India's competition regulator on Wednesday announced the regulations for mergers and acquisitions, diluting several of its earlier proposals to address industry concerns that the competition law was intrusive and burdensome.
The new rules exempt a host of transactions from the scrutiny of the Competition Commission of India (CCI) and seek much lower merger notification fees than proposed earlier.
"We have exempted routine merger and acquisition deals from seeking our nod," CCI Chairman Dhanendra Kumar said. The commission said the rules would take effect from June 1 and not apply retrospectively. This means they will not cover mergers and acquisitions approved by the boards of companies before this date.
Schedule I of the regulations lists a number of transactions that will be exempt from the scrutiny of the competition watchdog.
It says if an acquirer has 50% stake in a firm, then further acquisition will not trigger the competition law, except where the acquisition leads to transfer from joint control to single control.
Earlier, a company acquiring even one share in a group firm controlled by it was required to notify the Competition Commission if it was meeting the asset or turnover threshold.
An acquisition of less than 15% voting right, if it is in the usual course of business or purely an investment, will be exempt.
Acquisition of shares or voting rights through bonus issues, stock splits, consolidation of face value of shares or rights issues will be exempt if it does not lead to acquisition of control.
A stock market intermediary acquiring shares on behalf of clients will also be exempt from reporting requirements.
"The new norms have done away with the intrusive and burdensome process," said Samir Gandhi, partner at law firm Economic Laws Practice . "It's a huge relief for the industry."
One filing for smaller interconnected deals
The CCI has specified certain transactions where companies going in for mergers and acquisitions will have to submit details in Form I, and if the commission is not satisfied, it will have the discretionary power to call for more information in Form II.
The CCI has slashed the merger notification fee for Form I to Rs 50,000 from Rs 40 lakh and for Form II to Rs 10 lakh from Rs 40 lakh. It has specified that interconnected transactions will require only one filing, reducing compliance burden on companies that are in acquisition mode.
Interconnected transactions are a series of smaller, individual transactions, which are inter-dependent and eventually lead to a merger. The change ensures that once the viability of a transaction is verified, it would not be required to go through the notification process for subsequent transactions. In the case of mergers between overseas companies that have Indian subsidiaries, only those that have a material impact would attract scrutiny.
"The regulations are a step in the right direction," said Pallavi S Shroff, senior partner at law firm Amarchand Mangaldas ."They are a big improvement over what formed part of the draft regulations issued earlier."
All mergers and acquisitions, which create combined assets of Rs 1,500 crore or turnover of Rs 4,500 crore, would have to seek approval of the commission before concluding the deal.
The regulator's approval would also be required for transactions where the assets of a business group cross Rs 6,000 crore, or its turnover exceeds Rs 18,000 crore, post the acquisition.
The CCI will intervene only if the target company's net assets are at least Rs 200 crore or it has a turnover of Rs 600 crore.
The CCI chairman promised to clear 95% of merger and acquisition proposals within a month. He said only those transactions, which can have an impact on competition in India, would be retained for a second round of scrutiny. The commission would clear these transactions between 180 days and 210 days.
The Federation of Indian Chambers of Commerce & Industry (Ficci) welcomed the decision to specify the transactions that will be exempt from scrutiny and for not applying the law retrospectively. "We are delighted that most of the concerns and recommendations made by us find place in notified guidelines, particularly the Schedule I that relates to exempted transactions, which are not likely to cause appreciable adverse effect on competition in India," said Vijaya Sampath, co-chair of the corporate law committee at Ficci.
The industry body, however, questioned the decision to do away with the pre-merger consultation process, considered a global best practice in the area of merger regulations.
The Confederation of Indian Industry also welcomed the regulations but said the CCI should have also exempted transactions not covered under the Competition Act from the reporting requirement. It also urged for a 'deemed approval' provision in cases where the commission did not prima facie form an opinion in 30 days or fails to communicate such decisions to the parties.
The regulator said it would make adequate provisions for the consultation process on its website to guide companies. It also said that measures were being taken to ensure confidentiality of the information provided by the companies.
"The objective of the CCI is to safeguard the interest of consumers and ensure freedom of trade," the CCI chairman said.
The competition regulator went through a detailed process of discussion and debate after it issued the draft regulations over a month ago. The CCI and corporate affairs ministry, which oversees it, held a series of interactions with industry to allay their fears over the regulator acting as a hurdle in the growth of companies and foreign direct investments.
"The merger norms in India are now the most liberal among all countries with the European Union being the closest in respect of the thresholds that have been set for mergers to be reviewed by the competition regulators," said Vinod Dhall, chairman, Dhall Law Chambers and a former chairman of CCI.