CCI DECLARES NOTICE AS INVALID IN CASES WHEREIN INTER-CONNECTED TRANSACTION WAS NOT NOTIFIED

In case No.C-2014/12/234 involving acquisition of equity share capital of Manipal Health Enterprises Private Limited by TPG Asia VI SF Private Limited, the CCI in the earlier notice filed by the acquirer held that the demerger of assets was an inter-connected part of the composite transaction and hence the earlier notice was not valid. The CCI directed the parties to file a fresh notice for the composite transaction

In combination case No.C-2015/06/285 involving investment by certain investors in Sapphire Foods India Private Limited (Sapphire) and Sapphire’s acquisition of certain restaurants, the CCI did not accept claim of Sapphire made in its earlier filing that Sapphire only was acquirer and not its potential investors and accordingly decided that the earlier notice was not valid and directed Sapphire to file a fresh notice for the composite transaction. In combination case No.C-2013/05/122 pertaining to acquisition of 24 percent equity interest in Jet Airways (India) Limited (Jet) by Etihad Airways PJSC (Etihad), the CCI noted that the parties had also entered into agreement regarding sale of three landing/take-off slots of Jet at London Heathrow Airport to Etihad and lease of these slots back to Jet, and that the said transaction had not been notified before consummation. The CCI held different steps of the transaction including the LHR Slots Agreement as one composite business combination.

Case No.C-2014/02/153was filed to notify a combination whereby the resorts and time share business of Sterling Holiday Resorts (India) Limited (‘SHRIL’) were to be transferred by way of a demerger from SHRIL to Thomas Cook Insurance Services (India) Limited (‘TCISI’),[a subsidiary of Thomas Cook (India) Limited (‘TCIL’)] and SHRIL with its residual business was to be amalgamated into TCIL. However, certain other related acquisitions were claimed to be exempted under the target exemption i.e. subscription and purchase of equity shares capital of SHRIL by TCISIL, open offer and market purchase of equity shares of SHRIL by TCISIL. As the parties in this regard took a plea that Regulations 9 (4) did not impose an obligation to file a composite notice,5 the CCI noted that the regulation could not be interpreted to consummate a particular step in a composite combination. As regards the parties’ plea that the market purchase do not meet the requirement of being part of a composite transaction, the CCI observed that in the present case, ‘market purchases’ were inherently related to the other transactions and would not have been pursued in the absence of other acquisitions. However, in the appeal directed against the CCI’s order, the COMPAT held that the factors relied upon by the CCI for holding that the market purchases of the equity shares of SHRIL by TCISIL constituted an integral part of the scheme and other transactions did not provide sound legal basis for a finding that the appellants had violated Section 6(2) in so far as the market purchase of equity shares of SHRIL was concerned.

In combination cases (RegnNos. C2014/05/175 and C-2014/06/181), the issue pertained to whether the acquisition of shares or voting rights was made solely as an investment, thus falling under the list of exempt categories.

In C-2014/05/175, notification was made for acquisition in Mangalore Fertilizers and Chemicals Limited (MCFL) of 0.8 per cent of its equity share capital by Deepak Fertilizers and Petrochemicals Corporation Ltd (DFPCL)through market purchase and open offer. However, the CCI observed that the acquirer had also acquired 24.46 per cent equity share capital of MCFL, prior to giving notice to the CCI, by way of market purchases. The CCI observed that DFPCL in its press release had stated that ‘given DFPCL’s considerable strengths in the fertilizer business’, the purchase of shares of MCFL was strategic and good fit with DFPCL’s business, though DFPCL took plea in this regard that market purchase of shares of MCFL by it was not made with an intent to acquire control but was solely for investment purpose and thus not notifiable to the CCI. As DFPCL and the Zuari group had been in a takeover bid for MCFL and were engaged in similar businesses, the CCI considered that the market purchase of shares of MCFL by DFPCL was not made solely as an investment or in ordinary course of business and should have been notified in terms of Section 6 (2). Similarly, with respect to purchase of 16.43 per cent equity interest in MFCL by Zuari Fertilisers and Chemicals Ltd in four separate open market purchases, the acquirer maintained that since the investment was under 25 per cent and made solely as an investment, it was exempt from notification.(C2014/06/181).The CCI observed in both these cases that the categories of combinations exempt under Schedule I should not include combinations that are likely to cause a change in control or are of the nature of strategic combinations. In the appeal directed against the CCI’s order in case No.C-2014/05/175, the COMPAT also noted that various specifics relating to the acquisition were to be seen not insolation but through an economic and commercial perspective which conclusively established that shares were not acquired ‘solely as an investment’.

In combination case No.C-2015/02/249, Piramal Enterprises Limited (‘PEL’) acquired 9.96 per cent equity stake in Shriram Transport Finance Company Limited, part of the Shriram group, by way of block purchase of shares. Through an agreement, PEL also acquired 20 per cent stake in Shriram Capital Limited (‘SCL’), an investment holding company of the Shriram group, along with the right to appoint two directors on the board of SCL and certain affirmative voting rights. PEL further acquired 9.99 per cent stake in Shriram City Union Finance Limited, a company promoted by SCL, pursuant to preferential allotment of equity shares. As the notification for the combination regarding the above said transactions was not made by PEL, the CCI initiated a Suo motu inquiry holding that as the three acquisitions were made within a two years period, these would be considered as interrelated transactions of the combination in terms of Regulation 9(4). Dismissing the appeal filed against the order of the CCI, the COMPAT also held that based on the strategic nature of PEL’s investments in the Shriram Group as reflected in PEL’s Annual Report of 2013-14 and 2014-15 as well as PEL’s Chairman’s letter to the shareholders under the title ‘Strategic partnership and alliances’, the three acquisitions were inter-connected with the ultimate intended effect of acquiring control of the financial service entities of the Shriram Group and constituted a combination notifiable under Section 6(2).