7/27/2019 Mergers & Acquisitions Screening on the Anvil under the Indian Competition Act 2002 Need for tweaking the Draft Combination Regulations by G.R. Bha

1/4

Mergers & Acquisit ions Screening on the Anvi l under the Indian

Competi t ion Act 2002 Need for

tweaking the Draft Combination RegulationsG.R. Bhatia,1 Partner & Head, Competition Law Practice, Luthra & Luthra Law O

New Delhi.

e-mail :

gbhatia@luthra.comVery recently the Competition Commission of India had released revised

regulations dealing with the procedure governing enquiries into notifiable transac

The key highlights of the Regulations have been discussed here and some grey

which need to be addressed by the CCI are outlined.

here is greater recognition more than ever before that

mpetition in markets is benign for one and all. However,

aintaining fair and free competition is a formidable challenge.

o achieve this mission, the competition regimes around the

orld seek to frown upon/tame anti competitive actions. The

ti competitive public actions emanate from policies, laws

d byelaws evolved by State or its bodies (the recent examples

e: portability of mobile number hitherto disallowed; replacing

licy of licencing with auctioning of scarce spectrum to

tending telecom service providers; the crediting of interest

saving bank accounts on daily basis from 01.04.2010; review

regulation of saving bank interest rate payable to saving

nk account holders by the RBI resulting in lack of

mpetition inter-se scheduled banks in this market). Realising

at formulation of policy is a prerogative of the State, the

dian Competition Act casts an obligation upon the

mpetition watchdog to render advice and undertake advocacy

such issues of the State. The recent Annual Report of the

orean Fair Trade Practices Commission (KFTC) mentions

at over 300 laws have been amended in Korea pursuant to

vice/recommendation of KFTC. It is anticipated that India

ll soon pick up on this dimension.he other compartment of Indian Competition Act relates to

ohibition/regulation of certain actions of economic actors

nterprises). This compartment has three components, namely:

(a) prohibition of anti competitive agreements (AC

prohibition of abuse of dominance (AOD) by enterp

group; and (c) regulation of certain combinations (M

While the latter is an ex ante analysis, the form

prohibitions are ex post. The provisions relating to A

AOD have been effective from 20 May 2009 and, as

over 150 enquiries/investigations are in different stage

the sole national competition watchdog, the Com

Commission of India (CCI). These enquiries are

enterprises engaged in various business sectors includ

estate, banking, telecom, film and entertainment,

pharmaceutical, infrastructure, IT, etc.

As on date, the provisions pertaining to third compon

regulation of combinations are not yet in force. On 4t

2011, however, the Government of India has notif

these provisions shall come into force with effect from

2011. These provisions prohibit a combination which

or is likely to cause appreciable adverse effect on com

(AAEC) in the relevant market in India and declar

structural change as void.

Merger control (referred to in the Act as the regul

combinations) has two phases first, the filing of disclosing details of the merger or acquisition, along

requisite fee; second, a review of the notice to formu

prima facie opinion (initial review); and, finally con

as to the existence of any AAEC as a result of the p

combination in the relevant market in India. The C

accord approval in case the initial review does not giv

competition concerns. Otherwise, it will proceed

He is former Additional Director General, Competition Commission

India (CCI)/Monopolies and Restrictive Trade Practices

mmission (MRTPC), New Delhi. The views expressed are the views of the

thor.

7/27/2019 Mergers & Acquisitions Screening on the Anvil under the Indian Competition Act 2002 Need for tweaking the Draft Combination Regulations by G.R. Bha

2/4

Article

s

quiry into the question of the existence of an AAEC, which

uld ultimately lead to the combination being approved,

dified or blocked.

der the Act, combinations include the acquisition of control,

ares, voting rights or assets by a person or enterprise from

other enterprise, the acquiring of control by an enterprise ofother engaged in identical business, or a merger or

algamation between or among enterprises. Only those

mbinations where the total value of assets or turnover of the

mbining parties, or the group (two or more enterprises which

in a position to exert control over the voting rights, board

mbers or other affairs of the other enterprise) to which

mbining parties belong, exceeds the threshold prescribed, are

ulated by the Act. The threshold is dependent upon the status

the combining parties, namely: (i) operations of combining

rties confined to India; (ii) operations of combining parties

ndia or outside; (iii) combining parties belonging to a group.2

perations Individual parties Group

India Total value of assets more Total value of assets more than

than INR 1,500 crores INR 6,000 crores (approx.

(approx. USD 333 USD 1.3 billion) or turnover

million) or turnover more more than INR 18,000 crores

than INR 4,500 crores (approx. USD 3.9 billion).

(approx. USD 998

million).

India Aggregate value of assets Aggregate value of assets

d more than USD 750 more than USD 3 bil lion

tside million (including at (including at least assets ofdia least assets of INR 750 INR 750 crores (approx.

crores (approx. USD USD 165 million)) or turnover

165 million)) or turnover of USD 9 billion (including at

of USD 2.25 billion least turnover of INR 2,250

(including at least crores (approx. USD 499

turnover of INR 2,250 million) in India)

crores (approx. USD

499 million) in India)

e value of assets is as shown in the audited books of account

the enterprise in the year immediately preceding the

ancial year in which the date of proposed merger falls. Theue of assets will need recast only when depreciation or

angible assets are not accounted for in the audited accounts.

kewise, the value of turnover shall include value of sale of

ods or services.

lure to notify the CCI of the proposed merger or acquisition

racts a penalty and, the CCI, may suo motu institute an inquiry

within one year of such combination having taken effect.no transaction shall be completed until it is approved

days have expired from the date of filing of valid no

order to determine whether a combination has, or is cause AAEC in the relevant market in India, the CCI sh

due regard to all or any of the factors prescribed in namely market size, market share, list of competitorsand extent of barriers to entry, demand and supply d

and other details of the market in which combining

operate and are engaged. Any acquisition by a specified finstitution is not combination but the investing institu

to notify such acquisition within seven days to the CC

On 1 March, 2011, the CCI released a revised drafCompetition Commission of India (Procedure in regar

transaction of business relating to combination) Regu

(the Draft Regulations). These Draft Regulations ess

set out the procedure governing inquiries into notransactions and the key highlights thereof are as und

1. Filing of Notice

The Draft Regulations envisage three types of fo

the notification of mergers, amalgamations or acq

to the CCI.

Form I is a short-form merger notification and

the following transactions3 :

An acquisition of not more than 15 percent oor voting solely for an investment purpo

the ordinary course of business, not lead

control of the enterprise

An acquisition where the acquirer is alr

control of the enterprise

An acquisition of assets where the assetparties are not directly related to the b

activities of the party acquiring or made s

an investment or in the ordinary course of b

An acquisition or acquiring control or m

amalgamation where not more than one par

combination has assets or turnover in India exINR 250 crores (approx USD 55 million)

750 crores (approx. USD 165 million), resp

An acquisition taking place within the gro

Form II is a detailed merger notification for tran

that are neither covered in Schedule 1 of th

Regulations nor set out in Section 6(5) of the AOn 4th March, the Government of India has notified (a) enhancement ofets/turnover limits by 50% for enterprise/group; (b) exemption ( for a

od of 5 years) for transactions, if the target has assets less than INR 250

res (US $ 55 million) or turnover less than INR 750 crores (US $ 265

ion); and (c) exemption (for a period of 5 years) for a group, if the group

rcises less than 50% of voting rights in the target.

3. These transactions are listed in Schedule 1 of the Draft Regulat

were exempted in the draft regulations of 2008.

4. In cases where the target entity has assets less than INR 250 crore

million) or turnover less than INR 750 crores (USD 165 million), the t

will not require a notification, and, as such, no clearance is neede

Mergers & Acquisitions Screening on the Anvil under the Indian Competition A

7/27/2019 Mergers & Acquisitions Screening on the Anvil under the Indian Competition Act 2002 Need for tweaking the Draft Combination Regulations by G.R. Bha

3/4

Articl

Form III deals with notification of transactionspertaining to acquisitions by a public financial institution,

foreign institutional investor, bank or venture capitalfund referred to in Section 6(5) of the Act and do not

require prior mandatory approval of the CCI, but details

of which are required to be filed with the CCI withoutany accompanying fee;

Responsibility of filing

In cases of acquisition, the responsibility of filing with

the CCI devolves upon the acquirer

In cases of mergers or amalgamations, the merging

parties are expected to file a joint notification

Informal consultation

The Draft Regulations provide for informal consultations

(only to the extent of ascertaining whether a transactionis notifiable or not) and allows enterprises to file arequest for pre-notification confidential consultation with

the CCI. The informal views expressed by the CCI atsuch consultations shall not be binding.

Time-lines

The Draft Regulations envisage that the CCI shall form

a prima facie (at first look) opinion as to whether acombination has or is likely to have appreciable adverse

effect on competition within the relevant market in India

within 30 days of receipt of a valid notice (excludingany additional time taken by the parties to file anyadditional information)

In order to assuage a key concern of the trade and

industry, the Draft Regulation states that the CCI will

endeavor to pass an order or issue directions within 180

days of a valid notification (though the law contemplates

a maximum 210 day period). This 180 days period

excludes any additional time (over the time stipulated)

taken by the parties to file any additional information.

Fees payable to the CCI upon notification

TYPE OF TRANSACTION FEES PAYABLE

Merger or amalgamation or INR 40 Lakhs (approx.

acquiring of control over an USD 89,000)

enterprise

Acquisition of shares, voting

ights or assets of an enterprise,

where value of the transaction

s:

less than INR 500 crores INR 10 Lakhs

(approx. USD 111 million); (approx. USD

22,000);

more than INR 500 crores INR 20 Lakhs

(approx. USD 111 million) (approx. USD

but less than INR 1000 44,000);

crores (approx USD 222

million); and

more than INR 1000 crores INR 40 Lakhs

(approx USD 222 million). (approx. USD

89,000).

6. Confidentiality

The Draft Regulations allow notifying parties tofor confidentiality of any documents submittedinvestigation. Such confidentiality requests aconsidered in terms of the procedure laid dRegulation 35 of the Competition Commission

(General) Regulations, 20095

.The consistent consultative approach of the CCcommendation. It has invited comments/suggestions on Regulations by the third week of March, 2011. Tdemonstrates CCIs sincere and serious attempt to pu

bound swift merger control regime in place in India. Hin order to ensure that the procedural law serves the

businesses, the following are the concerns which neaddressed by the CCI before notifying these Regulations,

1. Pruning of Schedule I

Schedule 1 lists out certain transactions which have e

competition or minimal competition concerns. The lalia includes (a) acquisition of raw material in the ordinaof business, (b) acquisition of bonus shares, and (c) restrwithin the same group. Requiring filing and waiting clearance before consummation of such transaction is imor of no utility and needs to be reviewed.

2. Unnecessary burdensomeness of Forms

(a) Form I (short form) is required to be used ftransactions which are covered in Schedule 1. H

the short form requires the following enclosures

diligence reports; (ii) documents leading to agr

decision/approval; (iii) constitutional documparties; (iv) description of main products; and (vof notification filed with other competition aut

Due diligence reports/documents relating to de

5. Regulation 35 of the Competition Commission of India

Regulations, 2009 provides for document(s) to be treated as conf

the disclosure of such document(s) will lead to the disclosure of tra

or destruction or appreciable diminution of the commercial val

information or reasonably expected to cause serious injury. A

keep document(s) as confidential is required to be made in writing

the CCI or the Director-General. The CCI or the Director-General, i

may order that the document(s) be kept confidential.

ergers & Acquisitions Screening on the Anvil under the Indian Competition Act 2002

7/27/2019 Mergers & Acquisitions Screening on the Anvil under the Indian Competition Act 2002 Need for tweaking the Draft Combination Regulations by G.R. Bha

4/4

Article

s

transaction are unrelated to competition in markets.Companies need to provide only corporate registrationnumber or similar identification number. The segmentreporting in the annual report contains details of main

products/businesses. The practical difficulties in attachingcopies of notifications filed in other jurisdictions are thatthe timelines of filing are different and that translation

burden is substantial. Moreover, since market structurein each country is different, these copies may serve little

purpose in competition analysis in Indian market. Insteadof copies, the filing party may be required to indicate

jurisdictions where notification is required to be filed.

b) Form II also requires information/documents which donot seem to strike balance between its need for competitionanalysis and burden on the firms filing the notice. Section11 of Form II inter-alia requires viable scale analysis,mapping of distribution facilities. information of future

plans of competitors etc. These may be dispensed at theinitial filing phase and should at best be called uponwhen the Authority takes up full fledged investigation.Given that 90 percent of total transactions triggeringfiling obligation globally are non-problematic, requiringdetailed information in the initial notice being

burdensome needs to be relooked.

c) Form III is to be filed by Investment institutions wherethe purpose is not to take control of the investee company.The investing company is required to intimate and isnot required to seek prior approval of the CCI before

making an investment. Requiring such company tofurnish details of relevant product market, relevantgeographical market of the relevant market of investeecompany is overly broad and unnecessary.

Combinations taking effect prior to June 01, 2011

a) The Draft Regulations state that if a transaction has takeneffect prior to 1 June 2011, the provisions of the DraftRegulations shall not apply. This could mean thattransactions that have not been completed prior to 1 June2011 are otherwise covered and will require to be notifiednotwithstanding the fact that the trigger event took place

prior to 1 June 2011.b) As the Draft Regulations are still in draft form, it is

hoped that the CCI will use the time between now and 1June 2011 to consider the suggestions it receives andiron out several grey areas before notifying theCombination Regulations. In the interest of providingclarity to trade and industry, the CCI could adopt anapproach where only those transactions that are signedafter 1 June 2011 are required to be notified to it.

Lack of clarity onde minimis provision

e Government has, for a period of five years, exempted

those combinations where the target enterprise whoseshares, voting rights or assets are being acquired has anot more than INR 250 crores or turnover of not moINR 750 crores. The grey area is as to whether these thare worldwide or in India. As per the International Com

Network (ICN) Recommendation, the de minimus pshould have local nexus only.

5.Time lines

The Draft Regulations envisage that the CCI shall formfacieopinion as to existence or likely existence of AAE30 days. It would be advisable to provide clearly thathe parties are not informed or are called upon toadditional information after 30 days of filing of validthe proposed transaction shall be deemed to have been ap

6.Informal Consultation

The Draft Regulations provide for non binding pre not

informal and confidential consultation. However, on tof Securities and Exchange Board of India (Informal GScheme, 2003, the regulation needs to provide that thouis not bound with informal consultation but the cons

between the party and the designated authority will be

7. Other Concerns

(a) To suspend operation of Sections 108A to 108HCompanies Act, 1956 (until deletion of these prfrom the said Act) as its continuation would amdual regulation on the same subject and by two dauthorities.

(b) There is need to exclude some components from tsuch as subsidy, aid, taxes as this will bring convwith merger regulation by European Commission

(c) It needs to be explicitly clarified as to whether sector undertaking will be treated on standalone baa group. In case of central public sector undertakor a majority of shares are held in the name of a Prand in case of State undertaking, these are held in tof the Governor. The resultant effect is thaacquisition relating to a private enterprise by any c

state undertaking will trigger the threshold.

Key take away

The need is to swiftly permit such mergers/acquisition

are beneficial to the economy and to prohibit only thos

are anti competitive. This requires a delicate balancGetting the correct balance between prohibition and per

is important as an overly restrictive approach can

beneficial mergers from going ahead, entrench einefficient market structure, limit incentives for new inv

whilst an overly permissive approach to merger contr

establish and entrench monopolies.

Mergers & Acquisitions Screening on the Anvil under the Indian Competition A