NCLAT: Non-Issuance of Notice to Entity Does Not to ‘Ipso Facto’ Vitiate Order of CCI When Entity Has No Objection Regarding Non-Service of Notice

NCLAT: Non-Issuance of Notice to Entity Does Not to ‘Ipso Facto’ Vitiate Order of CCI When Entity Has No Objection Regarding Non-Service of Notice

The National Company Law Appellate Tribunal (NCLAT) dismissed all four appeals challenging Competition Commission of India’s (CCI) approval of the takeover of Hindustan National Glass & Industries Limited (HNG) by AGI Greenpac Limited (AGI).

The division member bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) observed that, non-issuance of notice to HNG/target entity i.e., Respondent No. 3 does not to ipso facto vitiate the order of the Commission when Respondent No. 3 had neither any objection nor grievance regarding non-service of notice to Respondent No. 3. The bench noted that the information regarding Respondent No. 3 was all in public domain which had been used by AGI (Respondent No. 2) in submitting the notice.

The brief background of the case is that HNG – Respondent No.3 was admitted to insolvency by an order dated 21 October, 2021 passed by the National Company Law Tribunal, Kolkata.

On 21 July, 2022, Respondent No.2 – AGI filed a Resolution Plan for acquisition of HNG. The Respondent No.2 filed a Notice under Form-1 of the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (for short Combination Regulations) before the CCI seeking approval of proposed Combination.

The CCI concluded that proposed combination was not likely to have an Appreciable Adverse Effect on Competition (AAEC). Consequently, an order was passed on 15 March, 2023 under Section 31, sub-section (1) of the Act, approving the proposed combination on the notice which was given by the AGI under Section 6(2) of the Act.

The NCLAT firstly determined that whether the Appellant(s) had locus to challenge the order of the Competition Commission of India dated 15 March, 2023 within the meaning of Section 53B of the Competition Act, 2002?

The NCLAT on perusal of the facts and submissions of the case observed that Appeal filed by the Appellant could not be thrown out on the ground of locus. Appellant who had filed Letters before the CCI beginning from 7 October, 2022 and have been expressing their apprehension of appreciable adverse effect on competition, was also found true by the Commission while issuing show cause notice under Section 29(1), noted the bench.

Therefore, the NCLAT rejected the objections of the Respondents regarding locus and proceeded to decide the Appeals on merits.

Next, the bench discussed the issue that as to whether Section 29(1) contemplates that a Show Cause Notice must be issued to the parties to combination, i.e., both acquirer and the target entity or word ‘parties’ occurring in Section 29(1) has to be read singularly?

The NCLAT upon perusal of Combination Regulation, 2011, observed that notice has to be given in Form II. A perusal of the Form-II indicate that the parties have to give notice.

Averting to the present case the NCLAT found that the Respondent No. 2-AGI had given notice under Section 6(2) which is included within the definition of parties. The show cause notice specifically required to be given to both of them. The statute clearly contemplates issuance of show cause notice to both the parties of the combination, held the NCLAT.

Thus, the bench observed that Section 29(1) of the Competition Act, contemplates that show cause notice has to be issued to both parties to the combination i.e., acquirer and target entity.

Thirdly, the bench analyzed the issue that whether non-issuance of Show Cause Notice to HNG vitiated the order of approval granted by the Commission under Section 31, sub-section (1)?

In the present case, the NCLAT noted that Respondent No. 3- HNG was in insolvency and the Resolution Professional himself had placed proposal for acquisition of Respondent No. 2- AGI Greenpac Limited which was approved by the Committee of Creditors and all details and information was given by Respondent No. 2 in its notice under Section 6(2) of Competition Act which relate both to Respondent No. 2 and Respondent No. 3.

The NCLAT discerned that non-issuance of notice to target entity i.e., Respondent No. 3 is not to ipso facto vitiate the order of the Commission when Respondent No. 3 had neither any objection nor grievance regarding non-service of notice to Respondent No. 3. The bench noted that the information regarding Respondent No. 3 was all in public domain which had been used by Respondent No. 2 in submitting the notice.

“We are of the view that by mere non-issuance of notice to Respondent No. 3, the proceedings before the CCI need not be annulled,” the bench observed.

Thereafter, the bench deliberated on the issue that whether after formation of prima-facie opinion that combination was likely to cause an appreciable adverse effect on competition by the CCI under Section 29(1), when there was no occasion to form again a prima facie opinion?

The NCLAT ruled that the prima facie opinion as contemplated under Section 29(2) is required to be formed after receipt of the response of the parties to the combination or receipt of the report from the Director General. The stage of forming prima facie opinion under Section 29(2) arises only after response is received or a report of Director General is received.

The NCLAT avowed, “as per the statutory provisions contained in Section 29 and the Regulations 2011, after receipt of the response to show-cause notice, the Commission has to form prima facie opinion at the second stage as required by Section 29, sub-section (2) and in cases where prima facie opinion at the second stage under Section 29, sub-section (2) has not been formed and the Commission is satisfied that the response received in the modification, if any, submitted by the Party does not meet the requirements of law, the Commission directed publication of details of combination in such cases.”

The bench highlighted that the direction to publish details of the combination is contemplated only when after the response received from the notice or from the report received from the Director General, the Commission forms a prima facie opinion at the second stage under Section 29(2) that combination has an appreciable adverse effect on competition.

While noting the facts of the instant matter, the NCLAT was satisfied that the Commission had proceeded to approve the combination by following the statutory procedure prescribed under Section 29 as well as Regulations 2011.

With respect to the issue as to whether order of the Commission dated 15 March, 2023 can be said to have been passed in violation of principles of natural justice since the objections filed by Appellant the U.P. Glass Manufacturers Syndicate even after the order dated 22 February, 2023 were not duly considered?

The bench noted that Regulation 19(3) empowers the Commission to call for information from any other enterprise while inquiring as to whether a combination has caused or is likely to cause an appreciable adverse effect on competition in India.

The bench clarified that, “although the Commission is empowered to invite information, the scheme does not entitle any other person other than those who have given notice to participate in the proceedings. The right of participation of public in general and other entities arises when under Section 29, sub-section (2) of the Act, the Commission directed the parties to the combination to publish the details of the combination within seven days from of such direction, for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected.”

In the present case, the NCLAT found that the appellant was appropriately communicated that they cannot be allowed to participate as noted above under the scheme of the Act.

The NCLAT underlined that the right to third parties to submit objections arises when the Commission issues direction to the parties to publish the details of the proposed combination, which stage never arose in the present case.

Therefore, the NCLAT was of the considered opinion that in the procedure adopted by the Commission in inquiring the notice under Section 6(2), there was no violation of principles of natural justice, which could be attributed to the Commission.

Accordingly, the NCLAT dismissed the appeal.