1. Combination involving demerger, amalgamation, and share acquisitions — failure to notify market purchases under Section 6(2), Competition Act, 2002 — penalty imposed under Section 43A. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 )
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2018 Supreme(SC) 358
SUPREME COURT OF INDIA
Arun Mishra and Navin Sinha, JJ.
Competition Commission of India – Appellants
Versus
Thomas Cook (India) Ltd. & Anr. – Respondents
Civil Appeal No.13578 of 2015
Decided On : 17-04-2018
Important Points
IMPORTANT POINT
Market purchase of shares under scheme of combination cannot be considered as independent transaction and cannot qualify for target exemption under notification dated 4.3.2011.
Market purchase of shares under scheme of combination cannot be considered as independent transaction and cannot qualify for target exemption under notification dated 4.3.2011.
Subject
Competition Law - Combination and Merger
Act Referred
Headnote
(a) Competition Act, 2002 – Section 5 and 6 r/w notification No. SO. 482 E dated 4.3.2011and Regulation 9(4), Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 – A combination can consist of one or more transactions – Option of giving either a single notice or multiple notices in respect of all the transactions – Instantly all transactions forming part of one viable business transaction – Market purchases consummated even before notifying transactions to Commission – Such market purchases held part of the scheme. (Para 22, 27)
(b) Competition Act, 2002 – Section 5 and 6 r/w notification No. SO. 482 E dated 4.3.2011and Regulation 9(4), Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 – Market purchases by TCISIL not being independent transaction, does not qualify for target exemption under notification dated 4.3.2011. (Para 28, 29, 31)
(c) Competition Act, 2002 – Section 43A – Penalty – On account of breach of civil obligation – Proceeding neither criminal nor quasi-criminal – Question of mens rea irrelevant – Action by parties not being mala fide has no significance – Commission rightly imposed penalty. (Para 33, 34)
Facts of the case:
On 14.2.2014, the respondents sent a notice under section 6(2) of the Act to the Appellant - Commission, notifying only the 'Demerger' and 'Amalgamation'. Other transactions were, however, disclosed, while claiming exemption from section 5 of the Act.
On 10.3.2014, the Commission issued a show cause notice asking the respondents as to why they should not be penalized under section 43A for failing in notifying the 'market purchase' under section 6(2) of the Act.
The Commission imposed a penalty of Rupees One crore under section 43A of the Act. As against the same the appeal was preferred. The Tribunal has allowed the appeal filed under section 53 B of the Act and has set aside the order passed by the Commission.
Finding of the Court:
Impugned judgment is not sustainable.
Result: Appeal allowed.
Legal Category Hierarchy
Advocates Appeared:
For the Appellants : Arjun Krishnan, Ankur Singh, Sumit Srivastava, Advs.
For the Respondents:- Samir Gandhi, Ms. Roopali Singh, Akshat Kulshrestha, Rahul Satyam, Ms. Anuja Agrawal, Ms. Sayabani Basu, Ms. Ritwika Verma, Mayank Pandey, Advs.
For the Appellants : Arjun Krishnan, Ankur Singh, Sumit Srivastava, Advs.
For the Respondents:- Samir Gandhi, Ms. Roopali Singh, Akshat Kulshrestha, Rahul Satyam, Ms. Anuja Agrawal, Ms. Sayabani Basu, Ms. Ritwika Verma, Mayank Pandey, Advs.
Table of Contents
2. Whether market purchases were independent exempt transactions or part of a composite combination — whether absence of malafides precludes penalty for breach of civil obligation under Section 43A. (Para 11 , 12 , 13 , 14 )
3. Transactions were intrinsically connected and interdependent — target exemptions cannot be claimed by isolating steps of a composite combination — penalty under Section 43A is for civil breach. (Para 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 )
4. Interconnected transactions forming a composite combination must be notified as a whole — penalty for breach of civil obligation under Section 43A does not require mens rea. (Para 28 , 30 , 32 )
5. Appeal allowed — order of the Tribunal set aside — penalty imposed by the Commission restored. (Para 34 , 35 , 36 )
6. How are series of interconnected transactions treated for notification under the Competition Act?
Where the ultimate intended effect of a business transaction is achieved through a series of interconnected or interdependent steps, they are treated as a single composite combination. Parties cannot isolate individual steps to avoid regulatory scrutiny or claim exemptions if the overall combination requires notification. (Para 26 , 27 , 28 , 30 , 31 )
7. Can target-based exemptions be applied to a single transaction that is part of a larger composite combination?
No. When a series of transactions is envisaged to accomplish a combination, the Commission considers the substance of the whole transaction. Structuring transactions to isolate specific steps for the purpose of claiming target-based exemptions to avoid mandatory notification is not permitted. (Para 28 , 30 )
8. Is proof of malafides or mens rea necessary to impose a penalty under Section 43A of the Competition Act?
No. Penalty under Section 43A is imposed for the breach of a civil obligation. Once the contravention of statutory obligations is established, the penalty is attracted regardless of whether the violation was intentional or made with guilty intention. (Para 32 , 33 )
JUDGMENT
Arun Mishra, J.
The Competition Commission of India (in short, "the Commission") is in appeal aggrieved by the order passed by the Competition Appellate Tribunal (in short, "the Tribunal") setting aside the order passed by the Competition Commission under section 43A of the Competition Act, 2002 (in short, referred to as "the Act") whereby penalty of Rupees One Crore was imposed on the respondents on the ground of non-compliance of provisions contained in section 6(2) of the Act.
2. The Thomas Cook India Ltd (for short, "the TCIL") - respondent No.1, Thomas Cook Insurance Services India Limited, (for short, "the TCISIL") - respondent No.2 and Sterling Holiday and Resorts India Limited (for short, "the SHRIL") - respondent No.3 is the companies registered under the Companies Act, 1956. The TCIL is engaged in travel and travel related services. The TCISIL is also engaged in travel and travel related services and is a subsidiary of the TCIL and is also a registered corporate agent of Bajaj Allianz General Insurance Company Limited, which is engaged in the business of selling insurance to outbound travelers, as well as health insurance, motor insurance, personal accident insurance etc. SHRIL is engaged in the business of providing premium hotel services, vacation ownership services, normal hotel services like renting of rooms, restaurants, holiday activities etc. It also arranges meetings, incentives, conference and events for its corporate clients. The Board of Directors of the aforesaid three companies on 7.2.2014 approved a Scheme for demerger/amalgamation, (referred to as the 'Scheme'). The said Scheme contemplated the following:
(a) Demerger: i.e. Resorts and timeshare business of SHRIL were to be transferred by way of demerger from SHRIL to TCISIL in lieu of which equity shares of TCIL would be issued to shareholders of SHRIL as per the ratio in the 'Scheme'; and
(b) Amalgamation: SHRIL with its residual business would be amalgamated into TCIL in lieu of equity shares to be issued to the shareholders of SHRIL as per the ratio in the Scheme.
3. For the purpose of implementing the above transactions, the Respondents entered into a Merger Cooperation Agreement (for short, 'the MCA') on the same day i.e. on 07.2.2014.
4. On the very same day i.e. 07.2.2014, by another resolution of the Boards of Directors of the respondents, the following transactions were approved and executed -
(i) Share Subscription Agreement (SSA): TCISIL was to subscribe 2,06,50,000 shares of SHRIL pursuant to a preferential allotment (amounting to 22.86% of SHRIL of equity share capital of SHRIL on fully diluted basis);
(ii) Share Purchase Agreement (SPA): TCISIL was to acquire 19.94% of equity share capital of SHRIL on the fully diluted basis from certain existing shareholders and promoters of SHRIL.
(iii) Open Offer by TCIL and TCISIL to purchase 26% of the equity share capital from public shareholders of SHRIL, in terms of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (in short, "the SEBI's Regulations").
5. In addition to the above, TCISIL acquired 90,26,794 equity shares of SHRIL through purchase on the Bombay Stock Exchange. These purchases (hereinafter referred to as "market purchases") amounted to 9.93% of the equity share capital of SHRIL on the fully diluted basis. The market purchases were made between 10.2.2014 and 12.2.2014.
6. On 14.2.2014, the respondents sent a notice under section 6(2) of the Act to the Appellant - Commission, notifying only the 'Demerger' and 'Amalgamation'. Other transactions were, however, disclosed, while claiming exemption from section 5 of the Act.
7. On 20.02.2014, the Commission asked the Respondents to remove certain defects in their application and provide further information, inter alia on, whether the notified and non-notified transactions were interrelated.
8. On 5.3.2014, the Commission passed an approval order under section 31(1) of the Act. However, it observed that the same would
