Asset classification clause causes concern

India Inc points out slew of lacunae in Competition Bill

Sourav Majumdar & Sitanshu Swain

Mumbai, Nov 5: India Inc has put forward a slew of points highlighting what it feels are lacunae in the Competition Bill, 2001. The perceived lacunae pertain to issues like the wide-ranging powers proposed to be granted to the Competition Commission of India (CCI), its composition and the classification of assets for the purpose of mergers.

The Competition Bill seeks to repeal the Monopolies and Restrictive Trade Practices Act, 1969, and establish a Competition Commission, replacing the MRTP Commission. The Bill was introduced in Parliament in the monsoon session and then placed before a Standing Committee on Home Affairs, headed by Rajya Sabha Member Pranab Mukherjee. The committee is in Mumbai on a two-day visit to meet industrialists, financial institutions and chambers of commerce and industry.

Mr Mukherjee told The Financial Express, “The Bill has been referred to our committee for further examination so that we can suggest suitable changes in it.” Mr Mukherjee said he had met industrialists, Keshub Mahindra and Rahul Bajaj, in the first leg of his meetings on Monday. The panel also heard presentations from representatives of ICICI and IDBI and on Tuesday would meet the top brass of the Securities and Exchange Board of India (Sebi), National Stock Exchange, Indian Merchants’ Chamber and Bombay Chamber of Commerce and Industry.

Even before the panel’s visit, apex chambers like Federation of Indian Chambers of Commerce and Industry (Ficci), Confederation of Indian Industry (CII) and Assocham, representing a cross-section of views from India Inc, have put forward their views on the proposed law.
Among the views are that there are many provisions in the Bill which would severely stifle the growth and create obstacles for companies which seek to assume optimal size to face competition. A section of the industry feels that in the present stage of economic development, what the country needs is further liberalisation and not the reintroduction of controls. The industry also feels that the basic issue of Competition Law must be addressed in three stages. First, when the commission is formed, its primary role should be that of advocacy for three to five years.

One of the key clauses which has raised the hackles within India Inc is the one pertaining to asset classification for the purpose of mergers. The Bill proposes that an enquiry can be sought or triggered if the combined assets of the acquired and acquirer company exceeds Rs 1,000 crore or if the combined turnover exceeds Rs 3,000 crore. There is also the concept of an industrial or corporate group. It is possible under the proposed law to initiate a pre-merger enquiry if the assets of the group exceed Rs 4,000 crore or turnover exceeds Rs 12,000 crore. Chambers have opposed this kind of classification.

In the Indian context, the asset classification of Rs 1,000 crore of a single company (even setting aside the combination of assets of acquirer and the acquired) includes as many as 144 companies. Even assuming that a typical merger size is not less than Rs 250 crore, it means an acquirer company can have assets of only Rs 750 crore to attract the provisions of the Bill under section 8, CII has pointed out. There are 190 such companies which come into play in this case.
Industry chambers like CII want these criteria to be removed or kept in abeyance, pending further discussion and debate. Another option suggested is to hike the threshold level substantially. The concept of a group should be eliminated, the chamber has suggested.

Ficci feels the definition of the term “agreement,” sections of industry feel, is vaguely and loosely drafted. Besides, some chambers feel that the definition of ‘‘combination’’ is too wide. Some industry chambers suggest that there should not be any control on mergers in the context of globalisation and the need for India to be a global player. It is being suggested that no prudent corporate would go in for mergers or amalgamations if these are not warranted in the global scenario. Besides, chambers feel that intervention by the CCI in mergers and amalgamations is bound to create bottlenecks.

On the powers of CCI, the chambers feel that while there are statutory authorities to see that industries work in a manner which is not inimical to competition and growth, to take the mandate of examining competition away from these authorities and forcing a reference to CCI goes against the spirit of setting up these authorities. The view within India Inc is also that the CCI may run the risk of being staffed by retired civil servants.

Ficci has suggested that the Competition Commission should have professional experts as well as more people with a business background. The minimum and maximum number of members in the commission should be prescribed in the relevant section itself. A suggestion is to have a chairperson with a business background and also include the Sebi definition of what constitutes control.