The
Competition Commission of India (CCI)
has recently opined[1]
that “an acquisition of shares or voting
rights, even if it is of less than 25 per cent, may raise competition concerns
if the acquirer and the target are either engaged in business of substitutable
products/services or are engaged in activities at different stages or levels of
the production chain. Such acquisitions need not necessarily be termed as an
acquisition made solely as an investment or in the ordinary course of business,
and thus would require competition assessment, on a case to case basis, under
the relevant provisions of the Act”.
Competition Commission of India (CCI)
has recently opined[1]
that “an acquisition of shares or voting
rights, even if it is of less than 25 per cent, may raise competition concerns
if the acquirer and the target are either engaged in business of substitutable
products/services or are engaged in activities at different stages or levels of
the production chain. Such acquisitions need not necessarily be termed as an
acquisition made solely as an investment or in the ordinary course of business,
and thus would require competition assessment, on a case to case basis, under
the relevant provisions of the Act”.
Though
the aforesaid order appears to have the effect of limiting the exemptions
granted in Schedule I of the CCI
(Procedure in regard to the transaction of Business relating to Combinations)
Regulations, 2011 (“Combination
Regulations”), in fact it has only provided clarity to the provisions of
point 1 of Schedule I of the Combination Regulations.
the aforesaid order appears to have the effect of limiting the exemptions
granted in Schedule I of the CCI
(Procedure in regard to the transaction of Business relating to Combinations)
Regulations, 2011 (“Combination
Regulations”), in fact it has only provided clarity to the provisions of
point 1 of Schedule I of the Combination Regulations.
Point
1 of Schedule I of the Combination Regulations exempts from the requirements of
merger control filing (which otherwise would qualify the threshold limits
prescribed under the Act) an acquisition
of shares or voting rights, solely as an
investment or in the ordinary course of business in so far as the total
shares or voting rights held by the acquirer directly or indirectly, does not entitle
the acquirer to hold 25% or more of the total shares or voting rights of the investee
company or in accordance with
execution of any document including a shareholders’ agreement or articles of
association, not leading to acquisition of control
of investee company.
1 of Schedule I of the Combination Regulations exempts from the requirements of
merger control filing (which otherwise would qualify the threshold limits
prescribed under the Act) an acquisition
of shares or voting rights, solely as an
investment or in the ordinary course of business in so far as the total
shares or voting rights held by the acquirer directly or indirectly, does not entitle
the acquirer to hold 25% or more of the total shares or voting rights of the investee
company or in accordance with
execution of any document including a shareholders’ agreement or articles of
association, not leading to acquisition of control
of investee company.
Thus,
even as the provisions stand today or prior to the aforesaid order, an
acquisition of “control”, whether by
way of shareholding of more than 25% of the paid up capital of the investee
company or by exercising any rights under an agreement would tantamount to
exercise of control over the affairs of the investee company would not be
exempt from the requirement of a merger control filing. The term “control” is not
defined in the Competition Act, 2002 (the “Act”)
or the Combination Regulations. However, it appears that the definition of the
term “control” as adopted by various other regulators such as SEBI, DIPP/FIPB
and MCA would be relevant here. Accordingly, “control” would include the right
to appoint majority of the directors or to control the management or policy
decisions exercisable by a person or persons acting individually or in concert,
directly or indirectly, including by virtue of a shareholders agreements or
voting agreements or in any other manner.
even as the provisions stand today or prior to the aforesaid order, an
acquisition of “control”, whether by
way of shareholding of more than 25% of the paid up capital of the investee
company or by exercising any rights under an agreement would tantamount to
exercise of control over the affairs of the investee company would not be
exempt from the requirement of a merger control filing. The term “control” is not
defined in the Competition Act, 2002 (the “Act”)
or the Combination Regulations. However, it appears that the definition of the
term “control” as adopted by various other regulators such as SEBI, DIPP/FIPB
and MCA would be relevant here. Accordingly, “control” would include the right
to appoint majority of the directors or to control the management or policy
decisions exercisable by a person or persons acting individually or in concert,
directly or indirectly, including by virtue of a shareholders agreements or
voting agreements or in any other manner.
Furthermore,
it appears from the Order that the CCI has further clarified that the
assessment of acquisition of “control” would become more relevant if the acquirer
and the target are either engaged in business of substitutable
products/services or are engaged in activities at different stages or levels of
the production chain. Thus, if the acquisition of “control” by the acquirer
over the target is within the same or similar industry/business sector, the
likely hood of an appreciable adverse effect on competition in the relevant
industry/ business sector is higher and accordingly the same would require an
assessment by the CCI.
it appears from the Order that the CCI has further clarified that the
assessment of acquisition of “control” would become more relevant if the acquirer
and the target are either engaged in business of substitutable
products/services or are engaged in activities at different stages or levels of
the production chain. Thus, if the acquisition of “control” by the acquirer
over the target is within the same or similar industry/business sector, the
likely hood of an appreciable adverse effect on competition in the relevant
industry/ business sector is higher and accordingly the same would require an
assessment by the CCI.
The
principle outlined in the aforesaid Order would, amongst others, largely
regulate strategic investments by private equity firms focusing investment in a
particular industry/business sector, as also mentioned in certain press
statements made by the Chairman of CCI. As per recent news articles[2], “According to the Competition Commission of
India (CCI), chairman, Ashok Chawla now the firms will need CCI approval while
making multiple investments in a sector, even if the transactions don’t breach
the prescribed thresholds.”
principle outlined in the aforesaid Order would, amongst others, largely
regulate strategic investments by private equity firms focusing investment in a
particular industry/business sector, as also mentioned in certain press
statements made by the Chairman of CCI. As per recent news articles[2], “According to the Competition Commission of
India (CCI), chairman, Ashok Chawla now the firms will need CCI approval while
making multiple investments in a sector, even if the transactions don’t breach
the prescribed thresholds.”
The
aforesaid appears to be a concerted effort by the CCI to restrict growth of
monopolistic environment in a particular industry/business sector, which could
be an outcome of acquisition of “control” by a single investor in multiple
companies operating within the target sector.
aforesaid appears to be a concerted effort by the CCI to restrict growth of
monopolistic environment in a particular industry/business sector, which could
be an outcome of acquisition of “control” by a single investor in multiple
companies operating within the target sector.
Authored
by:
by:
Nidhi
Arora
Arora
[1] CCI
Order No. C-2014/08/202 dated 10 November 2014
Order No. C-2014/08/202 dated 10 November 2014
