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Zerick Hosi Dastur of J. Sagar Associates discusses the new merger regulations under the Competition Act, introduced by the Competition Commission of India. Now, transactions which cross the prescribed thresholds of assets and turnover will require prior approval of the Commission.
The merger regulations under the Competition Act of 2002 will finally come into effect from June 1, 2011. This was done after a long wait and amidst opposition from various factions of the industry. Though the Competition Act was enacted in 2002, the provisions relating to anti competitive agreements and abuse of dominance were notified to take effect only in May 2009 and finally in March 2011 it has been announced that the provisions of the Act dealing with combination regulation will be brought into force.
Mergers, acquisitions, private equity investments and other like transactions which cross the prescribed thresholds of assets and turnover as provided under the Act will require prior approval of the Competition Commission of India. This includes transactions which are in progress, but are yet to be completed. The thresholds of assets and turnover have been enhanced by 50 percent. However, the general impression that the thresholds prescribed are perhaps on the lower side continues. In order to further facilitate the process, it has been decided that enterprises whose shares, assets or voting rights are being acquired, having assets and turnover of less than Rs. 250 crore and Rs. 750 crore respectively are exempted from the requirement of obtaining the prior approval of the Commission.
The draft combination regulations which prescribe the details relating to filings for approvals and the forms to be filled at the time of filing have been uploaded on the website of the Commission. It has been announced that these regulations may soon be amended. Comments and suggestions from various stakeholders have been invited and are being considered by the Commission. Further, to widen the scope of the consultative process, the Commission is in the process of organizing consultative meetings with various stakeholders which include the apex industry bodies and leading law firms dealing with competition law related matters. This is a step in the right direction which will enable the Commission to get on board the views of all concerned and address the concerns of all those who will be directly affected by the regulations coming into force. The process may also throw light on some of the prevailing ambiguities in the interpretation of the law.
One of the major grievances of all interested parties has always been the outer limit of, as long as 210 days – that the Commission may take to finally approve a combination. Though the Commission has expressed that it will endeavor for an expedited disposal in most cases, the statutory timeframe cannot be ignored. Other areas of concern include the calculation of assets and turnover which act as a triggering event for Commission to exercise discretion and the treatment of joint ventures. Further, the draft regulations provide for certain transactions which require the filing to be made with the Commission in terms of Form I. These include acquisition of shares upto 15 percent, acquisition of shares where the acquirer already controls the target enterprise, acquisitions made solely as investments and intra group acquisitions. All other transactions not covered in the category above are to be filed in terms of Form II which is more detailed. However it appears that Form I, in itself is much too detailed and calls for information which is substantially more than what is called upon for similar transactions in other jurisdictions. All these issues may be brought up at the time of the consultation process and hopefully a mutually acceptable solution is devised.
The draft regulations also provide for informal verbal consultations seeking clarifications about filing of notices. Such consultations shall be kept confidential and the views expressed during the consultation process shall not be binding on the commission. This process may indeed facilitate resolution of uncertainties of filing in certain cases and avoid unnecessary cost and expense. A similar process has been prescribed even for other regulators like the Securities and Exchange Board of India, the countries securities market regulator.
All that can be said is that the law is in its nascent stage and will continue to develop with experience and judicial precedents interpreting the various provisions of law. The right approach would be for the industry and the regulator to work closely and coordinate with each other to fill in every lacuna that presents itself and to jointly face the challenges that lay ahead in an effort to give effect the laudable objects that underline the anti trust regime.
Zerick Hosi Dastur is a Senior Associate at J. Sagar Associates, Advocates & Solicitors. His practice covers diverse areas of Corporate Commercial and Securities law and he is also a part of the firms Competition law practice.