The Competition Commission of India (CCI) today imposed Rs 1 crore fine on Abu Dhabi-based Etihad Airways for non-disclosure of full information in the course of seeking approval for its purchase of 24 per cent stake in Naresh Goyal's Jet Airways.
The Rs 2,060 crore deal has been facing turbulence ever since it was announced in April. Earlier today, the Competition Appellate Tribunal (COMPAT) issued notices to the the Competition Commission of India (CCI) and Jet Airways on a plea challenging the competition watchdog's clearance.
The penalty would not have any impact on the approval for the deal given by CCI last month. The competition regulator said it kept the quantum of fine low at Rs 1 crore after Jet Airways and Etihad Airways contended that they were unaware of the requirement for certain disclosures.
Dissenting with majority view, CCI member Anurag Goel in a separate order said the fine should be Rs 10 crore.
The CCI fine of Rs 1 crore relates to pacts entered into between the two carriers on February 26 for sale of three landing/take-off slots of Jet Airways at London Heathrow Airport to Etihad Airways (LHR transaction). It also includes the lease of the same slots back to Jet Airways.
Keeping in view the facts and circumstances, the Commission said it was imposing a penalty of Rs 1 crore on Etihad Airways, which according to the regulator had the obligation to give notice to it regarding the deal.
Etihad Airways is required to pay the fine within 60 days.
The regulator said the parties made disclosure of all the agreements entered into between them, including LHR transaction and CCA (Commercial Cooperation Agreement).
Noting that it is apparent that there was no effort by the parties to conceal the transactions, the CCI observed that contention of the parties is that they were under an impression that LHR was an independent transaction.
"This contention has not found favour with this Commission but the fact remains that the party was under an impression, though wrongly, that LHR transaction was an independent transaction and the party consummated LHR transaction," the order said.
The airlines sought CCI nod for the Rs 2,060-crore deal on May 1.
The parties approached the Commission pursuant to an an Investment Agreement (IA), a Shareholder's Agreement (SHA) and a Commercial Co-operation Agreement (CCA). These were executed on April 24.
Under the Competition Act, entities proposing to enter into a combination are required to give notice to the Commission disclosing the details of the proposed combination, within the time prescribed therein.
"In the instant case, the parties consummated LHR Transaction without giving notice to the Commission," the order said.
According to the fair trade regulator, the parties agreed that CCA shall come into force on April 24, whereas the notice was given only on May 1.
Moreover, the parties even pursued certain actions, both before and after giving notice, that are in conjunction with the obligations envisaged under the CCA, without waiting for the approval of the Commission, it added.
"In view of the foregoing, it is concluded that Etihad Airways failed to give notice under sub-section (2) of Section 6 of the Act of LHR Transaction and CCA and the parties implemented LHR transaction and CCA without giving notice as well as without awaiting the approval of the Commission," the order said.
As per the Commission, the parties had been mending and changing transaction terms and conditions as per the the advise/requirements of different regulators from time to time.
"This fact is also evident that one of the parties to the combination was in dire need of financial support being provided by the other party to the combination and it seems to have shown its willingness and bona-fides by taking steps in accordance with CCA during pendency of approval itself," the order said.
In these kind of cases, the Commission can impose a penalty that may extend to one per cent of the total turnover or the assets, whichever is higher, of such a combination.
In this case, one percent of the combined value of turnover of the parties is more than Rs 400 crore and one percent of the combined value of asset of the parties is more than Rs 700 crore, the Commission said.
In a minority order, CCI member Anurag Goel said that CCA was not only a critical component of the combination from the transaction perspective, but was also a very important factor in the competition assessment of the proposed combination.
"To implement the CCA, without prior approval of the Commission is, therefore, a major and substantial aggravating factor in determining the penalty under Section 43A of the Act, and it amounts to a very grave deliberate failure to notify the Commission about extremely critical facts of the case, crucial in the process of competition assessment of the proposed combination," he said.
"I consider it appropriate to levy a penalty of Rs Rs 10 crore on Etihad Airways under Section 43A of the Competition Act," he added.