We live in interesting times where the Minister for Corporate Affairs (Indian co mpetition authority’s administrative Ministry) speaks

about helping Kingfisher Air lines and slaying the dragon of runaway inflation through the so-called second B ig Bang reforms of the National Competition Policy in the same breath! And, whil e the Minister is presumably busy contemplating how to reconcile the two, within 9 months of enforcement of the Merger Regulations, the Competition Commission o f India (CCI) has announced the first set of amendments to the Regulations. The accompanying press release claims that the changes are intended to provide “relief to the corporate entities from making filings which are unlikely to raise adver se competition concerns, reduce their compliance requirements, make filings simp ler and to move towards certainty in the application of the Act and the Regulati ons”. The amendments are based on the CCI’s past experience with merger review. Following are my comments on the amendments: • The draft Merger Regulations issued on February 28, 2011 in the run up to the fi nal Merger Regulations announced on May 11, 2011 had undergone a relatively more transparent process of stakeholder consultation. Certain sector-specific regula tors, such as the Airports Economic Regulatory Authority of India (AERA), are sp ecifically mandated by the parent legislation to undertake effective consultatio n with stakeholders. To be sure, unlike AERA, the Competition Act, 2002 (Competi tion Act) does not contain any specific legislative mandate for the CCI to under take stakeholder consultation. Nevertheless, in the interest of engendering good governance best practices, the CCI ought to have continued with the precedent o f seeking stakeholder comments before the finalization of amendments. •In the absence of an effective consultation process, the CCI ought to have issued a detailed set of reasons behind the changes undertaken through the amendments. The absence of the regulator’s intent is bound to exacerbate uncertainty. • Through the amendment to Regulation 5(2), the CCI has done away with the shortes t form (erstwhile Form I, Part I) filing in the following instances: (a) conglom erate mergers (i.e. mergers which entailed neither horizontal nor vertical overl aps between parties); (b) where the parties are predominantly engaged in exports ; (c) acquisition/acquisition of control by a liquidator, administrator or recei ver appointed through court proceedings under the Securitization and Reconstruct ion of Financial Assets and Enforcement of Security Interest Act, 2002 or the Si ck Industrial Companies (Special Provisions) Act, 1985; (d) an acquisition resul ting from gift or inheritance; and (e) an acquisition of a trustee company arisi ng from a change of trustees of mutual fund established under the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The effect of the amen dments is that for the aforementioned instances, Form I (in entirety, as amended ) will be required to be filed. Perhaps the reason behind this change is the dis ingenuous argument of the acquirer in the case of AICA Japan (Combination Regist ration No. C-2011/09/04 decided on September 30, 2011). In AICA Japan, the acqui rer had created an SPV in India for the purpose of acquisition and since the new entity did not engage in any independent business of its own, the acquirer argu ed that the proposed transaction can seek the benefit of erstwhile Regulation 5( 2)(a) i.e. conglomerate mergers and file the shortest form (Form I, Part I). CCI rejected the argument and the acquirer was asked to file Form I (Part I and Par t II). The acquirer’s argument was misconceived as the language of erstwhile Regul ation 5(2)(a) mirrors that of section 3 (anticompetitive agreements) of the Comp etition Act and unlike section 4 (abuse of dominant position) and sections 5 & 6 (related to mergers) does not use the phrase “relevant market” to denote horizontal and vertical nature of overlaps between parties. Unfortunately, the CCI, in AIC A Japan did not analyze the jurisprudence of ‘market’ in section 3 juxtaposed with ‘re levant market’ in section 4, 5 and 6. It appears that due to the ill-conceived arg ument of the acquirer in AICA Japan, the CCI has now decided to throw the baby w ith the bath water! While the CCI’s concerns related to AICA Japan like situations is understandable, its rationale behind doing away with other instances such as predominant exports is unclear.

• The new Regulation 5(3) does not add anything new but restates what was already provided under erstwhile Regulation 5(2)(f) and (g) - the long form (Form II) is required to be filed where the market share is > 15% (in horizontal mergers) an d > 25% (in vertical mergers). Interestingly, like the extant Merger Regulations , the amendments continue to treat the long form (Form II) as “punitive” in nature. There are two circumstances where the long form (Form II) is required to be file d by the parties: (a) at the option of the parties; and (b) where parties fail t o notify in spite of an obligation to notify. The usage of the word “preferably” in Regulation 5(3) means that parties will continue to be reluctant to file the lon g form (Form II) as “relevant market” is usually a contested concept in competition law. • The new second proviso to Regulation 5(5) means that where the long form (Form I I) is filed, the time period of 210 days will restart with the filing of the lon g form (Form II). This is contrary to what was intended earlier; under the older regulations, the clock would have started with the filing of short form (Form I , Part I and Part II) and the time taken by parties for the filing of long form (Form II), if required, would have been excluded from the timelines. The amendme nt is likely to increase transaction cost. As mentioned above, the definition of “relevant market” provided by the parties in the forms is likely to become extremel y critical. • The new Regulation 5(9) is related to direct v. indirect acquisitions and merger s/amalgamations. Since there is an exemption based upon the size of the acquired enterprise through a Ministry of Corporate Affairs notification, parties could have (theoretically) escaped Merger Regulations by divesting assets to a newly c reated entity. The general rule of thumb in law that what you cannot do directly , you cannot do indirectly was earlier contained in Regulation 9(4). Perhaps the new Regulation 5(9) has been added as a matter of abundant caution arising out of the case of acquisition of shares of Navyug Special Steel Private Ltd. (Navyu g) by Sanyo Special Steel Co. Ltd. (Sanyo) and Mitsui & Co., Ltd, (Mitsui) [Comb ination Registration No. C-2011/12/14 decided by the CCI on January 31, 2012]. I n this case, Navyug was incorporated on November 8, 2011 as a wholly owned subsi diary of Mahindra Ugine Steel Company Ltd. (Musco). Three days later, on Novembe r 11, 2011, Musco transferred its steel and rings division to Navyug through a business transfer agreement. Simultaneously, on November 11, 2011, Musco, Mitsui , Sanyo and Navyug also executed a shareholders agreement through which Sanyo an d Mitsui would, respectively, hold 29% and 20% share capital in Navyug. Under th e older regulations, parties could have (theoretically) claimed exemption based upon the size of the acquired enterprise i.e. Navyug. Since the new regulations clarify that what cannot be done directly, cannot be done indirectly, parties wi ll not be able to seek the benefit of such a contrived argument. •The new Regulation 6(1) mandates that a certified copy of the loan agreement or t he investment agreement executed by the public financial institution, foreign in stitutional investor, bank or venture capital for their acquisition is required to be filed with Form III. The form is required to be filed post facto within 7 days of the acquisition. The requirement of a certified copy of the loan agreeme nt/investment agreement is in conformity with the parent legislation i.e. the Co mpetition Act and was earlier mentioned in item # 5 of Form III. The new Regulat ion 6(1) is, therefore, clarificatory in nature. •The new Regulation 6(2) states that the CCI may permit filing of Form III beyond the period of 7 days mentioned in section 6(5) of the Competition Act. This is o f doubtful legal validity as regulations cannot override the parent legislation. • The new Regulations 9(1) and 9(3) permit the Company Secretary, duly authorized by the board of directors, to sign Form I or Form II for acquisitions and merger s/amalgamations. This is expected to ease the burden on the companies as the CCI

in certain earlier cases had insisted upon signatures of the Managing Director or a duly authorized Director. (In this context, I must add that personally I ha ve had a better experience with the CCI.) • Through Regulation 11(a) and 11(b), the CCI has increased the filing fees by 20 times for Form I (INR 10,00,000) and by 4 times for Form II (INR 40,00,000). Thi s takes the Regulations back to the February 28, 2011 draft version of the Merge r Regulations. This is one inflation which the angels of Reserve Bank of India w ill fear to tread! •The new Regulation 13 (1A) requires parties to file a summary along with the form s. While Regulation 13(1) mandates merely two copies of the form to be filed, th e new Regulation 13(1A) mandates nine copies of the summary to be filed. Nine co pies are presumably required for seven members of the CCI. Regulation 13(1A) man dates that the summary shall contains details of (a) the products, services and businesses of the entities; (b) the value of assets/turnover; (c) relevant marke t; (d) details of agreements or other documents or board resolutions; (d) the na ture and purpose of the merger; and (e) likely impact of the transaction on comp etition. Incidentally, this requirement is not new and earlier parties were fili ng similar details in section 5.2 of Form I. • As mentioned by Menaka Doshi earlier (http://www.moneycontrol.com/news/features/ cci-does-what-sebi-hasnt_673231.html), through new item # 1, Schedule I, the ame ndment of 15% to 25% is intended to align Merger Regulations with the Takeover C ode. However, it is inaccurate to read the phrase “entitle the acquirer to hold” to mean that convertibles have now been added to be covered. On the contrary, secti on 2(v) of the Competition Act defines “shares” to mean “shares in the share capital o f a company carrying voting rights” and includes “any security which entitles the ho lder to receive shares with voting rights”. Clearly, the phrase “entitle the acquire r to hold” has been added to align the meaning of the term “shares” with the definitio n of “shares” in the Competition Act. Therefore, under the Competition Act convertib les were always intended to be covered when they were “compulsorily convertible” and not intended to be covered when they were merely “optionally convertible”. Of cour se, the Securities and Exchange Board of India (Sebi) treats convertibles differ ently as the purpose of the two enactments are different. • Through the new item # 6, Schedule I exemption the buy back of shares has been a dded as another category which is “ordinarily not likely to cause an appreciable a dverse effect on competition in India”. • New Item # 8A (Schedule I) read with amended item #8 (Schedule I) has resulted i n an interesting situation. Through the new item #8A (Schedule I), the CCI has s ought to clarify that besides the intra-group acquisitions mentioned in item # 8 (Schedule I), intra-group merger/amalgamation of either wholly owned subsidiari es (WOS) of an ultimate parent entity (UPE) inter se or intra-group merger/amalg amation of the WOS into the UPE will be exempt from Merger Regulations. This is unlikely to satisfy the businesses’ demand to amend item # 8 (Schedule I) to inclu de mergers/amalgamations. To add to the confusion, through the new item # 8 (Sch edule I), the CCI has done away with the explanation which mandated the CCI to i nterpret “group” in accordance with Explanation (b) to section 5 of the Competition Act. This leaves little guidance for the interpretation of the term “group”. • The rest of the amendments in Schedule II, Form I are consequent to the above re ferenced changes. The million dollar question remains: do the above amendments live up to the CCI’s claim that the changes make the process of filings simpler and provide relief to corporate entities?