Faster M&A clearances; more deals to review
The Bill aggressively advances review timelines for approval of M&A transactions. Arguably a welcome step, this may however increase the burden on parties to undertake a detailed engagement with the CCI before the formal filing to avoid invalidations, as the CCI has limited flexibility to extend timelines.
The introduction of a ‘deal-value’ threshold (for transactions valued over Rs 2000 crore with substantial Indian operations) proposes to capture several transactions which were previously not reported, as the assets or turnover were below the applicable thresholds. This change may have several unintended consequences given the low threshold and ambiguity around interpretation of ‘deal-value’ and the local nexus requirements.
Additionally, the definition of control is being expanded significantly to mean the “ability to exercise material influence over management/affairs/strategic commercial decisions”, which is a much lower standard than under Companies Act, SEBI and insolvency laws. This could result in CCI approval becoming a condition precedent to many more global and Indian deals (especially when read with the ‘deal-value’ thresholds).
However, stock market transactions and open offers, which due to the suspensory nature of the merger control regime have so far endured valuation risks (or gun jumping penalties on account of closing before CCI approval), will be allowed to consummate provided parties: (i) seek immediate subsequent approval; and (ii) don’t exercise any beneficial or economic rights on such shares until receipt of CCI approval.
Expanding scope of enforcement with greater investigative powers
The CCI will now have the power to decline to entertain cases
- on issues which it has previously decided
- where issues are raised belatedly.
That said, once an investigation commences, the Director General (DG, CCI’s investigative wing) will have greater powers to demand information from individuals connected to the parties under investigation, e.g., employees, agents as well as third persons, such as statutory auditors. The DG’s power to conduct search and seizure operations have now specifically been codified within the Bill.
In light of the proposed invasive investigative powers, the Bill also incentivises early resolution of cases (except cartel cases) by way of a new commitments and settlements framework. This will enable:
- parties to avoid the rigours of the investigative process
- facilitate the collection of penalties by the CCI without the risk of these orders being overturned on appeal
- correction of anti-competitive conduct through the immediate modification of behaviour.
As for cartels, currently most cases are through leniency applications filed by cartel members, as there is a race to be the first to inform the CCI and obtain the highest reduction in any penalty. The Bill proposes that leniency applicants in one case, disclosing the existence of a new cartel, will get an additional reduction in penalties in both cases.
Previously, only players seen as competitors would be caught and complex cartel schemes involving other facilitators were overlooked. The Bill now provides statutory basis to fix liability on facilitators of cartels (such as consultants) as well as hub-and-spoke cartels being operated through suppliers or distributors at different levels of the vertical chain, treating them at par with the cartelists, and therefore subject to the higher penalty standards.
Parties may find these changes pragmatic, given that appeals will now require a 25% pre-deposit, increasing the cost of challenging the CCI’s orders.
Trying to make sense of it all?
The long overdue proposed amendments are a mixed bag. Whilst aimed at being business friendly and consistent with the Government’s “ease of doing business” mission, the CCI is being given an iron hand as far as behavioural cases go. These changes will come in prospectively, yet much will depend on the regulations to flesh out some of the broader proposals. With Parliament adjourning the Monsoon session, we hope to see a consultative effort towards building the new regime, so that when the Bill finally comes into force, stakeholders can hit the ground running.
(Shweta Shroff Chopra (Partner), Aman Singh Sethi (Principal Associate), Parinita Kare (Associate) Shardul Amarchand Mangaldas & Co)