This article has been authored by Indranil Chakravorty who is a fourth-year law student studying at the National University of Study and Research in Law, Ranchi.
Procedural assent is one of the pre-requisites for the effective implementation of a legislature. The Competition Commission of India (hereinafter referred to as “CCI”) has always been a body which has keenly scanned all the proposed combinations in the past. The primitive function of Competition Law is the prohibition of unfair, restrictive monopolistic trade practices. In furtherance to this, the CCI has majorly altered the existing mechanism for obtaining faster & more transparent clearance for combinations and introduced the green channel route for the same. The ‘green channel’ can be described as a mechanism of approval for Combinations with the combination being deemed to be approved straightaway upon filing the notice. The primary objective of such a channel is the establishment of a speedy and accountable system of obtaining clearance for combinations. As per the recent clearances that CCI has provided to combinations in consonance with the Green Channel Route, there needs to be some major amendments to the route.
There is a pertinent need to analyse the various roadblocks that may arise in the course of implementation of such a mechanism by CCI namely, Overlaps, Inconsistencies & onerous penalties.
Primary obstacles to the green channel come through stipulations under Schedule III if the Combination Regulations.
The regulations clearly state that the channel would not be viable to parties that have vertical, horizontal or complementary overlaps. Parties are required to take all these overlaps into their account including direct or indirect shareholding and control of transacting parties.
The eligibility criteria for the green channel route raises several concerns, one of which being while a small company may meet the qualifying criteria, substantive roadblock may be observed for global financial investors. An investment of 1% in an overlapping business will rule out investors from the green channel route. The stage of identification of the minority shareholdings in an overlapping business is excruciating on the part of such companies.
The commission has often reiterated that the combining parties are engaged in activities which are at different levels of the production in business. It is pertinent that the transaction of services among parties to the combination is very small. Many a times the magnitude of sale and purchase is also insignificant not likely to have any adverse competition concern.
Schedule III also stretches its arms and prohibits the green channel route for an M&A transaction in any complementary businesses. The Combination Regulations hardly resolve any ambiguity regarding the interpretation of the term ‘complementary’ due to which the parties may go ahead with a reportable transaction without the approval of the CCI, and later CCI may find both businesses complementary to each other. The inclusion of the overlap rules on behalf of the parties makes the process extremely lengthy and burdensome. This would completely defeat the primary objective of the introduction of such a channel i.e., efficient and speedy clearance of propositions.
ii. Absence of clear objective criteria and some inconsistencies
One of the major essentials for availing the green channel is the consideration of ‘all plausible alternative market definitions’ by the parties. Competition Act defines a ‘relevant market’ in comprising of relevant product market and relevant geographic market. ‘Appreciable adverse effect’ is ensured keeping in mind these two elementary criteria. The term ‘alternative’ here does not seem to help issue of the relevant market beyond the domestic jurisdiction. The CCI should throw some more clarity on the concerned term for accessibility of the green channel eligibility.
In assessing the Green Channel eligibility, the acquiring party shall also need to consider all plausible alternative market definitions. The intention behind insertion of ‘deliberate’ is quite vocal in itself. The analysis of ‘appreciable adverse effect of competition’ is conducted for each concerned transaction. There is a pertinent need of clarity of stance when a major foreign conglomerate acquires an Indian competitor of similar size in India.
As per the introductory Green Channel route, if the foreign conglomerate has no substantive overlaps with Indian competitor of similar size, this route can be availed.
iii. Onerous Penalty
The modified Combination Regulations further provide that, after receiving the notification, if it is found that the parties do not qualify for the Green channel route, then the transaction would be considered void ab initio. Subsequently, parties have to provide fresh notification for eligibility under the green channel route. Any violation of the said procedure would attract the penalty of five million rupees under the Competition Act. Such ambiguities regarding the terms may lead to reluctance of parties in adopting the green channel route. It needs to be noted that the option for pre-filing consultation by parties is also not binding on the Commission.
Conclusion & Recommendations
The Green Channel route is truly a step in the right direction but it suffers from several impediments as already stated. Till date there are around 3 major Combinations which have been approved by the CCI by the green channel route i.e., Acquisition of IDBI Asset Management Ltd. (IAML) and IDBI MF Trustee Company Ltd. (IMTL) by Muthoot Finance Limited (MFL), Acquisition of Adani Electricity Mumbai Limited (AEML) and Adani Electricity Mumbai Services Limited (AEMSL) by Qatar Holding LLC (QH) & Acquisition of GVK Airport Holdings Limited (GVKAHL ) by Green Rock B 2014 Limited (Green Rock), National Investment and Infrastructure Fund (NIIF) and Indo-Infra Inc. All three combinations were filed under Section 6(2) of Competition Act 2002 read with Section 5A of CCI (Combination) Regulations 2011.
The Green Channel would have been more effective if the benefit would be granted to standard form of combinations with the utilization of past knowledge of the Commission. This would in turn also reduce the probabilities of appreciable adverse effect on competition as per the concerned transactions. Some clearly mentioned percentage figures could have been used to disclose overlaps or undertake relevant market analysis.
Therefore, all the above-mentioned shortcomings may pose a grave threat to the primary objective of the introduction of Green Channel Route i.e., effective and speedy clearance for combination. The CCI should find ways by which these impediments can be removed and hence strengthen the foundation of the Green Channel Route.