INTERNATIONAL BAR ASSOCIATION ANTITRUST COMMITTEE WORKING GROUP ON INDIA'S PROPOSED MANDATORY MERGER NOTIFICATION REGIME

Transcription

1 INTERNATIONAL BAR ASSOCIATION ANTITRUST COMMITTEE WORKING GROUP ON INDIA'S PROPOSED MANDATORY MERGER NOTIFICATION REGIME SUBMISSION REGARDING THE PROPOSED INDIAN MERGER NOTIFICATION REGIME AND IMPLEMENTING REGULATIONS 1. INTRODUCTION 1.1 The Working Group of the Antitrust Committee of the International Bar Association (the "Working Group" of the "IBA") sets out below a submission on certain provisions of the draft Competition Commission of India (Combination) Regulations 200_ (the "Regulations") which apply to the underlying Competition Act, 2002, No. 12 of 2003, as amended by the Competition (Amendment) Act, 2007 (the "Act"). 1.2 The IBA is grateful for this opportunity to comment on the Regulations. Further, it appreciates the willingness of the Competition Commission of India (the "Commission") to listen and respond to its comments and suggestions. The IBA particularly notes the extent to which the Commission has acknowledged The IBA's comments on the Act (the "November 2007 Submission") and thanks the Commission for taking the time to hear its views. 1.3 The IBA is the world's largest leading organisation of international legal practitioners, bar associations and law societies. The IBA takes an interest in the development of international law reform and seeks to help to shape the future of the legal profession throughout the world. 1.4 Bringing together antitrust practitioners and experts among the IBA's 30,000 individual lawyers from across the world, with a blend of jurisdictional backgrounds and professional experience spanning all continents, the IBA is in a unique position to provide an international and comparative analysis in this area. Further information on the IBA is available at The comments in this submission follow on from the IBA's November 2007 Submission and therefore focus on the provisions in the Regulations concerning the proposed merger regime _1

2 2. CATEGORIES OF TRANSACTIONS NOT LIKELY TO HAVE APPRECIABLE ADVERSE EFFECTS ON COMPETITION IN INDIA Clarification that no notifications are required 2.1 The Working Group applauds the Commission's efforts to introduce greater clarity by, for example, specifying in Regulation 5 certain categories of transactions that are "not likely to cause appreciable adverse effect on competition". 2.2 The IBA understands that these categories of transactions do not require to be notified to the Commission. The Working Group would therefore recommend that the fact that these categories of transactions do not need to be notified is specifically clarified in the Regulations. De minimis share and asset acquisitions 2.3 Regulations 5(2)(i) and 5(2)(ii) effectively provide for two welcome de minimis scenarios, a de minimis share acquisition and a de minimis asset acquisition. 2.4 However, the Working Group respectfully suggests that the wording of Regulations 5(2)(i) and 5(2)(ii) should be clarified. For example, in Regulation 5(2)(ii) it is not clear whether the notion of "control" applies to each of the various exceptions outlined, or just the final one (the "ordinary course of business"). Indeed, the Working Group suggests that, in the event of the introduction of a clear definition of "control", as suggested below, these provisions could be simplified. Appropriate nexus for notifiable transactions 2.5 The Working Group is grateful that in Regulation 5(2)(iii), the Commission intends to address the "local nexus" issue which the Working Group highlighted in its November 2007 Submission. However, the Working Group respectfully suggests that the drafting of Regulation 5(2)(iii) should be further clarified to avoid any possible misinterpretation. In particular, Regulation 5(2)(iii) refers us to the Indian aspect of the thresholds set out in part (B) of each of sections 5(a)(i), 5(a)(ii), 5(b)(i), 5(b)(ii), 5(c)(i) and 5(c)(ii) of the Act. We will refer to these as the "(B)-thresholds" (and, conversely, the "(A)-thresholds"). 2.6 In the view of the Working Group, there are two possible interpretations of Regulation 5(2). They are as follows: The exemption in Regulation 5(2)(ii) creates a blanket exemption across both the (A)-thresholds and the (B)-thresholds (i.e. such transactions are "not likely to cause an appreciable effect on competition in India"). Although the second section refers only to the (B)-thresholds, the Indian portions of the (B)- thresholds are lower than those contained in the (A)-thresholds. Therefore, arguably, if the exemption were met it would also apply to the (A)-thresholds The exemption only applies to the (B)-thresholds. Although Regulation 5(2)(iii) is drafted upfront as a blanket provision, it is difficult to see why the (B)-thresholds need to be referred to explicitly. If Regulation 5(2)(iii) was supposed to apply to both the (A)-threshold and the (B)-thresholds, the middle UK/ / /

3 section ("where the minimum assets or turnover of section 5 of the Act") could be deleted in its entirety. 2.7 As a consequence of this second potential interpretation of Regulation 5(2), a foreign company with presence in India (such as meets the (A)-thresholds by itself) would have to file each time it makes a purchase, regardless of whether the target has any presence in India. The Working Group understands that this is not intended and therefore respectfully submits that this ambiguity should be clarified. This clarification would also ensure compliance with the ICN Recommended Practices 1 that state: "[d]etermination of a transaction's nexus to the jurisdiction should be based on activity within that jurisdiction, as measured by reference to the activities of at least two parties to the transaction in the local territory and/or by reference to the activities of the acquired business in the local territory.") Inter-related transactions 2.8 The Working Group understands that some sections of industry have expressed concerns that a possibility exists for foreign acquirers, who structure their acquisitions in parts, to be in a position to avoid notification to the Commission in the event each separate acquisition of a part of a target company in India falls just below the stated threshold of INR 1,500 crores. On the other hand, any Indian (or foreign company) achieving turnover of INR 3,000 crores in India is obliged to notify the acquisition of any Indian target company or any part of an Indian target company, irrespective of that target entity's turnover. The Working Group appreciates these concerns and is of the opinion that it may be useful for the Commission generally to clarify the position in respect of "series of transactions", (whether or not they concern foreign acquirers). 2.9 It is common in other regimes to treat several transactions as a single acquisition in the event the transactions are interdependent or conditional. For example, the European Commission has powers to treat successive transactions, irrespective of whether or not those transactions relate to parts of the same business or concern the same sector or are conditional upon each other, occurring in a fixed period of time (two years) as a single combination for the purposes of calculating the turnover of the parties. The purpose of the latter rule is to ensure that the same persons do not break a transaction down into a series of sales of assets over a period of time, with the aim of avoiding merger control scrutiny. The rule does not apply where the same acquirers are joined by other acquirers for only some of the transactions involved. However, it is sufficient if the transactions, although not carried out between the same companies, are carried out between companies belonging to the same group (the guiding factor is thus whether they lead to acquisitions of control ultimately by the same acquirer). The Commission may wish to expressly incorporate similar rules to avoid the possibility that "salami" styled acquisitions escape its merger control competence. 1 See: UK/ / /

4 Intra-group transactions 2.10 The Working Group respectfully suggests that the Regulation ought to contain some form of specific exemption in section 5(2) for intra-group transactions, such as combinations, mergers, de-mergers and reorganizations. Intra-group transactions are commonly excluded from merger notification regimes. 3. TIMING OF NOTIFICATION 3.1 The Working Party is grateful to the Commission for its willingness to address the IBA's concerns in relation to timing. In particular, Regulation 19(2) is a welcome development permitting the omission, at its discretion, to admit a notice beyond the thirty-day period set forth in subsection 6(2) of the Act. Triggering event 3.2 Regulation 6 provides that a proposed combination must be notified to the Commission within 30 days from the date of execution of any agreement or "other document" or acquisition of share/voting rights or control of an enterprise. The definition of "other document" is very wide and may potentially include any document that reflects merely an intention to acquire. If this were the case, many transactions that are never finally agreed would be subject to notification. This would be a large unnecessary burden on both notifying parties and the Commission. 3.3 The Working Group understands that it is not the intention of the Commission that letters of intent, memorandum of understanding or similar documents do not automatically trigger a mandatory notification requirement. The Working Group therefore respectfully submits that this is specifically stated in the Regulations. Early notification 3.4 Nonetheless, due to the fact that the Act is suspensory, parties will generally wish to notify as soon as practicable. Parties should not have to wait until a triggering event giving rise to legally binding obligations has occurred, but, in line with ICN Recommended Practice III.A parties should be permitted to notify proposed mergers upon certification of a good faith intent to consummate the proposed transaction. In the EU, the Merger Regulation was amended in 2004 with a view to conforming to this Recommended Practice to the effect that if parties can demonstrate a good faith intention to proceed with the transaction, they may, if they so desire, file in advance of signing a final definitive agreement. 3.5 The Working Group understands that it is the intention of the Commission to allow such early notifications and respectfully submits that this is specifically stated in the Regulations. 3.6 In addition, the Working Group suggests that the Regulations be amended to give effect to Recommended Practice V.C, which also suggests that the parties are accorded "the opportunity for confidential pre-notification consultations to present and discuss the proposed transaction in advance in order to facilitate timely submission and review of the formal notification." UK/ / /

5 4. WAITING PERIODS 4.1 The Working Group's understanding of the applicable waiting periods is that the shorter 30-day period is only available to parties that notify using the longer Form 1 provided for in the Regulations. The Working Group notes that Form 1 of the Regulation requires the provision of a substantially greater amount of information than Form 2. In the event that the parties elect to notify by way of Form 2, Regulation 27(2)(a) appears to allow the Commission 60 days (from receipt of the form) in which to reach its prima facie opinion. 4.2 In most jurisdictions the rationale of the notification forms (and the accompanying information requirements) is that if a transaction is unlikely to raise any significant competition concerns, a relatively small amount of data is usually required to demonstrate this. Greater levels of information are generally required in respect of transactions that raise potential competition concerns. 4.3 Therefore, in the context of a transaction requiring multiple notifications in different jurisdictions, in order to obtain clearances within the internationally standard 30-day waiting period, parties would potentially be required to file a greater level of information in India than in other jurisdictions. Both the parties and the Commission will feel the burden of Form 1 as the Commission will need to review a larger set of data within a shorter time period. 4.4 The Working Party therefore requests the Commission to revisit the relationship between the review periods and the forms and respectfully submit that a clearance decision should be available within 30 days on the basis of a short form, such as Form NOTIFICATION FORM notifications 5.1 The Working Group welcomes the possibility to file notifications by way of (Regulation 15). Form The Working Group notes that Form 2 is broadly consistent with its counterparts in other jurisdictions that permit merging parties to elect between a short form and a long form notification filing. However, the Working Group wishes to bring certain sections of the Forms to the attention of the Commission. 5.3 Form 2 requires the provision of any order/judgment issued in relation to the combining enterprises on a competition issue by any Competition Authority/Court/Tribunal/Government in the last 5 years. The Working Group would respectively submit that such a provision would be excessive. It would require the provision of documents that are not necessarily relevant to the competitive assessment of a transaction. 2 The Working Group would respectfully submit that this requirement be 2 ICN Recommended Practice V.A provides that Initial notification requirements should be limited to the information needed to verify that the transaction exceeds jurisdictional thresholds, to determine whether the transaction raises competitive issues meriting further investigation, and to take steps necessary to terminate the review of transactions that do not merit further investigation. UK/ / /

6 removed entirely, failing which, that the requirement be limited to providing a list of orders/judgements directly relevant to the competitive assessment of the transaction being notified in India. 5.4 Form 2 requires the provision of total Indian capacity for all group enterprises. The Working Group would respectively submit that such a provision would be excessive. It would require the submission of data that is not necessarily relevant to an analysis of the competitive effects of a transaction. The Working Group would respectfully submit that this requirement should be limited to the provision of capacity information for products that are relevant to the competitive assessment of a transaction. Form The comments made in relation to Form 2 (above), apply equally to Form 1. However, the Working Party wishes to raise a number of further concerns in relation to Form 1. Specifically, it is respectfully suggested that certain information is unnecessary in order to establish whether the transaction in question raises competition concerns. 5.6 Form 1 requires extensive information in relation to non-overlapping products of the merging parties. In particular, the Working Group suggests that the information requested by Questions 12, 20 and 21 should be required in respect of competitively overlapping products only. It should be for the notifying party to establish which products it believes are likely to fall into this category. 6. FILING FEES 6.1 The initial filing fee is proposed to be INR 20 lakhs (approximately USD 51,000) and additional fees may also be required to be paid. 6.2 The Working Party notes that many other jurisdictions do not have any filing fees and in others there are single lower fees (e.g. Brazil where the fee is set at a single amount of BRL 45,000 (approximately USD 27,000). The Working Party respectively submits that the fee structure as currently proposed should be reconsidered and that if any filing fee is imposed, a lower and/or single fee should be considered. 7. HEARING 7.1 One reading of Regulation 41 would imply that parties would be given an opportunity to be heard at the discretion of the Commission. The Working Group would respectfully submit that the Regulations should provide for a mandatory right to a hearing for the notifying parties before any adverse decision is taken. This is critical in any matter where the Commission intends to proceed to blocking a transaction or to clear a transaction subject to the parties taking remedial action. Indeed, ICN Recommended Practice X.B makes it clear that prior to a final adverse enforcement decision on the merits, merging parties should be provided with sufficient and timely information on the facts and the competitive concerns that form the basis for the proposed adverse decision and should have a meaningful opportunity to respond to such concerns. UK/ / /

7 7.2 There are also other stages of the review process where so-called state of play meetings fulfil a meaningful function in the course of the review (e.g. in conjunction with the opening of an in-depth review), which is why the European Commission has adopted Best Practice Guidelines providing for such meetings to take place at key stages of the process. The Working Party invites the Commission to adopt a corresponding approach. 8. ADDITIONAL DEFINITIONS The notion of "control" 8.1 The notion of "control" plays a key role in the Regulations, particularly Regulations 5(2)(i), 5(2)(ii), 5(2)(iii), 5(2)(v), 5(2)(xiii), 6(2)(a), 6(3) (Explanation 1) and 10(1) - as well as being used throughout the Forms (for instance question number 4 of both Form 1 and Form 2). However, the explanation in Section 5 of the Act does not define the concept. The IBA Working Group respectfully submits that it would be helpful if the Regulations contained a more detailed explanation of the notion of control as the Commission intends to apply it. The notion of "investment" 8.2 Regulation 5(2)(i) exempts transactions from notification where they are made "solely for the purpose of investment". This is an exemption that is also found in other regimes, such as in the US Hart-Scott-Rodino Antitrust Improvements Act. 8.3 In the experience of the Working Group, this notion has been particularly difficult to apply in practice. There is therefore a risk that it may not provide sufficient clarity to parties at the pre-notification stage. The Working Group therefore respectfully submits that the "solely as an investment" wording be deleted in favour of simply using the 26% share threshold already incorporated into Regulation 5(2)(i). March 2008 UK/ / /