There has been a coordinated and consistent move by industry to ensure that merger regulations that have been proposed by the Competition Commission do not cover global mergers whose implications in India are not substantial. We have discussed this issue in the past on this blog (here, here and here). In fact, the draft regulations do contain some de minimis exceptions that seemingly placate industry concerns.
However, adopting a somewhat contrarian approach, in an article in the Economic & Political Weekly titled Are Merger Regulations Diluting Parliamentary Intent?, the authors Manish Agarwal and Aditya Bhattacharjea argue that such exceptions brought in through the draft regulations dilute the intention of the legislature in enacting the Competition Act (and the amendments in 2007). The authors state:
“These merger regulation provisions, in particular, the mandatory notification requirement and the lack of a “domestic nexus” criterion for foreign mergers have been sore points for the domestic as well as international business communities. It has been argued that the mandatory notification system will require notification of foreign mergers with little or no nexus to India and add to the cost of doing business as well as strain the resources of the CCI. The amendment Act has sought to address this concern by providing for a domestic nexus test. Accrodingly, the thresholds for worldwide turnover or assets have been amended, so that only those combinations where at least Rs. 500 crore of the combined worldwide assets or at least Rs. 1,500 crore of combined worldwide turnover of the merging parties is in India, would come under the purview of the Act. However, this amendmednt has not been well received in business and legal circles.
In order to address this and other procedural objections and to outline its approach towards merger review, the CCI published draft combinations regulations in January 2008, which list certain categories of transactions that will be treated by the CCI as not likely to cause an appreciable adverse effect on competition in India. They include a modified two-firm domestic nexus test according to which combinations in which at least two parties do not each have a minimum of Rs. 200 crore of assets or Rs. 600 crore of turnover in India will be considered benign. …”
The authors subject this modified two-firm domestic nexus test to an economic analysis and advance arguments that there could be scenarios where mergers could fall below the thresholds stipulated above, but would still raise significant competition concerns. Such arguments are certain to be met with stiff resistance from industry circles.