Composite transaction

Shelly Sharan

Concept

A transaction is deemed to be a composite transaction in the context of merger control regime

when it takes effect through series of separate transactions which are inter-dependent and
associated to each other in such a way that they intend to give effect to an ultimate common
purpose of the transaction. Composite transaction takes place in merger deals more frequently.
It becomes important in the context of competition law because some of transactions in a
composite transaction can be combination.

The paper argues that Indian competition law does not provide clarity to the concept of
composite transaction and how it has to be dealt with, so there is a need to introduce provisions
and the related rules & regulations defining clearly what the composite transaction is in the
context of competition law and how the enterprises should proceed in carrying out the
composite transaction.

Position of composite transactions in Indian Competition Law:

In Indian competition regime this terminology has not been used both in the governing
legislation, i.e., the competition Act, 2002(hereinafter “the act”) nor in the combination
regulations. This term has been developed as a result of competition practices and case laws.

Some of the transactions in a composite transaction can be combination as defined under

Section5 of the act therefore require approval of CCI before they can be given effect to, while
some may not be the combination thus exempted from the requirement of notifying the CCI to
seek it approval. Although they are exempted as an individual transaction, but if such
transactions are a part of the composite transaction, the notification to the CCI nevertheless
needs to be sent and its approval has to sought. They are required to be filed as a composite
scheme of combination. This requirement has been added to the merger filing process by CCI
through the amendment (2016) to the combination regulations with respect to the filing of
notice in the process of establishing combination. Amended Regulation 9 (4) stipulates that:

“Where the ultimate intended effect of a business transaction is achieved by way of a

series of steps or smaller individual transactions which are inter-connected, one or more
of which may amount to a combination, a single notice, covering all these
transactions, shall be filed by the parties to a combination”

The government has attempted to make the filing procedure simpler and expedite, since for
several connected transactions filing of only one notice to the CCI under Section 6(2) is treated
as sufficient (which avoided multiple filings). But the regulation has further complicated the
procedure and became a potential ground of litigation, since what is composite transaction is
nowhere being explicitly provided by the act or regulations. This has created the difficulty in
ascertaining as to which transactions would come within the ambit of the composite
transactions and need to be notified to the CCI before consummation. Moreover, the individual
transaction which hitherto did not require approval of the CCI through notification, now have
to be notified just because of being a part of composite transaction. The CCI by narrowly
interpreting this regulation has added to the number of litigations and the problem of
interpretation. Since, the CCI itself has not issued any lucid guidelines defining the composite
transaction and the ways in which parties have to proceed, it has become problematic for the
parties entering into various transactions simultaneously to ascertain those transactions which
comes within the definition of the composite transaction and therefore required to be notified
and which do not. This problem has been the root cause of litigation as when the parties file
the notification to the CCI, they do not include such transactions in the combination scheme as
filed which they think to be not forming the part of composite transaction. Afterwards, when
the CCI examine the composite scheme it is probable that it finds the hereinbefore mentioned
transaction to be a part of composite transaction and make the parties pay the penalty.

In India, combination can come into effect only when it is approved by the Competition
Commission of India, the Act via 2007 amendment has made it mandatory for any person or
enterprise proposing to enter into combination to give notice to the CCI in respect of it so that
the CCI can decide whether such combination is capable of causing adverse effect on
competition or not and approve such combination or pass such orders as it deem fit. If Guido
Calabresi’s concept of entitlement is applied here, it can be said that the competition act has
created an entitlement in favour of the CCI to get notified of the proposed combination. But as
Calabresi remarked “The State is not only to decide whom to entitle, the equally difficult
second order decisions that must be taken by it is to determine the manner in which entitlements
are to be protected”. The competition law seems to be struggling with this second order problem
when it comes to the protection of the entitlement of the CCI to be notified in respect of a
combination forming part of the composite transaction. Since no definite criteria have been laid
down till now that can help in determining as to what transactions would be deemed to the part
of composite transactions and what can be deemed to be a separate transactions for the purpose
of filing single notification, which creates the procedural problems in ensuring that CCI’s
entitlement to be notified is protected.

Case laws:

Recently, the CCI has imposed penalty on Etihad for its failure to notify one of the agreements
in the several agreements in the composite transaction through which it acquired 24% of the
stake in the Jet Airways, the transaction which the CCI held to be a part of the composite
transaction was of the sale of three landing/ take- off slots of Jet Airways at London Heathrow
Airport to Etihad and lease of same slots back to Jet. The parties in this case argued that the
alleged agreement was an altogether separate transaction and did not form the composite
transaction. But the CCI has rejected the parties plea and held that since, the composite scheme
filed to the CCI contained references to the landing slots agreement, the agreements formed
the part of composite scheme further it noted that the agreements envisaged the approval of the
CCI as a prerequisite to the closure of the transaction also the parties had not executed the other
transactions apart from the transaction in question which establishes the connection between
the transactions .

In Thomas cook case {CCI v. Thomas Cook (India) Ltd. & Another, Civil Appeal no. 13578
of 2015} the Competition Appellate Tribunal (COMPAT) gave a decision with respect to
composite combinations. The CCI has imposed a penalty of INR 10 million on Thomas Cook
(India) Limited & others for not notifying it regarding the consummation of certain market
purchases which it deemed to be a part of the composite transaction. Though these market
purchases otherwise did not require notification but since they were inherent part of composite
transaction CCI held that they should have been notified. In appeal, the COMPAT over-ruled
the CCI decision, mainly on the ground that the composite transaction in the case could have
taken place even without the market purchases and the ultimate objective of it was not
dependent on the market purchases. But when this decision came the terms used in the
Regulation9 (4) was “may be filed” which has now been substituted by “shall be filed” by the
2015 amendment. This made it compulsory for the parties to notify the transactions forming a
part of composite transaction. The words “or inter-dependent on each other”, which came after
the phrase “transactions which are inter- connected” in the original regulation have been
omitted by the 2016 amendment, which has created the difference in interpretation as now it is
not necessary that for being deemed as a part of composite transaction the transaction should
be such that consummation of the composite transaction depends upon it.

Conclusion:

At this stage it can be concluded that the law with respect to the composite combinations is
not clear in India and it is required that by way of the amendment lucid and precise definition
of composite transaction should be provided along with the procedural guidelines which the
parties have to follow in such cases.