REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE  JURISDICTION

CIVIL    APPEAL NO(S). 10678 OF 2016

      SCM SOLIFERT LIMITED & ANR. ..APPELLANT(S)

VERSUS

COMPETITION COMMISSION OF INDIA       ..RESPONDENT(S)

J U D G M E N T  

ARUN MISHRA, J.

1. The appellants SCM Solifert Limited and another are in

appeal under section 53T of the Competition Act, 2002 (hereinafter

referred to as “the Act”) as against the final  judgment and order

dated 30.08.2016 passed in Appeal No.59 of 2015 by the

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Competition Appellate Tribunal thereby affirming the order passed

by the Competition Commission of India under section 43A of the

Act.  

2. The Competition Commission of India initiated the

proceedings against the appellants on whom due to the failure to

notify a proposed combination as required under section 6(2) of the

Act, the penalty of Rupees Two crores was imposed under section

43A of the Act. On 3.07.2013, the appellants had purchased

2,89,91,150 shares of Mangalore Chemicals and Fertilisers Limited

(in  short referred to  as “the  MCFL”) constituting  24.46 paid  up

share capital of the MCFL on the Bombay Stock Exchange.

3. The first transaction of the acquisition of the shares was by

way of the purchase of shares conducted through bulk and block

deals. It was followed by press release dated 3.7.2013 by Deepak

Fertiliser and  Petrochemicals  Corporation  Limited filed  with the

Stock Exchanges, in compliance with the requirements of the

Listing Agreement.  

4. On the second acquisition of the shares on 23.04.2014 the

appellants  made a purchase order in the open  market for the

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purchase of up to 20 lacs equity shares representing 1.7 percent

shares of the MCFL. Subsequently, an open offer in terms of the

SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011 (for short, "the Regulations, 2011") was made for

acquiring up to 26 percent of shares of the MCFL.  

5. The  appellants filed a  notice disclosing  details of the first

acquisition and notifying the second acquisition under Section 6(2)

of the Act with the Commission on 22.04.2014 within thirty days of

the public announcement pursuant to  the Regulations, 2011 for

the acquisition of 1.7 percent of the MCFL. The Competition

Commission vide its order dated 30.07.2014 under section 31(1) of

the Act approved the proposed combination, however, directed to

initiate penalty proceedings against the appellants under section

43A of the Act. Pursuant to that, a show cause notice was issued

on the ground of failure to notify in accordance to section 6(2) of

the Act, in regard to first and second acquisitions of shares.

6. It was the case on behalf of the appellants that first

acquisition was made solely for the purpose of investment under

Entry I of Schedule I of the CCI (Procedure in regard to the

Transaction of Business  Relating to  Combinations) Regulations,

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2011, (hereinafter referred to as "the  Competition  Regulations").

Thereby, it  assumed exemption from the notification. It was also

urged that the second acquisition was notified to the Commission

within the stipulated time of 30 days as specified in section 6(2) of

the Act. The purchase was not consummated because as per the

Escrow Agreement dated 28.04.2014, the shares purchased in the

second acquisition were credited to a specifically designated Escrow

account  of  J.M.  Financial  Services  Limited.  The  sole  purpose  of

entering into an escrow agreement was that the transaction was

not consummated prior to approval of the Commission. The

Commission  has imposed the  penalty  of  2 crores; the  appellate

tribunal has affirmed the order. The Commission has held that the

appellants have violated section 6(2) of the Act by failing to notify

the proposed combination.

7. It was urged by learned counsel on behalf of the appellants

that first  acquisition  did  not fall  within the  purview of  Entry  1

Schedule  1.  The interpretation  made  by the  Commission  of the

Entry  1 of  Schedule  1 is incorrect.  With respect to the second

acquisition of shares, it was urged that the sole purpose of creation

of  Escrow Account  was  to  ensure that the  appellants  could  not

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exercise the legal and beneficial rights accruing through the shares,

as the account was operatable solely on the basis of instructions of

the Manager and to the exclusion of the appellants. After approval

of the proposed combination, penalty ought not to have been

imposed. Violation, if any, was technical, not willful, deliberate or

mala fide.  

8. Per contra, the Commission has rightly imposed the penalty.

There was a breach of  provisions contained  in section 6(2).  The

penalty imposed is  meager. The first acquisition of shares  was

notifiable. It could not have been termed solely as an investment.

Reliance  has  been placed  on Press  Release issued on  3.7.2013,

which referred investment being “very strategic”, and the appellant

also notified to the public that they “look forward to working closely

with  MCFL  in the future”.  The  knowledge  of  acquisition  by the

Zuari group of 9.72% shares in MCFL on 2.4.2013 was admitted in

the reply  filed by the appellants.  There was the acquisition of  a

large number of shares on the same day through the block and

bulk deals. MCFL was not very profitable. Therefore, purchase of

shares could not be said to be a sound investment by a prudent

investor.  

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9. To appreciate the rival submissions, it is necessary to refer to

certain provisions contained in the Act. Section 6 of the Act deals

with regulation of combinations and the same is extracted

hereunder:

“Section 6: Regulation of combinations  (1) No person or enterprise shall enter into a combination, which causes or is likely to cause an appreciable adverse effect on competition  within the relevant market in India and such a combination shall be void.

(2) Subject to the provisions contained in sub­ section (1), any person or enterprise, who or which proposes to enter into  a combination,  13 [shall] give notice to the Commission, in the form as may be specified, and the fee which may be determined, by regulations, disclosing the details of the proposed combination, within thirty days of—  

(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of section 5, by the board of directors of the enterprises concerned with such merger or amalgamation, as the case may be;  

(b) execution of any agreement or other document for acquisition referred to in clause (a) of section 5 or acquiring of control referred to in clause (b) of that section.

(2A)  No  combination  shall come  into  effect  until two hundred and ten days have passed from the day on  which the  notice  has  been given to the Commission under sub­section (2) or the Commission has passed orders under section 31, whichever is earlier.”

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10. Any person or enterprise before entering into a combination,

has to give notice to the Commission disclosing the details within

30 days of (a) approval of the proposal relating to  merger or

amalgamation as provided in the Act; (b) execution of any

agreement or other document for acquisition referred to in section

5(a) of the Act or acquiring of control under section 5(b). No

combination shall come into effect as provided in section 6(2A) until

210 days have passed from the day when notice has been given to

the Commission.

11. Section 42 of the Act deals with contravention of the orders of

the Commission.  Section 43A deals  with  the power  to impose a

penalty for  non­furnishing of information  on combinations.  Any

person or enterprise who fails to give notice under section 6(2) of

the Act to the Commission, the Commission, in such an event, is

authorized to impose the penalty which may extend to 1% of the

total turnover or the assets, whichever is higher.  

12. Section 43A is extracted hereunder:

“Section 43A: Power to impose the penalty for non­furnishing of information on combinations

If any  person or enterprise  who fails to

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give notice to the Commission under sub­section (2) of section 6, the Commission shall impose on such  person or enterprise a  penalty  which  may extend to one percent, of the total turnover or the assets, whichever is higher, of such a combination.”

13. Regulation 4 of the Combination Regulations deals with

categories of transactions not likely to have an appreciable adverse

effect on competition in India. Regulation 5 deals with the form of

notice for the proposed combination. Regulation 5(8) provides that

“other document” in section 6(2)(b) to mean any binding document

by whatever name called, conveying an agreement or decision to

acquire control, shares, voting rights or assets. Rule 5(8) is

extracted hereunder :

“5. Form of notice for the proposed combination ­  

(1) ……

(8) The reference to the “other document” in clause (b) of sub­section (2) of section 6 of the Act shall  mean any binding document, by  whatever name called, conveying an agreement or decision to acquire control, shares, voting rights or assets:

Provided  that if the  acquisition  is  without the consent of the enterprise being acquired, any document executed by the acquiring enterprise by whatever name called, conveying a decision to acquire control, shares or voting rights shall be the “other document”.

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 Provided further that where a public announcement has been  made in terms of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,  2011, for the  acquisition  of shares, voting rights or control, such public announcement  shall  be deemed to  be  the "other document"."

14. Schedule 1 to the Combination Regulations provides that

acquisition of shares or voting rights referred to in section 5(a)(i) or

Section 5(a)(ii) of the Act does not entitle the acquirer to hold 25%

or more of the total shares or voting rights of the company, directly

or indirectly. The Explanation makes it clear that the acquisition of

less than 10% of the total shares or voting rights of an enterprise

shall be treated solely as an investment. Schedule 1 to the

Combination Regulations is extracted hereunder:

“(1) An acquisition of shares or voting rights, referred to in  sub­clause (i) or sub­clause (ii) of clause (a) of section 5 of the  Act, solely as an investment or  in the ordinary course of business in so far as the total shares or voting rights held by the acquirer directly or indirectly, does not entitle the acquirer to hold twenty five per cent (25%) or more  of the total shares or voting rights of the company, of which shares or voting rights are being acquired, directly or indirectly or in accordance  with the execution  of any  document including a share holders” agreement or articles of association, not leading to acquisition of control of the enterprise  whose  shares  or  voting  rights  are being acquired.

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Explanation:­ The acquisition of less than ten percent of the total shares or voting rights of an enterprise shall be treated as solely as an investment.   Provided that in relation to the said acquisition – (A) the Acquirer has ability to exercise only such rights that the exercisable by the ordinary shareholders of the enterprise whose shares or voting rights are being acquired to the extent of their respective shareholding; and (B) the Acquirer is not a member of the board of directors of the enterprise whose shares or voting rights are being acquired and does not have a right or intention to nominate a director on the board of directors of the enterprise whose shares or voting rights are being acquired and does not intend to participate in the affairs or  management of the enterprise whose shares or voting rights are being acquired.”

15. The  procedure for imposition  of penalty is  provided  under

Regulation 48 of the new Regulations. A show cause notice has to

be given  and thereafter if an oral hearing is granted, then the

Commission is empowered to impose the penalty considering the

facts and circumstances of the case.

16. First, we deal with the acquisition of the shares of MCFL by

the appellants on 3.11.2013. There was the acquisition of 24.46%

equity share capital of MCFL on a single day of which 19.9% were

acquired through the block and bulk deals. The contemporaneous

Press Release dated 3.7.2013 issued by the appellants filed with

the stock exchanges, in  compliance with  the requirement of the

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Listing Agreement indicated that the objective was not to make an

investment in MCFL. The Press Release referred “investment is very

strategic and a good fit with the company’s business”. There was a

pointer in the Press Release of its intent when it stated that DFPCL

looks forward to working closely with MCFL to “enhance long­term

value for the shareholder of both companies”. Not only the

appellants but another player Zuari group also made a significant

purchase of shares of MCFL i.e. 9.72% on 2.4.2013 is also not in

dispute. Thus, it is apparent that the appellant's first acquisition

was a part of the long­term plan to try and take over MCFL, which

was simply  not an investment. The  purchase of 24.46% equity

stake, vested power to exercise influence as was reflected in Press

Release­II also. The acquisition of less than 10% of the total shares

or voting rights of  an enterprise is  solely  an  investment. It  also

indicates that beyond this threshold, the transaction is required to

be looked carefully. Thus, there was a failure to comply with the

provisions of section 6(2) of the Act in regard to the acquisition of

24.46% of the shareholding. The provisions of section 6(2) were not

at all complied with.

17. Coming to  the second acquisition of  shares of  0.8% equity

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shares of MCFL, the dispute is as to whether the notifying within

30 days of the purchase was compliance of the provision as per

provisions of section 6(2)  it should have been notified before the

acquisition. As a corollary, it was also argued that the equity

shares purchased second time were placed in the Escrow Account.

The appellants could not have exercised the beneficial rights until

the Commission made the approval of the proposed combination.

What was essential under section 2(e) was the voting rights and the

appellants could not have exercised voting rights by placing shares

in the escrow account.

18. We find no merits in the submissions raised. It is apparent

from section 6(2) of the Act that the proposal to enter into

combination is required to be notified to the  Commission. The

legislative mandate is apparent that the notification has to be made

before entering into the combination. The Preamble of the Act

contains that the  Commission has been established to prevent

practices having an adverse effect on the competition. The

combination cannot be entered into and shall come into effect

before order is passed by Commission or lapse of certain time from

date of notice is also apparent from the terminology used in section

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6(2A)  which provides that  no combination shall  come  into effect

until 210 days have passed from the date of notice or passing of

orders under section 31 by the Commission, whichever is earlier.

The provisions made in Regulation 5(8) also buttresses the

aforesaid conclusion. Notice of Section 6(2) is to be given prior to

consummation of the acquisition. Ex post facto notice is not

contemplated under the provisions of section 6(2). Same would be

in violation of the provisions of the Act.

19. The expression “proposes to enter into a combination” in

section 6(2) and further details to be disclosed in the notice to the

Commission are of the ‘proposed combination’ and the specific

provisions contained in section 6(2A) of the Act provides that no

combination shall come into effect until 210 days have passed from

the date on which notice has been given or passing of orders under

section 31 by the Commission, whichever is earlier. The intent of

the Act is that the Commission has to permit combination to be

formed, and has an opportunity to assess whether the proposed

combination would cause an appreciable adverse effect on

competition. In case combination is to be notified ex­post facto for

approval, it would defeat the very intendment of the provisions of

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the Act.

 20. When the transaction  has  been completed  and  acquisition

has been made and the  latter transaction has exceeded holding

more than 25% by the second purchase, obviously prior permission

was required, as discussed hereinabove, as its total shareholding

increased to 25.3%. Thus, we have no hesitation to hold that the

notification under section 6(2) of the Act has to be ex­ante.

21. The factum of the approval of the combination subsequently

by the Commission is not going to provide an insulation when the

provisions of the Act have been violated and prior notice had not

been given under  section 6(2). It  was  open to impose a  penalty

under section 43A. Merely by grant of approval by the Commission

violation of provisions does not become condonable ipso facto.

22. The provisions contained in section 43A make it clear that the

Commission shall impose the penalty which may in its discretion

extend to 1%  of the total turnover or the assets,  whichever is

higher,  of the combination. It  has been  found on  facts that the

turnover of the combination was Rs.3322 crores per annum, 1% of

which would be Rs.33.22 crores. The Commission had imposed a

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nominal penalty of Rs.2 crores which amounts to only 0.06% of the

total turnover. In the facts of the case, information was disclosed

belatedly. The imposition of penalty  was  warranted due to the

violation of the provision and it was rightly imposed.

23. There was no requirement of  mens rea under section 43A or

an intentional breach as an essential element for levy of penalty.

The Act does not use the expression "the failure has to be willful or

mala fide” for the purpose of imposition of penalty. The breach of

the provisions of the Act is punishable and considering the nature

of the breach, it is discretionary to impose the extent of penalty.

Mens rea  is important to adjudge criminal or quasi­criminal

liability, not in case of violation of the civil statutory provision. In

Hindustan  Steel Ltd. v.  State of  Orissa  AIR  1970  SC 253,  with

respect to the failure to comply with the civil obligation this Court

has laid down thus:  

"In our opinion,  mens rea is not an essential ingredient for contravention of the provision of a civil Act. In our view, the penalty is attracted as soon as a contravention of the statutory obligations as contemplated by the Act is established and, therefore, the intention of the parties committing such violation becomes immaterial. In other words, the breach of a civil

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obligation which attracts penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. This apart that unless the language of the statute indicates the need to establish the element of  mens rea. It is generally sufficient to prove that a default in complying with the statute has occurred. The penalty has to follow and only the quantum of penalty is discretionary "

                    In our considered opinion, the penalty is attracted as soon as the contravention of the statutory  obligation  as contemplated  by the  Act and the Regulation is established and hence intention of the parties committing such violation becomes wholly irrelevant.

                   We also further hold that unless the language of the statute indicates the need to establish the presence of men's rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of Section 15(D) (b) and Section 15­E of the Act, there is nothing which requires that  men's rea  must be proved before a penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow.”

24. The imposition of penalty under section 43A is on account of

breach of a civil obligation, and the proceedings are neither

criminal nor quasi­criminal. Thus, a penalty has to follow.

Discretion  in the provision under section 43A  is  with respect  to

quantum. Thus, we find that in view of the submissions made by

learned counsel for the appellants no case for our interference is

made out.

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25. The judgment and order passed by the Commission as

affirmed by the appellate tribunal are in accordance with law. The

appeal being  devoid of  merit, deserves dismissal and is  hereby

dismissed. No costs.              

……………………………..J. (ARUN MISHRA)

                                                         ……………………………..J. (NAVIN SINHA)

NEW DELHI; APRIL 17, 2018.

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