Eli Lilly & Co vs Competition Commission Of India

[Under Section 53-B of the Competition Act 2002 against order dated 14.07.2016 passed by the Competition Commission of India in Combination Registration No. C-2015/07/289]

IN THE MATTER OF:

M/s. Eli Lilly and Company Lilly Corporate Centre, Indianapolis, Indiana United States of America ... Appellant

Versus

Competition Commission of India, Through its Secretary The Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi - 110 001. ... Respondent

Present: For Appellant : Mr. Amit Sibal, Senior Advocate with Mr. Manas Kr. Chaudhari, Mr. Pranjal Prateek, Mr. Aman Singh Baroka and Mr. Saksham Dhingra, Advocates

For 1st Respondent: Mr. Naveen R. Nath and Mr. Abhimanyu Verma, Advocates Ms. Bulbuli Richang, DD

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal is submitted by M/s Eli Lilly and Company under Section

53B (1) and (2) of the Competition Act, 2002 (for short, 'the Act'). It arises 2

from a Decision of the Competition Commission of India (the "Commission")

concluding that the Appellant did not notify its acquisition of Novartis Animal

Health in India ("NAH India"), a business with sales of only INR 93.0 crores

and assets of only INR 36.2 crores.

2. The Appellant, an innovation-driven pharmaceutical company based in

the United States, agreed to acquire the global animal health business of

Novartis AG, a pharmaceutical company based in Switzerland. The Stock and

Asset Purchase Agreement ("SAPA") covering the global portion of the

transaction was dated 22.04.2014. It was publicly announced and notified

under the merger control laws in several jurisdictions around the world,

including the United States and the European Union. The

transaction was cleared in each jurisdiction and closed on 01.01.2015.

3. The acquisition of NAH India was handled separately, with a separate

binding agreement called the Slump Sale Agreement dated 03.12.2014

between the Parties' Indian subsidiaries. The Parties notified this transaction

on 10.11.2014 to the Indian Foreign Investment Promotion

Board ("FIBP").

4. The Parties did not notify the Indian transaction to the Commission

because it was covered by the then-applicable De Minimis Exemption to the

filing requirements of the Competition Act, as set forth in Ministry of

Corporate Affairs' Notification dated 04.03.2011 and corrigendum dated

27.05.2011.

5. The De Minimis Exemption applied to acquisitions of enterprises whose

sales in India were not more than INR 750 crores or whose Indian assets were

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 3

valued not more than INR 250 crores. The exemption was enacted because

the Act's initial filing thresholds applied only to parties' "combined' sales or

assets in India, and therefore could catch transactions where the business

being acquired had minor activities in India.

6. The acquisition of NAH India met both standards for the De Minimis

Exemption. As shown above, its sales and assets were only a small

fraction of the exemption's low thresholds.

7. Nevertheless, the Commission issued a letter on 08.04.2015, a year and

a half after the global transaction was announced, asking why it was not

notified in India. The Appellant responded by letter dated 07.05.2015

providing the facts showing that the transaction was covered by the De

Minimis Exemption. The Appellant did not receive a response but understood

from subsequent informal discussions that the CCI was not yet convinced.

The Appellant, therefore, decided to notify the transaction voluntarily, while

reserving its position that the transaction was exempt, in an effort to speed

the process, ensure a timely closing, and provide the pertinent facts showing

that the transaction raised no possible competition law concern.

8. The Commission subsequently concluded, by letter dated 06.08.2015,

that the transaction was reportable, although without stating the reasons.

Four months later, on 03.12.2015, the Commission cleared the transaction

as raising no possible competition law concerns in India. The Parties

thereupon closed the transaction in India on 31.12.2015.

9. The Commission then issued Show Cause Notice on 14.12.2015

requesting the Appellant to show cause why it should not be penalized for (a)

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 4

notifying the transaction in India late, and (b) closing outside India before

receiving approval for the acquisition of NAH India. The Appellant responded

by letter dated 29.12.2015 reaffirming that the transaction was covered by

the De Minimis Exemption. A hearing was held at Appellant's request on

21.04.2016.

10. On 14.07.2016, the CCI issued the impugned Order. The Order asserts

that the thresholds of the De Minimis Exemption did not apply to the business

being acquired, NAH India, but rather to the target's parent,

Novartis India Limited. The sole basis for the conclusion was that the parent

was "incorporated' and NAH India was not. The impugned Order contended

that the Competition Act limited the relevant target "enterprise" to only

incorporated entities, even though the Act expressly lists a broad range of

such entities to include "an association of persons or a body of individuals,

whether incorporated or not, in India or outside India," a "company," a "firm,"

an "individual," a "family' and so on. Yet the impugned Order cites no other

statute, regulation, guideline or precedent for its position. The CCI imposed a

penalty of INR 1 crore.

STAND OF THE APPELLANT

11. Learned counsel for the Appellant submitted that the impugned order was

erroneous for the following reasons :

a. The Impugned Order incorrectly applied the thresholds of the De

Minimis Exception to the target's parent company merely because

the target was not incorporated. The Act applies the threshold to the

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 5

"person or enterprise" being acquired, and it expressly defines

"enterprise" broadly to include both incorporated and non-

incorporated businesses. The impugned Order rests its conclusion

on a "plain reading" of the Act, which in fact leads to the opposite

result.

b. The impugned Order's interpretation cannot be correct because it

would remove the filing requirements of the Act from a wide range of

acquisitions (including the present transaction). The filing

requirements apply only to "combinations," which are defined as the

acquisition of an "enterprise." The impugned Order's overly narrow

interpretation of "enterprise" therefore, would exclude potentially

anticompetitive acquisitions merely because of the target's legal

structure. Nothing in the Act allows this arbitrary result to the

detriment of Indian consumers.

c. Far from citing any precedent or other legal support, the

interpretation by the Impugned Order contradicts Supreme Court

precedent interpreting directly analogous language in the Income

Tax Act, 1961.

d. Moreover, there is every reason to believe that Indian law is intended

to be consistent with merger notification regimes around the world

who follow the recommended best practices of the International

Competition Network (the ICN) (of which India is an active member).

They apply revenue thresholds to the business being acquired, not

its parent, and nothing in the Act states otherwise.

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 6

e. The present transaction satisfied the De Minimis Exemption even

under the flawed approach of the Impugned Order, because the

turnover of the target's parent fell below the exemption's threshold

of INR 750 crores. The threshold could be exceeded only by

improperly including a business that the parent recently had sold,

an approach found nowhere in the Act, contrary to the exemption's

purchase, and equally contrary to the approach taken around the

world.

f. The Impugned Order similarly erred in finding that the transaction had

closed prior to receiving clearance when, in fact, the acquisition of NAH

India was delayed until after the clearance. Only the transaction

outside India had closed, which had no possible effect in India. The

response that, under those circumstances, then "there has been a

delay' in filing past the statutory deadline is inadequate because the

impugned Order makes clear that its large fine was not imposed for

merely missing a filing deadline.

g. Finally, the imposition of a fine in this case was contrary to basic

principles of due process, notice and fairness. It rests on an

interpretation of the Act that is both strained and unpublished, wholly

internal to the Commission, and found nowhere in the Act, regulation,

guideline or precedent. Basic principles of notice prohibit a fine in these

circumstances, particularly on a company who publicly announced the

transaction several times long before hearing from the Commission ,

filed notifications in several jurisdictions around the world (including

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 7

the FIBP in India), and whose transaction ultimately was found to raise

no possible competition concern in India. The Impugned Order

responds only that the CCI has "discretion" to issue

fines, but that discretion is not absolute.

Stand of the Commission

12. Learned counsel for the Commission submitted that exemption

Notification No. S.O. 482 (E) dated 4th March, 2011 is not applicable to the

Appellant. Further according to the learned counsel for the Commission whether

both the parties to the combination would be exempt and constitute "person or

enterprise who or which proposes to enter into a combination" in terms of Section

6(2) of the Act. According to the learned counsel for the Commission, the person

or enterprise to the Combination who/ which stands to gain in terms of

dominance in the relevant market so as to result in "appreciable adverse effect

on competition' will be the person or enterprise who is liable for the consequence

of failure to get the combination approved. Obviously the party surrendering

market share or withdrawing from the competition in the market place has not

obtained any advantage and is not liable for action under the Act. In the

judgment reported above also the penal consequences initiated was against the

acquiring enterprise. This principle is followed universally. The whole object of

the Competition law is that a person or Enterprise, must seek approval before

entering into a Combination which could have appreciable adverse impact on

Competition in the relevant market. It cannot be said, that a Person or enterprise

surrendering his market rights or share can be held liable since his action does

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 8

not bring him any advantage as to market share enjoyed by him prior to entering

into the Combination.

13. Therefore, the liability of the failure to comply with the requirement of

Section 6(2) has to be by the person or enterprise which is the beneficiary in

terms of acquiring a status of "appreciable adverse effect on competition"

meaning thereby a greater competitive edge in the relevant market. Further the

Proposer under Section 6 has necessarily got to be the acquirer if read along with

Section 5. Section 5(c) also deals with mergers/amalgamation also. There is

nothing to suggest that other forms of acquisitions have to be treated differently

for the purpose of Section 6 of the Act. Thus what applies in the case of

Mergers/amalgamation applies to every kind of acquisition affecting Competition

in the market place.

14. In the instant case the Commission has imposed a very nominal penalty

amounting to approximately 0.00009% of the worldwide assets of the parties as

on 31.12.2013. The said penalty cannot be termed as disproportionate or

unconscionable so as to warrant interference by this

Hon'ble Tribunal.

15. Section 5 of the Act is limited to the enterprises and the matter of

merger, amalgamation and acquisition, if it comes within threshold of value

of assets, as mentioned therein, which reads as follows:

"5. Combination.─ The acquisition of one or more

enterprises by one or more persons or merger or

amalgamation of enterprises shall be a combination of

such enterprises and persons or enterprises, if--

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 9

(a) any acquisition where--

(i) the parties to the acquisition, being the

acquirer and the enterprise, whose control,

shares, voting rights or assets have been

acquired or are being acquired jointly

have,--

(A) either, in India, the assets of the

value of more than rupees one

thousand crores or turnover more

than rupees three thousand crores;

or

(B) [in India or outside India, in

aggregate, the assets of the value of

more than five hundred million US

dollars, including at least rupees five

hundred crores in India, or turnover

more than fifteen hundred million US

dollars, including at least rupees

fifteen hundred crores in India; or]

(ii) the group, to which the enterprise whose

control, shares, assets or voting rights have been

acquired or are being acquired, would belong after

the acquisition, jointly have or would jointly

have,--

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 10

(A) either in India, the assets of the

value of more than rupees four thou

sand crores or turnover more than

rupees twelve thousand crores; or

(B) [in India or outside India, in

aggregate, the assets of the value of

more than two billion US dollars,

including at least rupees five

hundred crores in India, or turnover

more than six billion US dollars,

including at least rupees fifteen

hundred crores in India; or]

(b) acquiring of control by a person over an

enterprise when such person has already direct or

indirect control over another enterprise engaged in

production, distribution or trading of a similar or

identical or substitutable goods or provision of a

similar or identical or substitutable service, if--

(i) the enterprise over which control has

been acquired along with the enterprise

over which the acquirer already has direct

or indirect control jointly have,--

(A) either in India, the assets of the

value of more than rupees one

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 11

thousand crores or turnover more

than rupees three thousand crores;

or

(B) [in India or outside India, in

aggregate, the assets of the value of

more than five hundred million US

dollars, including at least rupees five

hundred crores in India, or turnover

more than fifteen hundred million US

dollars, including at least rupees

fifteen hundred crores in India; or]

(ii) the group, to which enterprise whose

control has been acquired, or is being

acquired, would belong after the

acquisition, jointly have or would jointly

have,--

(A) either in India, the assets of the

value of more than rupees four thou

sand crores or turnover more than

rupees twelve thousand crores or

(B) [in India or outside India, in

aggregate, the assets of the value of

more than two billion US dollars,

including at least rupees five

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 12

hundred crores in India, or turnover

more than six billion US dollars,

including at least rupees fifteen

hundred crores in India; or]

(c) any merger or amalgamation in which--

(i) the enterprise remaining after merger or

the enterprise created as a result of the

amalgamation, as the case may be, have,--

(A) either in India, the assets of the

value of more than rupees one thou

sand crores or turnover more than

rupees three thousand crores; or

(B) [in India or outside India, in

aggregate, the assets of the value of

more than five hundred million US

dollars, including at least rupees five

hundred crores in India, or turnover

more than fifteen hundred million US

dollars, including at least rupees

fifteen hundred crores in India; or]

(ii) the group, to which the enterprise

remaining after the merger or the enterprise

created as a result of the amalgamation,

would belong after the merger or the

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 13

amalgamation, as the case may be, have or

would have,--

(A) either in India, the assets of the

value of more than rupees four-thou

sand crores or turnover more than

rupees twelve thousand crores; or

(B) [in India or outside India, in

aggregate, the assets of the value of

more than two billion US dollars,

including at least rupees five

hundred crores in India, or turnover

more than six billion US dollars,

including at least rupees Fifteen

Hundred Crores in India

Explanation.-- For the purposes of this section,--

(a) "control" includes controlling the affairs or

management by--

(i) one or more enterprises, either jointly or singly,

over another enterprise or group;

(ii) one or more groups, either jointly or singly, over

another group or enterprise;

(b) "group" means two or more enterprises which, directly

or indirectly, are in a position to --

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 14

(i) exercise twenty-six per cent or more of the

voting rights in the other enterprise; or

(ii) appoint more than fifty per cent of the members

of the board of directors in the other enterprise; or

(iii) control the management or affairs of the other

enterprise;

(c) the value of assets shall be determined by taking the

book value of the assets as shown, in the audited books

of account of the enterprise, in the financial year

immediately preceding the financial year in which the

date of proposed merger falls, as reduced by any

depreciation, and the value of assets shall include the

brand value, value of goodwill, or value of copyright,

patent, permitted use, collective mark, registered

proprietor, registered trade mark, registered user,

homonymous geographical indication, geographical

indications, design or layout- design or similar other

commercial rights, if any, referred to in sub-section (5) of

section 3."

16. From the said provision, it is clear that in all such combinations which

do not come within the meaning of Section 5 of the Competition Act, 2002,

there is no need of obtaining any approval of the Competition Commission of

India under Section 6(2) by issuing notice on it.

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 15

17. As per Section 54 of the Act, power is vested in the Central Government

to exempt by notification from the application of the Act which reads as

follows:

"54. Power to exempt -

The Central Government may, by notification, exempt

from the application of this Act, or any provision thereof, and for

such period as it may specify in such notification--

(a) any class of enterprises if such exemption is necessary

in the interest of security of the State or public interest;

(b) any practice or agreement arising out of and in

accordance with any obligation assumed by India under

any treaty, agreement or convention with any other

country or countries;

(c) any enterprise which performs a sovereign function on

behalf of the Central Government or a State Government:

Provided that in case an enterprise is engaged in any

activity including the activity relatable to the sovereign

functions of the Government, the Central Government may

grant exemption only in respect of activity relatable to the

sovereign functions."

18. The aforesaid clause empowers the Central Government by Notification

to exempt any class of enterprises from all or any of the provisions of the

proposed legislation for such period as may be specified in that notification.

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 16

If any enterprise do not provide notice under Section 6(2) to the Commission,

it is open to the Commission to issue show cause notice. However, if the

enterprise or enterprises claims exemption of Section 54, before passing an

order, the Commission ought to determine the applicability of the exemption

under Section 54 of the Act at preliminary or primary stage.

19. The procedural structure of the Act relating to combination, at the first

stage, requires formation of a prima facie opinion as to whether the

combination is likely to cause, or has caused an appreciable adverse effect on

competition ("AAEC") within the relevant market in India under Section 29 of

the Act, and then only at the second stage, the CCI is required to determine

whether the combination is likely to have an AAEC. This Tribunal in Piyush

Joshi v. Competition Commission of India (TA (AT) Competition) No. 32 of 2017),

has also held that "it is clear that where the 'Commission' is of the prima facie

opinion that a combination is likely to cause, or has caused an appreciable

adverse effect on competition within the relevant market in India then it is

required to issue a notice to show cause to the parties to combination and

further required to call for report from the Director General."

20. In the same vein, the Commission ought to first determine the

applicability of exemption under Section 54 before requiring filing of a notice

under Section 6(2) of the Act and before commencing any proceedings under

Section 43A of the Act. Whether a transaction is exempt under Section 54 of

the Act is a pre-condition for the CCI to proceed with further proceedings

under Section 43A of the Act, if any?

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 17

21. The Central Government in exercise of power under clause (a) of Section

54 of the Act, in public interest, by Notification S.O. 482 (E) dated 4th March,

2011 (as extracted below) exempted an enterprise, whose control, shares,

voting rights or assets are being acquired has assets of the value of not more

than Rs. 250 crores or turnover of not more than Rs. 750 crores from the

provisions of Section 5 of the said Act for a period of five years i.e. upto 3rd

March, 2016.

"S.O. 482 (E) - In exercise of the powers conferred by

clause (a) of section 54 of the Competition Act, 2002 (12

of 2003), the Central Government, in public interest,

hereby exempts an enterprise, whose control, shares,

voting rights or assets are being acquired has assets of

the value of not more than Rs. 250/- crores or turnover

of not more than Rs.750/- crores from the provisions of

section 5 of the said Act for a period of five years."

22. Subsequently, by another Notification No. S.O. 674 (E) dated 4th March,

2016 (as extracted below), the Central Government in public interest exempted

an enterprise whose control, shares, voting rights or assets are being acquired

has either assets of the value of not more than rupees three hundred and fifty

crores in India or turnover of not more than rupees one thousand crores in India

from the provisions of Section 5 of the Act for a period of five years i.e. up to 3rd

March, 2021.

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 18

"S.O. 674(E).--In exercise of the powers conferred

by clause (a) of section 54 of the Competition Act, 2002

(12 of 2003), the Central Government, in public interest,

hereby exempts an enterprise, whose control, shares,

voting rights or assets are being acquired has either

assets of the value of not more than rupees three

hundred and fifty crores in India or turnover of not more

than rupees one thousand crores in India from the

provisions of section 5 of the said Act for a period of five

years from the date of publication of the notification in

the official gazette."

23. Subsequently by Notification No. S.O. 988 (E) dated 27th March, 2017, the

Central Government, in public interest, exempted the enterprises as follows:

"S.O. 988(E).--In exercise of the powers

conferred by clause (a) of section 54 of the

Competition Act, 2002 (12 of 2003), the Central

Government, in public interest, hereby exempts

the enterprises being parties to --

(a) any acquisition referred to in clause (a)

of section 5 of the Competition Act;

(b) acquiring of control by a person over an

enterprise when such person has already direct

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 19

or indirect control over another enterprise

engaged in production, distribution or trading of a

similar or identical or substitutable goods or

provision of a similar or identical or substitutable

service, referred to in clause (b) of section 5 of the

Competition Act; and

(c) any merger or amalgamation, referred to

in clause (c) of section 5 of the Competition Act,

where the value of assets being acquired,

taken control of, merged or amalgamated is not

more than rupees three hundred and fifty crores

in India or turnover of not more than rupees one

thousand crores in India, from the provisions of

section 5 of the said Act for a period of five years

from the date of publication of this notification in

the official gazette.

2. Where a portion of an enterprise or

division or business is being acquired, taken

control of, merged or amalgamated with another

enterprise, the value of assets of the said portion

or division or business and or attributable to it,

shall be the relevant assets and turnover to be

taken into account for the purpose of calculating

the thresholds under section 5 of the Act. The

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 20

value of the said portion or division or business

shall be determined by taking the book value of

the assets as shown, in the audited books of

accounts of the enterprise or as per statutory

auditor's report where the financial statement

have not yet become due to be filed, in the

financial year immediately preceding the financial

year in which the date of the proposed

combination falls, as reduced by any

depreciation, and the value of assets shall include

the brand value, value of goodwill, or value of

copyright, patent, permitted use, collective mark,

registered proprietor, registered trade mark,

registered user, homonymous geographical

indication, geographical indications, design or

layout design or similar other commercial rights,

if any, referred to in sub-section (5) of section 3.

The turnover of the said portion or division or

business shall be as certified by the statutory

auditor on the basis of the last available audited

accounts of the company."

24. The Central Government, Ministry of Corporate Affairs issued 'Press

Information Bureau' on 30th March, 2017 and clarified the Notifications dated

4th March, 2011 and 4th March, 2016, which reads as follows:

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 21

"Press Information Bureau Government of India Ministry of Corporate Affairs

Ministry of Corporate Affairs issues fresh notifications wherein, the Central Government intends to provide clarity on the applicability of the threshold exemption limits to all forms of combinations; Clarity on the methodology to be adopted for calculating the relevant assets and turnover of the target when only a portion or segment or business of one enterprise is being combined with another

The Ministry of Corporate Affairs (MCA) has

undertaken a major reform in the regulation of

combinations under the Competition Act, bringing India in

line with the global practice. The Act which was passed

by Parliament in 2002 had initially provided for notice of

combinations to be given by enterprises, as per Section 5

of the Act, on a voluntary basis. However, this Section

was amended in 2007 making the notice mandatory.

In 2011, in response to concerns expressed by

various stake holders, the Government had issued a

notification exempting an enterprise, whose control,

shares, voting rights or assets are being acquired has

either assets of the value of not more than Rs. 250 crores

in India or turnover of not more than Rs. 750 crores in

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 22

India from the applicability of Section 5 of the Competition

Act, 2002, for a period of 5 years. These limits were

enhanced to Rs. 350 crores and Rs. 1000 crores,

respectively, in March, 2016.

It was, however, noted by the Government that the

said notification was being applied to Combinations

which resulted only from acquisition but was not

extended to Merger/Amalgamation and Acquiring of

Control Cases. It was also noted that where only a

segment/portion/business of an enterprise was being

combined with another enterprise, the relevant assets

and turnovers attributable to the target

segment/portion/business were not being considered

and instead the transferor's total assets and turnover

were being considered for determining the applicability of

the exemption.

Stakeholders had been voicing their concerns over the

issue and in keeping with the Government's principle of

Minimum Government and Maximum Governance, the

Ministry has issued fresh notifications No. S.O. 988 (E)

and No. S.O. 989(E) dated 27.03.2017 wherein, the

Central Government intends to provide

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 23

(i) Clarity on the applicability of the threshold

exemption limits to all forms of combinations as

referred under Section 5 of the Act.

(ii) Clarity on the methodology to be adopted

for calculating the relevant assets and turnover of

the target when only a portion or segment or

business of one enterprise is being combined with

another.

With the issue of these notifications, combinations

falling within the threshold limits would not require to be

filed before the Competition Commission of India. The

reform is in pursuance of the Government's objective of

promoting Ease of Doing Business in the country and is

expected to make India a more attractive destination for

Foreign Direct Investment. The notification is expected to

enable greater freedom to industry in taking legitimate

business decisions towards further accelerating India's

economic growth."

25. The Commission has failed to appreciate that the Notification dated

04.03.2011 was squarely applicable to the present transaction on the basis of

an erroneous interpretation which is contrary to the intention of the exemption

as expressed by the Government itself vide a notification dated 27.03.2017

("Subsequent Notification") and Press Release dated 30.03.2017.

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 24

26. The intention behind the Notification dated 04.03.2011 issued by the

Central Government under Section 54 of the Act was to exempt certain

transactions due to their small size. The intention of the Government is made

clear by the Press Release dated 30.03.2017 where it is stated that

"combinations falling within the threshold limits would not require to be filed

before the Competition Commission of India. The reform is in pursuance of the

Government's objective of promoting Ease of Doing Business in the country and

is expected to make India a more attractive destination for Foreign Direct

Investment. The notification is expected to enable greater freedom to industry

in taking legitimate business decisions towards further accelerating India's

economic growth."

27. This makes it clear that the Central Government did not wish that the

CCI interfere in acquisition of an enterprise that was de minimis or acquisition

of assets that were de minimis.

28. For the purpose of the calculation of assets and turnover what is being

acquired is relevant, as the assets/turnover of what is left over with the sellers

after the acquisition will have no role to play in the context of the business

conducted by the purchaser post-acquisition.

29. In the present case, the 'Stock and Asset Purchase Agreement' covering

the global portion of the transaction dated 22nd April, 2014 was publicly

announced and notified under the merger control laws in several jurisdictions

around the world, including the United States and the European Union. The

transaction was cleared in each jurisdiction and closed on 1st January, 2015.

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 25

30. The acquisition of 'Novartis Animal Health in India' (NAH India) was

handled separately, with a separate binding agreement - "Slum Sale

Agreement" dated 3rd December, 2014 between the parties Indian subsidiaries

and the parties notified this transaction on 10th November, 2014 to the Indian

Foreign Investment Promotion Board. The Appellant has specifically pleaded

and not denied by the Respondent that the sale of 'NAH India' as business of

human health and animal health. The Appellant has acquired only the

business of 'animal health'. In this background, the Appellant has rightly

taken the plea that for the purpose of counting the business the amount being

acquired should be taken as assets value of the animal health of the 'Novartis

India Limited' and not the total value of the assets which includes the human

health (human health + animal health). The Commission has failed to

appreciate the aforesaid position and not deliberated on the issue.

31. Since the turn over attributed to the business acquired was Rs.93.9

Crores and the value of the assets being acquired was Rs. 36.2 Crores, the

'enterprise's' acquired assets of the value being more than Rs. 250 Crores or

turn over not more than Rs. 750 crores, we hold that the Appellant is exempted

from the provision of Section 5 of the Act and was not required to notify in

terms of Section 6(2) of the Act.

32. Further, Section 6(2) of the Act states that "....any person or enterprise,

who or which proposes to enter into a combination, shall give notice to the

Commission...". In the present transaction, the Appellant and Novartis AG

entered into an agreement, further supplemented by a subsequent India

related Slump Sale Agreement. Therefore, in the present case one of the

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016) 26

parties cannot be stated to have proposed the combination and the effect of

exempting the target asset would result in the applicability of the exemption

under the Notification to both the parties based on Section 6(2) of the Act. The

delegated legislation, namely The Competition Commission of India (Procedure

in Regard to the Transaction of Business Relating to Combinations) Regulations,

2011 which states that in case of an acquisition, the obligation to file the notice

is with the acquirer is contrary to the express statutory provision and the

intent thereof.

33. The Commission having failed to appreciate the aforesaid position and

in view of our finding as recorded above, we set aside the impugned order

dated 14th July, 2016 and allow the appeal. However, in the facts and

circumstances of the case, there is no order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

New Delhi

12th March, 2020

/ns/

TA (AT) (Competition) No. 03 of 2017 (Old Appeal No. 44/2016)