Sep 05, 2018

CCI Imposes a ‘Gun-Jumping’ Penalty on Intellect Design Arena

On May 7, 2018, CCI passed an order under Section 43(a) of the Competition Act imposing a penalty on Intellect Design Arena Ltd. (‘IDAL’) for consummating a notifiable transaction without prior approval from CCI. While assessing a different notified combination, CCI observed that Polaris Financial Technology Limited (‘PFTL’) had by way of a scheme of arrangement approved by a board resolution dated 18th March, 2014, demerged its “products business”, which was subsequently acquired by IDAL.CCI observed that the said demerger and the subsequent acquisition prima facie met the jurisdictional thresholds under Section 5 of the Competition Act, and issued a show cause notice to IDAL directing it to show why proceedings for ‘gun jumping’ under Section 43(a) of the Competition Act should not be initiated against it. IDAL’s response to the show-cause notice comprised of the following two lines of argument (a) that the benefit of the de minimis exemption (which, at the time, exempted acquisitions of shares, voting rights, assets or control of enterprises which had less than   ₹ 2500 million in assets in India, or less than ₹ 7500 million in turnover in India) was available acquisition was available to the transaction since the turnover of PFTL in India (i.e. from customers in India) was less that ₹ 7500 million, and (b) that under Section 20(1) of the Competition Act, CCI was precluded from inquiring into any combination after a period of one year had passed from the date the combination came into effect, which it had in the present case.With respect to the first issue, CCI observed that as per its decisional practice, the value of turnover is to be taken per the enterprise’s books of accounts, irrespective of where the revenue was derived from. CCI noted that while the revenue derived by PFTL from exports was substantial, its total revenue as seen in the books of account amounted to ₹ 18539 million, substantially over the de minimis threshold. Accordingly, CCI concluded that IDAL would not be able to take the benefit of the de minimis exemption. Further, with respect to the second issue, CCI observed that the provisions of Section 20(1) of the Competition Act applied to the reviewing of combination and not to the initiation of proceedings for ‘gun jumping’ under Section 43A of the Competition Act. Further, for the application of Section 43(a) the effects of the combination on the market in India were irrelevant.In light of the above, CCI held that the transaction ought to have notified, and in having consummated the same without CCI approval, IDAL had violated the provisions of Section 43(a) of the Competition Act. Accordingly, CCI imposed a penalty of ₹ 1 million on IDAL.




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