Introduction
Competition Act, 2002 has been introduced by the parliament to regulate business practices and ensure the promotion and sustainability of competition in the market. The main purpose of the Competition law is to maintain and encourage competition in the country to promote the efficiency and adaptability of the Indian economy. Under the legislation of Competition Act, 2002, the government of India formulated The Competition Commission of India (CCI) in 2009 for the administration, implementation, and enforcement of the act. This commission also prevents and eliminate the practices which have an adverse effect on the competition in the market. In India, Combinations i.e., Mergers and acquisitions are one of the principal legislations managed by and laid down under the Competition Act, 2002. The provisions for the regulation of mergers and acquisitions are enshrined under sections 5 and 6 of the Combination Act. Although Competition Act doesn’t define the terms “merger” or “amalgamation” or “acquisition” but defines Combination which includes the above-mentioned terms indirectly, that is “Combination is nothing but the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises”, if –
(a) any acquisition where –
“(i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting rights or assets have been acquired or are being acquired jointly; either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores.
(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, either in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores.”[1]
The authoritative body for the regulation of these combinations is the Competition Commission of India. However, the Ministry of Corporate Affairs (MCA) and Government of India GoI) also governs by issuing certain notifications and can provide modifications for the same. In the explanation part of section 5 of the act, control “includes controlling the affairs or management by—
(i) one or more enterprises, either jointly or singly, over another enterprise or group.
(ii) one or more groups, either jointly or singly, over another group or enterprise.”
This control is specifically known as merger control which defines as “the procedure of reviewing mergers and acquisitions under antitrust / competition law.” Merger control management is implemented to prevent anti-competitive consequences of concentrations.[2]The primary or say most common offence is regarding the notification of the interconnected transaction, in the case of Eli Lilly & Co v. Competition Commission of India (2020), the National Company Law Appellate Tribunal held that “the said notification was being applied to Combinations which resulted only from acquisition but was not extended to Merger/Amalgamation and Acquiring of Control Cases.” It was also decided 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.”[3]
Also, in the case of Competition Commission of India v. Thomas Cook (India) Ltd. and Anr (2018), the supreme court observed that wherever there are numerous interconnected transactions, it consequently results in composite transactions. Hence, it was held that “All these interconnected transactions must be notified at the time of notifying the principal combination and there were certain purchases that were related to the main combination. Therefore, parties to the combination contravened the provisions of the Competition Act,2002, by consummating these purchases prior to notifying the Commission.”[4] For the offence of gun-jumping, in the case of SCM Solitifert Ltd. and Anr v. Competition Commission of India (2018), the Supreme Court has drawn the legislative intending to overdue the prohibition of gun-jumping and held that “the legislative mandate of Section 6 is that every combination would have to be notified prior to entering the same. This gives the opportunity to CCI that such a combination will have an appreciable adverse effect on the market.”[5]
Interpretation of the term “Control” provided under section 5 of the competition act, 2002 (with respect to the acquirer-seller relationship) – CCI decisions
In the case of Century Leasing v. Tata Capital Financial Service Ltd. (2012), the CCI held that “Affirmative rights with respect to approval of a business plan, commencing a new line of business, discontinuing any existing line of activity and any strategic business decisions envisage control.”[6]
In the case of Alpha v. Tata Capital (2014), the CCI held that “Affirmative rights for which consent of the acquirer is required include strategic commercial decisions of the company, and thus cannot be considered as mere minority protection rights but reflect the acquirer’s control over the company.”[7]
In the case of Jet Airways (India) Ltd. v. Etihad Airways PJSC, the CCI held that “Etihad’s right to nominate two out of six shareholder directors (including the Vice-Chairman), its acquisition of a 24% equity stake and its right to recommend candidates for senior management constituted Etihad’s ability to participate in the managerial affairs of Jet and constituted control.”[8]
In the case of Multi Screen Media Pvt. Ltd. v. SPE Mauritius Holdings Ltd. (2012), the CCI held that “Joint control over an enterprise implies control over the strategic commercial operations of the enterprise by two or more persons. Each of the persons in joint control would have the right to veto/block the strategic commercial decisions which could result in a deadlock situation. Joint control over an enterprise may arise as a result of shareholding or through contractual arrangements between the shareholders”.[9]
In the case of Standard Life (Mauritius) 2006 Limited v. Housing Development Finance Corporation Limited (HDFC) (2015), the CCI held that “The right to approve or amend any business plan, dispose of or dilute its interest in any of its subsidiaries and approve any remuneration of full-time directors and managers/CEO, constitutes control.”[10]
Penalties under Competition Act, 2002
Commission has the authority to enquire into any alleged contravention of the provisions provided under the Act and wherever there’s a breach in any of the compliance, the commission has several reforms to levy a penalty of a business entity or person. In other words, when a person or entity fails to comply with the directions and orders provided under competition shall be liable with the fine or imprisonment or both. Chapter IV of the Act consists of the provisions for penalties with respect to the offences related to prohibited practices. For instance, if there’s a breach of orders provided under section 42(2) of the act, “then the person or entity shall be punished with imprisonment which may extend up to 3 years or with a penalty of 25 crores as the Chief Metropolitan Magistrate of Delhi may deem fit.”
Following are the various situations under Competition Act, 2002 where the Commission can impose a penalty on a person or entity: –
- Penalty for contravention of orders or directions of the commission
Section 42 of the Act states that “Commission may cause an inquiry to be made into compliance of the orders or directions made in exercise of its power under the act.” further, its sub-section 2 clearly states that “If any person fails to comply with the orders or directions of the commission describe under section 27, 28, 31, 32, 33, 42A and 43A of the Act, without having any reasonable clause, shall be liable with fine or imprisonment or both.”
In the case of Reliance Agency v. Chemists and Druggists (2018), the commission held that “Opposition parties were carrying on the practice of making the introduction of new products in the market subject to payment of PIS charge and its approval, thereby limiting and controlling supplies in the market, in contravention of Section 3 (3) (b) read with Section 3 (1) of the Act.” And imposes a penalty sum of 11,11,549/-, calculated at the rate of 10% of the average income of the defendant. [11]
- Penalty for failure to comply with the orders or directions of Commission and DG
Section 43 of the Act talks about the penalty for failure to comply with the order or directions of the commission under section 36(2) and 36(4) or Director-General under section 41(2) if there’s not any reasonable clause to disobey them. And thus, liable with a fine only, not any kind of imprisonment.
In the case of Indian Laminate Manufacturers v. Sachin Chemicals & others (2020), the Director-General of the CCI held that “under section 43 of the act, against two parties viz. Yug International and Hazel Mercantile before the Commission for their non-cooperation during the investigation. The Commission, vide separate orders dated 01.06.2018 and 11.06.2018, issued directions to cooperate with the investigation and imposed a penalty of INR 1 lakh each on opposition parties.”[12]
- Penalty for non-furnishing of information on combination
Section 43A of the Act talks about the power for imposing a penalty for non-furnishing of information which may cause a noticeable adverse effect on competition in the market in India. States that “If any person or enterprise who fails to give notice to the commission for the same shall be liable with a penalty which may extend to 1% of the annual turnover or assets, whichever is higher of such a combination.”
In the case for Proceedings under Section 43A of the Competition Act, 2002 against Telenor ASA, Telenor (India) Communications Private Limited and Telenor South Asia Investments Pte Limited (2018), the Commission imposes a nominal penalty of INR 5,00,000/- on Telenor for non-furnishing of information on the combination. [13]
- Penalty for making false statement or omission to furnish the material information
Section 44 of the Act talks about the penalty for making a false statement to furnish the material information, stating “If any person, being a party to a combination, makes a statement which is false in any material particular, or knowing it to be false or omits to state any material particular knowing it to be material, such person shall be liable to a penalty ranging 50 Lacs to 1 crore, as may be determined by the Commission.”
In the case for Proceedings against Canada Pension Plan Investment Board and ReNew Power Limited (2019), the commission held that “CPPIB and ReNew have extended cooperation in the inquiry and supplied requisite material/ documents in response to the information requirement of the Commission. Such material/ documents formed the basis of the above findings of contravention. Considering these, the Commission considers it appropriate to impose a penalty of INR 50,00,000 (Rupees fifty lakh) on CPPIB. CPPIB shall pay the penalty within 60 days from the date of receipt of this Order.”
- Penalty for contravention of orders or directions od commission by companies
Section 48 of the Act talks about the penalty for contravention of orders by companies, stating “Where a person committing contravention of any of the provisions of this Act or of any rule, regulation, an order made or direction issued thereunder is a company, meaning a body corporate and includes a firm or other association of individuals, every person who, at the time the contravention was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.”
In the case In re, Suo Motu Case (Battery case) (2018), the commission held the Managing Director and executive assistant of the joint Managing Director both individually liable under this section. the commission held that a “Company’s contravention of the Act could not have been possible without the Managing Director’s knowledge and implicit approval, given that the contravention was for a long period of time and the Managing Director has been “overall in-charge” of the affairs of the company, and not been able to thoroughly demonstrate that the company had contravened the Act without his knowledge. Therefore, used Section 48(1) of the Act to deem that the Managing Director was liable. On the other hand, in the same case, the CCI used Section 48(2) of the Act to hold the executive assistant of the joint Managing Director to be liable.”[14]
In the recent case of In Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited (2019), the commission held on August 2021, that “Maruti Suzuki India Ltd. violated Sections 3(4)(e) read with 3(1) of the Act and caused an appreciable adverse effect on competition (AAEC), and to cease and desist from indulging in such Resale Price Maintenance (RPM) and directed it to deposit a penalty of INR 200 crore.”[15]
CONCLUSION
Competition law has emerged immensely in the last few years. Merger and acquisition are the primary objectives of the Competition Act, 2002, in fact, the merger and acquisition (combinations) are one of the reasons for the establishment of the Act. Thus, the offences under these combinations enshrined under sections 5 and 6 of the Act must be noted. Talking of the offences, penalties for such offences always comes in handy. Thus, this article has attempted to frame the offences that can be done and are enshrined under this act along with the penalties provided.
Author(s) Name: Garima P. Bhaisare (Maharashtra National Law University, Nagpur)
References:
[1] Competition Act, 2002, section 5
[2] Competition Act, 2002, section 6
[3]Eli Lilly & Co v. Competition Commission of India (2020) – National Company Law Appellate Tribunal (reg. no. C-2015/07/289)
[4]Competition Commission of India v. Thomas Cook (India) Ltd. and Anr (2018) – SCC civil appeal no. 13578 of 2015
[5]SCM Solitifert Ltd. and Anr v. Competition Commission of India (2018) – SCC civil appeal no. 10678 of 2016
[6] Century Leasing Corporation/Tata Capital Financial Services Limited CR No. C-2012/09/78, (CCI) dated Oct. 4, 2012.
[7] CCI decision 2014
[8] In Re Jet Airways Ltd. Order No. WTM/RKA/CFD-DCR/17/2014 dated May 8, 2014.
[9] Multi-Screen Media Pvt. Ltd./SPE Mauritius Holdings Ltd (CCI), Combination Registration No. C-2012/06/63, dated Aug. 9, 2012.
[10]CCI decision 2015
[11] Reliance Agency v. Chemists and Druggists on 4 January 2018, CCI case no. 97 of 2013
[12] Indian Laminate Manufacturers v. Sachin Chemicals & Others on 8 October 2020, CCI case no. 61 of 2016
[13] In Re Proceedings under Section 43A of the Competition Act, 2002 against Telenor ASA, Telenor (India) Communications Private Limited and Telenor South Asia Investments Pte Limited (2018)
[14] Cartelisation in respect of zinc carbon dry cell batteries market in India, In re, Suo Motu Case No. 2 of 2016, Order dated 19-4-18 (Battery case).
[15] In Re: Alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers, (Case no. 01 of 2019), order dated 23 August 2021
