The Competition Commission has notified further amendments to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Regulations“). The Competition Act, 2002 prohibits combinations which cause or are likely to have an adverse effect on competition in India. Schedule 1 of the Regulations contains a list of combinations which ordinarily would not result in an adverse effect on competition in India and hence such combinations are not required to be notified to the Competition Commission. The amendment dated 4 April 2013 modifies the categories of combinations listed under schedule 1 to the Regulations as follows:
(1) Creeping acquisition under category 1:
Prior to the amendment, any acquisition that resulted in the acquirer holding 25% or more shares or voting rights was required to be notified to the Competition Commission in accordance with the Regulations. Now, an acquirer or its group holding 25% or more but less than 50% shares or voting rights in an enterprise can acquire additional shares or voting rights in the enterprise up to 5% in a given financial year without notifying the Competition Commission provided that it satisfies the following two conditions:
(i) its shareholding post the acquisition should be less than 50%; and
(ii) the acquirer or its group should not control the enterprise as a result of such acquisition.
The limitation under this category relates to gross acquisition of 5% shares or voting rights in one financial year. This threshold is consistent with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. As a consequence of use of the term financial year the acquirer or its group can acquire 10% shares or voting rights within a span of two days without notifying the Competition Commission.
(2) Increase in scope of category 5 and deletion of category 9:
Exemption under earlier category 5 which covered acquisition of “stock-in-trade, raw materials, stores and spares in the ordinary course of business” has been extended to acquisition of “stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business“. Simultaneously category 9, “An acquisition of current assets in the ordinary course of business“, stands deleted. These amendments are not substantive and are merely optical changes.
(3) Intra Group Acquisitions:
(i) Prior to the amendment, category 8 covered “acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same group“. The term group as per the Competition Act, 2002 includes two or more enterprises that can, directly or indirectly, exercise 26% or more voting rights in another enterprise. Therefore, an enterprise holding 26% or more voting rights in a target enterprise could subsequently acquire control over the target enterprise without notifying such an acquisition under the Regulations. The amendment deletes the term “control“. Therefore, such acquisitions will now need to be notified as per the Regulations.
(ii) The amendment to category 8 additionally provides that intra group acquisition of shares or voting rights or assets where the acquired enterprise is jointly controlled by enterprises that are not a part of the same group will now have to be notified as per the Regulations.
(4) Category 8 A has been deleted and replaced by Category 9. Erstwhile Category 8 A applied to merger or amalgamation involving (i) a holding company and its subsidiary which was wholly owned by enterprises of the same group; or (ii) subsidiaries which were wholly owned by enterprises of the same group. Category 9 applies to merger or amalgamation of (i) two enterprises where one enterprise holds more than 50% shares or voting rights in the other enterprise; or (ii) merger and amalgamation of enterprises in which more than 50% of the shares or voting rights in each of the enterprises are held by enterprises within the same group. The amendment broadens the scope of the category as it removes the requirement of “wholly owned“. Also, the amended Category 9 does not apply to transactions that result in transfer from joint control to sole control.
In conclusion, except for intra group acquisitions the amendments increase the scope of the entries contained in schedule 1 to the Regulations. The increase in the scope of the schedule to the Regulations can be seen as a step forward towards fast tracking the regulatory process for merger and acquisitions in India.
Saumya Sharma [firstname.lastname@example.org]