1. This order will dispose of an application filed by the complainants under Section 12A of the Monopolies and Restrictive Trade Practices Act as well as the issue whether the petition (complaint) submitted by them under Section 10(a)(i) read with Section 37 of the Monopolies and Restrictive Trade Practices Act along with Section 12A against the Hindustan Lever Limited (hereinafter referred to as "HLL") and Tata Oil Mills Co. Limited (referred to as "TOMCO", in short) is maintainable, and, if so, whether an enquiry should be ordered under the said provisions.
2. Both the complaint as well as the injunction application are directed against a proposed scheme of amalgamation submitted by HLL and TOMCO for the merger of TOMCO with HLL. The complaint was submitted on September 20, 1993, alleging that the merger, if allowed to take place, shall completely eliminate competition in the market of soaps and detergents. At any rate, it shall have the effect of preventing, distorting and restricting competition in these products.
3. The interim injunction claimed by the complainants was to restrain the two respondents from putting into practice the impugned agreement (the proposed scheme of amalgamation) during the pendency of the enquiry by the Commission against the respondents.
4. The first complainant, Maharashtra General Kamgar Union, is a union of industrial workers stated to be engaged in industries related to the production or supply of various products including soaps and detergents. The second complainant is a union of employees of HLL. The third complainant, a trade union solidarity committee claims to be an association of trade unions of workers engaged in diverse occupations in different trades in and around Bombay. Ms. Sujata Gothoskar who is a household consumer and claims to be a journalist by profession, is the fourth complainant. Complainant No. 5, a consumer, Shri Harish Chandra Pande, says he is a shareholder of HLL.
5. These various complainants have approached the Commission with the complaint, the substance of which, put very briefly, is that HLL has been enjoying, as the undoubted market leader in soaps and detergents, a position of absolute dominance in these products owning and controlling a 54.32 per cent. and 83.38 per cent share in the market in soaps and detergents respectively in the national organised sector.
TOMCO which was hitherto its only competitor is a market leader in its own right, owning and controlling a fairly substantial market share of the order of 13.67 per cent. in 1989-90, 17.09 per cent. in 1990-91 and 23.72 per cent. in 1991-92. To permit, therefore, these two giants in the market to come together by way of merger shall inevitably produce a highly deleterious effect on competition. It is further contended that the proposed merger would virtually wipe out any competition in the market of soaps and detergents in this country. The rest of the undertakings at present engaged in this trade would for the same reason be driven out. The absence of any competitors from the market would also lead to prices being ruled and dictated entirely by the two market leaders, resulting in exploitation of the consumers to the extreme. The scheme is also assailed on the ground that the share price ratio is heavily loaded in favour of HLL. Discrimination is alleged in the proposal to make preferential allotment of shares in favour of Unilever, the parent company of HLL, at a ridiculously low price of Rs. 105 per share.
6. These are the broad outlines of the various grounds on which the proposed merger is assailed by the complainants. It is unnecessary at this stage to elaborate the complaint in view of the order we are proposing to pass.
7. Having regard to the importance of the matter and the implications of the terms in which the ex parte injunction was sought by the complainants as also the principles which have been repeatedly stressed by the Supreme Court in regard to the grant of ex parte injunctions, the Commission decided to hear the respondents before granting any interim relief. We accordingly directed the complainants to serve copies of their complaints and injunction applications on the respondents before taking up the matter.
8. In response, HLL and TOMCO, both, put in appearance through their learned counsel and filed separate but substantially identical replies raising several preliminary objections questioning the jurisdiction of this Commission to take cognizance of the complaint or to pass any other order, whether substantive or interlocutory, therein. The objections raised by HLL were briefly summarised, by its learned counsel, Shri Desai, thus : (a) The Monopolies and Restrictive Trade Practices Commission gets jurisdiction to entertain complaints only if it relates to "trade" and "trade practice". Amalgamation, or rather the proposed scheme of amalgamation of two companies under the Companies Act (sections 391 to 394), Shri Desai urged, being neither a "trade" nor "trade practice" as defined under the Monopolies and Restrictive Trade Practices Act and as these terms were interpreted by the Full Bench of the Commission in Consumer Education and Research Centre v. T. T. K. Pharma Ltd. [1990] 68 Comp Cas 89, the Commission shall have no jurisdiction to take cognizance of the present complaint.
(b) Inasmuch as the injunction in terms prayed for shall have the direct effect of taking away the jurisdiction of the Bombay High Court to proceed with the petitions submitted by HLL and TOMCO for the sanction of the scheme under the aforesaid provisions of the Companies Act, this Commission shall have no jurisdiction, and in any case, it ought not to pass any such "order as may have the inevitable effect of nullifying the proceedings lawfully brought before the company judge of the Bombay High Court who was already seized of the matter long before the submission of the present complaint.
(c) With the deletion of sections 20 to 26 of Chapter III and the consequential amendments inserted in the Act under Act No. 58 of 1991, effective from September 27, 1991, the Commission ceased to have the power to review proposed mergers, amalgamations, takeovers and expansion of undertakings, etc. And as at present a scheme has been presented and is pending sanction before the Bombay High Court, the only power which the Commission now has is that available under the amended Sections 27 and 27A of ordering division of undertakings or severance of interconnection between undertakings, if it is satisfied on evidence that the scheme is prejudicial to public interest.
(d) As the Commission has ceased to have the power to examine pre-entry decisions of the undertakings relating to mergers, amalgamations and expansions, etc., after the amendment of 1991, it can neither grant any substantive relief nor even an ad interim injunction in the terms prayed for.
9. These in substance were the grounds on which the jurisdiction of the Commission was assailed by the respondents.
10. Shri F. S. Nariman, representing TOMCO raised certain additional points for our consideration concerning the jurisdiction of the Commission and the propriety of issuing any injunction and these were : "(i) The deletion of Section 23 of the Monopolies and Restrictive Trade Practices Act by the 1991 Amendment Act clearly indicates that the bar to the sanctioning of a scheme of amalgamation by the company court is no longer within the purview of the Act but falls outside it. If the intention was otherwise, there would have been a separate and distinct provision for clearance to a scheme of amalgamation by the Commission, in addition to the sanction of the company court.
(ii) The absence of a provision analogous to Section 23 (after its deletion) vis-a-vis the Commission is indicative of the fact that Parliament did not intend to create a conflict of jurisdiction, viz., that of the company, court under the Companies Act and that of the Commission under the Monopolies and Restrictive Trade Practices Act : we must assume that after the deletion of Section 23, Parliament did not intend the power of the company court to sanction schemes of amalgamation to be controlled by the Commission under any provision of the Monopolies and Restrictive Trade Practices Act.
(iii) If 'amalgamation' be a 'trade practice' as is now argued, (a single act may be according to the definition), then it is submitted that amalgamation being expressly authorised by the Companies Act, no cease and desist order can be passed in the present case (Section 37(3)(b) of the Monopolies and Restrictive Trade Practices Act).
(iv) Alternatively, it is submitted that even if it be held that after the omission of Section 20 to Section 26 in the Monopolies and Restrictive Trade Practices Act the jurisdiction of the Commission in respect of restrictive trade practices includes schemes of merger, etc., they could not be held to cover schemes, of amalgamation, which under Indian law can never be effectuated without sanction of a company court especially since schemes of amalgamation under Indian law necessarily involve the dissolution of a company without winding up [Section 394(1)(iv)]. This can never be done by act of parties but requires a court order. Hence schemes of amalgamation remain outside Chapter V of the Monopolies and Restrictive Trade Practices Act".
11. Shri O. P. Dua, learned counsel for the complainants, vehemently countered all these preliminary objections and submitted that this Commission is the sole and exclusive forum for investigating all complaints against any agreement or arrangement with a view to ascertaining whether the same are not anti-competitive in its content and effect. And this power of the Commission as the sole competition law agency is not taken away or whittled down by any other law or forum save where the trade practice emerging from such agreements and arrangements has been expressly authorised by law or approved by the Central Government under the relevant provisions of the Monopolies and Restrictive Trade Practices Act. The pendency of the proceedings before the Bombay High Court under Sections 391 to 394 would hence, he argued, have no bearing or effect on the present proceedings.
12. The submissions advanced on both sides require serious consideration and we shall deal with and discuss the same to the extent necessary a little later. We do, however, wish to say that both the contending parties seem to have taken extreme positions which to our mind is not warranted. The solution to the problem arising from the seemingly conflicting jurisdictions of the two fora--the company court and its powers under sections 391 to 396 and this Commission, however, appears to lie somewhere between the extreme stands taken by the two sides as we will attempt to show.
13. First, however, the injunction application moved by the complainants under Section 12A. There are several reasons why we do not consider the present to be a fit case for the grant of injunction. The substantive reliefs claimed by the complainants in their complaint under Section 10(a)(i) of the Monopolies and Restrictive Trade Practices Act are : (i) To pass a "cease and desist" order under Section 37(1) of the said Act.
(ii) To declare the impugned agreement (the proposed scheme of amalgamation submitted by the two respondents before the Bombay High Court) null and void.
14. The interim injunction prayed for under Section 12A of the Monopolies and Restrictive Trade Practices Act is that the respondents be restrained from putting into practice the impugned agreement. The agreement impugned in these proceedings by the complainants is the proposed scheme of amalgamation (hereinafter referred to as "the scheme") which the respondents have submitted to the Bombay High Court for sanction under the aforesaid provisions of the Companies Act, 1956.
15. At this point, it may be observed that action for approaching the Bombay High Court with a scheme of amalgamation was initiated by the two companies on March 9, 1993, when the two companies had notified the stock exchange at Bombay and other stock exchanges where their shares were listed about the proposed board meeting on March 19, 1993, to consider the merger of TOMCO with HLL. The boards of the two companies accordingly met separately on March 19, 1993, and approved the merger proposal and resolved to process the merger proposal. Thereafter, each of the two companies filed applications before the company judge, Bombay High Court on March 29, 1993, requesting for convening of meetings of the shareholders and creditors to consider the merger proposal and on the same date the second complainant before us filed a caveat before the High Court and the case was adjourned. The Bombay High Court thereafter passed orders on these applications from time to time issuing appropriate directions as contemplated by the relevant provisions of the Companies Act for processing the merger proposal.
16. It is pertinent to mention that during the proceedings, the second complainant as well as some shareholders filed objections against the proposed amalgamation which were heard and disposed of by the company judge by his order dated August 3, 1993, overruling the objections and directing the petitions for amalgamation to be admitted and notice sent to the Central Government and to the official liquidator in terms of Section 394A, Aggrieved by the said order, complainant No. 2 filed an appeal against the decision of the company judge convening a meeting of the shareholders of HLL, which too was dismissed by the Division Bench of the Bombay High Court in June, 1993. The meeting of the shareholders of TOMCO was thereafter held on June 29, 1993, at which the merger proposal was approved by the requisite majority of 99 per cent. of the shareholders in value and 85 per cent. of the shareholders in number.
Likewise, at the meeting of the shareholders of HLL held on June 30, 1993, the proposed merger was approved by a majority of 97.46 per cent.
in number and 99.97 per cent. in value.
17. The present complaint and the injunction application were, however, submitted before this Commission on September 20, 1993, and were placed before the Bench only on September 21, 1993, for consideration. It will thus be seen that even though steps were initiated for processing and submitting the scheme of amalgamation of the two companies as far back as March 9, 1993, and petitions were submitted by them before the Bombay High Court under Section 391 of the Companies Act, requesting for convening meetings of shareholders and creditors to consider the merger proposals, the complainants, some of whom were already participating in those proceedings, filing objections and appeals, did not choose to file the injunction application under Section 12A until more than six months later seeking relief in the widest possible terms.
18. The next comment we wish to make is that amalgamation of two companies can be effectuated only under and in accordance with the provisions of Chapter V of the Companies Act including sections 391 to 394. Sanction of the company court is an essential prerequisite for the effectiveness and effectuating a scheme of amalgamation under which one company (TOMCO here) merges with another (HLL in the present case) subject to the terms and conditions of the scheme and the directions and supervision of the company judge under those provisions. Indeed, even an order made by the company court under Sub-section (2) of Section 391 sanctioning a scheme cannot have any effect until a certified copy of the order has been filed with the Registrar (Section 391(3)). At the time of presentation of the injunction application under Section 12A and until" the conclusion of the arguments therefor the so-called impugned "agreement" had not even come into existence, much less become effective in law. It was at best a mere "proposed" scheme yet to be scrutinised and sanctioned by the company judge.
Further, the terms and conditions in the scheme as submitted by the respondents could even undergo modifications, additions and alterations such as those may be directed by the company judge both while sanctioning the same or even thereafter in the exercise of supervisory powers, vide Section 392(1) and (2).
19. That being so, there was no question of issuing a restraint order prohibiting the respondents from giving effect to a scheme which was still subject of review before the company judge and which had not come into existence, much less become effectual in law. That which is neither effectual or operative nor even a concluded transaction has no legal existence and consequently there was no occasion to issue any injunction against the respondents in respect thereof. Even a preventive action was not called for as it was difficult to predicate the final shape of the scheme till it had received the sanction of the company court and the terms incorporated therein were certain and definite.
20. That apart, we find considerable force in the contention of Shri Nariman that the Commission could not legally, and, at any rate, ought not to issue any injunction which would have the effect of restraining the parties from pursuing a statutory remedy provided to them in law before a court or a Tribunal not subordinate to the court (the Commission here). Shri Nariman is fully supported by the principle embodied in Section 41(b) of the Specific Relief Act, 1963.
21. Learned counsel was also right in contending that this Commission should not issue a direction which takes away the undoubted jurisdiction of the Bombay High Court to deal with a petition lawfully presented by any company for sanction of a scheme of amalgamation in accordance with the express provisions of law--Sections 391 to 394 of the Companies Act. Both Shri Nariman and Shri Desai correctly stressed that after the deletion of Section 23 of the Monopolies and Restrictive Trade Practices Act by the Amending Act of 1991 from Chapter III, there was no bar to the company court proceeding with petitions for amalgamation submitted by two companies under the Companies Act and that if the Commission restrained the parties from giving effect to the proposed scheme, it would have directly resulted in the jurisdiction of the company court being taken away even to consider the petition.
22. Learned counsel for the respondents are clearly right. Sub-section (1) of Section 23 of the Monopolies and Restrictive Trade Practices Act as it stood prior to its amendment in 1991 reads as follows : "23. Merger, amalgamation and take over.--Notwithstanding anything contained, in any other law for the time being in force,-- (a) no scheme of merger or amalgamation of an undertaking to which this part applies with any other undertaking, (b) no scheme of merger or amalgamation of two or more undertakings which would have the effect of bringing into existence an undertaking to which Clause (a) or Clause (b) of Section 20 would apply, shall be sanctioned by any court or be recognised for any purpose or be given effect to unless the scheme for such merger or amalgamation has been approved by the Central Government under this Act." 23. The provision barred the jurisdiction of all courts from taking cognisance of any scheme of merger or amalgamation and expansion, etc., until the merger or amalgamation has received the prior approval of the Central Government. This provision was deleted by the Amending Act of 1991, whereby significant amendments were introduced in the Monopolies and Restrictive Trade Practices Act with a view to giving effect to the new industrial policy of de-regulation and liberalisation aimed at achieving economies of scale for ensuring higher productivity and competitiveness and advantages in the international market. A sea change was introduced in the entire structure of the Monopolies and Restrictive Trade Practices Act. The pre-entry scrutiny of investment decisions by monopoly companies covered by the unamended provision of Section 23 was dispensed with by the deletion of provisions such as Section 23 of the Monopolies and Restrictive Trade Practices Act.
Instead, the emphasis was shifted to controlling and regulating monopolistic, restrictive and unfair trade practices rather than making it obligatory for monopoly houses to obtain prior approval of the Central Government for expansion, merger, amalgamation and take-overs, etc., etc. Prior Government approval or pre-entry scrutiny was thus given a go by for achieving the avowed objective of effecting economies of scale.
24. The legislative intent behind the changes introduced by the 1991 amendment was explicit and unambiguous and it is that the companies are now free to approach the company court straightaway with the schemes of amalgamation or merger under Chapter V of the Companies Act without the need to obtain prior approval of the Commission. A company judge is, therefore, perfectly free and competent to take cognisance of applications for sanction of schemes of amalgamation and process them in accordance with the provisions of the Companies Act and the principles that guide and must inform sanction of schemes of amalgamation. This Commission had, therefore, no jurisdiction, and, at any rate, it would not have been justified in passing a restraint order the effect of which would have, been virtually to oust the jurisdiction of the Bombay High Court to proceed and process the scheme of amalgamation.
25. The next consideration which dissuades us from an ad interim injunction is that the complaint as well as the injunction application are both founded on the assumption that the amalgamation, if approved, would not only automatically eliminate, distort or restrict competition in the trade of soaps and detergents but it would be highly prejudicial to the public interest. And this assumption is based primarily, if not solely, on the size and magnitude of the market share supposed to be held by HLL in these two products. It was urged that with the market share in the organised sector in soaps and detergents already owned and controlled by HLL plus the market share of TOMCO, HLL shall reign supreme owning and controlling a market share of monstrous proportions sufficient to blot out all semblance of any competition, most effectively and completely by the sheer magnitude of its market share.
26. Impressive though these contentions do appear on the first blush they have yet to bear a closer scrutiny. In the first place, the contentions are founded on assumptions of facts the veracity of which has yet to be tested. Secondly, it would be unsafe to make further assumptions as to the effect of the merger on competition in the market in these two products and its possible fallout or prejudice to the public based entirely on the market shares supposed to be owned and controlled by these two respondents.
27. It must be remembered that our law does not declare conglomerates or combinations of undertakings having substantial market shares unlawful by the mere size of the market share or the value of their assets, unlike the American law embodied in the Sherman Act and the Clayton Act which declare such combinations or mergers per se unlawful.
Neither can we for the same reason presume the impugned amalgamation to be necessarily anti-competitive or prejudicial to public interest.
There is considerable authority on the subject supporting the proposition that mergers are not always against public interest and indeed may sometimes have countervailing advantages for effecting economies of scale, innovation and other effects which may turn out to be efficiency producing factors. Global competition, for example, may greatly reduce the ability of such combinations or mergers to control pricing in the national market.
28. Indeed even before the amendment of 1991 under the Monopolies and Restrictive Trade Practices Act, the position was that monopoly companies having assets of the value of not less than Rs. 100 crores were required only to obtain prior approval of the Central Government which could refer the matter to the Commission for its scrutiny and report after ascertaining whether such companies shall have anti-competitive effects and may act in a manner prejudicial to public interest. That is, there was no blanket ban or prohibition against monopoly companies merely because of the size of their market shares or value of their assets. They were only required to obtain prior approval which could even be granted by the Central Government if after an overall examination of the implications of the merger proposals it was satisfied that the merger had some countervailing advantage or it was serving a larger public interest.
29. The question, therefore, whether the merger when it comes into effect would have the effect of eliminating competition or distorting it has, therefore, to be carefully examined which exercise has yet to be undertaken by us. The parties have still to lead evidence to show and demonstrate whether the coming together of these two companies is not prejudicial to public interest. HLL, on the own showing of the complainants, already enjoys a position of dominance in the market and is alleged to have a very substantial share in soaps and detergents in the organised sector. The question, therefore, whether TOMCO, which has a much smaller share in the market than HLL, would have the effect attributed by the complainants has to be determined on evidence which the parties will now be called upon to lead. Till that is done, it would not be right and proper to injunct the respondents by a blanket order of the nature prayed for by the respondents.
30. Another ground why we are not persuaded to issue an ad interim injunction is that by the order passed by the Appellate Bench of the Bombay High Court on an appeal preferred by the second complainant before us against the order sanctioning the scheme, ample safeguards have been provided for the protection of the interest of the consumers of the products in question. It appears that a settlement dated September 28, 1993, was reached between the Consumers Education Research Centre (CERC) and HLL for incorporating certain terms in the scheme of amalgamation whereunder HLL offered an undertaking that it shall not indulge in any trade practice or pursue any policies which have the effect of preventing, restricting, or lessening competition which is prejudicial to consumer interest. The undertaking is fairly comprehensive and has been ordered to be incorporated in the scheme itself at the instance of CERC. These find mention in paragraph 42 of the judgment delivered by the Appellate Bench of the Bombay High Court.
To the extent relevant for our purpose, the same are reproduced ; "The scheme as ordered by the court is approved subject to the following modifications : . . .
(b) There shall be added Clause 14(a) to the scheme which reads as under : '1. HLL will have all the rights and powers conferred on it by the law in connection with manufacture, sale and distribution of the products which form the subject matter of this arrangement.
(a) assure consumers of toilet soaps and detergents and consumer organisations that it will not indulge in any trade practice or pursue any policies which have the effect of preventing, restricting or lessening of competition, which is prejudicial to consumer interest ; (b) continue to manufacture and promote sales of all major brands of soaps (accounting for 90 per cent. of turnover) formerly manu- factured by TOMCO before the proposed merger, and to the extent not less than percentage or value of market share before the merger.
Explanation.--In order to ensure that the aforementioned assurances are carried out, HLL will not enter into any horizontal arrangement with manufacturers or vertical arrangement with stockists, distributors or dealers, other than those currently in use, which has the effect of producing adverse results prejudicial to consumers' interest.
5. In the event if HLL is unable to comply with any of the aforementioned assurances given in 1(a) and (b), HLL shall inform consumer organisations and consumers in general, through various media, of the reasons for the same.
4. If any disputes arise with regard to any trade practice or policy adopted by HLL in this regard, they shall be resolved by a committee consisting of two representatives of trade and industry nominated by HLL and two representatives of consumers to be nominated by CERC, preferably from the consumer representatives on the Central Consumer Protection Council and a Chairman to be appointed by mutual consent of the nominees, or in the absence of such consent, by drawing of lots with respect to names recommended by four representatives mentioned above. The decision of this Committee of 5 arrived at unanimously or by majority vote, shall be binding on HLL'." 31. We are of the considered view that for the duration of the enquiry the undertaking offered by the HLL, as incorporated in the scheme of amalgamation approved by the Appellate Bench of the Bombay High Court adequately safeguards the interest of consumers of these products generally. No further interim directions are called for for the protection of the interest of the consumers for the present. That is, however, not to say that we are precluded from passing appropriate orders of substantive nature on the conclusion of the enquiry, such as may be warranted on the conclusions we might reach as to the anti-competitive effects, if any, flowing from the terms of the scheme and, the possible mischief which may arise from the working of the same.
32. In view of the foregoing discussion, the Commission declines to issue any ad interim injunction and dismisses the application under Section 12A subject to the observations made in the preceding paragraph with regard to the undertaking offered by HLL as incorporated in the scheme of amalgamation.
33. That brings us to the crucial issue whether the Commission has jurisdiction to order an enquiry into the matter under Section 10(a)(1) read with Section 37(1) of the Monopolies and Restrictive Trade Practices Act. As observed earlier in this order both sides have taken extreme stands in the matter, both Shri Nariman and Shri Desai taking the position, that the Commission has no jurisdiction at all, whereas here, a scheme of amalgamation is submitted before the company court under Section 391 in view of the deletion of certain provisions from Chapter III of the Monopolies and Restrictive Trade Practices Act and the consequential amendments inserted therein, and Shri Dua contending that the Monopolies and Restrictive Trade Practices Act, has an overriding effect over the powers and jurisdiction of the company court under Chapter V of the Companies Act.
34. Reliance was also placed by Shri Nariman on Section 37(3)(b) of the Monopolies and Restrictive Trade Practices Act read with Section 4(1) which provides that no order shall be made under Sub-section (1) in respect of any trade practice which is expressly authorised by any law for the time being in force. The contention was that the Companies Act, 1956, lays down a complete code in regard to schemes of amalgamation and mergers of two companies. With the deletion of the fetters embodied in Section 23 of the Monopolies and Restrictive Trade Practices Act, as it stood prior to its amendment in 1991, the company court has been left free to deal with petitions for sanction of schemes of amalgamation or mergers. It is further submitted that the schemes of amalgamation are, in view of the provision of Sections 391 to 394, statutory in nature. After it is sanctioned it falls within the exclusive purview of the company court which alone is authorised to supervise the working of it under the relevant provisions of the Companies Act. The authorisation contemplated under Section 37(3) of the Monopolies and Restrictive Trade Practices Act, he argued, need not necessarily be in the shape of an express provision. It is sufficient if it is directly covered and implicit in the scheme of the special law and the nature of the remedy provided therein indicating that the Legislature intended it to be a complete code.
35. We regret our inability to accept the contention that the Commission is barred altogether from considering even the impact and effect of the scheme of amalgamation once it is sanctioned by the company court. While it is correct that companies proposing to merge are now not required to obtain prior approval of the Central Government for leave to present petitions for merger or amalgamation before the company court, we cannot accept that the effect of the 1991 amendments is that the Commission stands barred from scrutinizing the possible anti-competitive effects resulting in prejudice to the public of the scheme after it has received the sanction of the company judge.
36. We are of the considered view that the powers and functions of the company judge under Chapter V of the Companies Act and those of this Commission under the Monopolies and Restrictive Trade Practices Act are separate and distinct. Both the instrumentalities are free to operate in their own respective statutorily defined areas of functions and duties. Thus, while the company judge has full powers to deal with petitions presented for sanction of amalgamation under Section 391 and allied provisions of the Companies Act in accordance with the scheme of the Companies Act and the principles regulating the grant of sanction of such schemes, the role and the responsibilities as also the powers of this Commission under the Monopolies and Restrictive Trade Practices Act, to scrutinize the possible effects of all agreements, which include even a scheme of amalgamation sanctioned by the company judge have been left intact, are materially different and distinct, both in content and effect, from those of the company court which is governed and guided by a different set of principles and considerations.
37. A scheme, of amalgamation is, in our humble view, in the final analysis, but an agreement with the seal of the court superadded to it.
What effect the scheme of amalgamation or merger shall produce or is likely to have on competition in the trade to which the scheme relates is, however, within the exclusive domain, purview and concern of this Commission under the Monopolies and Restrictive Trade Practices Act, in view of the clear duty cast upon it as the sole competitive law agency established in this country. The Commission was established for effectuating the mandate of the Constitution of India as enshrined in Article 39, Clause (c) of the Directive Principles of State Policy which provides that the State shall ensure that its economic system does not operate in a manner that results in the concentration of wealth and means of production to the common detriment. The mandate underlying the Monopolies and Restrictive Trade Practices Act, inter alia, is to ensure that agreements or arrangements which have the effect of eliminating, distorting or reducing competition ought not to be allowed to operate. And this power of the Commission is subject only to the appellate powers of the Supreme Court under Section 55 of the Monopolies and Restrictive Trade Practices Act, and, of course, to the supervisory powers of the Supreme Court over all authorities, courts and tribunals under articles 136 and of the High Courts under Article 226 of the Constitution of India. The power of the Commission also stands excluded where the impugned trade practice is authorised by law or approved by the Central Government. Save and except these contingencies, the Commission enjoys the sole and exclusive powers to look into all agreements or arrangements entered into between parties to ascertain whether they are anti-competitive in effect or operation.
38. It should be borne in mind that the considerations which enter into the adjudication involved while dealing with a petition under Section 391 of the Companies Act are totally different from those that apply to complaints under the Monopolies and Restrictive Trade Practices Act.
Indeed, from a perusal of the orders passed both by the company judge as well as the Division Bench of the Bombay High Court it would be apparent that the factors which are relevant for the application of competition law were not addressed, and, if we may say with respect, quite rightly, because these issues were supposed to be left to be dealt with by the Commission under the Monopolies and Restrictive Trade Practices Act, which is a special law dealing with anti-trust laws in this country. That being so, it is not possible to accept the contention that Sub-section (3) of Section 37 of the Monopolies and Restrictive Trade Practices Act, bars the jurisdiction of this Commission in the case of schemes of amalgamation.
39. That brings us to the next objection which was strongly pressed by Shri Desai. The contention was that amalgamation of two companies is not a trade practice and consequently the Commission shall have no jurisdiction to deal with the complaint. We are unable to agree.
Amalgamation simply implies merger of a company with another lock, stock and barrel, with one of the companies (TOMCO here) getting infused into the other, losing its identity and all else, subject of course to the terms of agreement incorporated in the scheme. An amalgamation can, however, be brought about only through the mechanism of a scheme sanctioned by the company court in accordance with the provisions of the Companies Act. The scheme incorporates the agreement or arrangement reached between the merging company and the other (HLL).
It is, therefore, the scheme or the agreement which will regulate the future course of business of the company with which the other company has merged. And if, the Commission has jurisdiction to take cognizance of any agreement or arrangement or understanding reached between two undertakings with a view to ascertaining whether the agreement, etc., is not anti-competitive or unfair, the Commission shall, we do venture to think, equally be competent and have jurisdiction to scrutinize even a scheme of amalgamation sanctioned by the company court as to its content or inevitable effect in terms of the prohibited trade practices dealt with under the Monopolies and Restrictive Trade Practices Act.
And, if the terms of the scheme disclose the existence of any trade practice, whether in its operation or inevitable effect, the amalgamation or merger shall undoubtedly fall within the purview of the Monopolies and Restrictive Trade Practices Act.
40. Shri Desai then placed an alternative submission for our consideration. The contention was that even if the Commission does have jurisdiction to examine the effect of an amalgamation or a merger, it can only make an order for the division of any trade of the undertaking or of any undertaking or interconnected undertakings into such number of undertakings as the circumstances of the case may justify under Section 27 of the Monopolies and Restrictive Trade Practices Act. It can also make a recommendation for severance of inter-connection between undertakings under Section 27A of the Monopolies and Restrictive Trade Practices Act after the 1991 amendments. Put in different words, the argument was that after the 1991 amendment, the powers available to the Commission under Chapter VI of the Monopolies and Restrictive Trade Practices Act, relating to the control of restrictive trade practices are not available and cannot be exercised by the Commission in regard to amalgamation or mergers.
41. We find it difficult to accept the proposition. As noticed above, the amendments of 1991 were introduced to give effect to the new industrial policy spelt out by the Government of India by its policy statement issued on April 27, 1991. The new industrial policy was intended and designed to boost industrial growth and as part of that policy it was decided to do away with all controls and regulations which were considered to have been responsible for inhibiting industrial growth. In relation to the Monopolies and Restrictive Trade Practices Act, the major change brought about was that the pre-entry scrutiny and restrictions under the Monopolies and Restrictive Trade Practices Act on the investment decisions of the corporate sector were done away with. But it was very clearly said in the Statement of Objects and Reasons to the 1991 Amendment Act that the Commission shall continue to control and regulate the monopolistic, restrictive and unfair trade practices as before. This is amply clear from the industrial policy statement as well as the Statement of Objects and Reasons.
42. It would, therefore, be wrong to suppose that with the dispensation of prior approval, the other powers of the Commission available under Chapter VI were taken away from the purview of the Commission, visa-vis amalgamation, mergers and expansion, etc. As remarked in the foregoing discussion, the Commission's power to examine the effect of amalgamation and mergers has remained intact notwithstanding the deletion of Sections 20 to 26 of the Act. The Commission is fully authorised to examine the implications, impact and effect of the scheme of amalgamation of HLL and TOMCO with a view to ascertaining whether the scheme would not in its operation and effect produce anti-competitive results.
43. We, therefore, reject the contention that the only power left with the Commission after the 1991 amendment in regard to amalgamation or merger is that available under Sections 27 and 27A of the Act. Whether, however, the Commission should make an order under Sections 27 and 27A or pass a "cease and desist" order under Chapter VI of the Act would depend on the conclusions reached by us. If we find that any clause in the scheme attracts the provisions of Section 2(o) or Section 33 or both it would pass a "cease and desist" order under Section 37 of the Monopolies and Restrictive Trade Practices Act. If, on the other hand, the Commission comes to the conclusion that merger cannot operate except by elimination, distortion or restriction of competition in a manner prejudicial to public interest or that the working of the undertaking would be prejudicial to public interest or that it would lead or is likely to lead to the adoption of any monopolistic or restrictive trade practice it can make an order under Sections 27 and/or 27A as the circumstances may warrant.
44. The upshot is that this Commission has undoubted jurisdiction to entertain the complaint and to take appropriate action permissible under the Monopolies and Restrictive Trade Practices Act.
45. 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 Monopolies and Restrictive Trade Practices Act, as well as Section 27 and/or 27A of the Monopolies and Restrictive Trade Practices 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.
46. 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 Supreme Court. Needless to add the Commission shall abide by the conclusions reached and the orders passed by the Supreme Court.
47. In the premise, 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 33(1) and Section 37 of the Monopolies and Restrictive Trade Practices Act as well as Sections 27 and 27A of the Monopolies and Restrictive Trade Practices Act, returnable on November 28, 1994. No order as to costs.