Jurisdiction - India
India – CCI Imposes A Penalty Of INR 30m On Zuari Fertilizers And Chemicals Limited And Zuari Agro Chemicals Limited For Gun Jumping.

27 May, 2015


On February 10, 2015, CCI imposed a penalty of INR 30m under Section 43A of the Competition Act for consummating the proposed acquisition without giving notice under provisions of Section 6(2) of the Competition Act.

The proposed combination related to acquisition of up to 3,08,13,939 equity shares of Mangalore Chemical and Fertilizers Limited (‘MCFL’) by Zuari Fertilisers and Chemicals Limited (‘ZFCL’) and Zuari Agro Chemicals Limited (‘ZACL’) (collectively referred as ‘Acquirers’) through an open offer. CCI noted that, prior to giving notice, the Acquirers had acquired 16.43% of the equity share capital of MFCL during the period from April, 2013 to July, 2013 in four tranches (‘Tranches’). It was further observed that Acquirers’ acquisition of 9.72% of the share capital of MCFL in April 2013 started a ‘takeover battle’ against Deepak Fertilizers and Petrochemicals Corporation Limited (‘Deepak’) and SCM Soilfert Limited (‘SCM’) to gain control in MCFL. In addition, a number of media reports suggested that there was an understanding between MCFL and the Acquirers.

On basis of the foregoing, CCI observed that the acquisition through Tranches did not qualify for exemption under Item 1 of Schedule 1 of the Combination Regulations and failure to notify the same resulted in separate penalty proceedings under Section 43A of the Competition Act.

CCI heard the Acquirers in an oral hearing dated December 22, 2014 and held that: (i) firstly, the categories of combination listed in Schedule I of the Combination Regulations should be interpreted in light of the objectives and intent of Schedule I, i.e. combinations listed therein are not ordinarily notifiable as they are not likely to cause any AAEC. Therefore, such exemptions ought not to include combinations which are likely to cause a change in the control or are in the nature of strategic combinations including those between the competing enterprises or enterprises active in the vertical markets; (ii) secondly, the phrase ‘solely as an investment’ indicates ‘passive investment’ as against a ‘strategic investment’; (iii) thirdly, acquisition must not have been made with an intention which results or is likely to cause participation in the formulation, determination or direction of the basic business decisions of the target. Such business decisions may be through various means including by means of voting rights, agreements, representation on the board of the target or its affiliate companies, affirmative/veto rights in the target, etc; and (iv) lastly, the absence of written and binding documents between the Acquirers and MCFL does not necessarily preclude the existence of strategic intent behind the acquisition. Therefore, other factors must also be taken into consideration to determine whether the proposed acquisition falls under Item 1 of Schedule I of the Combination Regulations.

The Acquirers in their reply to the show cause notice as to why the penalty should not be imposed had contended that the acquisition was solely made for investment. However, CCI noted that Acquirers failed to provide conclusive evidence for the same. According to the televised interview the erstwhile Chairman of MCFL and promoter of UB group (comprising of United Breweries (Holdings) Limited, Kingfisher Finvest India Limited and McDowell Holdings Limited), Mr. Mallya wanted to operate MCFL as a joint venture between Zuari and UB group. This was not considered to be mere hearsay by CCI and was admitted as evidence.

Accordingly, considering the fact that Acquirers disclosed information regarding mode and timeline of acquisition, and given the quantum of turnover of the combination, CCI imposed a nominal penalty of INR 30m on the Acquirers. Similarly, CCI imposed a penalty of INR 20m on SCM, for having consummated in 2013, open market purchases amounting to 24% of the equity share capital of MCFL. Even in this case, CCI was of the opinion that the market purchases would not qualify for the exemption under Item 1 of Schedule I to the Combination Regulations, in light of a press release issued by Deepak, stating the acquisition to be a “strategic fit”.

CCI also looked into the acquisition of 0.8% shares in MCFL by SCM (‘Second Market Purchase’), in order to trigger an open offer. SCM contended that the acquisition had been kept in abeyance by transferring the shares into an escrow account, and thereby ensuring that no beneficial rights were exercised by SCM over the shares. CCI held that the Second Market Purchase was not required for triggering an open offer, and that the transaction had been consummated in violation of the stand-still obligations under Section 6(2A) of the Competition Act.



For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]


Aditya Bhat, AZB & Partners 
[email protected]

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