TaxTMI 
TaxTMI 
2020 (3) TMI 1446
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....an innovation-driven pharmaceutical company 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 acquisiti....
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....s that the parent was "incorporated' and NAH India was not. 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 re....
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.... strained and unpublished, wholly internal to the Commission, and found nowhere in the Act, regulation, guideline 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 rele....
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....if- (a) any acquisition where- (i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, 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 cro....
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....s a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would 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 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 ....
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....pen to the Commission to issue show cause notice. However, if the enterprise or enterprises claims exemption of Section 54, before passing an order, the Commission ought to determine the applicability of the exemption under Section 54 of the Act at preliminary or primary stage. 19. The procedural structure of the Act relating to combination, at the first stage, requires formation 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." ....
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....e official gazette." 23. Subsequently by Notification No. S.O. 988 (E), dated 27th March, 2017, the Central Government, in public interest, exempted the enterprises as follows: "S.O. 988(E).-In exercise of the powers conferred by clause (a) of section 54 of the Competition Act, 2002 (12 of 2003), the Central Government, in public interest, hereby exempts the enterprises being parties to -- (a) any 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 ....
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....ne with the global practice. The Act which was passed by Parliament in 2002 had initially provided for notice of combinations to be given by enterprises, as per Section 5 of the Act, on a voluntary basis. However, this Section was amended in 2007 making the notice mandatory. In 2011, in response to concerns expressed by various stake holders, the Government had issued a notification exempting an enterprise, whose control, shares, voting rights or assets are being acquired has either 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 ta....
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....cation is expected to enable greater freedom to industry in taking legitimate business decisions towards further accelerating India's economic growth." 27. 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. 28. 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. 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 Decemb....