Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 10678 OF 2016
SCM SOLIFERT LIMITED & ANR. ..APPELLANT(S)
VERSUS
COMPETITION COMMISSION OF INDIA ..RESPONDENT(S)
J U D G M E N T
ARUN MISHRA, J.
1. The appellants SCM Solifert Limited and another are in
appeal under section 53T of the Competition Act, 2002 (hereinafter
referred to as “the Act”) as against the final judgment and order
dated 30.08.2016 passed in Appeal No.59 of 2015 by the
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Competition Appellate Tribunal thereby affirming the order passed
by the Competition Commission of India under section 43A of the
Act.
2. The Competition Commission of India initiated the
proceedings against the appellants on whom due to the failure to
notify a proposed combination as required under section 6(2) of the
Act, the penalty of Rupees Two crores was imposed under section
43A of the Act. On 3.07.2013, the appellants had purchased
2,89,91,150 shares of Mangalore Chemicals and Fertilisers Limited
(in short referred to as “the MCFL”) constituting 24.46 paid up
share capital of the MCFL on the Bombay Stock Exchange.
3. The first transaction of the acquisition of the shares was by
way of the purchase of shares conducted through bulk and block
deals. It was followed by press release dated 3.7.2013 by Deepak
Fertiliser and Petrochemicals Corporation Limited filed with the
Stock Exchanges, in compliance with the requirements of the
Listing Agreement.
4. On the second acquisition of the shares on 23.04.2014 the
appellants made a purchase order in the open market for the
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purchase of up to 20 lacs equity shares representing 1.7 percent
shares of the MCFL. Subsequently, an open offer in terms of the
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (for short, "the Regulations, 2011") was made for
acquiring up to 26 percent of shares of the MCFL.
5. The appellants filed a notice disclosing details of the first
acquisition and notifying the second acquisition under Section 6(2)
of the Act with the Commission on 22.04.2014 within thirty days of
the public announcement pursuant to the Regulations, 2011 for
the acquisition of 1.7 percent of the MCFL. The Competition
Commission vide its order dated 30.07.2014 under section 31(1) of
the Act approved the proposed combination, however, directed to
initiate penalty proceedings against the appellants under section
43A of the Act. Pursuant to that, a show cause notice was issued
on the ground of failure to notify in accordance to section 6(2) of
the Act, in regard to first and second acquisitions of shares.
6. It was the case on behalf of the appellants that first
acquisition was made solely for the purpose of investment under
Entry I of Schedule I of the CCI (Procedure in regard to the
Transaction of Business Relating to Combinations) Regulations,
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2011, (hereinafter referred to as "the Competition Regulations").
Thereby, it assumed exemption from the notification. It was also
urged that the second acquisition was notified to the Commission
within the stipulated time of 30 days as specified in section 6(2) of
the Act. The purchase was not consummated because as per the
Escrow Agreement dated 28.04.2014, the shares purchased in the
second acquisition were credited to a specifically designated Escrow
account of J.M. Financial Services Limited. The sole purpose of
entering into an escrow agreement was that the transaction was
not consummated prior to approval of the Commission. The
Commission has imposed the penalty of 2 crores; the appellate
tribunal has affirmed the order. The Commission has held that the
appellants have violated section 6(2) of the Act by failing to notify
the proposed combination.
7. It was urged by learned counsel on behalf of the appellants
that first acquisition did not fall within the purview of Entry 1
Schedule 1. The interpretation made by the Commission of the
Entry 1 of Schedule 1 is incorrect. With respect to the second
acquisition of shares, it was urged that the sole purpose of creation
of Escrow Account was to ensure that the appellants could not
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exercise the legal and beneficial rights accruing through the shares,
as the account was operatable solely on the basis of instructions of
the Manager and to the exclusion of the appellants. After approval
of the proposed combination, penalty ought not to have been
imposed. Violation, if any, was technical, not willful, deliberate or
mala fide.
8. Per contra , the Commission has rightly imposed the penalty.
There was a breach of provisions contained in section 6(2). The
penalty imposed is meager. The first acquisition of shares was
notifiable. It could not have been termed solely as an investment.
Reliance has been placed on Press Release issued on 3.7.2013,
which referred investment being “very strategic”, and the appellant
also notified to the public that they “look forward to working closely
with MCFL in the future”. The knowledge of acquisition by the
Zuari group of 9.72% shares in MCFL on 2.4.2013 was admitted in
the reply filed by the appellants. There was the acquisition of a
large number of shares on the same day through the block and
bulk deals. MCFL was not very profitable. Therefore, purchase of
shares could not be said to be a sound investment by a prudent
investor.
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9. To appreciate the rival submissions, it is necessary to refer to
certain provisions contained in the Act. Section 6 of the Act deals
with regulation of combinations and the same is extracted
hereunder:
“ Section 6: Regulation of combinations
(1) No person or enterprise shall enter into a
combination, which causes or is likely to cause an
appreciable adverse effect on competition within
the relevant market in India and such a
combination shall be void.
(2) Subject to the provisions contained in sub
section (1), any person or enterprise, who or which
proposes to enter into a combination, 13 [shall]
give notice to the Commission, in the form as may
be specified, and the fee which may be determined,
by regulations, disclosing the details of the
proposed combination, within thirty days of—
(a) approval of the proposal relating to merger or
amalgamation, referred to in clause (c) of section 5,
by the board of directors of the enterprises
concerned with such merger or amalgamation, as
the case may be;
(b) execution of any agreement or other document
for acquisition referred to in clause (a) of section 5
or acquiring of control referred to in clause (b) of
that section.
(2A) No combination shall come into effect until
two hundred and ten days have passed from the
day on which the notice has been given to the
Commission under subsection (2) or the
Commission has passed orders under section 31,
whichever is earlier.”
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10. Any person or enterprise before entering into a combination,
has to give notice to the Commission disclosing the details within
30 days of (a) approval of the proposal relating to merger or
amalgamation as provided in the Act; (b) execution of any
agreement or other document for acquisition referred to in section
5(a) of the Act or acquiring of control under section 5(b). No
combination shall come into effect as provided in section 6(2A) until
210 days have passed from the day when notice has been given to
the Commission.
11. Section 42 of the Act deals with contravention of the orders of
the Commission. Section 43A deals with the power to impose a
penalty for nonfurnishing of information on combinations. Any
person or enterprise who fails to give notice under section 6(2) of
the Act to the Commission, the Commission, in such an event, is
authorized to impose the penalty which may extend to 1% of the
total turnover or the assets, whichever is higher.
12. Section 43A is extracted hereunder:
“ Section 43A: Power to impose the penalty for
nonfurnishing of information on combinations
If any person or enterprise who fails to
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give notice to the Commission under subsection
(2) of section 6, the Commission shall impose on
such person or enterprise a penalty which may
extend to one percent, of the total turnover or the
assets, whichever is higher, of such a
combination.”
13. Regulation 4 of the Combination Regulations deals with
categories of transactions not likely to have an appreciable adverse
effect on competition in India. Regulation 5 deals with the form of
notice for the proposed combination. Regulation 5(8) provides that
“other document” in section 6(2)(b) to mean any binding document
by whatever name called, conveying an agreement or decision to
acquire control, shares, voting rights or assets. Rule 5(8) is
extracted hereunder :
“ 5. Form of notice for the proposed
combination
(1) ……
(8) The reference to the “other document” in
clause (b) of subsection (2) of section 6 of the Act
shall mean any binding document, by whatever
name called, conveying an agreement or decision
to acquire control, shares, voting rights or assets:
Provided that if the acquisition is without the
consent of the enterprise being acquired, any
document executed by the acquiring enterprise by
whatever name called, conveying a decision to
acquire control, shares or voting rights shall be the
“other document”.
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Provided further that where a public
announcement has been made in terms of the
Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers)
Regulations, 2011, for the acquisition of shares,
voting rights or control, such public
announcement shall be deemed to be the "other
document"."
14. Schedule 1 to the Combination Regulations provides that
acquisition of shares or voting rights referred to in section 5(a)(i) or
Section 5(a)(ii) of the Act does not entitle the acquirer to hold 25%
or more of the total shares or voting rights of the company, directly
or indirectly. The Explanation makes it clear that the acquisition of
less than 10% of the total shares or voting rights of an enterprise
shall be treated solely as an investment. Schedule 1 to the
Combination Regulations is extracted hereunder:
“(1) An acquisition of shares or voting rights,
referred to in subclause (i) or subclause (ii) of
clause (a) of section 5 of the Act, solely as an
investment or in the ordinary course of business
in so far as the total shares or voting rights held by
the acquirer directly or indirectly, does not entitle
the acquirer to hold twenty five per cent (25%) or
more of the total shares or voting rights of the
company, of which shares or voting rights are
being acquired, directly or indirectly or in
accordance with the execution of any document
including a share holders” agreement or articles of
association, not leading to acquisition of control of
the enterprise whose shares or voting rights are
being acquired.
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Explanation: The acquisition of less than ten
percent of the total shares or voting rights of an
enterprise shall be treated as solely as an
investment. Provided that in relation to the said
acquisition – (A) the Acquirer has ability to exercise
only such rights that the exercisable by the
ordinary shareholders of the enterprise whose
shares or voting rights are being acquired to the
extent of their respective shareholding; and (B) the
Acquirer is not a member of the board of directors
of the enterprise whose shares or voting rights are
being acquired and does not have a right or
intention to nominate a director on the board of
directors of the enterprise whose shares or voting
rights are being acquired and does not intend to
participate in the affairs or management of the
enterprise whose shares or voting rights are being
acquired.”
15. The procedure for imposition of penalty is provided under
Regulation 48 of the new Regulations. A show cause notice has to
be given and thereafter if an oral hearing is granted, then the
Commission is empowered to impose the penalty considering the
facts and circumstances of the case.
16. First, we deal with the acquisition of the shares of MCFL by
the appellants on 3.11.2013. There was the acquisition of 24.46%
equity share capital of MCFL on a single day of which 19.9% were
acquired through the block and bulk deals. The contemporaneous
Press Release dated 3.7.2013 issued by the appellants filed with
the stock exchanges, in compliance with the requirement of the
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Listing Agreement indicated that the objective was not to make an
investment in MCFL. The Press Release referred “investment is very
strategic and a good fit with the company’s business”. There was a
pointer in the Press Release of its intent when it stated that DFPCL
looks forward to working closely with MCFL to “enhance longterm
value for the shareholder of both companies”. Not only the
appellants but another player Zuari group also made a significant
purchase of shares of MCFL i.e. 9.72% on 2.4.2013 is also not in
dispute. Thus, it is apparent that the appellant's first acquisition
was a part of the longterm plan to try and take over MCFL, which
was simply not an investment. The purchase of 24.46% equity
stake, vested power to exercise influence as was reflected in Press
ReleaseII also. The acquisition of less than 10% of the total shares
or voting rights of an enterprise is solely an investment. It also
indicates that beyond this threshold, the transaction is required to
be looked carefully. Thus, there was a failure to comply with the
provisions of section 6(2) of the Act in regard to the acquisition of
24.46% of the shareholding. The provisions of section 6(2) were not
at all complied with.
17. Coming to the second acquisition of shares of 0.8% equity
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shares of MCFL, the dispute is as to whether the notifying within
30 days of the purchase was compliance of the provision as per
provisions of section 6(2) it should have been notified before the
acquisition. As a corollary, it was also argued that the equity
shares purchased second time were placed in the Escrow Account.
The appellants could not have exercised the beneficial rights until
the Commission made the approval of the proposed combination.
What was essential under section 2(e) was the voting rights and the
appellants could not have exercised voting rights by placing shares
in the escrow account.
18. We find no merits in the submissions raised. It is apparent
from section 6(2) of the Act that the proposal to enter into
combination is required to be notified to the Commission. The
legislative mandate is apparent that the notification has to be made
before entering into the combination. The Preamble of the Act
contains that the Commission has been established to prevent
practices having an adverse effect on the competition. The
combination cannot be entered into and shall come into effect
before order is passed by Commission or lapse of certain time from
date of notice is also apparent from the terminology used in section
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6(2A) which provides that no combination shall come into effect
until 210 days have passed from the date of notice or passing of
orders under section 31 by the Commission, whichever is earlier.
The provisions made in Regulation 5(8) also buttresses the
aforesaid conclusion. Notice of Section 6(2) is to be given prior to
consummation of the acquisition. Ex post facto notice is not
contemplated under the provisions of section 6(2). Same would be
in violation of the provisions of the Act.
19. The expression “proposes to enter into a combination” in
section 6(2) and further details to be disclosed in the notice to the
Commission are of the ‘proposed combination’ and the specific
provisions contained in section 6(2A) of the Act provides that no
combination shall come into effect until 210 days have passed from
the date on which notice has been given or passing of orders under
section 31 by the Commission, whichever is earlier. The intent of
the Act is that the Commission has to permit combination to be
formed, and has an opportunity to assess whether the proposed
combination would cause an appreciable adverse effect on
competition. In case combination is to be notified expost facto for
approval, it would defeat the very intendment of the provisions of
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the Act.
20. When the transaction has been completed and acquisition
has been made and the latter transaction has exceeded holding
more than 25% by the second purchase, obviously prior permission
was required, as discussed hereinabove, as its total shareholding
increased to 25.3%. Thus, we have no hesitation to hold that the
notification under section 6(2) of the Act has to be exante.
21. The factum of the approval of the combination subsequently
by the Commission is not going to provide an insulation when the
provisions of the Act have been violated and prior notice had not
been given under section 6(2). It was open to impose a penalty
under section 43A. Merely by grant of approval by the Commission
violation of provisions does not become condonable ipso facto.
22. The provisions contained in section 43A make it clear that the
Commission shall impose the penalty which may in its discretion
extend to 1% of the total turnover or the assets, whichever is
higher, of the combination. It has been found on facts that the
turnover of the combination was Rs.3322 crores per annum, 1% of
which would be Rs.33.22 crores. The Commission had imposed a
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nominal penalty of Rs.2 crores which amounts to only 0.06% of the
total turnover. In the facts of the case, information was disclosed
belatedly. The imposition of penalty was warranted due to the
violation of the provision and it was rightly imposed.
23. There was no requirement of mens rea under section 43A or
an intentional breach as an essential element for levy of penalty.
The Act does not use the expression "the failure has to be willful or
mala fide” for the purpose of imposition of penalty. The breach of
the provisions of the Act is punishable and considering the nature
of the breach, it is discretionary to impose the extent of penalty.
Mens rea is important to adjudge criminal or quasicriminal
liability, not in case of violation of the civil statutory provision. In
Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253, with
respect to the failure to comply with the civil obligation this Court
has laid down thus:
"In our opinion, mens rea is not an essential
ingredient for contravention of the provision of a
civil Act. In our view, the penalty is attracted as
soon as a contravention of the statutory
obligations as contemplated by the Act is
established and, therefore, the intention of the
parties committing such violation becomes
immaterial. In other words, the breach of a civil
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obligation which attracts penalty under the
provisions of an Act would immediately attract the
levy of penalty irrespective of the fact whether the
contravention was made by the defaulter with any
guilty intention or not. This apart that unless the
language of the statute indicates the need to
establish the element of mens rea . It is generally
sufficient to prove that a default in complying with
the statute has occurred. The penalty has to follow
and only the quantum of penalty is discretionary "
In our considered opinion, the penalty is
attracted as soon as the contravention of the
statutory obligation as contemplated by the Act
and the Regulation is established and hence
intention of the parties committing such violation
becomes wholly irrelevant.
We also further hold that unless the language
of the statute indicates the need to establish the
presence of men's rea, it is wholly unnecessary to
ascertain whether such a violation was intentional
or not. On a careful perusal of Section 15(D) (b)
and Section 15E of the Act, there is nothing
which requires that men's rea must be proved
before a penalty can be imposed under these
provisions. Hence once the contravention is
established then the penalty is to follow.”
24. The imposition of penalty under section 43A is on account of
breach of a civil obligation, and the proceedings are neither
criminal nor quasicriminal. Thus, a penalty has to follow.
Discretion in the provision under section 43A is with respect to
quantum. Thus, we find that in view of the submissions made by
learned counsel for the appellants no case for our interference is
made out.
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25. The judgment and order passed by the Commission as
affirmed by the appellate tribunal are in accordance with law. The
appeal being devoid of merit, deserves dismissal and is hereby
dismissed. No costs.
……………………………..J.
(ARUN MISHRA)
……………………………..J.
(NAVIN SINHA)
NEW DELHI;
APRIL 17, 2018.
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