Faster merger and acquisition clearances; more offers to review
The bill aggressively advances review deadlines for approving merger and acquisition transactions. Arguably a welcome step, it may however increase the burden on parties to undertake detailed engagement with the ICC prior to formal filing to avoid invalidations, as the ICC has limited flexibility to extend deadlines.
The introduction of a “transaction value” threshold (for transactions worth more than Rs 2000 crore with substantial Indian operations) proposes to capture several transactions that were previously unreported, as the assets or the turnover were below the applicable thresholds. This change may have several unintended consequences given the low threshold and ambiguity around the interpretation of “offer value” and link-local requirements.
Additionally, the definition of control is greatly expanded to mean the “ability to exercise material influence over management/business/strategic business decisions”, which is a far lower standard than that provided by the Companies Act. , SEBI and insolvency laws. This could cause ICC approval to become a precondition for many other global and Indian deals (especially when read with the “deal value” thresholds).
However, stock exchange transactions and open offers, which, due to the suspensive nature of the merger control regime, have so far suffered from valuation risks (or from suspension penalties due to a closing before the ICC approval), may be consummated provided that the parties: (i.e.) seek immediate subsequent approval; and (ii) do not exercise any beneficial or economic rights in such shares until you have received CCI’s approval.
Broaden the scope of enforcement with increased investigative powers
The ICC will now have the power to refuse to hear cases
- on issues it has previously decided
- where issues are raised late.
That said, once an investigation is opened, the Director General (DG, investigation arm of the ICC) will have broader powers to demand information from persons connected with the parties under investigation, for example employees, agents and third parties, such as auditors. The DG’s power to conduct search and seizure operations is now specifically codified in the bill.
In light of the proposed invasive investigative powers, the bill also encourages the speedy resolution of cases (with the exception of cartel cases) through a new framework of undertakings and regulations. This will allow :
- parties to avoid the rigors of the investigative process
- facilitate the collection of penalty payments by the CCI without risking that these orders will be canceled on appeal
- Correcting Anti-Competitive Behavior by Immediate Behavioral Modification.
When it comes to cartels, most cases are currently leniency applications filed by cartel members, as there is a race to be the first to notify the ICC and get the highest reduction of any penalty. The bill proposes that leniency applicants in one case, revealing the existence of a new cartel, will get an additional penalty reduction in both cases.
Previously, only actors considered competitors were taken and complex cartel schemes charging other enablers were ignored. The bill now provides a legal basis for fixing the liability of cartel facilitators (such as consultants) as well as hub-and-spoke cartels operated through suppliers or distributors at different levels of the vertical chain, treating them on an equal footing with cartels, and therefore subject to higher sanctioning standards.
Parties may find these changes pragmatic, given that appeals will now require a 25% advance deposit, which will increase the cost of challenging TCC orders.
Trying to make sense of it all?
The long-proposed amendments are a mixed bag. While aiming to be business-friendly and in line with the government’s mission of “ease of doing business”, the ICC is given an iron fist when it comes to conduct cases. These changes will come prospectively, but a lot will depend on regulation to flesh out some of the broader proposals. With the adjournment of the monsoon session by parliament, we hope to see a consultative effort towards building the new regime, so that when the bill finally comes into force, stakeholders can get started.
(Shweta Shroff Chopra (Partner), Aman Singh Sethi (Senior Partner), Parinita Kare (Partner) Shardul Amarchand Mangaldas & Co)