New Delhi: India’s competition regulator, the Competition Commission of India (CCI), has further relaxed rules relating to mergers and acquisitions, or M&As, after two months of extensive lobbying by industry and corporate law firms.
While many of the terms contained in CCI’s March draft norms have been retained in the final regulations posted on the watchdog’s website on 11 May, some significant changes have been introduced.
These include a reduction in the filing fee to Rs 50,000-Rs 10 lakh from Rs 10-40 lakh, exempting certain kinds of transactions from being notified to CCI and allowing companies to modify deals that will include them in the category of transactions that can be cleared in 30 days, as opposed to the longer approval period of 180 days.
“Only cases made (through board resolutions, binding documents, etc.) on and after 1 June will need CCI’s approval,” CCI chairman Dhanendra Kumar told reporters on Wednesday. “A large number of business transactions have been given exemption, multiple filings in interconnected deals will not be required, besides elaborate safeguards have been built to protect deal confidentiality.”
Extensive consultation with industry, lawyers and competition agencies globally helped bring about clarity in the regulations, he said.
In the March draft, CCI had lowered the maximum time it will take to approve M&As over a certain size from 210 days to 180 days. Besides that, it raised threshold limits (in terms of turnovers and assets) of companies going in for M&As that require CCI’s approval by 50%.
Two merging Indian firms that have a combined turnover of Rs 4,500 crore and two groups of companies going for such a deal with a combined turnover of Rs 18,000 crore will need CCI’s prior approval before any merger, as per the limits notified in March and retained in the current version.
Two global firms with a presence in India will need CCI’s clearance if their combined sales is $2.25 billion (around Rs 10,000 crore) globally, with a combined sales locally of Rs 2,250 crore. Similarly, for global conglomerates, the threshold limit is $9 billion globally, with a combined sales in India of Rs 2,250 crore.
The revised norms remove some ambiguities such as listing the transactions that have been made exempt from being reported to CCI, said Samir Gandhi, partner at Economic Laws Practice.
These include “acquisitions made by way of investments, acquisitions where the acquirer already holds over 50% of shares, acquisitions of assets in the ordinary course, acquisition of stock in trade, acquisitions through bonus issues or stock splits not leading to a change in control, are a welcome move”, he said.
M&A activity in India is gaining momentum. According to a study by PricewaterhouseCoopers, aggregate deal value increased almost threefold to $61.14 billion in 2010 from $21.06 billion in 2009.
Corporate law firms, which had reservations over the March draft, welcomed the changes.
“Clarity will help companies, law firms as also CCI move fast on increasing number of M&A activities that are taking place in the country,” said Pallavi S. Shroff, senior partner at Amarchand Mangaldas. Shroff was part of the law firm working group that helped draw up the changes in consultation with Kumar and D.K. Mittal, secretary at the corporate affairs ministry.
Further elaboration is needed in some areas, said M.M. Sharma, head of competition law practice at Vaish Associates Advocates.
“Though the regulation assures that the commission shall form its prima facie opinion on the notice within 30 days of the receipt of the notice, what will happen when the commission decides to refer a matter to the director general of CCI for a report? Will he also be required to submit such a report within the overall period of 30 days? (That) is not clear,” said Sharma, who approved of the cut in the filing fee.
A senior ministry official, who did not want to be named, expressed his concerns over the revisions.
“This (slashing of the fee) was largely done at the behest of law firms,” he said. “The money that would have come to CCI, which is essential to maintain CCI’s administrative costs, would now go to the lawyers.”
Subjectivity in implementation could create confusion, said Nitin Savara, partner at consulting firm BMR Advisors. “Exempting combinations with (an) insignificant nexus with markets in India is vague and should be amplified.”
The CCI chairman said global combinations having a certain size in terms of assets and turnover but not having any major operations in India have been exempted from notifying CCI.
“Finalizing regulations is one thing,” said Ram Tamara, director, Nathan Associates. “What economic principles and rigours in judgement are applied will play a critical role in enforcement.”