Final merger regulations


On March 1 2011 four notifications were issued by the government of India under the Competition Act 2002. On the same day, the draft merger regulations were issued by the Competition Commission (for further details please see "Government issues new merger control provisions"). These collectively initiated the process of enforcement of merger control in India.

Momentous efforts were subsequently undertaken by both the Ministry of Corporate Affairs and the Competition Commission to address the concerns of national and international experts regarding the draft merger regulations. Competition law practitioners were also involved in this consultative process, including the Law Firms Working Group, comprising those of India's leading law firms that have a dedicated competition law practice, constituted impromptu at the commission on April 8 2011 to suggest "clause by clause" amendments in the draft merger regulations. The group submitted its final drafts on April 13 2011.

As a part of this consultative process, re-initiated by the commission thereafter, public meetings and seminars were organised with industry chambers in all regions of India. A good precedent in the development of competition legislation has been established in India, which needs to be commended.

Final merger regulations

Accordingly, on May 11 2011 the commission published its final merger regulations, entitled "Competition Commission of India (Procedure in regard to the transaction of business relating to combination) Regulations, 2011". The regulations, available on the commission's website,(1) entered into force on June 1 2011.

Under Section 5 of the act, 'combination' is defined as "acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises".

Some of the key features of the new merger regulations are as follows.

Shorter review period
Under Section 29(1) of the act, the commission must file its prima facie opinion as to whether the combination is likely to cause an appreciable adverse effect on competition within the relevant market in India, within 30 days of receipt of the notice of the proposed combination (in Form I or Form II). The total period for review remains at 210 days.

The commission may call for additional information or accept modification, if offered by the parties before formation of the commission's opinion, within the 30-day period. Under Regulation 19, the time taken by the parties for furnishing additional information or for offering modification shall be excluded from the period of 180 days stated below; similarly, the additional time needed by the commission for evaluation of the offered modification, not exceeding 15 days, will be excluded from the period of 180 days.

Additionally, under Regulation 28(6), the commission will endeavour to pass the final order within 180 days of filing of the notice under Section 6(2) of the act:

  • approving the combination;
  • rejecting the combination; or
  • approving the combination with modifications.

Exemption for certain transactions from filing of notice requirement
Schedule I of the new merger regulations specifies a list of transactions that are ordinarily unlikely to have an appreciable adverse effect on competition in India. It further declares, in Regulation 4, that notice under Section 6(2) of the act need not normally be filed for such transactions. Schedule I includes:

  • acquisition of shares or voting rights:
    • solely as an investment or in the ordinary course of business, not exceeding 15% of the total shares or voting rights of a company;
    • where the acquirer already has 50% or more shares or voting rights in the enterprise, except where the transaction results in transfer from joint control to sole control;
    • pursuant to a bonus issue, stock splits or consolidation of the face value of shares or subscription to a rights issue, not leading to acquisition of control;
    • by a person acting as a securities underwriter or a registered stockbroker of a stock exchange on behalf of its clients, in the ordinary course of business; or
    • by one person or enterprise of another person or enterprise within the same group;
  • acquisition of assets:
    • not directly related to a business activity of the acquiring party or made solely as an investment or in the ordinary course of business, not leading to control of the enterprise;
    • by one person or enterprise of another person or enterprise within the same group; or
    • 'current assets' in the ordinary course of business;
  • acquisition of stock-in-trade, raw materials, stores and spares in the ordinary course of business; or
  • a combination taking place entirely outside India with insignificant local nexus and effects on markets in India.

Notice forms
The merger regulations provide for three forms for the notice to be filed for obtaining approval wherever required. Under Regulation 5(3), the parties may file the details of the proposed combination, depending upon the category to which the proposed transaction belongs, in:

  • Form I, which is a short form applicable for certain specified categories of transaction mentioned in Regulations 5(2)(a) to (e); or
  • Form II, which is a long form applicable to categories other than those mentioned for Form I above, including:
    • horizontal combinations (where parties are engaged in production, supply, distribution, storage, sale or trade of similar or identical or substitutable goods or provision of a similar, identical or substitutable service) and the combined market share of the parties is less than 15% in the relevant market; and
    • vertical combinations (where parties are engaged at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or trade in goods or provisions of services) and their individual or combined market share is less than 25% in the relevant market.

Form III (as stated in Regulation 6) is for use by public financial institutions, foreign institutional investors, banks or venture capital funds, in respect of share subscription, financial facility or any acquisition made by them pursuant to any covenant of a loan agreement or investment agreement, under Section 6(5) of the act.

Filing fee
Under Regulation 11, the fee payable alongside the notice in Form I or Form II, has been reduced substantially; the new fees are Rs50,000 for Form I and Rs10 million for Form II. There are no fees for Form III.

Belated notice
Under Regulation 7, where a notice filed in Form I or Form II is received after the 30-day time limit prescribed under Section 6(2) of the act, the commission may admit such notice without prejudice to its power to impose penalty for non-furnishing of such notice under Section 43A of the act.

Transactions taking effect before June 1 2011 need not be notified
The commission has now removed the ambiguity previously present by declaring that only such combinations that 'take effect' on or after June 1 2011 need to be notified to the commission. Accordingly, under Regulation 31, the notice under Section 6(2) of the act would be applicable as follows:

  • for acquisitions referred to in Section 5(a) of the act or acquiring of control referred to in Section 5(b) of the act, where the binding document is executed on or after June 1 2011; and
  • for mergers or amalgamations referred to in Section 5(c) of the act, notice to be filed only in regard to proposals approved by the Board of Directors on or after June 1 2011.

Obligation to file the notice
The merger regulations impose the obligation to notify on the acquirer, including in cases of hostile acquisitions where the acquirer is not in a position to notify, the party being acquired may be asked to notify. In cases of mergers or amalgamations, parties must file the notice jointly, in either Form I or Form II, as the case may be.

Under Regulation 9, in cases where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions that are interconnected or interdependent on each other, which may amount to a combination, a single notice covering all these transactions may be filed by the parties to the combinations.

Request for confidentiality
The merger regulations prescribe that any request for confidentiality of the documents submitted during the investigation will be considered with due regard to the procedure laid down in the Competition Commission of India (General) Regulations 2009. Under Regulation 30, the request may, among other things, state the reasons, justification and implications for the business of the parties so that the same may be considered by the commission while taking decision in the matter.

Appointment of independent agencies to oversee modification
The merger regulations provide for the appointment of independent agencies to oversee the carrying of modifications suggested by the commission in cases where the parties have accepted such modifications and, according to the commission, the parties' implementation. The agencies to be appointed must have no conflicts of interest, and may include accountancy firms, management consultancy firms, law firms or other professional organisations or independent practitioners of repute. Under Regulation 27, payment to the appointed agencies must be made by the parties.

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]).