New regime less harsh than the draft guidelines, has a host of exemptions.
Companies fearing a more difficult merger and acquisition (M&A) regime heaved a sigh of relief with the Competition Commission of India (CCI) on Wednesday notifying rules that are less harsh than the draft guidelines. The rules also provide a host of exemptions.
M&As announced before June 1 will be exempted, even if the deal has not been implemented. This means M&A activities in public domain, like the $9.6-billion Cairn-Vedanta deal, will not be scrutinised by CCI.
The filing fee has been slashed from Rs 40 lakh to Rs 50,000 for most cases. Companies will have to pay Rs 10 lakh only in exceptional cases. In the draft rules, the fee was Rs 10-40 lakh depending on the deal value. Acquisitions by venture capital funds and financial institutions will not attract the fee.
| HIGHLIGHTS |
| * M&As abroad with insignificant impact on India exempted |
| * Indian companies with assets of more than Rs 1,500 crore or a turnover of Rs 4,500 crore need CCI approval |
| * The threshold for foreign companies is $750 million assets or a turnover of $2,250 million. They should have Rs 750 crore assets or a Rs 2,250 crore turnover in India |
| * M&As in public domain before June one not to come under CCI even if the deal happens after June 1 |
| * Acquisition of stock-in-trade, raw materials and assets exempted. This is besides investment in the ordinary course of business, bonus issues, stock splits, etc |
| * Interconnected deals can be filed as one |
| * Fee reduced from Rs 40 lakh in draft norms to Rs 50,000. It will be Rs 10 lakh only in exceptional cases |
| * No fee for venture capital funds and financial institutions |
“We have taken care of all the concerns of industry. It represents the collective wisdom of all stakeholders, achieved through a unique process of consultation and transparency,” said CCI Chairman Dhanendra Kumar.
The rules allay the fears of industry by mentioning 10 broad criteria for categorising routine business transactions that will be exempted from the filing requirement.
A merger outside India with insignificant impact on local competition or business is one such instance. Acquisition of stock-in-trade, raw materials and assets has also been exempted. This is besides investment in the ordinary course of business, bonus issues, stock splits, etc.
Corporate law firms welcomed the regulations, though they were cautious on certain fronts.
“There continue to be a few issues which we hope will be ironed out in the days to come, including omission of the provision allowing pre-merger consultations and the somewhat vague exemption given to international transactions with no ‘significant nexus’ with or effect on the Indian market. It is unclear how significant the nexus will have to be for a global merger which otherwise meets the thresholds,” said Samir Gandhi of Economic Laws Practice.
“Industry may still have some concerns over the powers of CCI to review acquisitions where control is not being acquired and the notifying party or transaction is subject to a possible 210-day review. The focus will now turn to the actual functioning of the commission and how it will scrutinise the qualifying transactions,” said Pallavi S. Shroff, a competition law expert and senior partner at Amarchand Mangaldas.
Indian companies that need to notify M&As include those with assets of Rs 1,500 crore or a turnover of Rs 4,500 crore. In case of foreign entities, the trigger was assets of $750 million or a turnover of $2,250 million, with assets worth Rs 750 crore or a turnover of Rs 2,250 crore in India, said Manoj Kumar, partner of law firm Hammurabi and Solomon.
Even though the Competition Act was enacted in 2003 and CCI started functioning in a full-fledged manner in 2009, M&As remained out of its purview as specific provisions under the law that deals with M&As were not notified by the government until March this year.
 ZIA MODYFounding partner, AZB & Partners There is a little good, but concerns do remain. We do not see synchronisation with the takeover code. It’s good that some ordinary processes will not come under CCI’s purview. On the flip side, a number of transactions that are not necessarily anti-competitive will require filings. The defining test of control does not find a place. It is not clear as to what levels creeping acquisitions between 15 per cent and 50 per cent will not require a filing. |
 MOHIT SARAFSenior partner, Luthra & Luthra, Law Offices A competition law is essential to stop any potential abuse. To that extent, it’s a positive step. The problem is that regulators often don't understand the market dynamics. CCI needs specialists who can help it understand the changing market dynamics. Therefore, I fear that in the short term — till capacity-building is taken seriously by the government and the regulator — the new guidelines will come in the way of corporate M&As and that makes me nervous. |
 SESHAGIRI RAOJoint MD & group CFO, JSW If the approval process is quicker, it is good. Otherwise, it will delay decisions. M&As require quick decisions. That aspect needs to be looked at. |
