On April 27, 2023, NCLAT set aside the penalty imposed on ITC Limited (‘ITC’) by the CCI in relation to its failure to notify its acquisition of certain trademarks (Savlon and Shower to Shower) from Johnson and Johnson group in February 2015.

Brief Background

Timeline of relevant events:

i.    On February 12, 2015, ITC entered into separate agreements with Johnson & Johnson group in relation to the acquisition of the trademarks. The parties consummated the transaction without seeking approval of the CCI.

ii.   On November 7, 2016, the CCI directed ITC to notify the transaction for its approval and initiated gun jumping proceedings against ITC for failure to notify the transaction. The transaction was approved by the CCI on March 22, 2017.

iii.  On December 11, 2017, the CCI found ITC guilty of gun jumping and imposed a penalty for failure to notify the transaction.

NCLAT’s Order

ITC challenged the CCI’s penalty order before the NCLAT and argued that (i) once the CCI has found that there is no appreciable adverse effect on competition, the CCI does not have the jurisdiction to pass an order under Section 43A of the Competition Act; (ii) Section 5 of the Competition Act is only applicable to acquisition of an enterprise and the acquisition of trademarks cannot be equated to acquisition of an “enterprise”; and (iii) the turnover of the trademarks did not exceed the “target exemption” turnover threshold and, therefore, the transaction did not require CCI approval.

The NCLAT while setting aside the penalty order of the CCI, observed that the Government of India’s notification in 2017 (‘2017 Notification’) on the method for calculating asset and turnover is mere clarificatory in nature and gives a purposive construction to the “target exemption” and the 2017 Notification will have a retrospective application on the transaction.