June 1 (Bloomberg) -- India, where mergers and acquisitions rose 35 percent to $17.3 billion of deals so far this year, may see a slowdown in transactions after introducing new rules to regulate monopolies.
The Competition Commission of India has new jurisdiction, starting today, to take as long as seven months to review deals if more than 15 percent of a rival is bought and combined revenue of the firms is more than 45 billion rupees ($1 billion) or if combined assets are at least 15 billion rupees.
The new regulations enact a regime first endorsed by lawmakers in 2002 and add India to the U.S., European Union and China as a potential deal-blocking center. While Commission Chairman Dhanendra Kumar has pledged that about 95 percent of deals can be reviewed in 30 days, lawyers including Naval Chopra fear that wide discretion for the regulator may result in some acquisitions failing.
“It could delay things so much that a transaction becomes unviable,” said Chopra, a New Delhi-based lawyer at Amarchand & Mangaldas & Suresh A. Shroff & Co., which has advised on $1.46 billion worth of mergers in India this year. After 210 days, or seven months, a merger is considered approved if the regulator doesn’t respond to companies which have submitted their deals.
Banks will also have to analyze transactions to see if they have an adverse effect on competition in India, said Sourav Mallik, head of mergers and acquisitions at Mumbai-based investment bank Kotak Mahindra Capital Co.
“Buyers and sellers will want to think of contingencies related to their deals differently,” Mallik said. Companies will have to include clauses in their contracts that previously were only used in cross-border deals like an option to abort if approvals aren’t obtained by a certain date, he said.
The regulator’s target of approving most deals within 30 days “may be quite ambitious,” said Roland Wiring, a Hamburg- based antitrust lawyer who spent two months this year assigned to the New Delhi and Mumbai offices of Indian law firm Khaitan & Co. Analysis becomes complicated when market definitions are complex or even missing, he said.
The Competition Commission, established just two years ago with seven staff, now has 100 employees, more than half of whom are professionals including lawyers, economists and financial analysts trained in competition law, according to Kumar.
The regulator’s formation was delayed by a lawsuit from lawyer Brahm Dutt in 2005 who argued that it sidestepped the power of the judiciary. Since then the commission’s constitutionality has also been challenged in lawsuits brought by companies including Kingfisher Airlines Ltd. and Steel Authority of India Ltd.
“You cannot rule out something like this happening again,” said Bharat Vasani, general counsel of the Tata Group, with companies in sectors ranging from technology to automobiles.
“This is a country of public interest litigation - anyone can initiate the judicial process,” he said.
The antitrust rules now in force are a revision of draft rules released in March that provide more clarity about the types of transactions that have to be reported to India’s regulator, according to Susan Jones, a lawyer working for Basel, Switzerland-based Novartis AG.
“We would also welcome any further initiatives for clarity and simplification of the procedures,” she said. It’s difficult to know how the new regime will work until companies have actually notified the regulator of deals, she said.
The March draft could have covered the acquisition of an interest in a target with no turnover, assets or presence in India whatsoever, according to a briefing that London-based law firm Clifford Chance LLP sent to its clients.
The revised regulations avert “the sizeable business disruption that would have been wrought,” the firm said.
The regulator’s cartel-busting powers that have been in effect since 2009 haven’t yet been enforced in any large cases. The commission last month ruled that 27 film producers in Bollywood should pay a fine of 100,000 rupees each for having run a cartel to pressure Indian multiplex owners into favorable commercial terms.
Its 10 million rupee fine of India’s second-largest listed airline Kingfisher for not cooperating with an investigation into the carrier’s 2010 alliance with Jet Airways India Ltd. was overturned in December by the regulators’ appeals tribunal.
The commission also last month ruled that the National Stock Exchange abused its dominant position in currency derivative trading by handing out trading software for free.
The exchange on May 30 sued to get details of the decision, a result of a case brought against the stock exchange by rival Multi Commodity Exchange of India Ltd. in November 2009.
The commission will have an immediate effect on mergers from today and companies are hoping it will act pragmatically, Chopra of Amarchand said.
“I think the first month or two will really be the litmus test: If transactions which do not cause concern are cleared relatively quickly, then industry can sleep easy,” he said.
--With assistance from Douglas Wong in Hong Kong, Santanu Chakraborty in Mumbai and PS Patnaik in New Delhi. Editors: Douglas Wong, Arijit Ghosh
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