Controlling mergers and acquisitions

The long awaited merger regime under the Competition Act, 2002 came into effect from 1 June. With it, the act has been enforced in its entirety and the Competition Commission of India (CCI) is fully empowered to investigate anti-competitive agreements, abuse of dominant positions and mergers and acquisitions (M&A) having an appreciable adverse effect on competition in India.

Relevant notifications

On 4 March the central government issued four notifications. While one notified the coming into force of the provisions relating to M&As, another enhanced the assets and turnover based thresholds of the enterprises by 50%. M&As meeting the thresholds prescribed under the act will be combinations within the meaning of the act. Merging entities meeting the threshold will be required to notify the combination to the CCI. At the same time through a third notification, the government exempted a “group” exercising less than 50% of voting rights in other enterprise from section 5 of the act.

By a fourth notification, the government exempted transactions in which the target has assets of not more than ₹2,500 million or a turnover of not more than ₹7,500 million from notifying the combination to the CCI. While the notification clarified that this exemption is available only for five years, it was silent as to whether the thresholds were assets or turnover in India or worldwide. A corrigendum issued on 27 May clarified it was the former.

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The enhancement of the thresholds by 50% and fixing of India-specific threshold for targets will mean that only large transactions with a significant India presence will require filings before the CCI.

Notice to CCI

On 11 May the CCI published the Competition Commission of India (Procedure in regard to the transaction of business relating to combination) Regulations. Pre-merger consultations provided for in the draft regulations were dropped and enterprises were given the option of notifying the CCI in either a short or long form.

Form I is the shorter form. The fee for filing form I is ₹50,000 (US$1,111). Form II, which is a longer form, requires the acquirer to provide more details relating to the merger. The fee for filing form II is ₹1 million (US$22,222).

Where form I is used and the CCI needs more details to arrive at a prima facie opinion on the merger, it may ask the party to file form II. In such cases, the fee paid while filing the form I will be adjusted to the fee for filing the form II. The regulations also provide for filing of a single notice for inter-connected or inter-dependent transactions.

Acquisitions by public financial institutions, foreign institutional investors, banks or venture capital funds pursuant to a loan or investment agreement are to be notified in form III, post acquisition.

The regulations clarify that while it is the acquirer who must notify the CCI in cases of acquisition or acquiring of control over an enterprise, all parties to the combination are liable to do so in case of a merger or an amalgamation.

Exempted transactions

The regulations exempt certain combinations from the mandatory filing requirement of the act. Under regulation 4, certain categories of transactions will not ordinarily have an appreciable adverse effect on competition and so are not normally required to be notified. The words “ordinarily” and “normally” used in regulation 4 suggest that parties may use their discretion to notify the CCI. However, if parties do not notify and the CCI initiates an investigation and finds that the combination has had an appreciable adverse effect on competition, it may impose a penalty of up to 1% of the turnover or assets of the combination.

Waiting periods

Although the act allows 210 days for passing appropriate orders or for issuing directions, the regulations provide that the CCI shall endeavour to pass an order or issue directions with respect to a combination within 180 days of filing of the notice. The regulations also require the CCI to form a prima facie view with regard to a M&A within 30 days of receiving notice.

The CCI will need to be notified of the transactions, which meet the thresholds, within 30 days of the signing of any binding document conveying an agreement or a decision or an intention to acquire control, shares, voting rights or assets. Combinations having or likely to have an appreciable adverse effect on competition in India will be void. Therefore, while structuring a deal it will be important to consider its appreciable adverse effect on competition.

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Suchitra Chitale, the managing partner of Chitale & Chitale Partners, heads the competition team of the firm, which advices and acts on the behalf of clients in Indian competition law matters. She has been in practice for more than 24 years.