A recent conference brought together regulators, lawyers and international business leaders to debate the implementation of India’s new competition act. Raghavendra Verma was there to cover the action
F or evidence of the global concern surrounding the implementation of India’s Competition (Amendment) Act, 2007, look no further than the large number of domestic and international business leaders who gave up a weekend in mid-March to attend More than 150 delegates and speakers from as far afield as the US, the UK, Belgium, Canada, Australia and China participated in the event. They included a delegation from the Competition Commission of India (CCI), industry representatives from companies as diverse as Microsoft, Tata, Goldman Sachs and Reliance, and many prominent Indian and international lawyers.
“This big international attendance shows the importance of the Indian economy where the playing fields are relatively new,” said Fernando Pombo, president of the International Bar Association, who was at the conference. “From my perspective as an international lawyer … this [new law] is a very important development,” he added.
India’s new competition law was covered in depth in the December/January issue of India Business Law Journal. A monthly update is also provided by the magazine’s competition and antitrust correspondent, Anand Pathak of P&A Law Offices.
At the heart of the legislation is a mandatory pre-merger notification requirement for all domestic and international mergers, acquisitions and amalgamations that fall within certain “local nexus” thresholds.
India is not alone in introducing a mandatory notification requirement. Indeed, according to Vinod Dhall, acting chairman of the CCI, 98 other countries have introduced some form of mandatory regime, while only eight have gone down the voluntary route.
But some industry leaders claim that the change was unexpected. Siddharth Sharma, a senior in-house counsel at Indian conglomerate Tata, told India Business Law Journal that there was a “surprise” change from the voluntary notification of mergers and acquisitions to a mandatory system in the 2007 amendment.
The controversy runs much deeper than compulsory notifications. Indian and international business leaders are worried about the time and cost that may be involved in obtaining the necessary clearances. Furthermore, there is concern that the comparatively weak local nexus thresholds will catch a significant number of international deals that have little or no bearing on the Indian market.
Foreign investors that have small arrangements or collaborations with Indian companies would be forced to consider the provisions of this law while planning acquisitions anywhere in the world, explained Lalit Bhasin, president of the Society of Indian Law Firms, who was one of the speakers at the conference.
Time and money spark heated debate
The 210-day maximum waiting period during which notifications will be processed by the CCI has also drawn criticism. There had been ambiguity over whether the period referred to calendar days or working days, and many observers have complained that 210 days is simply too long. Responding to the concerns, Dhall promised that the CCI would endeavor to process all but the most problematic proposals with a shorter 30-day timeframe.
Amitabh Kumar, the director general of the CCI, clarified that the 210 day maximum period is measured in calendar days. He also argued that the waiting times provided for by the Indian act compare favourably to those in many other jurisdictions.
“Our long form is shorter than the EU’s short form,” he said.
Another subject of heated debate was the notification fees. The authorities in India will charge a fixed fee of US$50,000 for an initial notification, rising to US$100,000 for those cases that receive a “show cause” notice from the CCI. For complicated cases that go forward to the third and final stage of scrutiny by the commission, the total fee will be US$150,000.
Most other countries base their fees on the turnover of the merging entities. But Kumar dismissed the possibility of adopting this approach in India, pointing out that it could take fees into the millions of dollars. A fixed-fee structure is also simpler from an administrative point of view and removes an entire layer of bureaucracy that would be involved in assessing and calculating fees on a case-by-case basis.
But several delegates complained that India’s fixed fee is still too high, particularly for small enterprises that may be deterred from undertaking mergers as a result. There are also fears that the notification cost will make it harder for troubled companies in need of investment to find acquirers.
Bhasin agrees that the fees are high, but he points out that they are relatively low by international standards. The fees collected will remain with the CCI.
A lawyers’ paradise
The conference successfully clarified many aspects of the new competition act but some delegates pointed to continued confusion over the interpretation of certain provisions.
“We are not against the competition law as such, but are concerned about the presence of ambiguities and omissions,” said Siddharth Sharma of Tata. Sharma is particularly concerned about sections 5 and 6 of the act, which deal with the regulation of combinations. “There are different categories of combinations referring to the acquisitions of shares, voting rights and assets, but it doesn’t say how much? Does it mean that if I acquire one share I will have to notify?”
Tapan Bhaumik, chief economist at Reliance Industries, meanwhile, is concerned that the act will create reams of additional red tape for dealmakers to cut through. One example, he said, can be found in the language used to deal with combinations. Bhaumik cited a single sentence that fills an entire page. This type of writing makes it “a lawyers’ paradise,” he complained.
Several industry representatives have also raised concerns over a provision of the act that will give the government the power to supersede any order of the CCI. Dhall responded to these fears by quoting an answer he himself was given by a cabinet minister: “What, if tomorrow there is a rough regulator?”
He also pointed out that similar provisions are included in legislation governing several other regulators, but are seldom used. Bhaumik, however, is still worried. He suggested forging multilateral agreements on competition policy to alleviate these concerns.
Historical issues, particularly the legacy of the now-annulled Monopolistic and Restrictive Trade Practice Act (MRTP), may have also dampened the reception to the new law. “The MRTP tried to achieve a lot of different, sometimes conflicting, objectives and competition was only one of them,” explained Anand Pathak of P&A Law Offices, who was one of the speakers at the conference. Pathak believes that the bad experiences that industry went through during the days of India’s controlled economy may be influencing reactions to the new act. “One has to draw a distinction between that time and today’s new world order,” he said.
A regulator that listens
Throughout the conference, the delegation from the CCI stressed its willingness to work jointly with business leaders and lawyers in the development of the implementing regulations for the act. Many of the speakers applauded the CCI’s efforts in this regard, and concrete signs emerged that the regulator is indeed listening.
In response to international concerns over the weak local nexus requirements, the commission has drafted a list of certain categories of transaction that are deemed not likely to cause an appreciably adverse effect on competition.
But there is ambiguity over how these transactions will be treated. Sharma at Tata wonders whether “this means that such transactions are exempt from the notification requirement”.
He urges further clarification and asks how a subordinate regulation can supersede a fundamental aspect of an act that has been passed into law. Bhasin echoes the same sentiments, warning that regulations cannot be inconsistent with the law, nor can they replace it.
Sharma suggests that rather than addressing concerns with regulations, new amendments might be the best way forward.
But Bhaumik has reservations: “I dare not suggest another one,” he said. “The amendments in 2007 had more pages than the original act itself.”
Dave Poddar, a partner at Australian law firm Mallesons Stephen Jacques, also believes that it would not be practical to modify the act too many times. He suggests that a better course of action is to change the regulations and guidelines used to implement it.
Steep learning curve
Any new piece of legislation is likely to suffer from teething problems and many believe that a flexible and consultative regulatory approach is the best way to achieve a smooth implementation.
“It is important to walk before running,” said Calvin Goldman, a partner at Blake Cassels & Graydon and a former director of Canada’s Competition Bureau. Circumstances could force India’s competition regulators to retract certain guidelines, so it is better to have them short in the beginning and expand over time, he added.
Dhall acknowledged that there will be a steep learning curve and emphasized the importance of thorough training for everyone involved. He also outlined his own commitment to ensuring that the CCI remains in sync with the market, minimizes the costs of compliance and enforcement, maintains confidentiality and transparency, implements a professional leadership structure and adopts a consultative approach.
A number of suggestions will be taken forward from the conference for future deliberation. They include shorter guidelines, revised fees for the second and third stages of processing notifications, the introduction of pre-notification consultations and refinements to the various forms.
Discussions have already begun on the draft regulations and comments can be read on the CCI’s website. These comments, along with the final set of draft regulations, will be presented to the CCI’s advisory committee on regulations, a 31-member body comprising lawyers, economists, consumer organizations and former government employees.
According to Poddar, the draft regulations are expected to be finalized over the next three months, and implementation will begin thereafter.
“Only time will tell whether the CCI will be able to fulfil its assurances,” said Bhasin.