Featured image for Supreme Court Judgment dated 16-04-2018 in case of petitioner name Competition Commission of Indi vs Thomas Cook (India) Ltd. & Anr
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Competition Law Violation: Supreme Court Reinstates ₹1 Crore Penalty on Thomas Cook India

The Supreme Court of India delivered a crucial judgment in the case involving the Competition Commission of India (CCI) and Thomas Cook (India) Ltd., where it reinstated a penalty of ₹1 crore imposed by the CCI. The case revolved around the alleged non-compliance with Section 6(2) of the Competition Act, 2002, concerning market purchases made in connection with a larger merger transaction. This judgment serves as a precedent for competition law enforcement and corporate compliance in India.

The core issue was whether market purchases made by Thomas Cook India Ltd (TCIL) and its subsidiaries formed an integral part of a larger combination, necessitating prior notification to the CCI. The Competition Appellate Tribunal (Tribunal) had earlier overturned the penalty imposed by the CCI, which led to the appeal before the Supreme Court. The Court ultimately ruled in favor of the CCI, emphasizing the importance of regulatory oversight in mergers and acquisitions.

Background of the Case

Thomas Cook India Ltd. (TCIL), along with Thomas Cook Insurance Services India Ltd. (TCISIL) and Sterling Holiday Resorts India Ltd. (SHRIL), undertook a series of transactions involving a scheme of demerger and amalgamation, share acquisitions, and an open offer to public shareholders. These transactions included:

  • A demerger where SHRIL’s resort and timeshare business was transferred to TCISIL in exchange for shares.
  • An amalgamation where SHRIL’s remaining business was merged into TCIL.
  • A Share Subscription Agreement (SSA) allowing TCISIL to acquire 22.86% of SHRIL’s equity.
  • A Share Purchase Agreement (SPA) where TCISIL acquired an additional 19.94% of SHRIL’s equity.
  • An open offer for the purchase of 26% of SHRIL’s equity under SEBI regulations.
  • Market purchases by TCISIL, acquiring 9.93% of SHRIL’s equity between February 10-12, 2014.

Arguments Presented

Competition Commission of India (CCI)

The CCI argued that:

  • The transactions were interconnected and formed a single composite combination, requiring mandatory notification under Section 6(2) of the Competition Act.
  • The market purchases were part of the broader merger scheme and were consummated before notification, violating statutory provisions.
  • Exemption claimed under Notification S.O. 482 (E) was invalid since the transactions, viewed collectively, exceeded the prescribed thresholds.
  • Failure to notify market purchases was a deliberate attempt to evade regulatory scrutiny.

Thomas Cook (India) Ltd. and Respondents

The respondents contended that:

  • Section 5 of the Act sets thresholds for combinations based on asset and turnover values, ensuring only large-scale transactions come under scrutiny.
  • Market purchases were independent of the merger scheme and fell within the “Target-Based Exemption.”
  • The transactions were structured legally and did not amount to evasion of regulatory compliance.
  • The Commission had already approved the transaction and found no adverse impact on market competition.

Supreme Court’s Observations

The Supreme Court ruled that:

  • Market purchases were intrinsically linked to the broader merger transaction and could not be considered independently.
  • Regulation 9(4) of the Competition Act provides for treating interdependent transactions as a single combination, requiring notification.
  • Failure to notify a part of a composite combination is a violation, irrespective of individual transaction thresholds.
  • Mens rea (guilty intent) is not a prerequisite for imposing penalties under Section 43A of the Act.

Legal Precedents and Interpretations

The Supreme Court relied on established principles of corporate and competition law, reinforcing that regulatory compliance cannot be circumvented through strategic structuring of transactions. The ruling emphasized:

  • Composite Nature of Transactions: The Court reiterated that mergers and acquisitions cannot be artificially fragmented to bypass notification requirements.
  • Regulatory Oversight: Market transparency and compliance with the Competition Act are crucial to preventing monopolistic practices.
  • Penalty Provisions: The judgment affirmed that failure to notify a reportable transaction attracts penalties, even if done without malafide intent.

Conclusion

The Supreme Court’s ruling in favor of the CCI underscores the significance of compliance with competition law regulations. The decision sets a strong precedent against partial disclosures in merger transactions and reinforces the necessity of full transparency in corporate acquisitions. The reinstatement of the ₹1 crore penalty highlights the strict enforcement of competition laws in India.


Petitioner Name: Competition Commission of India.
Respondent Name: Thomas Cook (India) Ltd. & Anr..
Judgment By: Justice Arun Mishra, Justice Navin Sinha.
Place Of Incident: India.
Judgment Date: 16-04-2018.

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