By revising the minimum threshold for mandatory notifications of merger and acquisition deals upwards last month, the Ministry of Corporate Affairs (MCA) has outlined the Competition Commission of India's (CCI) priorities - more investigative powers to curb anticompetitive practices and less merger control.
According to the new framework, companies of a certain size must notify a potential deal to the CCI, which then decides whether it has an adverse effect on competition. Firms - either the acquirer or the one being acquired - with minimum assets of Rs 2,000 crore or a turnover of Rs 6,000 crore must notify the CCI of their M&A plans. For global firms, the minimum threshold has been revised to $1 billion of assets, including assets of at least Rs 1,000 crore in India, or a turnover of $3 billion, with at least Rs 3,000 crore in India. Thresholds have been doubled for group companies.
"The revised thresholds serve the dual purpose of restricting the CCI's review to M&A activity that has the potential to affect the market and reducing transaction costs for smaller deals," says Samir Gandhi, Head, Competition and Antitrust Practice, AZB & Partners, a law firm. "The increased thresholds for notification are certainly a welcome change, both for the business community and the CCI."
In a sense, the signs were clear. "The revision in the thresholds should be seen in the context of the government's goal of improving the ease of doing business in India," says Payal Malik, former economics advisor at CCI. She is also of the opinion that the move will improve the chances of Indian companies to be globally competitive. "Increasing the threshold is a step in the right direction because it is important for the Indian industry to attain scale efficiencies."
It is presumed that deals that do not breach the threshold have little adverse effects on competition. "It (reduction in the number of notified deals) will largely relate to transactions that in any event have little or no market effect, and would only have resulted in technical filings," adds Gandhi. "The synergies from smaller deals might outweigh any potential adverse effect on competition," says Malik.
The number of combinations (mergers or acquisitions) notified to the CCI had gone up significantly over the past five years - from 81 in 2009/10 to 586 in 2014/15. "I believe that the new thresholds will bring down the total number of notified deals by 20-25 per cent," says Gandhi. Ravi-sekhar Nair, Partner, Compe-tition Law at law firm ELP, however, put the figure at 15-20 per cent.
In any case, the raised thresholds should have a positive effect on the cost of doing business. In addition to the cost of filing an application - between Rs 15 lakh and Rs 50 lakh, depending on the nature of the deal and legal fees - the uncertainty and time taken to close such deals was always a concern.
Sample this: the CCI had stated in 2011 that it will give a ruling within 30 days of filing a valid notice. In 2015, it changed the definition to 30 working days (approximately 42 to 45 days) - an increase of almost 50 per cent. Further, the clock would often stop with the CCI requesting third party information, or when it scheduled hearings to get clarifications on issues it had doubts about.
"We advise our clients who need to file with the CCI that it could take three to five months to get the necessary clearances in relation to transactions that are relatively straightforward," says Nair. This amounts to a significant delay, especially with global deals that need clearances from competition regulators of every jurisdiction. Now that the CCI is of the view that smaller deals do not have an adverse effect on competition, the raised threshold for notification will allow global deals with a small India presence to go through smoothly. Nair, however, clarifies that "transactions which present significant competition law concerns could take longer to be cleared".
All of this should lead to the CCI focusing more on its investigative capacity. Part of the regulator's mandate is to find and examine incidences of anti-competitive behaviour (cartels) or abuse of dominance (predatory pricing). The number of such contraventions noted by the CCI had gone up from 81 in 2009/10 to 128 in 2014/15. Monetary penalties, too, have significantly risen in the past five years - from Rs 854 crore to Rs 2,592 crore during the same period. But in a relatively undeveloped market economy such as India's, it is likely that anticompetitive practices abound.
India has some way to go to catch up with mature competition regimes, such as the UK, the US or Europe. And, it remains to be seen whether the reduced paperwork from the new rules will allow the CCI to concentrate more on anticompetitive behaviour and abuse of dominance.
The author is a freelance journalist based in Delhi