Today’s Economic Times carries a column by Jaishree Vyavaharkar & David Jacobs of Baker & McKenzie analyzing the provisions of the Act and the recent draft regulations on business combinations, with specific reference to implications on foreign investors.
Here are some excerpts:
“A fundamental concern for foreign investors was the lack of domestic nexus in the Act. Effectively, deals which had little or nothing to do with India could trigger a requirement to notify. This issue has now partly been resolved by the new regulations which stipulate that at least two companies to a transaction must each have a minimum of Rs 200 crore of assets (approximately $50 million) or Rs 600 crore of turnover (approximately $150 million) in India.
However, whilst deals that fall below this threshold would not raise competition concerns, it is not clear whether they would still require notification. It is hoped that this is simply a matter of drafting and that the CCI will clarify this point in the final regulations.”
One of the prominent criticisms of the Act and draft regulations is the excessive time given for approval of combinations, that could potentially chill M&A transactions. The authors deal with this issue too:
“For M&As, timing is crucial. Merging companies are keen to obtain clearance quickly, especially when the deal has little or no impact in the jurisdiction. A long waiting period means that the deal is in limbo until clearance which, for many deals, can be detrimental and even fatal. The 210-day rule was unusual as mandatory and suspensory regimes do not usually have long waiting periods (although there are exceptions such as Slovakia (60 working days). In the EU, a deal must be cleared within 25 working days (extendable to 35) or within a further 90 working days (extendable to 105). In the US, a deal will be cleared within 30 days if there are no issues or within a further 30 days.”
They conclude with the following observations and questions:
“Despite the challenges, foreign and local businesses should take advantage of their experience in other jurisdictions to tackle the new Indian merger control regime with some confidence. More generally, although there is much speculation and scepticism of how the Act will work, uncertainty remains as to how the CCI will actually enforce the law. Does it have both the appetite and the resources to implement a truly effective competition regime? Or will it adopt a more liberal and flexible system? Will cartel enforcement be a priority, as it is in the EU? Will the leniency regime, that offers discounts on fines to companies that admit to participating in a cartel, really incentivise businesses to come forward? Against the backdrop of a thriving Indian economy, it remains to be seen how foreign and local businesses, as well as the CCI, will rise to the challenges of a new and potentially rigorous competition regime.”