India has joined the club of countries that control corporate mergers and acquisitions (M&As). The Competition Commission of India (CCI) has notified the long-awaited regulations on big-ticket M&As.
The new norms, drafted with the objective of curbing anti-competitive practices, will come into effect from June 1.
However, M&As that commenced before June 1 with definitive action have been kept outside the competition watchdog's purview.
It is not clear if big-ticket deals such as the proposed Cairn-Vedanta one will now fall under the purview of the CCI. Though the companies have got the approval from their boards and the process of acquisition is well underway, the deal is yet to be sealed.
The notified Sections 5 and 6 of the Competition Act will enable the CCI probe any combination that is likely to have an appreciable adverse effect on competition in the relevant market, said Mr Dhanendra Kumar, Chairman, CCI. But CCI will have to take decisions within 180 calendar days of the proposal.
A combination taking place outside India with insignificant local nexus and effect on markets in India will not come under the purview of CCI. For instance, if Coca-Cola acquires a bottling plant in Bolivia, then it need not notify the CCI. But in the case of two competitive Intellectual Property Rights (IPRs) holders merging abroad, the CCI may come into the picture.
“In the pharmaceutical industry, for example, the aspirin IPR is held by two. If they merge abroad, it would have an impact on the Indian market and that would amount to a local nexus,” said a CCI official.
Transactions such as acquisition of shares up to 15 per cent solely as investment, voting rights or stock splits, bonus issues, stock-in- trade, raw material, stores and spares, have been exempted from the ambit of these sections.
In interconnected transactions, a single notice covering all the small transactions may be filed by the parties.
Fee, a source of revenue
The fee for filing notification, a source of revenue for the CCI, has been drastically reduced from the proposed Rs 40 lakh to Rs 50,000 for Form 1 (simple) and Rs 10 lakh for Form 2 (detailed).
Further, CCI officials would be available to the industry for informal discussions and guidance.
Industry bodies such as FICCI and CII have welcomed this move. Ms Pallavi S. Shroff, Senior Partner and Head of the Competition/Antitrust Practice at Amarchand Mangaldas, said, “The regulations are a step in the right direction. Industry may still have some concerns over the powers of the Commission to review acquisitions where control is not being acquired and the notifying party or transaction is subject to a possible 210-day review.”
“The regulations have clarified that pipeline mergers need not be notified (to CCI). This is a welcome step,” says Mr Samir Gandhi, partner at Economic Laws Practice.
Though the sections exempt some combinations that happen outside India, Mr Gandhi feels that the “CCI has not defined what it means by the term ‘insignificant local nexus', so we need clarity on, or a definition to, that.”