Anti-trust watchdog Competition Commission of India (CCI) has notified regulations for mergers and acquisitions making it mandatory for corporates to take its approval for all their big ticket deals.
The regulations which will come into force from June 1, 2011 will require companies with a turnover of over Rs 1,500 crore to seek CCI’s approval if they want to merge with another firm. Only those deals with combined assets of Rs 1000 crore or more or combined turnover of Rs 3000 crore or more will come under commission’s scrutiny. At the same time, if the target company’s net assets exceeds Rs 250 crore, or it has a turnover of Rs 700 crore, CCI’s approval will be required.
CCI chairman Dhanendra Kumar after notifying the Combination Provision under sections 5 and 6 of the Competition Act told reporters, “The notification will provide legal certainty and clarity to corporate entities regarding mergers and acquisitions. According to him, the move is intended to ensure that that all the legitimate concerns of industry are taken on board so that the growth of Indian industry and Indian economy is not anyway retarded. "The objective of CCI is to safeguard the interest of consumer and ensure freedom of trade”, he added.
CCI will take a view on the proposed deal within 180 days of the filing of notice by the companies. It can approve the merger proposal, reject it or modify it. In the case of inter connected transactions, relaxation will be given to avoid multiple filing. There filing fee has been sliced significantly from Rs 40 lakhs to Rs 50,000, a move corporate India has welcomed overwhelmingly.
Kumar said, “India is on a fast trajectory of economic growth. We were very keen that it should not be in anyway impacted. After an exhaustive consultative process, we have come out with these regulations which have a number of features which were not there before in the draft.”
The new provisions make it clear that certain categories of business transactions such as acquisition of stock in trade, assets or investment in ordinary course of business, bonus issue, stock split, would be exempted from seeking CCI clearance.Apart from it, mergers happening entirely outside India with unappreciable local nexus and effect on markets in India would not need to file any notification.
CCI chairman underlined that elaborate arrangements are being made for ensuring tough confidentiality standards with both physical and electronic security measures.Kumar made it clear that the new regulations will not require deals entered into prior to June1, 2011 to take CCI nod.
Industry chambers have welcomed the move citing the new regulations as a big relief to corporate as it will bring in better certainty in the market. They, however expressed that the new regulations remained wanting on a thing or two. Ficci said, “The regulations still do not talk about pre merger consultation which is a global good practice. But we are sure that given the flexibility with which CCI has worked with Industry, the regulator at some stage would find value in including this world wide practice.”
CII noted “We are concerned about the fact that transactions which were not intended to be covered by the Act e.g. transactions where control is not being acquired remain subject to the notification requirement. Also, transactions which qualify for the short form filing do not benefit from a shorter review process.” It suggested that CCI could have provided a quick clearance commitment in relations to these types of transactions, as otherwise there is a risk that the review process could take up to 210 days. CII had also expected that there would be a ‘deemed approval’ provision if the CCI does not form its prima facie opinion in 30 days or fails to communicate such decisions to the parties.
