CCI issues draft M&A regulations

The Competition Commission of India (CCI) has come out with amended draft regulations pertaining to penalties, cost of production and merger, acquisition and amalgamations.

CCI acting chairman and member Vinod Dhall said: "After two months of deliberation with the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (Ficci) among others, we have tried to address their problems in the draft regulations. We will wait for their comments before notifying them as guidelines."

The CII said it would analyse the revised regulations before giving a detailed response. However, it maintained that regulation of combinations based on the criteria of 'size' per se, in the current stage of India's economic growth, may not be an economically sound proposition.

"India needs to achieve economies of scale to be globally competitive. Accordingly, the Competition Commission should, to begin with, focus on Regulation of Anti-Competitive Agreements and Prohibiting Abuse of Dominance," the CII added.

The Competition Act, 2007, cleared by Parliament last September, had proposed that any company with assets of Rs 1,000 crore or more and a turnover of Rs 3,000 crore or more has to mandatorily seek the CCI's approval for any "combination" (merger, acquisition or amalgamation) within 30 days of inking the deal.

The CCI will give its verdict within 210 days, which can be extended by another 60 days, failing which the application will be deemed approved.

Any company of a smaller size, if it belongs to a group with assets of Rs 4,000 crore or a turnover of Rs 12,000 crore, too will have to go through the same process if it decides to do a merger or an acquisition.

Industry fears this will stall the pace of M&A as no seller would be willing to wait for 270 days. Though that could be the worst-case scenario, experts feel the asset and turnover thresholds would be particularly detrimental to capital-intensive businesses like petroleum, telecom, steel, cement etc.

A CII official said: "The asset/turnover criteria on the basis of which proposed combinations are sought to be regulated is not a right basis for estimating the market dominance of a company in present times. It must be coupled with other determining factors. Quantitative criteria to determine dominance should also be prescribed."