Determination of ‘group’ in intra-group transactions grey area in CCI

After much deliberations and meetings with various industry forums and other stakeholders, the Competition Commission of India (CCI) has released the final combination regulations on merger combination provisions under the Competition Act, 2002.
The key changes to final regulations include separate schedule for exempt transactions, reduction in application fees, removal of informal feedback, filing of information in simplified form, clarity on ongoing transactions, amongst others.

Exempt transactions
A new category of exempt transactions has been introduced. These transactions include acquisition of up to 15% shares in the target, any acquisition of shares in the target wherein the acquirer is already holding 50% or more of the target, acquisition of shares on bonus issues and stock splits, acquisitions within group companies, combinations taking place outside India with insignificant local nexus, share acquisitions by the underwriter/ registered broker, etc.

The above is a welcome change as it simplifies processes for various transactions wherein there was no impact on competition.  

Simplification of filing forms
Notice for all combinations will have to be filed in simplified Form I.  The parties to the combination have the option to annex additional documents or file the detailed Form II. The filing fees for Form I is Rs50,000 and Form II is Rs10 lakh.  This replaces the earlier fee schedule which ranged from Rs10 lakh to Rs40 lakh depending on the transaction value.  A vast majority of the cases so filed will be cleared in less than 30 days.

Informal guidance
The draft regulation had the provision for informal oral consultation with the CCI. The final regulation has removed this provision. This provision would have been of great help to all the stakeholders in the preliminary years of the implementation of the combination regulation. However, as regards pre-merger consultation, CCI has stated that it will make adequate provision for the same on its website.

Transitional provisions
While the earlier draft lacked clarity on this aspect, the final regulations specify the scenarios in which the enterprises will have to notify CCI for ongoing transactions. In case of merger / amalgamations proposals approved by the Board of Directors on or before May 31, 2011 and in case of acquisitions, wherein the binding agreement is executed on or before May 31, 2011, no notification to CCI is required.

Grey area
Some challenges which may be faced by the industry could be the interpretation of ambiguous terms such as market share etc, determination of ‘group’ for the purposes of availing exemption for intra-group transactions and other forms of corporate restructuring. This would be critical in terms of mergers and amalgamations within the same group. Would the exemption provided for acquisition of control or shares or voting rights or assets within the group cover scenarios of merger / amalgamation within the group?

In the coming months India Inc would need to evaluate the applicability of the merger control provisions and the specific exemptions to every M&A activity proposed by them.  They will also have to consider the additional time required to obtain CCI pre-approval, subjective criteria used to determine adverse effect on competition and lack of judicial precedents on the Competition Act.

Kotak is an executive director and Shah is director with KPMG