The Competition Commission of India ( CCI ), vide notification no. 01 of 2024 dated 6th March 2024 has notified the procedures for levying monetary penalties on the enterprises under the Competition Act 2002. According to the notification, the new guidelines are called “The Competition Commission of India (Determination of Monetary Penalty) Guidelines, 2024.”
The guidelines itself has 7 chapters which details the methodology for determining penalty for enterprises and persons under different provisions of the competition act. Also, it lists the residuary powers of the Competition Commission.
Methodology for Determination of Penalty for Enterprises Under Section 27(b) of the Competition Act
The CCI has laid out a comprehensive methodology for determining penalties imposed on enterprises under Section 27(b) of the Competition Act. This methodology takes into account various factors aimed at ensuring fairness and proportionality in penalty imposition.
Initially, the Commission evaluates factors such as the nature and gravity of the contravention, the impact on the affected industry or sector, and any other relevant circumstances of the case. Based on these considerations, the Commission determines an amount up to thirty percent of the average relevant turnover or income of the enterprise.
Adjustment of Penalty: The Commission may adjust the penalty amount based on additional factors, including the duration and role of the enterprise in the contravention, any coercive measures employed, the enterprise’s cooperation during investigations, and the implementation of compliance programs. This adjustment is subject to the legal maximum and aims to reflect the specific circumstances of each case.
Calculation of Turnover or Income: The average relevant turnover or income is calculated based on the enterprise’s financial statements for the three years preceding the investigation. In certain cases, the Commission may consider turnover from three years before the contravention, subject to justification.
Certification of Financial Information: Financial information provided to the Commission must be certified by a statutory auditor or Chartered Accountant and supported by an affidavit from an authorised representative of the enterprise. In the absence of audited statements, certified information is accepted.
Global Turnover Consideration: If determining relevant turnover is impractical, the Commission may assess penalties based on the enterprise’s global turnover from all products and services.
Enhanced Penalty: If the initially determined penalty is deemed insufficient to deter future contraventions, the Commission reserves the right to further increase the penalty, within legal limits, to effectively deter anti-competitive behaviour.
Methodology for Determination of Penalty under Proviso to Section 27(b) of the Competition Act
In the cases involving contraventions related to anti-competitive agreements orchestrated by cartels, the CCI has established a specific methodology for imposing penalties under the proviso to Section 27(b) of the Competition Act. This methodology focuses on considering the profit after tax of the offending enterprise.
Penalty Imposition: The Commission reserves the authority to impose penalties under the proviso to Section 27(b) of the Competition Act when an enterprise is found to be involved in anti-competitive agreements formed by a cartel.
Consideration of Profit After Tax: In determining the penalty under this provision, the Commission evaluates the profit after tax of the offending enterprise. This financial metric is utilized as a basis for assessing the magnitude of the penalty to be imposed.
Relevant Factors: The Commission, in making its decision regarding penalty imposition, takes into account various factors outlined in paragraph 3(2) of its guidelines. These factors may include the duration and severity of the contravention, the enterprise’s role in orchestrating anti-competitive behaviour, its cooperation during investigations, and any remedial measures taken to address the violation.
Methodology for Determination of Penalty for Persons Liable under Section 48 of the Competition Act
This methodology ensures fairness and proportionality in penalty imposition based on various factors and income considerations.
Penalty Limitation: The Commission may impose penalties on individuals, not exceeding ten percent of their average income over the last three preceding financial years.
Consideration of Factors: In determining the percentage of average income to be considered, the Commission takes into account several factors, including the nature and gravity of the contravention, the individual’s role and extent of involvement in the conduct, cooperation during investigations, any instances of repeated contraventions, evidence indicating limited involvement, and any other relevant circumstances.
Income Determination: The average income of the individual is determined based on the gross total income as per income tax returns filed under the Income Tax Act, 1961, excluding income from house property and capital gains. The Commission considers income tax returns for the same years as the company for whose conduct the individual is held liable.
Alternative Income Verification : In cases where income tax returns are unavailable, the total income certified by a Chartered Accountant, supported by an affidavit from the individual, is considered.
Penalty for Cartel Participation: In instances where the contravention involves an anti-competitive agreement by a cartel, the Commission may impose penalties on individuals under the proviso to Section 48(1) or Section 48(3) of the Act. The determination of such penalties takes into account factors outlined in paragraph 5(2) of the guidelines, ensuring consistency and fairness in penalty imposition.
Methodology for Determination of Monetary Penalty under Section 43A of the Competition Act
The CCI has also established a methodology for determining monetary penalties applicable to individuals or enterprises failing to comply with notice requirements or contravening specific sections of the Act, as outlined in Section 43A. This methodology ensures fair assessment and proportional penalties based on various factors.
The Commission may levy penalties on persons or enterprises failing to give notice of combination under specific sections of the Act or contravening certain provisions. The penalty amount may extend up to one percent of the total turnover, assets, or the value of the transaction referred to in the Competition Act, whichever is higher, concerning the combination in question.
Consideration of Factors: In determining the penalty amount under Section 43A, the Commission takes into account various factors, including:
Methodology for Determination of Monetary Penalty under Sections 42, 43, 44, and 45 of the Competition Act
This methodology considers both the minimum and maximum penalties prescribed by the relevant provisions of the Competition Act.
Penalty Range Consideration: The Commission evaluates the range of penalties specified under the respective sections of the Act. This includes examining both the minimum and maximum penalties applicable to the specific violation.
Factors for Penalty Determination: In determining the precise amount of the penalty, the Commission takes into account several factors, including:
Residuary Powers of the Commission
The Competition Commission is vested with residuary powers to address unique circumstances and exceptional cases that may not fit within the general framework for determining penalties. These powers allow the Commission flexibility to deviate from standard guidelines when necessary.
Flexibility in Penalty Determination: Despite the existence of general methodologies for determining penalties, the Commission has the authority to deviate from these guidelines based on the specific characteristics of a given case and in exceptional circumstances. This flexibility ensures that the Commission can address complex situations effectively and appropriately.
Recording Divergence: In instances where the Commission diverges from the general methodology for penalty imposition under Sections 27(b), 43A, and 48 of the Act, it is required to document the reasons for such deviation in writing. This ensures transparency and accountability in the decision-making process, providing clarity on the rationale behind the Commission’s actions.
Guidance on Penalty Reduction: Any reduction in penalty amounts concerning Section 46 of the Act is guided by the Competition Commission of India (Lesser Penalty) Regulations, 2024. These regulations provide a framework for the Commission to consider mitigating factors and incentivize cooperation from parties involved in anti-competitive conduct.
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