Merger regulation could impede economic growth: CIIApril 4th, 2011 - 4:39 pm ICT by ANI
New Delhi, Apr. 4 (ANI): Expressing concern about the notification of provisions of the Competition Act 2002 relating to regulation of mergers, 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.”
While CII 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 40 lakh; the merger regime process still falls short of addressing industry’s concerns. CII believes that any mishandling of the competition law could have far-reaching economic implications for the country, it said in a press release issued here today.
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. M&A transactions run a very tight deadline for regulatory reasons as well as 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.
The CII has also highlighted that the transaction thresholds have not been considered. Every other jurisdiction has the size of 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 assets or fixed asset - that is acquired after 1 June 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 controlling stake is 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.
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. Since the change from voluntary to mandatory regime was made, based on the Parliamentary Standing Committee report, without addressing other inconsistencies in the Act, what is required is an amendment to the Act to alter the definition of group, providing de minimus transaction size and exempt certain transactions. CII said that it hoped that the Ministry would give favourable consideration to its views in this respect. (ANI)
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