D – DAY – June 1 2011

Zerick Hosi Dastur of J. Sagar Associates discusses the key features of the new merger regulations under the Competition Act, introduced by the Competition Commission of India that will come into effect on June 1, 2011..The much awaited Regulations governing combinations under the Competition Act 2002 have finally been published on the website of the Competition Commission of India. The Regulations shall come into force on June 1, 2011. The Regulations were released after a series of consultative meetings the Commission held over the past few weeks all across the country with various stakeholders and after considering their comments and suggestions. There were a number of concerns raised by the stakeholders relating to the various issues including the time taken for approving a combination, nature of transactions which require prior approval of the Commission, maintenance of confidentiality etc. Sufficient time was spent considering each of these and the consultative process has finally resulted into the current regulations which have finally been released..The Regulations provide for certain categories of transactions not likely to cause an appreciable adverse effect on competition in India and a notice for the same need not normally be filed with the Commission. These include acquisition of shares/voting rights up to 15 percent, solely as an investment or in the ordinary course of business not leading to acquisition of control of the company whose shares/ voting rights are being acquired; acquisition of shares or voting rights where the acquirer already holds 50 percent or more shares or voting rights in the enterprise being acquired except in cases where the transaction results in transfer from joint control to sole control; acquisitions within the same group; acquisition of stock in trade, raw materials, stores and spares in the ordinary course of business and acquisition of shares/ voting rights pursuant to a bonus issue or subscription to rights issue not leading to acquisition of control. The inclusion of the aforesaid provision has come as a major relief..Another major concern was whether the requirement to file a notice with the Commission would extend to transactions already signed but not completed. The Regulations have effectively addressed this concern. It has been clarified that for mergers or amalgamations the requirement to notify would be applicable to proposals approved by the board of directors on or after June 1, 2011 and in case of acquisitions, only where binding documents are executed on or after June 1, 2011..The Form I used for notification of combinations has been considerably shortened from what it used to be in the earlier draft. The Regulations also provide that where the parties to the combination have filed notice in Form I and the Commission requires information in Form II to form its prima facie opinion whether the combination is likely to cause an appreciable adverse effect on competition, it may direct the parties to file the notice in Form II which is much more detailed. The filing fees have been substantially reduced from what was provided under the previous draft regulations. It has also been clarified that combinations taking place entirely outside India with insignificant local nexus and effect on markets in India shall not normally be needed to be notified..From June 1, 2011, mergers, acquisitions, private equity investments and other like transactions which cross the prescribed thresholds of assets and turnover as provided under the Act will require prior approval of the Competition Commission of India. Recently the thresholds of assets and turnover have been enhanced by 50 percent. It was also announced that enterprises whose shares, assets or voting rights are being acquired, having assets or turnover of less than Rs. 250 crores or Rs. 750 crores respectively are exempted from the requirement of obtaining the prior approval of the Commission..The stage has been set. The regulations are in place. Corporates and lawyers alike are getting geared to put in place systems to comply with the requirements of this new law. What is required is effective implementation of the law and a coordinated effort to overcome the challenges that may present themselves in the coming days, keeping in mind the common object of a sustained growth and development of the economy..Zerick Hosi Dastur is a Senior Associate at J. Sagar Associates, Advocates & Solicitors. His practice covers diverse areas of Corporate Commercial and Securities law and he is also a part of the firm’s Competition law practice.