Non-compete restrictions: CCI plans to amend Combination Regulations

Our Bureau New Delhi | Updated on May 16, 2020

Proposes to do away with filing of information on non-compete restrictions

Parties entering into a combination may not henceforth be required to furnish information on non-compete restrictions for the purpose of its examination by the Competition Commission of India (CCI)- which is the competition watchdog. They won’t also be required to justify such non-compete restrictions, if the CCI’s current thinking is anything to go by.

The CCI proposes to amend its Combination Regulations to do away with the requirement of furnishing such information in the Form I that is in vogue in respect of Combination transactions. A draft notification for this purpose has now been issued for public comments and the comments have to be mailed by June 15, an official release said.

CCI is of the view that prescribing a general set of standards for assessment of non-compete restrictions may not be appropriate in modern business environments. While it may be possible to conduct a detailed examination on case by case basis, the same may, however, not be feasible considering the timelines followed in combination cases, the release said.

Kanika Chaudhary Nayar, Partner, L&L Partners, a law firm, said that the latest draft notification shared by the CCI essentially excludes the requisition regarding non-compete in Form 1, which is the most commonly filed form with the CCI. “While this Information regarding non-compete restriction will still potentially exist in the definitive documents that are filed with the CCI, the CCI appears to be taking a conscious decision of doing only an ex-post analysis of such restrictions and not considering them during the merger notification process. The onus has now been put on the parties to do a self-check and to ensure that they are in compliance with the law”, she said.

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said that the proposed draft amendment does consider the practical considerations of dynamic business developments where it is just not possible to describe the non compete restrictions by prescribing a general set standards. "Keeping this consideration CCI is contemplating dispensing with seeking information regarding non-compete restrictions in Form I. A case by case basis evaluation of such conditions can be otherewise done where needed", he said.

It maybe recalled that the CCI had already issued a Guidance Note explaining the circumstances under which a non-compete restriction would be regarded as ‘ancillary’ or ‘not ancillary’. The Guidance Note provides that three years of non-compete obligation is usually justified in case of transfer of goodwill and know-how and two years in case of transfer of goodwill alone. It further provides that the scope of non-compete shall be restricted to the business sold and the territory where it was conducted. However, a finding that the restriction is not ancillary does not raise any presumption of infringement under the provisions of the Act.

Published on May 16, 2020

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