The subdued response to the merger and acquisitions (M&A) rules notified on Wednesday shows that the Competition Commission of India (CCI) has paid some regard to India Inc and the legal fraternity’s concerns. By softening the rules from the somewhat stringent guidelines issued earlier this year, the CCI has clearly acted within the parameters of extant political economy and sent clear signals to the domestic and international investing community that the M&A regulation regime would, on the whole, be relatively benign. For example, the exemption of M&As that take place before June 1 from the purview of the new rules has calmed investor anxieties considerably, especially for Vedanta, which is struggling with a raft of other issues over its acquisition of Cairn India. By slashing filing fees from a steep Rs 40 lakh to a nominal Rs 50,000, the CCI has certainly lowered transaction costs. The exemption of several routine transactions from the rules and exempting venture capital and financial institutions from paying fees are realistic. In the latter case, it marks a recognition of a flexible source of financing for India Inc, especially start-ups for which bank funding is both expensive and hard to access. CCI Chairman Dhanendra Kumar has also suggested that the rule-setting process is dynamic and will be changed if required.
Though the signals are sensible and non-threatening, the qualified approval from India Inc suggests that grey areas remain. The major one is the lack of synchronicity with the Securities and Exchange Board of India’s Takeover Code, raising the possibility of possible conflicts of interest that could delay clearances and approvals. Some chambers have also pointed out that the omission of pre-merger consultations – a standard practice in other regulatory regimes from the US to Brazil – weakens the CCI’s claims to being an investor-friendly regime. But it is also possible that this is a sensible omission for now since the CCI currently has neither the capabilities nor the resources to provide for the kind of specialist “case handlers” that, say, Europe provides for this purpose. Big question marks have also been raised on the issue of extraterritorial jurisdiction inasmuch as the definition for CCI approval is a little vague. On what basis will the CCI gauge whether an international M&A has “no significant” nexus with or effect on the Indian market? The CCI could, perhaps, have kept this provision in abeyance till it had built up the capacity to deal with it intellectually.
Indeed, it is the CCI’s capacity to handle complex legal and economic issues that generates the most anxiety among Indian business. Being a behavioural law rather than a structural law, the CCI will need to build up inter-disciplinary capabilities that require the skills of economists, financial experts, lawyers and so on to function effectively. At the moment, however, it is significantly staffed by income tax department personnel who by the very nature of their profession are wont to mistrust rather than trust. The government should choose a new CCI chairman, due to be selected soon, with great care given that the institution is just beginning to make an impact and needs sterling and credible leadership to carry conviction with all stakeholders.
