Evaluating the significance of key recent developments

The Competition Commission of India (CCI) on 28 March amended the regulations governing mergers and acquisitions, pursuant to its subordinate legislative powers. The key modifications are evaluated below.

Substance test: A new sub-regulation has been introduced, the essence of which is that the CCI will scrutinize the substance of a transaction, irrespective of the structure adopted, to determine if there is an appreciable adverse effect on competition. The move is seen as a tightening of the CCI’s grip. As to whether deal-making has become more difficult, the objective of the Competition Act has always been clear. As stated in the preamble, the act was introduced to establish a commission to prevent practices which have adverse effect on competition, promote and sustain competition in markets, protect the interests of consumers, and ensure freedom of trade.

Any perception that a “fancy structure” could bypass this prerogative of the CCI was just wishful thinking. The test has always been substance over form. This new sub-regulation is essentially just a reminder to the business community to be mindful of the impact on competition in its deal making.

[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”2″ ]

Who can appeal against an order of the CCI: Section 53-B of the Competition Act states that any person aggrieved (not necessarily a party to the proceeding) can be an appellant. Regulation 29, which limited the basket of possible appellants of a CCI order to the government, local authorities, enterprises, or “parties to a proceeding” who are aggrieved by the order passed, has been deleted. As only section 53-B now deals with the right to appeal, the confusion as to who can appeal seems to have been cleared and the basket is fairly wide.

One day prior to notification of the amendments, the Competition Appellate Tribunal (COMPAT) dismissed an appeal against the CCI order approving the Jet-Etihad tie-up, on grounds that the appellant had no locus standi(right to be heard). The effect of this decision is to reinforce that appellants will have to successfully demonstrate their right to be heard. This ought to deter frivolous appeals and give more sanctity to deals once approved by the CCI.

Deletion of entry 10 in schedule I: This entry, read with regulation 4, provided that a combination which took place entirely outside India, with insignificant local nexus and effect in India, is ordinarily not likely to have an appreciable adverse effect on competition in India, and therefore notification to the CCI need not normally be filed. On the face of it, the deletion of this entry appears significant as this relaxation has been removed. However, it is difficult to say how many parties actually relied on this and what kind of deals would have come within this umbrella. In any event, the exemption for deals involving an India entity with assets of less than ₹2.5 billion (US$41 million) or revenue of less than ₹7.5 billion continues to be available, and parties to a deal entirely offshore can rely on this, less esoteric, test.

Changes to form I: The less detailed notification of a proposed deal previously required information on post-deal overlaps. Now, information on existing vertical and horizontal overlaps must be provided as well. That’s how it ought to have been in the first place, since the levels at which the parties are already competing is an important factor.

The amended form also requires information on whether the combination is subject to antitrust notification in other jurisdictions, along with copies of orders passed in such jurisdictions. This could reflect cognizance of globalization and that impact on competition in offshore markets could have consequences on competition in the relevant market in India. However, one might argue that such information could influence decisions of the CCI.

Procedure before the CCI

In another significant development, not pursuant to the amendments introduced, the COMPAT recently overturned the CCI’s decision in Schott Glass India v the CCI, and held that Schott had not abused its dominance. Expressing its displeasure at the CCI’s refusal to permit cross-examination, during the investigation conducted by the Director General (DG), of the expert witnesses (whose testimony was relied on by CCI), the COMPAT held that “it was improper on the part of CCI to straight way accept the statements on oath by the other Converters who appeared to be enemically disposed towards Schott India”.

The COMPAT suggested that the CCI ought to afford an opportunity to opposite parties to cross-examine witnesses who have been relied on by the DG, during proceedings before the CCI. If this practice becomes standard, it may lead to delays in disposal of cases before the CCI. However, it may serve to avoid the orders being questioned on procedural grounds.

[/ihc-hide-content]

Amit Tambe is a partner at Trilegal and Kunal Chandra is a counsel. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.