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India – CCI Approves Tesco’s Acquisition Of Shares In Trent Hypermarkets; Imposes Penalty On Tesco For Belated Notice.

15 July, 2014

 


On June 22, 2014, CCI approved the proposed acquisition of 50% of the issued and paid up equity share capital of Trent Hypermarket Limited (‘THL’) by Tesco Overseas Investments Limited (‘TOIL’). 

CCI noted that Tesco Plc., UK (‘Tesco’) was the parent entity of the Tesco group of companies (‘Tesco Group’), with TOIL as one of its subsidiaries. While the Tesco Group is not engaged in the retail business in India, it is present in India through Tesco Hindustan Wholesaling Private Limited (‘THWPL’), which is present in the wholesale segment in India. CCI further noted that THL, a wholly owned subsidiary of Trent Limited, was engaged in the business of multi-format retail trading in India including hypermarkets, supermarkets and smaller convenience stores for various merchandise including food, grocery consumer durables, general merchandise, etc. THL had, in the past entered into a wholesale supply agreement with THWPL, and a separate franchisee and technical services agreement with Tesco Stores Limited, for the supply of merchandise and provision of technical know-how, respectively. Both the aforementioned agreements stand terminated as of March 21, 2014.

 
CCI observed that the retail market in India, comprising of the organised as well as the unorganised sector, was highly fragmented. While the unorganised sector constituted approximately 92% of the overall retail market, the organised sector constituted only 8% of the overall retail market at present. In this context, CCI held that THL, which currently operates through its 16 retail stores at various locations, had an insignificant market share in the retail market in India, both the organised retail market as well as the larger overall market for retail.

 
CCI further observed that TOIL was not present in the retail market in India, and that there were no horizontal overlaps between the business activities of THL and TOIL. Accordingly, CCI approved the proposed combination on the basis that it was not likely to have any Adverse Effect in India.

 
However, in a separate order dated May 27, 2014, CCI imposed a penalty of INR 30m on TOIL, for having filed the notification beyond the mandated time limit of 30 days, under the provisions of Section 43A of the Act.

 
CCI held that the parties’ application to the Foreign Investment Promotion Board (‘FIPB’) and the Department of Industrial Policy and Promotion (‘DIPP’), amounted to a communication to a statutory authority the intention to acquire, within the meaning of the deeming provision in the second proviso to Regulation 5(8) of the Combination Regulations. Hence, CCI held that the notification should have been filed within 30 days of such application to FIPB and DIPP.

 
TOIL contended that at the stage of application to the FIPB and DIPP, it had not executed the definitive agreement(s), and that filing the notification at such as stage would have rendered the notification incomplete. However, CCI held that in light of the application made to FIPB and DIPP as well as the board resolution passed by the board of directors of THL, it was apparent that TOIL had formed an intention of acquiring shares in THL prior to making the application before the FIPB and DIPP, and that both the parties were aware of the type, nature and purpose of the proposed combination at the time of making the said application.

 
Accordingly, CCI held that the notification should have been filed within 30 days of such application to the FIPB and DIPP and concluded than the belated notification contravened the provisions of Section 6(2) of the Act. However, taking into account that the notification had been made voluntarily by TOIL, CCI imposed a nominal penalty of INR 30m on TOIL.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com

Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com

Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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