New certainty on trigger for merger control notice?

By Kunal Chandra and Gautam Chawla, Trilegal
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Under the Competition Act, a merger control notification for an acquisition must be filed within 30 days of execution of any agreement or “other document”. The term “other document” has been explained under the Combination Regulations to mean “any binding document, by whatever name called, conveying an agreement or decision to acquire control, shares, voting rights or assets”.

Kunal Chandra
Kunal Chandra

The Combination Regulations further provide that in a case where such an “other document” has not been executed, but the intention to acquire is communicated to the central government, a state government or a statutory authority, “the date of such communication shall be deemed to be the date of execution of the other document for acquisition”.

Previous cases

In the Exide-ING case, the Competition Commission of India (CCI) in its order dated 19 February 2013 noted that: (i) Exide Industries and ING Vysya Life Insurance Company had initialled three share sale and purchase agreements (with the existing shareholders) to acquire the remaining 50% stake of ING Vysya; and (ii) pursuant to these initialled agreements, ING Vysya had filed an application with the Insurance Regulatory and Development Authority for the transaction. Accordingly, the CCI held that for the purpose of the Competition Act, the date of communication by ING Vysya to the statutory authority would be deemed to be the date of execution of the “other document”.

Gautam_Chalwa_-_Trilegal
Gautam Chawla

In a subsequent notification filed on 31 March 2014 by Tesco Overseas Investments within 30 days of execution of definitive agreements for its proposed acquisition of a 50% stake in Trent Hypermarket, the CCI extended the applicability of the deeming provision by stating that Tesco should have filed within 30 days of its application to Department of Industrial Policy and Promotion and the Foreign Investment and Promotion Board (FIPB) dated 17 December 2013. The definitive agreements were executed on 21 March 2014, after the receipt of the approval of the two authorities.

Tesco argued that the requirement for notice could be triggered pursuant to the deeming provision only if communication to the authorities conveyed an intention to acquire the shares and it had no such intention when it applied to the FIPB. Details of the proposed transaction were finalized only after the receipt of FIPB approval. The CCI disagreed and imposed a hefty penalty on Tesco for late filing.

Subsequent cases

In June 2014, Dunearn Investments (Mauritius), exercising abundant caution, filed a notification pursuant to an application to the FIPB made by its target, Intas Pharmaceuticals. In the absence of any definitive agreement at that stage, Dunearn stated that it might seek certain affirmative voting rights in the definitive agreements, as and when agreed to between the parties. The definitive agreements were executed two months after the notification to the CCI, and the approval was only granted after the submission and review of the definitive agreements.

In the recent case of inter-connected transactions between Reliance MediaWorks and Prime Focus, the CCI in its order dated 8 December 2014 held that the date of communication of the public announcement for an open offer to the Securities and Exchange Board of India (SEBI), which is mandatory under the provisions of the SEBI Takeover Regulations, would be deemed to be the execution of the “other document” for the purpose of the Competition Act. In this case, the definitive agreements for the other inter-connected steps were executed more than three months after the notification to the CCI on 1 August 2014, and the approval was only granted after the submission and review of the definitive agreements.

Analysis

The silver lining of the CCI order in the Prime Focus case is that it should put to rest speculation as to the correct time to approach the CCI for merger approval, in situations involving communication to the government or statutory authorities. The correct time is whichever is earliest, either execution of agreements or communication to the government or a statutory authority.

However, looking beyond the silver lining, is this timing beneficial to stakeholders or the CCI? From the perspective of stakeholders it involves additional interface with the CCI, since after making the application to the CCI and then executing the definitive agreements at a later stage, per the trend, the applicants will have to approach the CCI again and deliver the executed agreements. This may disgruntle parties to a combination, who are typically in a hurry to close the deal, as the transaction will not be able to take effect until the CCI approval comes through (despite the application having been made well in advance).

From the CCI’s perspective, the time taken by it to process such applications will appear to be longer than it would be in the situation where the application is made at a later stage.

Kunal Chandra is a counsel at Trilegal and Gautam Chawla is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.

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Email: kunal.chandra@trilegal.com

gautam.chawla@trilegal.com