INTRODUCTION
The Ministry of Corporate Affairs issued and circulated notification in 2017[1] regarding the de-minimis thresholds under Section 5[2] and 6[3] of the Competition Act, 2002 which talk about the combinations and its regulation by the Act. The notification discusses Section 5 which delves into details of the combination of enterprises but Section 6 is of great significance in the current instance as it deals with the regulation of such combination, which is important to analyse. This notification had a significant effect on the mergers and acquisitions that took place thereafter as it increased the limit of the threshold.[4] The term de-minimis is used to describe something insignificant and inconsequential to merit the consideration of the law.[5] The Competition Act applies such thresholds to a ‘person’ or ‘enterprise’, which includes incorporated or non-incorporated enterprises that are being acquired or are the ‘true target’. The 2017 notification specifically implied that the asset or the turnover of only the concerned part is taken into consideration to honour the purpose of the controlled thresholds.[6] The concerning part is the one that is being merged or acquired by another enterprise. This threshold, which also finds a mention in the 2016 notification, absolved the enterprises with asset value being Rs. 3.5 billion or less and turnover of Rs. 10 billion or less from being obligated to inform the Competition Commission of India (‘CCI’) before any merger or acquisition. [7]
It is important to delve into the de-minimis threshold exemptions and CCI’s ruling over it since the regulation of the combination of two entities in the form of a merger or acquisition could affect the whole market. The market competition efficacy and the power of the combination can lead to potential dominance by such businesses. Such unregulated regulation can be a cause of entry barriers for the new firms trying to enter the market by taking into account the high capital cost required to enter or by examining the size and importance of the competitors. Such dominance is a threat to all the other competitors and can prevent a free and fair competition by acquiring a large customer base and abusing its dominance. The same is in contravention to Section 4 of the Competition Act, 2002 which restricts the abuse of dominant position in a market.[8] Although, the new laws and regulations regarding the exemption threshold are required to ensure that the companies do not engage in anti-competitive practices by way of mergers or acquisitions, however keeping a watchful gaze is crucial to prevent abuse.
THE ‘TRUE TARGET’
In March 2020, National Company Law Appellate Tribunal (‘NCLAT’) heard CCI and Eli Lilly and Company’s case wherein it gave a judgment setting aside a penalty of Rs. 10,000,000 on Eli Lilly for not communicating the acquisition of Novartis Animal Health Business (‘NAH’) India, to the CCI. CCI claimed that Eli Lilly has violated Section 6(2) of the Competition Act, 2002, which talks about the de-minimis threshold set by the Central Government.[9] CCI believed that to assess if the de-minimis threshold is applicable or not, one must consider the assets and turnover of the entity that is being incorporated i.e. the parent company of NAH, Novartis India Limited.
This argument given by the CCI was found to be flawed on two counts.
Firstly, it is fair to argue that the application of the de-minimis exemption threshold, according to the Competition Act, is on the ‘person’ or ‘enterprise’ being amalgamated, acquired or merged moreover, the term ‘enterprise’ also included non-incorporated businesses. [10] The current case in its application fails the definition of the word ‘enterprises’ that is expressly defined in Section 2(h) of the Competition Act.[11] Enterprise, according to the definition, also includes non-incorporated businesses which is explicitly states in Section 2(h)(l)(v) of the Act. [12]
However, there are still doubts about the interpretation of the word ‘enterprise’ within the general public. This is simply because there have been cases filed in the past for instance in CCI v. Coordination Committee of Artistes and Technicians of West Bengal Film and Television and Others,[13] the Supreme Court sought to interpret the word ‘enterprise’ in a practical and functional fashion. It meant that conducting any economic activity is predominant to its definition. Looking forward at the future developments of this clause, the Competition (Amendment) Bill, 2020[14] has proposed and advocated for a broader definition of the term ‘enterprise’ in the Act.
Secondly, it implied an imprecise and flawed application of the de-minimis exemption thresholds on the ‘incorporated entity’ which was Novartis India Limited rather than the acquired part which was NAH.[15] Such an application disregards the 2017 notification which talks about examining the de-minimis threshold being applied to only the portion of business acquired or merged by an enterprise.
Thus, in the current scenario, the de-minimis threshold was to be applied on NAH, since it was the ‘true target’ or the portion of business being acquired. It is pertinent to note that the purpose of this provision is to collect the details of the assets and turnovers of the entities being acquired. However, it is irrelevant to quantify the assets and turnovers of the leftover portion of the business as it will have very little or nothing to do with the business of the acquiring party.
Thus, in the light of the arguments, NCLAT inferred that the penalty for violating Sec 6(2)[16], in regard to the de-minimis threshold, imposed by CCI had failed to stand the test of law. This decision was pronounced by NCLAT by keeping in view the essential 2017 notification which brought about a consequential and material change in the de-minimis exemption threshold. It was clear that the exemption should be put on the portion of the business being acquired or merged and not simply the incorporated entities.
During the hearing of the case, an observation was made that raises questions on the discrepancy in the statutory provisions and its objective. While the Sec 6(2) of the Competition Act states that, “…any person or enterprise, who or which proposes to enter into a combination…”[17] is obliged to notify the CCI in case of any acquisition or merger, but the delegated legislation, i.e. Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011,[18] states that the acquirer is obliged to file such a notice informing about merger or acquisitions.[19] There exists a clear difference in the two as in the first instance, the proposer is required to inform the CCI but according to the Regulations of 2011, the acquirer is to do the same. Such variation can potentially lead to increasing disputes and defeating the purpose of both the provisions. It is pertinent to note that this difference can lead to confusion among the ‘proposers’ and those ‘acquiring’ in regards to filling the notice to inform the CCI. In the future mergers and acquisitions, this loophole would provide for an added burden of disputes, for the CCI, which can result due to either the ‘proposer’ or the ‘acquirer’ not filling the notice. Moreover, the companies going through mergers and acquisitions shall also be vulnerable to such rules as filling of the notice is now to be done by two different people, leading to absolute chaos. In this manner, the primary intent of both the provisions is being defeated and the Commission must look into the same to ensure lucid and comprehensible laws.
CONCLUSION
Past filing in CCI in relation to de-minimis threshold had been filled without any competitive significance. The 2017 notification was a significant game changer as it clarified the position regarding the de-minimis threshold. Yet, there some abuse of the notification due to varied interpretations, which has now been put to rest in the recent verdict pronounced by NCLAT. The Eli Lilly case has been instrumental in putting all the remaining false claims and uncertainty in regard to the de-minimis exemption threshold at bay. If the commission amends the disparity between Sec 6(2) of the Act and the delegated legislation then it would further settle a potential area of dispute.
This article has been authored by Yashvi Jain, Second Year, Rajiv Gandhi National University of Law, Punjab.
[1] Notification S.O. 988(E), dated 27th March, 2017.
[2] § 5, Competition Act, 2002, No. 12, Acts of Parliament, 2003.
[3] § 6, Competition Act, 2002, No. 12, Acts of Parliament, 2003.
[4] Jenisha Kirti Parikh, Vinay Shukla & Simone Reis, Merger Control Exemptions Expanded- Better Late Than Never!, NISHITH DESAI ASSOCIATES, (Apr 18, 2017), http://www.nishithdesai.com/information/news-storage/news-details/article/merger-control-exemptions-expanded-better-late-than-never.html.
[5] Diganth Raj Sehgal, What do you Understand by De minimis non curat lex?, IPLEADERS, (Sept 19,2019), https://blog.ipleaders.in/de-minimis-non-curat-lex/.
[6] supra Note 1.
[7] Trilegal, Target Exemption Under The Competition Act Amended, MONDAQ, (Apr 5, 2017), https://www.mondaq.com/india/antitrust-eu-competition-/583166/target-exemption-under-the-competition-act-amended.
[8] §4, Competition Act, 2002, No. 12, Acts of Parliament, 2003.
[9] Eli Lilly and Company Lilly Corporate Centre vs. Competition Commission of India MANU/NL/0203/2020.
[10] M M Sharma (Head Competition Law & Policy) ,Central Government Relaxes Filing Norms For Mergers And Extends Scope of De Minimis Exemption, VAISH ASSOCIATES, http://competitionlawyer.in/cci-merger-control-de-minimis/.
[11] § 2, Competition Act, 2002, No. 12, Acts of Parliament, 2003.
[12] Eli Lilly and Company Lilly Corporate Centre vs. Competition Commission of India MANU/NL/0203/2020 ⁋ 11.
[13] CCI v. Coordination Committee of Artistes and Technicians of West Bengal Film and Television and Others (2017) 5 SCC 17
[14] The Competition (Amendment) Bill, 2020.
[15] Manas Kumar Chaudhuri , Pranjal Prateek and Aman Singh Baroka (Khaitan & Co), NCLAT Affirms That The De Minimis Exemption Should Have Always Applied To The “True” Target, MONDAQ, (Mar 19, 2020), https://www.mondaq.com/india/antitrust-eu-competition-/905166/nclat-affirms-that-the-de-minimis-exemption-should-have-always-applied-to-the-true-target.
[16] § 6(2), Competition Act, 2002, No. 12, Acts of Parliament, 2003.
[17] Id.
[18] Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011.
[19] Manas Kumar Chaudhuri , Pranjal Prateek and Aman Singh Baroka (Khaitan & Co), NCLAT Affirms That The De Minimis Exemption Should Have Always Applied To The “True” Target, MONDAQ, (Mar 19, 2020), https://www.mondaq.com/india/antitrust-eu-competition-/905166/nclat-affirms-that-the-de-minimis-exemption-should-have-always-applied-to-the-true-target.
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