The Competition Commission of India (CCI) notified the CCI Combination Regulations, 2011 (also known as CCI Merger Regulations) on May 11 marking the commencement of a new merger regime in India.
The now-in-force CCI merger regulations exempt mergers approved by the board of directors before June 1, 2011.
The merger regulations require any enterprise proposing to enter into a combination (as per Section 5 of the Competition Act, 2002) to give notice in the form prescribed.
Schedule I of the merger regulations lists out 10 categories of combinations which are ordinarily not likely to cause an appreciable adverse effect on competition in India and in which cases such a notice need not be ordinarily filed, which include:
- Acquisition of shares or voting rights solely as an investment or in the ordinary course of business where total shares or voting rights of acquirer does not exceed 15 percent of the shares or voting rights of the company, as applicable;
- Consolidation of shareholding (except by way of transfers of shares from joint control to sole control) by the acquirer already holding 50 percent shares of a company
- Acquisition of asset (not being a substantial business operation) unrelated to the business of the acquirer
- Combinations taking place entirely outside with insignificant local nexus and effect on markets in India.
The decision therefore would still lie with the enterprise to ascertain whether even the otherwise exempted transaction requires a notice to be given to CCI if indeed the transaction is likely to cause appreciable adverse effect on competition in India.
The merger regulations provide that CCI would endeavour to pass a final order within 180 days. Adding the time required for the merger proceedings under the Companies Act, 1956 and notices to be given to stock exchanges in case of listed companies, the time period for giving effect to a merger proposal may stand at anything above 12-18 months.
In a fast-changing market, industry or sector scenario, this may be a challenge to overcome in times to come. To complicate things further, the merger regulations currently do not provide enabling right to an acquirer for withdrawal of notice in case of change in the market, industry or sector scenario.
Acquisition of shares of a listed company not falling in the exempt list also requires notice to CCI by the acquirer. While the takeover code already provides the procedure for open offer, a simultaneous notice to CCI leaves the timelines and process under the takeover code questionable.
The way forward:
- India's merger regime should be in step with similar regimes set up by other countries to avoid risking negative effect on investment flows and be in harmony with international merger regime standards (i.e. OECD standards etc.) to enable both inbound and outbound investments.
- We would also need to work more on not letting the CCI review time derail the commercial objectives behind the merger agreements/deals.
- The merger regulations would also need to be further synchronised with other applicable laws on M&A in India including the Companies Act, 1956, the SEBI guidelines and listing agreement and the takeover code.
- Ensuring confidentiality of business/price sensitive information including by carving out an exception to RTI would be critical.
- Provide more emphasis on competition advocacy and voluntary advance ruling mechanism to provide for compliance friendly environment. The present merger regulations leave the affected enterprises at sea particularly without any precedents and CCI stopping short of going the last mile with the competition advocacy set out under the Competition Act.
