CCI's Green channel for M&A deals: Implementation will be a tough climb

On August 14, the Competition Law Review Committee, chaired by Corporate Affairs Secretary Injeti Srinivas, submitted a report to Finance and Corporate Affairs Minister Nirmala Sitharaman. The report suggested a slew of measures to spruce up the insolvency resolution process. One of the key recommendations was the creation of a “Green Channel” for automatic approval of certain M&A deals, including those under the Insolvency and Bankruptcy Code (IBC), by the Competition Commission of India (CCI).

Curiously, the competition watchdog had, in fact, already come out with a notification on August 13, approving the setting up of the said the Green Channel that would come into effect from August 15. The 'Green Channel' would allow automatic approval for certain M&A agreements based on specified criteria and pre-filing consultation, the CCI had said in the notification.

“The Competition Law Review Committee recommends that combinations arising out of insolvency resolution under the IBC be eligible for the Green Channel. However, the channel would apply to those IBC matters where there is no overlap (horizontal or vertical) and the parties are not engaged in complementary markets,” said Nisha Kaur Uberoi, head of competition law practice at Trilegal.

This will also shift the onus of accountability from just the authorities to also the companies opting for the Green Channel procedure, several experts said.

“The intent is good. The key would be the implementation and adoption of the entire code by lawyers and companies. That could be a challenge,” said Rahul Goel, partner at law firm IndusLaw.

In its notification, the CCI had said that the companies opting for the fast-track channel would have to submit a written submission detailing the names of the parties, the nature and purpose of the combination, the products and services they offer, as well as the markets in which they operate. The companies which are planning to merge will also have to give details of the value of the proposed merger and any foreign investment that would come into the country as a result of the M&A transaction.

The upside of having such a channel would be a lot of M&A deals in the market will get unclogged from approvals, noted Vidisha Krishan, partner at law firm MV Kini & Co.

The concept of a Green Channel, akin to those in countries like Singapore, Australia, New Zealand, Malaysia and Indonesia, is a step towards improving ease of doing business, said Goel. “These countries have a voluntary notification regime. You are required to notify only when you think that the combination will adversely impact competition,” he said.

In case, the authorities of these countries later came to know that an M&A combination should have been notified but was not brought to the notice of their respective anti-competition bodies, there would be consequences, Goel said.

The presence of such a caveat in the August 13 notification of the CCI has also alarmed experts. There is fear among some experts that the mechanism will be rendered ineffective given its narrow scope of applicability and uncertainties surrounding its structure.

“In practice, identifying all the entities in which each, the acquirer and the target, have direct or indirect shareholding would be a burdensome task, especially for identifying minor shareholding in listed companies. Pure financial investors, including private equity funds, maybe deeply affected by this requirement,” law firm Khaitan & Co said in a note to its clients.

The changes brought by the CCI to the Act would have been more effective if existing non-controlling investments of the acquirer group were not required to be considered for determining the applicability of the Green Channel, said Avaantika Kakkar, head of Competition practice at Cyril Amarchand Mangaldas.

“Alternatively, a percentage shareholding threshold could have been provided, where existing interests in similar or vertically linked and complementary sectors below a certain percentage could have been disregarded for the applicability of the Green Channel", said Kakkar.

How companies could avail of the benefits

• Companies need to file notice for combination, following which it will be deemed approved

• If declaration by companies is false, approval will be void; CCI to start investigation

• Firms to give details of economic and strategic purposes for the combination, inter-connected transaction

• Give details of products/services that overlap between the two companies seeking to merge

• Companies need to give estimate of total market size over last three years, including its source & basis