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Competition Act must exempt Insignificant Acquisitions: CII Print E-mail
Written by Viswanath   
Tuesday, 25 October 2011
New Delhi: CII has re-iterated the need for carrying out amendments to the Competition Act, 2002 to make the merger regulation process conducive to industry’s growth through inorganic activities.

"We believe that the current provisions of the Competition law do not adequately address the concerns of the industry, especially with regard to the regulation of combinations. We have highlighted the issues in the past too and again request for an amendment of the Competition Act to make it conducive to the industrial and economic growth of the country," said Mr Chandrajit Banerjee, Director General, Confederation of Industry (CII).

Amongst the various suggestions, CII has suggested that ‘group’ must refer to enterprises engaged in production, distribution or trading of similar, identical or substitutable goods or services. The Act provides the concept of a ‘group’, which may comprise of several undertakings irrespective of commonality of their product market / industry in which they operate. CII feels that grouping the assets and/or turnover of business conglomerates without considering the different product markets being addressed by various entities in the conglomerate, is not a proper approach. An acquisition by any enterprise belonging to a group, irrespective of the size of such an enterprise, would be subjected to regulatory review under the Act if the size of the group crosses over the specified thresholds. This proposition seems devoid of any justification. Subjecting a large business conglomerate to merger regulation irrespective of the area of business operations of the group companies amounts to regulating ‘size’ rather than the effect on competition. This approach is not in consonance with the objects of the Act and therefore, needs to be addressed appropriately, said the CII statement.

CII has suggested that transactions which do not materially affect competition in the market should be exempted. These include acquisition of business investments resulting in an increase of not more than 25% of the voting rights; acquisitions not directly related to the business of the acquirer except where it represents the entire operations in a particular location/product/service; combinations not resulting in change in control in the relevant domestic market; mergers, amalgamations, demergers and other restructuring within the same group including by way of creeping acquisitions under the Takeover Code, etc.

Stressing that coordination of regulatory filings across multiple jurisdictions in cross border M&A may be time-consuming, CII has suggested that the parties to a proposed combination should be allowed to voluntarily notify the Commission of a combination at any time prior to or within thirty days of the decision to combine without having to wait for the trigger event.  Parties should be permitted to notify proposed mergers upon certification of good faith intent to consummate the proposed transaction, as is the internationally recommended practice, said the CII statement.

Asserting the need for inclusion of a mandatory timeline for the prima facie review of combinations under the Act, CII has suggested that in case of Short Form filing, the Commission must communicate its concern within 30 days from the submission of the notice.  In absence of the same, the combination shall be deemed to have been approved. Highlighting that the period of 210 days stipulated in the Act for the orders of the Commission on combinations is exceptionally long when compared to other jurisdictions, CII recommended that the same be reduced to 120 days. This is because the long waiting period will put Indian business houses to a regulatory disadvantage especially in global M&A transactions based on competitive bidding which may deter transactions that would otherwise be beneficial to India’s economy, said the CII statement.

With a view to avoiding frivolous appeals by third parties - competitors with mala fide intentions or those with vested interest, CII has suggested that the Appellate Tribunal should admit an appeal only on being convinced of its material impact on the appellant. Given that time is of essence in commercial transactions, the Act could also consider prescribing a mandatory time line of 90 days for disposal of appeals by the Appellate Tribunal. CII has also suggested that the Central Government needs to be provided flexibility to exempt enterprises from time to time to promote sectors of business which are affected by the international economic climate. Also in order to enhance the scope to make substantive regulations, the Commission must have the power to exempt classes of transactions which are not likely to have an appreciable adverse effect on competition within the relevant market in India, said the CII statement.

 
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