May 31, 2011

Competition Commission of India lays down M&A Regulations

The Competition Commission (“CCI”) has laid down Regulations wef 1st June 2011 to address the procedural aspects in relation to notifying the CCI of any combination which have/may have an appreciable adverse effect on competition and therefore shall require the prior approval of the CCI. Experts suggest that “It will have a greater Impact on M&A activities in India which will see a significant development in this regard”.  

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Under this Regulation, any company (with combined assets of Rs. 1,000 crore or more, or a turnover of Rs. 3,000 crore or more.) intending for a combination, is required to give a notice to CCI. Even in the case where a transaction is contemplated by way of a number of steps, or individual smaller transactions, a single notice describing the entire transaction can be filed. In case of failure of compliance by parties, CCI has power to inquire. In case where CCI finds that the combination can cause an adverse effect, it may ask the party to submit information as required for examination.

For CCI’s intervention, the target company’s must have net assets of at least Rs. 200 crore or it should at least have a turnover of Rs. 600 crore.  

CCI will issue its prima facie opinion within 30 days of filing of the merger clearance application. The Regulations stipulate the CCI to pass a final order within 180 days of filing the merger clearance application. The Competition Act, 2002 prescribes a time period of 210 days during which, if the parties do not receive an order from the CCI, the parties can go ahead with the transaction. CCI has power to prohibit any combination, which have or is likely to cause appreciable adverse effect on competition in relevant market or can approve the condition if it doesn’t have or likely to have appreciable adverse effect on competition in relevant market or it may pass an order approving the combination with modifications or conditions. It can also pass appropriate directions in case the parties fail to implement modifications.

Under the Regulations, Form I includes transactions such as (1) acquisitions of not more than 15 percent of the total shares solely for an investment purpose or in the ordinary course of business (2) where the acquirer is already in control of the enterprise; (3) acquisition of assets where the assets of the parties are not directly related to the business activities of the party acquiring (4) acquisitions taking place within the group. (5) An acquisition results from a gift or inheritance. All other kinds of transactions are to be notified by way of filing Form II. Further, minimum fees to be paid by the companies is Rs. 50,000.00 (Form I), which is significantly lower than the earlier fee proposed by the commission, in certain cases the fee could go up to Rs. 10 lakhs (Form II). Companies may even consult with the CCI prior to filing with them in order to facilitate the procedural requirements.

Business transactions such as acquisitions of stock in trade, assets or investments in ordinary course of business, bonus issue, stock split would be exempted from seeking CCI clearance. The Regulations are welcomed by the market since it is believed more likely to protect consumer welfare on a sustainable basis.

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