In 2021, cross-border merger deals amounted to $2.1 trillion, 69 per cent higher than in the previous year. That brings into focus the need for the regulation of such deals.
Merger control is essentially the procedure to review mergers and acquisitions to ensure they fall within competition and/or antitrust laws.
In India, the Competition Act of 2002 is the primary legislation that governs competition and specifies certain thresholds, with breaches to be notified to the Competition Commission of India (CCI).
Sections 5, 6, 20, 29 and 31 of the Act (in effect since June 2011) specifically address merger control. Additionally, the Ministry of Corporate Affairs regulates mergers through its notifications and the Competition Commission of India (procedure in regard to the transaction of business relating to combinations) Regulations, 2011.
Some mergers may reduce the competitiveness of the market, resulting in a monopolistic firm that could abuse its position — hence the need for State oversight.
A crucial clause regarding cross-border mergers was added to the Act via an amendment in 2007. It states that no combination may be completed within 210 days of giving notice to the CCI or until the CCI has issued orders under Section 31 approving, rejecting, or changing the terms of the proposed combination.
Further, Section 32 of the Act gives the CCI extra-territorial power to review a combination between parties outside India and impose orders against it if it has a noticeable negative impact on competitiveness in India.
These amendments impact cross-border M&As in many ways.
Fiscal threshold restriction: Many cross-border transactions — particularly in capital-intensive industries like petrochemicals or national banks, which do not necessarily affect competition in India — would need CCI approval if one of the parties (domestic, international or in aggregate) is big enough to cross a certain monetary threshold in India (namely, the value of assets should not exceed ₹350 crore or a turnover not exceeding ₹1,000 crore. This necessitates an inspection by CCI, bringing regular transactions under its purview even if they hold comparatively less influence, which is not ideal for the Indian ecosystem. On the flip side, such thresholds could be considered unfriendly to foreign businesses and may indirectly discourage them from investing in certain Indian sectors.
Jurisdictional issues in cross-border transactions: The likely contradiction between different nations’ competition laws is a crucial concern when dealing with cross-border mergers. The potential for contradictory rulings by two different competition authorities over the same merger transaction is a significant issue. For instance, Section 32 gives the CCI the jurisdiction to decide in situations where transactions outside India impact competition in India; it gives the body jurisdiction over a corporate entity if the consequences are negative. However, the Act falls short of explaining the process for implementing such orders or how they would align with the legislation of the country in which the corporate entity is domiciled.
Merger review: As opposed to typical situations of abuse of dominance or anti-competitive agreements, which call for an ‘ex-post’ investigation, merger review is an ‘ex-ante’ activity. It determines if a grouping of cross-border merging parties would ultimately result in a monopoly in India and, in such cases, the CCI must employ the ‘rule of reason’ approach. The investigation is somewhat speculative since it anticipates future potential events and is hence open to the interpretation of the various parties involved.
Cross-border mergers indicate a healthy economy in general. However, the regulations surrounding merger control are still nascent in India, having come up only since 2011.
The 2007 amendment to the Act aimed to fix several problems but only partially succeeded, leaving many issues unaddressed.
The government recently established a Competition Law Review Committee to offer further amendments to the Act. Hopefully, the government will act upon the suggestions.
Subsequently, a bill to amend the Act was placed before the lower house of Parliament on August 5, 2022.
The Competition (Amendment) Bill, 2022, proposes substantial changes in the regulatory landscape, including (i) introduction of the deal value threshold where the parties have substantial business operations in India, and (ii) room for settling cases by negotiating with CCI.
It also tried to expand the scope of definitions to cover new-age marketing arrangements as well. Furthermore, the bill has proposed a reduction in the time limit for combination approvals from 210 days to 150 days.
In short, this amendment is intended to increase the CCI’s operational flexibility while simultaneously enhancing the effectiveness and openness of its enforcement.
(The writer is a lawyer with King, Stubb & Kasiva, a law firm)