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APPLICABILITY OF THEORY OF DETERRENCE UNDER THE COMPETITION LAW

INTRODUCTION

The theory of deterrence is one of the widely accepted reasons for punishing under criminal law. But in the recent past, the Competition Commission of India (hereinafter The Commission) has recognised the presence of this theory in the Competition Act, 2002 (hereinafter The Act) and time and again reiterated its applicability. It would be worth examining the reasons for the applicability of such a theory. So, the basic question that gives rise to this discussion is ‘Is the deterrent theory of punishment applicable in the case of competition law, and if so, why? Let the answer be found.

THEORIES OF PUNISHMENT

As civilisation grows the functioning of society shifts itself to a rational base. There was a period in human history where the principle of blood for blood and eye for an eye prevailed. During those times, the differentiation between intentional and unintentional acts was not made and both were punished equally.[1] The rise of humans in the social sphere questioned this particular concept, which lacks any emotional base. The result was the development of the concept of theories of punishment. The question before the formulation of such a concept was ‘what the society or any entity wants to achieve by punishment’. To explain the objective certain theories were proposed and based on theories certain changes were made in the punishment. By and large, four theories try to explain the need to give punishment.[2] They are 1. Deterrent theory of punishment 2. Retributive theory of punishment 3. Reformative theory of punishment and 4. Preventive theory of punishment. Every theory has its reasoning. The existing legal system contains punishments that were the result of the amalgamation of all of the above theories of punishment.[3]

DETERRENT THEORY OF PUNISHMENT

The deterrent theory of punishment states that the objective of punishment is to create deterrence among the subjects. It states that a punishment given for the violation of law to a person or entity will cause a deterrence and prevent them from committing further violations. Deterrence is of two types. 1. general deterrence and 2. specific deterrence. The former is the deterrence created in society or the subjects at large. If a violation of the law is punished, it will remove the plan of other subjects, if any, to violate the law and stop others from developing an idea to violate the law. The latter is the deterrence created in the violator himself/herself to not violate the law, further.[4]

BASIC ASSUMPTIONS OF THE THEORY

The deterrent theory of punishment is based on certain assumptions upon lack of which, the theory fails in achieving its goal of creating deterrence. The basic assumption is that the subject is a rational being or entity. Unless the subject/s on which the deterrence is sought to be created are rational enough to understand the consequences of the act that they are going to perform and analyse the profit, if any, and loss of the act, the theory doesn’t work. For this particular reason the applicability, despite its wide acceptance is often questioned in criminal law because not all humans are rational, at all times.[5] Probably, no one would ever have remembered S. 300 or S. 304 of The Indian Penal Code, 1860, while committing a culpable homicide out of provocation. By large, the theory is not a great success in practice. But what if, the assumptions are fulfilled? Assume a playfield where all the players are rational ones and are capable of analysing the profit and loss of the act that they are going to perform. The obvious conclusion that comes out is that if the subjects are rational beings the theory of deterrence holds good. Now is there any arena where only rational beings exist? Let us analyse the competition law for that purpose.

COMPETITION LAW

Competition law is all about maintaining the competition in the market or economical domestic markets, to be more specific, for the greater good of society. The competition law applies only to the economic activities of individuals or institutions. The question is whether an economic man is rational. Here, microeconomics comes to answer this question.

BASIC ASSUMPTION OF ECONOMICS

Rationality is one of the most used words in economics.[6] But still, certain critics point out that not all the decisions taken by individuals are always rational even in the economic sphere. We can’t expect complete rationality from a vegetable vendor. Then, what about the rationality assumption?

As a matter of theory, competition law, similar to other laws, is the law of the land.[7] It applies,  uniformly, to everyone. But if we observe the important provisions of the Act, it is not so. The Act has its practical applicability only to certain groups of people and entities. The Act time and again refers to the clause “appreciable adverse effects on competition”.[8] The Act took note of such acts that have the potential to cause not only adverse effects but appreciable adverse effects on competition. So, it needs no citation to say that it would be ridiculous to say that a village shopkeeper sitting in a shop running in front of his house, with a total value of goods of not more than a triple-digit number, will be able to cause appreciable adverse effects on competition. So, not all the economic players are capable of creating appreciable adverse effects on competition, and de facto they are outside the purview of The Act. The same is evident from the monetary base, set up for S. 5 of The Act, which deals with combinations. So, the subjects, de facto, are the huge companies and the persons who are responsible for their management. The companies will have primarily the motive of profit generation and individuals in their professional capacity work to fulfill the motives of the companies.[9] Both, as far as they are subjects of the competition law, are rational and are therefore subject to deterrence. So, the deterrent theory of punishment holds good in the case of competition law.[10]

The Commission in a case[11] has observed that the twin objectives of imposing penalties are to impose penalties on the undertakings that violate the provisions and to create deterrence among the subjects, at large. The same observations of the commission have been again reiterated in another case[12]. In some other cases,[13] the Commission has held that the penalty imposed must serve the dual purpose of creating deterrence and giving punishment. The  Commission, also on several occasions,[14] rejected the contentions of several parties that no penalty be imposed since there was no actual loss or they abstained from such behaviour as soon as they came to know of the provisions of the competition law. The Commission was of the opinion that creating deterrence is necessary against the violation of the provisions of the competition law.

CONCLUSION

The obvious conclusion that flows from the discussion both in theoretical and practical fields is that the theory of deterrence is applicable in the case of competition law. The law satisfies the requirements for the applicability of the deterrent theory. The de facto applicability of the competition act is only on the large players with good knowledge of economics and the market. So, the involvement of the rational players makes a clean ground for the application of the deterrent theory. This approach has also been adopted by the Competition Commission of India. I am of the view that the deterrent theory will be much more effective in implementing competition law than it is in criminal law. But the outcome of this deterrent theory experiment will be identified in the long run. So, the empirical validity of the theory will be known at a later point in time. Till then the same may be used.

Author(s) Name: Avula Veerabhadra Reddy (Central University of South Bihar, Gaya)

Reference(s):

[1] Hastings Rashdall, ‘The Theory of Punishment’ (1891) 2(1) International Journal of Ethics

[2] Central Board for Secondary Education, Legal Studies (first published in 2013, CBSE 2020) 60

[3] Dr. Ravulapati Madhavi, ‘The theories of punishment’ <https://www.mcrhrdi.gov.in/89fc/week2/L%20-%20Theories%20of%20Punishment.pdf> accessed 11 July 2023

[4] Kelli D. Tomlinson, An Examination of Deterrence Theory: Where Do We Stand? (2016) 80(3) FEDERAL PROBATION <https://www.uscourts.gov/sites/default/files/80_3_4_0.pdf#:~:text=The%20principal%20assumptions%20made%20by%20the%20theory%20include%3A,makes%20rational%20choices%20based%20on%20the%20information%20received> accessed 28 July 2023

[5] David Garland, Punishment and modern society (first published in 1990, The University of Chicago Press 1993) 3

[6] Peter J. Hammond, ‘Rationality in Economics’ (Stanford) <https://web.stanford.edu/~hammond/ratEcon.pdf> accessed 10 July 2023

[7] Mr. Umar Javeed & Ors v Google LLC & Anr Case No 39/2018 (CCI) 285

[8] Competition Act, 2002, s 3

[9] Vlado Medaković, Slaviša Moljević, Srđan Vasković, Ranka Gojković, ‘motives for starting a business’ <https://www.researchgate.net/publication/304999483_MOTIVES_FOR_STARTING_A_BUSINESS> accessed 29 July 2023

[10] See, Paolo Buccirossi, Lorenzo Ciari, Tomaso Duso, Giancarlo Spagnolo, and Cristiana Vitale, ‘Deterrence in Competition Law’ <https://epub.ub.uni-muenchen.de/13269/1/285.pdf> accessed 11 July 2023

[11] Faridabad Industries Association (FIA) v M/s Adani Gas Limited Case 71/2012 (CCI), 39

[12] Builders Association of India(BAI) v cement manufacturers’ Association (CMA), case 29/2019 (CCI), 174

[13] MCX Stock Exchange Ltd. v National Stock Exchange of India Ltd Case 13/2009 (CCI) 166

[14] See, In Re: Bengal Chemist and Druggist Association, suo moto case 2/2012 (CCI)