This appeal is directed against order dated 21.05.2014 passed by the Competition Commission of India (for short the Commission) under Section 43A of the Competition Act, 2002 (for short, the Act) whereby penalty of Rs.1 crore was imposed on the appellants on the ground of non- compliance of Section 6(2) of the Act.
2. Appellant No.1, Thomas Cook (India) Limited (TCIL), Appellant No.2, Thomas Cook Insurance Services (India) Limited (TCISIL) and Appellant No.3, Sterling Holiday Resorts (India) Limited (SHRIL) are companies registered under the Companies Act, 1956. TCIL is engaged in travel and travel-related services. TCISIL is a subsidiary to 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 travellers as well as health insurance, home insurance, motor insurance, personal accident insurance, fire insurance and marine insurance. 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.
3. The Board of Directors of the appellants passed Resolutions dated 07.02.2014 and approved composite two-step scheme whereby the resorts and time share business of SHRIL was proposed to be transferred to TCISIL by way of demerger and in lieu thereof, certain equity shares of TCIL were proposedto be issued to the shareholders of SHRIL. It was further decided that after transfer of resorts and time-share business, SHRIL would be amalgamated into TCIL and certain equity shares of TCIL would be issued to the shareholders of SHRIL.Simultaneously, the appellants executed the following agreements:-
(i) Merger Co-operation Agreement for implementation of the scheme for transfer of the resorts and time share business of SHRIL to TCISIL by way of de-merger and amalgamation of the remaining business of SHRIL into TCIL.
(ii) the Share Subscription Agreement in terms of which TCISIL was to subscribe 20,650,000 equity shares of SHRIL representing 22.86% of the post-allotted equity share capital of SHRIL, on a fully diluted basis, pursuant to a preferential allotment, and
(iii) the Share Purchase Agreement executed between the Appellants, SidharthSankar, Dhanalakhsmi, India Discovery Fund Limited, Bay Capital Investments Limited and Bay capital Investment Managers Private Limited for acquisition by TCISIL of 19.94% of the post- allotment equity share capital of SHRIL, on a fully diluted basis.
4. Another resolution was passed by the Board of Directors of TCISIL on 07.02.2014 authorizing the market purchases of the equity shares of SHRIL. In furtherance of that resolution, TCISIL acquired 90,26,794 equity shares of SHRIL representing 9.93% of its equity share capital on a fully diluted basis through open market purchases on Bombay Stock Exchange Limited ( BSE Limited).
5. In terms of the mandate of Section 6(2) of the Act, the appellantsfiled notice dated 14.02.2014 for approval of the merger/amalgamation.The notice contained details of various resolutions passed by the Board of Directors of the appellants. A reference was also made to public announcements made by TCIL and TCISIL about the purchase of upto 20% of the equity share capital of SHRIL from public shareholders and the market purchase of equity shares of SHRIL by TCISIL. For the sake of reference, the relevant portions of the notice filed by the appellants are reproduced below : Notifiable Transaction:
1. On February 7, 2014, the Board of Directors of Thomas Cook (India) Limited (TCIL), Thomas Cook Insurance Services (India) Limited ( TCISIL ) and Sterling Holiday Resorts (India) Limited (SHRIL) ( collectively, the Parties and individually, a Party) contemporaneously approved a Composite Scheme of Arrangement and Amalgamation (Scheme) whereby:
I. The resorts and time share business of SHRIL shall be transferred by way of a demerger from SHRIL to TCISIL ( a subsidiary of TCIL), in lieu whereof certain equity shares of TCIL will be issued to the shareholders of SHRIL as per the ratio set out in the Scheme (Demerger); and
II. SHRIL, with its residual business, shall be amalgamated into TCIL in lieu whereof equity shares of TCIL will be issued to the shareholders of SHRIL as per the ratio set out in the Scheme (Amalgamation).
2. The aforesaid Amalgamation and Demerger are collectively referred to hereinafter as the proposed Transaction. The Parties have also entered into a Merger Cooperation Agreement (MCA) dated February 7, 2014 on the manner of implementation of the Proposed Transaction. The MCA provides for terms of mutual cooperation and obligations between the Parties to help implement the Scheme effectively.
3. Since the Proposed Transaction encompasses the Amalgamation, the Demerger and the MCA, as described in Paragraphs 1 and 2 above, the Parties are filing a single notice (Notice) under the provisions of Regulation 9(4) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 ( Combination Regulations). Exempt Transactions:
4. The Parties have also contemplated certain other transactions, all of which are exempt from the requirement to notify the Competition Commission of India (CCI of Commission). However, in the spirit of complete disclosure, details of these other transactions (collectively called the Other Transactions) are given below : A. Subscription to equity shares of SHRIL by TCISIL:
5. TCISIL proposes to subscribe to 20,650,000 equity shares of SAHRIL representing 22.86% of the equity share capital of SHRIL on a fully diluted basis (Subscription Shares), pursuant to a preferential allotment under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 ( SEBI ICDR Regulations). To this effect, the Parties have executed a share subscription agreement (SSA) on February 7, 2014. Upon completion of the subscription under the SSA, TCISIL shall be entitled to certain rights in SHRIL: (i) a set of affirmative vote matters for which prior consent of TCISIL will be required including matters such as declaration of dividends, incurrence of indebtedness, amendments to the articles and memorandum of association of SHRIL, and disposing of or encumbering any material assets; (ii) the right of nominate three non-executive directors on the board of SHRIL ; and (iii) jointly with certain existing selling shareholders, the right to nominate three persons as independent directors on the board of SHRIL.
6. This subscription of shares of and acquisition of control of SHRIL is exempt from the notification requirement to the CCI under the provisions of the Government of India Notification S.O. 482(E) dated March 4, 2011 (De Minimis Exemption). The De Minimis Exemption exempts an enterprise, whose control, shares, voting rights or assets are being acquired, which has either assets of the value of not more than INR 250 crores in India or turnover of not more than INR 750 crores in India, from the provisions of Section 5 of the Competition Act, 2002 (Competition Act). Accordingly, since the turnover of SHRIL in the financial year ended March 31, 2013 is INR 116.67 crores, this subscription to shares of SHRIL and acquisition of rights in SHRIL, as envisaged in the SSA is exempt from the pre-merger notification requirement to the CCI. B. Purchase of equity shares of SHRIL by TCISIL:
7. TCISIL proposes to acquire up to 19.94% of the equity share capital of SHRIL on a fully diluted basis (post the preferential allotment), from certain existing shareholders and promoters of SHRIL. To this effect, TCIL, TCISIL, SHRIL, and the sellers have executed a share purchase agreement (SPA) on February 7, 2014.
8. This purchase of shares in SHRIL by TCISIL is also exempt from the notification requirement to the CCI under the De Minimis Exemption. As indicated above in Paragraph 6, the turnover of the target enterprise (i.e. SHRIL) is INR 116.67 crores, which is below INR 750 crores, and accordingly, the purchase of shares in SHRIL as envisaged under the SPA is exempt from the notification requirement to the CCI. C.An open offer for shares of SHRIL
9. Regulation 3(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code) states that: No acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him by persons acting in concert with him in such target company, entitle them to exercise twenty-five per cent or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.
10. Regulation 4 of the Takeover Code states: Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.
11. Pursuant to the aforementioned SPA and SSA, TCISIL has triggered the obligation to make an open offer under the provisions of Regulation 3 and Regulation 4 of the Takeover Code. Accordingly, TCISIL, along with TCIL (as a person acting in concert), has made a public announcement of an open offer to purchase up to 26% of the equity share capital of SHRIL from all the public shareholders of SHRIL (Open Offer) under the Takeover Code.
12. The acquisition of shares pursuant to the Open Offer is also exempt under the De Minimis Exemption as the turnover of the target enterprise, i.e. SHRIL is below the thresholds prescribed therein. D. Market Purchases:
13. Between February 10 and 12, 2014, TCISIL has acquired 9,026,794 equity shares, representing 9.93% of the equity share capital on a fully diluted basis of SHRIL, through market purchases on the BSE Limited. This market purchase of shares in SHRIL is also exempt under the De Minimis Exemption as the turnover of the target enterprise, i.e. SHRIL, is below the thresholds prescribed therein.
14. Pursuance to the SSA, SPA and Open Offer, TCISIL would hold up to 74.9% of the equity share capital of SHRIL. Please note the Other Transactions, as detailed above, are not part of the Proposed Transaction, and do not require approval under Section 6(2) of the Competition Act. [Emphasis supplied]
6. The Commission issued notice dated 20.02.2014under Regulation 14 of the Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations, 2011 (for short the Combination Regulations) and directedthe appellantsto furnish some information and answer certain queries.The appellantsfiled detailed reply dated 25.02.2014 and answered the queries made by the Commission. They also supplied the required information.
7. After examining the records including the resolutions passed by the Board of Directors of the appellants, agreements executed by the parties, the contents of the notice submitted under Section 6(2) and reply dated 25.02.2014 filed in response to notice dated 20.02.2014, the Commissionpassed order dated 05.03.2014 and granted approval to the proposed combination by observing that the same is not likely to have an appreciable adverse effect on competition in India. Paragraphs 9 and 10 of the order of approval are reproduced below:-
9. The proposed combination concerns the travel and hotel related services in and from India. As per the details provided in the notice, the Parties are not engaged in similar business. The business of TCIL offering holiday package/other travel related services and the business of SHRIL providing resort and hotel services are related to each other at different stages/levels of the production chain. However, it has been stated in the notice that currently there are no vertical arrangements between the Parties. It is observed that SHRIL is primarily engaged in the vacation ownership services where, in general, the customers are stated to directly deal with the service provider. It is further observed that the business of hotel services across India is relatively fragmented and there are different channels for availing the hotel services along with the presence of large number of big players as well as intermediaries/agents. Therefore, the proposed combination is not likely to raise any competition concern.
10. Considering the facts on record and the details provided in the notice, the Commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition in India and, therefore, the Commission hereby approves the proposed combination under sub-section (1) of Section 31 of the Act. This approval, however, shall have no bearing on the proceedings relating to Section 43A of theAct.
8. After 5 days of according approval to the scheme proposed by the appellants, the Commission issued notice dated 10.03.2014 to the appellants under Regulation 48 of the Competition Commission of India (General) Regulations, 2009 read with Section 43-A of the Act, proposing to impose penalty on the ground that TCISIL had consummated the market purchases but no notice was filed under Section 6(2) and in this manner the mandate of that section was violated.
9. On receipt of the notice issued by the Commission, the appellants filed detailed reply dated 25.03.2014 to controvert the allegation that they had not complied with Section 6(2). They relied upon resolutions dated 07.02.2014 passed by the Board of Directors, the contents of notice filed under Section 6(2) and the orders passed by the Commission in the cases of Vedanta and Tech-Mahindra and pleaded that the market purchasesof the equity shares of SHRIL by TCISIL had nothing to do with the scheme of demerger/amalgamation of SHRIL and, therefore, it was not necessary to file notice under Section 6(2) for seeking approval in respect of the market purchases of equity shares of SHRIL more so because that transaction is covered by the exemption notification dated 04.03.2011 issued under Section 56(a) of the Act. The relevant portions of the reply filed by the appellants are extracted below :
7. TCISIL humbly submits that there is no failure on part of the Parties to give notice under Section 6(2) of the Competition Act since the Market Purchases do not qualify as combinations under Section 5 of the Competition Act. Consequently, the Market Purchases did not require notification under Section 6(2) of the Competition Act. Our detailed submissions in this regard are provided below : a. The Market Purchases do not constitute a combination and consequently do not require notification to the CCI
8. Section 5 of the Competition Act prescribes that an acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises, if they satisfy the asset or turnover thresholds prescribed in sub- sections (a) to (c) of Section 5 of the Competition Act.
9. Thereafter, Section 6(2A) of the Competition Act states that, 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 sub-section (2) of the Commission has passed orders under Section 31, whichever is earlier.
10. A plain reading of the text of Section 5 of the Competition Act makes it amply clear that it is only when a transaction (irrespective of whether it is in the form of an acquisition, merger or amalgamation) satisfies the asset or turnover thresholds prescribed in Section 5 of the Competition Act, that it qualifies as a combination within the meaning of Competition Act. Further, only transactions that constitute combinations, as defined under Section 5(a) to (c) of the Competition Act are subject to the prior notification requirement to the CCI under Section 6 of the Competition Act. In other words, if the provisions of Section 5 of the Competition Act do not apply to a transaction (whether such transaction is in the form of an acquisition, merger or amalgamation), such transaction would not qualify as a combination, within the meaning of the Competition Act, and the prohibition under Sections 6(2A) of the Competition Act will not apply to such transactions.
11. The Target Based Exemption Notification states that : 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 an enterprise, whose control, shares, voting rights or assets are being acquired has assets of the value of not more than INR 250 crores in India or turnover of not more than INR 750 crores in India from the provisions of Section 5 of the said Act for a period of 5 years.
12. The Target Based Exemption Notification specifically exempts a transaction (in the form of an acquisition) from the provisions of Section 5 of the Competition Act where the assets of the target enterprise are of value less than INR 250 crores in India or where the turnover of the target enterprise is less than INR 750 crores in India.
13. The Honble CCI may please note that the Market Purchases are therefore exempt from the provisions of Section 5 of the Competition Act because the target enterprise, SHRIL, has turnover below the threshold prescribed in the Target Based Exemption Notification. SHRILs turnover in the financial year ended March 31, 2013 is INR 116.67 crores, which is below the INR 750 crores limit prescribed in the Target Based Exemption Notification. A copy of the financial statements of SHRIL for the year ended March 31, 2013 is enclosed as Annexure 1. Accordingly, the Market Purchases did not qualify as a combination within the meaning of Section 5 of the Competition Act and hence did not require notification to the CCI.
14. In past, the Honble Commission has consistently held that transactions which are eligible for the Target Based Exemption are exempt from the notification requirement under Section 6 of the Competition Act. Notwithstanding the fact that the Market Purchases did not qualify as a combination within the meaning of Section 5 of the Competition Act, TCISIL provided information on the Market Purchases in the Notice, in the interest of complete disclosure.
15. In light of the above, the Parties submit that there is no failure on their part to give notice under Section 6(2) of the Competition Act. b. The competition act and the combination regulations do not refer to a composite combination.
16. The Show Cause Notice lists a series of factors on the basis of which the Honble CCI appears to have formed its prima facie view that TCISIL has consummated the Market Purchases which is a part of a composite combination before filing the Notice with the CCI and hence not satisfied the requirement under Section 6(2) of the Competition Act. In this regard, TCISIL humbly submits that neither the Competition Act nor the Combination Regulations use the prefix composite before the term combination. The competition act and the combination regulations only refer to, and prescribe disciplines with respect to, combinations. Neither the Competition Act nor the Combination Regulations describe or contain a definition of the phrase composite combination. Naturally, therefore, the legislators did not deem it appropriate to include a provision on notification of composite combinations.
17. However, while prescribing the asset/turnover thresholds under Section 5 of the Competition Act, which when satisfied may trigger the notification requirement under Section 6 of the Competition Act, the legislators expressly described the nature/type of transaction(s) to which the specific set of asset/turnover thresholds apply. Section 5 of the Competition Act contains three distinct provisions, sub- section (a), sub-section (b) and sub-section (c), each of which apply to separate categories of transactions. The legislative intent while introducing three separate provisions prescribing asset/turnover thresholds (which incidentally remain the same across each of sub-sections (a) to (c) of Section 5 of the Competition Act), could not have been anything but to maintain the distinction between different types of transactions. It follows therefore that transactions of combinations falling under a particular sub-section of Section 5 of the Competition Act cannot be fused or intermingled with a transaction or a combination under different sub-section, merely because they take place contemporaneously.
18. Typically, when a business transaction is given effect to by way of a series of steps or individual transaction either in the form of an acquisition, merger or amalgamation or a blend of these three and all the steps or individual transactions coalesce together to give effect to the ultimate intended effect of the business transactionthen and subject to the satisfaction of the asset or turnover thresholds prescribed in Section 5 of the Competition Act, only those transaction(s) which meet the asset or turnover thresholds may be deemed as combination(s). This is further borne out by the language used in Regulation 9(4), which reads as where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions which are inter- connected or inter-dependent on each other, one or more of which may amount to a combination, a single notice, covering all these transactions, may be filed by the parties to the combination.
19. Therefore, from a combined reading of the text of Section 5 of the Competition Act and Regulation 9(4) of the Combination Regulations, it is apparent that even if a business transaction involves a series of steps or smaller individual transactions, only those steps or individual transactions which meet the thresholds under Section 5 of the Competition Act will be deemed to be a combination and Regulation 9(4) reiterates that when 2 (two) or more such transactions require notification, a single notice may be filed for all such combinations. In other words, it is entirely possible that a business transaction may involve steps or smaller transactions, which do not amount to a combination within the meaning of the Competition Act and such transactions would not fall within the purview of Sections 5 or 6 of the Competition Act.
20. It is important to note that Regulation 9(4) does not necessitate the filing of any transaction that is not a combination under Section 5 of the Competition Act although it refers to an acknowledges that such other transactions may form a part of a larger plan to achieve a particular goal, some other portions of which may in fact, constitute combinations under Section 5 of the Competition Act.
21. Regulation 9(4) of the Combination Regulations does not mandate or require that the parties file a notification if there are inter-connected transactions. The language of Regulation 9(4) clearly uses the words may file. In the very same Regulation 9 of the Combination Regulations, where the intention was to stipulate an obligation to file a notice, the words shall file have been used (Regulations 9(1), 9(2) and 9(3) of the Combination Regulations). Similarly the words shall give notice are used in Regulation 5(1) of the Combination Regulations. Thus, it is clear that Regulation 9(4) does not impose an obligation to file a composite notice but is merely an enabling provision, to allow the parties to file a single notice where they were required to file multiple notices. This is borne out by the press release No. 72069 CCI Releases Regulation of Combinations for Corporate Sector in May, 2011 when the Combination Regulations were released, where it has been explained that Regulation 9(4) is a relaxation to avoid multiple filings in interconnected transactions. The question of filing multiple notices only arises if the relevant transaction for which notices are to be filed are notifiable transactions or amount to a combination in the first place.
22. Regulation 9(4) of the Combination Regulations inherently accepts that business transactions may be undertaken through a variety of notifiable and non-notifiable transactions and goes on to permit that a composite notification may be filed only with respect to the notifiable transactions implying that there is neither any requirement to file a notification in relation to any exempt transaction, nor any need to wait for any approval from the Honble Commission before consummating a non-notifiable transaction. Thus, Regulation 9(4) of the Combination Regulations does not impose any obligation on any party to provide any notification in respect of a transaction which is not a combination in the first place, regardless of whether or not such other transaction is linked to, connected with, or is undertaken as a part of, a combination.
23. In fact, there is no requirement and no obligation under the competition act or the combination regulations to file a notice for an exempt transaction even if such transaction is part of a series of steps or smaller individual transactions which are inter-connected or inter-dependent on each other or of a composite combination. To so impose this obligation would be ultra vires the Competition Act. c. The Market Purchases do not meet the requirements of a composite combination.
24. Without prejudice to the above submissions, assuming for the sake of argument that the concept of composite combination is regulated and controlled under the Competition Act, based on the Honble CCIs previous decisions, TCISIL submits that Market Purchases do not fall within the definition of the phrase composite combination.
25. In the Vedanta Case and the Tech-Mahindra Case, the CCI held that transactions in a series, or transactions which are inter-related and inter-dependent, shall be considered as a composite whole, if the ultimate objective can be achieved only on successful completion of all such transactions in a series or transactions which are inter-related or interdependent. It is submitted that the Market Purchases do not satisfy this standard established by the CCI. This is because the Notified Transaction would have taken place irrespective of the Market Purchases and achievement of the ultimate objective was not dependent on the Market Purchases. The success or failure of Market Purchases would have had no bearing on the Notified Transaction. The Parties would have proceeded with the Notified Transaction irrespective of whether TCISIL was able to purchase SHRILs shares from the open market or not.
26. Further, in the past, when the Honble CCI has examined whether a step or transaction could form part of a composite combination, it has based its finding on an examination of the transaction documents. For instance, in the Jet-Etihad case where the CCI examined whether the LHR Slots Agreement was part of the Transaction Documents, its decision that the LHR Transaction was part of the transaction notified by Etihad Airways PJSC (Etihad) was based on (a) the stipulation in the Investment Agreement (IA) that the CCI approval for implementation of the arrangements provided for in each of the Transaction Documents was a condition precedent to its closing and Transaction Documents were defined to include the LHR Slots Agreement and (b) the cross-references between the LHR Transaction Documents and the IA, Commercial Co- operation Agreement (CCA) and Shareholders Agreement (SHA).
27. The Honble CCI may please note that the documents related to the Notified Transaction i.e. the Composite Scheme of Arrangement and Amalgamation (Scheme) and the Merger Cooperation Agreement dated February 2014 (MCA) do not contain any reference to the Market Purchases. Copies of the Scheme and MCA are enclosed as Annexure 2 and 3 respectively. Neither was the Notified Transaction contingent on or dependent on the Market Purchases or vice-versa. Accordingly, it is submitted that based on CCIs own approach in the Jet-Etihad case there is no basis to hold that Market Purchases are part of a composite combination.
28. To view the Market Purchases as part of the Notified Transaction only because they took place almost contemporaneously with the approval by respective Parties on the SA, SPA, Open Offer and the Scheme would amount to ignoring the substantive test of showing mutual independence between the Scheme and the Market Purchases. This would be unwarranted, against the spirit of the provisions of the Competition Act and the Combination Regulations and inconsistent with the CCIs approach in previous cases. d. Prior combination decisions do not indicate that Market Purchases are to be treated as a part of a Composite Combination:
29. The CCI in its Show Cause Notice appears to assume that the mere fact that the Market Purchases took place almost contemporaneously with the approval for the SPA, SA, Open Offer and the Scheme means that they were interdependent. In the past, the CCI has considered similar instances of market purchases and concluded that such transactions are not part of a composite combination.
30. For instance, in the Aditya Birla case, there was a subscription to optionally fully convertible debentures (OFCDs) of Pantaloon Retail India Pvt. Limited (PRIL) by Peter England Fashions and Retail Limited (PEFRL), and the conversion or non-conversion of the OFCDs into shares of PRIL was linked to a demerger of a business from PRIL to a subsidiary of PEFRL. The subscription to the OFCDs and the acquisition by way of the aforesaid demerger of a business of PRIL by the subsidiary of PEFRL were not considered a composite combination by the CCI. Notably, the parties had even consummated the subscription to OFCDs well before the CCI approved the subsequent acquisition of the business. Similarly, it appears from a reading of the CCIs decision in the Baring-Hexaware case, that the parties filed a notice with the CCI on 5 September 2013 in relation to the acquisition of 41.48% of Hexaware Technologies Limited (Hexaware) by HT Global IT Solutions Holdings Limited (or HT Global). The letter of offer issued by HT Global states that the share purchase agreement was signed on 23 August 2013, and between 27 August 2013 and 5 September 2013, Parel Investment Holdings Limited (a group company of HT Global and a person acting in concert with HT Global) had already acquired approximately 3.24% of the equity share capital of Hexaware through open market purchases. Consistent with its view in the Aditya-Birla case, the CCI did not consider that the market purchases to be a part of composite combination of the acquisition of 41.48% of Hexaware by HT Global in the baring-Hexaware case. Similar to the Aditya Birla case, the market purchases were consummated before the filing of the notice with the CCI in the case of acquisition of 41.48% of Hexawares equity shares by HT Global.
31. Therefore, as held by the Honble CCI in the past, Market Purchases should not be treated as part of a composite combination. e. The Market Purchases and the Notified Transaction are not inter-connected or inter-dependent.
32. In any event, the Market Purchases and the Notified Transaction are not part of a series of steps or smaller individual transactions which are inter-connected or inter- dependent on each other.
10. The Commission agreed with the appellants that they had made full discloser of all the transactions including the market purchases of 9.93% equity shares of SHRIL by TCISIL and that no effort was made to conceal any information but imposed penalty of one crore by observing that the scheme of combination and market purchases are interconnected and interdependent and the appellants were under an obligation to file separate application under Section 6(2) in respect of the market purchases of the equity shares of SHRIL, which they failed to do.
11. Shri Percival Billimoria, learned counsel for the appellants argued that the impugned order is liable to be set aside becausethe finding recorded by the Commission on the issue of violation of Section (2) of the Act is based on patently erroneous interpretation of the relevant provisions as also the exemption notification issued by the Central Government under Section 54(a).Learned counsel further argued that even though themarket purchase of 9.93% equity shares of SHRIL by TCISIL was close on the heels of the resolutions passed by the Board of Directors of the appellants for demerger and amalgamation and variousagreementsexecuted by the parties,the Commission committed a serious error by holding that the same was intrinsically connected with two stage scheme approved by the Board of Directors of the appellants and was required to be notified under Section 6(2). Shri Billimoriaemphasized that the market purchase of the equity shares of SHRIL was separate and distinct transaction and the proposed scheme of demerger and amalgamation had nothing to do with it. Learned counsel then argued that even if the market purchase of equity shares of SHRIL by TCISIL could be treated as interrelated or interconnected with the scheme,there was no warrant for recording a finding that the appellants have violated Section 6(2) of the Act because in the notice filed on 14.02.2014 under Section 6(2), they had made specific disclosure of that transaction and the Commission approved the scheme after taking into consideration the resolutions passed by the Board of Directors and various transactions including the market purchase of equity shares of SHRIL by TCISIL. Shri Billimoriarelied upon notification dated 04.03.2011 issued by the Central Government under Section 54(a) of the Act and argued that the acquisition of 9.93% equity shares of SHRIL was not required to be notified under Section 6(2) because the same was exempted from the operation of Section 5 of the Act.He submitted that the violation, if any, of Section 6(2) was purely technical and the same did not warrant imposition of penalty under Section 43A because the market purchase of equity shares of SHRIL by TCISIL did not adversely affect competition. Shri Billimoria also relied upon the orders passed by the Commission in the cases of Sterlite Industries (India) Limited and others, Tech Mahindra Limited and others and Aditya Birla Nuvo Limited and others and argued that the impugned order is liable to be set aside because the same is contrary to those orders.
12. Shri JaiveerShergill, learned counsel for the Commission supported the order under challenge and argued that the finding recorded by the Commission on the issue of violation of Section 6(2) is based on correct analysis of the factual matrix of the case and the same does not call for interference. Learned counsel laid emphasis on the fact that the market purchases of the equity shares of SHRIL by TCISIL was intrinsically connected with the scheme of demerger and amalgamation framed by the Board of Directors of the three entities and argued that the Commission rightly held that the appellants were under a statutory obligation to file notice under Section 6(2) of the Act. In support of this argument, Shri JaiveeerShergill relied upon the judgement of the Supreme Court in McDowell and Company Limited Vs. Commercial Tax Officer - (1985) 3 SCC
230. He also relied upon Sections 2(a) and 5 of the Act and argued that the word combination is very wide and covers all modes of mergers, acquisition of shares, assets and control of enterprises. Shri Shergillfurther argued that all such transactions independently or jointly form combination and are required to be notified in terms of Section 6(2). He submitted that in the absence of the proposed scheme, TCISIL would not have undertaken the market purchases of equity shares of SHRIL and, therefore, the finding recorded by the Commission that all transactions are interrelated is legally correct.
13. I have considered the respective arguments and scanned the records. After taking cognisance of the economic development of the country, Parliament enacted the Act, the preamble whereof reads as under : An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto. Sections 2(a), 5, 6 and 54(a) of the Act which have bearing on this case read as under : Sec 2. Definitions In this Act, unless the context otherwise requires,- (a) acquisition means, directly or indirectly, acquiring or agreeing to acquire -
(i) shares, voting rights or assets of any enterprise; or
(ii) control over management or control over assets of any enterprise; Sec. 5. Combination.-The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises, 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 million US dollars, 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 thousand 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 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, if-
(i) the enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have,- (A) either in India, the assets of the value of more than rupees one thousand crores or turnover of 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 has been acquired or is 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 thousand crores or turnover of 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 (c). any merger or amalgamation in which-
(i) the enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, 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 remaining after the merger or the enterprise created as 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 thousand crores or turnover of 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
(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;
(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 by any depreciation, and the value of assets shall include the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout-design or similar other commercial rights, if any, referred to in sub-section (5) of section 3. Sec.6. Regulation of combinations.-(1).No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void. (2) Subject to the provisions contained in sub-section (1), any person or enterprise, who or which proposes to enter into a combination, 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 (b) executionof 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 sub-section (2) or the Commission has passed orders under section 31 whichever is earlier. (3) The Commission shall, after receipt of notice under sub-section (2), deal with such notice in accordance with the provisions contained in sections 29, 30 and 31. (4) The provisions of this section shall not apply to share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement. (5) The public financial institution, foreign institutional investor, bank or venture capital fund, referred to in sub-section (4), shall, within seven days from the date of the acquisition, file, in the form as may be specified by regulations, with the commission the details of the acquisition including the details of control, the circumstances for exercise of such control and the consequences of default arising out of such loan agreement or investment agreement, as the case may be. Explanation.- For the purposes of this section, the expression- (a) "foreign institutional investor" has the same meaning as assigned to it in clause (a) of the Explanation to section 115AD of the Income-tax Act, 1961 (43 of 1961); (b) "venture capital fund" has the same meaning as assigned to it in clause (b) of the Explanation to clause (23FB) of section 10 of the Income-tax Act, 1961 (43 of 1961). (b) venture capital fund has the same meaning as assigned to it in clause (b) of the Explanation to clause (23FB) of section 10 of the Income-Tax Act, 1961 (43 of 1961). Section 54(a). Power to exempt The Central Government may, by notification exempt from the application of this Act, or any provision thereof, and for such period as it may specify in such notification-- (a) any class of enterprise if such exemption is necessary in the interest of security of the State of Public interest
14. Regulation 9(1) and (4) of the Combination Regulations whichhave some bearing on this case reads as under :-
9. Obligation to file the notice --(1) In case of an acquisition or acquiring of control of enterprise(s), the acquirer shall file the notice in Form I or Form II, as the case may be, which shall be duly signed by the person(s) Regulations, 2009: [Provided that in case of a company, apart from the persons specified under clause (c) of sub-regulation (1) of regulation
11 of the Competition Commission of India (General) Regulations, 2009, Form I or Form II may also be signed by the Company Secretary of the company, duly authorised by the board of directors of the company.]
4. Where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions which are interconnected or inter- dependent on each other, one or more of which may amount to a combination, a single notice, covering all these transactions, may be filed by the parties to the combination.
15. Notification dated 04.03.2011 issued by the Central Government under Section 54(a) on which much emphasis has been placed by learned counsel for the appellants is reproduced below:- S.O. 482(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 an enterprise, whose control, shares, voting rights or assets are being acquired has assets of the value of not more than Rs.250 crores or turnover of not more than Rs. 750 crores from the provisions of Section 5 of the said Act for a period of five years.
16. A reading of the above reproduced provisions shows that while Section 2(a) defines the term acquisition, Section 5 identifies the nature of acquisition which can be treated as combination provided that the conditions specified in Clauses (a), (b) and (c) are satisfied. Section 6(1) lays down that no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and declares that such a combination shall be void. Section 6(2) lays down that any person or enterprise, who or which proposes to enter into a combination, shall give notice to the Commission within 30 days of the approval of the proposal relating to merger or amalgamation referred to in Clause (c) of Section 5 or execution of any agreement or other document or acquisition referred to in Clause (a) of Section 5 or acquiring of control referred to in Clause (b) of that Section. Sub-section (2A) of Section 6 which was added by Amendment Act 39 of 2007 and was brought into force with effect from 01.06.2011 declares that no combination shall come into effect before the expiry of 210 days counted from the date on which the notice has been given to the Commission under Section 6(2) or the Commission has passed the order under Section 31, whichever is earlier. Sub-section (3) of Section 6 lays down that the Commission shall deal with the notice given under Section 6(2) in accordance with the provisions of sections 29, 30 and 31. By virtue of Section 6(4), the provisions of Section 6 have been made inapplicable to share subscription or financial facility or any acquisition by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement. However,the acquisitions referred to in sub-section (4) are required to be brought to the notice of the Commission. Section 54 empowers the Central Government to grant exemption from the application of the Act or any provision thereof to any class of enterprise if such exemption is necessary in the interest of security of the State or public interest, or to any practice or agreement arising out of and in accordance with any obligation assumed by India under any treaty, agreement or convention with any other country or countries, or to any enterprise which performs the sovereign function on behalf of the Central Government or a State Government. The exercise of power under Section 54(a) is subject to the rider that in case an enterprise is engaged in any activity including the activity relatable to the sovereign function of the Government, the Central Government may grant exemption only in respect of the activity relatable to the sovereign functions. The language of notification dated 04.03.2011 issued by the Central Government makes it clear that the same is relatable to clause (a) of that section because it uses the term public interest and by virtue of that notification the market purchase of equity shares of SHRIL by TCISIL was exempted from the operation of Section 5 of the Act.
17. In light of the above, the Tribunal has to decide whether the penalty imposed by the Commission under Section 43A of the Act is legally sustainable.A recapitulation of the facts would showthat the Board of Directors of the appellants had passed resolutions dated 07.02.2014 for demerger and amalgamation of SHRIL with TCIL and TCISIL respectively. On the same day, the Board of Directors of TCISIL passed another resolution for the market purchase of equity shares of SHRIL and in furtherance of that resolution, 9.93% equity shares of SHRIL had been purchased by TCISIL on fully diluted basis through open market purchase at Bombay Stock Exchange Limited between 10th and 12th February, 2014.
18. After passing of resolutions, the appellants executedmerger cooperation agreement, share subscription agreement and share purchase agreement. In the last mentioned transaction, other entities were also involved. Since the demerger and amalgamation of SHRIL and the transactions like merger cooperation agreement, share subscription agreement and share purchase agreement fell within the ambit of Section 5, the appellants filed notice dated 14.02.2014 under Section 6(2) of the Act. In the notice, the appellants incorporated the details of the resolutions dated 07.02.2014, the agreements executed onthe same day as alsothe market purchases of the equity shares of SHRIL by TCISIL. In other words, the appellants furnished the details of each and every transaction and no attempt was made to conceal any fact or information. The Commission examined the entire record and felt satisfied that the scheme did not have any adverse effect on competition. Accordingly, order dated 05.03.2014 was passed under Section 31(1) of the Act for approval of the two-stage scheme envisaged in the resolutions passed by the appellants subject to the rider that the same will not affect the action which may be taken under Section 43A. From the language of paragraph 10 of order dated 05.03.2014, which has been reproduced above, it is clear that while granting the approval to the two-stage scheme of demerger and amalgamation, the Commission had made up its mind to take action under Section 43A and this is the reason why the exercise undertaken in that regard culminated in the impugned order.
19. The Commissions decision to impose penalty on the appellants for alleged non-compliance of Section 6(2) of the Act is founded on the following factors : (a) The two-stage scheme and the market purchases were authorised in the same meeting of the Board of Directors of TCISIL held on 07.02.2014 though separate resolutions were passed for that purpose. (b) On the same day i.e. 07.02.2014, TCIL and SHRIL issued a joint press releasestating that they have announced a merger and the fact that the transaction was likely to close by 4th quarter of 2014. (c) All the transactions relate to the business and shares of SHRIL and, therefore, the same could be regarded as one composite business combination. (d) The parties did not clarify the need for TCISIL to go for the market purchase of the equity shares of SHRIL when SHRIL itself was proposed to demerged and amalgamated into TCISIL and TCIL respectively. (e) As per joint press release dated 07.02.2014, the parties announced a merger between them and the part equity, part merger deal was structured as a multi-stage process comprising the acquisitions and the scheme. (f) The warrantees given by TCIL and TCISIL under the share subscription agreement and share purchase agreement included their ability to consummate the transaction in the respective agreements and the merger cooperation agreement which prescribed the manner of implementation of the scheme. (g) The execution of various agreements on the same day and the market purchases suggest that all transactions were inherently connected and interdependent on each other and form part of one wider business transaction. (h) Though the market purchases do not contain any reference to the merger cooperation agreement, share subscription agreement and share purchase agreement or the scheme, the close proximity of these actions and transactions and the fact that the market purchases were consummated between 10th and 12th February, 2014 show that the market purchases had close nexus with other transaction and in the absence of scheme of other acquisitions, TCISIL would not have pursued the market purchases.
20. While dealing with the objection of the appellants that the show cause notice was defective in as much as it referred to composite combination, the Commission observed that Regulation 9(4) of the Combination Regulations acknowledges the possibility of a business transaction being achieved by way of interconnected and interdependent steps/transactions and any technical interpretation of Section 5 to isolate two different steps/transactions of a composite combination is against the spirit and provisions of the Act. The observation made by the Commission on this issue are extracted below :
7. ..Sub-regulation(4) of Regulation 9 of the Competition Commission of India (Procedure inregard to the transaction of business relating to combinations) Regulations, 2011(Combination Regulations) does not impose an obligation to file a composite noticebut is merely an enabling provision, to allow the Parties to file a single notice where theywere required to file multiple notices. It has been further argued that sub- regulation (4)of Regulation 9 of the Combination Regulations implies that there is neither anyrequirement to file notice in relation to any exempt transaction, nor any need to wait for any approval from the Commission before consummating a non-notifiable transaction. Inthis regard, it is observed as follows: 7.1. The Parties submit that neither the Act nor the Combination Regulations use theprefix composite before the term combination. It has been further submittedthat by having three sub-sections viz. (a), (b) and (c), Section 5 of the Actmaintains distinction between each type of the transaction mentioned in the saidprovisions and therefore, different transactions cannot be fused or intermingled,merely because they take place contemporaneously. Though it is correct thatSection 5 of the Act has three sub-sections each describing different transactionas a combination but the fact remains that said provisions do not restrict any oneto enter into a composite combination that comprises different steps/ transactionseach of which may be separately covered in any one of the three sub- sections.While it may not be appropriate to consider two distinct and unrelatedtransactions as one combination, there is no explicit bar under the Act to considerdifferent steps of a composite transaction as one combination particularly whenall those steps are envisaged and authorised by the Parties on the same day. 7.2. It is relevant to note that Sub-regulation (4) of Regulation 9 of the Combination Regulations states that Where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions which are inter- connected or inter-dependent on each other, one or more of which may amount to a combination, a single notice, covering all these transactions, may be filed by the parties to the combination. This provisionclearly acknowledges the possibility a business transaction being achieved byway of inter-connected or inter- dependent steps/transactions. It is furtherobserved that it is not uncommon for unrelated enterprises to envisageacquisition of shares followed by scheme of arrangement under the relevantprovisions of the Companies Act. Any technical interpretation of Section
5 toisolate two different steps/transactions of a composite combination is against thespirit and provisions of the Act. Accordingly, the contentions of the parties inthis regard cannot be accepted.
21. In my opinion, the factors relied upon by the Commission for holding that the market purchases of the equity shares of SHRIL by TCISIL constituted an integral part of the scheme and other transactions do not supply sound legal basis for recording of a finding that the appellantshad violated the mandate of Section 6(2) in so far as the market purchase of equity shares of SHRIL is concerned. There is no dispute between the parties that the exemption granted by the Central Government under Section 54(a) is applicable in the present case. The Commission declined to give benefit of exemption to the appellants mainly on the ground that the market purchases were intrinsically connected with other transactions. In doing so, the Commission failed to take cognisance of the fact that the implementation of two-stage scheme for demerger/amalgamation was not dependent on the market purchase of equity shares of SHRIL by TCISIL and vice versa. Therefore, the mere fact that various transactions were executed in close proximity of the market purchases of the equity shares of SHRIL by TCISIL is not sufficient to deny the benefit of the exemption notification to the appellants. A bare reading of notification dated 04.03.2011 makes it clear that the exemption contained therein is not riddled with any condition. Therefore, it must be held that the transaction involving the market purchases of the equity shares of SHRIL was covered by the exemption notification and the same was not required to be notified under Section 6(2). As a corollary it is held that the Commission committed serious error by imposing penalty on the appellants under Section 43A on the premise thatthey had violated Section 6(2) of the Act.
22. Even if the reasoning of the Commission for rejecting the appellants plea based on the exemption notification is held to be correct, I do not see any valid ground or justification for sustaining the penalty because the violation, if any, of Section 6(2) was purely technical. At the cost of repetition, it deserves to be mentioned that while filing notice dated 14.02.2014, the appellants had disclosed each and every transaction including the market purchase of equity shares of SHRIL by TCISIL and while granting approval under Section 31 of the Act, the Commission was very much aware of the same. In the impugned order also (paragraph 11), the Commission recognized this fact by making the following observation : Though the parties have made full disclosure of all the transactions and there was no effort on their part to conceal information, the Commission discovered the violation of the provisions of the Act only from the notice given by the Parties. These facts go to suggest that the conduct of the Parties was not such that attracts severe penalty.
23. I am also of the view that the passing of the resolutions on the same day for demerger and amalgamation as also the market purchase of equity shares of SHRIL cannot be made basis for taking the view that the appellants were duty bound to file separate notice under Section 6(2) of the Act for securing Commissions approval under Section 31(1) in respect of the market purchase of equity shares of SHRIL and that too despite the fact that the factum of market purchase of equity shares was very much disclosed in notice dated 14.02.2014 filed under Section 6(2) for seeking approval of the demerger/amalgamation scheme.
24. I may hasten to add that if the appellants had filed separate notice under Section 6(2) for grant of approval of the market purchases of equity shares, the same would, in all probability, have been granted by the Commission by relying upon the order dated 05.03.2014.
25. In so far as Regulation 9(4) is concerned, the object thereofis to facilitate filing of one notice in respect of various interconnected/interrelated/interdependent transactions. This implies that if the parties take several steps or enter into multiple transactions for achieving the object of combination then they are not required to file separate notice under Section 6(2) and it will be sufficient if one notice is filed for seeking approval under Section 31(1). The Commission is right in observing that any technical interpretation of Section 5 to isolate two different steps/transactions of a composite combination is against the spirit and provisions of the Act, but this observation has no bearing on the applicants case.
26. The cases to which reference has been made by Shri Billimoria were distinguished by the Commission by making the following observations :
8. The Parties have also contended that even assuming for the sake of argument that theconcept of composite combination is regulated and controlled under the Act, based onthe previous decisions of the Commission, the Market Purchases do not meet therequirements of a composite combination. Citing reference to the earlier decisions of theCommission (Case bearing Reg. Nos. C-2012/03/45, C-2012/03/48 and C-2013/05/122),it has been argued that mutual interdependence is the relevant test to see whether twotransactions are part of one composite combination. However, the Commission has neverheld that mutual interdependence is the only test to determine a composite combination.It is relevant to note sub-regulation (4) of Regulation 9 which states that a businesstransaction could be achieved by way of a series of steps or smaller individualtransactions which are inter-connected orinter- dependent on each other. Even in the casebearing Reg. No. C-2013/05/122, the Commission regarded different steps/transactionsas one combination as they were related to each other and there was no conclusion thatmutual interdependence is the only test to determine a composite combination. It isobserved that considering two different transactions as one combination depends on thefacts and circumstances of each case with due regard to the subject matter of thetransactions; the business and entities involved; simultaneity in negotiation, executionand consummation of the transactions; and also, whether it is practical and reasonable toisolate and view the transactions separately. In the instant case, though different, theMarket Purchases are inherently related to the other transactions (Scheme and otheracquisitions) and would not have been pursued in the absence of Parties envisaging theScheme and other acquisitions.
27. I have carefully examined the orders passed in other combination cases relied upon by Shri BillimoriaandI find that the factual matrix of those cases was not similar to the present case and, therefore, those orders cannot be relied upon for invalidating the impugned order.
28. In Combination Registration No. C-201203/45 decided on 12.04.2012, the Commission considered the notice filed under Section 6(2) for approval of the proposed combination of Sterlite Industries (India) Limited, Madras Aluminium Company Limited, Ekaterina Limited and Sesa Goa Limited pursuant to two composite schemes of amalgamation. The Commission took cognizance of the nature of business of the various entities and observed :
11. It is observed that the above mentioned proposed transactions are inter-related and inter-dependent transactions which are planned to be carried out with the ultimate objective of consolidation of the holdings of Vedanta Group companies in India. In this regard it may be noted that transactions in a series or transactions which are inter-related and inter-dependent shall be considered as a composite whole, if the ultimate objective can be achieved only on successful completion of all such transactions in a series or transactions which are inter-related and inter-dependent, even though some of these transactions which are part of the composite whole may not ordinarily be required to be filed on standalone basis under the provisions of Regulations or may be exempt under the provisions of the Act relating to combinations.
29. In Combination Registration No. C-2013/09/130 decided on 19.09.2013, the Commission dealt with notice dated 05.09.2013 filed under Section 6(2) of the Act by HT Global IT Solutions Holdings Limited. The company had given notice pursuant to execution of two separate share purchase agreements entered into between the acquirer, Elder Infosystems Private Limited and Elder Venture LLP and between the acquirer and GA Global Investments Limited. The Commission referred to the nature of business carried on by the companies and observed :
7. Considering the facts on record, the details provided in the notice given under sub-section (2) of Section 6 of the Act and the assessment of the proposed combination in the basis of the factors stated sub-section (4) if Section 20 of the Act, the Commission is of the opinion that the proposed combination is not likely to have an appreciable adverse effect on competition in India and, therefore, the Commission hereby approves the proposed combination under sub-section (1) of Section 31 of the Act.
30. In Combination Registration No. C-2012/10/82 decided on 21.12.2013, the Commission considered the notice jointly filed under Section 6(2) of the Act by Aditya Birla Nuvo Limited, Peter England Fashions and Retail Limited, Indigold Trade and Services Limited and Pantaloon Retail (India) Limited. The notice was filed pursuant to a scheme of arrangement under Sections 391 to 394 and other applicable provisions of the Companies Act, 1956 executed between Pantaloon Retail (India) Limited and Peter England Fashions and Retail Limited, respective shareholders and creditors and Indigold Trade and Services Limited. The scheme was approved by the Board of Directors of three entities on 09.09.2012. The Commission took cognisance of the nature of business carried on by the entities approved the combination.
31. The judgement of the Supreme Court in McDowell and Company Limited Vs. Commercial Tax Officer (supra), on which reliance has been placed by Shri JaiveerShergill is clearly distinguishable. The fact discernible from the majority judgement shows that the appellant was engaged in manufacture of Indian liquor at Hyderabad. For this purpose, it had obtained license under the Andhra Pradesh Excise Act, 1968 read with the Andhra Pradesh Distillery Rules. Excise Duty was leviablein accordance with the provisions of the 1968 act and the liquor could not be removed from the distillery without payment of such duty. Some buyers removed liquor from the distillery on the basis of Distillery passes without paying excise duty. The books of accounts of the appellant also did not contain any reference to the excise duty paid by the purchasers. The appellant paid Sales Tax under the Andhra Pradesh General Sales Tax Act, 1957, on the basis of its turnover which excluded excise duty.The appellant was assessed to sales tax on the basis of its returns. Later, the sales tax authorities issued notice to the appellant to explain non-payment of excise duty. The appellant moved the High Court of Andhra Pradesh but the writ petition filed by it was dismissed. The order of the High Court was reversed by the Supreme Court on the ground that the authorities constituted under the Sales Tax Act were not entitled to initiate action for recovery of the excise duty. After the judgement of the Supreme Court, the Distillery Rules were amended w.e.f. 04.08.1981. On the basis of the amendedprovisions, the Commercial Tax Officer issued a fresh notice proposing to include a sum of Rs.4,49,09,552.40 representing the excise duty paid directly by buyers in the appellants turnover for a part of the year 1982-83. The appellant challenged the same. The High Court held that the excise duty payable by the appellant but actually paid by the buyers was a part of the appellants turnover and was liable to be included for determining liability for sales tax. Accordingly, the writ petition was dismissed. While confirming the order of the High Court, the majority of the Supreme Court observed: Admittedly, the bills issued by the appellant did not include the excise duty. As already found, payment of excise duty is a legal liability of the manufacturer; its payment is a condition precedent to the removal of the liquor from the distillery and payment by the purchaser is on account of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the bill either as merged in price or being shown separately. As a fact, in the hands of the buyer the cost of liquor is what is charged by the appellant under its bill together with excise duty which the buyer has directly paid on sellers account. The consideration for the sale is thus the total amount and not what is reflected in the bill. We are, therefore, clearly of the opinionthat excise duty though paid by the purchaser to meet the liability of the appellant, is a part of the consideration for the sale and is includible in the turnover of the appellant. The purchaser has paid the tax because the law asks him to pay it on behalf of the manufacturer.
32. While dealing with the arguments of the appellants that everyone is entitled to arrange his affairs as to reduce the brunt of taxation to the minimum and such a process does not constitute tax evasion, the Supreme Court observed :
45. Tad planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.
33. In his concurring judgement, Justice O.Chinnappa Reddy describes the tax avoidance as Art of Dodging Tax without breaking Law, referred to several precedents of different jurisdictions and recorded his observations under the following words:-
14. I have referred to the English cases at some length, only to show that in the very country of its birth, the principle of Westminster has been given a decent burial and in that very country where the phrase tax avoidance originated the judicial attitude towards tax avoidance has changed and the smile, cynical or even affectionate though it might have been at one time, has now frozen into a deep frown. The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get sway with a tax avoidance project with the mere statement that there is nothing illegal about it.
17. We think that time has come for us to depart from the Westminster principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a Welfare State like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black-money, directly causing inflation. Then there is the large hidden loss to the community ( as pointed out by Master Wheatcroft ) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers, and accountants on one side and the tax- gatherer and his perhaps not so skilful. Advisers on the other side. Then again there is the sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the artful dodgers. It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr. Justice Holmes, who said, Taxes are what we pay for civilized society. I like to pay taxes. With them ZI buy civilization. But, surely, it is high time for the judiciary in India too to part its ways from the principle of Westminster and the alluring logic of tax avoidance. We not live in a Welfare State whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgement of Desai, J. in Wood Polymer Ltd. and Bengal Hotels Limited, In re where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax.
34. The ratio of the above noted judgement has no bearing on the case in hand because, as mentioned above, the appellants never tried to suppress the market purchases of equity shares of SHRIL for the purpose of obtaining any advantage under the Act. Rather, in the notice filed on 14.02.2014 under Section 6(2), they had made a categorical reference to the transaction involving the market purchase of the equity shares of SHRIL. Therefore, the penalty imposed by the Commission cannot be sustained by assuming that the appellants deliberately flouted the mandate of Section 6(2) of the Act.
35. In the result, the appeal is allowed, the impugned order is set aside and the penalty imposed on the appellants under Section 43A of the Act is quashed. The amount of Rs. 20 Lacs deposited by the appellants pursuant to order dated 19.08.2014 passed by the Tribunal shall be refunded to them. [G.S. Singhvi] Chairman 26th August, 2015