9911796707
TMI Blog2020 (3) TMI 1446X X X X Extracts X X X X X X X X Extracts X X X X ..... based in the United States, agreed to acquire the global animal health business of Novartis AG, a pharmaceutical company based in Switzerland. The Stock and Asset Purchase Agreement ("SAPA") covering the global portion of the transaction was dated 22.04.2014. It was publicly announced and notified under the merger control laws in several jurisdictions around the world, including the United States and the European Union. The transaction was cleared in each jurisdiction and closed on 01.01.2015. 3. The acquisition of NAH India was handled separately, with a separate binding agreement called the Slump Sale Agreement dated 03.12.2014 between the Parties' Indian subsidiaries. The Parties notified this transaction on 10.11.2014 to the Indian Foreign Investment Promotion Board ("FIBP"). 4. The Parties did not notify the Indian transaction to the Commission because it was covered by the then-applicable De Minimis Exemption to the filing requirements of the Competition Act, as set forth in Ministry of Corporate Affairs' Notification dated 04.03.2011 and corrigendum dated 27.05.2011. 5. The De Minimis Exemption applied to acquisitions of enterprises whose sales in India were not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot. The impugned Order contended that the Competition Act limited the relevant target "enterprise" to only incorporated entities, even though the Act expressly lists a broad range of such entities to include "an association of persons or a body of individuals, whether incorporated or not, in India or outside India," a "company," a "firm," an "individual," a "family' and so on. Yet the impugned Order cites no other statute, regulation, guideline or precedent for its position. The CCI imposed a penalty of INR 1 crore. STAND OF THE APPELLANT 11. Learned counsel for the Appellant submitted that the impugned order was erroneous for the following reasons: a. The Impugned Order incorrectly applied the thresholds of the De Minimis Exception to the target's parent company merely because the target was not incorporated. The Act applies the threshold to the "person or enterprise" being acquired, and it expressly defines "enterprise" broadly to include both incorporated and non-incorporated businesses. The impugned Order rests its conclusion on a "plain reading" of the Act, which in fact leads to the opposite result. b. The impugned Order's interpretation cannot be correct be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or precedent. Basic principles of notice prohibit a fine in these circumstances, particularly on a company who publicly announced the transaction several times long before hearing from the Commission, filed notifications in several jurisdictions around the world (including the FIBP in India), and whose transaction ultimately was found to raise no possible competition concern in India. The Impugned Order responds only that the CCI has "discretion" to issue fines, but that discretion is not absolute. Stand of the Commission 12. Learned counsel for the Commission submitted that exemption Notification No. S.O. 482 (E) dated 4th March, 2011 is not applicable to the Appellant. Further according to the learned counsel for the Commission whether both the parties to the combination would be exempt and constitute "person or enterprise who or which proposes to enter into a combination" in terms of Section 6(2) of the Act. According to the learned counsel for the Commission, the person or enterprise to the Combination who/which stands to gain in terms of dominance in the relevant market so as to result in "appreciable adverse effect on competition' will be the person or enterprise who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, voting rights or assets have been acquired or are being acquired jointly have,- (A) either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) [in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or] (ii) the group, to which the enterprise whose control, shares, assets or voting rights have been acquired or are being acquired, would belong after the acquisition, jointly have or would jointly have,- (A) either in India, the assets of the value of more than rupees four thou sand crores or turnover more than rupees twelve thousand crores; or (B) [in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or] (b) acquiring of control by a person over an enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; or (B) [in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees Fifteen Hundred Crores in India Explanation.- For the purposes of this section,- (a) "control" includes controlling the affairs or management by- (i) one or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, either jointly or singly, over another group or enterprise; (b) "group" means two or more enterprises which, directly or indirectly, are in a position to- (i) exercise twenty-six per cent or more of the voting rights in the other enterprise; or (ii) appoint more than fifty per cent of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise; (c) the value of assets shall be determined by taking the book value of the assets as shown, in the audited books of account of the enterprise, in the financial year immediately preceding the financial year in which the date of proposed merger falls, as reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a prima facie opinion as to whether the combination is likely to cause, or has caused an appreciable adverse effect on competition ("AAEC") within the relevant market in India under Section 29 of the Act, and then only at the second stage, the CCI is required to determine whether the combination is likely to have an AAEC. This Tribunal in Piyush Joshi v. Competition Commission of India (TA (AT) Competition) No. 32 of 2017), has also held that "it is clear that where the 'Commission' is of the prima facie opinion that a combination is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India then it is required to issue a notice to show cause to the parties to combination and further required to call for report from the Director General." 20. In the same vein, the Commission ought to first determine the applicability of exemption under Section 54 before requiring filing of a notice under Section 6(2) of the Act and before commencing any proceedings under Section 43A of the Act. Whether a transaction is exempt under Section 54 of the Act is a pre-condition for the CCI to proceed with further proceedings under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny acquisition referred to in clause (a) of section 5 of the Competition Act; (b) acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, referred to in clause (b) of section 5 of the Competition Act; and (c) any merger or amalgamation, referred to in clause (c) of section 5 of the Competition Act, where the value of assets being acquired, taken control of, merged or amalgamated is not more than rupees three hundred and fifty crores in India or turnover of not more than rupees one thousand crores in India, from the provisions of section 5 of the said Act for a period of five years from the date of publication of this notification in the official gazette. 2. Where a portion of an enterprise or division or business is being acquired, taken control of, merged or amalgamated with another enterprise, the value of assets of the said portion or division or business and or attributable to it, shall be the relevant assets and turnover to be taken int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither assets of the value of not more than Rs. 250 crores in India or turnover of not more than Rs. 750 crores in India from the applicability of Section 5 of the Competition Act, 2002, for a period of 5 years. These limits were enhanced to Rs. 350 crores and Rs. 1000 crores, respectively, in March, 2016. It was, however, noted by the Government that the said notification was being applied to Combinations which resulted only from acquisition but was not extended to Merger/Amalgamation and Acquiring of Control Cases. It was also noted that where only a segment/portion/business of an enterprise was being combined with another enterprise, the relevant assets and turnovers attributable to the target segment/portion/business were not being considered and instead the transferor's total assets and turnover were being considered for determining the applicability of the exemption. Stakeholders had been voicing their concerns over the issue and in keeping with the Government's principle of Minimum Government and Maximum Governance, the Ministry has issued fresh notifications No. S.O. 988 (E) and No. S.O. 989(E) dated 27.03.2017 wherein, the Central Government intends to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no role to play in the context of the business conducted by the purchaser post-acquisition. 29. In the present case, the 'Stock and Asset Purchase Agreement' covering the global portion of the transaction dated 22nd April, 2014 was publicly announced and notified under the merger control laws in several jurisdictions around the world, including the United States and the European Union. The transaction was cleared in each jurisdiction and closed on 1st January, 2015. 30. The acquisition of 'Novartis Animal Health in India' (NAH India) was handled separately, with a separate binding agreement - "Slum Sale Agreement" dated 3rd December, 2014 between the parties Indian subsidiaries and the parties notified this transaction on 10th November, 2014 to the Indian Foreign Investment Promotion Board. The Appellant has specifically pleaded and not denied by the Respondent that the sale of 'NAH India' as business of human health and animal health. The Appellant has acquired only the business of 'animal health'. In this background, the Appellant has rightly taken the plea that for the purpose of counting the business the amount being acquired should be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
