The Hindu Business Line : Notice on merger moves may be made mandatory

For competition
If the merging cos decide not to notify, they would be at risk, if subsequently the Commission feels that the merger is going to have an adverse effect on the competition.

New Delhi May 5 Companies undertaking mergers or acquisitions in India or overseas may have to compulsorily inform the Competition Commission of India (CCI) before making such a move. The Ministry of Company Affairs (MCA) is said to have made a case for such a requirement in the proposed amendment to the Competition Act, 2002.

This in effect will mean that enterprises going for mergers and acquisitions such as the recent instances of Jet-Sahara or Tata-Corus would, henceforth, mandatorily need to inform the Commission of any such decision. As the Act stands today, a notice to the CCI by an enterprise entering into any M&A arrangement is optional, if the new entity has a turnover or value of assets above a prescribed threshold limit, which causes an adverse effect on competition.

Threshold limit

In the case of acquisition or merger, the Act prescribes a threshold limit of the combined assets of the firms at more than Rs 1,000 crore or turnover of more than Rs 3,000 crore (these limits are $500 million and $1,500 million in case one of the firms is situated outside India).

The limits are more than Rs 4,000 crore and Rs 12,000 crore and $2 billion and $6 billion in case the acquirer is a group in India or outside India, respectively.

Suggestions made

Though the proposal did not form part of the original Competition (Amendment) Bill, 2006, sources said the Ministry took into account the suggestions of the Standing Committee on Finance and after exploring the international experience decided to propose this amendment.

The matter was taken to the Union Cabinet and the Bill has since being referred to a Group of Ministers.

While declining to comment on the nuances of the Amendment Bill, the Minister for Company Affairs, Mr Prem Chand Gupta, told Business Line, "The GoM is expected to consider certain issues relating to the amendment. We hope the process to be completed at the earliest.''

The Standing Committee had observed that by making the notice to CCI optional, the Act envisages a voluntary pre-notification requirement for combinations/mergers above a certain threshold limit.

However, if the merging companies decide not to notify, they would be at risk if subsequently the Commission feels that the merger is going to have an adverse effect on the competition. Moreover, the Committee felt that in the current economic scenario, combinations are likely to cause appreciable adverse effect on competition within the relevant market in India.

Other proposals

Other proposed amendments to the Act include making the CCI an expert body, which would function as a market regulator preventing anti-competitive practices and it would also have advisory and advocacy functions in its role as a regulator.

The amendment Bill also provides for the continuation of Monopolies and Restrictive Trade Practices Commission (MRTPC) for two years after the constitution of CCI. The Bill also takes into account the directives of the Supreme Court. The Commission would become fully operational only after the Bill is passed.

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Notice on merger moves may be made mandatory