Introduction:
Recently, the much awaited, The Competition (Amendment) Act, 2023 was passed by both the houses of the parliament and it was subsequently granted the presidential assent. The Competition Law Review Committee (CLRC), the Parliamentary Standing Committee on Finance (Standing Committee), and several stakeholders all contributed to the meticulous development of the Amendments. The Act will be having significant impact on the business environment, especially the Merger Control Regime in India.
The process of merger control involves the evaluation of mergers and acquisitions to verify that they comply with competition and antitrust regulations. Certain mergers have the potential to diminish competitiveness of a market, leading to a monopolistic company that may exploit its dominant position. Due to unprecedented levels of globalization, privatisation, and corporate-restructuring, it becomes necessary to have state supervision, especially on cross-border Mergers and Acquisitions. The value of cross-border merger transactions was $2.1 trillion in 2021, which is 69% higher compared to the previous year. This further emphasizes the importance of regulating such transactions.
Lowering of Fiscal Threshold Restriction:
The Section 5 of the Amendment Act dealing with ‘Combinations’ has proposed a new deal value threshold which states that any transaction involving merger or amalgamation, the deal value of which exceeds INR 2,000 crore would become notifiable to the Competition Commission of India (“CCI”) and require its prior approval for consummation. The monetary threshold of INR 2,000 crore is not adequate to trigger the notification requirement unless the enterprise (i.e., the one being amalgamated/merged/acquired) have “substantial business operations” in India. The definition of ‘substantial business operations’ is still pending clarification, requiring a thorough examination to determine the extent of enterprise’s operations’ in India. It was contented by Federation of Indian Chambers of Commerce and Industry (FICCI) that this provision should not be introduced, because this would compromise with the flexibility of the regulator.
It can be argued that in some transactions, the size of assets may not be an accurate indication of the market presence of the entity involved. For instance, when an entity plans to acquire an Indian company to enter a new product market, and the deal value exceeds the threshold, it would still need the prior approval of the CCI for consummation, even though the transaction is expected to boost market competitiveness. Rather than having a uniform deal value threshold for all sectors, it is necessary to have sector-specific thresholds.
Due to this, Digital Competition Act is also being proposed to specifically monitor the dominance of Big Tech companies in digital markets and to bring “Killer Acquisitions” under the regulatory oversight of the CCI. Additionally, the implementation of this provision should be in an ex-post format, rather than the current ex-ante format. Otherwise, CCI will need to scrutinize regular transactions, even if they have comparatively less influence, which may not be suitable for the Indian ecosystem. Additionally, the definition of “control” under Section 5 has been changed from “decisive influence” to “material influence”. This is consistent with the CCI’s ruling in the Ultratech Cement Limited Case, where “material influence” is regarded as the lowest level of control. This could place an unnecessary administrative burden on the already understaffed regulator. Such changes may be seen as unfavourable to foreign businesses and could indirectly discourage them from investing in certain sectors in India and negatively impact foreign investment in India.
Jurisdictional issues in cross-border Mergers:
A major concern that has not been adequately addressed by the new Competition Amendment Act is the possibility of conflicting competition laws across different nations in cases of cross-border mergers. This can lead to contradictory rulings by multiple competition authorities, as each country may have different guiding principles for determining the impact of a particular merger transaction. In some cases, the CCI may allow cross-border combinations that affect competition if their economic benefits outweigh any adverse impact, but the competition authority in the foreign enterprise’s jurisdiction may not permit the same transaction. What is considered anti-competitive in one jurisdiction may not be the same in another jurisdiction. Moreover, the amendment Act also allows imposition of penalty based on global turnover, which will disproportionately affect Global Multi-product Companies. Section 32 of the Act gives the CCI the authority to investigate and make decisions about transactions occurring outside India that affect competition in India, which may result in conflicts of jurisdiction in cross-border mergers.
A lacuna that can be highlighted is the lack of guidance on how the orders under Section 32 are to be given effect. The suggestion is to add provisions that give power to the CCI to ask for cooperation from foreign authorities to enforce its orders concerning anti-competitive practices in cross-border cases. The “Coordinating Agency Model” is proposed as a solution to the conflict of jurisdiction in cross-border mergers, where the supranational agency will investigate and submit recommendations to the local authorities involved in the transaction. This model will help prevent divergent decisions and address loopholes in various competition laws. Additionally, it is suggested that the CCI should enter into bilateral agreements with other countries to promote cooperation and exchange of information between the concurrent competition agencies. This will help enforce Indian competition law effectively and reduce the possibility of differences between them in the application of their competition laws.
The Push for Reduced Merger Review Timeline:
The Amendment Act has reduced the time period for reviewing a proposed merger combination from the present 210 days to 150 days. It also requires the CCI to form its initial opinion on a transaction within 30 calendar days, instead of the previous timeline of 30 working days. This expeditious approval is being lauded by many as a positive change for the business environment as it is likely to considerably diminish the duration of waiting period for the authorization of mergers and acquisitions, improve business sentiments/ease of doing business and exempt combinations involving an open offer or acquisition of shares/securities through a series of regulated stock exchange transactions.
However, the shortened review timeline for proposed combinations is expected to create burden on the CCI’s case officers, leading to more requests for information (RFIs) from parties and possible invalidation of filings due to insufficient response time, thereby increasing uncertainty and prolonging timelines. Recently, the Chairperson of the CCI announced that on average it takes only 17 working days for the regulator to clear a transaction in the initial phase. This is already a short timeline and performs better than counterpart CCIs around the world. Thus, reduction in timeline to 30 Calendar days was not as such required and the ideal approach can be to follow the recommendations of Competition Law Review Committee to strike a balance between maintaining efficiency and timely disposal of cases by reducing the time taken for proceedings while maintaining the current prima facie timeline.
Framework on Settlement and Commitments:
The Amendment Act introduces provisions allowing parties to offer settlements and voluntarily undertake certain commitments, which enables the CCI to close inquiry proceedings before the final decision is issued after considering the nature, gravity and impact of the contraventions. This is a very welcoming change, and aligns with the regimes such as Singapore, the United Kingdom and the European Union. By leveraging the S&C framework alongside computational capabilities, it becomes possible to tackle market imbalances and foster favourable conditions for endeavours for mergers, ultimately leading to advantages for both parent company and the company being merged. The aim should is to prioritize the swift implementation of these provisions, rather than getting entangled in protracted legal proceedings. This proactive approach would effectively eradicate “anti-competitive rust” from the markets, thereby unlocking economic advantages.
This is likely to motivate parties to settle proceedings expeditiously and enable market adjustments. The result of this will be predictability, which will reduce the waiting time and lower the cost of litigation for both the parties involved and the CCI. However, the exclusion of cartels from the settlement option is a significant deviation from the recommendations of the Parliamentary Standing Committee on Finance. The inclusion of cartels would have been a pragmatic move towards the closure of proceedings for companies preferring to settle instead of litigating. Moreover, the absence of an appeal to NCLAT from an S&C order is a limitation to availing legal recourse. In sum, this provision is likely to encourage ease of doing acquisitions, ease of mergers, improve business sentiments, drive growth and innovation, but there are certain limitations that need to be addressed.
Conclusion:
The increasing number of mergers and acquisitions transactions among Indian companies is a sign of a healthy economy and progressive government policies. The CCI has been handling complex mergers and has made progress in streamlining the approval process, but it is still important to strike a balance between restrictions and authorizations. India needs another IT industry-like revolution in order to at least reach upper middle-income status, and this calls for a constant injection of billions of dollars in terms of foreign capital. However, by requiring a mandatory transaction notification to the CCI, we are making it more difficult for these investors to withdraw. The merger control regulations in India are still in their early stages, and while the 2023 Amendment Act is a good attempt address these issues, there is still work to be done to make India a strong player in the global merger and
acquisition market.