The National Company Law Appellate Tribunal, vide judgment dated 12.03.2020, has set aside the Competition Commission of India ("CCI/Commission") order dated 14.07.2016 imposing a fine of INR 1 crore on M/s Eli Lilly and Company ("Eli") for gun jumping i.e. for not notifying its acquisition of Novartis Animal Health in India ("NAH") within the prescribed limit.


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 22.04.2014 covering the global portion of the transaction. The transaction was publicly announced and notified under the merger control laws in several jurisdictions around the world including the United States and the European Union and the transaction was cleared in each jurisdiction and closed on 01.01.2015.

With respect to India, the acquisition of NAH was handled separately by a separate Slump Sale Agreement dated 03.12.2014 between the parties Indian subsidiaries. The transaction was notified to the Indian Foreign Investment Promotion Board ("FIBP") on 10.11.2014. However, the transaction was not notified to the 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 750 Crores or whose Indian assets valued not more than INR 250 Crores.

However, the Commission, about 1.5 years after the global transaction was announced, on 08.04.2015 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 turnover of INR 93 Crores and assets worth INR 36.2 Crores. However, the parties also decided voluntarily to notify the transaction to CCI.

The Commission vide letter dated 06.08.2015 concluded without citing any reasons that the transaction was reportable. Four months later, the CCI approved the transaction on 03.12.2015. However, the Commission then issued a show cause notice to Eli on 14.12.2015 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. Hearing was also granted to Eli.  On 14.07.2016, the CCI imposed a penalty of INR 1 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 mimimis exemption. This decision was based solely on the ground that the parent was incorporated and NAH was not.

Aggrieved by the decision of the CCI, Eli approached the NCLAT in appeal contending that such an interpretation of the de Minimis Exemption by the CCI was wrong and it had incorrectly applied the thresholds to the target's parent company merely because the target was not incorporated.

NCLAT Decision

NCLAT held that the CCI failed to appreciate that the Notification dated 04.03.2011 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 intention behind the notification was to exempt certain transactions due to their small size and this intention was made clear by the government by a press release dated 30.03.2017 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 industry in taking legitimate business decisions towards further accelerating India's economic growth."

The 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 NCLAT also clarified that for the purpose of calculation of assets and turnover what is being acquired is relevant, as the assets/turnover of what is left over with the sellers after the acquisition will have no role to play in the context of the business conducted by the purchaser post acquisition. 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 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 exempt under the de Minimis exemption and therefore was not required to be notified to the CCI.

Comment: This is amongst the few cases where the penalty imposed by CCI on account of alleged "gun jumping" or non-filing of notice was challenged by the acquiring party in appeal. The NCLAT order sets the jurisprudence on this important issue although this aspect was later clarified by the Central Government  vide a Notification S.O. 988(E dated 27th March 2017. According to the Notification where a portion of an enterprise or division or business is being acquired , taken control of or merged or amalgamated with another enterprise , the value of assets of the said portion or division or business shall be the relevant assets and turnover to be taken into account for the purpose of calculating the thresholds under section 5 of the Act.

Note: This article first appeared on the Antitrust & Competition Law Blog   on 16 March 2020.

Specific Questions relating to this article should be addressed directly to the author.

Article by MM Sharma, Head Competition Law & Policy Practice, Vaish Associates, Advocates, New Delhi, India

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