[Case Brief] Competition Commission of India vs. Thomas Cook (India) Ltd. & Another – Supreme Court of India

Case NameCompetition Commission of India vs. Thomas Cook (India) Ltd. & Another
Case numberCivil Appeal No. 13578 OF 2015
Court Supreme Court of India
BenchJustice Arun Mishra, Justice Navin Sinha
Author of the judgmentJustice Arun Mishra
Decided OnApril 17, 2018
Relevant Act/SectionsCompetition Act, 2002- Section 43A
Author of the case briefSneha Chugh

Brief Facts and Procedural History-

Three companies, The Thomas Cook India Ltd (TCIL) – respondent No.1, Thomas Cook Insurance Services India Limited, (TCISIL) – respondent No.2 and Sterling Holiday and Resorts India Limited (SHRIL) – respondent No.3 have been registered under the Companies Act, 1956. For the purpose of implementing some proposed transactions, the Respondents entered into a Merger Cooperation Agreement and a resolution for some other transactions was also passed by the respondents.

A notice was sent by the respondents to the appellant, Competition Commission of India under Section 6(2) of the Competition Act, 2002, which notified only the ‘Demerger’ and ‘Amalgamation’. Claiming exemption under the Section 5 of the Competition Act, 2002, other transactions were not disclosed. The Competition Commission of India asked the Respondents to remove certain defects in their application and provide further information, inter alia on, whether the notified and non-notified transactions were interrelated. An approval order under section 31(1) of the Competition Act, 2002 was passed by the Commission. However, it observed that the same would not affect the action proposed under section 43(A) of the Act for imposition of penalty in a separate proceeding. A show cause notice was issued to the respondents where the Commission asked as to why the respondents should not be penalized under section 43A for failing in notifying the ‘market purchase’ under section 6(2) of the Act.

The respondents filed their reply to the show cause notice. After hearing the respondents, the Commission imposed a penalty of Rupees One crore under section 43A of the Act. The respondents then filed an appeal before Competition Appellate Tribunal which allowed the appeal filed under section 53B of the Act and set aside the order passed by the Commission. Aggrieved thereby, the Competition Commission of India appealed before the Court under Section 53B of the Competition Act, 2002.

The issue before the court of law-

The primary issue before the Court was whether the Competition Commission of India had rightly imposed the penalty of Rs. One crore on the respondents?

The other issue that arose before the court was whether there was any mala fide intention or mens rea on part of the respondents?

Arguments of the appellants-

The counsel for the appellants submitted that out of the all the transactions, only the “Demerger” and “Amalgamation” in terms of section 6(2) of the Act were notified by the respondent. The Share Subscription Agreement (SSA), Share Purchase agreement (SPA), Open Offer and Market Purchases were not notified.

As such the Competition Commission had rightly taken the view that all the transaction being interconnected transactions or steps with the same ultimate effect were part of the single composite combination, therefore, non-notification of the part of the said combination, particularly, the consummation of market purchases was a violation of the Act. Thus, a penalty of Rupees One crore was rightly imposed by the Commission under section 43 A of the Act. The penalty was rightly levied on the respondents for their failure to notify the entire combination and avoiding regulatory scrutiny by notifying only a part thereof.

Arguments of the respondents-

In response, the counsel for the respondents submitted that section 5 of the Act defines the combination especially in terms of providing asset and turnover thresholds, is to ensure that the only transaction between enterprises or groups of enterprise above a specified critical size are scrutinized by the Commission, as these transactions are more likely to have a measurable market effect or an AAEC factors in the relevant market, therefore, may be required to be preempted and corrected by the Commission. It was further contended that a target based exemptions exempt certain transactions from the purview of the term ‘combination’ as defined under section 5 of the Act.

The counsel for the respondent also contended that there were no malafides on the part of the respondents. Notification to the Commission filed by the respondents on 14.2.2014, did contain information about the market purchases under the heading “Exempt Transactions” on the basis that the Target Based Exemptions covered the market purchases. Thus, imposing a penalty on the respondents for not having specifically identified the market purchases has been part of “Notifiable Transaction” is nothing more than a mere technicality.

The respondent was under a bona fide and genuine belief that market purchases were unconnected and moreover, exempt. Further, no malafides have been attributed to the respondents even in the penalty order passed by the Commission on 21.05.2014 and when Commission had passed the Approval Order on 6.5.2014 and observed that market purchases would not result in an appreciable adverse effect on competition in the market, penalty ought not to have been imposed by the Commission. The Tribunal has rightly set it aside.

The ratio of the Court-

The Court found it relevant to note that the Act and Regulations, 2011 clearly envisage that a combination can consist of one or more transactions. Under Regulation 9(4) of the Regulations, 2011, the parties have an option of giving either a single notice or multiple notices in respect of all the transactions.

It was also found apparent that in the notification made under section 6(2) 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.

The provision of Regulation 9(4) clearly acknowledges the possibility of the business transaction being interconnected or interdependent steps of such transactions. Technical interpretation to isolate two different steps of transactions of a composite combination would be against the spirit and provision of the Act. Market purchases were not independent and could not be used in isolation for the purpose of any exemption. Regulation 9(4) cannot be interpreted to enable consummation by a composite combination before giving notice to the Commission. That would be defeating the intent and purpose of the Act and in particular section 5 and 6 thereof.

If the ultimate objective test is applied, it is apparent that market purchases were within view of the scheme that was framed. As such the subsequent change of law also did not come to the rescue of the respondents considering the substance of the transaction. The market purchases were part of the same transaction of the combination.

The Court further stated that the mens rea assumes importance in case of criminal and quasi-criminal liability. For the imposition of penalty under section 43A, the action may not be mala fide in case there is a breach of the statutory provisions of the civil law, penalty is attracted simpliciter on its violation. The imposition of penalty was permissible and it was rightly imposed. The judgment in Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253, was referred to with respect to imposition of penalty on failure to comply with the civil obligation.

Decision Held-

The court held that the order passed by the Commission was just and proper and in accordance with law, which the Tribunal set aside on wrong premises. Thus, the order of the Tribunal cannot be said to be legally sustainable.

The appeal filed by the Commission was allowed, the order passed by the Tribunal was set aside, and passed by the Competition Commission of India imposing penalty of Rupees One crore was thereby restored.

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