ELP Competition Law Alert: Mens Rea Not a Requirement for Imposing Penalty – Supreme Court Affirms CCI’s Position in Penalizing Entities for Non – Notification of Combinations

On 17 April 2018, the Supreme Court of India (“Supreme Court”) handed down a decision according strict interpretation to the requirement of notifying the Competition Commission of India (‘CCI’) prior to consummation of a combination under the Competition Act, 2002 (“Act”). The Supreme Court set aside an order passed by the erstwhile Competition Appellate Tribunal (“COMPAT”) in Thomas Cook/ Sterling and affirmed its earlier order in SCM/ Deepak Fertilizers.
In August of 2015 and 2016, the COMPAT had passed contradictory orders while assessing the requirement of notifying inter-connected transactions under the Act. In Thomas Cook/ Sterling, the COMPAT set aside the penalty of INR 10 million imposed by the CCI holding that the parties had no intention to hide the consummation of a part of a transaction which was implemented prior to obtaining CCI’s approval and held that the imposition of penalty by the CCI was purely technical. On merits however, the COMPAT held that a notification was required since the non-notified transaction was inter-related and inter-dependent on the notified transaction and as such could not have availed the benefit of the de minimis exemption. In SCM/ Deepak Fertilizers however, while maintaining that separate transactions were not made ‘solely as an investment’ but were inter-connected, the COMPAT found that the non – notification of the first leg of the transaction rightly invited penalty of INR 20 million and refused to interfere with the penalty.
Key Observations of the Supreme Court
a. The evidence indicated that parties contemplated the non-notifiable transactions viz., market purchases, in view of the notifiable transactions, and hence, these transactions were intrinsically connected and interdependent and should have been notified as per Regulation 9 (4) of the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011.
b. When a series of transactions is envisaged to accomplish a combination, all the transactions must be taken into consideration by the CCI and not just an isolated transaction. The Supreme Court held that structuring of transactions cannot be permitted in such a manner so as to avoid compliance with the mandatory provisions of the Act.
c. The Supreme Court held that Regulation 9(4) cannot be technically interpreted to enable consummation of a part of a composite combination before giving notice to the CCI and isolate transactions to claim benefit of the de minimis exemption. The notice under Section 6(2) of the Act, the Court held, must be ex ante not ex post facto.
d. The Supreme Court clarified that there is no requirement of mens rea under Section 43 A and that intention is not an essential element for levy of penalty by the CCI. Noting that the imposition of penalty under Section 43 A flows from a breach of a civil obligation in proceedings that are neither criminal nor quasi-criminal, the Supreme Court held that penalty is attracted simpliciter on violation of the provision and the CCI only has the discretion to decide the quantum of penalty to be levied.
The Supreme Court’s orders are available here:
http://www.supremecourtofindia.nic.in/supremecourt/2015/35723/35723_2015_Judgement_17-Apr-2018.pdf and
http://www.supremecourtofindia.nic.in/supremecourt/2016/37091/37091_2016_Judgement_17-Apr-2018.pdf