Eli- a company based in the United States agreed to acquire the global animal health business of Novartis AG pursuant to a Stock and Asset Purchase Agreement (SAPA) dated 22nd April 2014 covering the global portion of the transaction. The transaction was publicly declared and notified under the merger control laws in various jurisdictions around the world including the United States and the European Union and the transaction was cleared in each jurisdiction and closed on 1st January 2015. With regard to India, the acquisition of NAH was handled separately by a separate Slump Sale

Agreement dated 3rd December .2014 among the parties’ Indian subsidiaries. The transaction was notified to the Indian Foreign Investment Promotion Board (FIBP) on 10th October 2014. However, the transaction was not notified to the Competition Commission Of India (CCI) as the parties believed it to be covered under the then applicable de Minimis Exemption which applied to acquisitions of enterprises whose sales in India were not more than INR seven hundred fifty Crores or whose Indian assets valued not more than INR two hundred fifty Crores.

However, the Commission, about 1.5 years after the global transaction was announced, on 8th April 2015 issued a letter asking why the transaction was not notified to which the Eli responded that the transaction was exempt under the de Minimis Exemption as the target business only had a turnover of INR Ninty-Three Crores and assets worth INR 36.2 Crores. However, the parties also decided voluntarily to notify the transaction to the Competition Comission Of India (CCI).

The Commission vide letter dated 6th August 2015 concluded without citing any reasons that the transaction was reportable. Four months later, the Competition Comission Of India (CCI) sanction the transaction on 3rd December 2015. However, the Commission then issued a show-cause notice to Eli on 14th December 2015 to show cause why it should not be penalized for not notifying the transaction in India. Eli again responded that the transaction was exempt under the de Minimis Exemption. The hearing was also granted to Eli. On 14th July 2016, the Competition Comission Of India (CCI) imposed a penalty of INR one Crore by asserting that the thresholds of the de Minimis Exemption did not apply to the business being acquired i.e. NAH but rather to the target’s parent i.e. Novartis India Ltd., which was not covered by the de minimus exemption. This decision was based solely on the basis that the parent was incorporated and NAH was not.

Aggrieved by the decision of the Competition Comission Of India (CCI), Eli approached the National Company Law Appellate Tribunal (NCLAT) in appeal contending that such an interpretation of the de Minimis Exemption by the Competition Comission Of India (CCI) was wrong and it had incorrectly applied the thresholds to the target’s parent company merely because the target was not incorporated.

Issue

The issue in this was whether an interpretation of the de Minimis Exemption by the Competition Comission Of India (CCI) was wrong or not and whether it had incorrectly applied the thresholds to the target’s parent company merely because the target was not incorporated?

Judgment

National Company Law Appellate Tribunal (NCLAT) held that the Competition Commission Of India (CCI) failed to appreciate that the Notification dated 4th March 2011 giving effect to the de Minimis Exemption was applicable to the present transaction on the basis of an erroneous interpretation which is contrary to the intention of the exemption. The motive behind the notification of Competition Comission Of India (CCI)on was to exempt certain transactions due to their small size and this intention was made clear by the government by a press release dated 30th March 2017 wherein it was stated that:

“Combinations falling within the threshold limits would not require to be filed before the Competition Commission of India. The reform is in pursuance of the Government’s objective of promoting Ease of Doing Business in the country and is expected to make India a more attractive destination for Foreign Direct Investment. The notification is expected to enable greater freedom to the industry in taking legitimate business decisions towards further accelerating India’s economic growth.”

The National Company Law Appellate Tribunal (NCLAT) observed that it was clear that the Central Government did not wish CCI interference in the acquisition of an enterprise that was de minimis or acquisition of assets that were de minimis.

The National Company Law Appellate Tribunal (NCLAT) also clarified that for the purpose of calculation of assets and turnover what is being acquired is relevant, as the assets or turnover of what is leftover with the sellers after the acquisition will have no role to play in the context of the business conducted by the purchaser post-acquisition. National Company Law Appellate Tribunal (NCLAT) observed that it was only the ‘animal health’ business which was proposed to be acquired by Eli and therefore only the asset value pertaining to the animal health business of Novartis India Ltd was to be taken into consideration and not the total value of assets which included the human health as well.

Accordingly, the National Company Law Appellate Tribunal (NCLAT) held that since the turnover and assets attributable to the target was INR 93.9 Crores and INR 36.2 Crores respectively, the transaction was excused under the de Minimis exemption and therefore was not needed to be notified to the Competition Commission of India (CCI).