Competition Law & Corporate Restructuring

Transcription

1 Conference: Corporate Growth-Creating Opportunities through Professional Value Additions, ICSI, NIRC, Ludhiana Competition Law & Corporate Restructuring Presented : G. R. Bhatia Partner & Head, Competition Law Practice Group Luthra & Luthra Law Offices, New Delhi Luthra & Luthra Law Offices

2 WHY COMPETITION? 2

3 The Benefits of Competition Reduces prices Improves quality Boosts choice Facilitates better governance Promotes efficiency Encourages innovation 4

4 Contd Punishes the LAGGARDS Ensures AVAILABILITY OF GOODS in abundance of acceptable quality at affordable price (AAA) Beneficial for CONSUMERS, BUSINESS AND THE ECONOMY. 5

5 Why Competition Law? Helps maintain free and fair competition in markets which is a critical challenge. The need for a law and an umpire is critical. Need to infuse competition imperative. MRTP Act focused on curbing monopolies. It was limited in sweep and rigidly structured. 6

6 Five Dimensions of the Act Anti-competitive Agreements Abuse of Dominance Combinations, include acquisition of shares, voting rights, assets/control, mergers, amalgamations and takeovers Advocacy - maximum impact with least intervention. Advisory- to State and Statutory Authority All these dimensions of law are in force 6

7 Need for Regulation of M&A s M&A s are usually regulated under the Companies Act, SEBI Regulations and SICA Act These laws do not provide for scrutiny from the perspective of competition in the market, level of concentration, interest of consumers/competitors The specific regulators such as PNGRB, Electricity Tribunal, Mines Tribunal etc. have expertise in that area of law but expertise in the area of competition law rests with the CCI which is necessary for a balanced picture 7

8 Benefits of Regulation of M&A s Effective means of generating economies of scale and scope resulting in production of products at lower cost and improved quality; Major benefit is the assessment in terms of concentration of the market and they such regulation prevents the combined entity from attaining superdominance, for instance, if Coke and Pepsi decide to merge without such regulation by the CCI, they would be able to capture close to 100% of the cola market which may in turn lead to higher prices to the detriment of the consumer 8

9 The New Institutional Framework After MRTP Director General (Investigative Arm Of CCI) CCI (Competition Commission of India) The CAT (For appeals against CCI Orders and to adjudicate Claims for Compensation) Central Government (Vested with power to supersede the CCI; issue directions; grant exemptions from applicability of the Act) Supreme Court of India (For appeals against orders of CAT) 9

10 Regulation of Combinations The provisions relating to combinations and the attendant regulations have taken effect from June 01, 2011 No combination can take effect unless approved by the CCI. The Government, on March 04, 2011, issued three other notifications: enhancing the thresholds set out in Section 5 of the Act for notifiable transactions by fifty per cent keeping in view the increase in the wholesale price index; for the purposes of calculating assets or turnover for a Group, excluding those entities where that Group holds less than fifty per cent of voting rights in such entities; and exempting acquisition transactions where the target entity has less INR 250 crores (approx USD 55 million) in assets or less than INR 750 crores (approx USD 165 million) in turnover from the provisions of Section 5 of the Act and, hence, not requiring such transactions to be notified for prior approval of the CCI. 33

11 What is a Combination? Combinations include: - Acquisition of control, shares, voting rights, or assets of another enterprise; or - Acquisition of control where the acquirer already has control over a similar/identical business or - Merger or amalgamation of enterprises where such transactions cross the asset or turnover thresholds set out in the Act. The thresholds relate to the size of the combining parties and not the size of the transaction. 11

12 Thresholds under the Act Operations Individual Parties Group, to which the enterprise being acquired would belong after the acquisition As defined in the Act. In India In India and Outside India Aggregate value of assets more than INR 1,500 crores (approx. USD 333 million) or turnover more than INR 4,500 crores (approx. USD 998 million). Aggregate value of assets more than USD 750 million (including at least assets of INR 750 crores in (approx. USD 165 million)) or turnover of USD 2.25 billion (including at least turnover of INR 2,250 crores (approx. USD 499 million) in ) 12 Aggregate value of assets more than INR 6,000 crores (approx. USD 1.3 billion) or turnover more than INR 18,000 crores (approx. USD 3.9 billion). Aggregate value of assets more than USD 3 billion (including at least assets of INR 750 crores in India (approx. USD 165 million)) or turnover of USD 9 billion (including at least turnover of INR 2,250 crores (approx. USD 499 million) in India)

13 Transactions not requiring filing Under the Regulations, the CCI has classified certain transactions as combinations not likely to cause an appreciable adverse effect on competition in India and has indicated that under normal circumstances no notice needs to be filed with the CCI in respect of such transactions for prior approval. Schedule I of the Regulations provides a list of such categories of transactions, for instance, intra-group acquisition, an acquisition of stock-in-trade, raw materials, an acquisition of shares or voting rights pursuant to a bonus issue or stock splits etc. 13

14 Forms of Notification The Regulations provide for Form I (short form) and Form II (long form) along with applicable fee Acquisitions by public financial institutions, foreign institutional investors, bank or venture capital funds are to be filed without any fee in Form III. Such transactions do not require prior approval from the CCI and only need to be intimated. Regulation 5 (2) provides an inclusive list of transactions which require a Form I filing such as, an acquisition as a result of gift or inheritance, an acquisition by a liquidator, administrator through court proceedings etc. 14

15 When to file & Responsibility of Filing Parties to a Combination will need to file the requisite Notice with the CCI within 30 days of approval of the proposal relating to merger or amalgamation, by the Board of Directors of the concerned enterprises; or execution of any agreement or other document for acquisition. In cases of acquisition, the responsibility to make a filing under Form I or Form II along with applicable fee devolves upon the acquirer; and in cases of mergers or amalgamations, the merging parties are expected to file a joint notification. 15

16 Approval Time-lines The Regulations envisage that the CCI shall form a prima facie opinion as to whether a Combination has or is likely to have appreciable adverse effect on competition within the relevant market in India within 30 days of receipt of a valid notice (excluding any additional time taken by the parties to file any additional information); The Regulation states that the CCI will endeavor to pass an order or issue directions within 180 days of a valid notification (though the law contemplates a maximum 210 day period). This 180 days period excludes any additional time (over the time stipulated) taken by the parties to file any additional information. 16

17 Informal Consultation The Commission, in accordance with international best practices is providing the facility of informal and verbal consultation with the staff of CCI prior to the filing of notice to a proposed combination in terms of regulation 5 of Combinations Regulations, 2011, under sub section (2) of section 6 of the Act. The advice is an additional assistance facility and would not be deemed to be the opinion of the Commission in any manner whatsoever or binding on the Commission. 17

18 Filing Fees Payable to the CCI Type of Notification Fees Payable Form I INR 50,000/- (Rupees Fifty Thousand) Form II INR 10 Lakhs 18

19 Orders and Remedies Subsequent to an inquiry, if a combination causes or is likely to cause AAEC, the CCI may pass orders: (a) blocking the transaction; or (b) allowing the transaction after suitable modifications/changes are carried out to remove competition concerns. Failure to Notify a combination attracts a penalty which may extend to one percent of the total turnover or the assets of the combination, whichever is higher. 19

20 Recent Orders Subject matter of acquisition: 74% of JV companies Bharti AXA Life Insurance Co. Ltd. and Bharti AXA General Insurance Co. Ltd. - These entities are a joint venture with AXA SA Acquirer: Reliance Industries Ltd & Reliance Industrial Infrastructure Ltd Sellers: Bharti Enterprises Limited and Bharti Overseas Pvt. Ltd Combination approved as : Reliance and the Bharti entities do not operate in interchangeable or substitutable products, There is also no vertical relationship as Reliance Retail Insurance Broking is a relatively new player in the market Presence of many players in both the life and general insurance business, and the low market share of the Bharti entities, less likelihood of AAEC 20

21 Recent Orders (Contd.) Subject Matter: Amalgamation of ALSTOM Holdings (India) Private Limited (AHIL) and ALSTOM Projects India Limited (APIL) -- Both controlled by ALSTOM Holdings. Order: Amalgamation approved as: APIL and AHIL are engaged in different activities; Both are a part of the ALSTOM group of companies, the ultimate parent of being ALSTOM Holdings and would continue to be under the same management, the combination is not likely to have an appreciable adverse effect on competition in India 21

22 G. R. Bhatia Luthra & Luthra Law offices 103, Ashoka Estate 24 Barakhamba Road New Delhi Tel No