The Competition Commission of India (CCI) has introduced the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2019 (hereinafter referred to as amendment) to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (hereinafter referred to as regulations) recommended by the Competition Law Review Committee. Through this amendment, the commission in an unprecedented move has introduced a “Green Channel” route to deal with combinations that are unlikely to have appreciable adverse effect on combination (AAEC). CCI in its press release has said "Under this process, the combination is deemed to have been approved upon filing the notice in the prescribed format. This system would significantly reduce the time and cost of transactions."[1]
Also, the commission has revised its Pre-Filing Consultation (PFC) guidance notes to extend its scope and encourage substantive consultations for combinations including those under Green Channel. With this post, the author seeks to analyze the pros and cons associated with the introduction of green channel.
GREEN CHANNEL FRAMEWORK UNDER THE AMENDMENT
The amendment has inducted regulation 5A, regulation 13(1A), Schedule III and Schedule IV and altered form I in Schedule II of the regulation. Regulation 5A provides that for the category of combinations mentioned in Schedule III, the parties to such combination may, at their option, give notice in Form I pursuant to regulation 5 along with the declaration specified in Schedule IV for approval of combination under green channel.[2] Upon receipt of acknowledgement by CCI, the transaction will be deemed to be approved under section 31 (1) of the Competition Act, 2002.
However, under the green route, the parties would have to self-assess and determine whether their combination would qualify for this mechanism on the basis of specified criteria. Under schedule III of the amendment considering all plausible alternative market definitions, all the parties which include the parties to the combination, their respective group entities and/or any entity in which they, directly or indirectly, hold shares and/or control must consider that there is no horizontal, vertical or complementary overlap.
Schedule III of the amendment requires parties to ascertain overlap between group entities of both parties (i.e. acquiring and target) but also all the entities in which both the parties hold shares either directly or indirectly. Since the combination takes place only between the acquirer and the target therefore to check overlap for all other entities makes the process more cumbersome because it will not be easy for parties to identify all the shareholding of both the parties. The far-reaching ramification of this cumbersome and time taking process will undermine the basic goal for which green channel is being introduced by the CCI.
Also “complementary activities” is a new addition under Schedule III, but there is no guidance or criteria as to what constitutes complimentary activities thus leaving the parties to delve with its scope. With this, the parties to combination who are already overburdened to ensure that there is no horizontal, vertical or complementary overlap are all plausible alternative market now also have to determine what constitutes complimentary activities.
In order to facilitate self-assessment by the parties CCI has also revised its pre-filing consultation guidance note to extend its scope to include consultation to assist the parties to determine whether their combination is eligible for Green Channel[3] in which the Competition Commission of India allows for informal and verbal consultation with its staff/ case team prior to filing of notice for a proposed combination in terms of sub section (2) of section 6 of the Competition Act, 2002 (“Act”) read with regulations 5 and 5A of Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”).[4] Since it is an informal consultation therefore overall the burden lies on the companies to fulfill all the criteria laid down under green channel.
If the CCI finds that the combination does not fall under Schedule III and/or the declaration filed under Schedule IV is incorrect, then the approval granted under this regulation shall be void ab initio and the CCI shall deal with the combination in accordance with the provisions of the Competition Act, 2002. However before arriving at any conclusion regarding the combination does not falls under Schedule III and/or the declaration filed under Schedule IV is incorrect, the CCI will afford a proper opportunity to the parties of being heard. The first thing to note at the very outset is that it is not clear as to when the CCI will check whether the combination fall under Schedule III or declaration filled is correct. Secondly, the CCI has not given any guidance regarding the effects of a notice being declared as void ab initio and whether the parties can file a new notice with proper details. Also, there is no mention of punitive action against those who render wrongful information through green channel. Thus CCI must have to come along with new notification for resolving all these ambiguities.
Under the erstwhile provision, a merger notification is required to be accompanied with a long summary (not less than 2000 words) and a short summary (not more than 500 words). The short summary is published on website of CCI for public access.[5] But this new amendment have done away with the requirement of submitting two summary but instead now only one summary (less than 1000 words) is to be submitted. Thus company now can prepare a single report for submission.
INCONSISTENT WITH PARENT LEGISLATION
Section 6(2) of the Competition Act, 2002 provides that the parties to a combination shall give the CCI a notice detailing the proposed combination within thirty days of any of the following:
approval of the proposal relating to merger or amalgamation by the board of directors of the enterprises concerned with such merger or amalgamation;
the execution of any agreement or other document for acquisition;
acquiring of control as defined under the Act
But section 6(2A) provides that the combination shall not come into effect unless the CCI has passed an order under section 31 of the Act, or if two hundred and ten days have passed from the day on which the notice was given to the CCI. Whereas under section 30, the CCI is required to examine notice filed under sub-section 6(2) and form its prima facie opinion according to section 29 of the Act. Thus the introduction of green channel is inconsistent with these sections of the parent act through which the CCI gains its power to make new regulation.
CONCLUSION
Introduction of the green channel is a welcome step from the side of CCI. With this, all the combination which will not have an appreciable adverse effect on competition (AAEC) will get automatic approval thus ensuring ease of doing business by making mergers and acquisition process in India faster and less cumbersome. Although the introduction of the green channel seems to have contributed a lot towards ease of doing business, ultimately the framework of merger and acquisitions have remained the same. It is due to the fact that its scope is limited to a very limited extent due to its applicability on very limited cases which excluding those involving horizontal, vertical or complimentary overlap. Imposing the responsibility on the parties to self-assess any possible overlap in any market including those in which they have minor shareholding will ultimately make the process time-consuming. Also, the lack of clarity of some newly introduced terms and certain procedural aspects in this new amendment can cause great confusion amongst the parties thus invariably leading them towards taking missteps. The inconsistency of green channel with provisions of the parents act coupled with other latent flaws would make this amendment amenable to litigation.
References:
[1] Competition Commission of India (CCI) introduces Green Channel clearance for Merger & Acquisitions, 19 August 2019, https://www.cci.gov.in/sites/default/files/press_release/PR82019-20.pdf
[2] Regulation 5A, the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011.
[3] Pre Filing Consultation (PFC) guidance note, https://www.cci.gov.in/sites/default/files/cci_pdf/pfc.pdf
[4] Consultation prior to filing of notice of the proposed combination under sub section (2) of section 6 of the Competition Act, 2002, https://www.cci.gov.in/sites/default/files/cci_pdf/PFCguidancenote.pdf
[5] The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, regulation 13.
Thoughts of
Devansh Bhargava,
BBA LLB
(Images used for representative purpose only)