Expressing concern about the notification of provisions of the Competition Act 2002 relating to regulation of mergers, the Confederation of Indian Industry (CII) has decried the move as  " ill-timed" and that it might cause the country's growth path to get affected.

In a statement released to the press recently CII said: "The move is ill-timed given the present economic environment and regulatory & procedural obstacles may cause the country's growth trajectory to get affected."

CII said that the merger regime process still fell short of addressing industry's concerns. However, it has appreciated that new draft guidelines propose raising threshold limits by 50%, a pre-merger consultation process, an endeavor to reduce the response time and fees ranging from Rs 10 lakh to Rs 40 lakh.

The association pointed out that any mishandling of the competition law could have far-reaching economic implications for the country.

Worries About Delays

Indian industry seems to be satisfied with the increased merger thresholds, although some concerns remain over what would appear to be an unduly long 210-day period, which is statutorily available to the Competition Commission to review mergers, even though it would endeavour to do so in 180 days.

Merger and Acquisition (M&A) transactions run very tight deadlines for regulatory and commercial reasons. Without being adequately manned, the turnaround time at the Commission could go up to 210 days in some cases, leading to a situation where the Indian regulator is holding up a worldwide transaction.
 
Further, under the draft regulations, any person aggrieved can file an appeal against the order of the Competition Commission, thereby causing further delay and uncertainty.

While thresholds with respect to the target enterprise's turnover and assets have been provided, which were originally missed out in the Act; the local nexus test has been overlooked.
In case, where both transacting parties are foreign, two-firm domestic nexus should be provided, so that the notification requirement is triggered only when each one of the parties has some Indian presence. If that is done, then foreign to foreign transactions not having impact in India will not get covered. CII has asserted that overseas global transactions should be liable to scrutiny only where both parties have some territorial nexus.

Transaction Thresholds
 
CII also highlighted that the transaction thresholds had not been considered. Every other jurisdiction had the size of a transaction test, which is revised regularly based on the price index.
 
Since no asset transaction thresholds have been prescribed as of now every asset - current asset or fixed asset - acquired after June 1, 2011, would have to be notified to the Competition Commission.
 
Taking the argument further, it could also include issue of bonus, rights shares or even stock or stock-in trade. While this may be unintentional, the requirement of notification remains irrespective of the fact that a controlling stake was not being acquired.
 
This would not only conflict with the provisions of the SEBI's Takeover Code and preferential allotment guidelines but also burden the Competition Commission with large chunks of unnecessary technical filings of transactions which do not raise any Competition Law concerns, CII said.
 
In the earlier draft of the regulations (2009), Competition Commission had sought to exempt certain transactions filing requirements. However, since the exemptions cannot be provided through regulations, as they must come through their Statute itself, the requirement of filing has been continued. This is unreasonable- a business acquires a stake which is not enough to lead to any real influence over the target but nevertheless the requirement of notification remains! Since these transactions do not amount to combinations, this would transgress the statutory requirement of Section 5 and render the regulations open to legal challenges.
 
The Competition Act was drafted originally for a voluntary regime - requiring corporates to approach the Competition Commission only if it was felt that a particular transaction would attract or have an adverse effect on competition in India.

CII said that since the change from the voluntary to a mandatory regime had been made, based on the Parliamentary Standing Committee report, what was required was an amendment to the Act to alter the definition of group, to provide de minimus transaction size and exempt certain transactions, without addressing other inconsistencies in the Act.
 
CII said that it hoped that the Ministry would give favourable consideration to its views in this respect.