ITC Ltd. Appeals to NCLAT: Exemption Notification Retrospective or Not?[Shravani Sakpal]
The author is a student at Government Law College, Mumbai. She may be reached at firstname.lastname@example.org.
A party which proposes to enter into a combination that meets the thresholds stipulated in §5(a) of the Competition Act, 2002 is obligated to notify the Competition Commission of India (CCI) of its transaction(s) before consummation, and get prior approval. This obligation is imposed so that the CCI, on a case-to-case basis, gets to adjudicate whether the combination has the potential to cause an appreciable adverse effect on competition (AAEC) in India, and consequently take appropriate action, which could mean an unconditional approval, a conditional approval, or a blanket prohibition on the combination taking effect. A failure to notify the CCI can result in hefty penalties. However, there are certain provisions which, if satisfied, can make parties involved in combinations exempt from notifying the CCI. One such exemption is provided in a notification issued by the Ministry of Corporate Affairs dated 27 March 2017.
The MCA notification dated 27 March 2017 exempts those combinations wherein the assets of the business division being acquired are less than INR 350 crores or the turnover is less than INR 1000 crores. This is a significant change in the merger control regime in India as now only the relevant assets and turnover of the specific business division being acquired are taken into consideration for assessing notifiability and consequently effect on competition in the relevant market. Furthermore, this practice is in conformity with the European merger control regime as only the turnover relating to the “part” of an undertaking being acquired is taken into account. For instance, in Otto/Primondo Assets, the European Commission observed that “Otto acquires only specific assets out of the insolvent Primondo group… It therefore does not appear justified to take the entire…turnover into account in the competitive assessment.”
Question of Retrospectivity
The apex court has upheld the golden rule of construction that, in the absence of anything in a piece of legislation to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the previous prevailing legislation. A plain reading of the notification reveals that there is no provision in it making it retrospective in operation. Furthermore, it should be noted that another notification issued on the same day rescinded the 4 March 2016 notification—the previously prevailing notification—but stated that such rescission is not applicable to things done or omitted to be done before such rescission. This clearly indicates that the notification is operative only prospectively.
However, despite the above, ITC Ltd. has argued otherwise before the CCI.
ITC Ltd.’s Arguments vis-a-vis the Notification
If legislation is proven to be merely clarificatory, as opposed to substantive, in nature, the legislation is considered to have retrospective operation. Hence, in order to argue that the notification should be taken into consideration for its asset purchases’ competitive assessment, ITC Ltd. submitted that the notification is merely clarificatory to the previousde minimis notification dated 4 March 2016. To substantiate this argument, ITC Ltd. cited a press release dated 30 March 2017 issued by the Ministry of Corporate Affairs, which states that the notification is clarificatory in nature.
In addition to the above, ITC Ltd. submitted that it was entitled to draw benefit from the notification as the Show Cause Notice (SCN) under §43A of the Act was issued on 29 March 2017 i.e. after the notification was issued.
The CCI rebutted the above by first arguing that the changes brought about by the notification were substantive in nature. It then relied on a Supreme Court judgment to argue that the press release does not have a statutory force and, hence, cannot alter the position as prescribed by statutes.
Furthermore, the CCI brought attention to the date of ITC Ltd.’s signing of the binding documents (Asset Purchase Agreements), i.e. the trigger documents, which is 12 February 2015. According to §6(2)(b), the CCI must be notified within 30 days of signing the binding documents, which in the instant case would be 12 March 2015. Hence, the CCI adjudicated that as ITC Ltd.’s obligation to notify was well before the notification was issued (almost two years), it could not claim benefit under the notification.
Ultimately, after taking into consideration all the submissions put forth, the CCI held ITC Ltd. liable for violating §6(2)(b) and §6-2A, but imposed a substantially mitigated penalty of only INR 5 lakhs.
Although the CCI never gave in to ITC Ltd.’s argument for retrospectivity, the high degree of mitigation of penalty is a clear indication that the argument holds a heavy persuasive value and, perhaps, legal clout as well. Even though this nominal penalty is but peanuts to ITC Ltd., it has still appealed to the NCLAT against the CCI’s order. The substantial issue of law now lies in the hands of the NCLAT to decide upon.
If the NCLAT takes into consideration the intent of the legislature of easing business in India along with the press release declaring the notification clarificatory, it is highly likely that the notification will be adjudicated to be retrospective. However, the CCI has already voiced its (valid) concern that declaring the notification retrospective would create chaos and perhaps lead to opening of all the old closed transactions for fresh scrutiny.
A way to counter this problem could be adjudicating the notification to be operative only in the instant case, as the SCN under §43A was issued after the notification came out. Instead of blanket retrospectivity, such a judgment of the NCLAT would lead to the notification being operative for only those combinations that came under scrutiny by way of an SCN post 27 March 2017, despite their trigger documents being signed before the notification.
NCLAT has to now shoulder the heavy responsibility of maintaining the sanctity of the mandatory nature of the merger control regulations, while at the same time abiding by the legislature’s intent of easing business in India. The Appellate Tribunal must be careful in striking a balance between the two seemingly contradictory ends.
 The Competition Act, 2002, §6(2)(b).
 Id., §31(1).
 Id., §31(3).
 Id., §31(2).
 Id., §43A.
 Ministry of Corporate Affairs, Notification S.O. 988(E) (27 March 2017), published in The Gazette of India (29 March 2017), accessed at http://www.cci.gov.in/sites/default/files/notification/S.O.%20988%20%28E%29%20and%20S.O.%20989%28E%29.pdf.
 Council Regulation (EC) No. 139/2004 on the Control of Concentrations Between Undertakings (the EC Merger Regulation) (20 January 2004), art. 5(2).