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)

JUDGMENT

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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