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Competition Law: Draft regulations on regulation of combinations
On March 4, 2011, the Government of India, Ministry of Corporate Affairs notified the much debated and dreaded provisions of the Competition Act, 2002 relating to “combinations” namely Sections 5 and 6. Although notified as of March 4, 2011, these provisions
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are to take effect from June 1, 2011 giving all those subject to the same, a period of 3 months to tie loose ends and complete unfinished transactions before getting entangled in the web of the Act writes Vinay Kumar Sanduja. |
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| New rules announced by the Finance Ministry |
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Substantive provisions on anti-competitive agreements and abuse of dominant position along with other provisions substantially related to enforcement of the Competition Act, 2002 as amended by the Competition (Amendment) Act, 2007 (“the Act”) came into force on May 20, 2009. Recently, in terms of Government notification dated 4th March 2011, provisions pertaining to regulation of combinations which includes M&As that satisfy the relevant thresholds to be pre-cleared by the Competition Commission of India (“the CCI”), before the transaction can be closed will enter into force with effect from June 01, 2011.
The CCI has recently issued Draft CCI (Procedure in regard to transaction of business relating to combinations) Regulations (“draft regulations”) for the purposes of the Act. The draft regulations are expected to be finalized and notified prior to the regulation of combinations provisions of the Act enter into force (i.e June 01, 2011)
Draft CCI (Procedure in regard to transaction of business relating to combinations) Regulations
The CCI has recently issued Draft CCI (Procedure in regard to transaction of business relating to combinations) Regulations (“draft regulations”) for the purposes of the Act. The draft regulations are expected to be finalized and notified prior to the regulation of combinations provisions of the Act enter into force (i.e June 01, 2011)
Before discussing the draft regulations, it will be useful to note that with reference to international practice, the Act, introduces the concept “combination” to describe the transactions which may be subject to review from competition perspective. In terms of the Act, M&As that satisfy the relevant thresholds are required to be pre-cleared by the CCI before the transaction can be closed. Further, there is a mandatory notification process for persons undertaking combinations and a waiting period of 210 days within which the CCI is required to pass its order with respect to the notice receive, failing which, the proposed combination is deemed to be approved.
What the draft procedural regulations offer
It may be noted that the draft regulations not only clarify number of procedural issues but also include a list of supporting documents which needs to be furnished along with the notice to be filed as per the provisions of the Act. Further, in terms of the draft regulations, provisions of these regulations shall have effect in all matters relating to combinations notwithstanding anything inconsistent therewith contained in any other regulations framed under the Act.
The draft regulations issued by the CCI takes a similar approach to guidelines on merger procedures by other established competition authorities, albeit in less detail. Having said that, following points in the draft regulations issued by the CCI, are noteworthy.
(1) Pre-combination consultations
Draft regulations have introduced a procedure whereby any enterprise which proposes to enter into combination may request in writing to the designated authority (officer of the CCI who is authorized by the CCI to function as such, for the said purpose) for an informal and verbal consultation about filing the notice. However, the draft regulations expressly provides that any opinion or views expressed during the course of such informal and verbal consultation shall not be binding on the CCI and shall not create any obligation on its part, in any manner whatsoever.
(2) Notification forms
Draft regulations provide that notice under the Act shall be duly filled in (Form I or II, as the case may be), verified and accompanied by evidence of payment of requisite fee by the parties to the combination. In respect of categories of the combinations referred to in Schedule I to draft regulations, the notice, may be filed in Form I as specified in Schedule II of the draft regulations. However, in respect of categories of the combinations other than those referred to in Schedule I to draft regulations, the notice, shall be filed in Form II as specified in Schedule II to draft regulations.
Having said that, it is pertinent to note that, where in the course of inquiry, it is found by the CCI that the notice should have been filed by the parties to the combination in Form II and not in Form I, it shall direct the parties to the combination to file notice in Form II.
Apart from aforesaid, it may be noted that the details of acquisition by a public financial institution, foreign institutional investor, bank or venture capital fund, referred to in sub-section(5) of section 6 of the Act, shall be filed without any fee in Form III, as specified in Schedule II to draft regulations.
(3) Filing fees
The draft regulations provides that the amount of fee payable along with the notice in Form I or Form II, as may be applicable, shall be as under:-
(a) in case of merger or amalgamation or acquiring of control over an enterprise- (fees payable is Rs 40 lakhs);
(b) in case of acquisition of shares, voting rights or assets of the enterprise, the fee shall be as given depending upon the value of acquisition. In other words, where, the value of acquisition is-Less than five hundred crores (fees payable is Rs 10 lakhs); Rupees five hundred crores to less than an rupees one thousand crores-(fees payable is Rs 20 lakhs); Rupees one thousand crores and above- (fees payable is Rs 40 lakhs)
(4) Review time table
In terms of draft regulations, the review period starts on receipt of a valid notice which is clear from defects. The draft regulations require the CCI to form its prima facie opinion on the notice filed in Form I or Form II, as the case may be, as to whether the combination is likely to cause or has caused an appreciable adverse effect on competition within the relevant market in India, within thirty days of the receipt of the said notice. In this regard, it is important to note that for the purpose of forming its prima facie opinion, the CCI may, if considered necessary, require the parties to the combination to file additional information, as deemed fit by it. However, in such cases the time taken by the parties to the combination, in furnishing the additional information shall be excluded from the period of thirty days as referred above and the time (210 days) as provided under sub-section (11) of section 31 of the Act. Apart from aforesaid, where the CCI deems it necessary, it may call for information from any enterprise while inquiring as to whether a combination has caused or is likely to cause an appreciable adverse effect on competition in India.
Conclusion
In the aforesaid context, it is pertinent to note that the Industry needs to actively consider the impact of the Act particularly in view of the fact that the provisions of the Act are applicable, irrespective of the sector, in which the businesses operate in India.In cases of M&A deals, industrial players need to assess the deal from the competition angle at the earliest opportunity in the deal negotiation process.
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VINAY KUMAR SANDUJA is a B.Com, LL.B, LLM, PG Dip. in Economics for Competition Law (King’s College, London) and is presently a senior associate at Dua Associates a law firm. The views are personal.
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