Transaction costs for businesses and the Competition Commission look set to rise under the new regime
Recent big-ticket penalties imposed by the Competition Commission of India (CCI) are beginning to have an impact. Indeed,in the recent merger filing involving Aditya Birla Nuvo and Pantaloon,a minor misreading by the news media that the CCI had rejected the filing had an immediate adverse impact on stock prices. While further damage was contained through a quick clarification by the parties and the media that the CCI had merely found the filing to be invalid and not rejected it,the incident raises significant questions about Indias incipient merger control regime.
While provisions related to anti-competitive agreements (such as cartels and bid rigging) and abuse of dominance came into force on May 20,2009,the merger control regime was implemented only from June 1,2011. Before the implementation of the merger control provisions,several versions of the merger regulations were issued to build the architecture of the Indian merger control regime.
The statutory provision related to merger control merely states that in the context of merger/amalgamation,the jurisdictional trigger for the CCIs merger review is the approval of the proposal by the board of directors. The provision does not clarify what constitutes an approval or a proposal. Further,the merger regulations implemented from June 2011 do not clarify their meanings but merely explain that the approval of the board of directors refers to the final decision of the board of directors.
In the Aditya Birla Nuvo case,the CCI found the merger filing to be premature,as the decision of the board of directors was not final. Interestingly,the CCI glossed over the history behind merger regulations. For instance,draft merger regulations issued on February 28,2011 did not contain any reference to the final decision of the board of directors as the jurisdictional trigger,but stated that merger regulations will not apply to cases that had taken effect prior to the notification of the merger control provisions. Further,draft regulations issued in January,2008 neither mentioned a cut-off date for notification or approval of the CCI,nor referred to any decision of the board of directors.
Indeed,in the run-up to the finalisation of the merger regulations in May 2011,since the Competition Act was partially in force,the businesses were concerned about the cut-off date for the implementation of the merger control regime. The concerns stemmed from the vague phrase used in the February 2011 version of the merger regulations,coupled with apprehension regarding the time period of 210 days stipulated under the statute for merger review. It was in this backdrop that the final merger regulations issued in May 2011 clarified the cut-off date of June 1,2011 and the final decision of the board of directors. In other words,where the final decision of the board of directors was taken before June 1,2011,the prior notification and approval of the CCI was not required. This was supposed to objectively clarify the cut-off date and ensure that parties do not artificially oust the CCIs jurisdiction.
This history of merger regulations indicates that the parties decision in the Aditya Birla Nuvo case to seek approval,in the face of what the CCI decided to be not a final decision of the board of directors,was a back-handed compliment to the CCIs efficiency. Contrary to the time period of 210 days mentioned in the statute,the CCI has,until now,approved cases within 30 calendar days. Further,the parties action of seeking the CCIs approval for their transaction clearly indicates that they were not interested in ousting the CCIs jurisdiction. Unfortunately,the CCI refused to acknowledge the compliment and,contrary to what the parties believed and argued,held that in the absence of a final decision of the board of directors,the notification was premature and,therefore,invalid.
Interestingly,there have been at least nine cases where the CCI has reprimanded parties for delay in seeking approval. While it has refrained from imposing any penalty so far on the ground that such cases arose in the first year of implementation of the merger control regime,it will be interesting to see the CCIs analysis of a delay-related case that arises after June 1,2012. Cases such as that of Aditya Birla Nuvo,where the CCI insists upon second-guessing parties assertion on the finality of the decision of the board of directors,will ensure that businesses continue to tread cautiously on Indias nascent merger control regime. This will lead to a spike in demand for informal,pre-filing consultations with CCI officials. Perhaps as an unintended consequence,the transaction costs for both the CCI and the businesses are set to increase.
The writer is currently a counsel at Trilegal and teaches at the National Law School,Bangalore
