2018 (4) TMI 917 - SC - Indian Laws

Penalty u/s 43A of Competition Act, 2002 - Failure to notify a proposed combination as required under section 6(2) of Competition Act, 2002 - notification of acquisition of shares - Held that - Section 42 of the Act deals with contravention of the orders of the Commission. Section 43A deals with the power to impose a penalty for nonfurnishing of information on combinations. Any person or enterprise who fails to give notice under section 6(2) of the Act to the Commission, the Commission, in such an event, is authorized to impose the penalty which may extend to 1% of the total turnover or the assets, whichever is higher. On first acquisition of shares, there was a failure to comply with the provisions of section 6(2) of the Act in regard to the acquisition of 24.46% of the shareholding. The provisions of section 6(2) were not at all complied with. Coming to the second acquisition of shares of 0.8% equity shares of MCFL, the dispute is as to whether the notifying within 30 days of the purchase was compliance of the provision as per provisions of section 6(2) it should have been notified before the acquisition. As a corollary, it was also argued that the equity shares purchased second time were placed in the Escrow Account - Held that - It is apparent from section 6(2) of the Act that the proposal to enter into combination is required to be notified to the Commission. The legislative mandate is apparent that the notification has to be made before entering into the combination - The combination cannot be entered into and shall come into effect before order is passed by Commission or lapse of certain time from date of notice is also apparent from the terminology used in section 6(2A) which provides that no combination shall come into effect until 210 days have passed from the date of notice or passing of orders under section 31 by the Commission, whichever is earlier. When the transaction has been completed and acquisition has been made and the latter transaction has exceeded holding more than 25% by the second purchase, obviously prior permission was required, as discussed hereinabove, as its total shareholding increased to 25.3%. Thus, we have no hesitation to hold that the notification under section 6(2) of the Act has to be exante. The imposition of penalty under section 43A is on account of breach of a civil obligation, and the proceedings are neither criminal nor quasi-criminal. Thus, a penalty has to follow - appeal dismissed - decided against appellant.

Issues Involved:
1. Failure to notify a proposed combination under Section 6(2) of the Competition Act, 2002.
2. Imposition of penalty under Section 43A of the Competition Act, 2002.
3. Interpretation of "solely as an investment" under Entry I of Schedule I of the CCI Regulations.
4. Timing and requirement of notification to the Competition Commission of India (CCI).

Detailed Analysis:

1. Failure to Notify a Proposed Combination:
The appellants, SCM Solifert Limited and another, failed to notify the Competition Commission of India (CCI) about their acquisition of shares in Mangalore Chemicals and Fertilisers Limited (MCFL) as required under Section 6(2) of the Competition Act, 2002. The CCI imposed a penalty of Rupees Two crores for this failure. The appellants had acquired 24.46% of MCFL's share capital on 3.07.2013 and later made a second acquisition of 1.7% shares on 23.04.2014. The CCI approved the proposed combination but initiated penalty proceedings for the failure to notify the first acquisition.

2. Imposition of Penalty:
The CCI imposed a penalty under Section 43A of the Act for non-compliance with the notification requirement. Section 43A authorizes the CCI to impose a penalty which may extend to 1% of the total turnover or assets of the combination. The appellants argued that the penalty was unwarranted as the first acquisition was solely for investment purposes and the second acquisition was notified within the stipulated time. However, the CCI found that the appellants had violated Section 6(2) by not notifying the proposed combination in a timely manner and imposed a nominal penalty of Rupees Two crores, which amounted to only 0.06% of the total turnover of the combination.

3. Interpretation of "Solely as an Investment":
The appellants contended that their first acquisition was solely for investment under Entry I of Schedule I of the CCI Regulations, which exempts certain transactions from the notification requirement. However, the CCI and the appellate tribunal found that the acquisition was strategic and not merely an investment. The Press Release issued by the appellants on 3.7.2013 indicated that the acquisition was intended to be strategic and aimed at working closely with MCFL. The acquisition of 24.46% shares vested power to exercise influence, which went beyond a mere investment.

4. Timing and Requirement of Notification:
The appellants argued that the second acquisition was notified within the stipulated time of 30 days as specified in Section 6(2) of the Act. However, the court held that the notification must be made before entering into the combination, as per the legislative mandate of the Act. Section 6(2A) of the Act provides that no combination shall come into effect until 210 days have passed from the date of notice or the passing of orders by the CCI, whichever is earlier. The court found that the appellants failed to comply with this requirement as they notified the second acquisition after the purchase.

Conclusion:
The court dismissed the appeal, affirming the judgment and order passed by the CCI and the appellate tribunal. The court held that the appellants had violated Section 6(2) of the Act by failing to notify the proposed combination in a timely manner and that the imposition of penalty under Section 43A was warranted. The court emphasized that the breach of a civil obligation under the Act does not require proof of mens rea and that the penalty is attracted as soon as the contravention is established. The appeal was found to be devoid of merit and was dismissed with no costs.

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