2020 (3) TMI 1446 - AT - Law of Competition

Tribunal Overturns Penalty: Transaction Falls Under De Minimis Exemption, No Notification Needed.

The Tribunal annulled the Commission's order, determining that the Appellant was exempt from the notification requirement under the De Minimis Exemption. ... Non-notification of acquisition of Novartis Animal Health in India (NAH India), a business with sales of only INR 93.0 crores and assets of only INR 36.2 crores - Section 53B (1) and (2) of the Competition Act, 2002 - HELD THAT:- The Commission has failed to appreciate that the Notification dated 04.03.2011 was squarely applicable to the present transaction on the basis of an erroneous interpretation which is contrary to the intention of the exemption as expressed by the Government itself vide a notification dated 27.03.2017 (Subsequent Notification) and Press Release dated 30.03.2017 - The intention behind the Notification dated 04.03.2011 issued by the Central Government under Section 54 of the Act was to exempt certain transactions due to their small size. The intention of the Government is made clear by the Press Release dated 30.03.2017 where it is stated that 'combinations falling within the threshold limits would not require to be filed before the Competition Commission of India. The reform is in pursuance of the Government's objective of promoting Ease of Doing Business in the country and is expected to make India a more attractive destination for Foreign Direct Investment. The notification is expected to enable greater freedom to industry in taking legitimate business decisions towards further accelerating India's economic growth.' This makes it clear that the Central Government did not wish that the CCI interfere in acquisition of an enterprise that was de minimis or acquisition of assets that were de minimis. For the purpose of the calculation of assets and turnover what is being acquired is relevant, as the assets/turnover of what is left over with the sellers after the acquisition will have no role to play in the context of the business conducted by the purchaser post-acquisition - 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. Since the turn over attributed to the business acquired was Rs. 93.9 Crores and the value of the assets being acquired was Rs. 36.2 Crores, the 'enterprise's' acquired assets of the value being more than Rs. 250 Crores or turn over not more than Rs. 750 crores, the Appellant is exempted from the provision of Section 5 of the Act and was not required to notify in terms of Section 6(2) of the Act - The delegated legislation, namely The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 which states that in case of an acquisition, the obligation to file the notice is with the acquirer is contrary to the express statutory provision and the intent thereof. The Commission having failed to appreciate the aforesaid position and in view of finding as recorded, the impugned order is set aside - appeal is allowed. Issues Involved:1. Applicability of the De Minimis Exemption.2. Interpretation of 'enterprise' under the Competition Act.3. Penalty imposition for late notification and pre-clearance closing.4. Applicability of Section 54 exemptions.5. Procedural requirements under Section 6(2) of the Act.Detailed Analysis:1. Applicability of the De Minimis Exemption:The Appellant argued that the acquisition of Novartis Animal Health in India (NAH India) did not require notification to the Competition Commission of India (CCI) because it fell under the De Minimis Exemption. This exemption, as per the Ministry of Corporate Affairs' Notification dated 04.03.2011, applies to acquisitions where the target's sales in India are not more than INR 750 crores or its assets are valued not more than INR 250 crores. The Appellant contended that NAH India's sales and assets were INR 93.0 crores and INR 36.2 crores respectively, well within the exemption thresholds.2. Interpretation of 'Enterprise' under the Competition Act:The Commission's impugned order asserted that the De Minimis Exemption thresholds should apply to the target's parent company, Novartis India Limited, rather than NAH India. The Appellant argued that the Act defines 'enterprise' broadly to include both incorporated and non-incorporated entities, and the exemption should apply to the business being acquired, not its parent. The Commission's interpretation was deemed incorrect as it would exclude many acquisitions from the Act’s filing requirements based solely on the target's legal structure.3. Penalty Imposition for Late Notification and Pre-Clearance Closing:The Commission issued a Show Cause Notice to the Appellant for notifying the transaction late and closing the global transaction before receiving approval for the NAH India acquisition. The Appellant responded that the transaction was covered by the De Minimis Exemption and that the acquisition of NAH India was delayed until after clearance. The Commission imposed a penalty of INR 1 crore, which the Appellant argued was contrary to due process and fairness principles. The Tribunal found that the penalty was not justified as the transaction was indeed exempt under the De Minimis Exemption.4. Applicability of Section 54 Exemptions:The Appellant claimed that the transaction was exempt under Section 54 of the Act, which allows the Central Government to exempt certain classes of enterprises from the Act's provisions. The Tribunal noted that the Notifications dated 04.03.2011 and 27.03.2017 clarified that combinations falling within the threshold limits would not require filing before the CCI. The Appellant's transaction met these criteria, and the Commission should have determined the applicability of the exemption before proceeding with any penalties.5. Procedural Requirements under Section 6(2) of the Act:Section 6(2) of the Act mandates that any person or enterprise proposing to enter into a combination must notify the Commission. The Tribunal observed that the Appellant and Novartis AG had entered into a global agreement, further supplemented by an India-specific Slump Sale Agreement. The obligation to file a notice under Section 6(2) should apply to both parties involved in the combination. The Tribunal found that the Commission's interpretation and subsequent imposition of a fine were not aligned with the Act's intent and statutory provisions.Conclusion:The Tribunal set aside the Commission's order dated 14.07.2016, holding that the Appellant was exempt from the notification requirement under the De Minimis Exemption. The penalty imposed by the Commission was deemed unjustified, and the appeal was allowed with no order as to costs.