Green Channel – The Next Step for Indian Merger Control
The Competition Commission of India has recently introduced a significant change to the existing mandatory and suspensory merger control regime in India. The introduction of an automatic clearance for mergers, known as the Green Channel, makes India the only competition jurisdiction in the world where a transaction can be filed and approved on the same day, subject to the fulfilment of certain criteria. This article assesses the applicability and the implications of the newly introduced Green Channel regime in India.
The Competition Act 2002 (Competition Act) recently reached 10 years of its coming into force. The Competition Commission of India (CCI) has been central to the significant developments that the Competition Law regime in India has witnessed in the past decade, and has been a proactive regulator.
The merger control regime under the Competition Act has also witnessed tremendous growth and development in the past eight years. The CCI has reviewed more than 600 merger notifications, and has maintained an efficient average period for disposal of the combinations. In contrast to the Singaporean merger control regime which is voluntary in nature, the Indian merger control regime is mandatory and suspensory.
Recently, as part of the Indian Government’s commemoration of 100 days in office, a slew of measures were introduced to facilitate ease of doing business in India. The CCI also announced automatic clearance for mergers meeting certain prescribed conditions applicable from 15 August 2019. The CCI amended the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (Combination Regulations) and brought about significant change to the existing mandatory and suspensory notification regime in India. Interestingly, such introduction of an automatic clearance for mergers makes India the only competition jurisdiction in the world where a transaction can be filed and approved on the same day, subject to the fulfilment of certain criteria.
Pertinently, the Competition Law Review Committee (CLRC),1By way of full disclosure, the author was a member of the working group of the CLRC constituted by the Government of India. which was constituted by the Government of India in 2018, had submitted its report on the amendments to the Combination Regulations by the CCI, on 14 August 2019. The CLRC had also recommended the introduction of a “Green Channel” for combination notifications to enable fast-paced regulatory approvals for vast majority of mergers and acquisitions that may have no major concerns regarding appreciable adverse effects on competition.
The Green Channel
The CCI has laid down specific requirements for transactions to avail of the Green Channel route, under the amended Combination Regulations. Transactions in which the parties do not have any direct or indirect horizontal or vertical overlaps, or are not engaged in complementary markets, can be notified to the CCI (by way of the simplified and short, Form-I filing) by providing basic details of such transactions and avail the Green Channel approval. On the receipt of acknowledgment of such filings, the transaction will be deemed to have been approved by the CCI without any in-depth scrutiny and assessment. In essence, in transactions where the acquiring entity and target do not have any overlaps, whether horizontal or vertical and no complementary effects, the Green Channel route can be availed.
Further, the mandatory 30 working day period (excluding the time taken for clock stops) under the Combination Regulations will also not be applicable to such transactions which are eligible to avail the Green Channel route for the CCI’s approval.
However, if the parties self-declare that they are applicable for Green Channel, and it is later discovered by the CCI that the transaction does not satisfy the prescribed criterion for the Green Channel, the CCI has the right to render the merger filing and the consequent approval (by way of the receipt of the acknowledgement of the filing) void ab initio. Nevertheless, the CCI, before arriving at a conclusive finding that a transaction did not satisfy the prescribed criterion for the Green Channel, will provide the parties an opportunity of being heard.
Applicability and Implications
The amendments to the Combination Regulations has introduced this Green Channel route in the Indian merger control regime. It is, however, important to assess the applicability and practical implications of such a near simultaneous approval of a merger filing. Pertinently, of the 670 transactions which the CCI has approved to date, approximately 15 per cent could have availed of the Green Channel route and received approval on the day of making the filing before the CCI.
To understand the applicability of the Green Channel route, the following illustrative scenario explains the transactions that will be able to reap the benefits of the Green Channel. Essentially, if a Singaporean chemical company which has no existing investments in India were to acquire an Indian chemical company with which it has no prior relationship, it would be entitled to Green Channel approval.
The flip side of this Green Channel coin would be that the misuse of the green channel route will entail significant liability of both gun-jumping2Section 43A, Competition Act. and misstatement3Section 44, Competition Act. which carry separate monetary penalties under the Competition Act. Notably, for gun-jumping, the CCI under the Competition Act is empowered to impose a maximum penalty of up to one per cent of the combined global asset or turnover of the combining entities (solely payable by an acquirer in an acquisition and by merging parties in a merger), whichever the higher. Further, in addition to such monetary penalties, there will be a risk of loss of reputation if the CCI rules that the transaction did not fall within the ambit of a transaction which could have availed the Green Channel route.
Additionally, cases under the Insolvency and Bankruptcy Code 2016 (IBC), which do not qualify for the Green Channel route (ie, have either horizontal or vertical overlaps or complementary activities) should ideally be reviewed under the normal route as they could potentially raise competition concerns. Such IBC cases can use the failing firm defence, where expedited clearances have been provided for by the CCI.
The CCI in the past year, has on an average cleared (most) mergers within 18 working days of the filing. Further, with the introduction of the Green Channel route, the CCI will now be able to provide even more fast-tracked competition approvals for the transactions which are notified under this route.
To ensure that there is no logjam for Green Channel cases which are availing of the pre-filing consultation (PFC), the CCI, by way of a Guidance Note, has also introduced a novel walk-in consultation process from 10am to 12 noon on Mondays to Fridays for the industry. This is due to the CCI’s ability to negate the approval if the CCI is of the view that parties could not have availed of the Green Channel. This contrasts with the merger control regime in Singapore, where the PFC process is included within the provisions of the Competition Act of Singapore.4Section 56, Competition Act of Singapore.
Given the recent introduction of the Green Channel and consequent amendments to the short form filing (Form I) to factor in the differences between a Green Channel and the ordinary merger control channel, it is likely that the CCI will issue further Guidance Notes to the revised short form template to explain concepts. These will likely include “complementary activities” and the applicability of materiality thresholds where parties (particularly financial investors) have a minuscule non-controlling existing investment.
Majorly, the introduction of a green channel will (i) reduce unnecessary burden on notifying parties in technical filings; and (ii) lead to reduction of M&A timelines, thereby resulting in ease of doing business in India. Importantly, this will also ensure that CCI’s resources are better utilised in reviewing only those transactions where there actually might be a competition concern.
Endnotes [ + ]
|1.||↑||By way of full disclosure, the author was a member of the working group of the CLRC constituted by the Government of India.|
|2.||↑||Section 43A, Competition Act.|
|3.||↑||Section 44, Competition Act.|
|4.||↑||Section 56, Competition Act of Singapore.|