Comply or Face 10% Turnover Fine or 3-Yr Jail: Digital Bill To Big Techs

Indian lawmakers are proposing stringent measures targeting big tech companies, including fines of up to 10% of their global turnovers or imprisonment for up to three years, in a bid to tackle anti-competitive practices in the digital sphere. 

This move comes at a time when there is an ongoing tussle between Indian startups and major tech corporations over in-app billings, with allegations of monopolistic behavior by the industry giants.

In a bid to address the escalating concerns over anti-competitive practices in the digital space, Indian lawmakers have unveiled the draft of the Digital Competition Bill. This proposed legislation, made public for consultation on March 12, 2024, aims to rein in Big Tech companies that wield significant market power and impose hefty penalties on violators.

Background: From Parliamentary Panel Recommendations to Draft Bill

The genesis of this proposed law traces back to 2022 when a parliamentary panel suggested the necessity of a separate legal framework to regulate Big Tech's dominance and ensure fair competition. Subsequently, a committee was convened to delve into the nuances of this recommendation. The culmination of these efforts is the unveiling of the Digital Competition Bill, which was presented to the government as part of a comprehensive 235-page report on February 27, 2024.

The draft was released for public consultation on March 12.

Defining Systematically Significant Digital Enterprises (SSDEs)

Central to the proposed legislation is the introduction of a new classification for major players in the digital landscape—Systematically Significant Digital Enterprises (SSDEs). These are entities offering core digital services such as online search engines, social networking platforms, and video-sharing services. The criteria for designating a company as an SSDE are rigorous, including parameters like turnover thresholds, user base, and market capitalization over consecutive financial years.

Compliance Obligations and Penalties

The draft Bill imposes additional compliance burdens on SSDEs, mandating fair and transparent dealings with end-users, non-preferential treatment of their own products, and the absence of restrictions on third-party applications. Failure to comply with these obligations can attract severe penalties.

The proposed law empowers the Competition Commission of India (CCI) to investigate instances of non-compliance by SSDEs. Penalties for violations range from fines to imprisonment, depending on the severity of the offense. Notably, fines can amount to a staggering 10 percent of the offender's global turnover, potentially running into billions of dollars for tech giants.

The draft Bill stipulates, "If any person, without reasonable cause, fails to comply with the orders or directions of the Commission issued under Section 17, Section 25, Section 26 or Section 28, he shall be liable to a penalty...subject to a maximum of rupees ten crore."

Furthermore, regarding penalties for contravention, the Bill states, "In an order finding a contravention under sub-section (1) of Section 17, the Commission may impose on a Systematically Significant Digital Enterprise...penalties not exceeding ten per cent of its global turnover."

The Bill further proposes that, "If any person does not comply with the orders or directions issued, or fails to pay the penalty imposed under sub-section (2), he shall, without prejudice to any proceeding under Section 33, be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to rupees twenty-five crore, or with both, as the Chief Metropolitan Magistrate, Delhi may deem fit."

Provided that the Chief Metropolitan Magistrate, Delhi shall not take cognizance of any offence under this Section save on a complaint filed by the Commission or any of its officers authorised by it.

The Bill clarifies that "Global turnover" (mentioned in the penalty) shall include revenue of the enterprise derived from the sale of all goods and provision of all services, whether digital or otherwise, and when an enterprise is part of a group, shall include the revenue derived from the sale of all goods and provision of all services, whether digital or otherwise, of such group. The value of “global turnover” shall be calculated in the manner as may be 

specified.

Under the Contravention by Companies section of the draft bill, it is proposes that "....every person who, at the time the contravention was committed, was in charge of, and was responsible to the Systemically Significant Digital Enterprise or its Associate Digital Enterprise for the conduct of its business, shall be deemed to be in contravention of this Act and unless otherwise provided in this Act, the Commission may impose such penalty on such persons, as it may deem fit which shall not be more than ten per cent of the average of the income for the last three preceding financial years.

Nothing contained in sub-section (1) shall render any such person liable to any penalty if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention."

On the execution of penalty, the commission clarifies that "If an enterprise or a person fails to pay any monetary penalty imposed on him under this Act, the Commission shall proceed to recover such penalty, 

in such manner as may be specified."

Implications and Way Forward

The proposed Digital Competition Bill marks a significant step towards fostering a more competitive and equitable digital ecosystem in India. By holding Big Tech accountable for their actions and imposing substantial penalties for non-compliance, lawmakers aim to level the playing field for smaller players and safeguard consumer interests.

However, the road ahead remains uncertain, with stakeholders from both industry and civil society likely to weigh in on the draft legislation during the public consultation period. Balancing the need for regulation with fostering innovation and investment will be crucial as India charts its course in the digital age.

The proposed Digital Competition Bill signals a firm commitment by Indian authorities to assert regulatory control over Big Tech and promote fair competition in the digital marketplace. As the consultation process unfolds, the final shape of the legislation will undoubtedly reflect a delicate balance between regulatory oversight and fostering innovation in the tech sector.

Join Our Thriving Entrepreneurial Community

Follow TICE News on Social Media and create a strong community of Talent, Ideas, Capital, and Entrepreneurship. YouTube  | Linkedin | X (Twittrer) | Facebook | News Letters