[Saumya Raizada is an Editor at IRCCL.]
The Competition Commission of India (CCI) on 13 August 2019 notified the seventh set of amendments to the CCI (Procedure in regard to the Transaction of Business relating to Combinations) Regulations 2011 (Regulation). These amendments, done keeping in mind the objective of making the merger control process in the country simpler, shall be effective from 15 August 2019 and are likely to give a major boost to the M&A scene in the country.
Introduction of a green channel
The CCI has, via Regulation 5A, inserted a green channel route for the parties which would ordinarily not cause any significant threat to competition under Schedule III for a faster merger approval. The parties who are willing to take an advantage of the said route have been given the opportunity to file a notice under the newly modified Form I along with a declaration specified under Schedule IV on confirming as per all plausible alternate market definitions that parties to the combination, their respective group entities and/or any entity in which they, directly or indirectly, hold shares and/or control:
(a) do not produce/provide similar or identical or substitutable product(s) or service(s);
(b) are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in product(s) or provision of service(s) which are at different stage or level of production chain; and
(c) are not engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in product(s) or provision of service(s) which are complementary to each other.
The Regulation gives the status of a ‘deemed approval’ to the regulations notified under this route, upon an acknowledgement by the CCI, thereby no standstill obligations apply to the merger after an acknowledgment is received from the CCI.
If the combination is found later to not fall under Schedule III, or upon filing of an incorrect declaration, the CCI has the power to undo the transaction and to levy requisite penalties for the act committed after giving an opportunity of being heard to the parties.
A fresh Form I notified
An amended Form I has been notified with effect from 15 August 2019. Changes made include both a more cogent flow in the entire form and certain other key additions in the previous form itself. Some important amendments made to Form I are set out below:
Description of the combination: Inter-connected transactions have been included in the scope of the combination being notified and the parties filing a Form I shall have to be more careful with assessing inter-connected transactions as per Regulations 9(4) and (5).
The rights ‘acquired’ or ‘arising out of’ or ‘in connection with’ the transaction being notified under Section 6(2) of the Competition Act 2002 (Act) along with ‘inter-connected transactions’ have been made a part of the ‘scope of the combination’ to be filed by the parties.
Any foreign investment as a result of the combination and the country(ies) of origin have also been made a part of the description.
Under the head of ‘value of the proposed combination’- the parties do not need to identify whether the consideration is in the form of equity, cash, or other assets anymore.
Activities of the parties to the combination and sector overview: The form has been structured so as to enlist the two options of a ‘Yes’ or a ‘No’ with respect to the existence of horizontal and vertical overlaps and only parties which checking the ‘Yes’ option have the additional burden of responding to further questions on the same as per each plausible alternative relevant market. This leads to a significant improvement in the form’s structure while, at the same time, facilitating the green channel filings.
Parties making the filing also need to show if they were party to any proceeding before the CCI under or pursuant to any provision of the Act or before other competition authority(ies), during the last five years and provide details of said proceeding(s).
Attachment: Part VIII has added as an attachment to enable parties to provide all supporting documents in one place. ‘Control’ has always been at the forefront of merger control scrutiny and such a visual representation will likely aid the CCI in a timely review of the notified combination, although it would mean more work for the party making the filing.
Limiting the number of summaries to be filed to one
The amended regulation has also done away with Regulation 13(1B), which required a 500-word summary containing non-confidential information to be filed by the parties for the purpose of uploading the same on CCI’s website along with an additional 2000-word non-confidential summary. The Regulation now requires the parties to submit only a 1000-word non-confidential summary comprising details regarding: (a) name of the parties to the combination; (b) the nature and purpose of the combination; (c) the products, services and business(es) of the parties to the combination; and (d) the respective markets in which the parties to the combination operate. This summary would be posted on the CCI’s website.
Analysis
Self-assessment seems to be at the heart of the amended Regulation issued by the CCI. With a separate ‘green channel’ being made for merging entities without any horizontal or vertical overlaps, companies can now get a much faster approval than the previous 210-day timeline for approvals. Earlier, entities, even without any horizontal or vertical overlaps between them, were mandated to file a notice before the CCI, triggering the process of a ‘merger review’ wherein the CCI had 210 days to decide upon the fate of the notified merger causing significant delays in the process of an M&A transaction. During the said period, parties were not able to consummate the proposed merger, or, if they did, they were subject to heavy gun-jumping penalties. While the move on the face of it looks to be a complete overhaul in the existing merger control regime, the exercise of the option a green channel comes with its own set of possible hiccups. The duty cast on the party wanting to go forward with the green channel is significantly heavier than before. Parties need to not only be particular and thorough with ascertaining whether their transactions overlap horizontally/vertically, but also look to find out if they have any ‘complementary activities’- a term left undefined and open to interpretation by the parties filing under the channel. Parties shall also have to define and justify their choice of the relevant markets, which makes the exercise cumbersome. Pre-filing consultations are also bound to increase, especially in the nascent stage of implementation of the proposed amendments.
The Regulation defines no new terms of the penalty to be imposed for the faulty filings made under the green channel transactions and they continue to be governed as per Section 20(1) of the Act. The CCI may re-open any transaction which is likely to cause or has caused any appreciable adverse effect on competition up to one year from the time the combination has taken effect. It is to be noted that the Competition Law Review Committee in its report (CLRC Report) had expressly identified that 95% of the cases have been cleared in Phase I, thereby the likelihood of CCI’s interference post consummation of a transaction going via the green channel route is a risk worth taking in favour of the ease of doing business agenda of the existing government. Additional notifications in respect of allowing companies undertaking the process of M&A under the Insolvency and Bankruptcy Code 2016 (to resolve their distressed assets) to pass through the green channel route may also be under pipeline, since it is one of the important changes proposed in the CLRC Report.
Furthermore, the changes in respect of Form I, known as the ‘short-form’, do make it a lot more extensive than its earlier image. At the same time, however, the CCI has made an effort to simplify the form and make it much more lucid. The standard declaration forms introduced in a couple of parts are bound to save a lot of time of the parties undergoing the filing.