2018 (4) TMI 977 - SC - Law of Competition

Penalty u/s 43A of the Competition Act 2002 - noncompliance of provisions contained in section 6(2) of the Act - notification of various transactions. Held that - Once a particular transaction or a series of transactions falls within the purview of combination it is obligatory to report the same to the Commission under section 6 of the Act - Section 6 (2) makes it clear that no combination shall come into effect until 210 days have elapsed from the date on which notice has been given to the Commission under section 6(2) and the Commission has passed orders under section 30(1) whichever is earlier. And once mandatory notice is given under section 6(2) the Commission has to deal with the same in accordance with the provisions contained in sections 29 30 and 31. It is apparent that between the three respondent companies demerger of the resort of SHRIL on timeshare basis took place. It was to be transferred to TCISIL in view of the equity shares of TCIL were to be issued to shareholders of SHRIL as per the ratio provided in the scheme - It is apparent that in the notification made under section 6(2) on 14.2.2014 notifiable transactions were shown regarding merger and amalgamation. It was also mentioned that parties have also contemplated certain other transactions in view of the notifiable transactions they were the substitution of equity shares SPA open offer and market purchase. It is crystal clear from the aforesaid application itself that all these transactions were part of the same transactions and even before notifying the transactions of purchase from the market on 14.2.2014 it was consummated between 10.2.2014 to 12.2.2014. It is crystal clear that market purchases being a part of the composite combination was consummated before giving notice to the Commission. Market purchases having been consummated between 10.2.2014 to 12.2.2014 which is almost after finalizing the composite combination clearly suggested that market purchases would not have taken place in the absence of scheme and the other acquisitions. In case they were not part of the same scheme that would not have been referred to in the notice filed by them with the Commission on 14.2.2014. Thus in our considered opinion market purchases were not independent and were intrinsically related to the scheme and other acquisitions. The imposition of penalty under section 43A is on account of breach of a civil obligation and the proceedings are neither criminal nor quasicriminal; the penalty has to follow. Only discretion in the provision under section 43A is with respect to quantum of penalty - penalty upheld - appeal allowed.

Summary

Issues Involved:
1. Non-compliance with Section 6(2) of the Competition Act, 2002.
2. Interconnectedness and interdependence of transactions.
3. Applicability of Target-Based Exemptions.
4. Requirement of mens rea for penalty under Section 43A.

Detailed Analysis:

1. Non-compliance with Section 6(2) of the Competition Act, 2002:
The core issue revolves around the respondents' failure to notify the "market purchase" under Section 6(2) of the Competition Act, 2002. The respondents had notified only the "Demerger" and "Amalgamation" transactions, while claiming exemptions for other transactions, including the Share Subscription Agreement (SSA), Share Purchase Agreement (SPA), and market purchases. The Commission imposed a penalty of Rupees One Crore for this non-compliance, which was initially set aside by the Tribunal but later restored by the Supreme Court.

2. Interconnectedness and interdependence of transactions:
The Commission argued that all the transactions, including the market purchases, were part of a single composite combination. The Supreme Court agreed, stating that the transactions were "intrinsically connected and interdependent with each other and form part of one viable business transaction." The market purchases, which were consummated between 10.2.2014 and 12.2.2014, were deemed part of the composite combination and should have been notified under Section 6(2).

3. Applicability of Target-Based Exemptions:
The respondents claimed that certain transactions were exempt under the Target-Based Exemption Notification S.O. 482 (E) dated 4.3.2011, which exempts transactions involving enterprises with assets not exceeding INR 250 crores or turnover not exceeding INR 750 crores. The Supreme Court held that when a series of transactions is envisaged to accomplish a combination, all transactions must be considered together. The structuring of transactions to avoid compliance with the Act's mandatory provisions was not permissible. Thus, the market purchases were not independent and did not qualify for the exemption.

4. Requirement of mens rea for penalty under Section 43A:
The respondents argued that there were no malafides in their actions and that the penalty should not be imposed. The Supreme Court clarified that mens rea is not an essential ingredient for contravention of a civil act. The penalty under Section 43A is attracted as soon as the contravention of the statutory obligation is established, regardless of whether the violation was intentional. The Court cited Hindustan Steel Ltd. v. State of Orissa to support the view that the breach of a civil obligation attracts penalty irrespective of guilty intention.

Conclusion:
The Supreme Court allowed the appeal filed by the Competition Commission of India, set aside the Tribunal's order, and restored the penalty of Rupees One Crore imposed by the Commission. The Court found that the transactions were interconnected and interdependent, forming a single composite combination that required notification under Section 6(2) of the Act. The claim for exemption was rejected, and the absence of mens rea was deemed irrelevant for imposing the penalty.