The Competition Commission of India (CCI) has toned down its latest draft merger control regulations, now exempting all transactions that closed before 1 June, intra-group company transfers, controlling shareholders’ dealings and smaller share sales, although the regulator scrapped the ability of companies to obtain informal clearance.

“They’ve toned down the draft substantially,” said Amarchand Mangaldas Delhi-based partner Pallavi Shroff, who heads the firm’s competition practice, and added that the new draft was a marked improvement over the previous two drafts from 2008 and from March 2011.

Clear and binding from 1 June

She noted that the first improvement was that only takeovers and mergers where final, binding agreements were signed on or after 1 June would now be subject to vetting by the CCI under the new regulations.

Under section 31 ongoing transactions would not have to be notified unless if the transaction was given final approved by a company’s board of directors or “where binding document(s) [were] executed” from 1 June.

The CCI has also now clarified that notification will not be necessary when non-binding agreements such as memoranda of understanding (MOU), term sheets or non-disclosure agreements were signed.

“That’s very good,” noted Shroff, explaining that it was a boon for ongoing transactions from last year that had been trying to get comply with competition reviews and form filings.

Wider Exemptions

Furthermore, the CCI has now also exempted a wider list of transactions, which under the previous draft were subject to a less onerous short-form notification.

Exempt under Schedule I of the regulations are now acquisitions of shareholdings of less than 15 per cent in a company, or acquisitions where the acquirer already holds at least 50 per cent of the company.

Economic Laws Practice competition partner Samir Gandhi added that exempt transactions also included acquisitions made by way of investments, acquisitions of assets in the ordinary course, acquisition of stock in trade, acquisitions through bonus issues or stock splits not leading to a change in control, acquisitions made by securities underwriters in the ordinary course of business, acquisitions within the same group and acquisition of current assets.

No more consultations

However, the provision for conducting informal merger consultations has been removed altogether, said Gandhi.

Shroff said that she and other lawyers had hoped this provision would have continued. Under the previous draft it was possible for companies and advisers to have “informal consultation” with the CCI before the final filing.

Under the new draft the CCI has banned such non-binding consultations in the run-up to the official filing of the clearance request.

Shroff said that it would have been of significant importance in the initial years of understanding the CCI’s practice and rules.

She speculated that the CCI had dropped the option because of too many demands on the regulator during the consultation, such as some parties wanting all informal CCI opinions to be given in writing.

Appealing

Gandhi also stated that the right to appeal CCI orders had now been limited only to parties to the proceedings that are aggrieved by the directions.

Fast tracking?

All other transactions need to be ordinarily in Form 1, including transactions, such as acquisitions by way of gifts, horizontal acquisitions where competitors will have combined market share over 15 per cent and vertical combinations where parties have more than 25 per cent of market share would normally get cleared within 30 days, explained Gandhi. He added:

In these 30 days in the CCI thinks that the transaction is likely to cause AAEC, then it will escalate the matter and require the party to file in Form II. Parties also have the option to file under Form II at the very outset, if they themselves believe that their merger is likely to merit further investigation.

Cheaper regulation

Gandhi said that fees had also been reduced in certain notifications:

If the CCI thinks that the parties should be filing information in Form II, then the fees already paid for Form I filing will be adjusted and the time taken by parties to provide further information in Form II will not be counted in the 210 day timeline. The CCI will use best efforts to decide within 180 days.

Filing fees have been revamped- there is no filing fee for Form III, i.e. acquisitions by VCs and financial institutions etc. The filing fee for all filings under Form 1 is now fifty thousand rupees and the fees for form II filings is ten lakh rupees, i.e. one million rupees. This replaces the earlier fee schedule which ranged from 10 lakh to 40 lakh depending on the transaction value being notified.

Six law firms in working group

The latest draft was originally slated to be published on 1 May but had been postponed repeatedly until today.

The corporate affairs ministry regularly met and discussed the proposals with a so-called “Law Firms Working Group”, which is understood to have included Amarchand, AZB & Partners, Dhall Law Chambers, ELP, Khaitan & Co, Luthra & Luthra and Vaish Associates.

Download the latest draft from the CCI website.

Story updated with additional quotes and details since first publicatoin.

Photo by Mark Strozier