The latest addition to the string of changes introduced by the Ministry of Corporate Affairs (MCA) this year is an exemption to Regional Rural Banks (RRBs) from the applicability of the merger control regime. The MCA introduced a notification on August 10, 2017 (Notification), which stipulates that Sections 5 and 6 of the Competition Act, 2002 (Act), which relate to regulation of combinations, will not apply to amalgamations of RRBs for which the Central Government has issued a notification under Section 23A(1) of the Regional Rural Banks Act, 1976 (RRB Act). This exemption is applicable for a period of five years, i.e., until August 9, 2022.
The RRB Act was enacted to provide for the incorporation, regulation and winding up of RRBs in order to develop the rural economy and particularly enhance the credit facilities available to marginal farmers, agricultural labourers, artisans and small entrepreneurs. Under section 3(1) of the RRB Act, the Central Government can establish a RRB in any state or union territory, upon a request being made by a bank that proposes to sponsor the RRB.
Further, per Section 23A of the RRB Act, the Central Government is empowered to order the amalgamation of two or more RRBs, if it is in public interest or in the interest of the development of the area served by such RRBs or in the interest of the RRBs themselves. Prior to the Notification, such amalgamations, while undertaken pursuant to orders issued by the Central Government and not on the volition of the RRBs, triggered the requirement to file a notification under the Act, to seek the Competition Commission of India’s (CCI) prior approval. In fact, the CCI in two earlier instances in 2017 (being Rajasthan Marudhara Gramin Bank/State Bank of Bikaner and Jaipur, (Combination Registration No. C-2016/02/377) and Sarva Haryana Gramin Bank/Punjab National Bank (Combination Registration No. C-2015/12/344)), imposed a penalty of INR 100,000 (Indian Rupees One Hundred Thousand) on the RRB and sponsor bank under Section 43A of the Act, for consummating the amalgamation without seeking its approval.
While the CCI noted the unique structure of such amalgamations, including the fact that it was effected immediately subsequent to the issuance of the Central Government’s notification, the CCI observed that the amalgamations under Section 23A of the RRB Act were not exempt from the applicability of Section 5 of the Act. Therefore, the CCI in Rajasthan Marudhara Gramin Bank/State Bank of Bikaner and Jaipur (Combination Registration No. C-2016/02/377) held that the fact that the amalgamation was being undertaken at the instance of the Central Government did not eliminate the responsibility of the transacting parties to notify the CCI of the amalgamation.
Given the peculiar circumstances, the Notification introduces a much needed exemption, which takes away the technical requirement to seek the CCI’s review of an executive decision.
Catering to similar concerns, the MCA had previously exempted the amalgamation/ reconstitution of banking companies, pursuant to the scheme of reconstruction or amalgamation prepared by the Reserve Bank of India and approved by the Central Government under Section 45 of the Banking Regulation Act, 1949, from the provisions of Sections 5 and 6 of the Act. The exemption for the banks will remain in effect till January 7, 2018, unless extended by the MCA.
These exemption notifications issued by the MCA, indicate the Government’s willingness to swiftly and effectively remedy conflicting regulatory requirements. The Notification undoubtedly furthers the Government’s efforts towards maintaining a cohesive and focussed policy regime and is a welcome move.
* The authors were assisted by Arunima Chandra, Senior Associate and Twinkle Chawla, Associate