Competition Commission of India Relaxes Norms for Group Companies

By Nazish Alam, Partner

The Competition Commission of India (the “Commission”) has, on April 4, 2013, eased the rules for internal reorganisation and restructuring of companies by way of mergers or amalgamation, often taking place within a group and for additional stake acquisitions in a company.

The Commission in its exercise of power under Section 64 of Competition Act 2002 (“Act”) has made an amendment to the Competition Commission of India (Procedure in regard to the transaction of business relating to Combination) Regulation, 2011 (“Combination Regulation 2011”). The provisions of the Act, relating to regulation of combinations had come into force in June, 2011.  

According to this amendment, there shall be no legal requirement of filing notice with the Commission for acquisition of shares or voting rights of an enterprise if the acquisition is less than five per cent (5%) of the shares or voting rights in a financial year; where the acquirer’s existing holding in such enterprise is already more than twenty five per cent (25%) but less than fifty per cent (50%) of shares or voting rights. Provided that acquisition of such additional shares does not result in acquisition of sole or joint control of such enterprise by the acquirer or its group.

Further, there shall be no legal requirement of filing notice with the Commission for acquisition of shares or voting rights or assets, by one person or enterprise, of another person or enterprise within the same group, except in cases where the acquired enterprise is jointly controlled by enterprises that are not part of the same group.

Further, there is no requirement for notice filing in relation to (i) merger or amalgamation involving two enterprises where one enterprise owns or holds more than fifty percent (50%) shares or voting rights of the other enterprise and (ii) merger or amalgamation of enterprises in which more than fifty percent (50%) shares or voting rights in each of such enterprises are held by enterprise(s) within the same group, however subject to the condition that such merger or amalgamation does not result in transfer from joint control to sole control.

This amendment is clear recognition by the Commission of the fact that such intra-group transactions are of such ordinary nature, that they are not likely to cause an appreciable adverse effect on competition in India for the purpose of Section 6 of Act.

However, the Combination Regulations 2011 still needs to address specific regulations and guidelines governing joint ventures in India. Most of the anti-trust laws of other jurisdictions govern joint ventures specifically. Joint ventures are a highly flexible concept and are increasingly becoming a popular form of competitor collaboration and therefore are likely to attract the provisions relating to anti-competitive agreements, abuse of dominance and regulations of combinations. It is therefore imperative that specific guidance in relation to the same are issued. Having said that, the Act specifically provides that a joint venture, if it increases efficiency, may not be construed to be anti-competitive.

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