[By Rashmi Birmole and Sahaja Burde]
The authors are third year students of ILS Law College, Pune and can be reached at email@example.com.
In what appears to be a complete overhaul of the Indian merger approval process, the Competition Commission of India (“CCI“) recently introduced a deemed approval mechanism called the “Green Channel” by way of its 7th set of amendments (Amendment Regulations 2019) [i] to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 [ii] (“Combination Regulations“) in an attempt to move towards an increased disclosure based regime [iii] regarding mergers and acquisitions and promotion of ease of doing business in India. The recent amendments have come into effect from 15th August, 2019 and are in line with the recommendations of the Competition Law Review Committee, constituted in 2018 to strengthen and re-calibrate the Competition Act, 2002 (“The Act“) to address emerging competition concerns and economic challenges in India. Through this post, the authors seek to analyze the Green Channel mechanism and its implications on the evolving M&A landscape in India.
Under the Act, a combination is defined as the acquisition of one or more enterprises by one or more persons or mergers or amalgamation of enterprises [iv]. The Competition Regulatory Authority, i.e., the CCI is vested with the power [v] to approve mergers or combinations falling within certain deal value threshold limits, not eligible for any available exemptions and not causing any appreciable adverse effect on competition (“AAEC”) in the relevant market. Prior to the amendments, the parties involved were obligated to file mandatory pre-merger notifications for approval with the CCI, a cumbersome process [vi] that involved a number of phases and took a minimum of 210 days to be completed. Under the recently introduced Green Channel, parties can get their proposed combination automatically and expeditiously approved on filing of notification with the CCI and fulfillment of certain eligibility criteria and subsequently give effect to them.
Report of the Competition Law Review Committee- an Overview
The Report of the Competition Law Review Committee [vii] (“The Committee”) while considering mergers as a means for companies to effectively compete and gain welfare-enhancing efficiencies, observed that a delay in merger implementations leads to an increase in costs borne by the merging parties in particular and the society in general. The ideation of the Green Channel by the Committee was based fundamentally on two premises. Firstly, the data gathered from the Annual Reports [viii] of the CCI showed that a majority of the combinations were approved without modifications and secondly, that merger control increased costs and caused delayed transactions.
The Committee sought to introduce the Green Channel route to ensure a vital balance between adequate regulatory control and a greater ease of doing business. Among the recommendations for the Green Channel include self-assessment by the parties, envisioning a disclosure based regime for combinations that are unlikely to result in any AAEC. Opting for the Green Channel route would imply the waiver of the 210-day standstill period and result in the consummation of the proposed combination on mere intimation to the CCI. The possible downside of allowing parties to waive off the 210-day standstill period by opting Green Channel, as observed by the Committee, would be the difficulty involved in untangling the assets and business relationships when required. The pre-filing consultation, as suggested by the Committee, would minimize the above anticipated risk.
Amendment Regulations 2019- Salient Provisions
In light of the Committee’s recommendations and enduring deliberations with the Ministry of Corporate Affairs [ix], the CCI notified the 7th set of amendments to the Combination Regulations materializing the proposed Green Channel [x] as an automatic clearance channel for certain type of transactions added in Schedule III of the Combination Regulations. Provisions specifically relating to the Green Channel are as follows:
- Criteria for eligibility and permitted transactions
The parties to the combination are required to self-assess and determine the applicability of the Green Channel route to the transaction [xi]. While determining their eligibility for the Green Channel, the parties are required to declare the absence of any horizontal and vertical overlapping between the respective group entities and any entity in which they, directly or indirectly, hold shares and/or exercise control. The absence of overlapping must be ascertained after considering all reasonable alternative market definitions. In addition to the horizontal and vertical overlapping, Schedule III also requires the parties to not engage in any activities which are complementary to each other. Eligible transactions will be deemed approved upon receipt of acknowledgement of the filing.
- Structure of the Form
Form I in Schedule II has been replaced with a simpler form including standard declarations attesting to the lack of possible overlapping and non-causation of an AAEC. The sole objective of making the Form simpler and less cumbersome is to encourage parties to opt for the Green Channel.
Additionally, sub-regulation (1A) under Regulation 13 was altered and substituted making the word limit of the summary of the combination, not consisting of confidential information, from 2000 words to 1000 words. Sub-section (1B) which required the parties to submit an additional 500 word summary is omitted, hence resulting in only one necessary submission.
On occasions where the Committee finds the non-fulfillment of the eligibility criteria i.e., if the combination does not fall under Schedule III and/or declaration filed under sub-section (1) is incorrect, the notice and approval granted under the Green Channel will be held void ab initio[xii]. The Commission, retaining its regulatory power, will deal with such combinations in accordance with the power vested upon it by virtue of Section 44 and Section 20(1) of the Act, wherein the filing of wrong/incomplete information may attract penalty and such notification may be looked into by the CCI in order to assess the ability of the combination to cause an AAEC up to one year from the date of effect. The parties however, will have an opportunity to be heard before deciding on the matter.
While the institution of the Green Channel marks a commendable step towards facilitating ease of doing business and relaxing the regulatory burden on the parties to the combination, it is not free from practical challenges that could potentially render it ineffective in the long run.
Starting off, the Amendment Regulations have introduced the expression “complementary activity” in the nature of overlaps to be avoided without defining such activity or specifying its import. Moreover, the Regulations require the transacting parties to conduct overlap assessments over all plausible alternative market definitions, a meticulous task that could stand to defeat the intended cost-effective and expeditious purpose of the Green Channel. The impact of the Amendment Regulations also stands the risk of being curtailed on account of its limited scope of applicability. For instance, the existence of an investment in an overlapping business, no matter how minimal, is sufficient to place a business outside the scope of the Green Channel. This can possibly have an adverse effect on purely financial private equity firms that operate through loosely affiliated investment strategies.
The Amendment Regulations are also silent on the avenues available to the parties to the combination in the event that the combination is declared void ab initio post approval by the CCI. The parties stand the additional risk of being subjected to “gun-jumping” proceedings in case of CCI’s disagreement with the fulfillment of eligibility criteria after approval is automatically granted under the Green Channel mechanism and the combination is implemented by the parties. Additionally, the Green Channel is also riddled with certain legislative concerns, making it prone to challenge. The CCI is entrusted with the power [xiii] to make regulations to carry out the purpose of the Act. It is difficult to ascertain whether a deemed approval mechanism was originally envisaged under the scope of S.6 (2A) of the Act that provides for a 210-day waiting period from the filing of the notice before a notification can be deemed approved and the combination can be implemented.
In spite of the practical challenges and legislative concerns, the catalyzing effect of the Amendment Regulations on liberalizing the merger control regime and promoting ease of doing business in India cannot be disputed. The Amendment Regulations mark a transition of CCI’s role from an enforcer to a facilitator in the Mergers and Acquisitions sphere, attempting to strike a balance between prohibition and permission in the spirit of competition. Only time will tell on which side the balance decides to tilt.
[i] Competition Commission of India, CCI (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2019, Dated August 13, 2019, https://www.cci.gov.in/sites/default/files/notification/210553.pdf.
[ii] Competition Commission of India, CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, Dated May 11, 2011, https://www.cci.gov.in/sites/default/files/regulation_pdf/Combination%20Regulations%202016%20-%20FINAL_0.pdf.
[iii] Ministry of Corporate Affairs, Press Information Bureau, Report of the Competition Law Review Committee submitted to Union Finance and Corporate Affairs Minister, Dated August 14, 2019, https://pib.gov.in/newsite/PrintRelease.aspx?relid=192629.
[iv] The Competition Act 2002, §. 5.
[v] The Competition Act 2002, §. 6.
[vi] Sandeep Sohni, ‘Green Channel’ to expedite M&A approval, says govt committee; to boost ease of doing business, The Financial Express, Dated August 14, 2019, https://www.financialexpress.com/industry/sme/green-channel-to-expedite-m-to-boost-ease-of-doing-business/1675756/.
[vii] Ministry of Corporate Affairs, Report of the Competition Law Review Committee, Dated July 26, 2019, http://mca.gov.in/Ministry/pdf/ReportCLRC_14082019.pdf.
[viii] Competition Commission of India, Annual Report 2017-18, Dated March 31st 2018, https://www.cci.gov.in/sites/default/files/annual%20reports/AnnualReportEnglish2017-18.pdf.
[ix] CCI Notifies 7th Set of Amendments to Merger Regulations: Green Channel now a Reality! , Khaitan & Co., Dated August 19, 2019, http://www.mondaq.com/india/x/837508/Antitrust+Competition/Cci+Notifies+7th+Set+Of+Amendments+To+Merger+Regulations+Green+Channel+Now+A+Reality.
[x] The Competition Commission of India (Procedure in regard to the transactions of business relating to combinations) Amendment Regulations, Regulation 5A.
[xi] The Competition Commission of India, Pre Filing Consultation (PFC) guidance note, https://www.cci.gov.in/sites/default/files/cci_pdf/pfc.pdf.
[xii] The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, Regulation 5A(2).
[xiii] The Competition Act 2002, §. 64.