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NCLAT upholds CCI order on HNG takeover
On 28 July 2023, a two-member bench of the National Company Law Appellate Tribunal (NCLAT) disposed all four appeals challenging the March 2023 order of the Competition Commission of India (CCI) approving AGI Greenpac Limited (AGI)’s takeover of Hindustan National Glass & Industries Limited (HNG) (CCI Order). The order of the NCLAT (NCLAT Order) upheld the CCI Order in its entirety.
The NCLAT Order provides clarity in relation to the role of entities not party to a combination, and the procedure for investigating a combination. It also desists from interfering with the CCI’s assessment of harm to competition.
We discuss some of the key takeaways from the NCLAT Order below:
The role of entities not party to the combination
Ability to file appeals
In this case, four entities who were not parties to the combination approved by the CCI appealed the CCI Order. The NCLAT considered whether the appellants qualified as “aggrieved persons” under Section 53B of the Competition Act, 2002 (Competition Act) who may file an appeal against CCI orders. Citing the decision of the Supreme Court in Samir Aggarwal v CCI, the NCLAT held that the expression ‘aggrieved person’ had to be understood widely under the Competition Act and the appellants could file appeals, having raised concerns regarding the combination since the inception of the matter before the CCI. [paras 33-38]
Participation in combination proceedings
However, the NCLAT appears to have limited the role of parties in combination proceedings at the CCI stage. It noted that the Competition Act does not envisage any public participation in combination proceedings until the publication of the details of the combination. [paras 73-74]
Taken together, this means that while third parties may file appeals against approved combinations, they are not entitled to participate in combination proceedings before the CCI itself to place on record any objections.
The procedure to investigate a combination
The NCLAT also commented on two issues in relation to Section 29 of the Competition Act, relating to the procedure for investigating a combination.
Issuing show cause notices
Section 29(1) of the Competition Act requires the issuance of show cause notices before the CCI considers whether to investigate a combination (i.e. to conduct a detailed Phase II inquiry).
The NCLAT considered whether the Competition Act required the CCI to issue show cause notices to both the acquirer as well as the target. Noting that the Competition Act and the Combination Regulations, 2011 use the word ‘parties’ (in plural), the NCLAT held that show cause notices must be issued to both parties to a combination, and not the acquirer alone. In this case, the show cause notice was issued only to AGI, the acquirer, but the NCLAT ultimately held that not issuing a show cause notice to HNG, the target, did not vitiate the CCI Order. [paras 41-46]
Forming a prima facie view
Section 29(1) also requires that the CCI must form a prima facie view that the combination is likely to cause an appreciable adverse effect on competition (AAEC) before it issues a show cause notice described above. Section 29(2) requires the CCI to direct parties to a combination to publish details of the combination if it is prima facie of the opinion that the combination will have an AAEC.
The NCLAT considered whether Section 29(2) required the CCI to form a prima facie view of AAEC for a second time before directing parties to publish details of the combination. The NCLAT held that the prima facie opinion contemplated under Section 29(2) of the Competition Act was distinct from the prima facie opinion referred to in Section 29(1) of the Competition Act, and thus a second prima facie opinion regarding AAEC arising from a combination was required before details of the combination could be directed for publication by the CCI. [para 53]
Review of the CCI’s AAEC assessment
The appellants contended that the modifications to the combination suggested by AGI were inadequate to address the AAEC arising from the transaction. The NCLAT chose not to consider on merits the effect of the modifications offered by the parties to the CCI; it cited Union of India v Cipla Limited, where the Supreme Court held that the decision of an expert body is not to be lightly interfered with and that the same is to be generally treated as final. [paras 70-71] The NCLAT also noted that the CCI Order was detailed, and did not reflect non-application of mind. [paras 68-69]