The Competition Commission of India (CCI) has, for the sixth time since the introduction of the merger control regime in India, proposed amendments (Proposed Amendments) to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations).
The Combination Regulations are the principal regulations governing the merger notification process in India. Some of the changes proposed by the CCI seem to be aimed at addressing issues that have arisen in the implementation of the merger control regime over the past couple of years whereas others seek to incorporate procedures that are already being followed by the CCI in practice. The changes, currently in draft form while the CCI seeks stakeholder views , are highlighted in brief below.
Item 1 Exemption
The Proposed Amendments seek to amend the much-debated “Item 1 Exemption” dealing with minority acquisitions. By adding further caveats to the applicability of the Item 1 Exemption, the Proposed Amendments substantially narrow down its scope, rendering the exemption almost worthless.
Presently, the Item 1 Exemption provides that acquisitions of less than 25% of shareholding, made “solely as an investment” or in the acquirer’s “ordinary course of business”, which do not result in the acquisition of control, ordinarily need not be notified to the CCI (Item 1 Exemption). Through an amendment in 2016, the CCI clarified the term “solely as an investment” through the introduction of an explanation that provided that an acquisition of less than 10% shareholding, where the acquirer does not have: (i) rights which are not exercisable by the ordinary shareholders; (ii) the right/intention to nominate a director; and (iii) the intention to participate in the affairs or management of the target, would be regarded as a transaction made solely as an investment.
The Proposed Amendments seek to do away with the carve-out of less than 10% acquisitions, requiring that, irrespective of the quantum of shareholding being acquired, the acquirer fulfill the three conditions stipulated above, if it seeks to avail itself of the Item 1 Exemption.
The Proposed Amendments also seek to crystallise the CCI’s take on the existence of common shareholding (including non-controlling) in competing or vertically linked entities by stipulating that the following transactions would not warrant the Item 1 Exemption:
- Any acquisition where the acquirer and the target enterprise are either competitors or operate in vertically linked markets.
- Acquisitions of 5% or more shareholding in a target enterprise, by acquirers that are pooled investment vehicles, where such acquirers already hold shares in another entity competing with the target enterprise or operating in markets vertically linked to the market in which the target enterprise operates.
Clarification to the 210-day Timeline
The Proposed Amendments clarify that certain time periods (such as the time taken by the parties to provide additional information, remove defects from the filing, provide additional details when an incomplete notification was filed, the time taken by the CCI to consider validity of the merger filing or voluntary modifications offered by parties, etc.) will be excluded from the 210-day timeline mentioned under Section 6(2A) of the Competition Act, 2002 (Act), which requires parties to wait until the expiry of 210 days from the date of notification, before giving effect to notifiable transactions (termed as combinations).
It should be noted that these time periods are already excluded from Section 31(11) of the Act, which stipulates that if the CCI does not approve/block a combination within 210 days from the date of notification to the CCI, the combination will be deemed as approved.
Modifications to Combinations
The Proposed Amendments clarify that voluntarily modifications may be offered by the parties, even post the issuance of a show cause notice (SCN) by the CCI under Section 29(1) of the Act.
Combinations are tested by the CCI against the touchstone of whether or not they cause any appreciable adverse effect on competition (AAEC) within the relevant market(s) in India. Under the Act, if the CCI is of the prima facie view that a combination causes or is likely to cause an AAEC, it is required to issue an SCN to the transacting parties to show cause as to why the combination should not be examined in Phase II. The Combination Regulations presently allow the parties to voluntarily offer modifications, before the CCI forms a prima facie opinion and issues an SCN. The Proposed Amendments afford an additional opportunity to the parties to offer modifications even when responding to the SCN. The Proposed Amendments also stipulate that in both these cases, the CCI can – on the basis of the voluntary modifications – approve the combination.
Ability to Withdraw and Refile
The Proposed Amendments seek to provide transacting parties with the option of pulling and refiling a merger notification, before the CCI issues an SCN.
The CCI has invited comments on the Proposed Amendments and the changes that are finally adopted may differ from the ones made public at this stage. The last date for submission of comments on the proposed amendments is 7th August, 2018.
 The Combination Regulations were first introduced on 11 May 2011 and were subsequently amended on 23 February 2012, 4 April 2013, 28 March 2014, 1 July 2015 and 7 January 2016.
 This has been explained under the Proposed Amendments as vehicles which collect funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of their investors.