The Competition Commission of India (CCI) fined Trilegal’s client – Anglo-global supermarket retail behemoth Tesco – Rs 3 crore for delay in filing notice seeking the CCI’s approval for its joint venture (JV) with Trent, reported the PTI.

The CCI had approved Tesco’s $140m JV with Tata subsidiaries Trent and Trent Hypermarket on 22 May, added the PTI report.

In its 27 May order penalising Tesco the CCI said that Tesco should have filed the notice seeking approval within 30 days of its application to the Department of Industrial Policy and Promotion (DIPP) and the Foreign Investment Promotion Board (FIPB). The order states:

“In terms of sub-section (2) of Section 6 of the Act, any person or enterprise, who or which proposes to enter into a combination, shall give notice to the Commission, disclosing the details of the proposed combination, within thirty days of execution of any agreement or other document for acquisition […]”

“Thus […] the Acquirer was required to give notice to the Commission within thirty days of its application to the DIPP and the FIPB i.e., by 16th January 2014. However, the notice was given by the Acquirer on 31st March 2014, with a delay of around 73 days.”

“In terms of Regulation 14 of the Combinations Regulations, vide letter dated 4th April 2014, the Acquirer was therefore, required to clarify as to why the notice was not filed within the time prescribed under sub-section (2) of Section 6 of the Act. The Acquirer filed its response on 9th April 2014.”

Trilegal responded to the CCI’s show cause notice arguing that notice would have been premature since Tesco had not communicated to the government any intention to acquire shares or rights in Trent, but had only “in principle” approved the proposal for acquisition.

“’…the requirement for a notice of an acquisition could be triggered pursuant to the second proviso of regulation 5(8), only if communication to the Central Government, State Government or a Statutory Authority, conveys an intention or decision to acquire control, shares, voting rights or assets.’ In the present case, no intention or decision to acquire was formed by TOIL at the time of making the Application to the DIPP and the Application could not be considered as communication of TOIL’s intention or decision to acquire shares of THL. The respective boards of the parties had only provided their in-principle approval to the proposal and authorised filing of the Application.”

“Had the Acquirer applied to the Commission for its approval within 30 days of the Application, at such a preliminary stage, full details of the proposed combination would not have been available and the notice would have been incomplete and without relevant and detailed information, necessary for a review by the Commission.”

“[….] the arrangement between the parties to submit a proposal to the FIPB and DIPP was only an interim arrangement and a step towards negotiation, and therefore, any notification [at this stage] would have been premature.”

The CCI was not convinced, however. It said that the intention to acquire was clear as far back as 17 December 2013.

“[…] it is observed that in its application, [Tesco] had sought the approval of the DIPP and FIPB for the proposal to acquire fifty percent of the issued and paid up equity share capital of THL and that the said application inter-alia mentioned that the proposed investment by [Tesco] will include subscription of equity shares of THL and acquisition of existing equity shares of THL from Trent […]the claim of the Acquirer that no intention or decision to acquire was formed by [Tesco] at the time of making the application to the DIPP and FIPB is not correct.”

“The Acquirer’s claim that had the notice been filed with the Commission without executing the definitive agreement (s), it would have been incomplete as being without the relevant documents/details, is also misconceived as the Acquirer in its application to the DIPP/FIPB on 17^th December 2013 had provided enough details of the proposed combination which demonstrate that the parties were aware about the type, nature and purpose of the proposed combination at the time of making the said application.”

The CCI decided to impose a nominal penalty stating:

“[…]the maximum penalty that may be imposed could be one percent of the total turnover or the assets, whichever is higher, of such a combination, which in the instant case is more than INR 600 crores. However, considering the fact that the Acquirer, notwithstanding the delay of around 73 days in giving notice, had voluntarily filed the notice within 30 days of executing the Joint Venture Agreement and Share Purchase Agreement, the Commission considered it appropriate to impose a nominal penalty of INR 3,00,00,000/- (INR Three Crores only) on the Acquirer.”

Trilegal Mumbai partner Sridhar Gorthi, who had led the deal for Tesco opposite AZB & Partners, did not respond to email and phone calls seeking comment since yesterday.

The JV is India’s first foreign direct investment (FDI) in multi-brand retail since the opening up of the sector in 2012.