CCI New Penalty Rules: Based on Company Income, Turnover

The Competition Commission of India (CCI) has issued new guidelines for imposing penalties on companies that violate the competition law. The guidelines, which came into effect from March 6, 2024, allow the CCI to base the penalties on the average turnover or income of the company derived from all products and services, and not just on the turnover derived from the product under investigation. The guidelines also provide for a settlement mechanism for companies to resolve ongoing cases by paying a settlement amount.

Penalty Determination Process

The new penalty rules aim to ensure deterrence and proportionality in penalizing anti-competitive conduct. The CCI will follow a two-step process to determine the penalty amount. As a first step, the CCI will calculate the penalty which can be up to 30% of the average relevant turnover or income, subject to the legal maximum. In the next step, the said penalty will be adjusted basis the aggravating and mitigating factors listed in the guidelines, subject to legal maximum .

The CCI will consider various factors, such as the nature and gravity of the violation, the impact on the industry, the role of the enterprise, the duration of the contravention, the coercive measures employed, the admission of contravention, and the cooperation during investigations. The CCI will also take into account the audited financial statements of the company for calculating the average relevant turnover or income. If audited statements are unavailable, the CCI may resort to global turnover for penalty determination .

Penalty Categories and Rates

The guidelines also cover cases involving anti-competitive agreements by cartels, where the CCI may consider the profit after tax for penalty determination. The penalty rate for cartels can range from 0.5% to 10% of their average profit after tax for each year of violation. The guidelines extend to individuals in charge of the company’s business at the time of violation, who can be penalized up to 10% of their average income for the last three years. The penalty rate for individuals can vary from 0.1% to 10% depending on their role and involvement in the violation .

The guidelines also apply to cases related to failure to give notice of combinations or violations of standstill obligations, where penalties may extend to 1% of the total turnover, assets, or value of transaction. The penalty rate for combinations can range from 0.01% to 1% depending on factors such as consummation without notice, voluntary filing and cooperation, and market impact .

Flexibility and Transparency

The guidelines provide a structured methodology for imposing penalties, but also allow flexibility for exceptional circumstances. The CCI will document any deviation from the general methodology in writing, ensuring transparency and accountability .

Settlement Mechanism

The CCI has also issued regulations concerning commitment and settlement mechanisms. These mechanisms enable companies to offer commitments to change their behaviour or pay a settlement amount to avoid an investigation or litigation. The CCI will consider various factors, such as public interest, nature of contravention, stage of investigation, and likelihood of success in determining whether to accept or reject such proposals .

The settlement amount will be based on a percentage of the likely penalty that would have been imposed if an investigation had been completed. The percentage can range from 10% to 85% depending on factors such as timing of settlement proposal, admission of contravention, cooperation during investigation, and remedial measures taken .

The commitment mechanism allows companies to offer behavioural or structural remedies to address competition concerns without admitting any contravention. The CCI will monitor the compliance of such commitments and may impose penalties for non-compliance .

Impact and Implications

The new penalty rules and settlement regulations are expected to bring more clarity and certainty in the enforcement of competition law in India. They are also likely to reduce litigation costs and delays for both the CCI and the companies involved. The new rules may also encourage more voluntary compliance and cooperation from companies facing competition scrutiny.

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