runs contrary to the EU Directive that gives special consideration to the intention and diligence while imposing penalties.Any non-deliberate conduct may be considered if the short period of the contravention evinces the same. Nevertheless, factors like public utility of goods, and financial adversity of companies, have frequently been considered as mitigating factors while calculating the penalty. Further, considerations have also been given to factors such as market share, nature of the product, structure of the market, and the entry conditions before setting the penalty. On the other hand, exploitative conduct as perceived by the regulator has been seriously dealt with. The watchdog has also considered the importance of penalties creating a deterrent effect in certain cases. Observably, while the regulators have attempted to calculate penalties considering the mitigating and aggravating factors, there are no comprehensible guidelines to compute the penalties in accordance with the nature of the offence. Having a set list of guidelines will ensure substantial amount of consistency in the way the penalties are imposed, for instance the European Guidelines.
Further, a lot of ambiguity surrounds §53N of the Act that allows any person to make an application to COMPAT (now NCLAT) for a claim of compensation on the basis of the order of the CCI. The interpretation of the term ‘any person’ in the provision requires greater clarity. It is debatable whether it is only the director even the indirect purchaser who is entitled to damages. While the EU Directive entitles the indirect purchasers to any such compensation, a debate may ensue if one were to similarly interpret §53N in the Act, considering the reluctant approach of Indian Courts in cases involving unascertainable consumers. Further, the Tribunals may also face the requirement to interpret the concept of ‘passing-on’ while assessing compensation.
Conclusion
The aforementioned instances certainly necessitate a more orderly approach in evaluating penalties. The COMPAT had itself said that the penalties should be measured relatively in comparison with other cases, in the absence of any tests. However, such comparison and computation in absence of any uniform guidelines are difficult to ask for. This vacuum not only creates financial uncertainty during the proceedings before the Tribunal but also hinders companies from doing thorough risk-analysis. Moreover, the importance of legal standardisation and the need to avert arbitrariness while imposing penalties unquestionably justifies the need for such regulatory guidelines.
This post has been written by Bhavya Nahar and Arnav Bose, from the third year and first year respectively in WBNUJS.
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