BackDeemed approval in 30 days is an M&A fortune cookie
The tweak will enhance India’s appeal among global investors keen on local mergers and acquisitions
PremiumThe Competition (Amendment) Act, 2023 (henceforth Amendment Act), which received the Indian President’s assent on 11 April 2023 and is expected to come into force soon, introduces a number of key changes to streamline the Competition Commission of India’s (CCI) merger review process. These key changes, inter alia, include relaxations for the notification of open-market share purchases to the CCI, introduction of deal value thresholds and shortened review timelines for the CCI.
In a breakthrough move for mergers and acquisitions (M&As), the Amendment Act introduces the concept of “deemed approval" for transactions where the CCI has not arrived at a prima facie opinion within 30 calendar days of receipt of a notice. Simply put, if the CCI does not arrive at a prima facie view on whether an M&A transaction is likely to cause competition concerns in India within 30 days, the deal will be considered approved and the parties need not wait for a CCI approval order before proceeding to close the transaction. This is a step forward for the Indian competition watchdog and is in line with the merger control regime of mature jurisdictions such as the European Union (EU), where the European Commission has 25 working days to complete its Phase I review of a transaction and provide a decision, failing which the transaction is deemed to be unconditionally approved.
Under India’s current framework, the CCI is required to form a prima facie view within 30 working days of the receipt of such a notice. However, the Competition Act of 2002 did not capture a scenario where the CCI fails to issue its prima facie view within this timeframe. It did not provide for any implication or consequence if the CCI failed to provide its view within the prescribed timeline, leaving a vacuum in law. The Amendment Act not only reduces the time limit for the CCI to provide a prima facie opinion to 30 calendar days (as opposed to 30 working days), but also fills the aforesaid lacuna by providing a consequence for non-adherence to this timeline.
The change, in effect, introduces an additional milestone for deemed approval at the expiry of 30 days. The current framework only provides for deemed approval if a combination has not been approved by the CCI within an overall time period of 210 days. The Amendment Act also reduces this overall time period for approval to 150 days.
Once the relevant provision of the Amendment Act comes into force, the M&A sector can expect a reduction in timelines within which parties to a deal will get approval from the CCI. The provision for deemed approval will provide the parties an added certainty on timelines for the approval of a transaction and is expected to result in shorter gestation periods for M&As in India. This will especially benefit global deals, for which coordinating approval timelines across borders and jurisdictions is critical.
While a welcome move, the reduced timelines coupled with the consequence of deemed approval will lead to additional pressure on the CCI to approve complex deals and on M&A parties to provide information on an expedited basis. As a result of now-stringent timelines, we may witness an increase in the invalidation of notices filed by parties, in the absence of substantive pre-filing consultation (PFC) with the CCI. An increase in the number of information requests issued by the CCI (leading to stoppage of the review timeline) could be another implication of these revised timelines. To be clear, the time taken by parties to respond to information requests raised by the CCI is (and may continue to be) excluded from the prescribed review timelines.
To tackle this additional pressure of speedy approval, we believe that stakeholders will increasingly undertake PFC meetings and engage with CCI case officers before making formal filings. This will not only provide breathing room to the CCI to review a notice, but will also reduce the potential risk of invalidation and other timing issues for the parties involved.
Given that M&A transactions will be automatically approved once 30 calendar days pass, the merger control division of the CCI will now have to track the review clock more closely.
It remains to be seen whether new regulations that flow from the amendments, as and when they are drafted and introduced, will allow additional grounds for ‘clock stops’ (i.e., stoppage of review timelines). Further, it would be interesting to see if these new regulations will allow for additional time in case the party involved in an M&A deal offers (or the CCI proposes) modifications to the transaction (before the CCI forms its prima facie opinion) in order to eliminate potential competition concerns. Presently, the relevant regulations provide for an extension of the Phase I review period by 15 days if the parties involved submit modifications to alleviate competition concerns.
The introduction of such a significant change for the benefit of the M&A sector is a commendable move by the government. As stated earlier, it is also in line with international best practices. The amendment should bolster the government’s agenda of making it easier to do business in India, which holds an important key to making our economy an attractive destination for foreign investors.
Aparna Mehra & Kshitij Sharma are, respectively, partner and associate in the antitrust and competition law practice at Shardul Amarchand Mangaldas & Co. Ritesh Puri, associate at Shardul Amarchand Mangaldas & Co, also contributed to this article. These are the authors’ personal views.
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