2023 (5) TMI 19 - AT - Companies Law

Levy of penalty under section 43-A of Competition Act, 2002 - alleged failure to give notice under Sub-section 2 of Section 6 of the Act - Appellant submitted that once the CCI had found that there was no appreciable adverse effect on competition in the relevant markets as a result of Transactions I and II, the jurisdiction did not lie with the CCI to open proceedings under Section 43A. HELD THAT - The clarificatory notification dated 27.3.2017 issued by the Ministry of Corporate Affairs makes it clear where a portion of an enterprise or division or business is being acquired, taken control of, merged or amalgamated with another enterprise, the value of assets of the said portion or division or business and are attributable to it, shall be the relevant assets and turnover to be taken into account for the purposes of calculating the threshold under section 5 of the Act. The Press Release issued on 30.3.2017 gives information to the public about the nature of this notification and mentions that this notification is to provide clarity on the calculation method for assets and turnover because such a matter was causing confusion among the business entities. The said notification, therefore, being clarificatory in nature, applies with retrospective effect. It is noted that this Tribunal in the matter of Eli Lilly and Company 2020 (3) TMI 1446 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI considered that the De Minimis notification dated 4.3.2011, and Notification dated 4.3.2016, both issued by the Ministry of Corporate Affairs under Section 54 of the Act provide exemption to certain transactions due to their small size. Further, the Press Release dated 30.3.2017 states and informs that for combination that fall within the threshold limits, there would be no requirement for their filings to be notified before the CCI. After considering the De Minimis notification dated 4.3.2016 and the Press Release dated 30.3.2017, this Tribunal decided that for the purpose of calculation of assets and turnover, what is being acquired is relevant as the assets and turnover of what is left over with the seller after the acquisition will not have any role to play in the context of the business of the purchaser/acquirer after the acquisition. On this basis, this Tribunal set aside the order of CCI in the Eli Lilly case. The clarificatory notification dated 27.3.2017 gives a purposive construction to the earlier De Minimis notifications dated 4.3.2011 and 4.3.2016 and therefore, the notification dated 4.3.2016 would have retrospective effect insofar as the jurisdictional threshold for Transactions I and II are concerned. In view of the fact that the total turnover of the acquisition i.e. acquired trademarks Savlon and Shower to Shower is only Rs.68.37 crores, it is opined that ITC would not be required to notify the Transactions I and II before the CCI as these transactions would be exempt in the light of the De Minimis notification. Thus, the penalty imposed by the CCI on ITC for the reason it did not notify the Transactions I and II under section 6(2) of the Act, should not have been imposed and to that extent we set aside the Impugned Order of the CCI. No penalty was required to be imposed on the Appellant - The appeal is, therefore, allowed to the limited extent of the issue of penalty.

Summary

Issues Involved:
1. Violation of Section 6(2) of the Competition Act, 2002
2. Applicability of De Minimis Exemption Notification
3. Retrospective Application of Clarificatory Notification
4. Imposition of Penalty under Section 43A of the Act

Summary:

1. Violation of Section 6(2) of the Competition Act, 2002:
The Appellant, a public limited company, entered into two brand purchase agreements on 12.2.2015 for the trademarks "Savlon" and "Shower to Shower." The Competition Commission of India (CCI) imposed a penalty of Rs. Five Lakhs on the Appellant for failing to notify these transactions under Section 6(2) of the Competition Act, 2002, as they were considered combinations under Section 5 of the Act.

2. Applicability of De Minimis Exemption Notification:
The Appellant argued that the transactions were exempt under the De Minimis Notification dated 4.3.2016, which exempted transactions below certain asset and turnover thresholds. The Appellant claimed that the acquired trademarks did not constitute an enterprise, and thus, did not meet the threshold for notification.

3. Retrospective Application of Clarificatory Notification:
The Appellant contended that the clarificatory notification dated 27.3.2017, which specified that only the assets and turnover of the acquired portion should be considered, applied retrospectively. This was supported by judgments indicating that clarificatory notifications have retrospective effect.

4. Imposition of Penalty under Section 43A of the Act:
The Tribunal focused on whether the penalty under Section 43A was justified. It noted that the CCI had unconditionally approved the transactions, finding no "appreciable adverse effect on competition." The Tribunal referred to the judgment in Eli Lilly and Company vs. CCI, which emphasized that only the relevant assets and turnover of the acquired portion should be considered for the threshold calculation.

Judgment:
The Tribunal concluded that the total turnover of the acquired trademarks was Rs.68.37 crores, below the threshold limit of Rs.750 crores for exemption under the De Minimis Notification. It held that the clarificatory notification dated 27.3.2017 applied retrospectively, exempting the transactions from the notification requirement. Consequently, the penalty imposed by the CCI was set aside, and the appeal was allowed to the extent of the penalty issue. Other issues related to the combination were left open and not decided in this judgment.

Conclusion:
The Tribunal set aside the penalty imposed by the CCI, holding that the transactions were exempt under the De Minimis Notification and that the clarificatory notification applied retrospectively. The appeal was allowed concerning the penalty issue, with no order as to costs.