Although in its nascent stage, India’s revised competition law is set to change the way the nation’s business is conducted.
Competition legislation seeks to protect consumer welfare and prevent concentration of economic power. The Competition Act, 2002 (amended in 2007), replaces the previous Monopolies and Restrictive Trade Practices Act. As of September 2009 the Competition Commission of India (CCI) has been the sole competition regulator in India.
Still in the pipeline
As of yet, only a few provisions of the amended act that deal with the prevention of collusion among competitors and the abuse of dominant position have been notified. The act also seeks to regulate M&A which would have an “appreciable adverse effect on the relevant market in India”. Sections 5 and 6, which are among those not yet notified, deal with the regulation of combinations, which are defined to include all mergers, amalgamations, reorganizations and acquisitions.
Section 5(a) deals with the acquisition of an enterprise by another enterprise. Section 5(b) covers acquisition of control of an enterprise by a person who already has control of another enterprise engaged, directly or indirectly, in an identical, similar or substitutable business. Section 5(c) encompasses any merger or amalgamation.
Once notified, section 5 will apply to all transactions in which the Indian assets under acquisition together with the acquirer’s existing Indian assets exceed Rs10 billion (US$215 million), or in which the annual turnover of the acquirer or acquirers exceeds Rs30 billion. Where acquirers have or acquire assets both inside and outside India, section 5 applies to transactions in which post-acquistion assets exceed US$500 million or in which annual turnover of the acquirer or acquirers exceeds US$1,500 million.
In transactions in which the acquirer is a group or the enterprise acquired becomes part of a group, section 5 applies if the group’s post-acquisition Indian assets exceed Rs40 billion or if its annual turnover exceeds Rs120 billion. In such transactions where the group holds assets both inside and out of India, section 5 applies if post-acquisition assets exceed US$2 billion or if annual turnover exceeds US$6 billion. It is pertinent to highlight that a territorial and monetary nexus with India must be established to trigger the regulations of the act.
Section 6 of the act declares void any combination which has or may have an appreciable adverse effect on competition within the relevant product and geographic markets in India. The process for determining whether a combination is anti-competitive is complex, and involves both legal and economic factors.
In a broadly worded provision, section 6(2) of the act prescribes mandatory prior notification to the CCI of any proposed combination, to be made within 30 days of the board approval of the proposal relating to the merger or amalgamation, or of the execution of any acquisition agreement. The notification must be accompanied by a substantial filing fee. While the review period may vary, it is notable that the proposed combination may only come into effect either when the CCI has approved it, or 210 days after the notification was made.
Given that the act will prevail in the event of conflict with any other law in force, it is hardly surprising that questions are being voiced about its potential effects on the action of the existing laws regulating M&A activity. While that is a separate topic for discussion, it suffices to say that it is necessary to harmonize the act with other statutes to create a better environment of self regulation. Concerns are also being raised on the applicability of section 5 to transactions that have been signed but are not completed at the time the section is notified. Furthermore, the first draft of the combination regulations provides for certain transactions to be exempted from the scope of the act; it remains to be seen if the final regulations will preserve these exemptions. Questions are also being asked about whether pre-notification will still be required for any exempt transactions, or if a post-facto notification (similar to that prescribed under section 6(5) of the act) will be adequate.
The provision that is most likely to be met with reservation is the 210-day period which the CCI reserves to make its final decision. Aside from the destabilizing effect this could have on an acquirer’s business (due to market fluctuations and the inability to implement strategic decisions), there are also concerns that such a long delay may compromise the confidentiality of high-profile deals.
Once notified in full, the act will fundamentally alter the way business is conducted in India. While the transition period will be difficult, disruptions to industry growth can be minimized if the government harmonizes the act with other statutes to create a better self-regulation environment. One anticipates that the government will address industry reservations and consider the appreciable adverse effect which the act’s merger control provisions may have on trade.
Satvik Varma is a partner designate at Amarchand & Mangaldas & Suresh A Shroff & Co.
216 Okhla Industrial Estate – Phase III
New Delhi – 110 020
Tel: +91 11 2692 0500
Fax: +91 11 2692 4900
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