PROPOSED CHANGES TO CCI’s MERGER CONTROL REGIME BY THE DRAFT COMPETITION AMENDMENT BILL, 2020
This post has been authored by Ms. Shauree Gaikwad, a third year student of B.A.LL.B (Hons.) at Maharashtra National Law University, Aurangabad.
The Ministry of Corporate Affairs of India (MCA) released a Draft Competition Amendment Bill, 2020 (Draft Amendment Bill) on 28 February 2020.[i] This Draft Amendment Bill has put forth amendments on the basis of the report submitted to the MCA by the Competition Law Review Committee (CLRC) in August 2019,[ii] with an aim to review and recommend changes to the Competition Act, 2002 (Competition Act).[iii] There are significant amendments proposed by the Bill such as changes to the governing body, a grant of leniency in certain circumstances where transactions qualify for the deemed approval process, and the introduction of exemptions in relation to intellectual property rights, among others. However, this article seeks to only highlight and analyze the amendments affecting combinations and the power of merger control by the Competition Commission of India (CCI).
The effect of the proposed changes in the CCI’s merger control regime
1. Central Government’s Power to Notify new Thresholds for Merger Control
Section 6(a) of the Draft Amendment Bill seeks to add a provision to Section 5(c) of the Act which gives power to the central government (in consonance with the CCI) to notify new criteria of determining thresholds which can be defined as a ‘combination’ under the Act in addition to the existing ones under Section 5(a), 5(b), and 5(c). Therefore, this Bill gives power to the central government to prescribe any criteria that would make the transaction deemed as a ‘combination’. Similarly, Section 6 of the Draft Amendment Bill also gives the Central Government the power to notify transactions that would not count as ‘combination’ under the Act.
Hence, Section 6 of the Draft Amendment Bill aims to widen the ambit of what constitutes as a combination by allowing them to introduce new criteria, thereby allowing the Sections and Regulations of the CCI governing the combinations to be applicable on certain transactions which are currently escaping the merger control regime. One example of such a transaction would be transactions in the digital market which are currently not falling under the threshold of the CCI, as highlighted by the CLRC in their report.
2. Replacing and expanding the definition of the terms ‘control’ and ‘group’
Currently, the definition of ‘control’ under Explanation proviso (a) of Section 5 of the Act is the ability of a group or an enterprise to control the management or affairs of the company. The Section 6(b) of the Draft Amendment Bill seeks to completely replace the existing definition of control by replacing Explanation proviso (a) to define control as the singular or joint ability of an enterprise or a group to exercise ‘material influence’ over the management or affairs or strategic commercial decisions.[iv] However, the term ‘material influence’ has not been defined in the Draft Amendment Bill or the Act.
Currently, the definition of ‘group’ under Explanation proviso (b) of Section 5 of the Act is the ability of two or more enterprises are in a position to either, exercise more than 26% of voting rights, or appoint more than 50% of members of the board of directors in the other enterprise, or control the management or affairs of the other enterprise.[v] The significant change made by the Draft Amendment Bill is to allow the Central Government to prescribe any other percentage than 26% prescribed for exercise of voting rights currently in the Act.
Thus the new definition of ‘control’ and ‘group’ can allow CCI to classify higher numbers of transactions as combinations and hence give more power to CCI to carry out its merger control functions.
3. The ‘green channel’ approval process given a statutory recognition
The ‘green channel’ approval process was introduced by Regulation 5A by an amendment[vi] to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations) in August 2019. The Draft Amendment Bill seeks to give statutory recognition to the ‘green channel’ approval process in the Act. This Bill recognizes the ‘green channel’ by empowering the Central Government to allow in consonance with CCI, certain non-contentious transactions, classified in Schedule III of the Bill, to use the ‘green channel’ or the ‘deemed approval’ process through a notification. Under Schedule III, the parties proposing a combination should not be producing similar products or offering similar services; or, the parties should not be engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in products or services which are at different stage or level of production chain nor should these products or services be complementary to each other. Under these two approval processes under Section 6 (4) and (5) of the Act, a prescribed form needs to be submitted to the CCI instead of notifying the CCI.
4. Speedier Process of Approval
Earlier, Section 31(11) provided that the review or assessment of the combination can extend up to 210 calendar days. Under this review process, the CCI is required to give its prima facie opinion on a combination as a result of its notification.[vii] The Draft Amendment Bill seeks to decrease the assessment timeline from 210 days to 150 days, with an extension of up to 30 days in case the parties concerned need to provide additional information or address certain defects. Further, the Bill puts a limitation of one year on the ‘green channel’ process, a finality which lacked earlier in the green channel process.
5. Overcoming loopholes in CCI’s inquiry process
The inquiry process of the CCI currently involves relying on regulations, notifications and practice. However, the practice undertaken by the CCI does not have a statutory recognition, therefore resulting in these practices being challenged in the form of appeal to the CCI’s combination order. Such appeals were made in the Holcim-Lafarge merger[viii] and the DLF-PVR merger.[ix] The Draft Amendment Bill seeks to give statutory recognition to such practices through Section 26 of the Act. Therefore, the Bill seeks to overcome the loopholes in the inquiry process by reducing the scope of challenging a combination order by citing that CCI practices lack statutory backing.
6. Changes made to the standstill obligations
Currently, Section 6(2A) of the Act mandates fulfillment of certain standstill obligations (expand). The Draft Amendment Bill seeks to allow the Central Government to grant exemptions to certain combinations from fulfilling standstill obligations. However, such exemption is envisaged to be applied where rapid merger clearance is the need of the hour.
Section 6(2A) of the Act also imposes a standstill obligation to not implement any part of the combination until it is either approved or the statutory period of approval expires. The Draft Amendment Bill, through the insertion of Section 6A of the Act, seeks to grant exemption to any combination which involves implementation of an open offer or an acquisition of shares and securities through a series of transactions on a regulated stock exchange. Therefore, the proposed amendment will now allow the acquisition of shares in public-listed companies while fulfilling notification requirements under the Act.
The Draft Amendment Bill seeks to give significant power to the Central Government to exempt certain combinations and transactions from certain obligations under the Act, and also lays down a criterion for transactions which could trigger combination regulations and other notification filing under the Act. This Bill also seeks to streamline the review and assessment process of combinations by reducing the time period taken for it. The Bill also seeks to close gaps between the practice undertaken by CCI and statutory provisions hence making the CCI’s practice to be a statutory practice instead. By closing this gap, the Bill seeks to reduce the scope of appeals on basis of statutory inefficiencies. Hence, the Bill seeks to make the merger control regime more efficient and expands the scope of its merger control by redefining the key terms with regard to combinations, ‘control’ and ‘group’, while giving Central Government the power to notify additional criteria for either enforcing liability or granting exemption from certain requirements and obligations under the Act.
[i] Ministry of Corporate Affairs, Draft Competition (Amendment) Bill, 2020, http://feedapp.mca.gov.in/pdf/Draft-Competition-Amendment-Bill-2020.pdf. [ii] Ministry of Corporate Affairs, Report of the Competition Law Review Committee, July 2019, http://www.mca.gov.in/Ministry/pdf/ReportCLRC_14082019.pdf. [iii] The Competition Act, 2002, No. 12, Acts of Parliament, 2003. [iv] The Competition Commission of India (Procedure in Regard to the Transaction of Business relating to Combinations) Amendment Regulations, 2019, https://www.cci.gov.in/sites/default/files/notification/210553.pdf. [v] Draft Competition (Amendment) Bill, 2020, supra note 1, § 6(b). [vi] The Competition Commission of India (Procedure in Regard to the Transaction of Business relating to Combinations) Amendment Regulations, 2011, https://www.cci.gov.in/sites/default/files/regulation_pdf/Combination%20Regulations%202016%20-%20FINAL_0.pdf). [vii] The Competition Act, 2002, supra note 3, § 31(11). [viii] Competition Commission of India, Combination Registration No. C-2014/07/190, March 30, 2015, https://www.cci.gov.in/sites/default/files/C-2014-07-190_0.pdf. [ix] Competition Commission of India, Combination Registration No. C-2015/07/288, May 04, 2016, https://www.cci.gov.in/sites/default/files/event%20document/C-2015-07-288.pdf.