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TMI Blog1994 (9) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the injunction application are directed against a proposed scheme of amalgamation submitted by HLL and TOMCO for the merger of TOMCO with the HLL. The complaint was submitted on 20-9-1993 alleging that the merger, if allowed to take place, shall completely eliminate competition in the market of soaps and deter- gents. At any rate, it shall have the effect of preventing, distorting and restricting competition in these products. The interim injunction claimed by the complainants was to restrain the two respondents from putting into practice the impugned agreement (the proposed scheme of amalgamation) during the pendency of the enquiry by the Commission against the respondents. The first complainant, Maharashtra General Kamgar Union is a union of industrial workers stated to be engaged in industries related to the production or supply of various products including soaps and detergent. The second complainant is a union of employees of HLL. The third complainant, a trade union solidarity committee claims to be an associa- tion of trade unions of workers engaged in diverse occupations in different trades in and around Bombay. Ms. Sujata Gothoskar is a household consumer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up the matter. 3. In response, HLL and TOMCO, both, put in appearance through their learned counsel and filed separate but substantially identical replies raising several preliminary objections questioning the jurisdiction of this Commission to take cognizance of the complaint or to pass any other order, whether substantive or interlocutory, therein. The objections raised by HLL were briefly summarised, by its learned counsel, Shri Desai, thus:-- (a)The MRTP Commission gets jurisdiction to entertain complaints only if it relates to 'trade' and 'trade practice'. Amalgamation, or rather the proposed scheme of amalgamation of two companies under the Companies Act, 1956 (Sections 391 to 394), Shri Desai urged, being neither a 'trade' nor 'trade practice' as defined under the MRTP Act and as these terms were interpreted by the Full Bench of the Commission in CERC v. TTK Pharma 60 Comp. Cas. 89, the Commis- sion shall have no jurisdiction to take cognizance of the present complaint. (b)Inasmuch as the injunction in terms prayed for shall have the direct effect of taking away the jurisdiction of the Bombay High Court to proceed with the petitions submitted by the HLL and TOMCO for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under the MRTP Act: we must assume that after the deletion of section 23, Parliament did not intend the power of the Company Court to sanction schemes of amalgamation to be controlled by the Commission under any provision of the MRTP Act. (iii)If 'amalgamation' be a 'trade practice' as is now argued, (a single act may be according to the definition), then it is submitted that amal- gamation being expressly authorised by the Companies Act no cease and desist order can be passed in the present case (section 37(3)(b) of the MRTP Act). (iv)Alternatively, it is submitted that even if it be held that after the omission of section 20 to section 26 in the MRTP Act the jurisdiction of the Commission in respect of RTP includes schemes of merger, etc., they could not be held to cover schemes of amalgamation, which under Indian law can never be effectuated without sanction of a Company Court especially since schemes of Amalgamation under Indian Law necessarily involve the dissolution of a Company without winding up [section 394(1)(iv)]. This can never be done by act of parties but requires a Court order. Hence schemes of amalgamation remain outside Chapter V of the MRTP Act." 5. Shri O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Bombay High Court with a scheme of amalgamation was initiated by the two companies on 9-3-1993, when the two companies had notified the Stock Exchange at Bombay and other Stock Exchanges where their shares were listed about the proposed Board Meeting on 19-3-1993 to consider the merger of TOMCO with HLL. The Boards of two companies accordingly met separately on 19-3-1993 and approved the merger proposal and resolved to progress the merger proposal. Thereafter, each of the two companies filed applications before the Company Judge, Bombay High Court on 29-3-1993 requesting for convening of meetings of the sharehold- ers and creditors to consider the merger proposal and on the same date, the second complainant before us filed a caveat before the High Court and the case was adjourned. The Bombay High Court thereafter passed orders on these applications from time to time issuing appropriate directions as contemplated by the relevant provisions of the Companies Act for process- ing the merger proposal. 9. It is pertinent to mention that during the proceedings, the second complainant as well as some shareholders filed objections against the proposed amalgamation which were heard a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been filed with the Registrar (section 391(3)). At the time of presentation of the injunction application under section 12A and until the conclusion of the arguments, therefore, the so-called impugned 'agree- ment' had not even come into existance, much less become effective in law. It was at best a mere 'proposed' scheme yet to be scrutinised and sanctioned by the Company Judge. Further, the terms and conditions in the scheme as submitted by the respondents could even undergo modifi- cations, additions and alterations such as those may be directed by the Company Judge both while sanctioning the same or even thereafter in the exercise of supervisory powers vide sections 392(1) and (2). That being so, there was no question of issuing a restraint order prohib- iting the respondent from giving effect to a scheme which was still subject of review before the Company Judge and which had not come into existence, much less become effectual in law. That which is neither effectual or operative nor even a concluded transaction has no legal existence and consequently there was no occasion to issue any injunction against the respondents in respect thereof. Even a preventive action was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of any scheme of merger or amalgamation and expansion, etc. until the merger or amalgamation has received the prior approval of the Central Government. This provision was deleted by the amending Act of 1991 whereby significant amendments were introduced in the MRTP Act with a view to giving effect to the New Industrial policy of deregulation and liberalisation aimed at achieving economies of scale for ensuring higher productivity and competitiveness and advantages in the international market. A sea-change was introduced in the entire structure of the MRTP Act. The pre-entry scrutiny of investment decisions by the monopolies companies covered by the un-amended provision of section 23 was dispensed with the deletion of the provisions such as section 23 of the MRTP Act. Instead, the emphasis was shifted to controlling and regulating monopolistic, restrictive and unfair trade practices rather than making it obligatory for the monopoly houses to obtain prior approval of the Central Government for expansion, merger, amalgamation and takeovers, etc. etc. Prior Government approval or pre-entry scrutiny was thus given a go bye for achieving the avowed objective of effecting economies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of undertakings having substantial market shares unlawful by the mere size of the market share or the value of their assets, unlike the American Law embodied in the Sherman Act and the Clayton Act which declare such combinations or mergers per se unlawful. Neither can we for the same reason presume the impugned amalgamation to be necessarily anti-competitive or prejudicial to public interest. There is considerable authority on the subject supporting the proposition that mergers are not always against public interest and indeed may sometimes have countervailing advantages for effecting economies of scale, innovation and other effects which may turn out to be efficiency producing factors. Global competition, for example, may greatly reduce the ability of such combinations or mergers to control pricing in the national market. 17. Indeed even, before the amendment of 1991 under the MRTP Act, the position was that monopoly companies having assets of the value of not less than Rs. 100 crore were required only to obtain prior approval of the Central Government which could refer the matter to the Commission for its scrutiny and report after ascertaining whether such companies shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 42 of the judgment delivered by the Appellate Bench of the Bombay High Court. To the extent relevant for our purpose the same are reproduced: "The scheme as ordered by the Court is approved subject to the following modifications: (a)****** (b)There shall be added clause 14(a) to the scheme which reads as under: '1. HLL will have all the rights and powers conferred on it by the law in connection with manufacture, sale and distribution of the pro- ducts which form the subject matter of this arrangement. 2. HLL undertakes to: (a)assure consumers of toilet soaps and detergents and consumer organisations that it will not indulge in any trade practice or pursue any policies which have the effect of preventing, restrict- ing or lessoning of competition, which is prejudicial to consumer interest; (b)Continue to manufacture and promote sales of all major brands of soaps (accounting for 90 per cent of turnover) formerly manufactured by TOMCO before the proposed merger, and to the extent not less than percentage or value of market share before the merger. Explanation: In order to ensure that the aforementioned assurances are carried out, HLL will not enter into any horizontal arrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds in the matter, both Shri Nariman and Shri Desai taking the position, that the Commission has no jurisdiction at all, where, as here, a scheme of amalgamation is submitted before the Company Court under section 391 of the Companies Act in view of the deletion of certain provisions from Chapter III of the MRTP Act and the consequential amemdments inserted therein, while Shri Dua contending that the MRTP Act has an overriding effect over the powers and jurisdic- tion of the Company Court under Chapter V of the Companies Act. 22. Reliance was also placed by Shri Nariman on section 37(3)(b) of the MRTP Act read with section 4(1) which provides that no order shall be made under sub-section (1) in respect of any trade practice which is expressly authorised by any law for the time being in force. The contention was that the Companies Act lays down a complete code in regard to schemes of amalgamation and mergers of two companies. With the deletion of the fetters embodied in section 23 of the MRTP Act, as it stood prior to its amendment in 1991, the Company Court has been left free to deal with petitions for sanction of schemes of amalgamation or mergers. It is further submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mble view, in the final analysis, but an agreement with the seal of the Court superadded to it. What effect the scheme of amalgamation or merger shall produce or is likely to have on competition in the trade to which the scheme relates is, however, within the exclusive domain, purview and concern of this Commission under the MRTP Act in view of the clear duty cast upon it as the sole Competitive Law Agency established in this country. The Commission was established for effectuating the mandate of the Constitution of India as enshrined in article 39 clause (c) of the Directive Principles of the State Policy which provides that the State shall ensure that its economic system does not operate in a manner that results in the concentration of wealth and means of production to the common detriment. The mandate underlying the MRTP Act inter alia is to ensure that agreements or arrangements which have the effect of eliminating, distorting or reducing competition ought not to be allowed to operate. And this power of the Commission is subject only to the appellate powers of the Supreme Court under section 55 of the MRTP Act and, of course, to the supervisory powers of the Supreme Court over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to take cognizance of any agreement or arrangement or understanding reached between two undertakings with a view to ascertaining whether the agreement etc. is not anti- competitive or unfair, the Commission shall, we do venture to think, equally be competent and have jurisdiction to scrutinize even a scheme of amalgamation sanctioned by the Company Court as to its content or inevitable effect in terms of the prohibited trade practices dealt with under the MRTP Act. And, if the terms of the scheme disclose the existence of any trade practice, whether in its operation or inevitable effect, the amalgamation or mergers shall undoubtedly fall within the purview of the MRTP Act. 27. Shri Desai then placed alternative submission for our consideration. The contention was that even if the Commission does have jurisdiction to examine the effect of an amalgamation or a merger, it can only make an order for the division of any trade of the undertaking or of any undertak- ing or interconnected undertakings into such number of undertakings as the circumstances of the case may justify under section 27 of the MRTP Act. It can also make a recommendation for severance of inter-connection between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter VI of the Act would depend on the conclusions reached by us. If we find that any clause in the scheme attracts provisions of section 2(o) or section 33 or both it would pass a 'cease and desist' order under section 37 of the MRTP Act. If, on the other hand, the Commission comes to the conclusion that merger cannot operate except by elimination, distortion or restriction of competition in a manner prejudicial to public interest or that the working of the undertaking would be prejudicial to public interest or that it would lead or is likely to lead to the adoption of any monopolistic or restrictive trade practice it can make an order under section 27 and/or 27A as the circumstances may warrant. 31. The upshot is that this Commission has undoubted jurisdiction to enter- tain the complaint and to take appropriate action permissible under the MRTP Act. 31. Having carefully examined the material on the record as well as the terms of the Scheme as sanctioned by the Bombay High Court and the probable implications thereof, we are fully satisfied that the present is a pre-eminently fit case for enquiry against the respondents under section 10(a)(i ) and (iv) read with sections 2(o), ..... 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