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Combination Review in India_A mid year review_Part 1_Section B

Combination Review in India_A mid year review_Part 1_Section B



this article contains a view of merger control in India by way of analysing the clearances given by the competition agency of India and the time taken in different stages. It looks at all the ...

this article contains a view of merger control in India by way of analysing the clearances given by the competition agency of India and the time taken in different stages. It looks at all the competition review done by CC I and finds out the average clearance time. This is a two-part article. Part one deals with the performance and the outcome in terms of the quickness of clearance. Second part deals with the lessons learnt after the experience of merger review in India for the first time.



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    Combination Review in India_A mid year review_Part 1_Section B Combination Review in India_A mid year review_Part 1_Section B Document Transcript

    • 2012] B-31 Section B ArticlesCombination Review in India: A Mid-year Review (Part I) K.K. Sharma* In this two-part article, the first part of which appears here, the author, the chief architect behind the review format of Merger Review in India, takes a look at the performance of the Competition Commission of India (CCI) in handling the regulations of combinations (merger review) in India and how does it compare with international standards. The stark contrast between the anxious reactions before the regulations of combinations came into force and the deafening silence, even after 19 approvals have been given by the CCI, has also been briefly touched upon. The next part, to follow, shall deal with the lessons arising from the journey of merger control in India so far.The thought for this write up has been with neutral viewpoint taken. I wanted to keepme for quite some time. To succumb or not away from this matter for the fear of beingto succumb to the temptation of sharing accused of blowing my own trumpet. Thismy thoughts was an extremely difficult hesitation emanated, essentially, from thedilemma. “Damn if you do and damn if fact that I was entrusted by the Competitionyou don’t.” Not agreeing to the call from Commission of India (CCI) with the job ofwithin would have meant an extremely bringing the procedural and analyticalimportant milestone being missed out format for combination review (also morewithout as much as a whimper despite popularly known as “merger review”) intohaving such a stormy legacy. At the same existence in India. The difficulty in thistime giving in to my internal desire was assignment was that no such templatealso a really tough call-primarily because existed which could suit the requirementsof the apparent conflict of interest or of the factors of determination given insomething which can be alleged to be a Section 20(4) of the Competition Act,conflict of interest irrespective of the most 2002(the Act). No doubt, the Act has * Commissioner of Income Tax, Govt of India, Kochi, India. He was Director General & Head of Merger Control, in CCI till recently. The views in this article are personal. He can be reached at kksharmairs@gmail.comCOMPETITION LAW REPORTS ™ FEBRUARY, 2012 93
    • B-32 Competition Law Reports [Vol. 1attempted to collect nearly all the factors enacted. This period begins with theeither given in the laws of developed resolve of the nation being reflected in thejurisdictions or the ones which came to declaration, in the parliament, by the thenbe recognised as a result of the Finance Minister that the country neededdevelopment of the competition law a new modern competition law and anyjurisprudence in the jurisdictions which further patch work on the then existinghave been practicing this craft for a longer Monopolistic and Restrictive Tradetime in comparison. Even those Practices Act, 1969 (MRTPCA), as hadjurisdictions from where some of these been done in the past, a number of times,factors have come from either did not have would not suffice. After going througha documented analytical framework (as various motions, finally, on theit had evolved over a period of time recommendation of the Raghvanwithout a due documentation of this Committee report, the Act was enacted onevolution) or did not want to share it in 13th January, 2003. The second periodthe name of confidentiality. For these begins from 13 th January, 2003 tillreasons, starting from the first principles, 20th May, 2009. In this period, for variousa procedural and analytical framework reasons relating to the background ofrooted in the ethos and principles litigation, the Act had to be amended inembodied in the Act was developed. Sept 2007 so as to fulfil the assurancesNaturally, any applause, from me, may given to Hon’ble Supreme Court by thehave the potential to be viewed as suspect, Government. This ensured that the matteras self-praise, despite the fact that I am no was not litigated any further. Thereafter,longer with the CCI. till 28th February, 2009, the CCI functioned as a one Member body till July, 2008 (notHowever, completion of a half-year term really a Commission in true legal sensewith quiet but resounding success is too because of the stipulation, in section 8 ofbig a landmark to be missed. If nobody else, the Act that the Commission shall consistcompetition law history of the country will of one Chairperson and at least twonever forgive someone who, despite having Members appointed under the Act). Fromsome germination of ideas, let this historic July, 2008 till 28th February, 2009, the CCImoment pass without any record. It is often only consisted of staff and no Member /said that 100 days is a big time in politics. Chairperson was in office. OnMay be, borrowing the same analogy, we 28th February, 2009, one Chairperson andcan say that 180 days is a long enough one Member entered office and, soonperiod in the history of a competition thereafter, on 1st March, 2009, the secondagency to have a look at the performance, Member entered the office and the CCI wasin any chosen area of its functioning, as it duly constituted for the first time. The dulygives an idea of the trends so badly needed constituted CCI had a look at theto assess its effectiveness as well as preparatory material prepared by theproclivities, if any, for helping the attorneys earlier formations and, after dueas well as business to navigate the deliberations, approved thecombination review tunnel with grace and implementing regulations for variousminimum regulatory burden. After waiting aspects of the functioning of the CCI.for nearly a month, despite tremendous Simultaneously, the Government alsoresistance from within, I have gathered brought enforcement provisions relatingenough courage to put the record straight to the anti-competitive agreements /and give devil its due. cartels and abuse of dominant positionIn the history of competition law in India, (Sections 3 and 4 of the Act) with effectthere are four distinct periods. The first from 20th May, 2009. That is the beginningperiod began from 26th February, 1999 till of the competition law enforcement in13th January, 2003 the day the Act was India—albeit partially. The third period94 COMPETITION LAW REPORTS ™ FEBRUARY, 2012
    • 2012] Combination Review in India: A Mid-year Review (Part I) B-33began from 20th May, 2009. In this period the lull after the storm. For one who hasthe duly constituted CCI started enforcing been at the near centre of this storm beforethe provisions relating to anticompetitive the lull, nothing can be more surprisingagreements/cartels and abuse of but still satisfying. None of those whodominant position of the Act. were a part of the chorus, or anyone elseIn this third period, the efforts to bring for that matter, is admitting that thoseinto force the provisions relating to fears and misgivings were wrong, thatregulations of combinations by the CCI the CCI is doing its job very diligently orand the Government on the one hand and whatever. In comparison, theequally strong efforts/manoeuvres to stall international press-legal press orthem by a wide spectrum of business and otherwise has been highly appreciativeother interest groups, represented through of the spectacular performance of the CCIvarious formations, continued till as late in this area of activity.as 4th March, 2011 when the notification If we recall, the concerns of the business,bringing the provisions relating to voiced on different platforms, at variousregulation of combinations into force, with times were, broadly, as under:effect from 1st June, 2011, was issued. Not • Mandatory pre-merger notificationthat the opposition to the provisions is burdensome. Voluntary regimerelating to merger control was particularly preferred by industrysubdued even earlier but, after the part • Asset/turnover thresholds are tooenforcement of the competition law lowprovisions, it certainly became much more • The time period for review,210vociferous. It was nearly at its peak in this days, is too longthird period ending on 1st June, 2011. Thiswas a period of mad cacophony. • No minimum thresholds forEveryone, who was someone, or who acquisition of shares/assets.could make him / her heard as someone Burden on big enterprises.before those who matter, questioned the • Concept of “group” consisting ofcredibility of the CCI on whichever count enterprises puts additional burdenhe or she considered feasible. The alleged on big enterprisesreasons, of lack of faith in CCI to handle • Likely adverse affect on the growthreview of combinations, ranged from lack of a developing economy byof capacity, resources of material kind, regulating combinations“sarkari”(read “bureaucratic”) attitude, • Separate higher thresholds forthe unduly long period of clearance telecom, infrastructure, energy,provided under the law, high fees and banking and insurance sectorswhat have you. Actually, some efforts to • Regulation of combinations beget it postponed, preferably indefinitely, taken up by CCI only after gainingafter 4 th March, 2011 and before experience of several years1st June, 2011 also continued in the name • Regulating acquisitions wouldof lack of preparedness as the finalisation deny Indian business theof the implementing regulations by the opportunity to take-over andCCI took some time not entirely because reviving failing enterprisesof the fault of CCI. The fourth period offull enforcement of competition law in Indeed a look at the track record of CCI inIndia began from 1st June, 2011. treading this forbidden territory has been such that none of the fears has come true.Surprisingly, in contrast, now after a The following table summarises the salientpassage of more than seven months there aspects of the approvals of combinationsis an unusual lull. Interestingly, it is not by CCI as of the time of writing:the proverbial lull before the storm butCOMPETITION LAW REPORTS ™ FEBRUARY, 2012 95
    • 96 S. Combination Notice Under Intra Filed Decision Date of Total Time Net B-34 No. Registration Description Section Group or on Order Days Out Days No. Otherwise (Days) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 19 C-2012/01/25 Notice for merger of NRL and RITL 5(c) Intra 24/01/2012 Approved 2/02/2012 9 – 9 Group 18 C-2012/01/18 Notice for merger of TACOCL 5(c) Intra 2/1/2012 Approved 2/2/2012 31 21 10 and TACO. Group 17 C-2011/12/17 Notice for acquisition by Isuzu 5(a) 22/12/2011 Approved 2/2/2012 42 24 18 Motors Ltd, SML Isuzu Ltd and Sumitomo Corporation. 16 C-2012/01/21 Notice for merger of GSSPL 5(c) Intra 13/01/2012 Approved 24/01/2012 11 – 11 and PIPL. Group 15 C-2012/01/20 Notice for merger of SHMPL 5(c) Intra 10/1/2012 Approved 17/01/2012 7 – 7 and STFC. Group 14 C-2011/12/16 Notice for merger of EAPL 5(c) Intra 16/12/2011 Approved 17/01/2012 32 10 22 Competition Law Reports and BBTCL. Group 13 C-2011/12/13 Notice for merger of IVRCL Ltd. 5(c) Intra 12/12/2011 Approved 17/01/2012 36 23 13 and IVRCL Assets & Holdings Ltd. Group 12 C-2011/12/12 Notice for merger filed by TCL 5(c) Intra 9/12/2012 Approved 28/12/2011 19 – 19 and Wyoming I Group 11 C-2011/12/15 Notice for Acquisition filed 5(a) 12/12/2011 Approved 28/12/2011 16 – 16 by SCB India 10 C-2011/12/11 Notice for Merger filed by 5(c) Intra 1/12/2011 Approved 28/12/2011 27 5 21 AN India Ltd., AN Chemicals Ltd., GroupCOMPETITION LAW REPORTS ™ FEBRUARY, 2012 [Vol. 1
    • (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 2012] 9 C-2011/10/07 Notice for Merger filed by Nippon 5(c) 14/10/2011 Approved 27/12/2011 74 64 10 Steel Corporation and Sumitomo Metal Industries Ltd. 8 C-2011/11/10 Notice for Acquisition filed 5(a) 25/11/2011 Approved 13/12/2011 18 8 10 by KKR FII 7 C-2011/11/09 Notice for Merger filed by 5(c) Intra 21/11/2011 Approved 13/12/2011 22 10 12 SL, SVAI and Morgan Group 6 C-2011/10/05 Notice for Acquisition filed by 5(a) 5/10/2011 Approved 4/11/2011 30 7 23 NHK Automotive Components India Private Limited and NHK Spring Co., Limited 5 C-2011/10/06 Notice for Merger filed by 5(c) Intra 12/10/2011 Approved 19/10/2011 7 – 7 AHIL and APIL Group 4 C-2011/09/04 Notice for Acquisition filed by 5(a) 7/9/2011 Approved 30/09/2011 15 8 15COMPETITION LAW REPORTS ™ FEBRUARY, 2012 AICA Kogyo Company Limited and Aica Laminates Indian Private Limited 3 C-2011/08/03 Notice for Acquisition filed by 5(a) 24/08/2011 Approved 15/09/2011 22 7 15 G&K Baby Care Private Limited 2 C-2011/08/02 Notice for Acquisition filed by 5(a) 1/8/2011 Approved 25/08/2011 24 6 18 Combination Review in India: A Mid-year Review (Part I) The Walt Disney Company (Southeast Asia) Pte. Limited 1 C-2011/07/01 Notice for Acquisition filed 5(a) 7/7/2011 Approved 26/07/2011 21 4 17 by RIL and RIIL97 B-35
    • B-36 Competition Law Reports [Vol. 1The above table analyses the On an average, in the cases of regulationscombinations handled by the CCI as of of combinations approved by the CCI sothe time of this writing. In total, 19 far, the time to approve a combinationcombinations have been approved by under Section 31 of the Act has been aCCI, spread over a period of a little over mere 14 (or 14.36 to be exact) calendarseven months from 1 st June, 2011 to days. This would translate to a little less2nd February, 2012. In the combinations than 10 working days if we keep evenhandled so far by the CCI out of a total the list of scheduled holidays in India in19 matters, 10 cases have involved mind leaving aside the frequentintra-group mergers/amalgamations. disruptions of work on many otherIn all these cases, the mergers/ counts. This is indeed a rare feat for aamalgamation did not change the control new competition agency.dynamics of the enterprises on a macro For a comparison of the numbers, inlevel except the contours of control nearly the same period, from June 2011undergoing some change. Had the to January, 2012, the EU DG Competitionnotification issued by the Government handled 225 cases. Let us not forget that,on 4th Mach, 2011,1 as amended later on in addition to EU DG Comp, the national27th May, 2011, 2 included the mergers competition authorities, within theand amalgamations along with the European Union, also clear mergers.acquisitions, perhaps, many of these Comparatively, a similar economy, Southnotifications would not have come before Africa Competition Commission passedthe CCI. judgement in 41 cases in the month ofNine cases of notifications, other than January, 2012 alone. In the United Statesthe intra-group combinations, for an of America, being a different procedureeconomy of the size of India are not too as no approval order is required to bemany notwithstanding the not too bright passed, the comparison would not bepatch which the global economy, in appropriate. Although the figures ofgeneral, is going through. All the merger filings in USA for the same periodcombinations, including the 10 cases of are much higher bur these are not beingintra-group combinations have been discussed for lack of comparative merit.approved by the CCI. This is not to say These numbers do not indicate that thethat if the situation so requires the CCI capacity of CCI to handle work is lesswould shy away from asking the parties but the fact that, through various means,to the combinations for modifications the work load of the CCI under this headunder Section 31(3) of the Act or even been reduced to a bare minimum becauseblock the combinations under of the forceful effects of the noise in theSection 31(2) of the Act on a case to case third phase of evolution of competitionbasis as and when the situation so law in India as discussed in thedemands. Nonetheless, the track record, preceding paragraphs.so far, brings one inference in bold relief The performance of the CCI, so far, showsand that is that the CCI is not trigger that neither the requirement ofhappy as would have been the normal mandatory pre-merger notification hasimpression if one were to believe the fears dissuaded any business from goingexpressed before the provisions relating ahead with any transaction nor has anyto merger control became a reality in transaction been killed as a result of theIndia. feared immature, inept and 1 Notification SO 482(E) (No. 412) dated 4th March, 2011 2 Notification SO 1218(E) (Corrigendum No. 1017)98 COMPETITION LAW REPORTS ™ FEBRUARY, 2012
    • 2012] Combination Review in India: A Mid-year Review (Part I) B-37unprofessional handling of the even before the sector regulators havenotification by CCI. So the fears about cleared some of the transactions where itthe lack of professional capacity of CCI was needed.to handle complex merger transactionsremain what they were: fears— that tooimaginary. A minimum threshold for the Nobody is having anyacquisition size has been provided by the grievances from theGovernment through executivenotifications.3 The group linkage has also functioning of CCI in thisbeen relaxed a little more by the area of functioningGovernment through notification.4 Thesectors covered so far include insurance,media, telecom, infrastructure etc. with This would indicate to us the hollownessthe same thresholds without any of the noises made or the fears expressedexcessive regulatory burden on any before the merger review became realitysector. Bringing into force of the in India. The comparison also shows thatregulations of combinations with effect the bogey of the thresholds forfrom 1st June, 2011 has not dampened the regulations of combinations being toospirit of Indian business either to make low was not really based on reality. Itacquisitions abroad or take over less was a claim made with vigorousperforming/ailing enterprises within its forcefulness and, unfortunately, hadfold if that makes commercial sense. adequate impact. The fear that the wholeNobody, so far, has experienced the much economy would be adversely impactedmaligned 210 days taken in approval by because of the negative impact of mergerCCI whereas this is not a very unusual control on the economy is nowhere to betime, sometimes, taken by enterprises in seen. The miniscule transactions beingthe mergers/amalgamations or captured under filing requirement are tooacquisitions under the hitherto existing small to make any difference to theregulatory mechanism under the economy even if the handling of theCompanies Act, 1956 and SEBI Act, regulations of combinations by CCI were1992. 5 not to be as professional and prompt asNobody is having any grievances from it, in reality, is.the functioning of CCI in this area of Thus, the implementation of the law andfunctioning. The mandatory pre-merger the performance of the regulator have notfiling requirement has been truly created the kind of mayhem as wouldaccepted by the industry as the have seemed a distinct possibility if themandatory way of doing transactions fears about dangers of the provisionsabove the thresholds given under the relating to the regulations of theAct. This goes to the credit of the business combinations being brought into forcethat except for the noises prior to the were to be believed. However, there areregulations coming into force, it has been lessons to be learned in the journey ofaccepted as a way of doing business regulation of combination so far. Thesewithout much ado. The CCI has been will be discussed in the (Part II) in theprompt enough to approve transactions following issue. Copyright © K.K. Sharma 3 Notification S.O. No 482(E) dated 4th March, 2011 read with S.O.1218(E), dated 27th May, 2011 4 Notification S.O. No 481(E) dated 4 th March, 2011 5 The Securities and Exchange Board of India Act, 1992, No 15 of 1992COMPETITION LAW REPORTS ™ FEBRUARY, 2012 99