[The following post is contributed by Karan Singh Chandhiok, Head of Competition Law and Dispute Resolution, Chandhiok & Associates, Advocates and Solicitors; and Vikram Sobti, Senior Associate with the firm. The authors may be contacted at email@example.com and firstname.lastname@example.org respectively]
On 28 March 2014, the Competition Commission of India (CCI) issued a notification amending the existing merger control regulations in India, namely the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations).
The latest set of amendments is the result of an annual exercise that is undertaken by the CCI to update the merger control regulations.
Some of the important amendments introduced are set out below:
a. CCI to look at the substance of transactions: The antitrust regulator in India has tightened the screws on mergers and acquisitions to ensure that the parties do not avoid seeking mandatory premerger approval by adopting innovative and complex structures to their transactions. The amendment clarifies that the requirement of filing notice with the CCI shall be determined by the “substance of the transaction” and not by the structure of the transactions.
b. Notification of transactions taking place outside of India: Schedule I to the Combination Regulations provides a list of transactions that normally do not require prior notification and approval from the CCI; and are treated as not having an appreciable adverse effect on competition in India. Entry 10 to Schedule I of the Combination Regulations, which exempts transactions that take place “entirely outside India with insignificant local nexus and effect on markets in India”, has now been deleted. This follows from the regulator’s practice of requiring parties to make a premerger notification where the combining parties satisfy the turnover or assets thresholds set out in the Competition Act, 2002 (the Competition Act) and the transaction does not benefit from the target based exemption.
c. Amendment to Form I and Form II:
i. Form I (short form filing): The amended short form filing with the CCI now requires wider disclosure of any horizontal overlap or vertical relationships between the business of the parties to the transaction. Previously, this information was sought only in the context of horizontal overlaps or vertical relationships that are arising post-merger. Moreover, the parties will now have to provide details of merger filings made by the parties in other jurisdictions, along with the status report of such filings.
ii. Form II (long form filing) requires the parties to provide the details, in terms of value of assets and aggregate of turnover, as per the audited annual accounts of immediately preceding two financial years, instead of the immediately preceding financial year.
d. Increase in filing fee: The fee for filing Form I under the Combination Regulations has been increased by 50% from INR 1,000,000 (~USD 16,667) to INR 1,500,000 (~USD 25,000), whereas the fee for filing Form II has been enhanced by 25% from INR 4,000,000 (~USD 66,667) to INR 5,000,000 (~USD 83,000). This is the second time that the CCI has raised its filing fees and are amongst the highest charged by any regulator in India.
e. Right of appeal: The CCI has now deleted regulation 29 that allowed parties to the proceedings before the regulator to prefer an appeal against an order of the CCI relating to combinations to the Competition Appellate Tribunal. This regulation was unnecessary given the statutory right to appeal provided under section 53B of the Competition Act. The statutory right to appeal is not restricted as the erstwhile regulation 29 to a “party to the proceedings”, instead, section 53B confers a right on any person to appeal against an order of the CCI in respect of combinations. However, the Competition Appellate Tribunal in a recent appeal has limited the scope of this right by introducing the concept of ‘locus standi’.
Whilst the majority of these amendments are on procedural matter, their immediate impact will be to clear the air on issues that repeatedly caused confusion and may have led to transactions going unreported with the commission. The ‘substance over form’ amendment demonstrates this approach of the CCI. In essence, this should mean that in any transaction where there is a change of control or one party is able to influence the strategic decisions of the other through contract or otherwise, such transactions should be notified to the CCI. Another example of transactions that would be captured by this amendment would be where one party is acquiring shares over time, but the manner of such a staggered acquisition has already been documented.
The most important amendment, however, remains the deletion of entry 10 in schedule I. The “local nexus” entry had raised false expectations amongst stakeholders on the scope of the exemption; and it is not unthinkable that several transactions may have gone unreported to the CCI with the parties being in the mistaken belief that their transaction could benefit from the exemptions. Given the regulator’s strict view on compliance and its penchant for imposing high penalties, the latest set of amendments will lead to better regulatory compliance, even though they will add to deal timings and cost.
 In March 2011, the Ministry of Corporate Affairs of the Government of India introduced a ‘Transaction Based Exemption’ which exempted transactions where the target whose control, shares, voting rights or assets are being acquired has either assets of the value of not more than INR 2.5 billion (~USD 41.5 million) in India; OR turnover of not more than INR 7.5 billion (~USD 124 million) in India.