WHAT HAS HAPPENED?
1. THE PENALTY GUIDELINES
The Penalty Guidelines are largely based on European Union’s Guidelines on the method of setting fines.
Aggravating and mitigating factors for adjusting base amount
2. Methodology for Determination of Penalty on Persons under Section 48 of the Act
The Commission may impose penalty on individuals after consideration of the following factors
3. Parameters for Determination of Penalty on Persons or Enterprise under Section 43A of the Act
4. Methodology for Determination of Penalty on Persons under Section 42, 43, 44 and 45 of the Act
Parameters for Determination of Penalty on Persons under Section 42, 43, 44 and 45 of the Act
TURNOVER REGULATIONS
A few highlights of the Turnover Regulations are:
C&M PERSPECTIVE
The Turnover Regulations are largely in line with the draft Turnover Regulations released for public consultation in December 2023. The Penalty Guidelines have re-introduced the concept of relevant turnover as was our prediction and provide clarity on the factors to be considered by the Commission in its discretionary power while imposing penalties. Our take on the Turnover Regulations and Penalty Guidelines is as follows:
Computation of Turnover: The stakeholders (including C&M) had submitted that the inclusion of “other operating income” in the draft Turnover Regulations is unclear. Based on the stakeholder consultation, the Commission has excluded “other operating income” from the definition of“turnover”. This brings in the much-needed clarity that the stakeholders were hopeful for. In case the parties are not able to determine the “relevant turnover” the Commission has the power to levy penalty on the global turnover. This may especially impact cases concerning digital markets.
Consolidated Financial Statements: The enterprises which are required under the law to prepare consolidated financial statements will have to calculate turnover by considering such consolidated financial statements. This would essentially mean that turnover earned by associate companies or subsidiaries which are not in contravention will also be considered.
Authorized person for signing the financial statements: The stakeholders (including C&M) had submitted that requirement for a statutory auditor to sign the financial statements in case the audited financial statements are not available would be onerous, especially for multi-national companies where the statutory auditor may be a foreign national not having the domain knowledge of Indian laws. To that end, the clarification that ‘any person’ duly authorized by the enterprise to sign the affidavit, in the absence of a statutory auditor or chartered accountant is a welcome step.
Power to impose high penalties: While the re-introduction of the “relevant turnover” and providing a base and ceiling for computation of penalties and consideration of aggravating and mitigation factors are welcome moves, the discretion with the Commission to impose higher penalties to create a deterrent effect allows some uncertainty which would require a case-to-case assessment, especially when determining whether a settlement or commitment would be beneficial in case of non-cartel cases.
Aggravating and mitigating factors to be considered: As mentioned above, among other things, the role of the enterprise as a factor will require submitting evidence which clearly segregates the role of the enterprise from that of the others. Further, considering a competition compliance program as a mitigating factor is a welcome step.
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In case of feedback, suggestions, or queries, please reach out to the C&M team on competitionlaw@chandhiok.com