Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) came into force in India on 1st day of June, 2011. The Combinations Regulations were framed by Competition Commission of India (CCI), a statutory body established by the Government of India to keep a check on practices which have an adverse effect on the competitive market in India and to protect the interest of consumers and other market players in India. Combinations Regulations were framed pursuant to Section 6 Regulation of combinations of the Competition Act, 2002 in order lay down the procedural aspect with regards to reporting of Combination to the CCI and the manner in which Combinations will be governed by the CCI.

Section 5 of the Competition Act, 2002 defines Combination as acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises. However all Amalgamations and Mergers are not covered in the definition of Section 5 under the Competition Act, 2002, only those Acquisitions and Mergers which cross the Specified Assets and Turnover Criteria are covered under Competition Act, 2002.

As per Section 6 of the Competition Act, 2002 any person or enterprise, who or which proposes to enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India have to report the same to CCI and have to take its prior approval before entering into merger or amalgamation or for execution of any agreement or other document for acquisition or acquiring of control as defined in clause a, b and c of Section 5 of the Competition Act, 2002. However, keeping in mind that all acts of acquisitions cannot be said to have an adverse effect on competition within the relevant market in India certain acts of Combinations are normally exempted from the reporting requirement by regulation 4 of the Combination Regulations.

Categories of Combinations which are exempted from Reporting

The categories of combinations which are not likely to cause an appreciable adverse effect on competition in India are detailed in Schedule I of the Combination Regulations. The Categories are as follows:

  • An acquisition of shares or voting rights, referred to in sub-clause (i) or sub-clause (ii) of clause (a) of section 5 of the Competition Act, 2002, in another enterprise solely as an investment or in the ordinary course of business in such a manner that the investment doesn’t gives the acquirer more then (25%) twenty five per cent of total shares or voting rights of the another enterprise and such an acquisition should not lead to control of the enterprise whose shares or voting rights are being acquired.
  • An acquisition of shares or voting rights, referred to in sub-clause (i) or sub-clause (ii) of clause (a) of section 5 of the Competition Act, 2002, where the acquirer, prior to acquisition, has fifty percent (50%) or more shares or voting rights in the enterprise whose shares or voting rights are being acquired, except in the cases where the transaction results in transfer from joint control to sole control.
  • An acquisition of assets, referred to in sub- clause (i) or sub-clause (ii) of clause (a) of section 5 of the Competition Act, 2002, not directly related to the business activity of the party acquiring the asset or made solely as an investment or in the ordinary course of business, not leading to control of the enterprise whose assets are being acquired except where the assets being acquired represent substantial business operations in a particular location or for a particular product or service of the enterprise, of which assets are being acquired, irrespective of whether such assets are organized as a separate legal entity or not.
  • An amended or renewed tender offer where a notice to the Commission has been filed by the party making the offer, prior to such amendment or renewal of the offer provided that the compliance with regulation 16 relating to intimation of any change is duly made.
  • An acquisition of stock –in-trade, raw materials, stores and spares in the ordinary course of business.
  • An acquisition of shares or voting rights pursuant to a bonus issue or stock splits or consolidation of face value of shares or buy back of shares or subscription to rights issue of shares, not leading to acquisition of control.
  • Any acquisition of shares or voting rights by a person acting as a securities underwriter or a registered stock broker of a stock exchange on behalf of its clients, in the ordinary course of its business and in the process of underwriting or stock broking, as the case may be.
  • An acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same group ;
  • A merger or amalgamation involving a holding company and its subsidiary wholly owned by enterprises belonging to the same group and/or mergers or amalgamations involving subsidiaries wholly owned by enterprises belonging to the same group.
  • An acquisition of current assets in the ordinary course of business
  • A combination referred to in section 5 of the Act taking place entirely outside India with insignificant local nexus and effect on markets in India.

In order exempt further categories of Combinations from reporting requirement and approval from the Competition Commission of India, the Competition Commission of India vide Notification dated 4th April, 2013 released The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2013 (No. 1 of 2013) to amend the Combinations Regulations, 2011.

The Amendments made in the Combination Regulations are as follows

  • A new Category have been added whereby any Company which is owning more then (25%) but less then (50%) of shares or voting rights in another enterprise of the enterprise can acquire, by itself or through its group, five per cent (5%) of the shares or voting rights of such enterprise in a financial year without giving any notice to CCI. However such acquisition shall not result in gross acquisition of more then five per cent in a financial year and the percentage of ownership should not cross more then 50%. At present, any acquisition which will increase the percentage or voting right above the limit of  25%) requires notice to be given to the CCI
  • Two earlier Categories with regards to acquisition of stock –in-trade, raw materials, stores and spares in the ordinary course of business and acquisition of Current Assets in the ordinary course of business have been merged.
  • An exception of “enterprise jointly controlled by enterprises that are not part of the same group” has been added in the earlier category of “acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same group”.
  • Existing Category of “merger or amalgamation involving a holding company and its subsidiary wholly owned by enterprises belonging to the same group and/or mergers or amalgamations involving subsidiaries wholly owned by enterprises belonging to the same group.” has been omitted and a new category has been added which can be read as follows:

A merger or amalgamation of two enterprises where one of the enterprises has more than fifty per cent (50%) shares or voting rights of the other enterprise, and/or merger or amalgamation of enterprises in which more than fifty per cent (50%) shares or voting rights in each of such enterprises are held by enterprise(s) within the same group:

The Amendment will into force from the date of their publication in the Official Gazette

Conclusion

The Mergers and Acquisitions will be fast tracked once the Amendments in the Combination Regulations come into effect. The Amendments will provide relief to the Corporate Sector especially in those cases of Mergers and Acquisitions where one of the enterprises holds more then 50 % stake in another enterprise. Also the exemption from reporting requirement, for acquiring a stake of less then 5% in a financial year in another enterprise will reduce the compliance burden on the Companies. Such a move by the Competition Commission of India is a welcome step keeping in view the present business scenario.