The Government of India , Ministry of Corporate Affairs (“MCA”) has exempted Nationalized Banks from the applicability of the merger control regime under the Competition Act,2002 (Act) . The MCA vide a Gazette notification dated 30.08.2017 ,in exercise of the powers conferred by clause (a) of Section 54 of the Act , has exempted, all cases of reconstitution, transfer of the whole or any part thereof and amalgamation of nationalized banks, under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), from the application of provisions of Sections 5 and 6 of the Act for a period of next ten years , i.e. up to 30.08.2027, in public interest.
Further , the MCA vide an earlier separate Gazette notification dated 10.8.2017, also exempted Regional Rural Banks (RRBs) from the applicability of the merger control regime under the Act. The notification dated 10.8.2017 stipulates that Sections 5 and 6 of the Act, which relate to regulation of combinations, will not apply to amalgamations of RRBs for which the Central Government has issued a notification under Section 23A (1) of the Regional Rural Banks Act, 1976 (RRB Act). This exemption is applicable for a period of five years, i.e., until 09.08.2022.
As per Section 23A of the RRB Act, the Central Government is empowered to order the amalgamation of two or more RRBs, if it is in public interest or in the interest of the development of the area served by such RRBs or in the interest of the RRBs themselves. Prior to the Notification, such amalgamations, while undertaken pursuant to orders issued by the Central Government and not on the volition of the RRBs, triggered the requirement to file a notification under the Act, to seek the Competition Commission of India’s (CCI) prior approval.
In fact, the CCI in two earlier instances in 2017 (being Rajasthan Marudhara Gramin Bank/State Bank of Bikaner and Jaipur, (Combination Registration No. C-2016/02/377) and Sarva Haryana Gramin Bank/Punjab National Bank (Combination Registration No. C-2015/12/344)), imposed a penalty of INR 100,000 (Indian Rupees One Hundred Thousand) on the RRB and sponsor bank under Section 43A of the Act, for consummating the amalgamation without seeking its approval.
While the CCI noted the unique structure of such amalgamations, including the fact that it was effected immediately subsequent to the issuance of the Central Government’s notification, the CCI observed that the amalgamations under Section 23A of the RRB Act were not exempt from the applicability of Section 5 of the Act. Therefore, the CCI in Rajasthan Marudhara Gramin Bank/State Bank of Bikaner and Jaipur (Combination Registration No. C-2016/02/377) held that the fact that the amalgamation was being undertaken at the instance of the Central Government did not eliminate the responsibility of the transacting parties to notify the CCI of the amalgamation.
Comment: The banks, through the Central bank , the Reserve bank of India (RBI) , had been lobbying with the Central Government for an exemption from merger filing requirement under the Act since 2009. The previous regime had rejected the request. The present government seems to have agreed with this long pending demand pursuant its current policy of consolidation of public sector banks. Though it does not exempt merger control for private banks still, in our view, this may lead to concentration and distortion of competition through unilateral effects on some select products markets for banking services and for next 10 years consumers will have to resort to seeking remedies under antitrust provisions of section 3 and 4 of the Act.