Introduction
The Competition Act, 2002 (Hereinafter
referred to as the Act) was enacted as a replacement
for the erstwhile Monopolies and Restrictive Trade Practices
Act and with a view to prevent practices having adverse
effect on competition, to promote and sustain competition,
in markets, to protect the interests of consumers and
to ensure freedom of trade carried on by other participants
in markets in India.
The Competition Commission
of India was established in October 2003 under the Act.
It was, however, mired in litigation as the provisions
governing its functions were challenged in a writ petition
before the Supreme Court. Consequent to this, the Competition
(Amendment) Bill, 2006 was introduced in March 2006
and was finally passed by both houses of parliament
as the Competition (Amendment) Act, 2007.
Most noteworthy of the changes proposed by the Amendment
Act was the introduction of a mandatory notification
process for persons undertaking combinations above prescribed
threshold limits. These threshold limits are as follows:
- In respect of direct acquisition of stock or assets,
such threshold is
-
Joint assets of
more than INR 1000 Crores (INR 10 billion) or joint
turnover exceeding INR 3000 Crores (INR 30 billion)
in India; or
-
Joint assets
of more than USD 500 million (including INR 5 billion
in India) or joint turnover exceeding USD 1500 million
(including INR 15 billion in India) globally.
- In respect of
indirect acquisition of stock or assets, that is to
say, of an individual or an entity which has direct
or indirect control over a another enterprise which
has a similar or substitutable business as of the acquirer,
the threshold is
-
Joint assets of more than INR
1000 Crores (INR 10 billion) or joint turnover exceeding
INR 3000 Crores (INR 30 billion) in India; or
-
Joint assets of
more than USD 500 million (including INR 5 billion
in India) or joint turnover exceeding USD 1500 million
(including INR 15 billion in India) globally.
- In respect of any merger
or amalgamation in which the resulting merged or amalgamated
enterprise, the threshold is
-
Assets of
more than INR 1000 Crores (INR 10 billion) or joint
turnover exceeding INR 3000 Crores (INR 30 billion)
in India; or
-
Assets of more
than USD 500 million (including INR 5 billion in
India) or joint turnover exceeding USD 1500 million
(including INR 15 billion in India) globally.
- In respect of any merger or amalgamation
where the resulting merged or amalgamated enterprise
would be a subsidiary of another enterprise, the threshold
is
-
Assets of more
than INR 4000 Crores (INR 40 billion) or joint turnover
exceeding INR 12000 Crores (INR 120 billion) in
India; or
-
Assets of more
than USD 2 billion (including INR 0.5 billion in
India) or joint turnover exceeding USD 6 billion
(including INR 1.5 billion in India) globally.
The Amendment Act also introduced
a lengthy waiting period of 210 days within which
the CCI is required to pass its order with respect
to the notice received, failing which, the proposed
combination is deemed to be approved.
In pursuance of the changes proposed by the Amendment
Act with respect to combinations, the CCI has framed
draft of the Competition Commission (Combinations)
Regulations. The Regulations which seek to govern
“combinations” provide much awaited clarity
on several issues pertaining to combinations, but
regrettably create new areas of uncertainty.
Significant Provisions of the Regulations
The significant provisions of the regulations are
as follows:
-
Exempting
combinations resulting from certain types of transactions
from the ambit of “combinations that are likely
to have an appreciable adverse effect on competition
in India”;
-
Specifying
the party that is required to notify the CCI on
the basis of the type of combination that is proposed;
-
Specifying
the filing fees and associated costs to be incurred
by parties to a combination;
-
Prescribing
forms for notification to the CCI, both with respect
to prior notifications for combinations and for
other situations envisaged by the Regulations; and
-
Setting out
the framework for the functioning of the CCI in
connection with regulating combinations (procedure
for inquiries, investigations, hearings etc).
Major Exempted Transactions
The Regulations exempt 13 transactions from the purview
of combinations that are likely to have an appreciable
adverse effect on competition in India. Some of the
key transactions that have been exempted include:
-
An acquisition
of shares or voting rights of a company of not more
than 26% of the total shares or voting rights of
the company;
-
An acquisition
of assets that are not directly related to the business
of the acquirer; however, this exemption would not
apply where assets of the company that are being
acquired represent the entire business operation
in a particular location or relate to a particular
product or service of such company;
-
An acquisition
of or acquiring of control or merger or amalgamation,
where each of at least two foreign parties to the
combination have assets less than INR 2 billion
(approx USD 50 million) or turnover less than INR
6 billion (approx USD 150 million), respectively
in India, even though the threshold prescribed is
fulfilled on a global basis;
-
An acquisition
of shares or voting rights of a company where the
acquirer already holds more than 50% of the shares
or voting rights of such company prior to the acquisition;
and
-
An acquisition
pursuant to a bonus or rights’ issue or sub-division
of shares, but not including any acquisition resulting
out of relinquishment of rights.
It is important to note that
the Regulations only provide that the aforesaid exempted
transactions shall not be deemed as likely to cause
an appreciable adverse effect on competition in India.
In other words, the Regulations do not exempt such
transactions from the mandatory notification requirements
under the Amendment Act. Consequently, parties that
propose to undertake any of these transactions would
in any case have to apply to the CCI for its approval.
Consequently, the waiting period of 210 days shall
also become applicable to such cases.
Procedures
In terms of Section 6 of the Act, any combination
being likely to cause an appreciable adverse effect
on competition in India would be considered void.
In order to review the effect a proposed combination
would have on the relevant market, Section 6 (2) provides
that a notice of such combination must be provided
to the Competition Commission of India (“CCI”)
which would then investigate the proposed combination
in the manner as provided in the Act.
Section 6 (2A) provides
that from the time of giving the notice, no combination
shall come into effect until 210 days have passed or
the CCI has passed orders on the combination. However,
this particular provision has not been put into effect
yet. This has been viewed by the industry as a serious
regressive step on part of the Indian Government. It
is feared that an appreciable retardation of investment
and M&A activity could be an outcome upon notification
of the operative provisions of the Act.
Further, it must be noted
that the Regulations are currently only at a draft stage
only and which, like Section 6 (2A), are not yet in
force. Given the representations being moved by the
industry and chambers of commerce before the Government,
it is also expected that there will be changes to the
Regulations before they are brought into force.
Currently, the Regulations
provide for the manner and procedure in which this notice
is to be filed which is as follows:
-
The notice is to
be filed either in Form 1 or Form 2 (attached along
with draft Regulations), as may be applicable, along
with a fee of INR 2 million by the acquirer (in
case of an acquisition) or every party concerned
(in case of any other combination).
-
Within 30 days
of receipt of the notice the CCI shall issue a show
cause notice to the person(s) who filed the notice
as to why investigation in respect of such combination
should not be conducted.
-
Within 30 days
of the receipt of the show cause notice, the parties
shall file a response to the show cause notice along
with a fee of INR 2 million. In this regard, there
seems to be serious anomalies in provisions regarding
fees and the provisions are not clear
-
If the CCI is of
the opinion that the combination would prima facie
have an appreciable adverse effect on competition,
within 7 working days, may also call for information
from the public, or direct the parties to the combination
to publish details of the combination. Such publication
is to be made within 10 working days of such direction.
-
Written objections
from any persons and members of the public would
be accepted within 15 working days.
-
Within 15 working
days after receipt of any written objections, the
CCI may further call for additional information
if it deems fit. Such additional information must
be provided within 15 working days of the call for
additional information
-
After all the information
has been received, the CCI has 45 working days in
which to deal with the case and pass its orders
CCI may pass orders of
the following nature-
-
Approval- where
the proposed combination would not have an adverse
effect on competition
-
Non-approval- where
the proposed combination would have an adverse effect
on competition
-
Modification- where
the proposed combination would have an adverse effect
on competition but such effect can be eliminated
by modification of the combination. Parties are
free to suggest amendments to the modification,
which would be subject to the sanction of the CCI.
Conclusion
It is felt that
while the draft Regulations lay out the much-required
framework to provide for the manner in which combinations
are sought to be regulated by the CCI, the ambit of
combinations that are brought within the rigors of the
Act remains too vast. It would be helpful to remember
that the limits for the threshold requirements to attract
the combination regulations as well as the timelines
were prescribed as early as 2002 and such limits have
not been changed since then. The procedure to render
any combination void and the ensuing consequences of
undoing any merger or acquisition continues to be neglected.
It is expected that the provision requiring a notice
to be given to the CCI would be put into effect only
after these issues have been addressed.
_________________________________________________________________
RAJAN D. GUPTA is a Partner with
FoxMandal Little & Co. and ARJYA B. MAJUMDAR is an Associate
with FoxMandal Little and Co. |
