CCI: New Amendments in Combination Regulations

In what seems to be an exercise of annual review, the Competition Commission of India has amended The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”) with effect from March 28, 2013..Reflecting its much appreciated resolve to focus more on substance than on procedure, the Commission has incorporated sub-clause (5) to Regulation 9 whereby it has clarified that the requirement for the filing of a combination notification shall be determined by the substance/intent of the transaction and that a structure of a transaction which has the effect of avoiding a notification shall be disregarded. Hence, any structuring of a transaction will not allow the entities to escape the jurisdiction of the Commission and parties, which cross the applicable thresholds will need to take prior approval of the Commission before consummating such transactions. This is an extension of the idea behind Regulation 5(9), introduced vide amendments in 2012. In terms of the said Regulations, the Commission had expressly stated that the SPV route will not allow the parties to escape the requirement of combination filing and that the Commission will look at the real parties which are executing the transaction..Regulations 29 of the Combination Regulations stands deleted. The said Regulation provided for the right to appeal to the Competition Appellate Tribunal against an order of the Commission relating to combinations. The said Regulation was already redundant as the right to appeal against combination orders of the Commission was provided under Section 53B of the parent statute i.e. the Competition Act, 2002..In order to bring further clarity, the vaguely worded Category (10) of Schedule I of the Combination Regulations has been omitted. Schedule I, read with Regulation 4, enumerates categories of transactions for which a filing ‘need not normally be made’, and Category (10) relates to ‘A combination … taking place entirely outside India with insignificant local nexus and effect on markets in India’. The said clause was creating a lot of confusion since it was introduced. Both Section 5 of the Act and the Target Exemption [introduced by Central Government in terms of Section 54(a)], provide for local nexus i.e. the minimum assets or turnover that the parties to the transaction must have in India before they are subjected to the requirement of prior approval from the Commission. Hence, there was a lack of clarity on what additional criteria did the now-deleted Category (10) provided in terms of local nexus. For instance, in the case of Tata Chemicals Limited-Wyoming (Combination Registration No. C-2011/12/12), the parties tried to take the benefit of Category (10). However, the Commission rejected the argument on the ground that “the parties to the proposed combination meet the thresholds relating to assets and/ turnover in India as mentioned in Section 5(c) of the Act and one of the parties to the proposed combination is in India. It was because of this ambiguity that many experts were already considering Category (10) a dead letter. Vide the new amendments, this confusion has been done away with..New amendments have also introduced changes in the notification forms. The amended paragraph 5.1 in Form I brings the focus on the core issue of horizontal and vertical overlap between the business of the parties or their group entities. In addition parties are now required to inform the Commission about other jurisdictions in which they are required to take prior approval from the respective competition authorities and also about the status of such approvals. Further, the amendment in paragraph 8.2 of Form II requires the parties to provide the assets and turnover of the preceding two financial years..The amendments have also increase the filing fee as under:.(a) from Rs.10,00,000/- to Rs.15,00,000/- for Form I;.(b) from Rs.40,00,000/- to Rs.50,00,000/- for Form II..Even though many would consider this increase to be unwarranted, considering the high thresholds, it is unlikely that the parties coming to the Commission under the Combination Regulations would mind it..The amendments are welcome because of the certainty that they bring on many issues. However, it the humble opinion of the author that certain areas can still be improved on. For instance, there is still a lack of clarity on the treatment of joint ventures. Strictly, they do not fall under the category of acquisition, merger or amalgamation which are provided for in Section 5 of the Act. Similarly the issue of ‘control’ and ‘negative control’ needs further clarity. In terms of process, there is still some confusion on the requirement of apostille for a document that has been executed outside India..Further, the forms can be further simplified for the non-horizontal, non-vertical transactions. In this regard, the Commission can consider Israeli Competition Authorities’ notification form in which the parties need not get into the complex issue of defining the relevant market if the transaction is non-horizontal and non-vertical. In its orders, CCI has already adopted this and it does not define the relevant market in such technical filings (Case number C-2011/10/07 – Notice of Merger filed by Nippon Steel Corporation and Sumitomo Metal Industries Limited). This allows for a speedier approval of the combination where no competition concerns exist..One also hopes that the Commission would start emulating the European Commission and start issuing guidelines on various issues. This will bring further clarity in the Combination Regulatory environment..Gautam is a Senior Associate in the Competition team at J. Sagar Associates. The views expressed in this article are the personal views of the author and do not represnt the views of the firm.