Competition Commission of India Vs. Thomas Cook (India) Ltd. and Ors.

FACTS:

The Thomas Cook India Ltd. (for short, "the TCIL") - Respondent No. 1, Thomas Cook Insurance Services India Limited, (for short, "the TCISIL") - Respondent No. 2 and Sterling Holiday and Resorts India Limited (for short, "the SHRIL") - Respondent No. 3 is the companies registered under the Companies Act, 1956. The TCIL is engaged in travel and travel related services. The TCISIL is also engaged in travel and travel related services and is a subsidiary of the TCIL and is also a registered corporate agent of Bajaj Allianz General Insurance Company Limited, which is engaged in the business of selling insurance to outbound travellers, as well as health insurance, motor insurance, personal accident insurance etc. SHRIL is engaged in the business of providing premium hotel services, vacation ownership services, normal hotel services like renting of rooms, restaurants, holiday activities etc. It also arranges meetings, incentives, conference and events for its corporate clients. The Board of Directors of the aforesaid three companies on 7.2.2014 approved 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 were to be transferred by way of demerger from SHRIL to TCISIL in lieu of which equity shares of TCIL would be issued to shareholders of SHRIL as per the ratio in the 'Scheme'; and

(b) Amalgamation: SHRIL with its residual business would be amalgamated into TCIL in lieu of equity shares to be issued to the shareholders of SHRIL as per the ratio in the Scheme.

CASE NOTES:

Deletion of penalty, challenge thereto regarding Sections 6(2) and 43 of Competition Act, 2002; Regulation 9(4) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Whether Tribunal was right in setting aside order passed by Competition Commission whereby penalty of Rupees One Crore was imposed on Respondents on ground of non-compliance of provisions contained in Section 6(2) of Act?

Held, once a particular transaction or a series of transactions falls within purview of combination, it was obligatory to report same to Commission under Section 6 of Act. Section 6(1) prohibited combinations which cause or likely to cause an adverse effect on competition and such a combination shall be void. Section 6(2) of Act required that, advance notice had to be given of proposal to enter into a combination and that had to be given within 30 days of approval of proposal relating to merger or amalgamation, execution of any agreement or other document or acquisition referred to in Section 5(a) of Act. Section 6(2) made it clear that, no combination shall come into effect until 210 days had elapsed from the date on which notice had been given to Commission under Section 6(2) and Commission had passed orders under Section 30(1), whichever was earlier. It was apparent that, in notification made under Section 6(2) of Act, on 14th February, 2014 notifiable transactions were shown regarding merger and amalgamation. Parties had also contemplated certain other transactions in view of notifiable transaction, they were subscription of equity shares, SPA, open offer and market purchase. It was crystal clear from application itself that, all these transactions were part of same transactions and even before notifying transactions of purchase from market on 14th February, 2014, it was consummated between 10th February, 2014 to 12th February, 2014. All transactions were intrinsically connected and interdependent with each other and form part of one viable business transaction. Regarding exemption that, market purchases did not qualify as a combination in view of the target exemption notification which exempted an enterprise if 'assets' were of 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 transactions was envisaged to accomplish a combination, all transactions had to be taken into consideration by the Commission, not an isolated transaction. While it was open for parties to structure their transactions in a particular way the substance of transactions would be more relevant to assess effect on competition irrespective of whether such transactions were pursued through one or more step/transactions. Structuring of transactions could not be permitted in such a manner so as to avoid compliance with mandatory provisions of Act. Provision of Regulation 9(4) clearly acknowledged possibility of business transaction being inter-connected or inter-dependent steps of such transactions. Technical interpretation to isolate two different steps of transactions of a composite combination would be against spirit and provision of Act. Market purchases were not independent and could not be used in isolation for purpose of any exemption. Regulation 9(4) could not be interpreted to enable consummation by a composite combination before giving notice to Commission. Market purchases were part of same transaction of combination. Imposition of penalty under Section 43A of Act, was on account of breach of a civil obligation, and proceedings were neither criminal nor quasi-criminal; penalty had to follow.