CCI's M&A overhaul: Stricter scrutiny, faster approvals under new rules
Sep 19, 2024
Revised framework introduces deal value thresholds, streamlined timelines, and wider definition of control for enhanced regulatory oversight, writes Dhanendra Kumar
India’s merger and acquisition (M&A) regulatory regime has recently undergone a seismic transformation. These amendments, notified on September 9, 2024, primarily stemming from the Competition (Amendment) Act, 2023, will reshape the future of corporate mergers both domestically and internationally. These revisions mark several positive changes in India’s regulatory approach, introducing ease of doing business (EoDB), the need for cross-border compliance, stringent oversight, clear deal value thresholds, and speedier decisions.
A few major changes:
Deal value thresholds: A game changer
Under the new rules, M&A valued above Rs 2,000 crore ($240 million) must be notified to the Competition Commission of India (CCI), provided the target has “substantial business operations” in India, viz., if the Indian turnover or gross merchandise value (GMV) exceeds Rs 500 crore ($60 million) or at least 10 per cent of the global figures in these metrics.
• Aim and challenges of the regime:
This move aims to bring greater transparency and accountability to high-value deals, ensuring that large transactions undergo regulatory scrutiny to prevent anti-competitive practices. The limit of Rs 2,000 crore might filter out smaller deals and lead to speedier consolidation for greater efficiency.
Expedited timelines for M&A
There is now a shortened merger review timeline by the CCI. Earlier, the CCI had 30 working days to form a prima facie view on a notified transaction, which has now been reduced to 30 calendar days. Additionally, the overall review period has been reduced from 210 to 150 calendar days.
Wider definition of 'control'
The revised regulations have expanded the definition of “control,” which now includes the “ability to exercise material influence” in any manner over the management, affairs, or strategic commercial decisions of another enterprise or group. This may bring more M&As under stringent purview and more efficient regulation by the CCI.
• ‘Material influence’:
While the Act does not define ‘material influence,’ the CCI’s order in UltraTech Cement defines the term as “the lowest level of control and implies the presence of factors which give an enterprise an ability to influence the affairs and management of another enterprise, including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/financial arrangements, etc.”
Exemption rules and minority share acquisitions
Acquisition of less than 25 per cent of shares or voting rights, not leading to a change in control, is now exempt from pre-merger notification requirements. The new regime has been brought in for enhanced EoDB. This might also lead to some easier unsolicited acquisitions, although there are still some conditions, such as restrictions on exercising voting rights until regulatory approvals are secured.
• Intra-group transactions:
The exemption for intra-group transactions remains intact, but M&A within the same group is exempt only if they do not result in a change in control. This ensures that intra-group restructuring for operational efficiency does not undermine market competition.
Derogation from “standstill obligations” in open offers
Parties to open market transactions will now be exempt from the “standstill obligation” and, pending CCI’s approval, can acquire shares from various sellers through transactions on a regulated stock exchange or an ‘open offer,’ subject to stipulated conditions.
Increased filing fee
The Form I filing fee has been increased from Rs 20 lakh to Rs 30 lakh, and for Form II, from Rs 65 lakh to Rs 90 lakh.
Appointment of monitoring agencies
To ensure adherence to CCI’s orders, the CCI can now appoint monitoring agencies. These agencies can be accounting firms, management consultancies, chartered accountants, company secretaries, or cost accountants.
• Accountability of agencies:
The agency so appointed will be responsible for informing the CCI in case of any non-implementation or non-compliance with its orders.
Conclusion: A new era of accountability, oversight, and efficiency
India’s recent changes to its M&A regime underscore the country’s growing investment attractiveness, EoDB, and need for robust regulatory oversight.
The introduction of deal value thresholds, streamlined timelines, and revised exemption rules all point to a more mature and nuanced approach to managing corporate mergers and acquisitions. The new regime is at par with advanced global regimes and leads a regulatory approach to encourage M&A activities.
While these changes may add layers of compliance for businesses, they also provide clarity, ensuring that India remains an attractive destination for both domestic and international investments. As the global economy evolves, India’s proactive regulatory measures will play a pivotal role in shaping the M&A landscape within the country and globally.
For businesses, the new rules offer challenges, responsibility, and opportunities. The key lies in understanding the nuances of these regulations, ensuring voluntary compliance, and capitalising on the efficiencies associated with expedited reviews and clear-cut exemptions.
(Dhanendra Kumar is the founding chairman of CCI and former Executive Director at World Bank)
[The Business Standard]
