The Competition Commission of India (Commission) has published the amendments to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations), which became effective on 1 July 2015.

Some of the most important changes are:

Trigger to filing

Background to the amendment: The Commission’s Order in the TESCO/Trent case (May 2014) changed the trigger event for filing the notice from the date of signing of the binding agreement to the intimation of the intention to acquire made to the Central Government, in this case, to the Foreign Investment Promotion Board (FIPB). TESCO was penalised for making a late filing with the Commission although the acquisition was approved. This Order had surprised most practitioners, but the Combination Regulations in force at the time stated that where there was an “other document” in addition to or in the absence of the binding agreement, this “other document” would be the trigger to the thirty day period within which the parties were required to notify the Commission even if the parties intended executing the binding agreement at a later date. The immediate fallout of this Order was that parties made filings after executing these “other documents”. However, the Commission still waited for the parties to submit their binding executed agreements even after notification in spite of the Commission’s observation in the TESCO/Trent case that the information provided in the application to the FIPB was, in fact, sufficient to trigger a notification to the Commission.[1]

Amendment: The new second proviso to Regulation 5(8) of the Combination Regulations requires that the communication of the intention to acquire to a Statutory Authority will now be the trigger event for making a filing. The reference to the “Central Government or State Government” has been omitted from the Combination Regulations.

Implication: First, the FIPB is not a Statutory Authority but an agency or a department of the Central Government. Therefore, an application to the FIPB will now not trigger a filing with the Commission. Second, the communication of the intention to acquire – even without having executed the binding agreement – to authorities such as the Securities and Exchange Board of India (SEBI), which is a Statutory Authority, will trigger the 30 day period for notification to the Commission. The same is true for similar communications with the Reserve Bank of India (RBI), which is India’s central bank. There may be other statutory authorities, such as the Insurance Regulatory and Development Authority (IRDA), which receive what may be called a communication of the intention to acquire, and parties will have to be alert to the possibility of these communications triggering a filing. The proposed (as opposed to the final) amendments had listed only a public announcement in terms of the SEBI takeover regulations as a trigger for filing. Had the Commission proceeded with the amendments that had been proposed, stakeholders would have transacted with the clarity that the binding agreement and, in its absence, the public announcement for certain acquisitions of listed companies would be the only triggers that they would keep in mind.

Invalidation of notice

Background to the amendment: The Commission has always been empowered (a) to ask parties to correct purported defects in the notices that were filed with it and, upon the failure of parties to so do, to invalidate the notice for the combination filed with them; and (b) to invalidate a notice (under Regulation 16 of the Combination Regulations) in the event that the parties notified the Commission of a change after having filed the notice and, if the change was so significant as to change the Commission’s assessment of the effects of the proposed transaction. As per the prior Regulation 16 provisions, parties were allowed a hearing prior to the Commission making the decision to invalidate the notice.

Regulation 14 of the Combination Regulation first required that a complete notice be filed by the parties. It also provided that where the notice was incomplete, the Commission would direct the parties to complete the notice. Further, the Commission also had the power to ask parties to remove those defects that it found in any of the subsequent responses to requests for information that the parties had made. If the parties failed to remove these defects, the Commission had the authority to invalidate the notice.

Amendment: The Commission has now granted itself the additional power to invalidate the notice, when it comes to its knowledge that such a notice was not valid (in that it was not “complete and in conformity with the Combination Regulations”). Regulation 14 remains silent with respect to whether or not the parties would be asked to repay the filing fees.

Implications: The Commission has granted itself absolute power and discretion to invalidate a notice without the need for (a) allowing parties to correct or amend the defects or address the clarifications that the Commission would seek; or (b) allowing the parties a right to be heard before this unfettered discretionary power is exercised by the Commission. The invalidation under the regulations is not an appealable order and the parties would be obliged to seek recourse before the courts (which is not a practical solution in case of most M&A transactions). There is no materiality threshold, which would have tempered the extensive discretion attached to this action. The Commission has not prescribed any time limit for exercising this power, which again was a suggestion that was made in response to the Commission’s invitation for comments on the proposed amendments.

The “Introductory Notes to Forms” (Notes) published by the Commission purport to provide certain guidelines on how this discretion is likely to be exercised by the Commission. The Notes state that the Commission may either give parties the opportunity to urgently furnish the requisite missing information, or invalidate the notice “in cases where it is apparent that the omission would hinder the proper inquiry of the proposed combination”. Even these Notes do not provide any certainty on how the Commission is likely to exercise its discretion since the guidelines themselves defer to the judgment and discretion of the Commission.

Given the legal challenges that the Commission is facing for many of the due process violations in its enforcement actions, one would have thought that it would pay heed to the comments that it had received for this particular proposed amendment.

Further, one could argue that the new Regulation 14(2A) does not adhere to the clear principle enunciated in Section 36(1) of the Competition Act, 2002 (Competition Act), which confers the power on the Commission to regulate its own procedure, and states that,

“In the discharge of its functions, the Commission shall be guided by the principles of natural justice....”

Consequences of failure to file

Background to the amendment: In situations where parties had failed to notify the Commission of a combination and the Commission initiated an inquiry into such a combination, the Commission was obliged to direct that the parties filed the more complex Form II, in addition to penalties or any prosecution that was initiated for violation of the Competition Act.

Amendment: The Commission now has the discretion to require the filing to be made in either Form I or Form II.

Implication: This amendment would allow the Commission to assess a situation where a notice has not been filed, on its merits, rather than mandatorily requiring a Form II filing. This is a very positive development.

Authority for filing the notice with the Commission and other filing procedures

Background to the amendment: Previously, a notice could be filed with the Commission only by the managing director, a director authorised by the entire board of directors or a company secretary authorised by the entire board of directors. A summary of the combination also had to be submitted at the time of filing the notice. However, this summary was only for the consumption of the Commission and was not made public. The first instance when the Commission publicly communicated regarding a particular case was at the time of publishing the order approving the transaction in Phase 1 or inviting comments from the public in Phase 2.

Amendment: The amendments allow any person authorised by the board of directors to file the notice with the Commission and also reduce the number of physical copies required to be filed with the Commission.

Further, the notifying parties are now required to submit a summary, in less than 500 words, of the main details of the proposed transaction such as names of the parties, nature of the transaction, the area of activity of the parties, and the relevant market(s) to which the transaction relates. This summary will be published on the Commission’s website.

Implication: By allowing greater flexibility with respect to the authority for filing the notice and reducing the number of copies required, the Commission has eased the logistical processes to be completed by parties prior to filing the notice of proposed transaction.

Further, with the summary of the transaction being made public at the time of filing of the notice, the Commission is also allowing stakeholders to approach or present their views to the Commission during the Phase 1 assessment. Accordingly, notifying parties need to carefully assess the possibility of objections being lodged with the Commission in Phase 1 as part of their overall merger control strategy.

Time limit for the Commission’s Phase 1/prima facie opinion

Background to the amendment: The Commission was earlier required to form a prima facie opinion on whether a proposed transaction was likely to cause “appreciable adverse effect on competition” (AAEC) within 30 calendar days. In case the Commission called for information from third parties with regard to the likelihood of “appreciable adverse effect” arising from a proposed transaction, the time taken for obtaining this information was not excluded from this time limit, but the Commission regularly used its powers to require the parties to supply additional information / clarifications to stop the clock.

Amendments: The time given to the Commission to form a prima facie opinion has been increased from 30 calendar days to 30 working days. Using a hypothetical, if a notice was filed 1 July 2015, under the prior regulations, the Commission had until 31 July 2015 to make a Phase 1 decision, but now have until 12 August 2015 to make the decision under the amendments. Further, the time taken for obtaining information requested from third parties has been excluded from the time limit, up to a maximum of 15 working days.

Implications: These amendments allow the Commission additional time to form its prima facie opinion on the impact of the proposed transaction on the relevant market(s). While this would definitely increase the timeline for Phase 1 cases, the amendment may reduce the number of cases which could go to Phase 2. The Commission’s actual track record will be closely watched.

However, the provision for excluding the time taken to obtain information from third parties brings about a lack of transparency in the timeline. Will the Commission identify the need to approach third parties early on in the assessment process? Should the parties be intimated when third parties are approached? How does one keep tabs on the ticking of the clock absent continuous communication with respect to the status of the assessment?

The amendments, however, do not affect the maximum time that could be taken by the Commission to pass its final order. The maximum time period within which the Commission is required to pass an order or issue direction under the Competition Act remains 210 calendar days in addition to the two 30 working day periods provided under Sections 31(6) and 31(8).

Exempted transactions under Schedule I

Background to the amendment: In certain situations, the Commission may order that businesses / assets be divested by one or more parties before a transaction is consummated. In the two cases where divestments have been proposed by the Commission, the orders specifically mention the requirements which need to be fulfilled by the purchasers. Further, the Commission retains the right to approve the person who is allowed to purchase such divested assets. An acquisition pursuant to an order of the Commission – approving the purchaser(s) for the divestment assets - was notified to the Commission and approved in a separate order in the Sun/Ranbaxy case (March 2015). Besides, the Commission is deeply involved and engages in the identification of prospective buyers through its monitoring agency.

Amendment: The amendment includes acquisitions of shares, control, voting rights, or assets by a purchaser approved by an order of the Commission in Schedule I of the Combination Regulations and thus, exempts such acquisitions from the need of notifying in the appropriate Form and obtaining the approval of the Commission.

Implication: This addition to the Schedule I of the Combination Regulations brings clarity to situations where divestment of certain businesses / assets is required pursuant to an order of the Commission. The assessment of whether the acquisition of the divestment businesses / assets by a purchaser would cause an AAEC could be completed by the Commission on the basis of the proposal that the parties must in any case submit to the Commission. This benefits acquirers of divestment assets by decreasing transactional costs and expedites the approval process.

Termination of proceedings

Background to the amendment: Earlier, the Combination Regulations did not clearly provide for the exact event of termination of the proceedings before the Commission in cases where the approval of the Commission was conditional upon the parties to the combination carrying out modifications prescribed by the Commission.

Amendment: The amended Combination Regulations provide that in cases where the approval of the Commission is conditional upon the parties carrying out the modifications prescribed by the Commission, the proceedings before the Commission terminate only upon the acceptance of the final compliance report by the Commission.

Implication: This amendment makes things very clear for all concerned.

Amendments to Form I

Background to the amendment: Prior to the amendment, the Form I required to be filed with the Commission was a relatively short form requiring basic information regarding the proposed transaction. After the Form I filing, it was common for the Commission to request additional details from the parties, as it deemed fit, on the facts of the case.

Amendment: The amended Form I (along with the guidance notes that the Commission has published) is far more detailed.

Implication: The new Form I, being extremely comprehensive, would burden the parties to collate all the information at the time of filing the Form I itself as the time period for filing the notice would still be 30 calendar days from the trigger event. This, coupled with the possibility of invalidation, does not ease things for notifying parties. However, the Form and clarity from the notes are very helpful and assist parties in anticipating the requirements of the Commission. Perhaps, going forward, there will be fewer follow-up requests for information.