The Amazon Judgment and expansion of the proportionality principle

The doctrine of proportionality is being increasingly deployed by Indian courts to test the legality of State action, particularly where public power affects individual rights, commercial outcomes or institutional fairness.

The recent judgment of the Supreme Court in the Amazon case marks an important milestone in this jurisprudential evolution. The apex court has inquired into whether the exercise of regulatory power by the Competition Commission of India (“the Commission”) in the combination regime was proportional, fair and predictable and thereby emphasised that even regulatory decision-making process will be subject to the proportionality test.

The proportionality principle involves a determination whether a law provided necessary and sufficient conditions for limitation of a constitutionally protected right. A law imposing restrictions would be treated as proportional if it was meant to achieve a proper purpose, the measures taken to achieve such a purpose were rationally connected to the purpose, and such measures were necessary. A four-pronged test of legitimate objective, rational connection, necessity and balancing was evolved by the Supreme Court of India. These principles, which are set out below, were succinctly described by the apex court of India in the Modern Dental College case and approved by the 9 judge bench of the Court in KS Puttaswamy.

1. A measure restricting a right must have a legitimate goal (legitimate goal stage);

2. It must be a suitable means of furthering this goal (suitability or rational connection stage);

3. There must not be any less restrictive but equally effective alternative to achieve the same objective (necessity stage);

4. The measure must not disproportionately outweigh the harm caused to the individual right holder (balancing stage).

An early illustration of this doctrine in practice can be found in Chairman, All India Railway Recruitment Board and another v. K. Shyam Kumar and others, where the apex court was dealing with judicial review of a decision taken by the Railway Board directing the Railway Recruitment Board to conduct a re-test for candidates who had obtained minimum qualifying marks in a written examination wherein certain large-scale malpractices and irregularities came to light. The said decision was challenged before the High Court, which found the decision of the Railway Board to be illegal, arbitrary and unreasonable and directed the Board to finalise the selection on the basis of the written test excluding those candidates against whom there were allegations of impersonation.

The Supreme Court, while upholding the Railway Board’s decision and setting aside the High Court’s judgment, held that the proportionality test requires the court to judge whether action taken was really needed as well as whether it was within the range of courses of action, which could reasonably be followed. In that sense, the proportionality doctrine is more concerned principally with the aims and intention of the decision maker and whether the decision maker has achieved the correct balance of equilibrium and arrived at a decision which is proportionate, well balanced and harmonious. The Court, drawing upon the observations of Leyland and Anthony in Textbook on Administrative Law, aptly stated that “in everyday terms, you should not use a sledgehammer to crack a nut.”

The Court then carried out a comparative analysis of the three alternatives before the Railway Board, namely (i) to cancel the first written test and conduct a fresh retest inviting applications afresh, (ii) to conduct a retest for those candidates who had secured minimum qualifying marks in the first written test, and (iii) to go ahead with the first written test while confining the investigation to the 62 suspect candidates. The Court found that the decision maker had struck the right balance in accepting the second alternative which was most well balanced and harmonious.

Building on this foundation, the Supreme Court has, slowly but inexorably, extended the doctrine of proportionality into the adjudicatory process of regulatory bodies, with a view to preventing excessive penalties and arbitrary administrative action. In the context of competition law, the evolution of this principle is marked by the Court’s 2017 judgment in the Excel Crop Care judgment leading upto the recent 2026 Amazon judgment.

In Excel Crop Care (supra), the Supreme Court applied the proportionality doctrine to competition law to curb the Commission’s power to impose penalties. In this case, the issue was whether the penalty for anti-competitive conduct by certain establishments while submitting bids in response to certain tenders should be on their “total turnover” (i.e. revenue from all business activities) or their “relevant turnover” (i.e. revenue derived from the product for which cartel was formed and supplies made). The Court held that penalty should not be disproportionate, should not lead to shocking results and should balance the two competing interests between the harm caused to the society by the infringer and the right of the infringer to not suffer a disproportionate punishment. The Court then came to the conclusion that the turnover for purposes of imposition of penalty should be the “relevant turnover” since (in the Court’s view) penalties must bear a nexus to the infringing activity and penalising the entire business may produce absurd results.

The Amazon case (supra) marks a further and more expansive application of this principle by the Supreme Court. Here, the Court, in the context of the combination regime under the Competition Act, 2002, strongly disapproved of the manner in which the Commission, despite first scrutinising and granting approval to the relevant business agreements and arrangements, kept such approval in abeyance after it had been granted and acted upon. The apex court, having regard to the statutory purpose of the Act, held that the statute was enacted to prevent anti-competitive practices, to promote and sustain competition, to protect the interests of consumers, and to ensure freedom of trade. Therefore, in the Court’s view, the objectives of the statute should have a direct bearing on regulatory conduct and the regulator, while exercising powers, should not focus only on punitive outcomes but must also pay heed to predictability, procedural fairness and proportionality. The Court relied on the Excel Crop judgment (supra) and stated that a regulator should, while exercising statutory powers having a bearing on competing rights and commercial outcomes, act with proportionality and restraint as these are essential to fair economic regulation.

The apex court further recognised that in cross-border investment and trade, a predictable and fair regulatory system reduces uncertainty and supports competition through entry, scale and innovation while also retaining the authority to protect competition in cases of actual contravention. In the Court’s view, a legal system which encourages transparent participation and fair and time bound review, rather than uncertainty or retrospectively unsettled approvals, would advance the promotion of competition.

Significantly, the Court connected these requirements to fair regulatory standards. These standards must avoid unpredictable or purely bureaucratic decisions or outcomes that fail to achieve the law’s actual purpose.

This judgment heralds the Supreme Court’s resolve towards broader constitutional checks in regulatory matters in order to bring the adjudication process of the regulator closer to principles of constitutional administrative law and create a culture of proportionality in economic regulation. This will no doubt impel (if not encourage) regulators to exercise their regulatory discretion judiciously and with circumspection.

About the author: Ajit Warrier is a Partner at Shardul Amarchand Mangaldas & Co.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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