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TMI Blog2020 (3) TMI 1446X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government's objective of promoting Ease of Doing Business in the country and is expected to make India a more attractive destination for Foreign Direct Investment. The notification is expected to enable greater freedom to industry in taking legitimate business decisions towards further accelerating India's economic growth. This makes it clear that the Central Government did not wish that the CCI interfere in acquisition of an enterprise that was de minimis or acquisition of assets that were de minimis. For the purpose of the calculation of assets and turnover what is being acquired is relevant, as the assets/turnover of what is left over with the sellers after the acquisition will have no role to play in the context of the business conducted by the purchaser post-acquisition - In the present case, the 'Stock and Asset Purchase Agreement' covering the global portion of the transaction dated 22nd April, 2014 was publicly announced and notified under the merger control laws in several jurisdictions around the world, including the United States and the European Union. The transaction was cleared in each jurisdiction and closed on 1st January, 2015. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led separately, with a separate binding agreement called the Slump Sale Agreement dated 03.12.2014 between the Parties' Indian subsidiaries. The Parties notified this transaction on 10.11.2014 to the Indian Foreign Investment Promotion Board ( FIBP ). 4. The Parties did not notify the Indian transaction to the Commission because it was covered by the then-applicable De Minimis Exemption to the filing requirements of the Competition Act, as set forth in Ministry of Corporate Affairs' Notification dated 04.03.2011 and corrigendum dated 27.05.2011. 5. The De Minimis Exemption applied to acquisitions of enterprises whose sales in India were not more than INR 750 crores or whose Indian assets were valued not more than INR 250 crores. The exemption was enacted because the Act's initial filing thresholds applied only to parties' combined' sales or assets in India, and therefore could catch transactions where the business being acquired had minor activities in India. 6. The acquisition of NAH India met both standards for the De Minimis Exemption. As shown above, its sales and assets were only a small fraction of the exemption's low thresholds. 7. Nevert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STAND OF THE APPELLANT 11. Learned counsel for the Appellant submitted that the impugned order was erroneous for the following reasons: a. The Impugned Order incorrectly applied the thresholds of the De Minimis Exception to the target's parent company merely because the target was not incorporated. The Act applies the threshold to the person or enterprise being acquired, and it expressly defines enterprise broadly to include both incorporated and non-incorporated businesses. The impugned Order rests its conclusion on a plain reading of the Act, which in fact leads to the opposite result. b. The impugned Order's interpretation cannot be correct because it would remove the filing requirements of the Act from a wide range of acquisitions (including the present transaction). The filing requirements apply only to combinations, which are defined as the acquisition of an enterprise. The impugned Order's overly narrow interpretation of enterprise therefore, would exclude potentially anticompetitive acquisitions merely because of the target's legal structure. Nothing in the Act allows this arbitrary result to the detriment of Indian consumers. c. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Commission 12. Learned counsel for the Commission submitted that exemption Notification No. S.O. 482 (E) dated 4th March, 2011 is not applicable to the Appellant. Further according to the learned counsel for the Commission whether both the parties to the combination would be exempt and constitute person or enterprise who or which proposes to enter into a combination in terms of Section 6(2) of the Act. According to the learned counsel for the Commission, the person or enterprise to the Combination who/which stands to gain in terms of dominance in the relevant market so as to result in appreciable adverse effect on competition' will be the person or enterprise who is liable for the consequence of failure to get the combination approved. Obviously the party surrendering market share or withdrawing from the competition in the market place has not obtained any advantage and is not liable for action under the Act. In the judgment reported above also the penal consequences initiated was against the acquiring enterprise. This principle is followed universally. The whole object of the Competition law is that a person or Enterprise, must seek approval before entering into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 thou sand 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 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up; (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; or (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. 16. From the said provision, it is clear that in all such combinations wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that where the 'Commission' is of the prima facie opinion that a combination is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India then it is required to issue a notice to show cause to the parties to combination and further required to call for report from the Director General. 20. In the same vein, the Commission ought to first determine the applicability of exemption under Section 54 before requiring filing of a notice under Section 6(2) of the Act and before commencing any proceedings under Section 43A of the Act. Whether a transaction is exempt under Section 54 of the Act is a pre-condition for the CCI to proceed with further proceedings under Section 43A of the Act, if any? 21. The Central Government in exercise of power under clause (a) of Section 54 of the Act, in public interest, by Notification S.O. 482 (E) dated 4th March, 2011 (as extracted below) exempted 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) any merger or amalgamation, referred to in clause (c) of section 5 of the Competition Act, where the value of assets being acquired, taken control of, merged or amalgamated is not more than rupees three hundred and fifty crores in India or turnover of not more than rupees one thousand crores in India, from the provisions of section 5 of the said Act for a period of five years from the date of publication of this notification in the official gazette. 2. 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 or attributable to it, shall be the relevant assets and turnover to be taken into account for the purpose of calculating the thresholds under section 5 of the Act. The value of the said portion or division or business shall be determined by taking the book value of the assets as shown, in the audited books of accounts of the enterprise or as per statutory auditor's report where the financial statement have not yet become due to be filed, in the financial year immediately preceding the financial year in which the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition but was not extended to Merger/Amalgamation and Acquiring of Control Cases. It was also noted that where only a segment/portion/business of an enterprise was being combined with another enterprise, the relevant assets and turnovers attributable to the target segment/portion/business were not being considered and instead the transferor's total assets and turnover were being considered for determining the applicability of the exemption. Stakeholders had been voicing their concerns over the issue and in keeping with the Government's principle of Minimum Government and Maximum Governance, the Ministry has issued fresh notifications No. S.O. 988 (E) and No. S.O. 989(E) dated 27.03.2017 wherein, the Central Government intends to provide (i) Clarity on the applicability of the threshold exemption limits to all forms of combinations as referred under Section 5 of the Act. (ii) Clarity on the methodology to be adopted for calculating the relevant assets and turnover of the target when only a portion or segment or business of one enterprise is being combined with another. With the issue of these notifications, combinations falling within the threshold limits w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cleared in each jurisdiction and closed on 1st January, 2015. 30. The acquisition of 'Novartis Animal Health in India' (NAH India) was handled separately, with a separate binding agreement - Slum Sale Agreement dated 3rd December, 2014 between the parties Indian subsidiaries and the parties notified this transaction on 10th November, 2014 to the Indian Foreign Investment Promotion Board. The Appellant has specifically pleaded and not denied by the Respondent that the sale of 'NAH India' as business of human health and animal health. The Appellant has acquired only the business of 'animal health'. In this background, the Appellant has rightly taken the plea that for the purpose of counting the business the amount being acquired should be taken as assets value of the animal health of the 'Novartis India Limited' and not the total value of the assets which includes the human health (human health + animal health). The Commission has failed to appreciate the aforesaid position and not deliberated on the issue. 31. Since the turn over attributed to the business acquired was Rs. 93.9 Crores and the value of the assets being acquired was Rs. 36.2 C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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