After the economic reforms of the early 1990s, the Monopolies & Restrictive Trade Practices Act, 1969 (the MRTP Act) was considered to have become obsolete, as India had embraced a market driven economy while entering globalization. Hence there was a need to shift focus from curbing monopolies to promoting competition, leading to enacting the Competition Act, 2002 (the Competition Act). The raison d’etre of the Competition Act was to create an environment conducive to competition and was brought into force in stages.
The remainder of the said Bill was re-introduced in Parliament as the Competition (Amendment) Bill, 2006. This was thereafter referred to the Parliamentary Standing Committee. The recommendations of this Committee resulted in a Competition (Amendment) Bill, 2007 being promulgated in Parliament in November 2007. The Bill yet awaits the presidential assent under the Indian Constitution for it to have the force of law.*
In the Bill, merger control provisions prescribed threshold limits at Rs 500 crores** (currently valued at USD 126 million) for transactions, which when crossed, would render the transaction "a Combination" (i.e. a dominant enterprise having an adverse effect on competition) and attract the provisions of the Competition Act in relation to companies having assets exceeding USD 2 Billion or turnover exceeding USD 6 Billion. Under the Competition Act, 2002, notification of mergers to the Competition Commission of India (CCI) was only voluntary. The CCI under the 2002 Act was required to take a view within 90 days of receipt of complete information, after which the merger was deemed to have been irrevocably approved. This facilitated mergers/acquisitions without practical difficulty unlike the new competition law, promulgated in November 2007, which now requires a compulsory notification to the CCI where the threshold limit of Rs. 500 Crores**/ USD 126 Million is crossed, regardless of whether in the opinion of the company, it would render the transaction a Combination or not.
The CCI now assumes the role of evaluating each such transaction (where the threshold is crossed), whether the transaction results in a Combination adversely affecting competition. One needs to view whether the stipulated threshold in today’s context, needs to be raised to a realistic figure. Over the last few years, even Indian corporates have been acquiring targets overseas of substantially high values (Corus acquisition by Tata for USD 12 Billion, Suzlon’s acquisition of REpower Systems AG for USD 565 million etc).
To add to this, the CCI is now afforded a period of 210 days to render its decision - a full 7 months! The international competition laws of other market economies provide only 30 days. If the deal is held up for 7 months, could values change? Due diligences done, would they still be considered current? Issues to ponder over! Are the "wheels" off somewhere?
*This is the position as at 7th December 2007.
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