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

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1 INTERNATIONAL BAR ASSOCIATION ANTITRUST COMMITTEE WORKING GROUP ON INDIA'S PROPOSED MANDATORY MERGER NOTIFICATION REGIME SUBMISSION REGARDING THE INDIAN MERGER NOTIFICATION REGIME AND NECESSARY 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 Competition Act, 2002, No. 12 OF 2003, as amended by the Competition (Amendment) Act, 2007 (the "Act"). 1.2 The IBA is the world s 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. 1.3 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 2. EXECUTIVE SUMMARY 2.1 The IBA respectfully submits that certain aspects of the Act should be amended in the future to bring it into conformity with international recommended practices for merger control and to permit it to achieve the stated purposes and objectives of the Act, namely to promote and sustain competition in India. 2.2 However, the comments in this submission focus solely on certain key aspects of the merger control process that the IBA respectfully submits require urgent consideration and need to be reflected in the implementing regulations, guidelines and working practices that will be adopted by the Competition Commission of India (the "Commission") in due course. 2.3 In particular, the IBA believes that there should be increased clarity on the appropriate local nexus for transactions to ensure that transactions with little or no connection to the Indian market are not notified to the Commission. Further, the IBA respectfully submits that implementing regulations would need to clarify the structure and length of the merger review process. There should also be increased clarity on when notifications can and should be submitted. Lastly, the IBA would respectfully propose that implementing regulations ensure that 'short form' notifications be established in parallel with standard notification forms.

2 2.4 The IBA hopes that this submission is helpful and would be pleased to offer any assistance considered appropriate for such an important economy and jurisdiction as India. 3. APPROPRIATE LOCAL NEXUS FOR NOTIFIABLE TRANSACTIONS There should be increased clarity on the appropriate local nexus for transactions 3.1 The Act applies to combinations where the parties concerned meet certain combined assets or turnover thresholds set out in Section 5 of the Act - namely, if the combined value of the assets or turnover of (i) the acquirer and of the target (or of the merging enterprises) (the "Parties"), or of (ii) the group to which the target/merged enterprise will belong post-acquisition (the "Group") exceeds any one of the alternative thresholds set out below. India (Rs. Crores) Worldwide (USD Million) Combined assets Combined turnover Combined assets Combined turnover Parties Group Section 5 of the Act therefore arguably captures a large number of "foreign-to-foreign" mergers involving multi-national companies where the target has no presence in India at all and regardless of any actual effects on competition in India. By way of example, companies with worldwide assets of more than approximately USD 2 billion or sales of more than approximately USD 6 billion, and assets in India of more than approximately USD 125 million or sales in India of more than approximately USD 375 million, will potentially have to notify all transactions in India. 3.3 However, such a broad approach to the jurisdiction of the Act would be at odds with Section 32 of the Act which sets out that: "[t]he Commission shall, notwithstanding that [ ] a combination has taken place outside India; or [ ] any party to combination is outside India; or [ ] any other matter or practice or action arising out of such [...] combination is outside India [ ] have power to inquire [ ] into such [ ] combination if such [ ] combination has, or is likely to have, an appreciable adverse effect on competition in the relevant market in India." (Emphasis added). It appears clear from the wording of Section 32 of the Act that the legislator intended foreign-to-foreign transactions to be investigated only where such transactions have, or are likely to have, an appreciable adverse effect on competition in India. 3.4 Consistent with the intention of the Act, clarification is therefore required to address this potential inconsistency in the wording of the Act to ensure that transactions with little or no connection to the Indian market are not notified to the Commission. Failure to address this issue will result in a large volume of unnecessary notifications and lead to: an inefficient allocation of Commission resources on examining notifications with no appreciable adverse effect on competition in India; and

3 an unnecessary, and it would appear, unintended burden upon companies to make merger notifications in India. 3.5 Furthermore, clarification would also be in line with international best practice. The ICN, an international organisation that brings together almost one hundred competition authorities from 85 jurisdictions - including India - has adopted 13 Recommended Practices for Merger Notification and Review (the "Recommended Practices"). 1 The Recommended Practices, unanimously adopted by the ICN, result from a rigorous collaborative effort of numerous competition agencies and non-governmental advisors worldwide. The aim of the Recommended Practices is to facilitate convergence towards best practices in the procedural aspects of merger review, while recognising that sovereignty remains a guiding principle in the development and revision of merger regimes. 3.6 The Recommended Practice on 'Nexus To Reviewing Jurisdiction' makes it clear that "[j]urisdiction should be asserted only over those transactions that have an appropriate nexus with the jurisdiction concerned". 2 This is to be achieved by ensuring that [m]erger notification thresholds should incorporate appropriate standards of materiality as to the level of 'local nexus' required for merger notification" An appropriate standard of materiality is critical to jurisdictional thresholds to focus the enforcement efforts on problematic transactions and to screen out those that are unlikely to result in "appreciable competitive effects within [the agency s] territory". 4 The Recommended Practices recognise that subjecting such transactions to merger notifications imposes unnecessary transaction costs and commitment of competition agency resources without any corresponding enforcement benefit. Merger notification thresholds should therefore incorporate appropriate standards of materiality as to the level of 'local nexus' required, for instance with reference to material sales or asset levels within the territory of the jurisdiction concerned. 3.8 Accordingly, the Recommended Practices state that: "[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." 5 Many jurisdictions require significant local activities by each of at least two parties to the transaction as a requirement for notification. This approach represents, according to the recommended practices, an appropriate 'local nexus' screen since the likelihood of adverse effects from transactions in which only one party has the requisite nexus is sufficiently remote that the burdens associated with a notification requirement are normally not warranted. To the extent that the 'local nexus' requirement can be satisfied by the activities of the acquired business alone, the requisite threshold should be sufficiently high so as to ensure that notification will not be required for transactions lacking a potentially material effect on the local economy. The IBA proposal 3.9 The IBA considers that the merger notification regime established under Section 5 of the Act, read in isolation, would not be consistent with the intention of the Act, nor the 1 See Recommended Practices for Merger Notification Procedures, available on the Internet at: 2 See Recommended Practices for Merger Notification Procedures, p 1, Recommended Practice I A. 3 See Recommended Practices for Merger Notification Procedures, p 1, Recommended Practice I B. 4 Id. 5 Id.

4 Recommended Practices concerning jurisdictional nexus. The IBA submits that the merger notification regime should be clarified by adopting appropriate implementing regulations that also reflect the requirements set out in Section 32 of the Act The IBA believes that the Commission would be well placed, acting under the powers conferred upon it to adopt implementing regulations under Section 64 of the Act, to address the concerns elaborated above. Section 64 of the Act makes clear that "[t]he Commission may [ ] make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act [ ]". Moreover, as outlined above, the proposed regulations would be consistent with the intention of the Act with respect to activity that occurs outside India. It would also be consistent with accepted international practice to address these concerns at the agency level, through regulation, rather than through legislative amendment In the case of mergers where an acquired business or a party to a combination has no assets or revenues in India, or assets/revenues below a de minimis level, the IBA would respectfully submit that implementing regulations make it clear that such transactions do not fall within the ambit of the Act as, pursuant to Section 32, such a transaction cannot have, and is not likely to have "an appreciable adverse effect on competition in the relevant market in India". 4. WAITING PERIODS There should be increased clarity on the structure and length of the merger review 4.1 The Act has established a suspensory merger control regime where the consummation of a notified transaction is put on hold pending the adoption of a clearance decision by the Commission pursuant to Section 31(1) of the Act 7, or alternatively, the expiration of the waiting period pursuant to Section 31(11) of the Act. Section 31(11) of the Act lays down a maximum waiting period of 210 days The waiting period in the form in which it is contained in the Act poses a potentially very significant concern for Indian and international transactions. Firstly, the 210-day period is exceptionally long. Secondly, the Act does not provide for a two-stage system for differentiating between those transactions that pose no risk of appreciable adverse effects on competition in India and those that merit an in-depth investigation due to concerns that they may have an appreciable adverse effect on competition in India. 4.3 Merger transactions are almost always time sensitive, as the completion of a merger review is typically a condition to closing. Delays in the completion of such reviews create uncertainty and additional costs for businesses. For instance, consummation of the transaction may be jeopardized due to intervening developments and/or other timesensitive contingencies such as financing arrangements. Questions around the timeliness of completion may also impact on workforce attrition and feed in to marketplace uncertainty. For these reasons, it is widely recognised that merger review should be initiated and completed in a timely manner, having regard to the interests of a rigorous 6 Recent examples of changes adopted at the agency level include increasing the transparency of agency practice and decisions, amending agency procedures and administrative requirements and issuing or revising merger guidelines, decrees and decisions. See Implementation of the ICN Recommended Practices for Merger Notification and Review Procedures, available on the internet at: 7 Pursuant to Section 31(1) of the Act, the Commission shall, by order, approve combinations that do not, or are not likely to, have an appreciable adverse effect on competition. 8 This is subject to certain extensions mentioned in Section 31 of the Act, e.g., where modifications are proposed to combinations.

5 review as well as the interests of business to have the review carried out without creating unjustified regulatory risks. 4.4 The Recommended Practices provide that "merger reviews should be completed within a reasonable period of time". 9 The Recommended Practices also lay down guidance on the preferred structure of merger reviews. Namely, the ICN believes that "merger review systems should incorporate procedures that provide for expedited review and clearance of notified transactions that do not raise material competitive concerns". 10 One method that is commonly used to achieve this is to allow for a swift review and clearance of noncomplex transactions after an initial phase and to investigate complex transactions only during an in-depth, second phase, investigation. By way of illustration, we would highlight the following review periods applicable in some jurisdictions that have mandatory merger review systems: Jurisdiction First Phase Second phase (i.e. usually where competition issues are anticipated) China 30 working days working days from filing EU 25 or 35 working days working days from decision to enter a second phase Japan 30 calendar days Later of 120 calendar days from filing or 90 calendar days from receipt of additional material US 15 or 30 calendar days 10 or 30 days from substantial compliance with Second Request (in practice up to 6 months) The IBA proposal 4.5 The IBA considers that implementing regulations should be adopted to establish a twophase system, which would allow for non-problematic transactions to proceed following a preliminary review during a relatively short review period with a definitive and readilyascertainable deadline set out. The Recommended Practices suggest that "in suspensive jurisdictions, initial waiting periods should expire within a specified period following notification". 11 Such waiting periods, according to the Recommended Practices, may be set by considering "the time frames commonly used by competition agencies internationally" See Recommended Practices for Merger Notification Procedures, p 7, Recommended Practice IV A. 10 See Recommended Practices for Merger Notification Procedures, p 7, Recommended Practice IV B. 11 See Recommended Practices for Merger Notification Procedures, p 8, Recommended Practice IV C. 12 Id.

6 4.6 Having regard to the examples given at paragraph 4.4 above, the IBA believes that a first phase review should not exceed 30 calendar days following which the parties to a transaction should be free to proceed with the transaction following a formal clearance decision issued by the Commission, or alternatively, in the absence of such formal decision, the expiration of the 30 calendar day waiting period. This should not preclude the Commission from granting early termination earlier than the expiry of these 30 calendar days Further, implementation regulations should allow the Commission to subject transactions that do raise material competitive concerns to an extended review period within the 210- day waiting period set out in Article 31(11) of the Act. However, the initiation of a second phase review should not preclude the Commission from granting early termination of the 210-day waiting period. 4.8 The IBA also notes that whilst laying down the time frame for actions under Section 6 of the Act (Regulations of Combinations); Section 29 of the Act (Procedure for investigation of Combinations), and Section 31 of the Act (Orders of combinations on certain combinations) the term "days" and "working days" have both been used. The IBA would respectfully submit that the regulations clarify the applicable periods and wherever possible use calendar days. 5. TIMING OF NOTIFICATION There should be increased clarity on the timing of the notification 5.1 Pursuant to Section 6(2) of the Act, notifications must be filed with the Commission within 30 days of the execution of "any agreement or other document for acquisition". 5.2 An acquisition or a merger is often governed by a number of transaction documents, some of which are preliminary in nature and some of which are definitive and binding. The Act does not determine what agreement or document constitutes the triggering event for the 30-day period (hence, does not enable parties to determine by when a filing must be made), and does not make clear the basis on which parties are permitted to submit their notification (hence, does not enable parties to determine as from when notification can be made). More specifically: It is unclear whether only a definitive agreement will trigger the 30-day deadline or whether, e.g., a letter of intent, agreement in principle or the public announcement of the intention to make an offer would constitute a triggering event; Further, the Act does not set out whether the parties to a transaction may notify the Commission within the 30-day deadline in an abbreviated form, in order to comply with the filing deadline, followed by a subsequent full notification after the 30-day deadline; Lastly, the Act does not set out whether parties, in the absence of a definitive agreement, would be permitted to notify transactions upon certification of a good faith intent to consummate the contemplated transaction The fact that the Act provides a maximum review period of 210 days does not preclude the adoption of regulations that provide for a swifter review of non-complex transactions. By way of example, the South African Competition Commission has a fast-track procedure for certain "intermediate" transactions under which a decision will generally be made within a 20-working day timeframe. Moreover, in Brazil, an informal "fast track" or "simplified procedure" was recently introduced for reviewing mergers that do not raise competitive concerns. Both the Brazilian and South African procedures were introduced at the agency level. 14 Illustrative examples of provisions from other jurisdictions include:

7 5.3 Having regard to the circumstances highlighted in this paper in particular the fact that the Act would potentially bring within its scope a large number of transactions, mandates notification of transactions over which jurisdiction is asserted and provides for an exceptionally long review period in order to facilitate the Commission's efficient review of mergers and make compliance possible for businesses, it is vital to clarify how the Act is to operate in these respects. The IBA proposals 5.4 The IBA respectfully proposes that the standards for determining the mandatory triggering event should be clearly defined in implementing regulations, so as to ensure that parties to a transaction will be able to clearly determine when the 30-day period for submitting a notification would expire, thus ensuring timely notification in compliance with Section 6(2) of the Act. 5.5 The IBA would submit that a final, binding, agreement between parties (or any other document, such as announcement of a public tender offer, which precludes the notifying party from unilaterally withdrawing from the transaction) would be the appropriate triggering event for these purposes. Such a rule would provide legal certainty for the parties as well as for the Commission in determining whether a triggering event has occurred and when the legal deadline expires. In contrast, unjustified uncertainty would follow if preliminary documents, such as 'letters of intent', 'memoranda of understanding', 'term sheets' etc were to trigger the filing deadline. The uncertainty would affect the parties as well as the Commission, since inclusion of such documents could trigger lengthy mandatory review of transactions which will not actually materialise and, accordingly, result in wasteful use of resources. 5.6 Whilst the Recommended Practices suggest that "[j]urisdictions that prohibit closing while the competition agency reviews the transaction or for a specified time period following notification should not impose deadlines for pre-merger notification", the Act does currently impose the 30-day deadline referred to above. In practice, parties obligated to notify are typically under intense commercial and financial pressure to complete a transaction as soon as practicable. It will therefore be in the interest of any party to notify a transaction as soon as possible to obtain timely clearance, but there will be occasions when significant resources and time will be required to prepare a notification. For this reason, it may not be possible to submit a full notification within the deadline set. The cost and burden will be particularly high in transactions which require notifications in multiple jurisdictions and thus necessitate wide-ranging data gathering, analysis and coordination. 5.7 Accordingly, the IBA respectfully suggests that implementing regulations explicitly allow parties to inform the Commission of a contemplated transaction by way of a EU: The EC Merger Regulation provides that the parties may notify a concentration if they can demonstrate to the EU Commission a "good faith intention to conclude an agreement". In this regard, parties must show that their plan for the transaction is sufficiently concrete, e.g., on the basis of an agreement in principle, a memorandum of understanding, or a letter of intent. In the case of a public bid, parties can notify once they have "publicly announced an intention to make such a bid". UK: The UK Office of Fair Trading (the "OFT") will accept a merger notification where it believes that "it is, or may be the case, that arrangements are in progress or in contemplation which if carried into effect, will result in the creation of a relevant merger situation". USA: In the USA, an acquirer may make an HSR notification as soon as it can show that it has the good faith intention of making the acquisition, and/or it has made a public announcement of its intention to make a tender offer, and it has given written notice to the target issuer. Notice to the target is required under US law because of the target s requirement to file its own notification under the HSR Act.

8 'courtesy letter' on such occasions, allowing the parties to set out the basic information about a contemplated transaction, hence allowing the parties to comply with the deadline as set out in Section 6(2) of the Act, and allowing the parties to subsequently file a full notification with the Commission at a later stage. Such a procedure would be consistent with the previous practice of the EU Commission at the time that the EC Merger Regulation prescribed a mandatory filing deadline. 5.8 The IBA respectfully proposes that implementing regulations should also specify that parties should always be permitted to notify transactions prior to the execution of a definitive agreement or other document mentioned at 5.5 above. More specifically, the IBA respectfully submits that it should be possible for parties to notify on the basis of documentation which demonstrates their good faith intention to consummate the transaction in question. It would be appropriate for the implementing regulations to specify that such a good faith intention might be demonstrated by, for instance, nonbinding 'letters of intent', 'memoranda of understanding', 'term sheets' which make it clear that the transaction is not merely hypothetical but is being pursued bona fide. 5.9 Allowing parties to file in this manner would be consistent with the Recommended Practices which stipulate that "[p]arties should be permitted to notify proposed mergers upon certification of a good faith intent to consummate the proposed transaction". 15 Consistent with the above referred to approach in numerous jurisdictions worldwide, the Recommended Practices do not require parties to have assumed legal obligations to enter into or to complete a certain transaction as preconditions to filing the merger notification. More specifically, it is stated that "parties should be permitted to notify transactions without undue delay" 16 and that "parties may therefore reasonably be required to submit some appropriate indicia that they intend to proceed with the transaction" 17 prior to notification The IBA respectfully submits that it is important to adopt for the Indian system a standard for when the review may be initiated which is in line with international practice. Different approaches as to when a transaction is notifiable can frustrate (and even prevent) coordination between the Commission and other competition authorities. For instance, agencies in other parts of the world may be well advanced in the review of a transaction which the Commission, on a restrictive application of the Act, could not review in parallel. 6. NOTIFICATION FORM The Act does not distinguish between the information to be submitted in respect of transactions that may raise competitive concerns in India and transactions that are unlikely to have any adverse effect on competition in India 6.1 Pursuant to Section 6(2) of the Act, "any person or enterprise, who or which proposes to enter into a combination, [shall] give notice to the Commission, in the form as may be specified. " 6.2 The Recommended Practices suggest that "To enable the competition agency to accomplish its mission without imposing unnecessary burdens on merging parties, jurisdictions should adopt mechanisms that allow for flexibility in the content of the 15 See Recommended Practices for Merger Notification Procedures, p 5, Recommended Practice III.A. 16 Id. 17 Id.

9 initial notification and/or with respect to additional information requirements during the initial phase of the review."' 18 IBA proposal 6.3 The IBA would respectfully submit that implementing regulations ensure that 'short form' notifications be established in parallel with standard notification forms. The former should require only a limited amount of information to be provided by the parties, allowing the Commission to initially determine whether it has jurisdiction to review the transaction and to conclude whether the transaction raises competition concerns as per Section 20(4) of the Act, meriting a request for further information, or alternatively, meriting the commencement of an in-depth, second phase, investigation as set out above. By way of example, the US notification does not require parties to take a position on market definition and requires a relatively small amount of sales information and documents relating to the transaction. Such a system reflects the fact that the vast majority of transactions do not tend to raise competition law concerns. Additional information is requested only in transactions that may raise potential concerns. 6.4 Following the submission of such a 'short form' notification, implementing regulations should allow the Commission, within the waiting period, to require the parties to supplement the notification or file a more comprehensive standard notification, if the Commission deemed it necessary. 7. CONCLUSION 7.1 The IBA recognises the need for a balance in the development of effective merger control regimes between modifications that promote efficient enforcement of merger laws, efficient allocation of regulatory authority resources and time, and the certainty of reporting obligations for commerce and the minimisation of any unnecessary transaction costs imposed on the business community. The IBA believes that its proposals meet these criteria and are in line with the Recommended Practices. 7.2 The IBA hopes that this submission has been helpful and would be pleased to assists howsoever it is considered appropriate for such an important economy and jurisdiction as India. 18 See Recommended Practices for Merger Notification Procedures, p 11, Recommended Practice V.B.