CCI gets M&A monitoring power

Even as the Union government on Friday notified sections 5 and 6 of the Competition Act, 2002, giving the Competition Commission of India (CCI) the authority to rule on mergers and acquisitions above a certain limit, experts have begun criticising the draft proposals it has made to give effect to the notfication.

The two sections had not been notified all along for a variety of reasons; hence, they have yet to take effect. Once a law is notified, rules have to be made and also notified, which give effect to the Act. CCI had, only this week, displayed draft rules in this regard on its website for the two sections. It was presumed this eliciting of public reaction wass meant to prepare the way for notification of the parent sections, something confirmed on Friday.

 

Criticism of the draft rules has begun. Competition law experts have, for instance, expressed doubt at the legal soundness of the CCI attempt to bring ‘individuals’ and the ‘karta’ (head) of a Hindu undivided family under the definition of ‘board of directors’ in its proposed rules. They say the attempt to broaden the board’s definition through the rules will not be possible, as this would contradict the Act’s parameters.

“Section 6 (2)(a) of the Competition Act, 2002, mentions that mergers will require approval of the board of directors. The Act also separately deals with “persons” who take over control under a separate section, clearly indicating that approval of a board of directors are meant only for enterprises. The rules cannot combine two entities mentioned separately in the Act,” a competition law expert said.

Section 4 (6) of the draft regulation says the reference to ‘board of directors’ shall mean and include “the individual himself or herself, including a sole proprietor of a

proprietorship firm, the karta in case of a Hindu Undivided Family (HUF) and the board of directors in case of a company registered under the Companies Act, 1956.”

“It (the draft) is long overdue and a welcome development. But there are a lot of glaring errors which need to be fixed before it can be notified,” said Manoj Kumar, senior partner of law firm Hammurabi & Solomon.

Similarly, experts say the draft rule calling for publication of the details of merger or acquisition proposals where CCI finds a prima facie case of adverse effects on competition is an overstepping the powers provided in the Act, as the latter does not mention ‘publication’ of details.

The informal consultation proposed in the draft rule (section 12) with the CCI’s designated authority has also been criticised for its lack of transparency and accountability. According to experts, the parties to the merger or acquisition should have the right to make the authority accountable for any flaws in the informal advice given to them.