Several mergers and acquisitions, which otherwise would have come up before the Competition Commission of India, have gone through unquestioned because of Government delay in notifying the amended provisions.
It has been over six years since the Competition Act 2002 came into force. But certain key provisions of the amended Competition Act, meant to give full power to the anti-monopoly watchdog, Competition Commission of India (CCI), are yet to be notified.
This is because the Government is yet to address concerns on mergers and acquisitions (M&As). There are many who are concerned about the way the Government is going about the implementation of the competition legislation. Mr M. M. Sharma, a former Registrar of CCI and currently Head (Competition Law and Policy) at law firm Vaish Associates says India is perhaps the only nation in recent times that is bringing into force its Competition Act in bits and pieces, by notifying one Section after the other.
China notified its anti-monopoly legislation in August 2008 in one go, says Mr Sharma.
Among the key sections in the amended Competition Act of India are Section 3 (on cartels and anti-competitive pacts regarding production, storage, distribution, and supply), Section 4 (abuse of dominant position by companies), Sections 5 and 6 (pertaining to M&A regulations).
The Government notified Sections 3 and 4 in May. But it is yet to notify Sections 5 and 6.
As a result, several M&As — which otherwise would have come up before the CCI — have gone through unquestioned. “Besides, the two-year period to wind up CCI’s predecessor, the Monopolies and Restrictive Trade Practices Commission, is too long and has led to forum-shopping,” Mr Sharma says.
The Corporate Affairs Minister, Mr Salman Khurshid, recently said the issues surrounding Sections 5 and 6 of the Act are before the Prime Minister, Dr Manmohan Singh, even as the Government is considering last minute suggestions from stakeholders.
Industry’s worries include the Act shifting to a mandatory notification regime from the earlier voluntary system. The mandatory regime requires companies that enter into M&As and meeting the asset/turnover thresholds specified in the Act seek prior approval from the CCI.
The earlier 90-day timeframe for clearance of M&As by CCI has been enhanced to 210 days, which is considered too long a time by industry. Another issue is whether sectoral regulators will only give inputs to the CCI on M&As in their sector or if they would have the final say.
The banking regulator, the Reserve Bank of India, wants to have the last word on banking sector M&As, especially as it may have to take swift decisions on compulsory M&As that might be required to prevent certain banks from failing. The RBI indicated that in such cases, it would not be pragmatic to comply with the CCI’s clearance timeframe of 210 days.
Industry is concerned about the mandatory notification regime as it widens the scope of the Competition Act.
“M&As that satisfy the asset/turnover threshold, even if they are not seen as very high in the current context, will need to be notified before the CCI,” says Ms Vinati Kastia, who co-heads the competition law practice of the law firm AZB & Partners in Delhi.
The authorities have also not looked at the consequential changes required for a mandatory regime, she says. For instance, the takeover code has a timeline within which one has to complete the acquisition through public and private transactions.
In the US, once a company makes a notification, the authorities have 30 days to review it. Mr William Blumenthal, Partner at the global law firm Clifford Chance and chairing its US competition law practice, says the official agency can act fast if a request for swift action is made.
“At the end of 30 days, if the agency does nothing, you are cleared as a matter of right,” says Mr Blumenthal, former General Counsel of the US Federal Trade Commission.
In the US, the form on merger details is just 15 pages long. The questions are simple and include the names of the companies, contact addresses, description of the transaction, copies of securities filings, copies of official analyses of the merger, revenues details, list of subsidiaries and products that overlap due to the merger, Mr Blumenthal points out.
Mergers, where there is no overlap between products or if the two companies are in fragmented industries, are cleared swiftly, he says.
Swift in S. Africa too
In South Africa, too, clearance is swift. Mr James Hodge, Managing Partner of the Competition and Regulatory Economics practice at Genesis Analytics, says the South African Competition Commission has 40 days to clear a merger.
Cases are put on the fast-track if there is no overlap between the operations of the merging companies or if there is no competition issue. If the merged entity has a valuation that crosses the threshold, it is given a closer look, but this is also done in the 40-day period, he said.
“Only the complex or difficult cases take up to 45 or 50 days. But even the difficult ones should be done within 85 days, which is much lesser than the 210 days in India,” Mr Hodge said.
Generally only 2-3 per cent of mergers have competition issues that require Government intervention, not to block, but to restructure them, Mr Blumenthal says, adding that “around 80 per cent of transactions are not problematic.
Delaying mergers may create problems in the realisation of the merged entity’s efficiencies and would increase employees’ concerns about their jobs. Countries should have an anti-monopoly legislation that helps authorities quickly deal with mergers that are not problematic and focus on the difficult ones, says Mr Blumenthal.Related Stories:
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