Introduction
The Competition Commission of India (‘CCI’) has recently issued the Competition Commission of India (Combinations) Regulations, 2023 (‘Draft Regulations’) for public consultation, aligning them with the amendments made to the Competition Act of 2002 vide the Competition (Amendment) Act, 2023 (‘Amendment Act’). The Amendment Act introduced significant changes to regulations related to merger control, including the introduction of deal value thresholds, relaxation of certain provisions, and timeline reductions. The Draft Regulations have been formulated to facilitate the effective implementation of these amended provisions and replace the existing regulations from 2011.
Key Provisions of the Draft Regulations
Some of the key aspects of the Draft Regulations include transaction valuation, substantial business operations criteria, notice formats, open offer and stock exchange acquisitions, fee structures, filing procedures and modification processes.
The Amendment Act introduced the concept of deal value thresholds (‘DVT’) as a new requirement for transactions seeking prior approval from the CCI, in addition to the already existing asset/turnover-based thresholds. DVT applies when a transaction’s value exceeds Rs. 2,000 crores, and the target company has substantial business operations in India. The Draft Regulations provide detailed guidance on calculating the transaction value under the DVT framework, encompassing various factors like non-compete fees, incidental arrangements, interconnected steps, options and securities, and contingencies. If the exact value cannot be ascertained, the Draft Regulations presume it exceeds the DVT, necessitating the parties to notify the CCI to seek its approval.
Additionally, the Draft Regulations specify criteria for substantial business operations in India, including a threshold of 10% for global users, gross merchandise value, and turnover attributed to India. These provisions are designed to ensure that transactions with a significant Indian market impact are subject to CCI scrutiny.
To align with international norms, the Amendment Act introduced provisions for on-market transactions, allowing acquisitions through open offers and market purchases. The Draft Regulations offer further guidance in this area, requiring notification to the CCI within 30 days of completion. Importantly, during the period while formal approval from the CCI is pending, acquirers can undertake specific actions, including:
Benefiting from economic advantages such as dividends or participating in rights issues of shares, bonus share issues, buybacks of shares, or stock splits.
Disposing of shares or securities that have been acquired and exercising voting rights in matters related to liquidation or insolvency proceedings, all before obtaining approval from the CCI. However, it is crucial to emphasize that none of these actions should directly or indirectly exert influence over the acquired company.
The Draft Regulations further establish a* structured review process* for mergers, reducing the review period from 30 working days to 30 calendar days. The CCI may request parties to address deficiencies within 10 working days before the official review period starts. The CCI can also extend the review period by 22 or 10 days for gathering third-party information or for evaluating submissions, respectively. This process aims to expedite merger reviews while ensuring a comprehensive assessment.
Notably, the Draft Regulations remove Schedule I exemptions, subjecting transactions like minority share acquisitions and intra-group transactions to prior notification. This change enhances regulatory oversight and aligns with the Amendment Act’s objectives.
The Draft Regulations have eliminated the* green channel route*, which originally allowed transactions that did not involve any horizontal overlap, vertical integration, or complementary relationships to be automatically approved by the CCI. However, the reference to the green channel route in the Draft Regulations creates ambiguity regarding its availability.
Filing fees have witnessed a substantial increase under the Draft Regulations, specifically for Form I submissions surging from Rs. 2 million to Rs. 3 million. Conversely, for Form II filings, the fees have risen from Rs. 6.5 million to Rs. 9 million.
Furthermore, the Draft Regulations have formalized the pre-filing consultation mechanism, offering non-binding guidance to parties before formal filing. This mechanism would help parties to understand potential concerns.
The Draft Regulations also introduce a modification format, allowing the CCI to propose changes to transactions raising competitive concerns. The Draft Regulations establish a specific format for presenting such modifications to the CCI. In situations where the CCI recommends modifications, the parties engaged in the transaction will have a 7-day period from the date of receiving the proposed modifications to either accept or reject them. It is noteworthy that this 7-day window is distinct from the CCI’s official review period and may extend by up to 15 days, allowing the CCI adequate time to formulate the proposed modifications and for the parties to deliberate upon them. Conversely, if the parties themselves wish to propose modifications to the CCI, the CCI’s review period will not encompass up to 12 additional days that may be necessary for the CCI to assess and evaluate these proposed modifications. The parties, while proposing the modifications, must adhere to the Draft Regulations’ specified format, which includes:
Transaction details and expected adverse competition effects.
A concise summary of proposed changes and how they address CCI’s concerns.
Information on compliance monitoring mechanisms.
Analysis
In summary, the Draft Regulations, aligned with the amended Competition Act, aim to enhance competition control in India. However, the Draft Regulations have also raised some challenges and uncertainties that may lead to a surge in merger filings, such as the broad criteria for assessing the value of transactions and substantial business operations in India. This includes technology companies and even those with significant Indian website visitors but no substantial operations in India.
The exemption for open offers and stock exchange acquisitions from standstill obligations promotes ease of doing business. However, the absence of transitional provisions in the Draft Regulations poses challenges for transactions signed before the new rules come into effect.
Additionally, while the regulations remove provisions related to the green channel route, there is ambiguity about its fate, possibly needing further clarification. Moreover, removing exemptions from prior notification may increase the filing burden on the CCI, potentially impacting regulatory efficiency and requiring additional compliance resources.
*Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion. *
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