Both the merger control provisions of the Competition Act, 2002, notified by the ministry of corporate affairs (MCA) with relaxation to the thresholds and the draft merger regulations put out by the Competition Commission of India (CCI) are industry-friendly and allay some of the concerns of industry. Yet, worries remain.
The first concern was the long waiting period of 210 days, which, any legal expert would agree, cannot be reduced unless the relevant provisions of the Act are amende ..
The next concern relates to the ‘suspensory merger control regime’ existing in the Act. After filing the notice, unlike a specific waiting period of 30 days in ‘first phase’ in the US, EU, China and Japan, one will still have to wait for 210 days for final orders on the proposed transaction, and this cannot be questioned.
This ‘suspends’ all further progress in the proposed M&A till the order and has not been addressed either in notifications or in draft regulations
The International Competition Network ( ICN), an association of over 104 competition agencies in 92 countries, including India, in their recommended practices for merger control has suggested that in suspensive jurisdictions, initial waiting period should expire within a specified period following notification.
Though the notifications issued under the Act are silent on this issue, the draft regulations mention that the commission shall form its prima facie opinion on whether the combination is likely to cause an appreciable adverse effect on competition in the relevant market within 30 days of the receipt of the notice. It is doubtful if such commitment can be made in a subordinate legislation overriding the substantive provisions of the Act.
The third concern was of an alleged bias against Indian companies in the definition of the combination itself. Whereas, even now, an Indian company with turnover of 4,500 crore cannot acquire another company without prior notice and approval of the CCI if the targeted company has turnover exceeding 750 crore, a foreign company with turnover outside India in excess of 4,500 crore (up to 1,01,250 crore) may acquire an Indian company with a turnover of 2,250 crore in India. This concern has not be ..
Though a notification of the MCA exempts the target enterprise, with assets less than 250 crore or turnover less than 750 crore for five years from the application of the Act and the draft regulations, Schedule I also introduces a similar concept, yet it does not address the main concern of bias against foreign-based company.
Another area of concern is the conflict with the Sebi Takeover Code. The existing Sebi Takeover Code makes it compulsory for the acquirer to pay interest to shareholders for delay beyond 15 days required for statutory approvals if such non-receipt of the approval is due the any willful default or neglect. The Sebi code provides that where the acquirer fails to obtain approval within 15 days on account of willful default, etc, the entire amount deposited in an escrow account will be forfeited and the acquirer will also be liable for penalty
Now, if the CCI after receipt of notice decides to refer the matter to director general for investigation or decides to invite objections from the public against the proposed acquisition, the approval cannot be clearly given within 15 days. This puts the acquirer that is a listed company in a disadvantageous position under the Sebi code and may lead to conflict between Sebi and CCI. This concern has been completely ignored both in the notifications as well as in draft regulations.
The last concern is how the joint ventures that are often used as a camouflage to mergers will be dealt with. There is no clarity, either in the Act or in the proposed draft regulations of this. In the EU, for instance, fully-functional joint ventures are treated benignly under the EU Merger Regulation, or the ECMR.
On the positive side, the notifications have modified the concept of a group by exempting subsidiary companies in which the parent company exercises less than 51% of voting rights, against 26% earlier. Similarly, the draft regulations have features like the pre-merger consultations, clarity on the other documents that trigger a notice, simpler notice for acquisition of assets for investment purposes, etc.
However, it is again doubtful whether these beneficial changes can be brought about through the proposed draft regulations without an amendment Bill.