In a ruling that will put to rest speculation on the applicability of the Competition Commission of India (Procedure in regard to the transaction of business relating to Combinations) Regulations, 2011 [Combination Regulation] read with provisions of Section 5 (c) of the Competition Act, 2002 [the Act], the Competition Commission of India [CCI] has on 28 December 2011 amongst other held that merger of subsidiary company with holding company in applicable situation will require prior approval of CCI.
Brief facts
Tata Chemicals Limited [TCL] is an Indian company whose shares are listed on stock exchanges in India. TCL is engaged in manufacture and sale of salt, soda ash, marine chemicals, caustic soda, fertilizers, cement and bulk chemicals etc. One of the wholly owned subsidiary of TCL in Mauritius viz; Wyoming 1 (Mauritius) Private Limited [Wyoming 1] was formed solely for holding offshore business interest of TCL.
The Boards of TCL and Wyoming 1 approved a proposal of amalgamation of Wyoming 1 with TCL on 11 November 2011.
The proposed transaction is a combination under section 5(c) of the Competition Act exceeding the monetary limits specified in the section 5 (c) thereby requiring prior approval of CCI.
Submission by TCL before CCI
Accordingly, an application was made on 9 December 2011 (i.e. within the mandated 30 day‟s timeline) to CCI for its approval along with preliminary submissions. It was submitted that the proposed transaction would not require notification to CCI under the Act on the grounds such as:
1. Definition of the term „enterprise‟ in the Act does not appear to require notification to CCI of transaction between a parent company and its subsidiaries because a parent and its subsidiaries are effectively a single economic enterprise for the purpose of the Act;
2. The proposed transaction is an outbound steam of acquisition by TCL and therefore the proposed combination would be entitled to an exemption available under item 10 of Schedule I of the Combination Regulation;
3. The proposed transaction would entail acquisition of assets of Wyoming 1 by TCL and therefore it would be eligible for an exemption under item 8 of Schedule I of the Combination Regulation.
Brief background on ‘combination’ under Section 5 and Section 6 of the Act
As per Section 5 of the Competition Act, a combination comprises of any of the following -
a. any acquisition of – control / shares / voting rights / assets of enterprises;
b. acquiring of control by person over an enterprises, where such person already has direct / indirect control over another enterprise engaged in similar / competitive business;
c. any merger or amalgamation between enterprises.
Section 6 the Act requires filing of prior notice with CCI for its approval if a combination exceeds the monetary threshold of assets and / or turnover.
Brief background Combination Regulation
Combination Regulation contains detail procedure to be followed where approval of CCI is required in terms of Section 5 read with Section 6 of the Act. Schedule I read with Regulation 4 of the Combination Regulation contains list of cases of combinations for which prior approval of CCI is not required. Item 10 and item 8 to the Schedule I of the Combination Regulation are as under:
“(10) A combination referred to in section 5 of the Act taking place entirely outside India with insignificant local nexus and effect on markets in India.
(8) An acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same „group‟;”
CCI Order
In brief CCI held that:
A subsidiary being a separate entity and a legal person, would constitute a separate and different „enterprise‟ within the meaning of the Act if it meets the requirements of being an „enterprise‟ under the Act;
As one of the party to the proposed transaction is in India viz. TCL, item 10 of Schedule I to the Combination Regulation would not be applicable in the case;
Since the proposed combination falls within section 5 (c) of the Act and is pursuant to a scheme of amalgamation and not by way of acquisition, the question of application of Item 8 of Schedule I to the Combination Regulation does not arise.
Conclusion
CCI approved the proposed transaction, on facts, as not likely to have appreciable adverse effect on competition in India. CCI order addresses conflicting views regarding pre-approval requirement under the Competition Law in cases of amalgamation of companies within the same group and merger of subsidiary with holding company where a transaction is regarded as a combination under the Act.
CCI order issued in less than 30 days should reassure parties who would be approaching CCI for timely disposal of their application on merits.
Brief facts
Tata Chemicals Limited [TCL] is an Indian company whose shares are listed on stock exchanges in India. TCL is engaged in manufacture and sale of salt, soda ash, marine chemicals, caustic soda, fertilizers, cement and bulk chemicals etc. One of the wholly owned subsidiary of TCL in Mauritius viz; Wyoming 1 (Mauritius) Private Limited [Wyoming 1] was formed solely for holding offshore business interest of TCL.
The Boards of TCL and Wyoming 1 approved a proposal of amalgamation of Wyoming 1 with TCL on 11 November 2011.
The proposed transaction is a combination under section 5(c) of the Competition Act exceeding the monetary limits specified in the section 5 (c) thereby requiring prior approval of CCI.
Submission by TCL before CCI
Accordingly, an application was made on 9 December 2011 (i.e. within the mandated 30 day‟s timeline) to CCI for its approval along with preliminary submissions. It was submitted that the proposed transaction would not require notification to CCI under the Act on the grounds such as:
1. Definition of the term „enterprise‟ in the Act does not appear to require notification to CCI of transaction between a parent company and its subsidiaries because a parent and its subsidiaries are effectively a single economic enterprise for the purpose of the Act;
2. The proposed transaction is an outbound steam of acquisition by TCL and therefore the proposed combination would be entitled to an exemption available under item 10 of Schedule I of the Combination Regulation;
3. The proposed transaction would entail acquisition of assets of Wyoming 1 by TCL and therefore it would be eligible for an exemption under item 8 of Schedule I of the Combination Regulation.
Brief background on ‘combination’ under Section 5 and Section 6 of the Act
As per Section 5 of the Competition Act, a combination comprises of any of the following -
a. any acquisition of – control / shares / voting rights / assets of enterprises;
b. acquiring of control by person over an enterprises, where such person already has direct / indirect control over another enterprise engaged in similar / competitive business;
c. any merger or amalgamation between enterprises.
Section 6 the Act requires filing of prior notice with CCI for its approval if a combination exceeds the monetary threshold of assets and / or turnover.
Brief background Combination Regulation
Combination Regulation contains detail procedure to be followed where approval of CCI is required in terms of Section 5 read with Section 6 of the Act. Schedule I read with Regulation 4 of the Combination Regulation contains list of cases of combinations for which prior approval of CCI is not required. Item 10 and item 8 to the Schedule I of the Combination Regulation are as under:
“(10) A combination referred to in section 5 of the Act taking place entirely outside India with insignificant local nexus and effect on markets in India.
(8) An acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same „group‟;”
CCI Order
In brief CCI held that:
A subsidiary being a separate entity and a legal person, would constitute a separate and different „enterprise‟ within the meaning of the Act if it meets the requirements of being an „enterprise‟ under the Act;
As one of the party to the proposed transaction is in India viz. TCL, item 10 of Schedule I to the Combination Regulation would not be applicable in the case;
Since the proposed combination falls within section 5 (c) of the Act and is pursuant to a scheme of amalgamation and not by way of acquisition, the question of application of Item 8 of Schedule I to the Combination Regulation does not arise.
Conclusion
CCI approved the proposed transaction, on facts, as not likely to have appreciable adverse effect on competition in India. CCI order addresses conflicting views regarding pre-approval requirement under the Competition Law in cases of amalgamation of companies within the same group and merger of subsidiary with holding company where a transaction is regarded as a combination under the Act.
CCI order issued in less than 30 days should reassure parties who would be approaching CCI for timely disposal of their application on merits.
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