[The
following post is contributed by Karan
S. Chandhiok, who is the Managing Associate of the Competition Law Team at
Luthra & Luthra Law Offices. Karan graduated from Amity Law School followed
by a BCL at Oxford. He currently serves as a Member Executive of the
Competition Law Bar Association.
following post is contributed by Karan
S. Chandhiok, who is the Managing Associate of the Competition Law Team at
Luthra & Luthra Law Offices. Karan graduated from Amity Law School followed
by a BCL at Oxford. He currently serves as a Member Executive of the
Competition Law Bar Association.
These
views are personal.
views are personal.
Karan may
be contacted at [email protected] or
[email protected]]
be contacted at [email protected] or
[email protected]]
The Competition Commission
of India (Procedure in Regard to the Transaction of Business Relating to
Combinations) Regulations, 2011 (the Combination Regulations) came into
effect from 1 June 2011. These represent the substance of the merger control
regime in India. in order to address some of the reservations that
were expressed by the industry and antitrust practitioners alike, the
Competition Commission of India (the CCI)
introduced a list of exempted transactions, which according to the CCI would
“ordinarily not cause an appreciable adverse effect on competition”. These
transactions are listed at Schedule I to the Combination Regulations.
of India (Procedure in Regard to the Transaction of Business Relating to
Combinations) Regulations, 2011 (the Combination Regulations) came into
effect from 1 June 2011. These represent the substance of the merger control
regime in India. in order to address some of the reservations that
were expressed by the industry and antitrust practitioners alike, the
Competition Commission of India (the CCI)
introduced a list of exempted transactions, which according to the CCI would
“ordinarily not cause an appreciable adverse effect on competition”. These
transactions are listed at Schedule I to the Combination Regulations.
Laudably, the CCI has continued its
efforts of consulting with stakeholders and has already amended this list twice
in the past 15 months to bring it closer to practical realities. The first set
of amendments wase introduced in February 2012 (the 2012 Amendments) and can be accessed here.
efforts of consulting with stakeholders and has already amended this list twice
in the past 15 months to bring it closer to practical realities. The first set
of amendments wase introduced in February 2012 (the 2012 Amendments) and can be accessed here.
The latest
amendments to the Combination Regulations came
into force on 4 April 2013 and the further reduce the regulatory burden of
seeking the prior approval of the CCI. These amendments are summarised below:
amendments to the Combination Regulations came
into force on 4 April 2013 and the further reduce the regulatory burden of
seeking the prior approval of the CCI. These amendments are summarised below:
Creeping
Acquisitions
Acquisitions
The 2012 Amendments aligned the
Combination Regulations with the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (the Takeover
Code) increasing the limit of exempted shareholding from 15% to 25% so long
as such shareholding was acquired as an investment or in the ordinary course of
business and did not result in a change of control of the target
enterprise. The new category 1A brings
the Combination Regulations and the Takeover Code further closer to each other
by exempting creeping acquisitions. The new Category 1A now exempts
transactions where the acquirer:
Combination Regulations with the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (the Takeover
Code) increasing the limit of exempted shareholding from 15% to 25% so long
as such shareholding was acquired as an investment or in the ordinary course of
business and did not result in a change of control of the target
enterprise. The new category 1A brings
the Combination Regulations and the Takeover Code further closer to each other
by exempting creeping acquisitions. The new Category 1A now exempts
transactions where the acquirer:
–
already holds 25% or more but less than 50% of the shares or voting rights in
the target enterprise; and
already holds 25% or more but less than 50% of the shares or voting rights in
the target enterprise; and
–
acquires not more than 5% of the target enterprise in one financial year on a
gross basis,
acquires not more than 5% of the target enterprise in one financial year on a
gross basis,
provided that,
such acquisition does not lead to the acquisition of sole or joint control.
such acquisition does not lead to the acquisition of sole or joint control.
The CCI has not provided any guidance on
the meaning of ‘gross acquisition’, but the Takeover Code states that in the
determination of “gross acquisition” any intermittent fall in shareholding or voting
rights whether owing to disposal of shares held or dilution of voting rights on
account of any fresh issues of shares, shall be disregarded.
the meaning of ‘gross acquisition’, but the Takeover Code states that in the
determination of “gross acquisition” any intermittent fall in shareholding or voting
rights whether owing to disposal of shares held or dilution of voting rights on
account of any fresh issues of shares, shall be disregarded.
The definition of ‘control’ still
remains somewhat of an elusive concept. In the SPE/Grandway/Atlas combination (C-2012/06/63),
the CCI has offered some guidance on this concept:
remains somewhat of an elusive concept. In the SPE/Grandway/Atlas combination (C-2012/06/63),
the CCI has offered some guidance on this concept:
Joint
control over an enterprise implies control over the strategic commercial
operations of the enterprise by two or more persons. In such a case, each of
the persons in joint control would have the right to veto/block the strategic
commercial decision(s) of the enterprise which could result in a dead lock
situation…
control over an enterprise implies control over the strategic commercial
operations of the enterprise by two or more persons. In such a case, each of
the persons in joint control would have the right to veto/block the strategic
commercial decision(s) of the enterprise which could result in a dead lock
situation…
Intra-group
mergers and amalgamations
mergers and amalgamations
The requirement of seeking approval for
transactions that are essentially internal restructurings has been debated by
stakeholders and practitioners in various forums in India and abroad. The 2012 Amendments
provided a limited relief to such transactions by exempting mergers and
amalgamations involving enterprises that were wholly owned within the same
group.
transactions that are essentially internal restructurings has been debated by
stakeholders and practitioners in various forums in India and abroad. The 2012 Amendments
provided a limited relief to such transactions by exempting mergers and
amalgamations involving enterprises that were wholly owned within the same
group.
The new Category 9 broadens the scope of
this exemption. Under the new Category 9, exemption is available for mergers or
amalgamations involving enterprises, where:
this exemption. Under the new Category 9, exemption is available for mergers or
amalgamations involving enterprises, where:
·
one enterprise holds more than 50% of
the shares or voting rights of the other enterprise; or
one enterprise holds more than 50% of
the shares or voting rights of the other enterprise; or
·
enterprise(s) within the same group hold
more than 50% of the shares or voting rights of each enterprise,
enterprise(s) within the same group hold
more than 50% of the shares or voting rights of each enterprise,
provided that, such transactions do not
lead to the transfer of joint to sole control.
lead to the transfer of joint to sole control.
This exemption is certainly a welcome
step. However, it glosses over the fact that family owned companies are often
held through various intermediate companies that represent the shareholding of
each promoter; and collectively, these intermediate holding companies form part
of the ‘promoter group’. The Competition Act, 2002 (the Act) does not recognise the concept of ‘persons acting in concert’
as under the Takeover Code. Under the Act, a single individual is an
‘enterprise’. Therefore, a restructuring amongst the promoter group companies
will still require the approval of the CCI as these entities (despite forming
part of the same ‘promoter group’) would not be held within the same ‘group’,
as defined under the Act.
step. However, it glosses over the fact that family owned companies are often
held through various intermediate companies that represent the shareholding of
each promoter; and collectively, these intermediate holding companies form part
of the ‘promoter group’. The Competition Act, 2002 (the Act) does not recognise the concept of ‘persons acting in concert’
as under the Takeover Code. Under the Act, a single individual is an
‘enterprise’. Therefore, a restructuring amongst the promoter group companies
will still require the approval of the CCI as these entities (despite forming
part of the same ‘promoter group’) would not be held within the same ‘group’,
as defined under the Act.
Note that the original Category 9
exempting the acquisition of ‘current assets’ has now been moved and included
in category (5) along with stock-in-trade, raw materials, stores and spares,
trade receivables and other similar current assets in the ordinary course of
business.
exempting the acquisition of ‘current assets’ has now been moved and included
in category (5) along with stock-in-trade, raw materials, stores and spares,
trade receivables and other similar current assets in the ordinary course of
business.
Clarifications
on intra-group acquisitions
on intra-group acquisitions
The Combination Regulations exempted
acquisitions of control, shares, voting rights or assets within the same group.
It is now clarified that this exemption will not be available where the target
enterprise is jointly controlled by enterprises not falling within the same
group.
acquisitions of control, shares, voting rights or assets within the same group.
It is now clarified that this exemption will not be available where the target
enterprise is jointly controlled by enterprises not falling within the same
group.
It is hoped that in the next set of
amendments, the CCI relooks at the obligation to file a notice with the CCI
within the statutory period of 30 days (see section 6(2) of the Act). In a
jurisdiction such as India, where a transaction cannot be consummated till it receives
the prior approval of the CCI, a time limit for the filing offers limited
value. One hopes that the CCI would take
a lenient view where parties have not closed a transaction, but have made a
belated notice to the CCI for operational reasons or otherwise.
amendments, the CCI relooks at the obligation to file a notice with the CCI
within the statutory period of 30 days (see section 6(2) of the Act). In a
jurisdiction such as India, where a transaction cannot be consummated till it receives
the prior approval of the CCI, a time limit for the filing offers limited
value. One hopes that the CCI would take
a lenient view where parties have not closed a transaction, but have made a
belated notice to the CCI for operational reasons or otherwise.
© Karan S. Chandhiok
