New Delhi: India’s competition regulator has been empowered to scrutinize large merger and acquisition (M&A) deals and then either approve or reject them.
In a much-awaited move, the ministry of corporate affairs (MCA) has notified the relevant provisions of competition law that will give the Competition Commission of India (CCI) powers to examine corporate deals beyond a certain value. After extensive lobbying by business groups for over two years, the maximum number of days that CCI can take to clear an M&A deal has been capped at six months, 30 days less than what was originally proposed.
“The ministry has notified sections 5 and 6 of the Competition Act. The notification will be put up on the ministry’s website soon. The provisions will be effective from June, which will give corporates currently undergoing M&A process a cushion of three months,” said R.P.N. Singh, minister of state for corporate affairs.
According to the Act, companies involved in M&As should notify CCI about proposed deals as long as the combined annual revenue of the individual companies is at least Rs 3,000 crore.
For two groups of Indian companies, the combined revenue needs to be at least Rs 12,000 crore. Two merging foreign companies that have an Indian presence will also have to notify CCI in case they have combined annual sales of at least $1.5 billion (Rs 6,750 crore). For global groups, the threshold is a combined revenue of $6 billion, with Indian subsidiaries having a combined sales of Rs 1,500 crore.
The draft guidelines reducing the number of days from 210 to 180 were posted on the CCI website on 1 March.
CCI became functional in 2009 and started taking cases relating to abuse of dominant position as also cartelization, but could not take up prior approval of M&As as it has not yet been given legal powers to do so.
“We welcome the notification. It is now our job to facilitate the administration of M&A approvals. The commission (CCI) will strive to clear 90-95% of M&As within 30 days, only a marginal 5-7% cases may take up to 180 days to clear,” said Dhanendra Kumar, CCI chairman.
Both CCI and the ministry had earlier said that it will require an amendment to the Competition Act 2007 to bring about these changes, but the ministry decided to make draft regulations as the basis for the notifications.
“No amendments are required at this stage,” said a senior MCA official, who did not want to be identified.
“Changes in draft regulations as put up on CCI’s website on 1 March can now be implemented,” said Vinod Dhall, former acting chairman of CCI. “These are in line with what the industry was looking forward to.”
Industry experts, however, feel the positive effect of this will be felt only when CCI can ensure that approvals for transactions are granted as soon as possible.
Sanjeev Krishnan, executive director at PricewaterhouseCoopers, said, “The key issue is the period of time in which a transaction is consummated, particularly when you’re doing public market transactions.”
“The timing of those have to be synchronized with other factors. Once the news is out in the market that a particular transaction is going to happen, the market is going to react,” he said. “But the transaction may not go through. I’m not saying this (notification) should not happen. But the way this is done would be key. I think CCI would need to work with Sebi (Securities and Exchange Board of India) and other regulators to ensure that these creases are ironed out.”
Girish Vanvari, executive director at KPMG, said: “In the new rules they are talking about granting approvals in six months, but really speaking, will six months become one year? Will they have enough people to grant approvals? How quickly they dispose of cases will be the key in the future.”
Manas Kumar Chaudhuri, partner at Khaitan and Co., said this would be a good learning opportunity for Indian law firms, many of which have been developing competition law divisions.
“It is a chance to learn a lot. Theoretically, we have been talking about this for a long time. But to actually engage in transactions will be enlightening,” he said. “Due to the general inexperience in Indian firms in this domain, initially this might go to foreign firms, but I think we will soon be more competitive, especially when it comes to legal fees.”