Relevant Turnover and its Basis in the Competition Act

[Guest post by Niranjan Sankar Rao, who is a Fourth Year B.A. LL.B. (Hons) Student at Jindal Global Law School, Sonipat.

An earlier post on the topic can be found here.]

The Supreme Court of India in May 2017 in Excel Crop Care v. Competition Commission of India, (2017) 8 SCC 47, upheld the Competition Appellate Tribunal’s (COMPAT) decision of awarding penalty based on ‘relevant turnover’. For a company engaged in different areas of production, relevant turnover refers to the turnover from the produce that forms the subject matter of the contravention. In this post, it humbly submitted that relevant turnover has no legislative basis and employing such a remedy could potentially worsen market behaviour. Such an interpretation goes against the letter of the law and imposes much lesser of a penalty than the Competition Act, 2000 (the “Act”) contemplates.

Relevant facts for the purposes of this post are that the Competition Commission imposed a penalty of 9% on the average turnover of the companies found to be operating in contravention of section 3 of the Act. On appeal, COMPAT deemed it fit to introduce the concept of relevant turnover and limited the penalty to 9% of the relevant turnover. Finally, the Supreme Court upheld COMPAT’s decision ruling that a tribunal ought to be governed by the doctrine of proportionality in imposing penalties and that penalising statutory violators on their entire turnover would not be a penalty proportional to the contravention.

Most importantly, the Supreme Court affirms that the Act does not define what relevant turnover is, and that “in the absence of specific provision as to whether such turnover has to be product specific or the entire turnover of the offending company, adopting the criterion of ‘relevant turnover’ for the purposes of imposition of penalty would be more in tune with the ethos of the Act and legal principles which surround the matters pertaining to imposition of penalties” (emphasis supplied by the author). On one hand, the Court fails to find legislative basis for this term and, on the other, it proceeds to conclude that imposing penalties based on relevant turnover would be more in tune with the ‘ethos of the Act’. For this reason, there seems to be an inherent contradiction in the Court’s reasoning. Moreover, it is argued that contrary to what the Court has held, the Act specifies that such turnover is supposed to be the entire turnover of the offending company.

At this juncture, it is pertinent to observe the scheme of the Act and the provisions in order to determine whether the Act provides any basis for relevant turnover. In this regard, section 27(b) of the Act is of utmost importance. The provision authorises the Competition Commission to impose penalties upon findings of contravention of section 3 and/or 4 of the Act. There is no mention of relevant turnover in the provision. A textual interpretation would clearly reveal that the provision imposes penalty on the entire turnover rather than a part of it. It is a settled principle of law that when the statute is clear, the court must not indulge itself in adventurous interpretative exercises in substituting its own intent to that of the legislature’s.

Delving into the Court’s reasoning, one finds references to guidelines and decisions from other jurisdictions in a quest to seek recognition of this concept. Keeping this in mind and analysing regulations from other jurisdictions, one has to bear in mind that other jurisdictions prescribe stringent mechanisms in imposing penalties on relevant turnovers fearing a situation of it becoming a mere fee to carry on contravening anti-trust laws.[1]

The implications of such an interpretation prove to be ineffective in furthering the object of the Act in combatting market behaviour in contravention to sections 3 and 4 of the Act. The cap of 10% penalty on the relevant turnover may result in a far less penalty than what the Act contemplates. Undoubtedly, proportional penalty as contemplated by the Court is a just and equitable punishment. Going against the letter of the law in achieving this end by providing inadequate reasoning and not observing the implications of such a decision is respectfully submitted to be alarming.

In case a company that is involved in producing a plethora of goods engages in a behaviour in contravention to section 3 of the Act in the relevant market for one particular good, a 10% penalty would be a mere cost of continuing such market behaviour, particularly for a company with global turnover. The relevant turnover cap curbs exercise of discretion in imposing penalty.

Possibly, the usage of the term relevant market may point towards a penal provision that is catered towards the consumer welfare taken away by the goods that form the subject matter of that relevant market. The Supreme Court makes a passing reference to this in the judgment. However, this argument does not hold much merit in a situation where section 27(b) specifically refers to the annual or average turnover of the offender. Thus, attempts at narrowing the definition of turnover down to relevant market taking recourse to a textual interpretation go in vain.

A purposive and internationalist approach in interpreting the statute in fact substitutes the Court’s intent to that of the legislature’s. It is alarming to note that the Court fails to provide any substantial basis or authority to showcase legislative intent or the object and purpose of the Act. Mere references to what ought to be the legislative intent and purpose of the provision was taken into account while arriving upon this conclusion.

The COMPAT referred to the EU and OFT guidelines, holding that the guidelines were ‘undoubtedly relevant’. However, if one delves into these guidelines, it is clear that if they were applied in toto, the penalty would have been much more than what the COMPAT arrived at.[2] The guidelines follow a step-by-step approach in determining penalty. Also, paragraph 21 of the EU guidelines states that penalties that are computed from relevant turnover start from 30%.[3] This points out how high a bar other jurisdictions that the COMPAT relied on set, so as to not make the entire exercise seem like a cost of doing business. It is respectfully submitted that this seems to have gone unnoticed by the Supreme Court.

Competition law litigation in India still seems to be at its nascent stages, considering there is no clarity on such fundamental principles. One needs a robust legislative will to give determinacy to such issues and frame the statute in a way that curbs the need for such interpretative exercises. With this analysis, the author concludes that there is no legislative basis or origin for imposing penalties on ‘relevant turnover’. The judgment, by not providing adequate reasoning and analysis into the implications of going beyond the letter of law, is unsettling and may have far reaching consequences in relation to future market behaviour.

– Niranjan Sankar Rao

[1] Arjun Krishnan, The Excel Crop Case and Relevant Turnover in the Competition Act 2002, 27 NLSI Rev 125 (2015).

[2] Ibid.

[3] EU Guidelines, para 21.

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