Examining CCI’S Penalty Guidelines: A look at potential Constitutional Challenges

-By Tanmay Doneria, 4th year student at Rajiv Gandhi National University of Law, Patiala

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Introduction

The core concept behind delegated legislation involves the strategic transfer of legislative authority to non-legislative bodies, enabling them to promulgate laws within predefined parameters. This enables the effective operationalisation of laws and ensures a degree of flexibility for the enforcement authorities to implement the same effectively.

The Indian Competition Act 2002 (‘Act’), is one such legislation which authorises the statutory anti-trust authority, the Competition Commission of India (‘CCI’), to make regulations concerning the penalty mechanism, leniency regime and other general and procedural matters. This allows the CCI the flexibility to adapt the legal framework to changing market conditions and ensure productive competition in the market. The recent Competition (Amendment) Act 2023 (‘Amendment Act’), introduced a major change by defining the contentious term "turnover" as "global turnover" for the determination of penalty. This interpretation is in contrast with the Hon'ble Supreme Court's ruling in the Excel Crop Care case which defined "turnover" as "relevant turnover”.

In furtherance of the same, the CCI (Determination of Monetary Penalty) Guidelines 2024 (‘the Guidelines’), were introduced on 6 March 2024. Even though these guidelines are an outcome of delegated authority, they stand in contrast to the mandate of the Parent Act. The guidelines diverge from the parent act to the extent that they still utilise the threshold of "relevant turnover" for determining the penalty under the Act. It is argued that the failure of the guidelines to conform with the parent act will render them unconstitutional, to the extent of non-conformity, due to the operation of the doctrine of ultra vires.

1. The issue of Relevant V. Global Turnover+

In 2017, the Hon'ble Supreme Court in the Excel Crop Care, defined the term "turnover" under Section 27 of the Act as "relevant turnover", for determining penalty, primarily to ensure that the penalty being levied complies with the doctrine of proportionality. This implies that only the portion of the turnover of an infringing entity that is pertinent to the violation of the anti-trust provisions must be considered for determining their penalty under the Act. This was a major relief for multi-product corporations as only the segmented turnover of the relevant infringing product would be considered and not the aggregate turnover of the entire conglomerate.

But with the recent overhaul of the Act, the legislature has specified the term "turnover" to be interpreted as "global turnover". It is generally argued that this ensures that the penalty can achieve its object of deterrence as the application of the threshold of "relevant turnover" on multi-product entities with vast resources may render the penalty a mere fee for conducting business or gaining a market share through anti-competitive conduct. It is noted that the amendment has raised concerns regarding the unfairness and constitutionality of penalising an entity's entire turnover as it may fall foul of the doctrine of proportionality. In the Excel Crop Care case, the Hon'ble Supreme Court also highlighted that penalties should be based on equitable consideration and must not exceed "what is appropriate and necessary for attaining the object". Albeit the concerns regarding the constitutionality of the amendment, it is important to understand that legislation made by a competent legislature is presumed to be valid until declared unconstitutional.

As a consequence of the same, until and unless the amendment is declared unconstitutional all delegated legislations flowing from the Act must conform to the same as it is not up to the delegated authority to supersede the parent act or modify the same through subsequent delegated legislations. Hence, for the purpose of our discussion, we shall assume that the amendment is constitutional and similarly, the delegated legislation i.e., the guidelines arising from it are also constitutionally valid. It is with this backdrop we examine the constitutional infirmity in the guidelines.

2. The Constitutional Challenges of new Guidelines

The legislature in its wisdom has mandated that the term "turnover" under Section 27 of the Act be interpreted as "global turnover". However, the CCI ignoring this change has continued using "relevant turnover" through its guidelines. This would attract the doctrine of ultra vires i.e., where the delegated legislation goes beyond the purview of the parent act.

The presumption of constitutional validity of delegated legislation may be refuted on certain grounds as enumerated by the Hon'ble Supreme Court in State of T.N. v. P. Krishnamurthy. One of the grounds as provided by the court is "failure to conform to the statute under which it is made or exceeding the limits of authority conferred by the enabling act". Similarly, in Naresh Chandra Agarwal v. ICAI, the Hon'ble Supreme Court has emphasised that the doctrine of ultra vires may be attracted when delegated legislation is inconsistent with the parent legislation. Furthermore, the Committee on Subordinate Legislation has also observed that delegated legislation cannot alter the parent law or lay a substantive law that is contrary to the Parent Act.

The new guidelines vide Para 3(1) provide for setting the initial measure for penalty at thirty percent of the average relevant turnover. This initial measure is to be taken into consideration for the determination of penalty under Section 27(b) of the Act. The rationale behind the continued usage of "relevant turnover" may be found in the general statement issued by the CCI pursuant to the stakeholder consultation for the guidelines. It indicates that the stakeholders submitted that the penalty should be based on relevant turnover/relevant profit following the Excel Crop Care judgement. However, it is to be noted that the delegated legislation derives its authority from the amended parent act and not the Supreme Court ruling.

Given the Hon’ble Supreme Court’s established judicial precedent regarding the constitutionality of delegated legislation, the guidelines’ significant deviation from the amended Parent Act’s explicit mandate to use the threshold of “global turnover” for calculating penalties will certainly face constitutional challenges.

3. Concluding Remarks

The key to understanding the disparity between the new guidelines and the Act is to understand the authority under which the guidelines have been formulated. The newly inserted Section 64B(1) of the Act provides a general power to the CCI to issue rules, regulations or guidelines concerning any provision in the Act and Section 64B(3) of the Act provides a specific power to formulate guidelines for determining the amount of penalty. Thus, we can see there are two types of delegation operating here. Firstly, general delegation is made to promulgate rules, regulations or guidelines. Secondly, notwithstanding the general authority specific delegation is being made with respect to a particular purpose of formulating guidelines for determining the amount of penalties.

In a situation where general delegation is made by the legislation then the objective of the legislation must be taken into consideration while adjudging the constitutionality of the delegated legislation. Furthermore, the Hon’ble Apex Court has also established that when such general powers are given it is merely to give effect to what has been enacted in the statute, it does not give the power to extend the scope or general operation of the legislation. Furthermore, it does not give the power to bring into existence any substantive rights or obligations which are not contemplated by the legislation. As the guidelines have been promulgated under general delegation, the same cannot defeat or go beyond the purview of the Parent Act. Therefore, the guidelines cannot bring into existence the concept of “relevant turnover” when it has not been provided anywhere in the legislation and should be aimed towards only operationalising the provision of “global turnover”.

The guidelines have been brought into force on 6 March 2024, thus, it is yet to be seen whether the constitutionality of the same is challenged. The penalty regime is supposed to ensure deterrence and corrective measures in the market. The concept of global turnover is usually used to ensure that big multi-national conglomerates do not treat penalties as a mere fee for doing business and the quantum of penalty is high enough to ensure proper deterrence in the market and fulfil the purpose of imposition of a penalty. Therefore, the usage of the threshold of relevant turnover in the guidelines falls foul of the parent legislation as well as it may fail to fulfil the intended objective of the penalty mechanism.