Background – Competition Commission of India (CCI) has on 11 May 2011 issued the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) which deals with merger and acquisitions in India. The Combination Regulations shall come into force on 1 June 2011. Combination Regulations deals with procedural aspects related to notification of Combination under the Competition Act, 2002 (Competition Act), exemptions and pre-merger notification process.

Meaning of Combination

As per the Act, a Combination comprises of any of the following –

  • any acquisition of – control / shares / voting rights / assets of enterprises
  • acquiring of control by person over an enterprises, where such person already has direct / indirect control over another enterprise engaged in similar / competitive business
  • any merger or amalgamation between enterprises

if it exceeds the monetary threshold of assets and or turnover as under:

Person/ Enterprise Rs. USD / Rs.
In India In or Outside India
Assets* Turnover Assets* Turnover
Acquirer + Target > 15 billion > 45 billion USD > 750 mn

Including at least Rs.  7.50 billion should be in India

USD > 2.25 billion

Including at least Rs.  22.50 billion should be in India

^Group post acquisition > 60 billion > 180 billion USD > 3 billion

Including at least Rs.  7.50 billion should be in India

USD > 9 billion

Including at least Rs.  22.50 billion should be in India

 

* Assets – book value as per audited accounts and includes intangibles ^ Group means two or more enterprises, which directly or indirectly –

  • Exercise => 26% of voting rights in other enterprise
  • Appoint > 50% of board members in other enterprise
  • Control (#) the management or affairs of the other enterprise

# Control include controlling the affairs or management, either singly or jointly:

  • by one or more enterprises over another enterprise or group; or
  • by one or more groups over another group or enterprise

Exemptions from Section 5 of the Act:

  1. An enterprise, whose control, shares, voting rights or assets are being acquired has assets of the value of not more than ` 2.50 billion or turnover of not more than ` 7.50 billion is exempted from the provisions of Section 5 of the Act for a period of 5 years from 4 March 2011.
  2. A Group exercising less than 50% of voting rights in other enterprise is exempted from the provisions of Section 5 of the Act for a period of 5 years from 4 March 2011.

Overview of Regulation of Combination

Section 6 of the Act inter alia provides that no person or enterprise shall enter into a Combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.

If any proposed Combination exceeds the threshold of assets and / or turnover specified in Section 5 of the Act (as aforesaid), the person / enterprise need to intimate the same to the CCI within 30 days of board approval / entering into of the agreement for Combination for approval.

A Combination cannot come into effect until a period of 210 days has passed from the day on which the notice was given to CCI or CCI has passed an order under Section 31 of the Act, whichever is earlier.

Salient features of Combination Regulations

Salient features of the Combinations Regulations are as under:

1. Exemption from filing intimation of Combination:  Transactions that are ordinarily not likely to have an Appreciable Adverse Effect [AAE] on competition in India does not require filing of application with CCI as prescribed under the Act. Some of such transactions are as under:

  • Acquisition of shares or voting rights made, solely as an investment or in the ordinary course of business, such that the total shares or voting rights held by the acquirer directly or indirectly, does not exceed 15% of the total shares or voting rights of the company.
  • Acquisition of shares or voting rights, where the acquirer, prior to acquisition, has 50% or more shares or voting rights in the target enterprise, except in the cases where the transaction results in transfer from joint control to sole control.
  • Acquisition of assets, not directly related to the business activity of the party acquiring the asset or made solely as an investment or in the ordinary course of business and not leading to control of the target enterprise except where the assets being acquired represent substantial business operations in a particular location or for a particular product or service of the enterprise, of which assets are being acquired, irrespective of whether such assets are organized as a separate legal entity or not.
  • Amended or renewed tender offer where a notice to CCI has been filed by the party making the offer, prior to such amendment or renewal of the offer and that intimation of any change is duly made to CCI.
  • Acquisition of stock-in-trade, raw materials, stores and spares in the ordinary course of business.
  • Acquisition of shares or voting rights pursuant to a bonus issue or stock splits or consolidation of shares or subscription to rights issue to the extent of their entitled proportion, not leading to acquisition of control.
  • Any acquisition of shares or voting rights by a person acting as underwriter or a registered stock broker on behalf of its clients.
  • Acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same group ;
  • Acquisition of current assets in the ordinary course of business;
  • Combination taking place entirely outside India with insignificant local nexus and effect on markets in India.

2.  In cases of combinations which are not exempt from filing of notice, the parties to the combinations are required to file requisite information with CCI within 30 days of approval of the proposal by the Board of directors or execution of any agreement in the prescribed format with prescribed fees.

3.  Failure in filing of notice:

  • If parties to a combination fail to file notice of combination, CCI may on its own inquire whether the combination has any AAE.
  • If CCI commence an inquiry, it shall apart from imposing any penalty or initiating any prosecution, direct the parties to file notice in the prescribed time and prescribed form along with requisite fees.

4.  CCI shall form a prima facie opinion on the notice filed within thirty days, as to whether the transaction can cause any AAE or not in India market.

5.  Publication of details of Combination:

  • If CCI is prima facie of the opinion that the combination has / is likely to cause AAE on competition within the relevant market in India, the direction of CCI shall be conveyed to the parties for taking prescribed actions.

6. Modification of proposed Combination:

  • If CCI is of the opinion that the combination has / is likely to cause AAE on competition but such AAE can be eliminated by suitable modification to such combination, CCI may propose appropriate modification to the parties.
  • If Parties accept the modification proposed by CCI, it shall carry out the modifications to such combinations in accordance with directions issued by CCI.
  • If parties fail to accept the modification, the combination is deemed to have AAE and shall be dealt with as per the Competition Act.

7. Co-operation with regulatory authorities:

  • CCI may seek opinion of any other regulatory body / authority in relation to a combination.

Conclusion

The Combination Regulations lays down the procedure for seeking approval of CCI for Combinations. The exemption list contained in the Combination Regulations will facilitate the ordinary trade and business transactions and obviate the need for making application in such cases.

Source: Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 issued by Competition Commission of India on 11 May 2011 and available at www.cci.gov.in.

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