TMI Blog2018 (4) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 6(2) it should have been notified before the acquisition. As a corollary, it was also argued that the equity shares purchased second time were placed in the Escrow Account - Held that: - 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 combination cannot be entered into and shall come into effect before order is passed by Commission or lapse of certain time from date of notice is also apparent from the terminology used in section 6(2A) which 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. When the transaction has been completed and acquisition has been made and the latter transaction has exceeded holding more than 25% by the second purchase, obviously prior permission was required, as discussed hereinabove, as its total shareholding increased to 25.3%. Thus, we have no hesitation to hold that the notification under section 6(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suant to the Regulations, 2011 for the acquisition of 1.7 percent of the MCFL. The Competition Commission vide its order dated 30.07.2014 under section 31(1) of the Act approved the proposed combination, however, directed to initiate penalty proceedings against the appellants under section 43A of the Act. Pursuant to that, a show cause notice was issued on the ground of failure to notify in accordance to section 6(2) of the Act, in regard to first and second acquisitions of shares. 6. It was the case on behalf of the appellants that first acquisition was made solely for the purpose of investment under Entry I of Schedule I of the CCI (Procedure in regard to the Transaction of Business Relating to Combinations) Regulations, 2011, (hereinafter referred to as the Competition Regulations ). Thereby, it assumed exemption from the notification. It was also urged that the second acquisition was notified to the Commission within the stipulated time of 30 days as specified in section 6(2) of the Act. The purchase was not consummated because as per the Escrow Agreement dated 28.04.2014, the shares purchased in the second acquisition were credited to a specifically designated Escrow ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the relevant market in India and such a combination shall be void. (2) Subject to the provisions contained in subsection (1), any person or enterprise, who or which proposes to enter into a combination, 13 [shall] give notice to the Commission, in the form as may be specified, and the fee which may be determined, by regulations, disclosing the details of the proposed combination, within thirty days of- (a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of section 5, by the board of directors of the enterprises concerned with such merger or amalgamation, as the case may be; (b) execution of any agreement or other document for acquisition referred to in clause (a) of section 5 or acquiring of control referred to in clause (b) of that section. (2A) No combination shall come into effect until two hundred and ten days have passed from the day on which the notice has been given to the Commission under subsection (2) or the Commission has passed orders under section 31, whichever is earlier. 10. Any person or enterprise before entering into a combination, has to give notice to the Commission disclosing the details within 30 days o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, for the acquisition of shares, voting rights or control, such public announcement shall be deemed to be the other document . 14. 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. Schedule 1 to the Combination Regulations is extracted hereunder: (1) An acquisition of shares or voting rights, referred to in subclause (i) or subclause (ii) of clause (a) of section 5 of the Act, solely as an investment or in the ordinary course of business in so far as the total shares or voting rights held by the acquirer directly or indirectly, does not entitle the acquirer to hold twenty five per cent (25%) or more of the total shares or voting rights of the company, of which shares or voting rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the longterm 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 ReleaseII 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. The provisions of section 6(2) were not at all complied with. 17. Coming to the second acquisition of shares of 0.8% equity shares of MCFL, the dispute is as to whether the notifying within 30 days of the purchase was compliance of the provision as per provisions of section 6(2) it should have been notified before the acquisition. As a corollary, it was also argued that the equity shares purchased second time were placed in the Escrow Account. The appellants could not have exercised the beneficial rights until the Commission made the approval of the proposed combination. What was essential under section 2(e) was the voting righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nte. 21. 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). It was open to impose a penalty under section 43A. Merely by grant of approval by the Commission violation of provisions does not become condonable ipso facto. 22. The provisions contained in section 43A make it clear that the Commission shall impose the penalty which may in its discretion extend to 1% of the total turnover or the assets, whichever is higher, of the combination. It has been found on facts that the turnover of the combination was ₹ 3322 crores per annum, 1% of which would be ₹ 33.22 crores. The Commission had imposed a nominal penalty of ₹ 2 crores which amounts to only 0.06% of the total turnover. 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. 23. There was no requirement of mens rea under section 43A or an intentional breach as an essential element for levy of penalty. The Act does not u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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