COMPETITION COMMISSION TO SPEED UP M&A PROCESS

Introduction

The Competition Commission of India (CCI) is a quasi-judicial body established under the Competition Act, 2002 whose main function is to ensure that the market remains free and fair. Broadly, there can be two ways in which the market may be affected – agreements between undertakings which are anti-competitive in nature and undertakings abusing their dominant position in the market. These two are distinct from one another and it is the aim of CCI to ensure that the same do not happen. In case an undertaking has manipulated the market, in either of the said two forms, it may attract fine or even stricter penalties.

In the context of Mergers and Acquisitions, the CCI plays an important role in ensuring that the combination of two companies does not have any anti-competitive effect and/or successful creation of the proposed merged company shall not create dominance (monopoly) in the market. It is in this framework that all companies who propose to combine have to get the approval of CCI, amongst many other regulatory authorities. One of the many issues faced by companies who wish to combine in India is the regulatory bottlenecks, lengthy and time-consuming process of getting necessary approvals. However, the CCI has recently amended its regulations to speed up the process of approving mergers and acquisitions in India.

Green channel route

As mentioned earlier, one of the many crucial factors in combinations is to close the deal as soon as possible. The current law is that companies have to obtain permission from CCI if their Net Asset Value, Turnover or Market Capitalisation, is beyond a certain prescribed limit. The said amendment proposes to create a ‘green channel route’ for certain classes of companies whose likeliness of impacting the market competition are less. The amendment further explains that companies along with its group which is controlled by or is having direct shareholding in the parent company has to fulfil the following three conditions to fall under the said category and reap the benefits of the ‘green channel’.

The first is that the company should not produce or provide identical or substitutable products or services. The idea of interchangeability of goods and services is that when they are interchangeable (substitutable), they are within the same product market. This helps defining ‘relevant product market’ which in its ultimate analysis, when combined with ‘relevant geographic market’, will help establish whether the undertaking has a dominant position in the market or not. While there exist two kinds of substitutability – demand and supply, the test for determining whether or not there exists substitutes is the SSNIP test. This test, originated in the US, now widely applicable in European Union, is also relevant in the India context. SSNIP, an acronym for ‘Small but Significant Non-transitory Increase in Price’, supposes that if any small but significant non-transitory increase in price is introduced by a producer and this leads to customers switching their purchases to substitutes so as to make the rise in price counter-productive, then it is said that the market is wide and includes substitutes.

Understanding this test, in the context of the amendment – if the proposed combination creates a market where a SSNIP by a competitor creates the said effect, then the combination fails to take the benefit of the green channel.

Anti-competitive agreements are of two types – Horizontal and vertical. Horizontal agreements are those that are entered into between competitors in the same line of business to cause a desirable effect on the market. Vertical agreements are those that are entered into between parties in the chain of the relevant market sector. Agreements between manufacturer and wholesaler in the nature of resale price fixing are examples of vertical agreements. The second criterionlaid down by CCI in its amendment highlights the detrimental effects of vertical agreements. Companies should not be engaged in any activity relating to production, supply, distribution, storage, sale and service or trade in products or provision of services which are at different stage or level of production chain.

The last criterion laid down by CCI is that the group of companies should not be engaged in activities which result in the goods or services produced being complementary in nature. If an undertaking satisfies all the three conditions, then it can adopt the green channel route and expedite the approval.

Simplified format

Under the new regime,the parties have to merely file a notice with the regulator. An acknowledgement of the same from the regulator is deemed to be an approval. The amendmentalso focuses onthe documentation required to be filed with CCI. Earlier parties used to submit two forms – a long and a short one, detailing the particulars of the deal and disclosures which mostly are irrelevant in the said context. After introducing the new amendments, notifying parties only have to provide information in a very concise and summary format. Information such as relevant product, line of business, geographic market, nature and purpose of combination is sufficient. The same has to be submitted in a simplified format This not only reduces the paperwork and effort on part of the parties but also reduces the burden on CCI.

Therefore, the current amendment is one of the many initiatives taken by the government to reduce regulatory bottlenecks and help better the ease of doing business raking of India.

By-

Yasaschandra

Student Reporter, INBA