The Competition Commission of India (Commission) has published the amendments to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) through a notification dated 7 January 2016. The amendments were published in the Gazette of India published on 8 January 2016.
The changes are as follows:
Trigger to filing
Background to the amendment: In case of an acquisition, the acquirer is required to notify the Commission within 30 calendar days from the date of execution of the "binding document or other document". The Combination Regulations explained that where a binding document had not been executed but the intention to acquire had been communicated to a Statutory Authority, the date of such communication would be deemed to be the date of execution of the "other document".
Amendment: The communication with a Statutory Authority is no longer a trigger to filing a notice with the Commission. The new second proviso to Regulation 5(8) of the Combination Regulations states that where a public announcement has been made in terms of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (as amended) (Takeover Code), for the acquisition of shares, voting rights or control, such public announcement would be considered as the trigger to filing the notice with the Commission.
Implication: The amendment provides welcome clarity in specifying that it is communications with respect to acquisitions under Indian securities laws that would trigger a filing with the CCI and not communications with any Statutory Authority (which could theoretically have included the Reserve Bank of India, or even authorities that received joint proposals for tenders floated etc.)
Parties to global acquisitions must remain alert to the timing for filing the notification in cases of indirect acquisitions in India. Public announcements are required to be made to the Securities and Exchange Board of India to provide the shareholders of a company sufficient time to assess the impact of a potential acquisition which may lead to a possible change in control of the company itself. At the time of making a public announcement, the acquirer may not have firmed up its intention of completing an acquisition. Further, the terms and conditions of the acquisition may not be certain and binding. This amendment could lead to submission of notifications for transactions which are not certain to conclude.
Invalidation of notice
Background to the amendment: In the previous set of amendments effective 1 July 2015, the Commission had granted itself the additional power to invalidate a notice if it becomes aware that the notice was not valid (i.e., not "complete and in conformity with the Combination Regulations").
Amendment: The Commission now "may" give an opportunity of being heard to the parties. Further, the time taken by the Commission to decide the notice's validitywould be excluded from the 210 calendar days period within which the Commission is required to pass its final order and from the 30 working days period within which the Commission is required to form its prima facie view as to whether a combination is likely to cause an appreciable adverse effect on competition within the relevant market in India.
Implications: While it would be a welcome step for the Commission to allow itself the discretion to allow the parties an opportunity to be heard, the Regulation 24 of the Combination Regulations already allows the Commission to grant an opportunity of being heard to the parties before deciding on any matter. The amendment would have been a truly positive step had the opportunity of a hearing been granted compulsorily before the orders for invalidation were issued by the Commission in line with the understanding that merger regulation is a non-adversarial process that requires the regulator to communicate with the parties who present the matter for the regulator's consideration.
Further, there is no limit on the time which could be taken by the Commission on deciding whether a notice should be invalidated or not and this time period would not be counted towards the timelines mandated by the Competition Act, 2002 (as amended) (Competition Act) and the Combination Regulations. This will lead to inordinate delays in securing an approval from the Commission particularly for 'no-issues' filings that may be found invalid on minor aspects or technicalities, which could be clarified by the parties were the Commission to communicate with them using its extensive powers for investigating mergers.
Item 1, Schedule I of the Combination Regulations: "solely as an investment" explained
Background to the amendment: Item 1 of Schedule I of the Combination Regulations provides an exemption from seeking the approval of the Commission to acquisitions below 25% equity share capital or voting rights of the target enterprise without any acquisition of control or solely as an investment or in the ordinary course of business. The term "solely as an investment" has been interpreted by the Commission in a few cases. However, the interpretation was developing with the facts of various cases presented to the CCI and there was a developing lack of clarity with respect to acquisitions that were made "solely as an investment".
Amendment: The Commission has now provided an objective test with respect to interpretation of the term "solely as an investment". The acquisition of less than 10% equity share capital or voting rights of the target enterprise would be considered to be made "solely as an investment" provided that (a) the acquirer did not acquire any special rights and would have the ability to exercise only such rights that are exercisable by the ordinary shareholders of the target enterprise to the extent of their respective shareholding; and (b) the acquirer is not a member of the board of directors of the target enterprise and does not have the right or intention to nominate a director on the board of directors of the target enterprise and does not intend to participate in the affairs or management of the target enterprise.
Implication: This change brings clarity to how the Commission views acquisitions made solely as an investment. The objective test would help investors in assessing whether a transaction could avail ofthe exemption provided in Item 1 of Schedule I of the Combination Regulations. However, there may be instances where investors may be acquiring shares up to 25% without any special rights or the right to nominate a director on the board of directors of the target enterprise. Such transaction would not be termed as being made "solely as an investment" and would require an approval from the Commission.
Therefore, while assessing whether the Item 1 exemption can be availed of an acquirer would have to examine whether the transaction is being made "solely as an investment" or "in the ordinary course of business". For the former, the applicable threshold would be 10% and for the latter, the threshold would remain at the current 25%.
Increase in shareholding while holding between 25% and 50%
Background to the amendment: Previously, a notice was required to be filed with the Commission in the event an acquirer was increasing its shareholding by more than 5% in an enterprise in which it already held between 25% and 50% equity share capital or voting rights. This exemption was linked to the "creeping acquisition" provisions of the Takeover Code. In the recent past, considering the liberalisation in the Foreign Direct Investment Policy, there have been a number of notices filed with the Commission where investors were increasing their shareholding from 26% to 49%. These notices required the approval of the Commission even though there was no change in control.
Amendment: The exemption provided in Item 2 of Schedule I of the Combination Regulations has been widened.Now an investor who holds between 25% and 50% of the equity share capital or voting rights of the target enterprise would be allowed to increase the shareholding below 50% without an approval of the Commission.
Implication: This is a welcome step and a number of transactions which had little or no competitiveimpact are no longer notifiable.
Filing of inter-connected transactions
Background to the amendment: As per the Combination Regulations, where the ultimate intended effect of a transaction was achieved by way of a series of individual transactions which were inter-connected or inter-dependent, one or more of which may amount to a combination, a single notice covering all these transaction was to be filed.
Amendment: The condition of "inter-dependent" has been removed and the wider condition of "inter-connected" has been retained in the regulation.
Implication: This amendment may not have any significant impact as in most cases, "inter-dependent" transactions would in any case be "inter-connected" and hence would get captured under the provisions of this regulation.
Relaxation on person filing the notice
Background to the amendment: As per the amendments to the Combination Regulations effective 1 July 2015, in the case of an acquirer being a company, a notice could be filed by any person authorised by the board of directors of the company. This did not allow for delegation of the authority to file the notice on behalf of the company.
Amendment: Any person authorised by the company would now be allowed to file the notice on behalf of the company. The person may not be directly authorised by the board of directors of the company.
Implication: This is a positive development and would allow for easier management of logistical processes such as executing the declaration required to be filed along with the notice. The board of directors may now authorise a team to carry out all acts for completion of the proposed transaction. This team may now sub-delegate the authority of filing the notice with the Commission.
"Declaration", not "Verification"
Background to the amendment: The contents of the notice (in Forms I, II and III) had to be verified by the person submitting the notice to the Commission.
Amendment: The "verification" has now been termed as a "declaration" to the effect that "the notifying party declares and confirms that all information given in this form and all pages annexed hereto is true, correct and complete to the best of its knowledge and belief, and that all estimates are identified as such and are its best estimates based on the underlying facts".
Implication: This does not have any major implication on the filing procedure. The contents of the notice are still authenticated by the authorised person.
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