Monopolies and Restrictive Trade Practices Commission
Director General (Investigation & ... vs Tata Oil Mills Company Ltd. And Anr. on 6 December, 2001
Equivalent citations: I(2003)CPJ54(MRTP)
ORDER
C.M. Nayar, J. (Chairman)
1. The present complaint has been filed under Section 10(a)(i) and (iv) of the Monopolies and Restrictive Trade Practices Act, 1969 (Thereinafter referred to as the Act) and under Section 31(1) read with Section 10B of the Act. The complainant is a trade association of industrial workers as members who are engaged in varied occupations and professions relating to production or supply of a number of products including soaps and detergent industry. Respondent No. 1, The Tata Oil Mills Company Ltd. (TOMCO) is a company having its registered office at Mumbai House 24, Homi Mody Street, Mumbai-400 001. TOMCO is involved in the soap and detergent trade and was incorporated prior to independence for the purpose of manufacturing, marketing and selling and/or distributing oils, soaps, detergents etc. Respondent No. 2, Hindustan Lever Ltd. (HLL) is a public limited company incorporated under Indian Companies Act, having its registered office at 165-166, Back Bay Reclamation, Mumbai-400 020. It is also involved in the soap and detergents industry and trade within the meaning of Section 2(s) of the Act. The complainant further submits in paragraph 4 that TOMCO and HLL have entered into an arrangement whereby Hindustan Lever Ltd. (hereinafter referred to as the transferee), will take over the entire business of TOMCO (hereinafter referred to as the transferor). A copy of the arrangement agreed to between the parties is annexed and marked as Annexure-I to the complaint. We need not go into any further details except to state that scheme of amalgamation which is part of the record of the present complaint was framed and approved by the High Court of Adjudicature at Mumbai. The present complaint and an application under Section 12A of the Act for interim injunction to stay the scheme of amalgamation were filed. The Full Bench of the Commission vide its order dated 19th September, 1994 however, rejected the 12A application. The operative portion of the order may referred to as below :
"Having carefully examined the material on the record as well as the terms of the Scheme as sanctioned by the Bombay High Court and the probable implications thereof, we are fully satisfied that the present is a pre-eminently fit case for enquiry against the respondents under Section 10(a)(i) and (iv) read with Sections 2 (o), 33(1) and 37 of the MRTP Act as well as Sections 27 and/or 27A of the MRTP Act. Both the respondents have sizeable and substantial market shares in the two products. What is the extent, impact and implication of these market leaders joining hands needs to be enquired into very carefully and in depth. In the entire constellation of facts, it would not be unreasonable to infer that the working of the undertaking may lead to adoption of monopolistic or restrictive trade practices. Whether the impugned combination has any countervailing advantages will be for the respondents to establish at the enquiry. Individual clauses of the scheme relating to share price ratio and the preferential allotment in favour of Unilever etc. also need to be carefully examined in the context of Sections 2(o) and 33.
In conclusion, we may add that against the orders of the Bombay High Court a Special Leave Petition is stated to be pending before the Hon'ble Supreme Court. Needless to add that the Commission shall abide by the conclusions reached and the orders passed by the Supreme Court.
In the premises, we dismiss the Injunction Application under Section 12A, but direct that a Notice of Enquiry be issued against the respondents under Section 10(a)(i) and (iv) read with Sections 2(o) and 22(1) and Section 37 of the MRTP Act as well as Sections 27 and 27A of the MRTP Act returnable on 28.11 1994. No order as to costs."
2. A Special Leave Petition was filed in the Hon'ble Supreme Court by the complainant which was decided on 24th October, 1994 which upheld the scheme of amalgamation and even dismissed the appeal filed against the order of refusal granting interim injunction to the complainant. We may refer to paragraphs 68, 69, 70 and 71 of the judgment reported as 1994 (4) Scale, Hindustan Lever Employees' Union v. Hindustan Lever Limited and Ors. :
"68. The intention behind deletion of Section 23 is obvious : the requirement of prior approval of the Central Government before sanctioning a scheme of merger or amalgamation has been done away with. The effect of the deletion of this section cannot be nullified by giving an unnatural and artificial interpretation of the words of the statute.
69. It is being argued that even though Section 23 has been deleted, there are other provisions in the Act under which it is necessary to have prior sanction of the Central Government or MRTP Commission before a Scheme of Amalgamation or merger can be sanctioned. If this argument is to be accepted, then in the first place it has to be held that the provisions of Section 23 were wholly unnecessary and otiose, because even otherwise sanction or clearance of the Central Government was a condition precedent for effecting a scheme of amalgamation or merger. Such a construction must be avoided. The enquiry must be as to what was the mischief which was sought to be cured by the Legislature by the amendment. By deleting Section 23, the Legislature removed the requirement of prior approval of the Central Government to a scheme of merger before the Court could sanction it.
70. Section 27A and Section 27B are the only sections in Chapter III of the Act which have been retained by the Legislature. Section 27 deals with division of undertaking and enables the Commission in the circumstances specified in that section, to pass an order for the division of any trade or undertaking or inter-connected undertaking, into such number of undertakings as the circumstances of the case may justify. Section 27A empowers the Central Government to protect severance of inter-connection between undertakings. Section 27B lays down the manner in which any order passed under Section 27 or Section 27A shall be carried out. The provisions as to restriction on the acquisition and transfer of shares by certain bodies corporate (Section 28 to Section 30G) have been entirely deleted. The intention of the Legislature is clear. A marger or amalgamation is not now subject to the prior approval of the Central Government. But, if the working of the company is found to be prejudicial to public interest or has led to the adoption in monopolistic or restrictive trade practice, the Central Government may, after being satisfied as to the requirement of the section or division of the undertaking, act according to law.
71. We are unable to uphold the contention of Ms. Jaising that MRTP Commission erred in law in not passing an order of injunction under Section 12A of the Act, restraining the implemention of the Scheme of Amalgamation, We are of the view that it was not necessary to obtain any prior approval from the Central Government or the MRTP Commission before the Scheme could be sanctioned by the Court. This requirement has been specifically deleted from the statute."
3. The approval of scheme has been upheld as is evident from reading of paragraph 85 of the judgment. The same may be reproduced as below :
"85. An argument was also made that as a result of the amalgamation, a large share of the market will be captured by the HLL. But there is nothing unlawful or illegal about this. The Court will decline to sanction a scheme, of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow up to capture a large share of the market. But unless it is shown there is some illegality or fraud involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out of a sharp decline in the business of TOMCO. Dr. Dhavan has argued that TOMCO is not yet a sick company. That may be right, but TOMCO at this rate will become a sick company, unless something can be done to improve its performance. In the last two years, it has sold its investments and other properties. If this proposal of amalgamation is not sanctioned, the consequence for TOMCO may be very serious. The share-holders, the employees, the creditors will all suffer. The argument that the company has large assets is really meaningless. Very many cotton mills and jute mills in India have become sick and are on the verge of liquidation, even though they have large assets. The Scheme has been sanctioned almost unanimously by the share-holders of both the companies. There must exist very strong reasons for withholding sanction to such a scheme, Withholding of sanction may turn out to be disastrous for 60,000 shareholders of TOMCO and also a large number of its employees."
4. In view of the matter having been finally decided by the Hon'ble Supreme Court, we are bound by the findings recorded in the judgment as referred to above. We, therefore, find no ground to continue the present proceedings. The same, accordingly, stand disposed of. The Notice of Enquiry issued in the matter is discharged with no order as to costs.