The government is considering whether the Competition of Commission of India?s (CCI) mandate to regulate corporate mergers, acquisitions and amalgamations should be restricted to sectors where the new regulator does not come in conflict with other regulators. The fledgling regulator?s role is being reviewed at the level of Cabinet secretary, after powerful sections within the government expressed divergent views.
As per the Competition Act 2007, prior approval from CCI is required for mergers, acquisitions and amalgamations above specified thresholds. The idea is to ensure that the combined entity?s market power would not harm competition in the relevant market. Acquisition plans involving Indian and foreign entities would also come under the Commission?s lens if a strong domestic nexus in terms of market share is established.
?We have received the comments from many agencies on CCI?s mandate over combinations. These generally speak about the undesirability of CCI?s proposed role in the matter, even as things would look different from the broader perspective of competition law. So, there are pros and cons (of CCI being an M&A regulator across sectors). These views are being considered at a higher level,? a senior official from the ministry of corporate affairs told FE.
Though the Act envisages the CCI to have over-arching powers on MAs, it has not commenced M&A regulation yet, as the government has not notified Sections 5 & 6 of the Competition Act. On its part, the regulator is waiting for the government to act, before it finalises detailed M&A regulations.
An official source, on condition of anonymity, said the government was also examining ?legal issues? that overlapping jurisdictions emanating from different laws could create. The RBI, Trai and the shipping ministry have expressed reservations over the plan to give CCI wide powers to scrutinise ?combinations.?
While RBI had suggested that CCI keep out of banking sector, CCI had said the central bank would do well to restrict its role to prudential regulation and leave competition issues to CCI. As it is, public sector banks have certain unfair advantages over private banks because of various entry barriers, the CCI had noted.
Similarly, CCI had opposed Trai?s proposal to put a cap of 40% market share and no less than four players in each ?telecom circle ? as part of its merger regulations, saying that it would create confusion and inflate compliance costs.
Section 60 of the Electricity Act 2003 deals with competition regulation. Also, the Petroleum and Natural Gas Regulatory Board Act has a clause on restrictive trade practices. Trai defines mergers merely in terms of acquisition of equity and merging of licences, whereas CCI looks at ?acquisition of control, shares, voting rights or assets.? CCI also looks at many other forms of combinations?such as acquisition of assets like market presence in a given geographical territory.
?M&A guidelines are in-built in the telecom licensing policy. So, the practical way is to keep the sector out of CCI?s purview,? said a Trai official. Although the DoT is the licensor in the telecom sector, it seeks recommendation from Trai under the Trai Act. ?The situation in the electricity sector is unique as the need is to create competitive markets where none exists. Even though the Electricity Act 2003 envisages competition in all areas, what we continue to have is national monopolies in power generation, transmission and trading,? Central Electricity Regulatory Commission chairman Pramod Deo told FE.
?Unlike in other sectors, bank mergers don?t need the concerned high court?s approval. This is because of the special nature of the banking sector. In such cases, the global practice is that the special would override the general,? said PwC?s executive director, Ketal Dalal. The industry had vehemently opposed the Competition Act provision for prior notification of M&As above prescribed threshold to CCI. It said the provision would scupper corporatre mergers that are often done in haste, and amid uncertainties. Commission had given the verbal assurance that 90% of M&A proposals put up for its approval would be cleared within 60 days, although the upper limit prescribed in the law is 210 days.
Internationally, competition regulators would clear 80-85% of M&As within 30-60 days. However, longer timelines are prescribed in laws considering that some cases could be complex enough to demand longer scrutiny time. ?The issue of multiple regulatory agencies was not unanticipated. In fact, the Competition Act, that draws from best international models, is equipped to tackle and solve these questions,? said Vinod Dhall, a competition law expert and former acting chairman of CCI.