Competition Act, 2002 – ss.5(a)(i), (ii), 6(2), 43A – Appellants acquired shares of a company (‘MCFL’) on two occasions – First acquisition was for 24.46% paid up share capital and the second acquisition was for a further 1.7% paid up share capital – Appellants filed notice disclosing details of the first acquisition and notifying second acquisition within 30 days of the second acquisition – Competition Commission imposed penalty u/s.43A for failing to notify the proposed combination before the acquisition as required u/s.6(2) – Order upheld by appellate tribunal – On appeal, held: Under s.6(2) the proposal to enter into combination is required to be notified to the Commission – Notification has to be made before entering into the combination – Notice of s.6(2) is to be given prior to consummation of the acquisition – Ex post facto notice is not contemplated u/s.6(2) – Further, Sch.1 to the Combination Regulations, 2011 provides that acquisition of shares or voting rights referred to in s.5(a)(i) or s.5(a)(ii) does not entitle the acquirer to hold 25% or more of the total shares or voting rights of the company, directly or indirectly – In the instant case, by the second transaction appellant’s holding exceeded more than 25%, as its total shareholding increased to 25.3% and thus, prior permission was required – Explanation to Sch.1 further states that acquisition of less than 10% of the total shares or voting rights of an enterprise is solely an investment – Beyond this threshold, the transaction is required to be looked at carefully – Appellant’s first acquisition was a part of the long-term plan to try and take over ‘MCFL’, which was simply not an investment– Purchase of 24.46% equity stake, vested power to exercise influence – Thus, there was a failure to comply with s.6(2) in regard to the acquisition of 24.46% equity of the shareholding – In the facts of the case, information was disclosed belatedly – Imposition of penalty was right – CCI (Procedure in regard to the Transaction of Business Relating to Combinations) Regulations, 2011 – rr. 4,5 and Entry I of Schedule I – SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Competition Act, 2002 – s.6(2) – Legislative mandate of – Discussed.
Competition Act, 2002 – s.43A – Imposition of penalty under – Discretion for – Held: Imposition of penalty u/s.43A is on account of breach of a civil obligation – Thus, a penalty has to follow – Discretion u/s.43A is with respect to quantum. Competition Act, 2002 – ss.6(2),31(1) – Vide two transactions, appellants acquired shares of a company (‘MCFL’) and filed notice disclosing the details thereof within 30 days of the second acquisition – Competition Commission approved the proposed combination, however, imposed penalty for failing to notify the proposed combination before the acquisition as required u/s.6(2) – Plea of appellants that after approval of the proposed combination u/s.31(1), penalty ought not to have been imposed – Held: Merely by grant of approval by the Commission violation of provisions does not become condonable ipso facto, when prior notice was not given u/s.6(2).
Dismissing the appeal, the Court
HELD: 1.1 Section 6 of the Competition Act, 2002 deals with regulation of combinations. Any person or enterprise before entering into a combination, has to give notice to the Commission disclosing the details within 30 days of (a) approval of the proposal relating to merger or amalgamation as provided in the Act; (b) execution of any agreement or other document for acquisition referred to in Section 5(a) of the Act or acquiring of control under section 5(b). Section 43A deals with the power to impose a penalty for non-furnishing of information on combinations. Any person or enterprise who fails to give notice under Section 6(2) of the Act to the Commission, the Commission, in such an event, is authorized to impose the penalty which may extend to 1% of the total turnover or the assets, whichever is higher. [Paras 9, 10 and 11][308-E; 309-C-D, E-F]
1.2 Regulation 5 of the CCI (Procedure in regard to the Transaction of Business Relating to Combinations) Regulations, 2011 deals with the form of notice for the proposed combination. Regulation 5(8) provides that “other document” in Section 6(2)(b) to mean any binding document by whatever name called, conveying an agreement or decision to acquire control, shares, voting rights or assets. Schedule 1 to the Combination Regulations provides that acquisition of shares or voting rights referred to in Section 5(a)(i) or Section 5(a)(ii) of the Act does not entitle the acquirer to hold 25% or more of the total shares or voting rights of the company, directly or indirectly. The Explanation makes it clear that the acquisition of less than 10% of the total shares or voting rights of an enterprise shall be treated solely as an investment. [Paras 13, 14][310-A-B, F-G]
1.3 Through the first acquisition of the shares of MCFL by the appellants, there was acquisition of 24.46% equity share capital of MCFL on a single day of which 19.9% were acquired through the block and bulk deals. The contemporaneous Press Release dated 3.7.2013 issued by the appellants indicated that the objective was not to make an investment in MCFL. It referred “investment is very strategic and a good fit with the company’s business”. There was a pointer in the Press Release of its intent when it stated that DFPCL looks forward to working closely with MCFL to “enhance long-term value for the shareholder of both companies”. Not only the appellants but another player Zuari group also made a significant purchase of shares of MCFL i.e. 9.72% on 2.4.2013 is also not in dispute. Thus, it is apparent that the appellant’s first acquisition was a part of the long-term plan to try and take over MCFL, which was simply not an investment. The purchase of 24.46% equity stake, vested power to exercise influence as was reflected in Press Release-II also. The acquisition of less than 10% of the total shares or voting rights of an enterprise is solely an investment. It also indicates that beyond this threshold, the transaction is required to be looked carefully. Thus, there was a failure to comply with the provisions of Section 6(2) of the Act in regard to the acquisition of 24.46% of the shareholding. [Para 16][311-F-H; 312-A-C]
1.4 It is apparent from Section 6(2) of the Act that the proposal to enter into combination is required to be notified to the Commission. The legislative mandate is apparent that the notification has to be made before entering into the combination. The Commission has been established to prevent practices having an adverse effect on the competition. Section 6(2A) provides that no combination shall come into effect until 210 days have passed from the date of notice or passing of orders under Section 31 by the Commission, whichever is earlier. The provisions made in Regulation 5(8) also buttresses the aforesaid conclusion. Notice of Section 6(2) is to be given prior to consummation of the acquisition. Ex post facto notice is not contemplated under the provisions of section 6(2). Same would be in violation of the provisions of the Act. The expression “proposes to enter into a combination” in Section 6(2) and further details to be disclosed in the notice to the Commission are of the ‘proposed combination’. [Paras 18, 19][312-E-H; 313-A]
2. The factum of the approval of the combination subsequently by the Commission is not going to provide an insulation when the provisions of the Act have been violated and prior notice had not been given under Section 6(2). Merely by grant of approval by the Commission violation of provisions does not become condonable ipso facto. In the facts of the case, information was disclosed belatedly. The imposition of penalty was warranted due to the violation of the provision and it was rightly imposed. [Paras 21, 22][313-D-E, G]
3. There was no requirement of mens rea under Section 43A or an intentional breach as an essential element for levy of penalty. Mens rea is important to adjudge criminal or quasi-criminal liability. The imposition of penalty under Section 43A is on account of breach of a civil obligation, and the proceedings are neither criminal nor quasi-criminal. Thus, a penalty has to follow. Discretion is with respect to quantum. [Paras 23, 24][313-H; 314-A, G]
Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC
253 : [1970] 1 SCR 753 -relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.