Pre-Merger Notification Survey INDIA Amarchand & Mangaldas & Suresh A. Shroff & Co CONTACT INFORMATION Pallavi Shroff Amarchand & Mangaldas & Suresh A. Shroff & Co India Telephone: 91.11.26920500 Email: pallavi.shroff@amarchand.com 1. Is there a regulatory regime applicable to mergers and similar transactions? Mergers and acquisitions ( combinations ) are regulated by the Competition Act, 2002 which provides a statutory framework for the regulation of combinations qualifying for investigation. Additional Comments All provisions of the Competition Act have not been notified yet. The provisions relating to combinations have not been notified and consequently are not yet in force. The Parliament is also currently considering certain amendments to the Competition Act. A significant part of such amendments relates to the constitution of a Competition Appellate Tribunal, for hearing appeals from the Competition Commission of India, the authority constituted under the Act. Merger, acquisitions and takeovers in India are also regulated by two other legislations: i) The Companies Act, 1956: Compromises, arrangements and reconstructions inter se between the members of a company or between members of a company and its creditors are dealt with under this Act; and ii) Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Code): Takeovers and substantial acquisition of shares are regulated under the Takeover Code.
iii) It should be noted that, the SEBI and the Company Law Tribunal are not required to examine competition law related issues. 2. Identify Applicable National Regulatory Agency/Agencies. Competition Act The relevant body is the Competition Commission of India (the CCI ) established under the Act. Takeover Code The Securities and Exchange Board of India (hereinafter Board ) regulates the substantial acquisition of shares and takeovers under the Takeover Code. Companies Act Presently the High Court, exercises supervision over compromises, arrangements and reconstructions of companies. However, the Companies Act has been amended to provide for the establishment of the Company Law Tribunal (hereinafter, Tribunal ), which will take over the original jurisdiction of the High Court in this regard once it is established. 3. Is there a supranational regulatory agency (e. g., the European Commission) that has, or may have exclusive competence? If so, indicate. No. 4. Are there pre-merger filing requirements; if so, where are they published? Notification of a merger is voluntary under the Competition Act. There are no statutory/ mandatory filing requirements as such. However, if it is determined that the statutorily specified threshold limits are crossed, and, the combination causes or is likely to cause Appreciable Adverse Effects on competition in India, the CCI may within one year investigate and declare such combination to be void, or it may direct that the Combination should not take effect, or suggest amendments to the proposed Combination. 5. What kinds of transactions are "caught" by the national rules? (Identify any notable exceptions) The Act lays down certain threshold limits of a Combination which will trigger scrutiny by the CCI. These are as follows:
Threshold Limits for Acquisition A. The Threshold limits in respect of Acquisitions are as follows: 1. When the acquirer and Target Company jointly have: In India assets more than Rs. 1000 Crores or turnover more than Rs. 3000 crores or, In India or outside India aggregate assets of more than US $ 500 million or turnover of more than US $ 1500 million or 2. When the Group to which the Target Company would belong after the acquisition jointly has: In India assets more than Rs. 400 crores or turnover more than Rs. 12000 crores or Inside India or outside India aggregate assets more than US $ 2 billion or turnover more than US $ 6 billion B. When acquirer has direct or indirect control over another enterprise engaged in production, distribution or trading in similar, identical or substitutable goods or provision of service as the target company: 1. Target company and the enterprise over which acquirer has direct or indirect control, jointly have: In India assets of more than Rs. 1000 crores or turnover of more than Rs. 3000 crores or In India or outside India have aggregate assets of more than US$ 500 million or turnover of more than US$ 1500 million or 2. The group to which the target company belongs after the acquisition would along with Target Company have: In India assets of more than Rs. 4000 crores or turnover of more than Rs. 12000 crores In India & outside India aggregate assets of more than US$ 2 billion or turnover of more than US$ 6 billion Threshold Limits for Mergers and Amalgamations Any merger or amalgamation where: 1. Where the merged entity will have: In India assets more than Rs. 1000 crores or turnover of more than Rs. 3000 crore or In India & outside aggregate assets of more than US$ 500 million or turnover of more than US$ 1500 million or 2. The group to which the merged entity belongs has: In India assets of more than Rs. 4000 crores or turnover of more than Rs. 12000 crores or Inside or outside India have in the aggregate assets of more than US$ 2 billion or turnover of more than US$ 6 billion. 6. Is there a "size of transaction" threshold?
Yes. See above. 7. Is there a "size or turnover of the parties" test; if so, what is it and how are size and turnover to be calculated? Yes. See above. Explanation (c) to Section 5 of the Competition Act provides that the value of assets of the parties shall be determined by taking the book value of the assets as shown, in the audited books of account of the enterprise, in the financial year immediately preceding the financial year in which the date of proposed merger falls, as reduced by any depreciation. As per S 2(y), turnover includes value of sale of goods or services. For the purposes of the Competition Act, the value of assets shall include the brand value, value of goodwill, or value of copyright, patent, permitted use, collected mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layoutdesign or similar other commercial rights. 8. Is geographic scope/national market effect of transaction an issue with respect to filing or approval requirements? If so, specify. These are not mentioned as specific criteria in the Competition Act. However, since the CCI has to determine whether the combination has an appreciable adverse effect on competition in the relevant market in India, factors such as geographical scope may be relevant. 9. Is the filing voluntary or mandatory? What are the penalties for noncompliance? Filing is voluntary. No question of penalties therefore arises. The CCI has the authority to suo moto look into any combination within one year of the Combination, once the statutorily prescribed thresholds are triggered. 10. Time in which a filing must be made. Filing must be done within seven days of: The board of directors of the enterprise concerned approving the proposal of merger or amalgamation. The execution of any agreement or other document for such acquisition or the acquiring of control, shares, voting rights or assets by a person over an enterprise or when a person already has direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable good or service.
11. Form and Content of Initial Filing. To be determined by Regulations, which are yet to be framed. 12. Are filing fees required? To be determined by Regulations, which are yet to be framed. 13. Is There An Automatic Waiting Period? If so, specify. There is a maximum time period of 90 working days from the date of publication of all information by the parties, within which the CCI has to make an order on the combination. Please see Chart I attached to this response for details on the various stages of investigation. 14. Are There Time Limits Within Which The Regulatory Agency Must Act? Can they be shortened by the parties or be extended by the regulatory agency? After the voluntary notification by the parties, or the suo moto enquiry by CCI into the combination, show cause notices are issued to the parties if the CCI is of the view that the combination has caused or is likely to cause an appreciable adverse effect on competition. Please refer to Chart 1 for a tabular representation of the time limits within which the CCI must act. CCI Procedure after Parties have submitted all information: Maximum time CCI can take to make its orders on a Combination is 90 days from date of publication by the parties of all information required by CCI. If CCI does not make any order stopping the combination within 90 days, then, combination is deemed to be approved. If parties to Combination seek time, then 90 days shall be computed after deduction extended time period. 15. What is the substantive test for clearance? The test applicable is whether the combination has, or is likely to have, an appreciable adverse effect on competition within the relevant market in India. The Competition Act provides the following list of factors that the Commission must consider for the analysis of Appreciable Adverse Effect to Competition: actual and potential level of competition through imports in the market; extent of barriers to entry into the market; level of combination in the market; degree of countervailing power in the market; likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;
extent of effective competition likely to sustain in a market; extent to which substitutes are available or are likely to be available in the market; market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination; likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market; nature and extent of vertical integration in the market; possibility of a failing business; nature and extent of innovation; relative advantage, by way of the contribution to the economic development, by any combination having or likely to have appreciable adverse effect on competition; whether the benefits of the combination outweigh the adverse impact of the combination, if any. 16. What are the common Post-Filing Procedures: Requests for further information, etc? 17. Describe the sanctions for not filing or filing and incorrect/incomplete notification. Since filing is voluntary, there are no sanctions for not filing. The CCI can, however, conduct suo moto investigations. In addition, Section 44 of the Act provides that if any person, being a party to a combination, a) makes a statement which is false in any material particular, or knowing it to be false; or b) omits to state any material particular knowing it to be material, such person shall be liable to a penalty which shall not be less than Rupees fifty lakhs but which may extend to rupees one crore, as may be determined by the CCI. 18. Describe the procedures if the agency wants to challenge the transaction? The CCI may suo moto conduct an enquiry and issue a show cause notice to the parties to the combination. In the case of voluntary filing by the parties, however, a challenge to the transaction may take two forms: an objection raised by an affected party in response to the Commission s notice the Commission s review of the objections, and the consequent modification it suggests to the transaction
Once the CCI suggests modifications, the parties may choose to accept them. The parties must then implement these modifications within the time permitted by the CCI. If they fail to do so, the combination is deemed to have an appreciable adverse effect on competition. If the parties do not accept the suggested modifications, they may suggest amendments to the modifications within 30 days. If the CCI accepts these amendments, it must approve the combination. If the CCI does not accept the amendments, the parties have further time of 30 days to accept the modifications suggested by the CCI and implement them within the permitted time. If they fail to do so, the combination is deemed to have an appreciable adverse effect on competition. 19. Describe the penalties applicable to the implementation of a merger before clearance or of a prohibited merger? If a person contravenes, without any reasonable ground, any order or any condition or restriction imposed as part of an approval by the CCI, he is liable for imprisonment of up to one year in addition to a fine of up to Rupees Ten Lakhs. The CCI also has the power to award compensation to affected parties. The parties are free to implement the merger even pending clearance, unless there is an order (under Section 33 of the Act) restraining them from doing so. However, they run the risk of the merger being found anticompetitive, leading to wasted investment and possible penalties. 20. Describe, briefly, your assessment of the regulatory agency's current attitudes/activities. The CCI has not yet started to function and no comment is possible at this stage. The procedure to be followed in an inquiry (either because of notification or otherwise) as prescribed in S. 29 of the Competition Act is shown below. Note that the first three steps are not applicable in the case of voluntary notification. 21. Other Important Information: