Regulation of combinations
On March 4 2011, through four Official Gazette notifications, the central government brought into force the provisions of the Competition Act 2002 relating to the regulation of combinations (ie, acquisitions, acquiring of control, mergers and amalgamations) (with some modifications).
The first notification issued under Section 1(3) of the act brought Sections 5, 6, 20, 29, 30 and 31 of the act into force with effect from June 1 2011. These sections deal with:
- the definition of 'combinations' (Section 5);
- the regulation of combinations (Section 6);
- the power of the Competition Commission to inquire into combinations (Section 20);
- the procedure for investigations into combinations (Section 29);
- the procedure in case of notice under Section 6(2) of the act (Section 30); and
- orders of the commission in relation to certain combinations (Section 31).
According to the second notification issued under Section 20(3) of the act, the thresholds for a transaction to qualify as a combination under Section 5 of the act have been increased by 50% on the basis of the increase in the wholesale price index.
According to the third notification issued under Section 54(a) of the act, target enterprises with assets valued at no more than Rs2.5 billion or turnover of no more than Rs7.5 billion are exempt from the provisions of Section 5 of the act for five years.
According to the fourth notification issued under Section 54(a) of the act, two or more enterprises that exercise less than 51% of the voting rights in another enterprise are exempt for five years from the definition of 'group' in Explanation (b) of Section 5 of the act.
On March 1 2011 the Competition Commission also published its new draft merger regulations entitled "Competition Commission of India (Procedure in regard to the transaction of business relating to combination) Regulations 201-". The draft regulations are available on the commission's website.(1)
Some of the key features of the new draft regulations are as follows.
The commission has provided for voluntary pre-merger consultations on specific request by the parties. The views expressed by the commission during such consultations will not be binding.
Shorter review period
The commission will form its prima facie opinion within 30 days of receiving notification of the proposed merger clearance. The draft regulations also require the commission to pass a final order within 180 days of filing, as opposed to the previous waiting period of 210 days.
Exemption for certain target enterprises under acquisition
Schedule I of the new draft merger regulations specify a list of transactions. For example, for target enterprises with assets valued at no more than Rs2.5 billion or turnover of no more than Rs7.5 billion, parties can file a short notice through Form I. However, in light of the third notification issued by the central government, acquisitions of target enterprises that fall below these thresholds are now exempt from the mandatory notice filing requirement for five years.
The draft regulations provide for three forms of notice to be filed for obtaining approval wherever required.
Form I, which is the short notice form, covers:
- acquisitions of no more than 15% of the total shares solely for an investment purpose or in the ordinary course of business, which do not lead to control of the enterprise;
- acquisitions where the acquirer is already in control of the enterprise;
- acquisitions of assets where the assets of the parties are not directly related to the business activities of the acquiring party or are made solely as an investment or in the ordinary course of business; and
- acquisitions taking place within a group.
Form II is a longer notice form which is to be filed in case of combinations other than those listed above.
Form III is to be used by public financial institutions, foreign institutional investors, banks and venture capital funds in respect of share subscriptions or financial facilities or an acquisition made pursuant to a covenant of a loan agreement or investment agreement pursuant to Section 6(5) of the act.
The fees payable alongside the notice in Form I or Form II, as applicable, are as follows:
- in case of a merger, amalgamation or acquisition of control over an enterprise, the fee shall be Rs4 million; and
- in case of an acquisition of shares, voting rights or assets of the enterprise, the fee shall be:
- Rs1 million for acquisitions valued at less than Rs5 billion;
- Rs2 million for acquisitions valued at between Rs5 billion and Rs10 billion; and
- Rs4 million for acquisitions valued at more than Rs10 billion.
Only acquirer to notify
The draft merger regulations impose the obligation to notify on the acquirer, but in cases of mergers and amalgamations, all parties must file jointly.
Request for confidentiality
The draft regulations propose that any request for confidentiality of the documents submitted during the investigation shall be duly considered with due regard to the procedure laid down in the Competition Commission of India (General) Regulations 2009.
Appointment of independent agencies to oversee modification
The draft regulations provide for the appointment of independent agencies to oversee the carrying out of modifications suggested by the commission in cases where the parties have accepted such modifications, and according to the commission, the parties' implementation of such modifications requires supervision. The agencies to be appointed shall have no conflicts of interest. They may include accounting firms, management consultancy firms or any other professional organisations or independent practitioners of repute.
For further information on this topic please contact MM Sharma or Vinay Vaish at Vaish Associates by telephone (+91 11 4249 2525), fax (+91 11 2332 0484) or email ([email protected] or [email protected]).