COMPETITION COMMISSION OF INDIA versus THOMAS COOK (INDIA) LTD. & ANR. on 17 April 2018

[2018] 3 S.C.R. 391

COMPETITION COMMISSION OF INDIA

v.

THOMAS COOK (INDIA) LTD. & ANR.

(Civil Appeal No. 13578 of 2015)

APRIL 17, 2018

[ARUN MISHRA AND NAVIN SINHA, JJ.]

Competition Act, 2002:

ss.6(2) and 43A – Imposition of penalty u/s.43A for non-compliance of provision u/s.6(2) – Propriety of – The threerespondent companies decided about de-merger/amalgamation –Share Subscription Agreement (SSA), Share Purchase Agreement(SPA), Open Offer and Market Purchases were also part of thetransaction – Respondents sent Notice u/s. 6(2) to appellant-Commission notifying only ‘Demerger’ and ‘Amalgamation’ and notother transactions – Other transactions were, however, disclosedwhile claiming exemption u/s. 5 – Appellant-Commission imposedpenalty u/s.43A of Rs. one crore for not notifying other transactionsin terms of s.6(2) – Competition Appellate Tribunal allowed theappeal against the order of Commission – On appeal, held: All thetransactions were part of the same transaction – All the transactionsare intrinsically connected with and interdependent on each otherand form one viable part of business transaction – Regulation 94of 2011 Regulations acknowledges the possibility of businesstransaction being interconnected or interdependent steps of suchtransactions – Technical interpretation of isolate two different stepsof transactions of a composite combination would be against thesprit and provision of the Act – Regulation 9(4) cannot be interpretedto enable consummation by a composite combination before givingnotice to the Commission – By applying the ultimate objective testalso, it is apparent that market purchases were within view of thescheme that was framed – There was no requirement of mens rea orintentional breach as an essential element for levy of penalty u/s.43A – Mens rea assumes importance in case of criminal and quasicriminal liability – Penalty u/s. 43A is on account of breach of acivil obligation and proceedings are neither criminal nor quasi-criminal – Imposition of penalty u/s.43A by the Commission was

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Ajust and proper – Competition Commission of India (Procedure inRegard to the Transaction of Business Relating to Combinations)Regulations, 2011 – Regulation 9(4).

Allowing the appeal, the Court

HELD: 1. Once a particular transaction or a series ofBtransactions falls within the purview of combination u/s. 5, it isobligatory to report the same to the Competition Commissionunder section 6 of the Act. Section 6(1) prohibits combinationswhich cause or likely to cause an adverse effect on the competitionand such a combination shall be void. Section 6(2) of the ActCrequires that advance notice has to be given of the proposal toenter into a combination and that has to be given within 30 daysof approval of the proposal relating to merger or amalgamation,execution of any agreement or other document or acquisitionreferred to in section 5(a). Section 6 (2) makes it clear that nocombination shall come into effect until 210 days have elapsedDfrom the date on which notice has been given to the Commissionunder section 6(2) and the Commission has passed orders undersection 30(1), whichever is earlier. And once mandatory noticeis given under section 6(2), the Commission has to deal with thesame in accordance with the provisions contained in sections 29,E30 and 31. Certain exceptions are carved out as to Public FinancialInstitutions, Foreign Investment Institutions, Banks or PublicVenture Funds etc. funds under section 6(4) of the Act. [Para 19][403-A-C]

2. The Competition Act and Competition Commission ofFIndia (Procedure in Regard to the Transaction of BusinessRelating to Combinations) Regulations, 2011 clearly envisagethat a combination can consist of one or more transactions. UnderRegulation 9(4) of the Regulations, 2011, the parties have anoption of giving either a single notice or multiple notices inrespect of all the transactions. [Para 22] [404-B]G

3. It is apparent in the present case that in the notificationmade under section 6(2) on 14.2.2014 notifiable transactions wereshown regarding merger and amalgamation. It was also mentionedthat parties have also contemplated certain other transactions inview of the notifiable transactions, they were the subscription ofHequity shares, SPA, open offer and market purchase. It is crystal clear from the aforesaid application itself that all these transactionswere part of the same transactions and even before notifying thetransactions of purchase from the market on 14.2.2014, it wasconsummated between 10.2.2014 to 12.2.2014. It is crystal clearthat market purchases being a part of the composite combinationwas consummated before giving notice to the Commission. JointPress Release dated 7.2.2014 clearly indicated SPA as an openoffer. The Board of Directors of the respective parties authorizedmarket purchases on the same day. All the said transactions areintrinsically connected and interdependent with each other andform part of one viable business transaction. [Para 26] [405-H;406-A-C]

4. While it is open for the parties to structure theirtransactions in a particular way the substance of the transactionswould be more relevant to assess the effect on competitionirrespective of whether such transactions are pursued throughone or more step/transactions. Structuring of transactions cannotbe permitted in such a manner so as to avoid compliance with themandatory provisions of the Act. For ensuring the compliancewith the requirements of the Act it is open to considering whetherthe particular step was an individual transaction or part of thewhole of the transaction. It was evident in the facts andcircumstances of the case as respondent No.2 would not havemade market purchase in the absence of any one transaction.Thus, market purchases could not have been termed to beindependent transaction. [Para 28] [406-G-H; 407-A-B]

5. The provision of Regulation 9(4) of 2011 Regulationsclearly acknowledges the possibility of the business transactionbeing interconnected or interdependent steps of suchtransactions. Technical interpretation to isolate two different stepsof transactions of a composite combination would be against thespirit and provision of the Act. Market purchases were notindependent and could not be used in isolation for the purpose ofany exemption. Regulation 9(4) cannot be interpreted to enableconsummation by a composite combination before giving noticeto the Commission. That would be defeating the intent andpurpose of the Act and in particular section 5 and 6 thereof. [Para30] [407-E-F]

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A6. If the ultimate objective test is applied, it is apparentthat market purchases were within view of the scheme that wasframed. As such the subsequent change of law also did not cometo the rescue of the respondents considering the substance ofthe transaction. The market purchases were part of the sametransaction of the combination. [Para 31] [407-G]B

7. It is not correct to say that there were no mala fides onthe part of the respondent as such penalty could not have beenimposed. The mens rea assumes importance in case of criminaland quasi criminal liability. For the imposition of penalty underSection 43A, the action may not be mala fide in case there is aCbreach of the statutory provisions of the civil law, penalty isattracted simpliciter on its violation. The imposition of penaltywas permissible and it was rightly imposed. There was norequirement of mens rea under section 43A or intentional breachas an essential element for levy of penalty. Section 43A of the ActDdoes not use the expression “the failure has to be willful or malafide” for the purpose of imposition of penalty. The breach of theprovision is punishable and considering the nature of the breach,it is open to impose the penalty. The imposition of penalty undersection 43A is on account of breach of a civil obligation, and theproceedings are neither criminal nor quasi-criminal; the penaltyEhas to follow. Only discretion in the provision under section 43Ais with respect to quantum of penalty. [Paras 32, 33] [407-H; 408-A-C; 409-B]

8. In the facts and circumstances of the case, the orderpassed by the Commission was just and proper and in accordanceFwith law, which the Tribunal set aside on wrong premises. Thus,the order of the Tribunal cannot be said to be legally sustainable.There is no ground to interfere with the nominal penalty that hasbeen imposed in the instant case. [Paras 34, 35] [409-C; 409-D]

Hindustan Steel Ltd. v. State of Orissa AIR 1970 SCG253 : [1970] 1 SCR 753 – relied on.

Case Law Reference

[1970] 1 SCR 753relied onPara 32

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 13578Hof 2015.

From the Judgment and Order dated 26.08.2015 of the AppellateTribunal (COMPAT) in Appeal No. 48 of 2014.

Salman Khurshid, Sr. Adv., Arjun Krishnan, Ankur Singh, SumitSrivastava, Arpit Shukla, Ms. Geetanjali Kapur, Ms. Alisha Panda, AbhayKumar, Advs. for the Appellant.

Ramji Srinivasan, Gopal Subramanium, Sr. Advs., Samir Gandhi,Ms. Roopali Singh, Akshat Kulshrestha, Ms. Anuja Agrawal, Ms. SimranBhat, Rahul Satyan, Tushar Bhardwaj, Naveen Hegde, Mayank Pandey,Advs. for the Respondents.

The Judgment of the Court was delivered by ARUN MISHRA, J. 1. The Competition Commission of India(in short, “the Commission”) is in appeal aggrieved by the order passedby the Competition Appellate Tribunal (in short, “the Tribunal”) settingaside the order passed by the Competition Commission under section43A of the Competition Act, 2002 (in short, referred to as “the Act”)whereby penalty of Rupees One Crore was imposed on the respondentson the ground of non-compliance of provisions contained in section 6(2)of the Act.

2. The Thomas Cook India Ltd (for short, “the TCIL”) – respondentNo.1, Thomas Cook Insurance Services India Limited, (for short, “theTCISIL”) – respondent No.2 and Sterling Holiday and Resorts IndiaLimited (for short, “the SHRIL”) – respondent No.3 is the companiesregistered under the Companies Act, 1956. The TCIL is engaged intravel and travel related services. The TCISIL is also engaged in traveland travel related services and is a subsidiary of the TCIL and is also aregistered corporate agent of Bajaj Allianz General Insurance CompanyLimited, which is engaged in the business of selling insurance to outboundtravelers, as well as health insurance, motor insurance, personal accidentinsurance etc. SHRIL is engaged in the business of providing premiumhotel services, vacation ownership services, normal hotel services likerenting of rooms, restaurants, holiday activities etc. It also arrangesmeetings, incentives, conference and events for its corporate clients.The Board of Directors of the aforesaid three companies on 7.2.2014approved a Scheme for demerger/amalgamation, (referred to as the‘Scheme’). The said Scheme contemplated the following:

(a) Demerger: i.e. Resorts and timeshare business of SHRIL wereto be transferred by way of demerger from SHRIL to TCISIL in lieu of A

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Awhich equity shares of TCIL would be issued to shareholders of SHRILas per the ratio in the ‘Scheme’; and (b) Amalgamation: SHRIL with its residual business would beamalgamated into TCIL in lieu of equity shares to be issued to theshareholders of SHRIL as per the ratio in the Scheme.

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3. For the purpose of implementing the above transactions, theRespondents entered into a Merger Cooperation Agreement (for short,‘the MCA’) on the same day i.e. on 07.2.2014.

4. On the very same day i.e. 07.2.2014, by another resolution ofthe Boards of Directors of the respondents, the following transactionsCwere approved and executed -

(i) Share Subscription Agreement (SSA): TCISIL was to subscribe2,06,50,000 shares of SHRIL pursuant to a preferential allotment(amounting to 22.86% of SHRIL of equity share capital of SHRIL onfully diluted basis); D(ii) Share Purchase Agreement (SPA): TCISIL was to acquire19.94% of equity share capital of SHRIL on the fully diluted basis fromcertain existing shareholders and promoters of SHRIL.

(iii) Open Offer by TCIL and TCISIL to purchase 26% of theequity share capital from public shareholders of SHRIL, in terms of theESEBI (Substantial Acquisition of Shares and Takeovers) Regulations,2011 (in short, “the SEBI’s Regulations”).

5. In addition to the above, TCISIL acquired 90,26,794 equityshares of SHRIL through purchase on the Bombay Stock Exchange.These purchases (hereinafter referred to as “market purchases”)Famounted to 9.93% of the equity share capital of SHRIL on the fullydiluted basis. The market purchases were made between 10.2.2014and 12.2.2014.

6. On 14.2.2014, the respondents sent a notice under section 6(2)of the Act to the Appellant – Commission, notifying only the ‘Demerger’Gand ‘Amalgamation’. Other transactions were, however, disclosed, whileclaiming exemption from section 5 of the Act.

7. On 20.02.2014, the Commission asked the Respondents toremove certain defects in their application and provide further information,inter alia on, whether the notified and non-notified transactions wereHinterrelated.

8. On 5.3.2014, the Commission passed an approval order undersection 31(1) of the Act. However, it observed that the same would notaffect the action proposed under section 43(A) of the Act for impositionof penalty in separate proceedings.

9. On 10.3.2014, the Commission issued a show cause noticeasking the respondents as to why they should not be penalized undersection 43A for failing in notifying the ‘market purchase’ under section6(2) of the Act.

10. On 25.3.2014, the respondents filed their reply to the showcause. After hearing the respondents, on 21.5.2014, the Commissionimposed a penalty of Rupees One crore under section 43A of the Act.As against the same the appeal was preferred. The Tribunal has allowedthe appeal filed under section 53 B of the Act and has set aside the orderpassed by the Commission. Aggrieved thereby, the appeal has beenpreferred by the Commission under section 53 B of the Act.

11. It was urged by the learned senior counsel appearing on behalfof appellants that on 7.2.2014, the Board of Directors of the threerespondent companies have decided about the de-merger/ amalgamation,Share Subscription Agreement (SSA), Share Purchase Agreement (SPA),Open Offer by TCIL and the TCISIL to purchase 26% of the equityshares capital from the public shareholders of SHRIL in terms of theSEBI’s Regulations and market purchases were also part of the sametransaction. TCISIL acquired 90,26,794 equity shares of SHRIL throughpurchase on Bombay Stock Exchange between 10.2.2014 and 12.2.2014.These market purchases amounted to 9.93% of the equity share capitalof SHRIL on the fully diluted basis. Out of the aforesaid transactions,the respondent notified only the “De-merger” and “Amalgamation” interms of section 6(2) of the Act. The Share Subscription Agreement(SSA), Share Purchase agreement (SPA), Open Offer and MarketPurchases were not notified and the exemption was claimed undernotification S.O. 482 (E), dated 4.3.2011, on the premise that turnover ofthe company of which shares have been acquired i.e. SHRIL did nothave turn over in excess of Rs.750/- crores whereas the othertransactions were at the proposal/ agreement stage only. The transaction6 (Market Purchases) has already been consummated prior to filing ofthe notice under section 6(2) of the Act on 14.2.2014. As such theCommission has rightly taken the view that all the above transactionbeing interconnected transactions or steps with the same ultimate effect A

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Awere part of the single composite combination, therefore, non-notificationof the part of the said combination, particularly, the consummation ofmarket purchases was a violation of the Act. Thus, a penalty of RupeesOne crore was rightly imposed by the Commission under section 43 A ofthe Act.

B12. It was further urged that the Tribunal erred in holding that saidtransactions were not inter-dependent on each other. Tribunal also erredin holding that market purchases fell within the ambit of exemptionnotification i.e. S.O. 482 (E). The Tribunal has committed a gross errorwhile not correctly identifying the issue as to combination. Thecombination was clearly a composite one, comprised of entire series ofCtransaction/ steps and not any one transaction on a stand-alone basis.The penalty was rightly levied on the respondents for their failure tonotify the entire combination and avoiding regulatory scrutiny by notifyingonly a part thereof. Even if the market purchases could be said to beexempted, if taken in isolation, the entire composite combination couldDnever be stated to be exempted, as the whole of it had to be notified interms of section 6(2). The violations were not purely technical, thus, theorder passed by the tribunal be set aside.

13. Per contra, on behalf of the respondents learned senior counselcontended that section 5 of the Act defines the combination especially inEterms of providing asset and turnover thresholds, is to ensure that theonly transaction between enterprises or groups of enterprise above aspecified critical size are scrutinized by the Commission, as thesetransactions are more likely to have a measurable market effect or anAAEC factors in the relevant market, therefore, may be required to bepreempted and corrected by the Commission. It was further contendedFthat a target based exemptions exempt certain transactions from thepurview of the term ‘combination’ as defined under section 5 of the Act.Under the Ministry of Corporate Affairs Notification S.O. 482 (E) dated4.3.2011, certain transactions (in the nature of ‘acquisition’) are exemptedfrom a requirement to mandatorily notify to the Commission. If theGvalue of the assets or turnover of the target enterprise does not exceeda specified de minimis threshold, the transaction which qualifies underthe Target Based Exemption are exempt from the purview of the“combination” under section 5 of the Act. Therefore, the ShareSubscription Agreement (SSA), Share Purchase Agreement (SPA) andopen offer are exempted under the Target Based Exemption on accountH

of being “acquisition” of shares, are also eligible for the Target BasedExemption as admittedly the turnover of SHRIL was below the deminimis threshold. It was also contended that market purchases of9.94% by TCISIL on the stock exchange were not interdependent onthe main Merger Scheme. Merely because they were contemplatedcontemporaneously, did not mean that all the transactions were “inter-dependent”. The said ‘market purchase’ finds no mention in either themerger scheme or the joint press release issued by respondent No.7 on7.2.2014. The reference to part equity, part merger deal means thereference to merger scheme and acquisition of shares by way of ShareSubscription Agreement, Share Purchase Agreement and open offerand not market purchases which were completely a separate and distinctacquisition. The Commission in the case of Vedanta Aluminium Limitedheld that transactions in a series of transactions which are inter-relatedand inter-dependent shall be considered as a composite whole if the“ultimate objective” can be achieved only on the successful completionof all such transactions in a series of transactions which are interrelatedor interdependent. In the instant case, the Market Purchases do notsatisfy this fundamental tenet established by the Commission as theMerger Scheme was in no way dependent upon the market purchasesand would have been implemented irrespective of the market purchases.

The learned counsel further pointed out that there is a subsequentchange in law with effect from March 28, 2014, after show cause noticebut before passing the penalty order, the Commission introduced a newprovision in the Combination Regulations. Regulation 9(5) which providesthat requirement of filing notice shall be determined with respect to thesubstance of the transactions and any structure of the transaction(s)comprising a combination that has the effect of avoiding notice in respectof whole or part of the combination shall be disregarded. Thus, it wasincumbent upon the Commission to look into the substance of thetransaction.

14. Lastly, it was contended that there were no malafides on thepart of the respondents. Notification to the Commission filed by therespondents on 14.2.2014, did contain information about the marketpurchases under the heading “Exempt Transactions” on the basis thatthe Target Based Exemptions covered the market purchases. Thus,imposing a penalty on the respondents for not having specifically identifiedthe market purchases has been part of “Notifiable Transaction” is nothing ABC

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Amore than a mere technicality. The respondent was under a bona fideand genuine belief that market purchases were unconnected andmoreover, exempt. Further, no malafides have been attributed to therespondents even in the penalty order passed by the Commission on21.05.2014 and when Commission had passed the Approval Order on6.5.2014 and observed that market purchases would not result in anBappreciable adverse effect on competition in the market, penalty oughtnot to have been imposed by the Commission. The Tribunal has rightlyset it aside.

15. Before proceeding to deal with the rival submissions, it isnecessary to note the statutory framework of the Act. Section 5 of theCAct defines the combination for the purposes of Act. Section 5 isextracted hereunder.

“5. The acquisition of one or more enterprises by one or morepersons or merger or amalgamation of enterprises shall be acombination of such enterprises and persons or enterprises, if—

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(a) any acquisition where—

(i) the parties to the acquisition, being the acquirer andthe enterprise, whose control, shares, voting rights or assets havebeen acquired or are being acquired jointly have,—

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(A) either, in India, the assets of the value of more thanrupees one thousand crores or turnover more than rupees threethousand crores; or (B) [in India or outside India, in aggregate, the assets ofthe value of more than five hundred million US dollars, includingFat least rupees five hundred crores in India, or turnover more thanfifteen hundred million US dollars, including at least rupees fifteenhundred crores in India; or]

(ii) the group, to which the enterprise whose control,shares, assets or voting rights have been acquired or are beingGacquired, would belong after the acquisition, jointly have or wouldjointly have,—

(A) either in India, the assets of the value of more thanrupees four thousand crores or turnover more than rupees twelvethousand crores; or H

(B) [in India or outside India, in aggregate, the assets ofthe value of more than two billion US dollars, including at leastrupees five hundred crores in India, or turnover more than sixbillion US dollars, including at least rupees fifteen hundred croresin India; or]

(b) acquiring of control by a person over an enterprise when suchperson has already direct or indirect control over another enterpriseengaged in production, distribution or trading of similar or identicalor substitutable goods or provision of a similar or identical orsubstitutable service, if—

(i) the enterprise over which control has been acquiredalong with the enterprise over which the acquirer already hasdirect or indirect control jointly have,—

(A) either in India, the assets of the value of more thanrupees one thousand crores or turnover more than rupees threethousand crores; or

(B) [in India or outside India, in aggregate, the assets ofthe value of more than five hundred million US dollars, includingat least rupees five hundred crores in India, or turnover more thanfifteen hundred million US dollars, including at least rupees fifteenhundred crores in India; or]

(ii) the group, to which enterprise whose control hasbeen acquired, or is being acquired, would belong after theacquisition, jointly have or would jointly have,—

(A) either in India, the assets of the value of more thanrupees four thousand crores or turnover more than rupees twelvethousand crores or (B) [in India or outside India, in aggregate, the assets ofthe value of more than two billion US dollars, including at leastrupees five hundred crores in India, or turnover more than sixbillion US dollars, including at least rupees fifteen hundred croresin India; or]

(c) any merger or amalgamation in which—

(i) the enterprise remaining after the merger or the enterprisecreated as a result of the amalgamation, as the case may be,have,—

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(A) either in India, the assets of the value of more thanrupees one thousand crores or turnover more than rupees threethousand crores; or (B) [in India or outside India, in aggregate, the assets ofthe value of more than five hundred million US dollars, includingBat least rupees five hundred crores in India, or turnover more thanfifteen hundred million US dollars, including at least rupees fifteenhundred crores in India; or]

(ii) the group, to which the enterprise remaining afterthe merger or the enterprise created as a result of the amalgamation,Cwould belong after the merger or the amalgamation, as the casemay be, have or would have,—

(A) either in India, the assets of the value of more thanrupees four-thousand crores or turnover more than rupees twelvethousand crores; or D

(B) [in India or outside India, in aggregate, the assets ofthe value of more than two billion US dollars, including at leastrupees five hundred crores in India, or turnover more than sixbillion US dollars, including at least rupees Fifteen Hundred Croresin India”

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16. Under section 5(a), a combination is formed if the acquisitionby one person or enterprise of control, shares, voting rights or assets ofanother person or enterprise subject to certain threshold requirementthat is minimum asset valuation or turn over within or outside India.

17. Under Section 5(b) of the Act the combination is formed if theFacquisition of control by a person over enterprise when such person hasalready acquired direct or indirect control over another enterprise engagedin the production, distribution or payment of a similar or identical orsubstitutable good provided that the exigencies provided in section 5(b)in terms of asset or turnover are met.

G18. Under section 5(c) merger and amalgamation are also withinthe ambit of combination. The enterprise remaining after merger oramalgamation subject to a minimum threshold requirement in terms ofassets or turnover is covered within the purview of section 5(c).

19. Once a particular transaction or a series of transactions fallsHwithin the purview of combination, it is obligatory to report the same to

the Commission under section 6 of the Act. Section 6(1) prohibitscombinations which cause or likely to cause an adverse effect on thecompetition and such a combination shall be void. Section 6(2) of theAct requires that advance notice has to be given of the proposal to enterinto a combination and that has to be given within 30 days of approval ofthe proposal relating to merger or amalgamation, execution of anyagreement or other document or acquisition referred to in section 5(a).Section 6 (2) makes it clear that no combination shall come into effectuntil 210 days have elapsed from the date on which notice has beengiven to the Commission under section 6(2) and the Commission haspassed orders under section 30(1), whichever is earlier. And oncemandatory notice is given under section 6(2), the Commission has todeal with the same in accordance with the provisions contained in sections29, 30 and 31. Certain exceptions are carved out as to Public FinancialInstitutions, Foreign Investment Institutions, Banks or Public VentureFunds etc. funds under section 6(4) of the Act.

20. On 4.3.2011, Central Government in the exercise of its powersunder section 54(a) of the Act issued notification No. SO. 482 E dated4.3.2011, commonly known as target-based exemptions, which reads asunder:

“In exercise of the powers conferred by clause (a) of section 54of the Competition Act, 2002 (12 of 2003) the Central Government,in public interest hereby exempt an enterprise, whose control,shares, voting rights or assets are being acquired has assets ofthe value of not more than INR 250 crores in India or turnover ofnot more than INR 750 crores in India from the provisions ofSection 5 of the said Act for a period of 5 years.”

21. Section 64 of the Act confers upon the Commission power tomake Regulations. Under section 64(3), the Regulations are to be placedbefore the Houses of Parliament. On 11.5.2011, the Commission framedthe Competition Commission of India (Procedure in Regard to theTransaction of Business Relating to Combinations) Regulations, 2011(for short, “the Regulations, 2011”). Regulation 9(4) as it stood at therelevant time, is as under:- 9(4). Where the ultimate intended effect of a business transactionis achieved by way of a series of a steps or smaller individualtransactions which are inter-connected or inter-dependent on each A

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[2018] 3 S.C.R.

Aother, one or more of which may amount to a combination, a singlenotice, covering all these transactions, may be filed by the partiesto the combination.”

22. It is relevant to note here that the Act and Regulations, 2011clearly envisage that a combination can consist of one or moreBtransactions. Under Regulation 9(4) of the Regulations, 2011, the partieshave an option of giving either a single notice or multiple notices in respectof all the transactions. On 30.5.2011, sections 5 and 6 of the Act werebrought into force.

23. It is apparent that between the three respondent companiesCde-merger of the resort of SHRIL on time-share basis took place. Itwas to be transferred to TCISIL in view of the equity shares of TCILwere to be issued to shareholders of SHRIL as per the ratio provided inthe scheme. There was an amalgamation of SHRIL with its residualbusiness into TCIL. There was shares subsequent transfer agreement.The TCISIL was to subscribe 2,06,50,000 shares of SHRIL to preferentialDallotment amounting to 22.86 of the equity share capital.

24. TCISIL was to acquire 19.94% of equity share capital ofSHRIL. ‘Open Offer’ by TCIL and TCISIL was to purchase 26% ofthe equity share capital from public shareholders of SHRIL in terms ofSEBI’s regulations and market purchases. TCISIL acquired 90,26,794Eequity shares of SHRIL through purchase in Bombay Stock Exchangeamount to 9.93% of equity share capital on the fully diluted basis. Publicnotice was published to the following effect:

“Sterling Holiday Resort (India) Limited Thomas Cook (India) Limited & Sterling Holiday Resort (India)FLimited, announce merger

• Merger focused on synergies and jointly leveraginggrowing Domestic & Inbound travel, Vacation Ownership& Hospitality opportunities.

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• Post-merger, Sterling Holiday Resorts to continueoperations under the leadership of Ramesh Ramanathanwith an independent Board

• Based on equity investments and merger ratios theaggregate value of the two companies is approximatelyHRs.3000 Cr.

COMPETITION COMMISSION OF INDIA v. THOMAS COOK(INDIA) LTD. & ANR. [ARUN MISHRA, J.]

Mumbai, February 7, 2014

Thomas Cook (India) Ltd. (TCIL) – India’s leading integratedtravel and travel related financial services company, and the27-year-old vacation ownership pioneer, Sterling HolidayResorts India Limited announced a merger between thecompanies today. The transaction is expected to close by thefourth quarter of 2014, subject to customary closing conditionsand regulatory approval as required.

The part equity, part merger deal – estimated to be valued atRs.870 Cr., is structured as a multi-stage process:

�� TCIL Group will make a Preferential Allotment Investmentfor approximately 23.24% of approximately Rs.190 Cr. intoSterling.

�� TCIL Group purchases 23.63 % stake from Sterlingshareholders for Rs.207 Cr.

��TCIL Group will make a mandatory open offer for buyingup to 26% stake in Sterling for Rs.230 Cr.

��TCIL Group has an option to buy an additional 7.22%stake from shareholders for Rs.63 Cr.

��The merger will involve shares of TCIL being issued toSterling shareholders at a defined swap ratio or 120:100

The merger brings significant synergies to both partners – withThomas Cook India gaining access to Sterling Resorts’ networkof 19 resorts in 16-holiday destinations across India.

The company also has 15 additional sites where it plans to addnew resorts in the coming years.

Serling’s affiliation with Resort Condominiums International (RCI)-the global expert in exchange vacations, also allows its membersto vacation in over 4000 RCI affiliated resorts all over the world.”

25. The resolution passed by the Board of Director of TCIL on7.02.2014. Share Subscription Agreement etc. and similar resolutionswere passed by TCISIL and SHRIL.

26. It is apparent that in the notification made under section 6(2)on 14.2.2014 notifiable transactions were shown regarding merger and A

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Aamalgamation. It was also mentioned that parties have also contemplatedcertain other transactions in view of the notifiable transactions, theywere the subscription of equity shares, SPA, open offer and marketpurchase. It is crystal clear from the aforesaid application itself that allthese transactions were part of the same transactions and even beforenotifying the transactions of purchase from the market on 14.2.2014, itBwas consummated between 10.2.2014 to 12.2.2014. It is crystal clearthat market purchases being a part of the composite combination wasconsummated before giving notice to the Commission. Joint PressRelease dated 7.2.2014 clearly indicated SPA as an open offer. TheBoard of Directors of the respective parties authorized market purchasesCon the same day. All the said transactions are intrinsically connectedand interdependent with each other and form part of one viable businesstransaction.

27. Though market purchases have no references in MCA, SA,SPA and the scheme, the facts, and circumstances of the case, as theDscheme was prepared on the same day and the three companies passedthe resolution on the same day. All other acquisitions were made on thesame day. Market purchases having been consummated between10.2.2014 to 12.2.2014, which is almost after finalizing the compositecombination clearly suggested that market purchases would not havetaken place in the absence of scheme and the other acquisitions. InEcase they were not part of the same scheme that would not have beenreferred to in the notice filed by them with the Commission on 14.2.2014.Thus, in our considered opinion market purchases were not independentand were intrinsically related to the scheme and other acquisitions.

28. Coming to the question of the exemption that was claimed,Fthe market purchases do not qualify as a combination in view of thetarget exemption notification which exempts an enterprise if ‘assets’are of the value not more than INR Rs.250 crores in India or ‘turnover’of not more than INR Rs.750 crores in India. When series of transactionsis envisaged to accomplish a combination, all the transactions have to beGtaken into consideration by the Commission, not an isolated transaction.While it is open for the parties to structure their transactions in a particularway the substance of the transactions would be more relevant to assessthe effect on competition irrespective of whether such transactions arepursued through one or more step/transactions. Structuring of transactionscannot be permitted in such a manner so as to avoid compliance with theH

mandatory provisions of the Act. For ensuring the compliance with therequirements of the Act it is open to considering whether the particularstep was an individual transaction or part of the whole of the transaction.It was evident in the facts and circumstances of the case as TCISILwould not have made market purchase in the absence of any onetransaction. Thus, market purchases could not have been termed to beindependent transaction.

29. Coming to the submission with respect to the effect of regulation9(4) of the combination regulation. It is apparent that there is powerunder the Regulation 9(4) to consider the ultimate intended effect oftransaction achieved by series of steps which are interconnected or inter-dependent on each other, it would depend upon the facts andcircumstances of the case and a single notice may be filed by the partiesto a combination. The Regulation envisages the possibility of a businesstransaction may be achieved by a combination by way of interconnectedor interdependent steps/ transactions. Enabling provision to file singlenotice would not mean that in what particular manner transaction hastaken place, same is to be determined on the facts and circumstances.The market purchases were not independent could not have been viewedin isolation for the purpose of the exemption.

30. The provision of Regulation 9(4) clearly acknowledges thepossibility of the business transaction being interconnected orinterdependent steps of such transactions. Technical interpretation toisolate two different steps of transactions of a composite combinationwould be against the spirit and provision of the Act. Market purchaseswere not independent and could not be used in isolation for the purposeof any exemption. Regulation 9(4) cannot be interpreted to enableconsummation by a composite combination before giving notice to theCommission. That would be defeating the intent and purpose of the Actand in particular section 5 and 6 thereof.

31. If the ultimate objective test is applied, it is apparent that marketpurchases were within view of the scheme that was framed. As suchthe subsequent change of law also did not come to the rescue of therespondents considering the substance of the transaction. The marketpurchases were part of the same transaction of the combination.

32. Lastly, the submission raised that there were no malafides onthe part of the respondent as such penalty could not have been imposed.

AB

C

D

E

F

G

H

AWe are unable to accept the submission. The mens rea assumesimportance in case of criminal and quasi criminal liability. For the impositionof penalty under section 43A, the action may not be mala fide in casethere is a breach of the statutory provisions of the civil law, penalty isattracted simpliciter on its violation. The imposition of penalty waspermissible and it was rightly imposed. There was no requirement ofBmens rea under section 43A or intentional breach as an essential elementfor levy of penalty. Section 43A of the Act does not use the expression“the failure has to be willful or mala fide” for the purpose of impositionof penalty. The breach of the provision is punishable and considering thenature of the breach, it is open to impose the penalty.CIn Hindustan Steel Ltd. v. State of Orissa AIR 1970 SC 253,with respect to imposition of penalty on failure to comply with the civilobligation this Court has laid down thus:

“In our opinion, mens rea is not an essential ingredient forcontravention of the provision of a civil act. In our view, the penaltyDis attracted as soon as the contravention of the statutory obligationsas contemplated by the Act is established and, therefore, theintention of the parties committing such violation becomesimmaterial. In other words, the breach of a civil obligation whichattracts penalty under the provisions of an Act would immediatelyEattract the levy of penalty irrespective of the fact whether thecontravention was made by the defaulter with any guilty intentionor not. This apart that unless the language of the statute indicatesthe need to establish the element of mens rea. It is generallysufficient to prove that a default in complying with the statute hasoccurred. The penalty has to follow and only the quantum of penaltyFis discretionary.

x x x

In our considered opinion, a penalty is attracted as soon asthe contravention of the statutory obligation as contemplated byGthe Act and the Regulation is established and hence intention ofthe parties committing such violation becomes wholly irrelevant.

x x x

We also further hold that unless the language of the statuteindicates the need to establish the presence of mens rea, it is H

COMPETITION COMMISSION OF INDIA v. THOMAS COOK(INDIA) LTD. & ANR. [ARUN MISHRA, J.]

wholly unnecessary to ascertain whether such a violation wasintentional or not. On a careful perusal of Section 15(D) (b) andSection 15-E of the Act, there is nothing which requires that mensrea must be proved before a penalty can be imposed under theseprovisions. Hence once the contravention is established then thepenalty is to follow.”

33. The imposition of penalty under section 43A is on account ofbreach of a civil obligation, and the proceedings are neither criminal norquasi-criminal; the penalty has to follow. Only discretion in the provisionunder section 43A is with respect to quantum of penalty.

34. We find that in the facts and circumstances of the case, theorder passed by the Commission was just and proper and in accordancewith law, which the Tribunal set aside on wrong premises. Thus, theorder of the Tribunal cannot be said to be legally sustainable.

35. The nominal penalty has been imposed by the Commission ofRupees One crore only considering the facts and circumstances of thecase and that there was a violation of the provision. Thus, we find noground to interfere with the nominal penalty that has been imposed inthe instant case.

36. Resultantly, the appeal filed by the Commission is allowed, theorder passed by the Tribunal is set aside, and passed by the Commissionimposing penalty of Rupees One crore is hereby restored. No costs.

Kalpana K. Tripathy

Appeal allowed.

A

B

C

D

E

F

G

H