Recently, the National Company Law Appellate Tribunal (NCLAT) has set aside a fine of ₹5 lacs imposed on ITC, a diversified conglomerate by the Competition Commission of India (CCI). ITC was fined Rs 5 lakh by the Competition Commission of India (CCI) on December 11, 2017, for purportedly failing to provide notification under sub-section 2 of Section 6 of the Competition Act. According to the section, any enterprise intending to enter a combination must provide a notice to the CCI containing the particulars of the proposed combination within 30 days.
Brief Facts:
In this case, ITC Limited, a Kolkata-based public limited company, purchased two trademarks from Johnson & Johnson in February 2015, referred to as Transaction-I and Transaction-II. The Ministry of Corporate Affairs had exempted transactions involving an enterprise with assets of not more than Rs.250 crores or turnover of not more than Rs.750 crores from the provisions of section 5 of the Act for five years, as stated in the "De-Minimis" Notification issued in March 2011 and subsequently revised in March 2016 and 2017. ITC Limited argued that only the assets and turnover attributable to the segment or portion of an enterprise being combined with another enterprise should be considered for calculating the threshold under section 5 of the Act, as clarified in the March 2017 notification. The Appellant responded to a notice from the Competition Commission of India (CCI) in February 2016, stating that the transactions did not require notification under sections 5 and 6 of the Act as the trademarks acquired did not amount to an acquisition of an enterprise and did not constitute a combination under section 5 of the Act. The CCI approved the transactions, finding no adverse effect on competition, but later issued a show cause notice to ITC Limited for not filing the transactions for approval. Despite presenting arguments before the CCI, ITC Limited was penalized Rs. 5 Lakhs under Section 43A of the Act. The company had filed an appeal against this decision to the National Company Law Appellate Tribunal.
The appellant argued that the CCI did not have jurisdiction to initiate proceedings under Section 43A because there was no "appreciable adverse effect on competition" found in the relevant markets as a result of Transactions I and II. It was also contended that Section 6(2) is subject to the provisions of Section 6(1) and that the CCI unconditionally approved Transactions I and II. Furthermore, the transactions did not result in the acquisition of an enterprise as defined under Section 5 of the Act. The appellant claimed that only the acquisition of an enterprise as defined under the Act would amount to a combination. It was also contended that the transactions did not contemplate the acquisition of an enterprise as envisaged under Section 5 of the Act. The appellant pointed out that the purchase of trademarks alone would not amount to the acquisition of an enterprise as envisaged under Section 5 of the Act.
The Counsel for the CCI stated that the purchase of a competitor's intellectual property by a business enterprise cannot be considered a transaction in the ordinary course of business, and ITC, the acquirer, is in the business of selling personal care products, not buying, or selling intellectual property rights related to these products. Therefore, Transactions I and II were not conducted in the ordinary course of business, and the benefit of item 3 of Schedule I of Combination Regulations would not be available to ITC in this case.
Findings of the Tribunal:
The tribunal while referring to the submissions made by the appellant noted that the relevant turnover of the two trademarks 'Savlon' and 'Shower to Shower', which are being acquired by ITC from Johnson and Johnson Pvt. Ltd. and Johnson and Johnson Pte. Ltd. respectively, was Rs. 68.37 crores. Therefore, this amount falls below the threshold limit of Rs. 750 crores for total turnover, as per the De Minimis Notification. Hence, the court held that Transactions I and II would be exempted from any penalty under Section 43A.
"We, therefore, hold that the penalty imposed by the CCI on ITC for the reason it did not notify the transactions I and II under section 6(2) of the Act, should not have been imposed and to that extent, we set aside the impugned order of the CCI," said the judgement written by Dr. Alok Srivastava.
Case: ITC Limited vs Competition Commission of India
Case No.: Competition Appeal (AT) No. 11 of 2018
Counsels for the Applicants: Mr. Rajshekhar Rao, Sr Advocate, Ms Sonal Sarda, Ms Anubhuti Mishra, Ms Nandini Sharma, Ms Anisha Bothra, Advocates. Mr Sreemoyee Deb, Mr Shashank Gautam, Advocates.
Counsel for the Respondent: Mr Samar Bansal, Mr Akash Kundu, Advocates for CCI. Ms Shweta Gupta, (YP for CCI)
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