CCI slaps ₹3-cr fine on Tesco

The third largest supermarket brand globally, Tesco, which is keen to start its operations in India, has been slapped with a ₹3-crore penalty for delaying its mandatory submissions.

This, however, is not the first time the Competition Commission of India (CCI) has insisted on penalising a delay, though legal experts maintain the fair trade watchdog has been shifting the goal-posts on when a merger control filing is required.

Late notification In the Tesco deal, the retailer proposed to acquire 50 per cent equity share capital in Trent Hypermarket Ltd, and signed definitive agreements for the acquisition on March 21, 2014. Tesco had also filed an application in December 2013 with the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, and the Foreign Investment Promotion Board (FIPB), for the acquisition of 50 per cent of Trent’s equity share capital.

The CCI imposed a penalty of ₹3 crore on Tesco Overseas, for apparently filing a merger notification 73 days late. This is the highest penalty the CCI has ever levied for a delay in filing.

In its May 27 order, the CCI said that Tesco should have filed the notice seeking approval within 30 days of its application to the DIPP and the FIPB. Senior officials at law firm Khaitan and Co said the case may lead to confusion on when to make a merger control filing in India. Until this order, experts said the clear understanding was that, for an acquisition, it was the ‘date of the binding agreement to acquire’ that triggered the notification, and the parties would then have 30 calendar days to file the CCI notification.

“This case shifts the goal-posts. Tesco’s filing for governmental approvals, evidencing an intent to acquire but prior to entering into a definitive acquisition agreement, was the main trigger,” said officials.

Intention clear Citing an example, Khaitain officials said if a company considering a joint venture files incorporation documents or reserves a name with the registrar of companies, “it might be enough to trigger the notification requirement with the CCI, based on the competition panel’s reasoning in the Tesco matter. That is generally not going to be a desirable result.”

While law firm AZB & Partners acted for Tata’s subsidiaries, Trent and Trent Hypermarket, which entered into a joint venture with Tesco, the retail behemoth, were represented by law firm Trilegal, which responded to the CCI’s show-cause notice.

Trilegal argued that the notice would have been premature, as 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. However, the CCI was not convinced, and said the intention to acquire was clear as far back as December 17, 2013.