Jurisdiction - India
Reports and Analysis
India – Amendments To The CCI’s Combination Regulations.

4 April, 2014

 

 

The Competition Commission of India (‘CCI’) has introduced certain changes to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 as amended up to 4 April 2013 (‘Old Combination Regulations’) effective March 28, 2014.
The amendments have been notified by the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2014 (‘Combination Amendment Regulations 2014’). This Client Alert sets out a summary of the key changes to the existing set of disciplines contained in the Old Combination Regulations:
A. Introduction Of A Substantive Test For Filing Assessment

 

Amendment
“In Regulation (9), after sub-regulation (4), the following sub-regulation shall be inserted, namely – 

(5) The requirement of filing notice under regulation 51 of these regulations (Old Combination Regulations) shall be determined with respect to the substance of the transaction and any structure of the transaction(s), comprising a combination, that has the effect of avoiding notice in respect of the whole or a part of the combination shall be disregarded.”

 

AZB Comment
On a plain reading of the text of the above amendment, it appears that the CCI would now have unfettered powers to look beyond the structure of a transaction and examine the ‘substance’ of the transaction while making a determination on whether it requires notification.
While it is unclear exactly how the CCI may interpret the above provision, it appears that one of the immediate reasons for the introduction of the new sub-regulation 9(5) could have been the manner in which certain parts of an inter-connected transaction were being completed without waiting for the CCI to review and clear the entire transaction, based on an interpretation of sub-regulation 9(4) of the Old Combination Regulation.
Sub-regulation 9(4) of the Old Combination Regulations was introduced to provide flexibility to the parties to a transaction, involving a series of inter-connected or inter-dependent steps, one or more of which could individually amount to a ‘combination’, i.e. satisfy the asset or turnover thresholds prescribed in Section 5 of the Competition Act, 2002 (‘CA02’), to file one consolidated notice. This flexibility could have been used to not notify the smaller steps/transactions that did not qualify as ‘combinations’ and consummate them during the pendency of the review of other steps notified to the CCI, although the ultimate intended effect of the transaction could not have been achieved but for the coalescing of all the smaller steps/transactions to form a composite combination.
For instance, in a recent transaction involving Jet Airways and Etihad Airways where the CCI penalized Etihad Airways for possibly misusing the flexibility under Regulation 9(4) of the Old Combination Regulations and not notifying a particular part of the larger transaction that did not qualify as a ‘combination’ in and of itself.
Perhaps, to address such instances of circumvention, the CCI has introduced Regulation 9(5) through the Combination Amendment Regulations 2014.
It would now be incumbent upon the parties to a transaction, involving a series of interconnected or interdependent steps to evaluate the overall objective/substance of the transaction and not just the notification requirement with respect to each constituent step in the transaction.

 

B. Omission Of The Provision Relating To Appeal To Competition Appellate Tribunal

 

Old Combination Regulations Amendment
“29. Appeal to Competition Appellate Tribunal on combinations- 

Subject to the provisions contained in Section 53B of the Act, the Central Government or the State Government or a local authority or enterprise or any person, who is party to proceedings on matters relating to a combination and is aggrieved by any direction, decision or order referred to in clause (a) of section 53A of the Act may prefer an appeal to the Competition Appellate Tribunal.”

Deleted

 

AZB Comment
Section 53 B of the CA02 allows “any person, aggrieved by any direction, decision or order referred to in clause (a) of section 53A” to prefer an appeal to the Competition Appellate Tribunal (‘COMPAT’) from a decision of the CCI, including a decision with respect to combinations. The text of Regulation 29 of the Combination Regulations appeared to restrict the right to prefer appeals against its decisions on combinations to party(ies) to the proceedings on matters relation to a combination. As a general principle, subordinate legislation, i.e. regulations formed by the executive under the powers granted by the parent legislation can not curtail the rights granted under the parent legislation. Accordingly, Regulation 29 of the Combination Regulations could arguably be said to be ultra-vires the CA02. It appears that the deletion of Regulation 29 of the Combination Regulations seeks to pre-empt such a possibility. Moreover, it now appears that as long as a person can demonstrate that he is aggrieved by the CCI’s decision on a combination, he can prefer an appeal to the COMPAT.
C. Deletion Of The Exemption Available To Combinations Taking Place Entirely Outside India

 

Old Combination Regulations Amendment
Item 10, Schedule I, Combination Regulations: A combination referred to in Section 5 of the Act taking place entirely outside India with insignificant local nexus and effects on markets in India. Deleted

 

AZB Comment
Item 10 of Schedule I to the Old Combination Regulations, read with Regulation 4 of the Old Combination Regulations provided that combinations ‘taking place entirely outside India with insignificant local nexus and effect on markets in India’, are ‘ordinarily not likely to cause’ an appreciable adverse effect in India and hence need not normally be notified to the CCI (‘Item 10 Exemption’). The Item 10 Exemption appears to have been specifically introduced by the CCI to exclude the notification of transactions taking place entirely outside India and not having any nexus with the Indian market. Transactions often involve only one line of business of enterprises carrying out multiple businesses. If the parties (carrying out multiple businesses) to an offshore transaction decide to sell/acquire/merge a line of business that does not earn them any revenue in India or does not involve any assets in India, they could benefit from the Item 10 Exemption.
By deleting Item 10 Exemption, the CCI appears to have taken away an important dispensation that was earlier extended to offshore transactions. In the process, the CCI also appears to have pre-empted the possibility of any challenge to its reading of the Item 10 Exemption, which had largely been rendered redundant because of its previous decisions. In the past, the CCI has indicated that: (a) once the parties to an offshore transaction satisfy the India-nexus threshold prescribed in Section 5 of the CA02; (b) in case of an acquisition, the target has assets above INR 2500m and turnover above INR 7500m in India; and (c) the transaction is unable to avail of any of the other existing exemptions, the transaction would require notification. In other words, even though an offshore transaction does not involve any business in India and by implication has no nexus with the competitive conditions within India. It would require notification, merely because the parties to the transaction satisfy the asset/turnover thresholds due to their other lines of business.

 

D. Changes To The List Of Information Required Under Form I

 

Old Combination Regulations Amendment
“5.1 (f), Form I, Schedule II: any horizontal overlap or vertical arrangements post combination (including between target company and acquirer or any enterprise of the group). “5.1(f), Form I, Schedule II: any horizontal overlap or vertical relationship between the business of the parties to the combination (including between the target company and acquirer or any enterprise of the group).”
“6.8, Form I, Schedule II: whether the combination is subject to filing requirements in jurisdictions other than India? If yes, list the notified, or to be notified, jurisdictions along with the certified copy(s) of the order(s)/decision(s) passed in that jurisdiction.”

 

AZB Comment
The description under heading 5.1(f) of the Form I of the Old Combination Regulations could be construed to mean that the parties to a combination (including the group entities) were required to submit details of horizontal overlaps or vertical arrangements, post the combination. By amending the description under heading 5.1(f) of the Form I of the Old Combination Regulations, the CCI has sought to clarify that the parties (including the group entities) are required to disclose details of all their existing vertical relationships. In other words, the amendment mandates a disclosure of existing horizontal and vertical relationships between the target company and acquirer or any enterprise of the acquirer group.
Second, the introduction of the requirement to provide details on filing requirements in foreign jurisdictions appears consistent with the CCI’s practice of seeking such details from the parties during the pendency of the review. In practice, to seek such information CCI had to issue special requests for information, resulting in ‘clock-stops’ and hence possible delays in approvals. To this extent, the amendment is a welcome step. Equally, the amendment highlights the CCI’s increasing desire to track and understand the approach adopted by other regulators in examining combinations.
E. Increase In Filing Fees

 

Old Combination Regulation Amendment
“11. The amount of fee payable along with the notice in Form 1 or Form II, as the case may be, shall be as under: 

(a) Where the notice is filed in Form I, the fee payable shall be rupees ten lakhs (INR 10,00,000) only;

 

(b) Where the notice is filed in Form II, the fee payable shall be rupees forty lakhs (INR 40, 00,000) only.”

 

“11. The amount of fee payable along with the notice in Form 1 or Form II, as the case may be, shall be as under:- 

(a) Where the notice is filed in Form I, the fee payable shall be rupees fifteen lakhs (INR 15,00,000) only;

 

(b) Where the notice is filed in Form II, the fee payable shall be rupees fifty lakhs (INR 50, 00,000) only.”

 

 

AZB Comment
The filing fee for Form I would be INR 1.5m (USD 25,000 approx.) and for Form II would be INR 5m (USD 83,326 approx.). This would increase the cost of securing CCI’s approval and would appear excessive in case of routine transactions.

 

F. Changes To The List Of Information Required Under Form II

 

 

Old Combination Regulations Amendment
“Schedule II (Form II)8.2. Furnish the value of assets / aggregate turnover, as per audited annual accounts of the immediately preceding financial year as well as for the current year, for all the parties to the combination. If annual accounts for the immediately preceding financial year are not audited, furnish the following details as per the last audited annual accounts as well as for the subsequent financial years” “Schedule II (Form II)8.2. Furnish the value of assets / aggregate turnover, as per audited annual accounts of the immediately preceding two financial years, separately for all the parties to the combination.”
“Schedule II (Form II), Verification. IMPORTANT: ALL COMBINING PARTIES MUST VERIFY THE CONTENTS BY SIGNING EACH PAGE OF THE FORM AND ON THIS PAGE” Deleted

 

 

AZB Comment
The amendment with respect to the provision of financial information is clarificatory in nature and clearly sets out the requirement of parties to furnish annual audited accounts of the immediately preceding two financial years.
The amendment with respect to the verification process for the Form II makes the process of filing a notice relatively less onerous by removing the requirement to sign on all pages of the Form II. Further, in the earlier scheme of the Form II, all the parties to the combination were mandated to verify the Form II by signing on it. With the deletion of this requirement, a notice filed under Form II will now only have to be signed only by the acquirer (in case of an acquisition) and by all parties (in case of a merger or amalgamation), as per Regulation 11 of the Old Combination Regulations.

 

End Notes:

 

1 Regulation 5 of the Old Combination Regulations, inter alia, contains the requirement on prior notification of such transactions that satisfy the asset/turnover thresholds prescribed in Section 5 of the CA02.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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